UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended - September 30, 2022March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
|
|
For the transition period from to to
Commission File Number: 001-36192
Civista Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Ohio | 34-1558688 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
100 East Water Street, Sandusky, Ohio | 44870 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (419) (419) 625-4121
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common | CIVB | NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at NovemberMay 3, 2022—15,727,3602023—15,768,410 shares
CIVISTA BANCSHARES, INC.
CIVISTA BANCSHARES, INC.Index
Index
PART I. | 2 | ||||||
Item 1. | 2 | ||||||
Consolidated Balance Sheets (Unaudited) | 2 |
| |||||
3 |
| ||||||
4 |
| ||||||
5 |
| ||||||
6 |
| ||||||
Notes to Interim Consolidated Financial Statements (Unaudited) | 7-38 |
| |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 39-48 |
| ||||
Item 3. | 49-50 |
| |||||
Item 4. | 51 |
| |||||
PART II. |
| ||||||
Item 1. | 52 |
| |||||
Item 1A. | 52 |
| |||||
Item 2. | 52 |
| |||||
Item 3. | 52 |
| |||||
Item 4. | 52 |
| |||||
Item 5. | 52 |
| |||||
Item 6. | 53 |
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| |||||||
Part I – Financial Information
ITEM 1. Financial Statements
|
|
CIVISTA BANCSHARES, INC.
Consolidated Balance Sheets
(In thousands, except share data)
|
| September 30, 2022 |
|
|
|
|
|
| March 31, 2023 |
|
|
|
| |||
|
| (Unaudited) |
|
| December 31, 2021 |
|
| (Unaudited) |
|
| December 31, 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash and due from financial institutions |
| $ | 40,914 |
|
| $ | 253,459 |
|
| $ | 52,723 |
|
| $ | 43,361 |
|
Restricted cash |
|
| - |
|
|
| 10,780 |
| ||||||||
Cash and cash equivalents |
|
| 40,914 |
|
|
| 264,239 |
| ||||||||
Investments in time deposits |
|
| 1,479 |
|
|
| 1,730 |
|
|
| 1,721 |
|
|
| 1,477 |
|
Securities available-for-sale |
|
| 602,046 |
|
|
| 559,874 |
|
|
| 627,707 |
|
|
| 615,402 |
|
Equity securities |
|
| 2,028 |
|
|
| 1,072 |
|
|
| 2,122 |
|
|
| 2,190 |
|
Loans held for sale |
|
| 3,491 |
|
|
| 1,972 |
|
|
| 1,465 |
|
|
| 683 |
|
Loans, net of allowance of $27,773 and $26,641 |
|
| 2,300,841 |
|
|
| 1,971,238 |
| ||||||||
Loans, net of allowance for credit losses of $34,196 and $28,511 |
|
| 2,545,870 |
|
|
| 2,518,155 |
| ||||||||
Other securities |
|
| 18,578 |
|
|
| 17,011 |
|
|
| 35,383 |
|
|
| 33,585 |
|
Premises and equipment, net |
|
| 30,168 |
|
|
| 22,445 |
|
|
| 61,895 |
|
|
| 64,018 |
|
Accrued interest receivable |
|
| 9,175 |
|
|
| 7,385 |
|
|
| 10,254 |
|
|
| 11,178 |
|
Goodwill |
|
| 101,652 |
|
|
| 76,851 |
|
|
| 125,078 |
|
|
| 125,695 |
|
Other intangible assets, net |
|
| 11,554 |
|
|
| 7,581 |
|
|
| 10,730 |
|
|
| 10,759 |
|
Bank owned life insurance |
|
| 53,291 |
|
|
| 46,641 |
|
|
| 53,796 |
|
|
| 53,543 |
|
Swap assets |
|
| 18,448 |
|
|
| 11,072 |
|
|
| 13,350 |
|
|
| 16,579 |
|
Deferred taxes |
|
| 25,118 |
|
|
| 980 |
|
|
| 17,196 |
|
|
| 16,009 |
|
Other assets |
|
| 22,936 |
|
|
| 22,814 |
|
|
| 25,268 |
|
|
| 25,196 |
