Civista Bancshares, Inc. Announces Fourth Quarter 2020 Financial Results

SANDUSKY, Ohio, Feb. 5, 2021 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ:CIVB) ("Civista") announced its unaudited financial results for the three and twelve months ending December 31, 2020. 

Fourth quarter and year-to-date 2020 highlights

• Earned net income of $10.2 million, or $0.64 per diluted share, for the fourth quarter of 2020, compared to $7.7 million, or $0.47 per diluted share, for the fourth quarter of 2019. 
• Earned net income for the year of $32.2 million, or $2.00 per diluted share, compared to $33.2 million, or $2.01 per diluted share, in 2019.
• Earned a record pre-tax, pre-provision net income of $47.2 million for the year, compared to $40.6 million in 2019.  See reconciliation of non-GAAP measures at the end of this press release.
• COVID–19 loan deferrals in effect were 4.0% of total loans, net of Paycheck Protection Program ("PPP") loans, at period end, compared to 24.4% on June 30, 2020.  The bank has not experienced any specific loan losses attributed to COVID–19 closures in 2020.
• We increased our dividend in January 2021 to $0.12 per quarter which is equivalent to a dividend yield of 2.65% based on the February 2, 2021 market close of $18.11.  The quarterly dividend represents an increase of 9.1%, and based on fourth quarter 2020 earnings per share, translates to a dividend payout ratio of 18.8%.

"While 2020 will most likely go down as the strangest year of my banking career, it is also one that has shown our mettle.  The strategies and concerns we had going into the year changed quickly as the pandemic took hold.  Our people rose to the occasion and made 2020 one of the more successful years on record for Civista.  While our net income is down slightly from 2019, we recognized record pre-tax-pre-provision net income.  We built our allowance for loan losses as the pandemic continued through the year.  We have consistently been a conservative bank when it comes to looking at our loan portfolio.  While we have downgraded ratings on many loans, we have yet to see any specific loan losses.  We have continued to manage capital through our stock repurchase program and an increase in our dividend that was announced in January 2021." said Dennis G. Shaffer, President and CEO of Civista.

Results of Operations:

For the three-month period ended December 31, 2020 and 2019

Net interest income increased $2.3 million, or 10.9%, for the fourth quarter of 2020 compared to the same period of 2019, due to an increase in interest income as well as a decrease in interest expense. Accretion of PPP fees was $2.3 million during the quarter.  

Net interest margin decreased 49 basis points to 3.69% for the fourth quarter of 2020, compared to 4.18% for the same period a year ago. 

Interest income increased $1.2 million, or 4.9%, for the fourth quarter of 2020.  Average yields decreased 79 basis points which resulted in a $3.6 million decrease in interest income.  Average earning assets increased $533.8 million, which resulted in a $4.8 million increase in interest income.  PPP loans accounted for $242.1 million of the increase in average earning assets at a yield of 3.88%.  Removing the impact of PPP loans, the yield on earning assets would have been 9 basis points higher.  Included in interest income is $2.3 million of accretion of Paycheck Protection Program ("PPP") fees as well as accretion income associated with purchased loan portfolios of $688 thousand.

Interest expense decreased $1.1 million, or 33.6%, for the fourth quarter of 2020, compared to the same period last year.  The average rate paid on interest-bearing liabilities decreased 43 basis points, while average interest-bearing liabilities increased $323.9 million. 

For the twelve-month period ended December 31, 2020 and 2019

Net interest income increased $4.6 million, or 5.4%, compared to the same period in 2019.

Interest income increased $1.8 million, or 1.8%, for the twelve months of 2020.  The increase in interest income was primarily due to an increase in average earning assets of $471.9 million, partially offset by a decrease in yield of 84 basis points.  During the twelve-month period, the Bank had average PPP Loans totaling $172.6 million with an average yield of 3.73%, including amortization of fees.  Removing the impact of PPP loans, yields would have been 20 basis points higher.

