CIVB Civista Bancshares Inc

SANDUSKY, Ohio, Oct. 27, 2023 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ: CIVB) ("Civista") announced its unaudited financial results for the three and nine month periods ending September 30, 2023. 

Third quarter and year-to-date 2023 highlights:

• Net income of $10.4 million, or $0.66 per diluted share, for the third quarter of 2023, compared to $11.1 million, or $0.72 per diluted share, for the third quarter of 2022.
• Net income of $33.3 million, or $2.12 per diluted share, compared to $27.3 million, or $1.82 per diluted share, for the nine months ended September 30, 2023 and 2022, respectively.
• Cost of deposits of 129 basis points and total funding costs of 172 basis points for the quarter.
• Based on the September 29, 2023 market close share price of $15.50, the $0.16 third quarter dividend is equivalent to an annualized yield of 4.13% and a dividend payout ratio of 24.24%.

"Overall, I am extremely pleased with our third quarter results.  Despite continued funding pressure, we were able to increase net interest income quarter-over-quarter, as loans grew by $118.6 million, or 18 percent on an annualized basis.  We continue to post record earnings, with our year-to-date net income up 22 percent over the same period last year," said Dennis G. Shaffer, CEO and President of Civista.

• During the quarter Civista made the decision to step away from its income tax refund business for 2024.  In the first quarter of 2021, the U.S Treasury mistakenly sent $5.6 billion in stimulus payments to the Company, causing an increase in the volume of consumer complaints.  The volume of complaints has diminished, however, the amount of information required by our regulators to "close out" each complaint has increased extensively.  While our business partner has been responsible for gathering most of the information related to these requests, it has become apparent that our regulators' view of this program is changing.  Management has made the decision to step away rather than risk that our participation in this program might inhibit future M&A activity.  Civista earned $2.4 million in each of the previous 3 years from this program with very few direct costs associated with it. 

Mr. Shaffer added, "We have had a long and very beneficial relationship with the Santa Barbara Tax Processing Group and our income tax refund processing program.  This was not an easy decision, but one that we felt made sense for Civista."

Results of Operations:

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

Net interest income increased $1.1 million, or 3.5%, for the third quarter of 2023 compared to the same period of 2022.  Interest income increased $13.3 million while interest expense increased $12.2 million.  The increase in interest income was driven by both increases in rates and increases in volume.  The increase interest expense was driven by rate and volume as well, but also by a shift in the mix of funding sources. 

Net interest margin decreased 44 basis points to 3.69% for the third quarter of 2023, compared to 4.03% for the same period a year ago.

The increase in interest income was primarily due to a 104 basis point increase in asset yield, which led to $8.1 million of the increase in interest income.  Additionally, a $377.9 million increase in average earning assets led to $5.2 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 Civista Leasing and Financing ("CLF"), formerly known as Vision Financial group ("VFG").

Interest expense increased $12.2 million, or 582.0%, for the third quarter of 2023, compared to the same period last year.  The average rate paid on interest-bearing liabilities increased 201 basis points, while average interest-bearing liabilities increased $422.0 million.  The increase in interest-bearing liabilities was primarily in brokered time deposits and short-term FHLB 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 172 basis points compared to a year ago.   

For the nine-month periods ended September 30, 2023 and 2022

Net interest income increased $17.8 million, or 22.9%, compared to the same period in 2022.

Interest income increased $47.4 million, or 56.9%, for the nine months of 2023.  Average earning assets increased $389.1 million, resulting in an increase in interest income of $19.3 million.  Average yields increased 141 basis points, resulting in an increase in interest income of $28.1 million.  The increase in volume can be attributed to both organic growth and to the acquisitions during 2022 of Comunibanc and CLF. 

Interest expense increased $29.6 million, or 526.2%, for the nine months of 2023 compared to the same period of 2022.  Average rates increased 166 basis points compared to 2022, resulting in $16.6 million of the increase in interest expense.  Average interest-bearing liabilities increased $420.1 million, resulting in $13.0 million of the increase in interest expense.    

