SANDUSKY, Ohio, July 24, 2020 /PRNewswire/ -- Civista Bancshares, Inc. (NASDAQ:CIVB) ("Civista") reported net income available to common shareholders of $6.5 million, or $0.41 per diluted share, for the second quarter of 2020, compared with $8.5 million, or $0.51 per diluted share, for the prior year period.  For the six-month period ended June 30, 2020, Civista reported net income available to common shareholders of $14.3 million or $0.88 per diluted share, compared to $18.0 million or $1.08 per diluted share, in the same period of 2019. 

"The challenges for 2020 continued through the second quarter.  Much of our market area was under a stay at home order during a large part of the second quarter. We continued to work with customers providing loan payment deferrals as well as relief from overdraft and service charge fees. Along with this economic uncertainty comes the need to increase our provision for loan losses.  Despite these challenging times, we are extremely pleased with our second quarter earnings," said Dennis G. Shaffer, President and CEO of Civista.

Results of Operations:

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

Net interest income increased $333 thousand, or 1.5%, for the second quarter of 2020 compared to the same period of 2019. The decrease in net interest income is a result of a decrease in interest income, partially offset by a decrease in interest expense. 

Interest income decreased $342 thousand, or 1.4%, for the second quarter of 2020.  Average yields decreased 113 basis points which resulted in a $5.3 million decrease in interest income.  The decrease in average yields was partially offset by an increase in average earning assets of $541.2 million, which resulted in a $4.9 million increase in interest income.  Accretion income associated with purchased loan portfolios totaled $758 thousand for the second quarter of 2020 and $1.1 million for the second quarter of 2019.  During the quarter, the Bank had average Paycheck Protection Program ("PPP") Loans totaling $189.4 million. These loans had an average yield of 3.46% including the amortization of PPP fees.  Removing the impact of PPP loans, Interest income would have decreased $1.6 million and average asset yield would have been 4.29%.

Interest expense decreased $675 thousand, or 21.2%, for the second quarter of 2020 compared to the same period of 2019.  Average interest-bearing liabilities increased $303.5 million, resulting in a $141 thousand increase in interest expense.  Average rates decreased 35 basis points, resulting in an $816 thousand decrease in interest expense.

Net interest margin decreased 88 basis points to 3.61% for the second quarter of 2020, compared to 4.49% for the same period a year ago.  Accretion income associated with purchased loan portfolios contributed approximately 13 basis points and 25 basis points to net interest margin for the second quarter of 2020 and 2019, respectively.

For the six-month period ended June 30, 2020 and 2019

Net interest income increased $730 thousand, or 1.7%, compared to the same period in 2019.

Interest income increased $76 thousand, or 0.2%, for the first six months of 2020.  Average earning assets increased $378.0 million, which resulted in a $7.5 million increase in interest income.  Average yields decreased 78 basis points which resulted in a $7.4 million decrease in interest income.  Year-to-date accretion income associated with purchased loan portfolios totaled $1.5 million for 2020 and $2.1 million for 2019.  During the six-month period, the Bank had average PPP Loans totaling $94.7 million.  These loans had an average yield of 3.46% including the amortization of PPP fees.  Removing the impact of PPP loans Interest income would have decreased $1.6 million and average yields would have been 4.45%.

Interest expense decreased $654 thousand, or 10.8%, for the first six months of 2020 compared to the same period of 2019.  Average interest-bearing liabilities increased $206.9 million, resulting in a $546 thousand increase in interest expense.  Average rates decreased 22 basis points, resulting in a $1.2 million decrease in interest expense.

Net interest margin decreased 63 basis points to 3.84% for the first six months of 2020, compared to 4.47% for the same period a year ago.  Accretion income associated with purchased loan portfolios contributed approximately 14 basis points and 23 basis points to net interest margin for the first six months of 2020 and 2019, respectively.

Provision for loan losses was $3.5 million for the second quarter of 2020 and $5.6 million for the six months ended June 30, 2020.  No provision was recorded during the first six months of 2019.  The reserve ratio increased to 1.01% from 0.86% at December 31, 2019 due to an increase in the bank's qualitative factors related to the economic shutdown that is driven by COVID-19.  The reserve ratio without $257.6 million of PPP loans would have been 1.16% at June 30, 2020.  Economic impacts include the loss of revenue being experience 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.  We expect our Commercial, Commercial Real Estate and Consumer portfolios to be impacted the most.

