CIVB Civista Bancshares Inc

SANDUSKY, Ohio, July 28, 2023 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ:CIVB) ("Civista") announced its unaudited financial results for the three and six month periods ending June 30, 2023. 

Second quarter and year-to-date 2023 highlights:

• Net income of $10.0 million, or $0.64 per diluted share, for the second quarter of 2023, compared to $7.7 million, or $0.53 per diluted share, for the second quarter of 2022.
• Net income of $22.9 million, or $1.45 per diluted share, compared to $16.2 million, or $1.10 per diluted share, for the six months ended June 30, 2023 and 2022, respectively.
• Low cost of deposits of 107 basis points and total funding costs of 151 basis points for the quarter.
• Based on the June 30, 2023 market close share price of $17.40, the $0.15 second quarter dividend is equivalent to an annualized yield of 3.45% and a dividend payout ratio of 23.44%.

"Our second quarter earnings were impacted by increased rate pressure on deposits and our decision to hold more of our newly originated leases on the balance sheet.  Despite this, we continue to post strong profits and our earnings per share has increased 32 percent when compared to the same period a year ago", said Dennis G. Shaffer, CEO and President of Civista.

Results of Operations:

For the three-month periods ended June 30, 2023 and 2022

Net interest income increased $7.1 million, or 29.1%, for the second quarter of 2023 compared to the same period of 2022.  Interest income increased $17.3 million while interest expense increased $10.2 million.  Both increases were driven by both increases in rates and increases in volumes.       

Net interest margin increased 43 basis points to 3.86% for the second quarter of 2023, compared to 3.43% for the same period a year ago. 

The increase in interest income was primarily due to a 164 basis point increase in asset yield, which led to $10.4 million of the increase in interest income.  Additionally, a $392.4 million increase in average earning assets led to $6.9 million of the increase in interest income.  The increase in volume can be attributed to both organic growth and to the acquisitions during 2022 of Comunibanc Corp ("Comunibanc") and Vision Financial group ("VFG").

Interest expense increased $10.2 million, or 567.9%, for the second quarter of 2023, compared to the same period last year.  The average rate paid on interest-bearing liabilities increased 171 basis points, while average interest-bearing liabilities increased $458.5 million.  The increase in interest-bearing liabilities was primarily in brokered time deposits and short-term borrowings to fund growth.  This shift in the funding mix, as well as rising rates, is driving the increase in the funding rate.  Interest-bearing deposit costs have increased 140 basis points compared to a year ago.

For the six-month periods ended June 30, 2023 and 2022

Net interest income increased $16.7 million, or 35.5%, compared to the same period in 2022.

Interest income increased $34.1 million, or 67.3%, for the six months of 2023.  Average earning assets increased $394.8 million, resulting in an increase in interest income of $14.2 million.  Average yields increased 162 basis points, resulting in an increase in interest income of $19.9 million.  The increase in volume can be attributed to both organic growth and to the acquisitions during 2022 of Comunibanc and VFG. 

Interest expense increased $17.4 million, or 493.0%, for the six months of 2023 compared to the same period of 2022.  Average rates increased 149 basis points compared to 2022, resulting in $8.9 million of the increase in interest expense.  Average interest-bearing liabilities increased $419.1 million, resulting in $8.5 million of the  increase in interest expense.    

Net interest margin increased 59 basis points to 3.99% for the six months of 2023, compared to 3.40% for the same period a year ago. 

Provision for credit losses for the second quarter of 2023 was $861 thousand compared to $400 thousand for the second quarter of 2022, primarily related to loan and lease growth.

On January 1, 2023, Civista adopted CECL, which resulted in an adjustment to the reserve of approximately $4.3 million.  For the six months ended June 30, 2023, provision for credit losses was $1.5 million, compared to $700 thousand for the same period of 2022.  The reserve ratio increased to 1.33% as of June 30, 2023 from 1.12% at December 31, 2022.

The adoption of CECL also resulted in an additional $3.4 million reserve for unfunded commitments, which is reflected as a liability in the consolidated financial statements.  Provision for unfunded commitments for the second quarter of 2023 was $264 thousand and $465 thousand for the six months ended June 30, 2023.  There was no provision for unfunded commitments during the first six months of 2022.

