Civista Bancshares, Inc. (CIVB) Earnings Call Transcript & Summary

Good morning and welcome to the Civista Bancshares, Inc.'s 2020 Annual Shareholder Meeting. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Civista Bancshares' Chairman, Mr. James O. Miller. Please go ahead, sir.

Good morning, everyone. Welcome to the Annual Meeting of the Shareholders of Civista Bancshares. Due to the extraordinary circumstances that we find ourselves in and pursuant to recent public filings and notices, this meeting is being conducted by telephone to the extent possible. We certainly want to thank you for your cooperation and understanding. With that, we will call the meeting to order. We have today, Dennis Shaffer, CEO and President of Civista Bancshares; Lance Morrison, Corporate Secretary of Civista Bancshares; Amy Grant, our recording secretary; Ian McDowell from S.R. Snodgrass, P.C., who will be available to respond to questions from shareholders; and Tony Weiss from the firm of Vorys, Sater, Seymour and Pease. As Chairman, I have appointed [ Kimberly Koskowitz ] of American Stock Transfer & Trust Company as inspector of election. Ms. Koskowitz is participating by telephone as well.

Good morning. This is Lance Morrison, Corporate Secretary. Will the inspector present the Affidavit regarding notice of the meeting, please?

Good morning. I present the Affidavit of American Stock Transfer & Trust Company, LLC showing that the notice of this Annual Meeting of Shareholders was duly mailed, postage-paid on March 16, 2020, to each shareholder of record on February 21, 2020 and that each was accompanied by a proxy statement, proxy card and the 2019 annual report to shareholders of the company.

Thank you. Pursuant to the company's regulations, the holders of a majority of the outstanding Civista common shares must be present in person or by proxy at this Annual Meeting in order to constitute a quorum. Can the inspector tell us whether there is a quorum present?

Yes. On February 21, 2020, the record date for this meeting, there were 16,573,615 common shares outstanding and eligible to vote at this meeting. There are 14,089,436 shares present in person or by proxy, which is 85% of the total shares outstanding and eligible to vote. A quorum is present.

This is Jim Miller. Based on this count, a quorum is present and the meeting is lawfully convened. First item I have are the minutes of the April 16, 2019, Annual Meeting of Shareholders, at your pleasure.

Could we have a motion please?

If your phones are on mute, we'll need you to take them off.

Okay. I move that we dispense with the reading of the minutes.

Thank you, Al.

This is Harry Singer. I second the motion.

Thank you, Harry. May I have a motion and a second to dispense with the reading of last year's minutes? All in favor, please signify by saying an aye. [Voting]

So moved. There are 3 matters to be considered and voted upon at this meeting today. We will introduce an appropriate resolution with respect to each matter to be acted upon. We will postpone the actual voting on each matter, however, until all resolutions have been introduced.

This is Lance Morrison. As previously indicated, this meeting is taking place by phone and webcast. However, if any shareholder has determined to attend in person, we have placed these persons in other rooms, if necessary, in order -- excuse me, in accordance with the social distancing requirements of the Governor of Ohio's order. Therefore, they are able to hear the meeting and present themselves as necessary. If any stockholder has not registered on our attendance sheets as they entered or if any proxy holder has not delivered his or her proxy to the inspector of election, will he or she please do so now? The individual proctoring with you can assist you. If your shares are registered in your name or you hold a legal proxy from your brokerage firm and you wish to vote in person, then you must revoke your proxy and complete a ballot at this meeting. If you wish to vote in person by ballot, please so indicate to your proctor, who will assist you in registering with the inspector of elections and will further assist you. We will pass out ballots after all matters have been presented.

The first matter to be considered and voted upon is the election of the nominees of the Board listed in the proxy. As there is no such notice of any other nominations as required by Article 3 Section 2 of the regulations, the nominations are closed. Can I have a motion to elect the slate nominated?

This is Julie Mattlin. I move for the election of the slate nominated by the Board.

Thank you, Julie. May I have a second?

If your phones are muted, we may need you to unmute your phones.

This is Dennis Shaffer. I second the motion.

Thank you, Dennis. Proposal #2. The second matter to be considered and voted upon is a proposal to approve in a nonbinding advisory vote the compensation of the corporation's named executive officers as disclosed in the proxy statement for this Annual Meeting. May I have a motion on this proposal?

This is Allen Nickles. So moved.

Thank you, Al. May I have a second?

This is Harry Singer. I second the motion.

Thank you, Harry. The third and final matter to be considered and voted upon is the proposal to ratify the appointment of S.R. Snodgrass, P.C. as the independent publicly -- public accounting firm of the corporation for the fiscal year ending December 31, 2020. May I have a motion on this proposal?

This is Dennis Shaffer. So moved.

