Civista Bancshares(CIVB) - 2022 Q2 - Quarterly Report

PART I. Financial Information Financial Statements This section presents Civista Bancshares, Inc.'s unaudited consolidated financial statements for Q2 and H1 2022, covering Balance Sheets, Operations, Comprehensive Income, Equity, and Cash Flows Consolidated Balance Sheets Total assets slightly increased to $3.04 billion by June 30, 2022, driven by net loan growth, while shareholders' equity decreased to $302.1 million due to comprehensive loss Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,039,099 | $3,012,905 | | Cash and cash equivalents | $233,281 | $264,239 | | Securities available-for-sale | $530,817 | $559,874 | | Loans, net | $2,036,786 | $1,971,238 | | Goodwill | $76,851 | $76,851 | | Total Liabilities | $2,737,037 | $2,657,693 | | Total deposits | $2,455,502 | $2,416,701 | | Total Shareholders' Equity | $302,062 | $355,212 | | Accumulated other comprehensive income (loss) | ($46,242) | $8,820 | Consolidated Statements of Operations Net income declined in Q2 2022 to $7.7 million and H1 2022 to $16.2 million, primarily due to reduced noninterest income Quarterly Performance Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Interest Income | $24,268 | $23,841 | | Provision for loan losses | $400 | $0 | | Noninterest Income | $5,635 | $9,025 | | Noninterest Expense | $20,379 | $22,264 | | Net Income | $7,701 | $9,164 | | Diluted EPS | $0.53 | $0.59 | Six-Month Performance Summary (in thousands, except per share data) | Metric | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Net Interest Income | $47,200 | $47,669 | | Provision for loan losses | $700 | $830 | | Noninterest Income | $13,278 | $18,215 | | Noninterest Expense | $40,637 | $41,451 | | Net Income | $16,167 | $19,922 | | Diluted EPS | $1.10 | $1.27 | Consolidated Statements of Comprehensive Income (Loss) The company experienced a significant comprehensive loss of $17.9 million in Q2 2022 and $38.9 million in H1 2022, driven by unrealized losses on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $7,701 | $9,164 | $16,167 | $19,922 | | Other comprehensive income (loss) | ($25,553) | $2,124 | ($55,062) | ($2,926) | | Comprehensive income (loss) | ($17,852) | $11,288 | ($38,895) | $16,996 | Consolidated Statement of Changes in Shareholders' Equity Shareholders' equity decreased from $355.2 million to $302.1 million by June 30, 2022, primarily due to a $55.1 million other comprehensive loss and share repurchases Shareholders' Equity Reconciliation - H1 2022 (in thousands) | Item | Amount | | :--- | :--- | | Balance, December 31, 2021 | $355,212 | | Net Income | $16,167 | | Other comprehensive loss | ($55,062) | | Common stock dividends | ($4,133) | | Purchase of common stock | ($10,621) | | Stock-based compensation | $499 | | Balance, June 30, 2022 | $302,062 | Condensed Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $31.0 million in H1 2022, with $47.6 million from operations, $94.6 million used in investing, and $16.0 million provided by financing activities Cash Flow Summary - H1 2022 vs H1 2021 (in thousands) | Cash Flow Category | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $47,628 | $19,996 | | Net cash used for investing activities | ($94,617) | ($58,661) | | Net cash provided by financing activities | $16,031 | $144,449 | | Increase (decrease) in cash | ($30,958) | $105,784 | Notes to Interim Consolidated Financial Statements The notes detail accounting policies, securities and loan portfolios, CECL adoption, and a significant subsequent merger with Comunibanc Corp. for approximately $46.1 million - The company operates as a financial holding company primarily through its subsidiary, Civista Bank, providing services in various counties across Ohio, Indiana, and Kentucky. Its main products are deposit accounts and residential, commercial, and installment loans[27][29] - The company is preparing for the adoption of ASU 2016-13 (CECL), which will change the impairment model for financial assets to a lifetime expected credit loss model, effective for fiscal years beginning after December 15, 2022. The full impact is still being evaluated[35] - On July 1, 2022, subsequent to the reporting period, the company completed its merger with Comunibanc Corp. The total transaction value was approximately $46.1 million, consisting of $25.0 million in cash and approximately 985,000 shares of CBI common stock[187][188] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes Q2 and H1 2022 financial condition and operations, noting loan growth, reduced noninterest income, stable net interest margin, and declining equity Financial Condition Total assets grew 0.9% to $3.04 billion in H1 2022, driven by a 3.3% increase in net loans, while shareholders' equity fell to $302.1 million due to securities fair value decrease Loan Portfolio Changes (H1 2022 vs Year-End 2021, in thousands) | Loan Category | June 30, 2022 | Dec 31, 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Commercial & Agriculture | $226,540 | $246,502 | ($19,962) | -8.1% | | Commercial Real Estate—Non-Owner Occupied | $876,695 | $829,310 | $47,385 | 5.7% | | Residential Real Estate | $452,628 | $430,060 | $22,568 | 5.2% | | Real Estate Construction | $170,633 | $157,127 | $13,506 | 8.6% | | Total loans | $2,064,221 | $1,997,879 | $66,342 | 3.3% | - The decrease in Commercial & Agriculture loans included a