Civista Bancshares, Inc. Announces Third Quarter 2020 Earnings

SANDUSKY, Ohio, Oct. 23, 2020 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ: CIVB) ("Civista") reported net income available to common shareholders of $7.7 million, or $0.48 per diluted share, for the third quarter of 2020, compared with $7.5 million, or $0.46 per diluted share, for the prior year period.  For the nine-month period ended September 30, 2020, Civista reported net income available to common shareholders of $22.0 million or $1.36 per diluted share, compared to $25.5 million or $1.54 per diluted share, in the same period of 2019. 

"As we navigate through 2020, I am reminded of what differentiates us as a community bank.  The great people that we have working at Civista and the quality customers that choose to work with us.  We couldn't have one without the other.  Our people have accomplished a lot during 2020 and we still have one more quarter to go.  To report earnings per share for the third quarter of 2020 which exceeds 2019 is a great feat.  The challenges for 2020 include a global pandemic that has had far reaching impacts on our economy.  We continue to weather the storm despite these challenges and I am extremely pleased with our third quarter earnings." said Dennis G. Shaffer, President and CEO of Civista.

Results of Operations:

For the three-month period ended September 30, 2020 and 2019

Net interest income increased $1.6 million, or 7.8%, for the third quarter of 2020 compared to the same period of 2019, primarily due to the accretion of $1.2 million of Paycheck Protection Program ("PPP") fees.   

Net interest margin decreased 68 basis points to 3.44% for the third quarter of 2020, compared to 4.12% for the same period a year ago. 

Interest income increased $535 thousand, or 2.2%, for the third quarter of 2020.  Average yields decreased 100 basis points which resulted in a $4.3 million decrease in interest income.  Average earning assets increased $596.1 million, which resulted in a $4.9 million increase in interest income.  PPP loans accounted for $259 million of the increase in average earning assets at a yield of 2.90%.  Removing the impact of PPP loans, the yield on earning assets would have been 43 basis points higher.  Accretion income associated with purchased loan portfolios totaled $554 thousand for the third quarter of 2020.

Interest expense decreased $1.1 million, or 29.2%, for the third quarter of 2020.  The average rate paid on interest-bearing liabilities decreased 45 basis points, while average interest-bearing liabilities increased $378.4 million.  

For the nine-month period ended September 30, 2020 and 2019

Net interest income increased $2.3 million, or 3.6%, compared to the same period in 2019.

Interest income increased $611 thousand, or 0.8%, for the first nine months of 2020.  The increase in interest income was primarily due to an increase in average earning assets of $451.2 million, partially offset by a decrease in yield of 87 basis points.  During the nine-month period, the Bank had average PPP Loans totaling $149.5 million with an average yield of 3.14%, including amortization of fees.  Removing the impact of PPP loans yields would have been 27 basis points higher.

Interest expense decreased $1.7 million, or 17.7%, for the first nine months of 2020 compared to the same period of 2019.  Average interest-bearing liabilities increased $264.3 million, resulting in a $448 thousand increase in interest expense.  Average rates decreased 30 basis points, resulting in a $2.2 million decrease in interest expense.

Despite an increase in net interest income, the net interest margin decreased 65 basis points to 3.70% for the first nine months of 2020, compared to 4.35% for the same period a year ago. 

Provision for loan losses was $2.3 million for the third quarter of 2020 and $7.9 million for the nine months ended September 30, 2020.  Provision for loan losses was $150 thousand for both the third quarter and nine months ended September 30, 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 third quarter of 2020, noninterest income totaled $6.8 million, an increase of $1.4 million, or 25.0%, compared to the prior year's third quarter.  

Service charge income decreased primarily due a $332.7 thousand decrease in overdraft fees due to the COVID-19 pandemic.    

Net gain on sale of loans increased due to an increase in the volume of loans sold of $48.1 million.  During the third quarter of 2019 loans sold totaled $36.0 million compared to $84.1 million in the third quarter of 2020.  The premium on sold loans also increased by 63 basis points in the third quarter this year compared to last year.

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

For the nine months ended September 30, 2020, noninterest income increased $3.7 million, or 22.0%, compared to the same period in the prior year. 

Service charge income decreased primarily due a $780.2 thousand decrease in overdraft fees and $93 thousand in waived service charges, both related to the COVID-19 pandemic. 

During the nine-months ended September 30, 2020 Civista sold $211.1 million of mortgage loans, an increase of $130.6 million from the same period in 2019.  The premium on sold loans also increased by 50 basis points during the nine 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, new swaps totaled $92.4 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. 

For the third quarter of 2020, noninterest expense totaled $17.7 million, an increase of $1.0 million, or 6.0%, compared to the prior year's third 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 $308.3 thousand, or 26.5%, for 2020.  Commission and incentive expense increased $956.9 thousand, or 89.5% 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 $147.6 thousand credit for small banks, applied to the September 2019 assessments.  State franchise tax decreased related to a refund of taxes paid in 2020. 