Interest expense decreased $2.8 million, or 21.7%, for the twelve months of 2020 compared to the same period of 2019.  Average interest-bearing liabilities increased $279.3 million, resulting in a $455 thousand increase in interest expense.  Average rates decreased 34 basis points, resulting in a $3.3 million decrease in interest expense.

Net interest margin decreased 61 basis points to 3.70% for the twelve months of 2020, compared to 4.31% for the same period a year ago due to an increase in average earning assets as well as a decrease in the yield on earning assets. 

Provision for loan losses was $2.3 million for the fourth quarter of 2020 and $10.1 million for the year ended December 31, 2020.  Provision for loan losses was $885 thousand for the fourth-quarter and $1.0 million for the year ended December 31, 2019.  The increase in provision is due to an increase in the bank's qualitative factors related to the economic shutdown that is driven by COVID-19 and the ongoing payment deferrals on loans modified under the CARES Act.  Economic impacts include the loss of revenue experienced by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. 

For the fourth quarter of 2020, noninterest income totaled $7.7 million, an increase of $2.0 million, or 36.2%, compared to the prior year's fourth quarter. 

Service charge income decreased primarily due to a $273.4 thousand decrease in overdraft fees.  Customer behavior changed during the COVID-19 pandemic, resulting in fewer overdrafts.    

Net gain on sale of loans increased due to an increase in the volume of loans sold of $46.7 million as well as an increase in the premium on sold loans of 112 basis points. 

Wealth management fees increased as a result of increased assets under management, primarily driven by market gains, as well as an increase in the conversion ratio.    

For the twelve months ended December 31, 2020, noninterest income increased $5.7 million, or 25.6%, compared to the same period in the prior year. 

Service charge income decreased primarily due a $1.1 million decrease in overdraft fees.   Customer behavior changed during the COVID-19 pandemic, resulting in fewer overdrafts.   

During the twelve months ended December 31, 2020, Civista sold $304.0 million of mortgage loans, an increase of $178.2 million from the same period in 2019.  The premium on sold loans also increased by 67 basis points during the twelve months this year compared to last year.  These two factors contributed to the increase in net gain on sale of loans. 

ATM/Interchange fees increased as a result of increased transaction volume. 

Swap fees increased as a result of the declining interest rate environment and more customers looking to lock in lower fixed rate loans.  During 2020, Civista entered into swap agreements with a notional value of $104.4 million in loans to provide low fixed rate loans for customers and variable rate loans for Civista. 

Tax refund processing fees decreased due to a decline in volume processed. 

Wealth management fees increased as a result of increased assets under management, primarily driven by market gains, as well as an increase in the conversion ratio.      

For the fourth quarter of 2020, noninterest expense totaled $17.0 million, a decrease of $160 thousand, or 0.9%, compared to the prior year's fourth quarter.

Compensation expense increased primarily due to annual pay increases and commission and incentive expense.  Annual pay increases in 2020 were an average of 3.3%.  Employee insurance decreased $270.1 thousand, or 26.7%, for the fourth quarter 2020, compared to the same period in 2019.  Commission and incentive expense increased $400.1 thousand, or 24.5% as a result of increased loan activity.

The quarter-over-quarter increase in taxes and assessments was attributable to an increase in the FDIC assessment base and a $159.0 thousand credit for small banks, applied to the December 2019 assessments.  State franchise tax increased $73.6 thousand related to a State of Ohio audit of the tax years 2018 and 2019. 

The decrease in marketing expense is due to decreases in both advertising and business promotion expenses, primarily related to the COVID-19 pandemic.  Event cancellations and postponed outreach efforts contributed to the decrease as our focus was on communicating changes in operations, safety protocols, alternative delivery channels, and economic relief programs with the safety and financial wellness of our employees and customers in mind.  

The decrease in other operating expense is primarily due to a decreases in travel and lodging expense of $264.4 thousand, education and training of $164.9 thousand and donations of $149.4 thousand.  These decreases were partially offset by increases in loan origination expenses of $126.5 thousand.