For the second quarter of 2020, noninterest income totaled $6.9 million, an increase of $1.8 million, or 34.3%, compared to the prior year's second quarter. 

Service charge income decreased primarily due to a $476.8 thousand decrease in overdraft fees.  The Company also waived $93 thousand in service charges related to the COVID-19 pandemic.  

Gain on sale of loans increased due to an increase in the volume of loans sold of $63.5 million, from $27.9 million in the second quarter of 2019 to $91.4 million in the second quarter of 2020.  The premium on sold loans also increased by 49 basis points in the second quarter this year compared to last year. 

ATM/Interchange fees increased as a result of increased transaction fees and the receipt of MasterCard fees. 

Swap fees increased as a result of the declining interest rate environment and more customers looking to lock in lower fixed rate loans.  During the quarter, we swapped $44.8 million in loans.

Tax refund processing fees decreased due to a decline in volume processed. 

For the six months ended June 30, 2020, noninterest income totaled $13.7 million, an increase of $2.3 million, or 20.6%, compared to the same period in the prior year. 

Service charge income decreased primarily due to a $447.5 thousand decrease in overdraft fees.  The Company also waived $93 thousand in service charges related to the COVID-19 pandemic. 

The increased gain on sale of loans is primarily due to an increase in volume of loans sold of $82.4 million, from $44.4 million year-to-date in 2019 to $126.8 million year-to-date in 2020.  The premium on sold loans also increased by 44 basis points during the six months this year compared to last year. 

ATM/Interchange fees increased as a result of increased transaction fees and the receipt of MasterCard fees. 

Wealth management fees increased due to an increase in average assets under management as well as a 5 basis point increase in the conversion ratio, to 0.71%, in 2020. 

Swap fees increased as a result of the declining interest rate environment and more customers looking to lock in lower fixed rate loans.  Year to date we have swapped $77.4 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 second quarter of 2020, noninterest expense totaled $18.1 million, an increase of $1.5 million, or 8.9%, compared to the prior year's second quarter.

Compensation expense increased due to an increase in employees, annual pay increases and commission expense.  Full time equivalent ("FTE") employees increased by 20, or 4.6%, to 456 FTE.  Annual pay increases in 2020 were an average of 3.3%.  Employee insurance decreased 4.1% for 2020.  Commission expense increased $418.1 thousand, or 88.7%, and overtime expense increased $166.2 thousand, or 119.2%, both as a result of increased loan activity.

The increase in net occupancy is a result of the COVID-19 pandemic related increases in janitorial services and supplies of $123 thousand.

The increase in professional services costs is the result of increased consulting services to implement cost savings and customer services.

The decrease in ATM/interchange expense is primarily due to a settlement received in the second quarter of 2020 and savings realized by a vendor change. 

The increase in software maintenance expense is due to a general increase in software maintenance contracts.

The increase in other operating expense is primarily due to increases in loan origination expense of $137.4 thousand, Mortgage Servicing Rights ("MSR") valuation expense of $121.6 thousand, postage expense of $50.4 thousand, communications expense of $38.6 thousand and education and training expense of $25.0 thousand.  These increases were partially offset by a decrease in travel and lodging expense of $182.3 thousand.

The efficiency ratio was 61.7% for the quarter ended June 30, 2020 compared to 61.1% for the quarter ended June 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 second quarter 2020 was 11.3% compared to 15.1% in 2019.

For the six months ended June 30, 2020, noninterest expense totaled $36.0 million, an increase of $2.9 million, or 8.7%, compared to the same period in the prior year.

Compensation expense increased due to an increase in employees, annual pay increases and commission expense.  FTE employees increased by 21, or 4.8%, to 454 FTE.  Annual pay increases in 2020 were an average of 3.3%.  Employee insurance increased 2.6% for 2020.  Commission expense increased $508.7 thousand, or 54.8%, and overtime expense increased $189.6 thousand, or 78.5%, both as a result of increased loan activity.

The decrease in ATM/Interchange expense is primarily due to a settlement received in the second quarter of 2020 and savings realized by a vendor change. 

The increase in software maintenance expense is due to a general increase in software maintenance contracts.