reduction of $39.5 million in Paycheck Protection Program (PPP) loans, from $43.2 million at year-end 2021 to $3.7 million at June 30, 2022[198] - Total deposits increased by $38.8 million, with noninterest-bearing deposits growing by $53.6 million, partially due to a temporary $39.5 million increase from the tax refund processing program. Time deposits decreased by $24.7 million[210] - Shareholders' equity decreased from $355.2 million to $302.1 million. The main drivers were a $55.2 million decrease in the fair value of securities (AOCI), $10.6 million in share repurchases, and $4.1 million in dividends, partially offset by $16.2 million in net income[214] Results of Operations Net income for Q2 2022 was $7.7 million, down 15.9%, and H1 2022 was $16.2 million, down 18.8%, due to reduced noninterest income - Q2 2022 net interest income increased slightly to $24.3 million from $23.8 million in Q2 2021. The net interest margin (FTE) compressed slightly to 3.43% from 3.53%[217] - Q2 2022 noninterest income fell 37.6% to $5.6 million, driven by a $1.6 million decrease in gain on sale of loans and a $1.8 million decrease in gain on sale of securities compared to Q2 2021[230][232] - Q2 2022 noninterest expense decreased 8.5% to $20.4 million, largely because Q2 2021 included a significant prepayment fee on an FHLB advance[234] - For H1 2022, net income decreased by $3.8 million to $16.2 million. The primary driver was a $4.9 million (27.1%) decrease in noninterest income, mainly from a $3.5 million drop in gain on sale of loans and a $1.8 million drop in gain on sale of securities[237][251][253] Capital Resources The company's capital ratios remain well above regulatory minimums as of June 30, 2022, despite declines from year-end 2021 reflecting decreased shareholders' equity Capital Ratios vs. Regulatory Requirements | Ratio | June 30, 2022 | Dec 31, 2021 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Total Risk Based Capital | 18.2% | 19.2% | 10.0% | | Tier I Risk Based Capital | 13.6% | 14.3% | 8.0% | | CET1 Risk Based Capital | 12.3% | 12.9% | 6.5% | | Leverage Ratio | 9.9% | 10.2% | 5.0% | - The decrease in shareholders' equity during H1 2022 was primarily due to a $55.2 million after-tax decrease in the fair value of securities available-for-sale, $10.6 million in share repurchases, and dividend payments, which were partially offset by net income[258] Liquidity The company maintains a conservative liquidity position with $31.0 million decrease in cash for H1 2022 and significant available credit, including $629 million FHLB borrowing capacity - Net cash from operating activities was $47.6 million in H1 2022, while investing activities used $94.6 million (mainly for loans) and financing activities provided $16.0 million (mainly from deposits)[261] - As of June 30, 2022, the company had total FHLB credit availability of $725.4 million with a remaining borrowing capacity of approximately $629.1 million[262] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest-rate risk, managed through asset/liability modeling, with NPV sensitive to rate changes - The company's primary technique for managing interest rate risk is analyzing its asset/liability gap, which is the difference between interest-sensitive assets and liabilities repricing in a given period[270] Net Portfolio Value (NPV) Sensitivity Analysis (June 30, 2022) | Change in Rates | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +200bp | $22,159 | 5% | | +100bp | $19,220 | 4% | | Base | $0 | — | | -100bp | ($24,847) | (5)% | | -200bp | ($13,119) | (3)% | Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the principal executive and financial officers concluded that the company's disclosure controls and procedures were effective[279] - There were no changes in internal control over financial reporting during the second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, these controls[280] PART II. Other Information Legal Proceedings The company is subject to various legal proceedings, but management does not expect a material adverse effect on financial position, results, or liquidity - Management does not expect any pending or threatened legal proceedings to have a material adverse effect on the company's consolidated financial condition or operations[283] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 were reported - No material changes to the risk factors disclosed in the 2021 Form 10-K were reported for the current period[284] Share Repurchases In Q2 2022, the company repurchased 255,960 common shares at $22.81 average price, and authorized a new $13.5 million repurchase program Share Repurchases in Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 200,608 | $23.23 | | May 2022 | 0 | $0.00 | | June 2022 | 55,352 | $21.29 | | Total Q2 | 255,960 | $22.81 | - On May 4, 2022, the company announced a new share repurchase program authorizing up to $13.5 million of its common shares through May 9, 2023. As of June 30, 2022, $12.3 million remained available under this program[285] Exhibits This section lists the exhibits filed with the Form 10-Q, including the merger agreement with Comunibanc Corp., CEO/CFO certifications, and XBRL interactive data files - Key exhibits filed include the Agreement and Plan of Merger with Comunibanc Corp., CEO/CFO certifications (Rule 13a-14(a) and Section 1350), and Inline XBRL data[288][289][290][291]