|
Total assets |
| $ | 3,241,719 |
|
| $ | 3,012,905 |
|
| $ | 3,584,558 |
|
| $ | 3,537,830 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Noninterest-bearing |
| $ | 944,241 |
|
| $ | 788,906 |
|
| $ | 938,967 |
|
| $ | 896,333 |
|
Interest-bearing |
|
| 1,764,012 |
|
|
| 1,627,795 |
|
|
| 1,904,549 |
|
|
| 1,723,651 |
|
Total deposits |
|
| 2,708,253 |
|
|
| 2,416,701 |
|
|
| 2,843,516 |
|
|
| 2,619,984 |
|
Short-term Federal Home Loan Bank advances |
|
| 55,000 |
|
|
| — |
|
|
| 212,000 |
|
|
| 393,700 |
|
Securities sold under agreements to repurchase |
|
| 20,155 |
|
|
| 25,495 |
|
|
| 15,631 |
|
|
| 25,143 |
|
Long-term Federal Home Loan Bank advances |
|
| 6,723 |
|
|
| 75,000 |
|
|
| 3,361 |
|
|
| 3,578 |
|
Subordinated debentures |
|
| 103,778 |
|
|
| 103,735 |
|
|
| 103,841 |
|
|
| 103,799 |
|
Other borrowings |
|
| 13,938 |
|
|
| 15,516 |
| ||||||||
Swap liabilities |
|
| 18,448 |
|
|
| 11,072 |
|
|
| 13,350 |
|
|
| 16,579 |
|
Securities purchased payable |
|
| 2,611 |
|
|
| 3,524 |
|
|
| — |
|
|
| 1,338 |
|
Tax refunds in process |
|
| 2,709 |
|
|
| 549 |
|
|
| 5,752 |
|
|
| 278 |
|
Accrued expenses and other liabilities |
|
| 21,440 |
|
|
| 21,617 |
|
|
| 25,472 |
|
|
| 23,080 |
|
Total liabilities |
|
| 2,939,117 |
|
|
| 2,657,693 |
|
|
| 3,236,861 |
|
|
| 3,202,995 |
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Common shares, no par value, 40,000,000 shares authorized, 18,731,167 shares issued at September 30, 2022 and 17,709,584 shares issued at December 31, 2021, including Treasury shares |
|
| 299,515 |
|
|
| 277,741 |
| ||||||||
Common shares, no par value, 40,000,000 shares authorized, 19,276,857 shares issued |
|
| 310,412 |
|
|
| 310,182 |
| ||||||||
Retained earnings |
|
| 146,546 |
|
|
| 125,558 |
|
|
| 161,110 |
|
|
| 156,492 |
|
Treasury shares, 3,495,622 common shares at September 30, 2022 and 2,755,384 common shares at December 31, 2021, at cost |
|
| (73,641 | ) |
|
| (56,907 | ) | ||||||||
Accumulated other comprehensive income (loss) |
|
| (69,818 | ) |
|
| 8,820 |
| ||||||||
Treasury shares, 3,508,447 common shares at March 31, 2023 and 3,502,827 common |
|
| (73,915 | ) |
|
| (73,794 | ) | ||||||||
Accumulated other comprehensive loss |
|
| (49,910 | ) |
|
| (58,045 | ) | ||||||||
Total shareholders’ equity |
|
| 302,602 |
|
|
| 355,212 |
|
|
| 347,697 |
|
|
| 334,835 |
|
Total liabilities and shareholders’ equity |
| $ | 3,241,719 |
|
| $ | 3,012,905 |
|
| $ | 3,584,558 |
|
| $ | 3,537,830 |
|
See notes to interim unaudited consolidated financial statements
Page 2
CIVISTA BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
|
| Three months ended |
|
| Nine Months Ended |
|
| Three months ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Interest and dividend income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Loans, including fees |
| $ | 27,176 |
|
| $ | 22,704 |
|
| $ | 70,065 |
|
| $ | 68,140 |
|
| $ | 36,398 |
|
| $ | 21,038 |
|
Taxable securities |
|
| 2,936 |
|
|
| 1,423 |
|
|
| 6,431 |
|
|
| 3,928 |
|
|
| 2,834 |
|
|
| 1,720 |
|
Tax-exempt securities |
|
| 1,998 |
|
|
| 1,555 |
|
|
| 5,669 |
|
|