The efficiency ratio was 53.7% for the quarter ended December 31, 2020 compared to 62.9% for the quarter ended December 31, 2019.  The change in the efficiency ratio is due to increases in both noninterest income and the increase in net interest income.

Civista's effective income tax rate for the fourth quarter 2020 was 15.1% compared to 11.3% in 2019.

For the twelve months ended December 31, 2020, noninterest expense totaled $70.7 million, an increase of $3.7 million, or 5.6%, compared to the same period in the prior year.

The increase in compensation expense was due to increased payroll and commission and incentive based costs, offset by a decrease in employee insurance costs.  Annual pay increases in 2020 were an average of 3.3%.  Commission and incentive expense increased $1.9 million, or 39.1% as a result of increased loan activity.  Employee insurance decreased $505.4 thousand, or 10.0%, for 2020.

The increase in taxes and assessments was primarily attributable to a $456.0 thousand FDIC assessment credits for small banks that was applied to the 2019 assessment charges.  The FDIC assessment base also increased, leading to an additional $134.0 thousand increase.   State franchise tax increased $71.3 thousand related to a State of Ohio audit of the tax years 2018 and 2019. 

The decrease in marketing expense is due to decreases in both advertising and business promotion expenses, primarily related to the COVID-19 pandemic.  Event cancellations and postponed outreach efforts contributed to the decrease as our focus was on communicating changes in operations, safety protocols, alternative delivery channels, and economic relief programs with the safety and financial wellness of our employees and customers in mind.

The increase in software maintenance expense is due to contracts related to new services.

The decrease in other operating expense is primarily due to a decreases in travel and lodging expense of $742.7 thousand, education and training of $169.2 thousand and donations of $147.8 thousand.  These decreases were partially offset by increases in loan origination expenses of $463.4 thousand.

The efficiency ratio was 59.1% for the twelve months ended December 31, 2020 compared to 61.4% for the twelve months ended December 31, 2019.  The improvement in the efficiency ratio is due primarily to the increase in noninterest income and the accretion of PPP fees.

Civista's effective income tax rate for the year ended December 31, 2020 was 13.3% compared to 14.4% in 2019.     

Balance Sheet

Total assets increased $453.4 million, or 19.6%, from December 31, 2019 to December 31, 2020, due to a $348.5 million, or 20.4%, increase in the loan portfolio, $4.7 million, or 206.4%increase in loans held for sale, and a $91.0 million increase in cash.  The asset increases were primarily funded by an increase in deposits, which includes the remaining proceeds from PPP loans still held on deposit.      

Loan growth during 2020 totaled $348.5 million, including $217.3 million of PPP loans.  Removing the effect of PPP loans, the loan portfolio grew $131.2 million or 7.7%.  Loan growth was led by increases of $145.7 million in Commercial Real Estate and $19.8 million in Real Estate Construction.  The Commercial Real Estate growth continues to be aided by some successful real estate projects we kept on balance sheet by using longer term swaps that might otherwise have been refinanced on the commercial mortgage-backed securities market.  Our construction portfolio continues to be vibrant, especially in the metro markets.  The decrease in Residential Real Estate is a result of loans refinanced into saleable mortgage products.  All regions have contributed to the growth, aided by many new clients and prospects from our success in PPP originations.

Paycheck Protection Program

During 2020, we processed over 2,300 loans totaling $259.1 million, of which $41.8 million have been forgiven or have paid off.   SBA fees total approximately $9.9 million, which are being recognized in interest income over the life of the PPP loans.  During the year, $4.7 million of PPP fees were accreted to income.  We borrowed $183.7 million from the Paycheck Protection Program Lending Facility ("PPPLF"), anticipating an additional funding source for PPP landing.  We have since determined this source was no longer needed and have paid off the PPPLF in full.

