Civista Bancshares, Inc. Announces Second Quarter 2021 Financial Results

SANDUSKY, Ohio, July 23, 2021 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ:CIVB) ("Civista") announced its unaudited financial results for the three and six months ending June 30, 2021. 

Second quarter and year-to-date 2021 highlights:

• Net income of $9.2 million, or $0.59 per diluted share, for the second quarter of 2021, compared to $6.5 million, or $0.41 per diluted share, for the second quarter of 2020.   
• Net income of $19.9 million, or $1.27 per diluted share, compared to $14.3 million, or $0.88 per diluted share, for the six months ended June 30, 2021 and 2020, respectively.
• COVID–19 loan deferrals decreased to 2.5% of total loans at period end, compared to 3.6% at December 31, 2020 and 21.3% at June 30, 2020. 
• Second quarterly dividend of $0.12 is equivalent to an annualized yield of 2.17% based on the June 30, 2021 market close of $22.10 and a dividend payout ratio of 20.43%.
• Executed a balance sheet restructuring to deploy excess liquidity which included the prepayment of a 2.05%, $50.0 million FHLB advance, with a $3.7 million prepayment penalty.  In addition, we recognized a $1.8 million gain on the sale of our VISA B shares.  We also invested $100.0 million dollars into a mix of investment securities yielding 1.50%.  

"Our team executed another great quarter financially as well as several key initiatives operationally.  On June 9^th, we introduced the new Civista Digital Banking which provides for a better customer experience in both the mobile and online platform.  We restructured our balance sheet to reduce cost in the future.  Our mortgage team had another great quarter and our commercial lending team has seen increases in demand.  In July, we also increased our third quarter dividend 17%." said Dennis G. Shaffer, CEO and President of Civista.

Results of Operations:

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

Net interest income increased $1.8 million, or 8.0%, for the second quarter of 2021 compared to the same period of 2020, due to a $914 thousand increase in interest income of as well as an $852 thousand decrease in interest expense.  Interest income included $2.8 million of accretion of PPP loan fees during the quarter.   

The increase in interest income was due to an increase in average earning assets of $248.1 million, partially offset by a 24 basis point decrease in average yields.  Interest income included $2.8 million of PPP fees as well as accretion income of purchased loan portfolios of $565.3 thousand.          

The decrease in interest expense is primarily due to a decrease in average rates of 24 basis points offset by an increase in average interest-bearing liabilities of $118.3 million. 

Net interest margin decreased 8 basis points to 3.53% for the second quarter of 2021, compared to 3.61% for the same period a year ago. 

PPP loans averaged $207.5 million during the quarter at an average yield of 6.39%, including the related fee accretion, which increased the margin by 23 basis points.

For the six-month period ended June 30, 2021 and 2020

Net interest income increased $3.5 million, or 7.9%, compared to the same period in 2020.

Interest income increased $1.6 million, or 3.3%, for the first six months of 2021.  Average earning assets increased $510.7 million, which resulted in a $5.3 million increase in interest income.  Average yields decreased 64 basis points which resulted in a $3.7 million decrease in interest income.  During the six-month period, the Bank had average PPP Loans totaling $228.1 million.  These loans had an average yield of 6.22% including the amortization of PPP fees, which increased the margin by 24 basis points.

Interest expense decreased $1.8 million, or 34.1%, for the first six months of 2021 compared to the same period of 2020.  Average rates decreased 31 basis points, resulting in a $1.8 million decrease in interest expense.  Average interest-bearing liabilities increased $225.6 million, but led to a decrease in interest expense of $20 thousand, primarily due to a mix shift toward interest-bearing demand deposits. 

Net interest margin decreased 43 basis points to 3.41% for the first six months of 2021, compared to 3.84% for the same period a year ago.  

No provision for loan losses was recorded during the second quarter and was $830 thousand for the first six months of 2021.  Provision for loan losses was $3.5 million for the second quarter of 2020 and $5.6 million for the first six months of 2020.  The reserve ratio increased to 1.30% at June 30, 2021 from 1.22% at December 31, 2020.  The reserve ratio without $153.0 million of PPP loans would have been 10 basis points higher.

For the second quarter of 2021, noninterest income totaled $9.0 million, an increase of $2.2 million, or 31.7%, compared to the prior year's second quarter. 

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.  Civista also waived service fees on deposit accounts of $93 thousand during 2020.  Overdraft fees are rebounding to pre-pandemic levels.  

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

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 swapped $4.2 million compared to $44.8 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.

For the six months ended June 30, 2021, noninterest income totaled $18.2 million, an increase of $4.5 million, or 32.7%, compared to the same period in the prior year. 

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.  Civista also waived service fees on deposit accounts of $93 thousand during 2020.  Overdraft fees are rebounding to 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 loans sold of $21.0 million and an increase in the premium on sold loans of 93 basis points. 

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 $77.4 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.

For the second quarter of 2021, noninterest expense totaled $22.5 million, an increase of $4.4 million, or 24.0%, compared to the prior year's second quarter.

