Civista Bancshares, Inc. Announces Third Quarter 2021 Financial Results

SANDUSKY, Ohio, Oct. 27, 2021 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ:CIVB) ("Civista") announced its unaudited financial results for the three and nine months ending September 30, 2021. 

Third quarter and year-to-date 2021 highlights:

• Net income of $9.6 million, or $0.64 per diluted share, for the third quarter of 2021, compared to $7.7 million, or $0.48 per diluted share, for the third quarter of 2020.   
• Net income of $29.6 million, or $1.90 per diluted share, compared to $22.0 million, or $1.36 per diluted share, for the nine months ended September 30, 2021 and 2020, respectively.
• COVID–19 loan deferrals decreased to 0.9% of total loans at period end, compared to 3.6% at December 31, 2020 and 21.3% at June 30, 2020. 
• Third quarterly dividend of $0.14 is equivalent to an annualized yield of 2.41% based on the September 30, 2021 market close of $23.23 and a dividend payout ratio of 21.88%.
• In the third quarter, we began the redeployment of $50.0 million excess liquidity into investment securities, yielding 1.80%.  

"We turned in another solid Civista quarter.  We redeployed excess cash into our investment portfolio to pick up yield.  While mortgage refinancing is slowing down, our mortgage team had another good quarter," said Dennis G. Shaffer, CEO and President of Civista.

Results of Operations:

For the three-month period ended September 30, 2021 and 2020

Net interest income increased $2.4 million, or 11.0%, for the third quarter of 2021 compared to the same period of 2020, due to a $1.2 million increase in interest income of as well as a $1.2 million decrease in interest expense.  Interest income included a $1.3 million increase on accretion of PPP loan fees during the quarter compared to last year.   

The increase in interest income was due to an increase in average earning assets of $129.6 million and to the $2.5 million of PPP fees as well as $550.5 thousand accretion income related to loan portfolios acquired through acquisitions.          

The decrease in interest expense is primarily due to a decrease in average rates of 27 basis points.  Average interest-bearing liabilities also decreased by $48.7 million, or 2.8%.  The decrease in average interest-bearing liabilities was primarily due to the second quarter pay-off of a $50 million long-term FHLB advance at a rate of 2.05%. 

Net interest margin increased 18 basis points to 3.62% for the third quarter of 2021, compared to 3.44% for the same period a year ago. 

PPP loans averaged $105.9 million during the quarter at an average yield of 10.44%, including the related fee accretion, which increased the margin by 28 basis points.

For the nine-month period ended September 30, 2021 and 2020

Net interest income increased $5.9 million, or 8.9%, compared to the same period in 2020.

Interest income increased $2.9 million, or 3.9%, for the first nine months of 2021.  Average earning assets increased $382.5 million, which resulted in a $5.6 million increase in interest income.  Average yields decreased 42 basis points which resulted in a $2.7 million decrease in interest income.  During the nine-month period, the Bank had average PPP Loans totaling $187.4 million.  These loans had an average yield of 7.01% including the amortization of PPP fees, which increased the margin by 32 basis points.

Interest expense decreased $3.0 million, or 38.3%, for the first nine months of 2021 compared to the same period of 2020.  Average rates decreased 29 basis points, resulting in a $2.5 million decrease in interest expense.  Average interest-bearing liabilities increased $133.5 million, but a mix shift toward interest-bearing demand deposits led to a decrease in interest expense of $549 thousand. 

Net interest margin decreased 22 basis points to 3.48% for the first nine months of 2021, compared to 3.70% for the same period a year ago. 

No provision for loan losses was recorded during the third quarter while we recorded $830 thousand for the first nine months of 2021.  The provision for loan losses was $2.3 million for the third quarter of 2020 and $7.9 million for the first nine months of 2020.  The reserve ratio increased to 1.33% at September 30, 2021 from 1.22% at December 31, 2020.  The reserve ratio without $83.3 million of PPP loans would have been 5 basis points higher.

For the third quarter of 2021, noninterest income totaled $6.4 million, a decrease of $360 thousand, or 5.3%, compared to the prior year's third quarter. 

Net gain on sale of loans decreased primarily as a result of a decrease in volume of loans sold.  Loans sold totaled $56.9 million and $84.3 million during the three months ended September 30, 2021 and 2020, respectively.    