| 4,599 |
|
|
| 2,262 |
|
|
| 1,789 |
|
Deposits in other banks |
|
| 423 |
|
|
| 102 |
|
|
| 1,098 |
|
|
| 341 |
|
|
| 45 |
|
|
| 119 |
|
Total interest and dividend income |
|
| 32,533 |
|
|
| 25,784 |
|
|
| 83,263 |
|
|
| 77,008 |
|
|
| 41,539 |
|
|
| 24,666 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Deposits |
|
| 936 |
|
|
| 970 |
|
|
| 2,351 |
|
|
| 3,366 |
|
|
| 3,232 |
|
|
| 705 |
|
Federal Home Loan Bank advances |
|
| 181 |
|
|
| 194 |
|
|
| 564 |
|
|
| 968 |
|
|
| 4,277 |
|
|
| 190 |
|
Subordinated debentures |
|
| 975 |
|
|
| 182 |
|
|
| 2,701 |
|
|
| 553 |
|
|
| 1,169 |
|
|
| 836 |
|
Securities sold under agreements to repurchase and other |
|
| 2 |
|
|
| 5 |
|
|
| 8 |
|
|
| 19 |
|
|
| 260 |
|
|
| 3 |
|
Total interest expense |
|
| 2,094 |
|
|
| 1,351 |
|
|
| 5,624 |
|
|
| 4,906 |
|
|
| 8,938 |
|
|
| 1,734 |
|
Net interest income |
|
| 30,439 |
|
|
| 24,433 |
|
|
| 77,639 |
|
|
| 72,102 |
|
|
| 32,601 |
|
|
| 22,932 |
|
Provision for loan losses |
|
| 300 |
|
|
| — |
|
|
| 1,000 |
|
|
| 830 |
| ||||||||
Provision for credit losses |
|
| 620 |
|
|
| 300 |
| ||||||||||||||||
Net interest income after provision for loan losses |
|
| 30,139 |
|
|
| 24,433 |
|
|
| 76,639 |
|
|
| 71,272 |
|
|
| 31,981 |
|
|
| 22,632 |
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Service charges |
|
| 1,885 |
|
|
| 1,519 |
|
|
| 5,004 |
|
|
| 4,092 |
|
|
| 1,773 |
|
|
| 1,579 |
|
Net gain on sale of securities |
|
| 4 |
|
|
| 4 |
|
|
| 10 |
|
|
| 1,787 |
| ||||||||
Net gain (loss) on equity securities |
|
| (133 | ) |
|
| 50 |
|
|
| (44 | ) |
|
| 191 |
|
|
| (68 | ) |
|
| 50 |
|
Net gain on sale of loans |
|
| 637 |
|
|
| 1,612 |
|
|
| 2,146 |
|
|
| 6,575 |
|
|
| 631 |
|
|
| 936 |
|
ATM/Interchange fees |
|
| 1,394 |
|
|
| 1,330 |
|
|
| 3,990 |
|
|
| 3,950 |
|
|
| 1,353 |
|
|
| 1,241 |
|
Wealth management fees |
|
| 1,208 |
|
|
| 1,236 |
|
|
| 3,713 |
|
|
| 3,570 |
|
|
| 1,193 |
|
|
| 1,277 |
|
Lease revenue and residual income |
|
| 2,046 |
|
|
| — |
| ||||||||||||||||
Bank owned life insurance |
|
| 255 |
|
|
| 261 |
|
|
| 732 |
|
|
| 752 |
|
|
| 253 |
|
|
| 244 |
|
Tax refund processing fees |
|
| — |
|
|
| — |
|
|
| 2,375 |
|
|
| 2,375 |
|
|
| 1,900 |
|
|
| 1,900 |
|
Swap fees |
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| 135 |
|
|
| 61 |
|
|
| — |
|
Other |
|
| 484 |
|
|
| 373 |
|
|
| 1,086 |
|
|
| 1,214 |
|
|
| 1,926 |
|
|
| 416 |
|
Total noninterest income |
|
| 5,734 |
|
|
| 6,426 |
|
|
| 19,012 |
|
|
| 24,641 |
|
|
| 11,068 |
|
|
| 7,643 |
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Compensation expense |
|
| 12,484 |
|
|
| 11,390 |
|
|
| 36,654 |
|
|
| 34,578 |
|
|
| 15,105 |
|
|
| 12,223 |
|
Net occupancy expense |
|
| 1,252 |
|
|
| 985 |
|
|
| 3,428 |
|
|
| 3,216 |
|
|
| 1,359 |
|
|
| 1,150 |
|
Equipment expense |
|
| 637 |
|
|
| 444 |
|
|
| 1,694 |
|
|
| 1,340 |
|
|
| 2,761 |
|
|
| 495 |
|
Contracted data processing |
|
| 846 |
|
|
| 429 |
|
|
| 1,899 |
|
|
| 1,362 |
|
|
| 520 |
|
|
| 620 |
|
FDIC assessment |
|
| 170 |
|
|
| 247 |
|
|
| 568 |
|
|
| 829 |
|
|
| 248 |
|
|
| 203 |
|
State franchise tax |
|
| 629 |
|
|
| 511 |
|
|
| 1,848 |