"We believe that the PPP program has been instrumental in assisting small businesses and their employees.  We expect to continue to support our customers in the next round of PPP approved prior to year-end.  We have seen a number of customers begin the forgiveness process, however, that has been delayed somewhat due to the ever changing rules for the program. The new simplified rules should be helpful to streamline the process for our customers and the bank." said Dennis G. Shaffer, President and CEO of Civista.

COVID-19 Loan Modifications

During 2020, Civista modified a total of 813 loans totaling $431.3 million, primarily consisting of the deferral of principal and/or interest payments.  All of the loans modified were performing at December 31, 2019 and comply with the provisions of the CARES Act to not be considered a troubled debt restructuring.  As of December 31, 2020, the remaining loans modified under the CARES Act total $73.8 million.   

Details with respect to the loan modifications that remain on deferred status are as follows:

Deposits

Total deposits increased $510.6 million, or 30.4%, from December 31, 2019 to December 31, 2020. 

The increase in noninterest-bearing demand of $208.3 million was primarily due to a $164.4 million increase in business demand deposit accounts and a $16.5 million increase in tax refund processing deposit accounts.  Interest-bearing demand deposits increased, split nearly evenly between increases in public fund accounts non-public fund accounts.  The increase in savings and money market was primarily due to a $46.6 million increase in statement savings, a $45.6 million increase in personal money markets, a $47.3 million increase in business money markets and a $29.8 million increase in brokered money market accounts.

FHLB advances totaled $125.0 million at December 31, 2020, a decrease of $101.5 million, or 44.8%, from December 31, 2019.  The increase in deposits reduced the need for wholesale funding.

Stock Repurchase Program

An important part of capital management are share repurchases.  During the second half of 2020, Civista repurchased 154,947 shares for $2.0 million at a weighted average price of $12.94 per share.  These repurchases were part of the $13.5 million repurchase authorization which was approved in April 2020.  Prior to this plan, Civista repurchased 672,000 shares for $11.4 million, at a weighted average price of $16.90 per share.  Year to date, Civista has repurchased a total of 826,947 shares for $13.4 million, at a weighted average price of $16.16 per share.  In addition, Civista liquidated 3,808 shares held by employees, at $24.07 per share, to satisfy tax obligations stemming from vesting of restricted shares.

Shareholder Equity

Total shareholders' equity increased $20.0 million, or 6.1%, from December 31, 2019 to December 31, 2020, as a result of a $25.1 million increase in retained earnings and an increase in other comprehensive income of $7.7 million.  These increases were partially offset by a $13.5 million repurchase of treasury shares.         

Asset Quality

Civista recorded net recoveries of $149 thousand for the twelve months of 2020 compared to net recoveries of $53 thousand for the same period of 2019.  The allowance for loan losses to loans was 1.22% at December 31, 2020 and 0.86% at December 31, 2019.  Without the PPP loans, the allowance ratio would have been 14 basis points higher.     

Non-performing assets at December 31, 2020 were $7.3 million, a 19.7% decrease from December 31, 2019.  The non-performing assets to assets ratio decreased to 0.27% from 0.39% at December 31, 2019.  The allowance for loan losses to non-performing loans increased to 343.05% from 161.95% at December 31, 2019.  

Conference Call and Webcast
Civista Bancshares, Inc. will also host a conference call to discuss the Company's financial results for the fourth quarter of 2020 at 1:00 p.m. ET on Friday, February 5, 2021.  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. fourth quarter 2020 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, 2019, 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 $2.8 billion financial holding company headquartered in Sandusky, Ohio.  The Company's banking subsidiary, Civista Bank, operates 37 locations in Northern, Central and Southwestern Ohio, Southeastern Indiana and Northern Kentucky.  Civista Bancshares, Inc. may be accessed at www.civb.com.  The Company's common shares are traded on the NASDAQ Capital Market under the symbol "CIVB". 

SOURCE Civista Bancshares, Inc.