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 $222.9 thousand and education and training of $54.4 thousand.  These decreases were partially offset by increases in loan origination expense of $129.4 thousand and communications expense of $19.9 thousand.

The efficiency ratio was 60.7% for the quarter ended September 30, 2020 compared to 63.8% for the quarter ended September 30, 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 third quarter 2020 was 12.9% compared to 14.0% in 2019.

For the nine months ended September 30, 2020, noninterest expense totaled $53.7 million, an increase of $3.9 million, or 7.8%, 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 expense increased $1.5 million, or 46.5% as a result of increased loan activity.  Employee insurance decreased $235.3 thousand, or 5.8%, for 2020.

The increase in taxes and assessments was attributable to a $147.6 thousand FDIC assessment credit for small banks that was applied to the 2019 assessment charges. 

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

The increase in other operating expense is primarily due to increases in loan origination expense of $336.9 thousand.  MSR valuation expense of $137.4 thousand, postage expense of $66.8 thousand and communications expense of $75.1 thousand.  These increases were partially offset by a decrease in travel and lodging expense of $478.3 thousand.

The efficiency ratio was 61.1% for the nine months ended September 30, 2020 compared to 60.9% for the nine months ended September 30, 2019.  The change in the efficiency ratio is due primarily to the increase in noninterest expense.

Civista's effective income tax rate for the first nine months of 2020 was 12.5% compared to 15.3% in same period in 2019.   

Balance Sheet

Total assets increased $508.4 million, or 22.0%, from December 31, 2019 to September 30, 2020, due primarily to a $332.0 million, or 19.4%, increase in the loan portfolio.  Loans held for sale increased $11.0 million, or 480.1%, and cash increased $146.2 million, primarily related to the proceeds from PPP loans held on deposit. 

Loan growth during 2020 totaled $332.0 million, including $259.1 million of PPP loans.  Otherwise, loan growth was led by increases of $107.0 million in Commercial Real Estate and $11.7 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 continued as we successfully refinanced many on balance sheet mortgages and home equity loans into saleable mortgage products.  All regions have contributed to the growth in the first nine months, aided by many new clients and prospects from our success in PPP originations.

Paycheck Protection Program

We began accepting applications for the PPP loans on April 3, 2020 and during the first nine months of 2020 processed over 2,300 loans totaling $259.1 million.  SBA fees total approximately $9.9 million, which are being recognized in interest income over the life of the PPP loans.  We borrowed $183.7 million from the Paycheck Protection Program Lending Facility ("PPPLF").

"As we begin the forgiveness stage of the PPP loans, I am reminded of the difference we have made to our customers and their employees.  We expect to see many of our customers begin the forgiveness process during the fourth quarter of 2020," 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 September 30, 2020, the loans that remain on a CARES Act modification total $52.2 million.    

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

Total deposits increased $390.0 million, or 23.2%, from December 31, 2019 to September 30, 2020.  

The increase in noninterest-bearing demand of $147.6 million was primarily due to a $107.5 million increase in business demand deposit accounts and a $16.2 million increase in personal demand deposit accounts.  Much of the increase in the business demand deposit accounts is due to PPP loan proceeds.  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 an increases in money markets and brokered money market accounts.  

FHLB advances totaled $125.0 million at September 30, 2020, a decrease of $101.5 million, or 44.8%, from December 31, 2019.  The increase in deposits reduced the need for wholesale funding.  The Company also borrowed $183.7 million from the PPPLF to help fund PPP loans.

Stock Repurchase Program

An important part of capital management are share repurchases.  During the third quarter of 2020 Civista repurchased 107,000 shares for $1.3 million at a weighted average price of $12.15 per share.  This is part of the $13.5 million repurchase authorization which was approved in April 2020.  Earlier in 2020, Civista repurchased 672,000 shares for $11.4 million, at a weighted average price of $16.90 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.  Year to date, Civista has repurchased a total of 783,308 shares for $12.8 million, at a weighted average price of $16.29 per share. 

Shareholder Equity

Total shareholders' equity increased $11.9 million, or 3.6%, from December 31, 2019 to September 30, 2020 as a result of a $16.7 million increase in retained earnings and an increase in other comprehensive income of $7.5 million.  These increases were partially offset by a $12.8 million decrease related to the repurchase of treasury shares.         

Asset Quality

Civista recorded net recoveries of $8 thousand for the nine months of 2020 compared to net recoveries of $315 thousand for the same period of 2019.  The allowance for loan losses to loans was 1.11% at September 30, 2020 and 0.86% at December 31, 2019.  Without the PPP loans, the allowance ratio would have been 16 basis points higher, as the reserve percentage on these loans is very low compared to the remaining portfolio due to the SBA guaranteeing 100 percent of the balance.   

Non-performing assets at September 30, 2020 were $7.7 million, a 15.2% 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 292.88% 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 third quarter of 2020 at 1:00 p.m. ET on Friday, October 23, 2020.  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 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.