|
|
| 1,607 |
|
|
| 526 |
|
|
| 591 |
|
Professional services |
|
| 1,335 |
|
|
| 776 |
|
|
| 3,593 |
|
|
| 2,255 |
|
|
| 1,555 |
|
|
| 1,049 |
|
Amortization of intangible assets |
|
| 456 |
|
|
| 223 |
|
|
| 890 |
|
|
| 668 |
|
|
| 398 |
|
|
| 217 |
|
ATM/Interchange expense |
|
| 604 |
|
|
| 594 |
|
|
| 1,659 |
|
|
| 1,843 |
|
|
| 580 |
|
|
| 513 |
|
Marketing |
|
| 372 |
|
|
| 359 |
|
|
| 1,069 |
|
|
| 1,000 |
|
|
| 505 |
|
|
| 317 |
|
Software maintenance expense |
|
| 942 |
|
|
| 819 |
|
|
| 2,440 |
|
|
| 1,872 |
|
|
| 878 |
|
|
| 708 |
|
Other operating expenses |
|
| 2,828 |
|
|
| 2,474 |
|
|
| 7,450 |
|
|
| 10,132 |
|
|
| 3,198 |
|
|
| 2,172 |
|
Total noninterest expense |
|
| 22,555 |
|
|
| 19,251 |
|
|
| 63,192 |
|
|
| 60,702 |
|
|
| 27,633 |
|
|
| 20,258 |
|
Income before taxes |
|
| 13,318 |
|
|
| 11,608 |
|
|
| 32,459 |
|
|
| 35,211 |
|
|
| 15,416 |
|
|
| 10,017 |
|
Income tax expense |
|
| 2,206 |
|
|
| 1,966 |
|
|
| 5,180 |
|
|
| 5,647 |
|
|
| 2,528 |
|
|
| 1,551 |
|
Net Income |
| $ | 11,112 |
|
| $ | 9,642 |
|
| $ | 27,279 |
|
| $ | 29,564 |
|
| $ | 12,888 |
|
| $ | 8,466 |
|
Earnings per common share, basic |
| $ | 0.72 |
|
| $ | 0.64 |
|
| $ | 1.82 |
|
| $ | 1.90 |
|
| $ | 0.82 |
|
| $ | 0.57 |
|
Earnings per common share, diluted |
| $ | 0.72 |
|
| $ | 0.64 |
|
| $ | 1.82 |
|
| $ | 1.90 |
|
| $ | 0.82 |
|
| $ | 0.57 |
|
Weighted average common shares, basic |
|
| 15,323,294 |
|
|
| 15,096,162 |
|
|
| 14,907,539 |
|
|
| 15,479,424 |
| ||||||||
Weighted average common shares, diluted |
|
| 15,323,294 |
|
|
| 15,096,162 |
|
|
| 14,907,539 |
|
|
| 15,479,424 |
| ||||||||
See notes to interim unaudited consolidated financial statements
Page 3
CIVISTA BANCSHARES, INC.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Net income |
| $ | 11,112 |
|
| $ | 9,642 |
|
| $ | 27,279 |
|
| $ | 29,564 |
|
| $ | 12,888 |
|
| $ | 8,466 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Unrealized holding losses on available-for-sale securities |
|
| (29,926 | ) |
|
| (3,107 | ) |
|
| (99,837 | ) |
|
| (6,977 | ) | ||||||||
Unrealized holding gains (losses) on available-for-sale securities |
|
| 10,302 |
|
|
| (37,446 | ) | ||||||||||||||||
Tax effect |
|
| 6,300 |
|
|
| 652 |
|
|
| 21,043 |
|
|
| 1,465 |
|
|
| (2,167 | ) |
|
| 7,882 |
|
Reclassification of gains recognized in net income |
|
| (4 | ) |
|
| (4 | ) |
|
| (10 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
Tax effect |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Pension liability adjustment |
|
| 69 |
|
|
| 81 |
|
|
| 208 |
|
|
| 244 |
|
|
| — |
|
|
| 69 |
|
Tax effect |
|
| (15 | ) |
|
| (17 | ) |
|
| (44 | ) |
|
| (51 | ) |
|
| — |
|
|
| (14 | ) |
Total other comprehensive loss |
|
| (23,576 | ) |
|
| (2,395 | ) |
|
| (78,638 | ) |
|
| (5,321 | ) | ||||||||
Total other comprehensive income (loss)loss |
|
| 8,135 |
|
|
| (29,509 | ) | ||||||||||||||||
Comprehensive income (loss) |
| $ | (12,464 | ) |
| $ | 7,247 |
|
| $ | (51,359 | ) |
| $ | 24,243 |
|
| $ | 21,023 |
|
| $ | (21,043 | ) |
See notes to interim unaudited consolidated financial statements
Page 4
CIVISTA BANCSHARES, INC.