If Dennis Murray is not available, I'll move that we do that.

All right. Thank you, Al.

Thank you, Al. May I have a second?

This is Julie Mattlin. I second the motion.

Thank you, Julie.

Ms. Rhenish, on behalf of the inspector of election, we'll now pass out a ballot to anyone who wishes to vote in person. Only those shareholders who have not voted by proxy or who wish to revoke a previously given proxy and vote in person should request a ballot. We have determined that there are no individuals present who need a ballot. So we will -- the polls are now closed.

We will proceed with our management presentation while the inspector continues her count of the ballots. At the conclusion of Mr. Shaffer's presentation, we will take shareholder questions. Dennis?

Thanks, Jim. Well, first of all, I would also like to welcome everyone to the 2020 Annual Meeting. These are unprecedented times for the bank in our country as we deal with the COVID-19 situation. Given this, I thought I would just briefly review our 2019 performance and then spend the remainder of time discussing how we here at Civista are dealing with the crisis and what we are doing to help our customers and our communities. I would like to start off my comments by thanking all of our employees for their hard work and for the commitment that they make to the bank and to their communities. 2019 was a strong and successful year for the organization. We recorded record revenue and net income as we earned $33.2 million on revenue of $120.5 million. All of our business lines contributed significantly to our success. The bank is now $2.3 billion in asset size, and we operate 35 full-service branches and 2 loan production offices throughout Ohio, Southeastern Indiana and Northern Kentucky. Results of our financial performance in 2019 rank Civista as one of the top-performing banks in Ohio and in the Midwest. The bank is well capitalized and in a strong position to serve our clients. Our consistently strong earnings have allowed us to build capital over the years, and our equity-to-capital ratio is a healthy 14.29%. Our return on average assets for the year was 1.51%, and our net interest margin expanded by 10 basis points to 4.31%. On the lending side, we grew our loans by 9.4% or $147 million. We also had record production from our residential mortgage lenders who generated nearly $125 million in secondary market loans, creating an additional $1.1 million more in income than in the previous year. Our loan portfolio balance at the end of the year was $1.7 billion. On the deposit side, we grew deposit balances by 6.3% or $98.9 million, with $90.7 million of that growth in core deposit accounts. Approximately $73.5 million of that growth was in business and municipal operating accounts. We were also very successful in growing our noninterest income, which totaled $22.4 million. This was an increase of $4.3 million or 23.8% from the previous year and was primarily attributable to the acquisition of United Community Bancorp in the third quarter of 2018 and the previously mentioned strong residential mortgage banking production. All in all, 2019 was an outstanding year. We have numerous other accomplishments throughout the year that I won't go into this morning, and we currently have a number of initiatives and investments in technology underway that will make the organization more efficient and enhance the overall customer experience. I want now to turn my focus to the COVID-19 situation. My thoughts and prayers go out to all those that have been affected by the crisis. As the virus has spread, our focus has been on providing for our customers' financial needs and on the safety and well-being of all of our employees and customers. On March 11, we implemented our pandemic plan and started to identify issues and make decision. Many of these issues and decisions were based on recommendations from the Center of Disease Control, state and local health departments, the state of Ohio and our state and federal banking regulators. Some of our immediate decisions were to increase the bandwidth of all of our Internet lines to accommodate more employees working from home and to provide cleaning kits containing disinfectant wipes and sprays and hand sanitizers to all branches and offices. We also promoted hygiene protocols and encouraged employees who are sick to stay at home. By the next week, we had suspended business travel, restricted employee movement between offices, restricted vendor access to buildings, identified employees to work remotely from home and modified branch operations to drive-through only with lobby access by appointment only. All this was done to protect our employees and our customers. Today, we have approximately 70% of our employees working with secure access from home. Much of our business is being conducted electronically through our mobile and online banking platforms, through secure e-mail and through Encompass, our electronic mortgage banking platform. Customer meetings are generally held via telephone or teleconference through a product known as Zoom. The process has worked surprisingly well with production levels across several business lines at record levels. Thankfully, we have had no employees contract the virus. Our absenteeism is at 3.5%, which is at or below precrisis levels and we have not furloughed any employees. When the stay-at-home orders are eventually lifted, I do expect us to continue to operate in this manner for the near term as it is the safest available option for our employees and customers. At Civista, we also have a long history of working with our customers in good times and in challenging times. To quote our Chairman, Jim Miller, who stated during the 2009 recession, if a customer is willing to work with us during these troubled times, we're willing to work with them. That philosophy has served us well over time and is still prevalent today. As the pandemic continues, Civista is offering financial assistance to all customers that are facing hardship as a result of COVID-19. Customers may be eligible for payment deferrals, waived -- late fee relief or waived penalties for early certificate of deposit redemption. In addition, we are waiving monthly service charge for all personal checking accounts through the month of April. As a preferred lender, Civista also participated in the Paycheck Protection Program, which was part of the Coronavirus Aid, Relief and Security Act that Congress enacted several weeks ago. The $349 billion program was designed to provide economic relief to small businesses that have been adversely impacted by the COVID-19 pandemic. The SBA began allocating money for this program on April 3. And by April 16, all funds in the program had been exhausted. During this time, Civista assisted 1,271 small businesses in our communities who borrowed over $186.5 million. These businesses employed over 27,000 employees. My thanks to the many talented employees in this organization who came together from all departments for working around the clock and on weekends to make this all happen. It was a top priority of ours to get this money into the hands of the small business owners in our communities, and we delivered. I also want to acknowledge our employees for their continued involvement and support that they provide to our local nonprofit agencies and charitable organizations across our footprint. Many of our employees volunteer their time and the bank donates significant dollars to these organizations each year. Many of the nonprofits and charitable organizations, especially our food banks and shelters, have been hit hard by the COVID-19 crisis, so your continued support is encouraged and welcome, and I want to thank those employees who are stepping up in this time of need. And finally, management retaining works on our capital plan, and as part of our pandemic exercise, we have run several severe stress scenarios to evaluate our capital and liquidity. In all of those severe stress scenarios, we do believe we have adequate capital and liquidity. We also believe that we have greatly enhanced our credit underwriting over the last 10 years. Our loan portfolio is diversified throughout our footprint with none of our operating regions holding more than 25% of our assets. Furthermore, there is no one industry that represents concentration risk. We do recognize that there was a great deal of unknown at this time as we do not know when the pandemic will end or when all businesses will open. We also do not know what the short and long-term impact of the pandemic will have on consumers and businesses throughout our footprint. But what we do know is that the banks are in the risk business and that we evaluate and manage risk on a daily basis. Management has proven to be good stewards of capital, and we will continue to make decisions to ensure that we remain well capitalized to get us through these difficult times. I do want to thank everyone for their time this morning, and it's my hope that you all remain safe and healthy. We will open up the mics now as I -- and I would be glad to answer any questions that anybody might have.