Net interest margin increased 26 basis points to 3.88% for the nine months of 2023, compared to 3.62% for the same period a year ago. 

Provision for credit losses for the third quarter of 2023 was $630 thousand compared to $300 thousand for the third 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 nine months ended September 30, 2023, provision for credit losses was $2.1 million, compared to $1.0 million for the same period of 2022.  The reserve ratio increased to 1.28% as of September 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 third quarter of 2023 was $130 thousand and $595 thousand for the nine months ended September 30, 2023.  There was no provision for unfunded commitments during the first nine months of 2022.

For the third quarter of 2023, noninterest income totaled $8.0 million, an increase of $2.3 million, or 39.3%, compared to the prior year's third quarter. 

Net gain/loss on equity securities increase of $202 thousand was the result of a market valuation adjustment.

The net gain on sale of loans and leases increased by $150 thousand compared to the same period last year.  CLF generated a $466 thousand gain on the sale of $10.9 million in commercial loans and leases.  The sale of mortgage loans generated a $321 thousand gain on the sale of $16.2 million, a decrease in the gain of $316 thousand  and a $17.7 million decrease in volume in 2023, compared to 2022.

Lease revenue and residual income contributed $1.9 million to noninterest income due to the acquisition of CLF during 2022.

For the nine months ended September 30, 2023, noninterest income totaled $28.2 million, an increase of $9.2 million, or 48.3%, compared to the same period in the prior year. 

The increase in service charge income is split between $115 thousand in personal service charges and $149 thousand in business service charges. Overdraft fees also increased by $188 thousand.   

The change in net loss on equity securities was the result of a market valuation adjustment.   

The net gain on sale of loans and leases decreased by $113 thousand compared to the same period last year.  CLF generated a $1.1 million gain on the sale of $32.9 million in commercial loans and leases.  The sale of mortgage loans generated a $911 thousand gain on the sale of $42.2 million, a decrease in the gain of $1.2 million and a $65.4 million decrease in volume in 2023, compared to 2022.

Lease revenue and residual income contributed $6.2 million due to the acquisition of CLF 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 $707 thousand in interim rent at Civista Leasing and Finance, and $198 thousand increase in swap fee income. 

For the third quarter of 2023, noninterest expense totaled $26.6 million, an increase of $4.1 million, or 18.0%, compared to the prior year's third quarter. 

Compensation expense increased primarily due to the acquisition of CLF resulting in an additional $1.3 million. The quarter-to-date average full time equivalent (FTE) employees were 528 at September 30, 2023, an increase of 85 FTEs over the same period in 2022.

The increase in occupancy and equipment expense is primarily due to a $2.0 million increase in equipment depreciation and expense related to the acquisition of CLF. 

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

The decrease in professional services is attributable to higher consulting expense in 2022 related to the acquisition of Comunibanc.

The increase in other operating expense is primarily due to a $130 thousand provision for credit losses on unfunded commitments as well as an increase in bad check loss of $255 thousand compared to the same period in 2022.  Additional increases related to the acquisition of CLF are also attributable to the increase in 2023.  

The efficiency ratio was 66.5% for the quarter ended September 30, 2023, compared to 61.4% for the quarter ended September 30, 2022.  The change in the efficiency ratio is primarily due to an increase in noninterest expense, partially offset by an increases in noninterest income and in net interest income.

Civista's effective income tax rate for the third quarter 2023 was 15.2% compared to 16.6% in 2022.

For the nine months ended September 30, 2023, noninterest expense totaled $82.2 million, an increase of $19.0 million, or 30.0%, compared to the same period in the prior year. 

Compensation expense increased primarily due to $4.6 million of salaries related to the acquisition of CLF.  Other increases related to salaries were a result of annual merit increases and add-to-staff positions as well as increases in employee insurance. The year-to-date average full time equivalent (FTE) employees were 531 at September 30, 2023, an increase of 67 FTEs over the same period in 2022.

The increase in occupancy and equipment expense is primarily due to a $6.1 million increase in equipment depreciation related to the acquisition of CLF.