(In thousands, except share data)
|
| Common Shares |
|
|
|
|
|
|
|
|
|
| Accumulated Other |
|
| Total |
| |||||||||||||||||||||||||||||||
|
| Outstanding Shares |
|
| Amount |
|
| Retained Earnings |
|
| Treasury Shares |
|
| Comprehensive Income (Loss) |
|
| Shareholders’ Equity |
|
| Common Shares |
|
|
|
|
|
|
|
| Accumulated |
|
| Total |
| |||||||||||||||
Balance, June 30, 2022 |
|
| 14,537,433 |
|
| $ | 278,240 |
|
| $ | 137,592 |
|
| $ | (67,528 | ) |
| $ | (46,242 | ) |
| $ | 302,062 |
| ||||||||||||||||||||||||
|
| Outstanding |
|
| Amount |
|
| Retained |
|
| Treasury |
|
| Comprehensive |
|
| Shareholders’ |
| ||||||||||||||||||||||||||||||
Balance, December 31, 2022 |
|
| 15,728,234 |
|
| $ | 310,182 |
|
| $ | 156,492 |
|
| $ | (73,794 | ) |
| $ | (58,045 | ) |
| $ | 334,835 |
| ||||||||||||||||||||||||
Cumulative-effect adjustment for adoption of |
|
| — |
|
|
| — |
|
|
| (6,069 | ) |
|
| — |
|
|
| — |
|
|
| (6,069 | ) | ||||||||||||||||||||||||
Balance January 1, 2023 |
|
| 15,728,234 |
|
| $ | 310,182 |
|
| $ | 150,423 |
|
| $ | (73,794 | ) |
| $ | (58,045 | ) |
| $ | 328,766 |
| ||||||||||||||||||||||||
Net Income |
|
| — |
|
|
| — |
|
|
| 11,112 |
|
|
| — |
|
|
| — |
|
|
| 11,112 |
|
|
| — |
|
|
| — |
|
|
| 12,888 |
|
|
| — |
|
|
| — |
|
|
| 12,888 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,576 | ) |
|
| (23,576 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,135 |
|
|
| 8,135 |
|
Stock-based compensation |
|
| — |
|
|
| 153 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 153 |
|
|
| 45,796 |
|
|
| 230 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 230 |
|
Stock issued for acquisition of Comunibanc Corp. |
|
| 984,723 |
|
|
| 21,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,122 |
| ||||||||||||||||||||||||
Common stock dividends ($0.14 per share) |
|
| — |
|
|
| — |
|
|
| (2,158 | ) |
|
| — |
|
|
| — |
|
|
| (2,158 | ) | ||||||||||||||||||||||||
Common stock dividends |
|
| — |
|
|
| — |
|
|
| (2,201 | ) |
|
| — |
|
|
| — |
|
|
| (2,201 | ) | ||||||||||||||||||||||||
Purchase of common stock |
|
| (286,611 | ) |
|
| — |
|
|
| — |
|
|
| (6,113 | ) |
|
| — |
|
|
| (6,113 | ) |
|
| (5,620 | ) |
|
| — |
|
|
| — |
|
|
| (121 | ) |
|
| — |
|
|
| (121 | ) |
Balance, September 30, 2022 |
|
| 15,235,545 |
|
| $ | 299,515 |
|
| $ | 146,546 |
|
| $ | (73,641 | ) |
