Civista Bancshares(CIVB) - 2022 Q3 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements Unaudited consolidated financial statements show total assets increased to $3.24 billion, Q3 net income rose, while nine-month net income and shareholders' equity declined due to comprehensive loss Consolidated Balance Sheets Total assets increased to $3.24 billion driven by loan growth, while shareholders' equity decreased to $302.6 million due to unrealized securities losses | Financial Metric | September 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,241,719 | $3,012,905 | | Cash and cash equivalents | $40,914 | $264,239 | | Loans, net | $2,300,841 | $1,971,238 | | Goodwill | $101,652 | $76,851 | | Total Liabilities | $2,939,117 | $2,657,693 | | Total deposits | $2,708,253 | $2,416,701 | | Total Shareholders' Equity | $302,602 | $355,212 | | Accumulated other comprehensive income (loss) | ($69,818) | $8,820 | Consolidated Statements of Operations Q3 2022 net income increased to $11.1 million due to higher net interest income, but nine-month net income decreased to $27.3 million due to lower noninterest income | Metric (in thousands, except EPS) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Interest Income | $30,439 | $24,433 | | Provision for loan losses | $300 | $0 | | Noninterest Income | $5,734 | $6,426 | | Noninterest Expense | $22,555 | $19,251 | | Net Income | $11,112 | $9,642 | | Earnings per share, diluted | $0.72 | $0.64 | | Metric (in thousands, except EPS) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Interest Income | $77,639 | $72,102 | | Provision for loan losses | $1,000 | $830 | | Noninterest Income | $19,012 | $24,641 | | Noninterest Expense | $63,192 | $60,702 | | Net Income | $27,279 | $29,564 | | Earnings per share, diluted | $1.82 | $1.90 | Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss for Q3 2022 and the nine-month period, primarily due to unrealized losses on available-for-sale securities - A comprehensive loss of $12.5 million was recorded for Q3 2022, driven by $23.6 million in other comprehensive loss, mainly from unrealized losses on securities[14] - For the nine months ended September 30, 2022, the comprehensive loss was $51.4 million, compared to a comprehensive income of $24.2 million in the same period of 2021, highlighting the impact of rising interest rates on the securities portfolio[14] Consolidated Statement of Changes in Shareholders' Equity Shareholders' equity declined to $302.6 million by September 30, 2022, primarily due to a $78.6 million other comprehensive loss and common stock repurchases | Change in Shareholders' Equity (Nine Months Ended Sep 30, 2022) | Amount (in thousands) | | :--- | :--- | | Balance, December 31, 2021 | $355,212 | | Net Income | $27,279 | | Other comprehensive loss | ($78,638) | | Stock issued for acquisition | $21,122 | | Common stock dividends | ($6,291) | | Purchase of common stock | ($16,734) | | Balance, September 30, 2022 | $302,602 | Condensed Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $223.3 million for the first nine months of 2022, driven by significant outflows from investing and financing activities | Cash Flow Activity (Nine Months Ended Sep 30) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $27,421 | $34,295 | | Net cash used for investing activities | ($207,756) | ($83,948) | | Net cash provided (used) by financing activities | ($42,990) | $163,296 | | Increase (decrease) in cash and cash equivalents | ($223,325) | $113,643 | Notes to Interim Consolidated Financial Statements Notes detail accounting policies, the Comunibanc Corp. acquisition, significant unrealized securities losses, loan portfolio growth, and the subsequent acquisition of Vision Financial Group - Securities: The available-for-sale securities portfolio had gross unrealized losses of $81.5 million as of September 30, 2022, a significant increase from $2.1 million at year-end 2021, primarily due to higher market interest rates[45][49] - Allowance for Loan Losses: The allowance for loan losses stood at $27.8 million, or 1.19% of total loans, compared to 1.33% at year-end 2021. A provision of $1.0 million was recorded for the nine-month period to support loan growth[60][69][222] - Merger: On July 1, 2022, the company acquired Comunibanc Corp. for approximately $46.1 million, adding $315.1 million in assets and resulting in $24.8 million of goodwill[184][186] - Subsequent Events: On October 3, 2022, after the quarter ended, the company acquired Vision Financial Group, Inc. (VFG), an equipment leasing and financing company[203] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses total asset growth to $3.2 billion driven by acquisitions and loan growth, Q3 net income increase, nine-month net income decline, and strong capital despite equity reduction Financial Condition Total assets grew to $3.24 billion due to acquisitions and loan growth, deposits increased, while shareholders' equity decreased due to unrealized securities losses | Loan Category (in thousands) | September 30, 2022 | December 31, 2021 | % Change | | :--- | :--- | :--- | :--- | | Commercial & Agriculture | $227,387 | $246,502 | -7.8% | | Commercial Real Estate | $1,320,637 | $1,124,762 | 17.4% | | Residential Real Estate | $531,164 | $430,060 | 23.5% | | Real Estate Construction | $202,793 | $157,127 | 29.1% | | Total loans | $2,328,614 | $1,997,879 | 16.6% | - The allowance for loan losses as a percentage of total loans was 1.19% at September 30, 2022, down from 1.33% at December 31, 2021[222] - Total deposits increased by 12.1% to $2.71 billion, with noninterest-bearing deposits growing by 19.7%[229] Results of Operations Q3 2022 net income increased to $11.1 million due to higher net interest income and expanded net interest margin, while nine-month net income decreased due to lower noninterest income - Q3 2022 vs Q3 2021: Net interest margin expanded to 4.03% from 3.62% YoY, driving a $6.0 million increase in net interest income. Noninterest expense increased 17.2%, partly due to acquisition costs[238][254] - Nine Months 2022 vs 2021: Noninterest income decreased by $5.6 million (22.8%), mainly from a $4.4 million drop in gain on sale of loans and a $1.8 million drop in gain on sale of securities[271][273] Capital Resources and Liquidity The company maintains strong capital ratios well above regulatory minimums and robust liquidity, supported by available-for-sale securities and significant FHLB borrowing capacity | Capital Ratio | September 30, 2022 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Total Risk Based Capital | 15.6% | 10.0% | | Tier I Risk Based Capital | 11.6% | 8.0% | | CET1 Risk Based Capital | 10.5% | 6.5% | | Leverage Ratio | 9.3% | 5.0% | - The company maintains strong liquidity sources, including a remaining FHLB borrowing capacity of approximately $580.8 million[282] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest-rate risk, managed through asset/liability analysis, with net portfolio value sensitive to interest rate changes | Change in Rates | Net Portfolio Value Change (Sep 30, 2022) | | :--- | :--- | | +200bp | +5% | | +100bp | +3% | | Base | — | | -100bp | -2% | | -200bp | -5% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls over financial reporting - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2022[299] PART II. Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, none of which are anticipated to have a material adverse effect on financial condition or operations Risk Factors No material changes to risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, the company repurchased 286,611 common shares at an average price of $21.33 per share as part of its share repurchase program | Period (2022) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July | 91,245 | $21.40 | | August | 57,182 | $21.71 | | September | 138,184 | $21.13 | | Total Q3 | 286,611 | $21.33 |