[Operator Instructions] Our first question today comes from James McGookey of Civista.

Dennis, I realize what you guys are going through, and I wanted to first compliment all of you -- all of the people at the bank. And I know you're doing yeoman duties. My question is with the SBA program, you've mentioned how many loans you've made and the amount of loans that are outstanding. Does the bank stand to make any money on that or they basically break even with 1% interest?

No, I think we will make some monies, but particularly year 1 -- it's a 2-year note. The hope is that most of the majority of those are forgiven after a period of time. But we do stand to make -- we get fees on each of those. And so there were some significant fees associated with those loans. So in addition, they put in a funding, the Fed is also putting funding that we can borrow through the discount window at 35 basis points. So we'll make a little bit there. Overall, we'll have a negative impact on our overall spread, on our overall margin, but we'll offset that with the volume. And year 1, we should make fees on -- we should make income on the fees that we collect.

Okay. Well, thanks. Keep up the good work.

Thank you.

[Operator Instructions] I am showing no further questions at this time. This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Miller for the results of the voting.

Thank you. May I have the election results for the election of directors, please?

Yes. This is Kimberly Koskowitz, and I have inspected the signed proxies and ballots, and the 10 nominees have received the greatest number of the votes cast for election.

I declare that each of the nominees has been duly elected and qualified as a director for the coming year. May I have the voting results on the issue of executive compensation?

Yes. This is Kimberly Koskowitz, and I have inspected the signed proxies and ballots, and I can report that a majority of the votes cast have been cast in favor of the nonbinding advisory resolution to approve the compensation of the corporation's named executive officers as disclosed in the proxy statement.

The proposal regarding the executive compensation has passed. May I have the voting results on the approval of the independent public accounting firm?

Yes. This is Kimberly Koskowitz, and I have inspected the signed proxies and ballots, and I can report that a majority of the votes cast have been cast in favor of approval of the public accounting firm.

The proposal to approve SPC as the corporation's independent public accounting firm for 2020 has passed. Any comments from shareholders? If not, and before we adjourn, I just wanted to comment myself. Having been in this similar situation 10 years ago, I can really compliment Dennis Shaffer and the management team for their proactive work, getting to our customers, keeping the customers and the employees safe and being so well prepared for what we still don't know what's going to hit us. So it's a great job. Shareholders should be very proud. I am. If there are no other matters to come properly before this Annual Meeting, may I have a motion to adjourn?

This is Allen Nickles. I move to adjourn.

Thank you, Al.

This is Harry Singer. I second the motion.

All right. Thank you, Harry. This meeting is adjourned. I hope to see you all in person next year.

Amen to that.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.