| $ | (69,818 | ) |
| $ | 302,602 |
| ||||||||||||||||||||||||
Balance, March 31, 2023 |
|
| 15,768,410 |
|
| $ | 310,412 |
|
| $ | 161,110 |
|
| $ | (73,915 | ) |
| $ | (49,910 | ) |
| $ | 347,697 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Common Shares |
|
|
|
|
|
|
|
|
|
| Accumulated Other |
|
| Total |
|
| Common Shares |
|
|
|
|
|
|
|
| Accumulated |
|
| Total |
| ||||||||||||||||
|
| Outstanding Shares |
|
| Amount |
|
| Retained Earnings |
|
| Treasury Shares |
|
| Comprehensive Income |
|
| Shareholders’ Equity |
|
| Outstanding |
|
| Amount |
|
| Retained |
|
| Treasury |
|
| Comprehensive |
|
| Shareholders’ |
| ||||||||||||
Balance, June 30, 2021 |
|
| 15,434,592 |
|
| $ | 277,495 |
|
| $ | 109,178 |
|
| $ | (45,953 | ) |
| $ | 11,693 |
|
| $ | 352,413 |
| ||||||||||||||||||||||||
Balance, December 31, 2021 |
|
| 14,954,200 |
|
| $ | 277,741 |
|
| $ | 125,558 |
|
| $ | (56,907 | ) |
| $ | 8,820 |
|
| $ | 355,212 |
| ||||||||||||||||||||||||
Net Income |
|
| — |
|
|
| — |
|
|
| 9,642 |
|
|
| — |
|
|
| — |
|
|
| 9,642 |
|
|
| — |
|
|
| — |
|
|
| 8,466 |
|
|
| — |
|
|
| — |
|
|
| 8,466 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,395 | ) |
|
| (2,395 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29,509 | ) |
|
| (29,509 | ) |
Stock-based compensation |
|
| — |
|
|
| 132 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 132 |
|
|
| 31,774 |
|
|
| 178 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 178 |
|
Common stock dividends ($0.14 per share) |
|
| — |
|
|
| — |
|
|
| (2,140 | ) |
|
| — |
|
|
| — |
|
|
| (2,140 | ) | ||||||||||||||||||||||||
Common stock dividends |
|
| — |
|
|
| — |
|
|
| (2,090 | ) |
|
| — |
|
|
| — |
|
|
| (2,090 | ) | ||||||||||||||||||||||||
Purchase of common stock |
|
| (404,620 | ) |
|
| — |
|
|
| — |
|
|
| (9,202 | ) |
|
| — |
|
|
| (9,202 | ) |
|
| (188,760 | ) |
|
| — |
|
|
| — |
|
|
| (4,565 | ) |
|
| — |
|
|
| (4,565 | ) |
Balance, September 30, 2021 |
|
| 15,029,972 |
|
| $ | 277,627 |
|
| $ | 116,680 |
|
| $ | (55,155 | ) |
| $ | 9,298 |
|
| $ | 348,450 |
| ||||||||||||||||||||||||
Balance, March 31, 2022 |
|
| 14,797,214 |
|
| $ | 277,919 |
|
| $ | 131,934 |
|
| $ | (61,472 | ) |
| $ | (20,689 | ) |
| $ | 327,692 |
| ||||||||||||||||||||||||
See notes to interim unaudited consolidated financial statements
Page 5
CIVISTA BANCSHARES, INC.