For the second quarter of 2023, noninterest income totaled $9.1 million, an increase of $3.5 million, or 62.4%, compared to the prior year's second quarter. 

Service charges increased due to a $169 thousand, split between increases on personal and business deposit accounts.  Overdraft fees also increased by $122 thousand.   

Net gain/loss on equity securities change was the result of a market valuation adjustment.   

Lease revenue and residual income increased $2.2 million due to the acquisition of VFG during 2022.

Other income increased as result of a $553 thousand increase related to the timing of claims at our risk management subsidiary, $354 thousand of interim rent at VFG, and $116 thousand increase in swap fee income.

For the six months ended June 30, 2023, noninterest income totaled $20.2 million, a decrease of $6.9 million, or 52.3%, compared to the same period in the prior year. 

Service charges increased due to a $273 thousand, split between increases on personal and business deposit accounts.  Overdraft fees also increased by $212 thousand.   

Net gain/loss on equity securities change was the result of a market valuation adjustment.   

Net gain on sale of loans decreased primarily due to a decrease in volume of loans sold. 

Lease revenue and residual income increased $4.20 million due to the acquisition of VFG during 2022.

Other income increased as result of a $1.5 million fee collected associated with the renewal of the company's contract with MasterCard.  Other income also increased as result of a $361 thousand increase related to the timing of claims at our risk management subsidiary, $581 thousand in interim rent at VFG, and $177 thousand increase in swap fee income.

For the second quarter of 2023, noninterest expense totaled $27.9 million, an increase of $7.5 million, or 37.0%, compared to the prior year's second quarter. 

Compensation expense increased primarily due to $2.3 million of salaries related to the acquisition of Comunibanc and VFG.  The quarter-to-date average full time equivalent (FTE) employees were 532 at June 30, 2023, an increase of 80 FTEs over the same period in 2022.  Annual merit increases, employee insurance and other payroll related expenses also increased.

The increase in occupancy and equipment expense is primarily due to a $2.0 million increase in equipment depreciation related to the acquisition of VFG.  Additionally, equipment expense increased related to the acquisition of Comunibanc. 

Contracted data processing fees increased due to an increase in monthly process fees. 

Taxes and assessments increased due to an increase in the FDIC assessment rate charged.

The increase in amortization expense is due to $188 thousand related to the core deposit intangible associated with the acquisition of Comunibanc.

Marketing expense increased due to a general increase in marketing and increase marketing efforts in newly acquired markets related to the Comunibanc and VFG acquisitions. 

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.

The increase in other operating expense is primarily due to a $264 thousand provision for credit losses on unfunded commitments.  Travel & entertainment, donations, bad check loss and education & training all increased as well. 

The efficiency ratio was 67.9% for the quarter ended June 30, 2023, compared to 67.0% for the quarter ended June 30, 2022.  The change in the efficiency ratio is primarily due to an increase in noninterest expense, partially offset by an increase in net interest income.

Civista's effective income tax rate for the second quarter 2023 was 14.3% compared to 15.6% in 2022.

For the six months ended June 30, 2023, noninterest expense totaled $55.5 million, an increase of $14.9 million, or 36.7%, compared to the same period in the prior year. 

Compensation expense increased primarily due to $4.4 million of salaries related to the acquisition of Comunibanc and VFG.  The year-to-date average full time equivalent (FTE) employees were 532 at June 30, 2023, an increase of 84 FTEs over the same period in 2022.  Employee insurance and other payroll related expenses also increased.

The increase in occupancy and equipment expense is primarily due to a $4.1 million increase in equipment depreciation related to the acquisition of VFG.  Additionally, Equipment expense increased related to the acquisition of Comunibanc. 

Professional services primarily increased due to advisory fees for the company's MasterCard contract of $400 thousand.  Recruiter fees also increased $169 thousand. 

The increase in amortization expense is due to $377 thousand related to the core deposit intangible associated with the acquisition of Comunibanc.

Marketing expense increased due to a general increase in marketing and increase marketing efforts in newly acquired markets related to the Comunibanc and VFG acquisitions. 

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.   

The increase in other operating expense is primarily due to a $465 thousand provision for credit losses on unfunded commitments.  Business promotion, travel & entertainment, donations, bad check loss and education & training all increased as well. 