Service charges increased as a result of higher overdraft fees and service charges.  During 2020, customer behavior changed as a result of the COVID-19 pandemic, resulting in fewer overdrafts.  Overdraft fees are trending toward pre-pandemic levels.  

ATM/Interchange fees increased as a result of increased volume of transactions and incentives from our network providers. 

Wealth management fees increased due to an increase in average assets under management as well as an increase in the average rate earned on the assets in 2021.   

Swap fees decreased due to the volume.  For the quarter, we did not record any new swaps compared to $15.0 million during the same period last year.  We reduced the loans we entered into swaps on as a part of our asset liability management program.  Given current rates, we have chosen to book the fixed rate loan that we might otherwise have swapped to a variable rate.

Other noninterest income increased primarily due to Mortgage Servicing Rights valuation and to credit card fee income.

For the nine months ended September 30, 2021, noninterest income totaled $24.6 million, an increase of $4.1 million, or 20.1%, compared to the same period in the prior year. 

Service charges increased as a result of higher and service charges.   Civista also waived service fees on deposit accounts of $93 thousand during 2020.  Overdraft fees are trending toward pre-pandemic levels.  

Net gain on sale of securities increased as a result of the sale of Visa Class B shares.  

Net gain (loss) on equity securities increased as a result of market value increases.

Net gain on sale of loans increased due to an increase in the premium on sold loans of 61 basis points.  The volume of loans sold decreased by $6.4 million in 2021 compared to 2020. 

ATM/Interchange fees increased as a result of increased volume of transactions and incentives from our network providers. 

Wealth management fees increased due to an increase in average assets under management as well as an increase in the average rate earned on the assets in 2021. 

Swap fees decreased as a result of a decline in the volume of loans.  Year to date we swapped $5.7 million compared to $84.8 million during the same period last year.  We reduced the loans we entered into swaps on as a part of our asset liability management program.  Given current rates, we have chosen to book the fixed rate loan that we might otherwise have swapped to a variable rate.

Other noninterest income increased primarily due to Mortgage Servicing Rights valuation, to credit card fee income and to a gain on the sale of an OREO property.

For the third quarter of 2021, noninterest expense totaled $19.5 million, an increase of $1.7 million, or 9.7%, compared to the prior year's third quarter.

Compensation expense included increases in salaries of $496 thousand as well as employee insurance of $300 thousand.  The increase in salaries is due to annual pay increases, which occur every year in April.  The increase in employee insurance is due to increased claims experience. 

Professional services increased due to an increase in consulting fees related to cost savings initiatives and customer service programs. 

The increase in software maintenance expense is due to both increases in software maintenance contracts the implementation of our new digital banking platform.

The quarter-over-quarter increase in other expense is due to increases in loan related expenses, the amortization of low income housing investments, education and training expense and mortgage servicing rights valuation. 

The efficiency ratio was 62.2% for the quarter ended September 30, 2021 compared to 60.7% for the quarter ended September 30, 2020.  

Civista's effective income tax rate for the third quarter 2021 was 15.5% compared to 12.9% in 2020.

For the nine months ended September 30, 2021, noninterest expense totaled $61.3 million, an increase of $7.6 million, or 14.2%, compared to the same period in the prior year.  

Compensation expense included increases in salaries of $832 thousand as well as commissions of $984 thousand.  Employee insurance increased by $300 thousand.  The increase in salaries is primarily due to annual pay increases which occur in April.  The increase in commission expense is primarily the result of increased mortgage loan activity.  The increase in employee insurance is due to increased claims experience.

The increase in Taxes and assessments was attributable to small bank assessment credits applied to the 2020 assessments and a $172 thousand increase in state franchise tax related to additional taxes paid on the Company's 2019 franchise tax return.

The increase in ATM/Interchange expense is primarily due to additional volume and to a settlement received in the second quarter of 2020. 

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 expense is primarily due to the prepayment penalty of $3.7 million related to the early payoff of an FHLB long-term advance.  

The efficiency ratio was 62.6% for the nine months ended September 30, 2021 compared to 61.1% for the nine months ended September 30, 2020.  Removing the effect of the FHLB prepayment and the gain on the sale of the VISA B shares, the 2021 efficiency ratio would have been 59.9%.

Civista's effective income tax rate for the first nine months of 2021 was 14.6% compared to 12.5% in same period in 2020.   