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 an increase in marketing efforts in newly acquired markets related to the Comunibanc and CLF acquisitions. 

The increase in software maintenance expense is due to increases in software maintenance contracts related to the digital banking platform.  

The increase in other operating expense is primarily due to a $595 thousand provision for credit losses on unfunded commitments, a $353 thousand increase in bad check loss expense and additional expenses related to CLF of $608 thousand.  Business promotion, travel & lodging, donations, and education & training all increased as well. 

The efficiency ratio was 65.5% for the nine months ended September 30, 2023 compared to 64.4% for the nine months ended September 30, 2022.  The change in the efficiency ratio is primarily due to an increase in noninterest expense, partially offset by an increases in net interest income and noninterest income.

Civista's effective income tax rate was 15.4% for the nine months of 2023 and 16.0% for the nine months 2022.   

Balance Sheet

Total assets increased $195.1 million, or 5.5%, from December 31, 2022 to September 30, 2023, primarily due to growth in the loan portfolio.         

Loan and lease balances increased $208.2 million, or 8.2% since December 31, 2022.  Commercial growth is predominately due to loan production from the leasing division and an increase in new commercial customers with commercial lines of credit outstanding. Even with the increase, the revolving line of credit balances continue to be less than forty percent advanced.  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 has increased as many construction projects near completion. The undrawn construction availability continues to be near all-time highs.  Residential Real Estate has grown with continued new production in our Community Reinvestment Act ("CRA") product, more home construction loans, and more on balance sheet ARM products in this higher rate environment.

Deposits

Total deposits increased $175.8 million, or 6.7%, from December 31, 2022 to September 30, 2023. 

The decrease in noninterest-bearing demand of $93.7 million was primarily due to a $71.5 million decrease in noninterest-bearing business accounts and $32.3 million noninterest-bearing personal accounts.  The $63.5 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 $62.5 million decrease in statement savings, an $11.0 million decrease in corporate savings, a $33.7 million decrease in personal money markets, partially offset by a $46.5 million increase in brokered money market accounts, a $42.1 million increase in business money market accounts and a $14.2 million increase in public money market accounts.  The increase in time certificates was primarily due to a $202.5 million increase in brokered time deposits.  In addition, Jumbo time certificates increased $62.4 million and retail time certificates increased $28.8 million.  

FHLB overnight advances totaled $431.5 million on September 30, 2023, up from $393.7 million on December 31, 2022.  FHLB term advances totaled $2.6 million on September 30, 2023, down from $3.6 million on December 31, 2022.

Stock Repurchase Program

During the nine months of 2023, Civista has repurchased 84,230 shares for $1.5 million at a weighted average price of $17.77 per share.  We have approximately $12.0 million remaining of the current $13.5 million repurchase authorization.  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 decreased $2.1 million from December 31, 2022 to September 30, 2023, primarily due to a decrease in accumulated other comprehensive loss of $21.4 million, partially offset by a $20.2 million increase in retained earnings.     

Asset Quality

Civista recorded net losses of $535 thousand for the nine months of 2023 compared to net recoveries of $132 thousand for the same period of 2022.  The allowance for credit losses to loans ratio was 1.28% at September 30, 2023 and 1.12% at December 31, 2022.     

Non-performing assets at September 30, 2023 were $11.4 million, a 4.9% increase from December 31, 2022.  The non-performing assets to assets ratio was 0.31% at September 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 308.52% at September 30, 2023.  

Conference Call and Webcast

Civista Bancshares, Inc. will also host a conference call to discuss the Company's financial results for the third quarter of 2023 at 1:00 p.m. ET on Friday, October 27, 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 join the Civista Bancshares, Inc. third 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 $3.7 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 Leasing & Finance, a division of Civista Bank, offers commercial equipment leasing services for businesses nationwide.  Civista Bancshares' common shares are traded on the NASDAQ Capital Market under the symbol "CIVB".  Learn more at www.civb.com.

Civista Bancshares, Inc.
Financial Highlights
(Unaudited, dollars in thousands, except share and per share amounts)