The efficiency ratio was 65.1% for the six months ended June 30, 2023 compared to 66.1% for the six months ended June 30, 2022.  The change in the efficiency ratio is primarily due to an increase in noninterest expense, partially offset by an increase in net interest income.

Civista's effective income tax rate was 15.5% for the six months of both 2023 and 2022.   

Balance Sheet

Total assets increased $78.2 million, or 2.2%, from December 31, 2022 to June 30, 2023, primarily due to growth in the loan portfolio.

Loan and lease balances increased $89.6 million, or 3.5% since December 31, 2022.  Commercial revolving lines of credit balances continue to be less than forty percent advanced.  Commercial growth is attributable to increased leasing production.  Commercial Real Estate continued to grow due to consistent demand in the Non-owner Occupied category, especially in the multi-family area in the major Ohio metropolitan areas.  Real Estate Construction diminished slightly with the caveat that undrawn construction availability continues to be near all-time highs.  Residential Real Estate has grown with new production in our Community Reinvestment Act ("CRA") product, more home construction loans, and more ARM products in this higher rate environment.

Deposits

Total deposits increased $322.8 million, or 12.3%, from December 31, 2022 to June 30, 2023. 

The increase in noninterest-bearing demand of $106.1 million was primarily due to a $179.3 million increase in balances related to the tax refund processing program, which is a seasonal increase.  This seasonal increase was partially offset by a $59.9 million decrease in noninterest-bearing business accounts and $26.4 million noninterest-bearing personal accounts.  The $24.1 million decrease in interest-bearing demand deposits was spread across personal, business, and public fund accounts.  The decrease in savings and money market was primarily due to a $39.7 million decrease in statement savings, a $26.4 million decrease in personal money markets, partially offset by a $40.0 million increase in brokered money market accounts.  The increase in time certificates was primarily due to a $202.5 million increase in brokered time deposits.  Jumbo time certificates also increased $44.2 million.  

FHLB overnight advances totaled $142.0 million on June 30, 2023, down from $393.7 million on December 31, 2022.  FHLB term advances totaled $2.9 million on June 30, 2023, down from $3.6 million on December 31, 2022.

Stock Repurchase Program

So far in 2023, Civista has not repurchased any shares, leaving the entire $13.5 million of the current repurchase authorization remaining.  The current repurchase plan will expire in May 2024.  In January, Civista liquidated 5,620 shares held by employees, at $21.52 per share, to satisfy tax obligations stemming from vesting of restricted shares.

Shareholders' Equity

Total shareholders' equity increased $15.0 million from December 31, 2022 to June 30, 2023, primarily due to a $12.3 million increase in retained earnings and a decrease in accumulated other comprehensive loss of $2.3 million.     

Asset Quality

Civista recorded net losses of $36 thousand for the six months of 2023 compared to net recoveries of $94 thousand for the same period of 2022.  The allowance for credit losses to loans ratio was 1.33% at June 30, 2023 and 1.12% at December 31, 2022.

Non-performing assets at June 30, 2023 were $10.7 million, a 1.4% decrease from December 31, 2022. The non-performing assets to assets ratio was 0.30% at June 30, 2023 and 0.31% at December 31, 2022.  The allowance for credit losses to non-performing loans increased from 261.45% at December 31, 2022 to 327.05% at June 30, 2023.

Conference Call and Webcast
Civista Bancshares, Inc. will also host a conference call to discuss the Company's financial results for the second quarter of 2023 at 1:00 p.m. ET on Friday, July 28, 2023.  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. second quarter 2023 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).

Forward Looking Statements
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, 2022, 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 $3.6 billion financial holding company headquartered in Sandusky, Ohio.  Its primary subsidiary, Civista Bank, was founded in 1884 and provides full-service banking, commercial lending, mortgage, and wealth management services.  Today, Civista Bank operates 43 locations across Ohio, Southeastern Indiana and Northern Kentucky.  Civista Bank also offers commercial equipment leasing services for businesses nationwide through its subsidiary, Vision Financial Group, Inc., centered in Pittsburgh, Pennsylvania.  Civista Bancshares' common shares are traded on the NASDAQ Capital Market under the symbol "CIVB".  Learn more at www.civb.com.