Balance Sheet

Total assets increased $183.4 million, or 6.6%, from December 31, 2020 to September 30, 2021, primarily due to an increase in cash of $113.6 million, or 81.5%.  Securities available for sale increased $134.9 million, or 37.0%.  The decrease in PPP loans of $134.0 million drove the overall loan portfolio decrease of $52.7 million.        

Loan balances have declined during the first nine months of 2021, primarily due to a decline in PPP loans.  Removing the effects of PPP loans, the loan portfolio would have increased $81.3 million, or 4.4%.  Commercial Real Estate continued to grow due to consistent demand in the Non-owner Occupied category.  Real Estate Construction loans increased as the construction season got underway.  Construction availability remains near all-time highs.  Commercial and Agriculture loans have been negatively impacted by the amount of governmental stimulus money.  The decrease in Residential Real Estate continues as a result of portfolio loans refinanced into saleable mortgage products.

Paycheck Protection Program

During 2021, we processed approximately 1,300 loans totaling $131.1 million of PPP loans as part of the second round of the PPP.  This is in addition to the $268.3 million that we processed in round one during 2020.  Of the total PPP loans we have originated, $316.1 million have been forgiven or have paid off.  We recognized $2.5 million of PPP fees in income during the quarter, and $5.9 million for the nine months ended September 30, 2021.  At September 30, 2021, $3.3 million of unearned PPP fees remain.

COVID-19 Loan Modifications

As of September 30, 2021, the remaining loans modified under the CARES Act total $18.8 million, or 0.9% of total loans at period end, compared to 3.6% at December 31, 2020.  Details with respect to the loan modifications that remain on deferred status are as follows:

Deposits
Total deposits increased $245.4 million, or 11.2%, from December 31, 2020 to September 30, 2021. 

The increase in noninterest-bearing demand of $111.7 million was primarily due to a $48.9 million increase in business demand deposit accounts, primarily due to the deposit of PPP loan proceeds.  Public fund demand accounts increased $28.5 million.  Additionally, balances related to the tax refund processing program increased $31.5 million, which is temporary, and tends to diminish the closer we get to December 31.  Interest-bearing demand deposits increased due to a $52.1 million increase in public fund accounts and a $36.4 million increase in non-public fund accounts.  The increase in savings and money market was primarily due to a $45.3 million increase in statement savings, a $25.2 million increase in personal money markets and a $23.7 million increase in business money markets.  These increases were partially offset by a decrease of $40.1 million increase in brokered money market accounts.  Time certificates over $100 thousand decreased $23.1 million and time certificates under $100 thousand decreased by $10.3 million. 

FHLB advances totaled $75.0 million at September 30, 2021, down $50.0 million from December 31, 2020.  The decrease was due to the prepayment of a $50 million, 2.05% long-term advance.

Stock Repurchase Program

During the first nine months of 2021, Civista repurchased 909,859 shares for $20.5 million at a weighted average price of $22.50 per share.  We have approximately $11.0 million remaining of the current $13.5 million repurchase authorization, which was approved in August 2021.  In addition, Civista liquidated 5,065 shares held by employees, at $17.71 per share, to satisfy tax obligations stemming from vesting of restricted shares.

Shareholder Equity

Total shareholders' equity decreased $1.7 million from December 31, 2020 to September 30, 2021, primarily due to a $20.6 million repurchase of treasury shares.  Retained earnings increased $23.6 million and accumulated other comprehensive income decreased $5.3 million.         

"We were active in repurchasing shares and in October, we filed a shelf offering to replace our existing shelf that was set to expire in November," said Dennis G. Shaffer, CEO and President of Civista.

Asset Quality

Civista recorded net recoveries of $710 thousand for the nine months of 2021 compared to net recoveries of $8 thousand for the same period of 2020.  The allowance for loan losses to loans was 1.33% at September 30, 2021 and 1.22% at December 31, 2020.  Removing the PPP loans, the allowance ratio would have been 5 basis points higher.     

Non-performing assets at September 30, 2021 were $5.3 million, a 27.6% decrease from December 31, 2020.  The non-performing assets to assets ratio decreased to 0.18 % from 0.27% at December 31, 2020.  The allowance for loan losses to non-performing loans increased to 503.5% from 343.1% at December 31, 2020.  

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 2021 at 1:00 p.m. ET on Wednesday, October 27, 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. third quarter 2021 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, 2020, 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 $3.0 billion financial holding company headquartered in Sandusky, Ohio.  The Company's banking subsidiary, Civista Bank, operates 35 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". 

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

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