The increase in other expense is due to the prepayment penalty of $3.7 million related to the early payoff of an FHLB long-term advance.  This was partially offset by a $465 thousand credit valuation adjustment to mortgage servicing rights. 

Compensation expense included increases in commissions of $465 thousand as well as salaries of $183 thousand.  The increase in commissions is due to increased mortgage loan activity.  The increase in salaries is due to annual pay increases, which occur every year in April.   

Taxes and assessments increased due to an increase in the FDIC assessment base, as well as a $64 thousand credit for small banks that was applied to the June 2020 assessments.

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 the implementation of our new digital banking.

The efficiency ratio was 67.5% for the quarter ended June 30, 2021 compared to 61.7% for the quarter ended June 30, 2020.  Removing the effect of the FHLB prepayment and the gain on the sale of the VISA B shares, the efficiency ratio would have been 59.5%.

Civista's effective income tax rate for the second quarter 2021 was 11.9% compared to 11.3% in 2020.

For the six months ended June 30, 2021, noninterest expense totaled $41.9 million, an increase of $5.9 million, or 16.4%, compared to the same period in the prior year.

The increase in other expense is due to the prepayment penalty of $3.7 million related to the early payoff of an FHLB long-term advance.  This was partially offset by a $465 thousand credit valuation adjustment to mortgage servicing rights.   

Compensation expense included increases in commissions of $1.1 million as well as salaries of $375 thousand.  The increase in commission expense is a result of increased mortgage loan activity.  The increase in salaries is due to annual pay increases which occur in April.

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 efficiency ratio was 62.8% for the six months ended June 30, 2021 compared to 61.2% for the six months ended June 30, 2020.  Removing the effect of the FHLB prepayment and the gain on the sale of the VISA B shares, the efficiency ratio would have been 58.8%.

Civista's effective income tax rate for the first six months of 2021 was 14.1% compared to 12.2% in same period in 2020.   

Balance Sheet

Total assets increased $155.8 million, or 5.6%, from December 31, 2020 to June 30, 2021, primarily due to an increase in cash of $105.8 million, or 75.8%.  Securities available for sale increased $94.3 million, or 26.0%.  The loan portfolio decreased $38.3 million, which includes a decrease in PPP loans of $64.3 million.        

Loan balances have declined during the first half of 2021, primarily due to a net decline in PPP loans.  Removing the effects of PPP loans, the loan portfolio would have increased $26.0 million, or 1.4%.  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 during the second quarter.  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, $246.4 million have been forgiven or have paid off.  We recognized $2.8 million of PPP fees in income during the quarter, and $5.9 million for the six months ended June 30, 2021.  At June 30, 2021, $5.9 million of prepaid SBA fees remain.

COVID-19 Loan Modifications

As of June 30, 2021, the remaining loans modified under the CARES Act total $50.4 million.  Details with respect to the loan modifications that remain on deferred status are as follows:

Deposits

Total deposits increased $213.6 million, or 9.8%, from December 31, 2020 to June 30, 2021. 

The increase in noninterest-bearing demand of $132.9 million was primarily due to a $61.1 million increase in business demand deposit accounts, primarily due to the deposit of PPP loan proceeds.  Additionally, balances related to the tax refund processing program increased $50.8 million, which is temporary, and is expected to return to levels more consistent with December 31, 2020 over the next two quarters.  Interest-bearing demand deposits increased due to a $47.6 million increase in public fund accounts and a $26.7 million increase in non-public fund accounts.  The increase in savings and money market was primarily due to a $40.9 million increase in statement savings, a $26.7 million increase in personal money markets and a $14.8 million increase in public fund money markets.  These increases were partially offset by a decrease of $40.1 million increase in brokered money market accounts.

FHLB advances totaled $75.0 million at June 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 six months of 2021, Civista repurchased 505,239 shares for $11.3 million at a weighted average price of $22.30 per share.  We have approximately $7.4 million remaining of the current $13.5 million repurchase authorization, which was approved in April 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 increased $2.3 million from December 31, 2020 to June 30, 2021.  Retained earnings increased $16.1 million and was partially offset by an $11.4 million repurchase of treasury shares and a $3.1 million decrease in accumulated other comprehensive income.         

Asset Quality

Civista recorded net recoveries of $339 thousand for the six months of 2021 compared to net recoveries of $41 thousand for the same period of 2020.  The allowance for loan losses to loans was 1.30% at June 30, 2021 and 1.22% at December 31, 2020.  Removing the PPP loans, the allowance ratio would have been 10 basis points higher.     

Non-performing assets at June 30, 2021 were $5.9 million, a 19.4% decrease from December 31, 2020. The non-performing assets to assets ratio decreased to 0.20 % from 0.27% at December 31, 2020.  The allowance for loan losses to non-performing loans increased to 443.50% from 343.05% 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 second quarter of 2021 at 1:00 p.m. ET on Friday, July 23, 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. second 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 $2.9 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".