The increase in other operating expense is primarily due to increases in loan origination expense of $207.5 thousand, MSR valuation expense of $162.7 thousand, postage expense of $100.9 thousand, communications expense of $55.2 thousand, ATM/debit card losses of $51.5 thousand and education and training expense of $50.0 thousand.  These increases were partially offset by a decrease in travel and lodging expense of $255.4 thousand.

The efficiency ratio was 61.2% for the six months ended June 30, 2020 compared to 59.5% for the six months ended June 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 six months of 2020 was 12.2% compared to 15.8% in same period in 2019.   

Balance Sheet

Total assets increased $502.6 million, or 21.8%, from December 31, 2019 to June 30, 2020, due primarily to a $314.0 million, or 18.4%, increase in the loan portfolio.  Loans that are held for sale increased $16.2 million, or 710.6%, and cash increased $148.0 million, primarily related to the proceeds from Small Business Association's ("SBA") Paycheck Protection Program ("PPP") loans held on deposit.       

Loan growth during 2020 totaled $314.0 million, including $257.6 million of PPP loans.  Otherwise, loan growth was led by increases of $61.9 million in Commercial Real Estate and $22.5 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 Central Ohio market.  The decrease in Residential Real Estate was expected as we successfully refinance many on balance sheet mortgages and home equity loans into saleable mortgage products.  All regions have contributed to the growth in the first six 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 six months of 2020 processed 2,290 loans totaling $257.6 million.  SBA fees, which will be earned over the life of the PPP loans, total approximately $9.8 million, which are being recognized in interest income over the life of the loans.  We are approved to borrow from the Paycheck Protection Program Lending Facility ("PPPLF"), and have borrowed $183.7 million.

"By participating in the SBA PPP lending program we were able to directly assist our small business customers, impacting more than 36,000 jobs.  This program will make a real difference in the businesses and lives of our customers and their employees," said Dennis G. Shaffer, President and CEO of Civista.

COVID-19 Loan Modifications

During the first six months, Civista modified 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 the time of the modification and comply with the provisions of the CARES Act to not be considered a troubled debt restructuring.  Details with respect to actual loan modifications processed through June 30, 2020 are as follows:

"We took a very proactive approach with our customers to offer deferrals with the onset of COVID-19 and the stay at home orders. The deferrals were for 90 days and many are expiring late this month," said Dennis G. Shaffer, President and CEO of Civista.

Total deposits increased $390.5 million, or 23.3%, from December 31, 2019 to June 30, 2020. 

The increase in noninterest-bearing demand of $181.3 million was due to a $134.1 million increase in business demand deposit accounts and a $21.4 million increase in personal demand deposit accounts.  Much of the increase in the business demand deposit accounts is due to the PPP loan proceeds.  Interest-bearing demand deposits increased, primarily due to increases in 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.  The increase in time deposits is due to public fund time deposit accounts.  

FHLB advances totaled $125.0 million at June 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

Civista approved a share repurchase plan in December 2019, authorizing the repurchase of up to 672,000 shares of outstanding common stock.  As of April 4 2020, Civista repurchased all 672,000 shares for $11.4 million, which equates to a weighted average price of $16.90 per share.  A new share repurchase program for $13.5 million was approved in April 2020.  There have not been any share repurchases under this new program. 

Shareholder Equity

Total shareholders' equity increased $6.5 million, or 2.0%, from December 31, 2019 to June 30, 2020 as a result of a $10.7 million increase in retained earnings and an increase in other comprehensive income of $6.8 million.  These increases were partially offset by an $11.5 million decrease related to the repurchase of shares.         

Asset Quality

Civista recorded net recoveries of $41 thousand for the six months of 2020 compared to net recoveries of $107 thousand for the same period of 2019.  The allowance for loan losses to loans was 1.01% at June 30, 2020 and 0.86% at December 31, 2019.   The allowance ratio at June 30, 2020, without the PPP loans was 1.16%.     

Non-performing assets at June 30, 2020 were $7.8 million, a 14.6% decrease from December 31, 2019. The non-performing assets to assets ratio decreased to 0.28% from 0.39% at December 31, 2019.  The allowance for loan losses to non-performing loans increased to 262.13% 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 second quarter of 2020 at 1:00 p.m. ET on Friday, July 24, 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. second 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". 

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

SOURCE Civista Bancshares, Inc.

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