Condensed Consolidated StatementStatements of Changes in Shareholders’ EquityCash Flows (Unaudited)
(In thousands, except share data)thousands)
|
| Common Shares |
|
|
|
|
|
|
|
|
|
| Accumulated Other |
|
| Total |
| |||||||
|
| Outstanding Shares |
|
| Amount |
|
| Retained Earnings |
|
| Treasury Shares |
|
| Comprehensive Income (Loss) |
|
| Shareholders’ Equity |
| ||||||
Balance, December 31, 2021 |
|
| 14,954,200 |
|
| $ | 277,741 |
|
| $ | 125,558 |
|
| $ | (56,907 | ) |
| $ | 8,820 |
|
| $ | 355,212 |
|
Net Income |
|
| — |
|
|
| — |
|
|
| 27,279 |
|
|
| — |
|
|
| — |
|
|
| 27,279 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78,638 | ) |
|
| (78,638 | ) |
Stock-based compensation |
|
| 36,860 |
|
|
| 652 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 652 |
|
Stock issued for acquisition of Comunibanc Corp. |
|
| 984,723 |
|
|
| 21,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,122 |
|
Common stock dividends ($0.42 per share) |
|
| — |
|
|
| — |
|
|
| (6,291 | ) |
|
| — |
|
|
| — |
|
|
| (6,291 | ) |
Purchase of common stock |
|
| (740,238 | ) |
|
| — |
|
|
| — |
|
|
| (16,734 | ) |
|
| — |
|
|
| (16,734 | ) |
Balance, September 30, 2022 |
|
| 15,235,545 |
|
| $ | 299,515 |
|
| $ | 146,546 |
|
| $ | (73,641 | ) |
| $ | (69,818 | ) |
| $ | 302,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Shares |
|
|
|
|
|
|
|
|
|
| Accumulated Other |
|
| Total |
| |||||||
|
| Outstanding Shares |
|
| Amount |
|
| Retained Earnings |
|
| Treasury Shares |
|
| Comprehensive Income |
|
| Shareholders’ Equity |
| ||||||
Balance, December 31, 2020 |
|
| 15,898,032 |
|
| $ | 277,039 |
|
| $ | 93,048 |
|
| $ | (34,598 | ) |
| $ | 14,619 |
|
| $ | 350,108 |
|
Net Income |
|
| — |
|
|
| — |
|
|
| 29,564 |
|
|
| — |
|
|
| — |
|
|
| 29,564 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,321 | ) |
|
| (5,321 | ) |
Stock-based compensation |
|
| 46,864 |
|
|
| 588 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 588 |
|
Common stock dividends ($0.38 per share) |
|
| — |
|
|
| — |
|
|
| (5,932 | ) |
|
| — |
|
|
| — |
|
|
| (5,932 | ) |
Purchase of common stock |
|
| (914,924 | ) |
|
| — |
|
|
| — |
|
|
| (20,557 | ) |
|
| — |
|
|
| (20,557 | ) |
Balance, September 30, 2021 |
|
| 15,029,972 |
|
| $ | 277,627 |
|
| $ | 116,680 |
|
| $ | (55,155 | ) |
| $ | 9,298 |
|
| $ | 348,450 |
|
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net cash provided by operating activities |
| $ | 19,794 |
|
| $ | 9,114 |
|
Cash flows used for investing activities: |
|
|
|
|
|
| ||
Maturities, paydowns and calls of securities, available-for-sale |
|
| 4,980 |
|
|
| 16,731 |
|
Purchases of securities, available-for-sale |
|
| (7,179 | ) |
|
| (47,156 | ) |
Purchase of other securities |
|
| (9,126 | ) |
|
| (1,500 | ) |
Redemption of other securities |
|
| 7,328 |
|
|
| — |
|
Net change in loans |
|
| (34,085 | ) |
|
| (18,809 | ) |
Proceeds from sale of premises and equipment |
|
| 692 |
|
|
| — |
|
Premises and equipment purchases |
|
| (1,245 | ) |
|
| (138 | ) |
Net cash used for investing activities |
|
| (38,635 | ) |
|
| (50,872 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Repayment of long-term FHLB advances |
|
| (217 | ) |
|
| — |
|
Net change in short-term FHLB advances |
|
| (181,700 | ) |
|
| — |
|
Repayment of other borrowings |
|
| (1,578 | ) |
|
| — |
|
Increase in deposits |
|
| 223,532 |
|
|
| 198,436 |
|
Decrease in securities sold under repurchase agreements |
|
| (9,512 | ) |
|
| (1,564 | ) |
Purchase of treasury shares |
|
| (121 | ) |
|
| (4,565 | ) |
Common dividends paid |
|
| (2,201 | ) |
|
| (2,090 | ) |
Net cash provided by financing activities |
|
| 28,203 |
|
|
| 190,217 |
|
Increasein cash and cash equivalents |
|
| 9,362 |
|
|
| 148,459 |
|
Cash and cash equivalents at beginning of period |
|
| 43,361 |
|
|
| 264,239 |
|
Cash and cash equivalents at end of period |
| $ | 52,723 |
|
| $ | 412,698 |
|
Cash paid during the period for: |
|
|
|
|
|
| ||
Interest |
| $ | 1,628 |
|
| $ | 570 |
|
Income taxes |
|
| 10 |
|
|
| — |
|
Supplemental cash flow information: |
|
|
|
|
|
| ||
Transfer of loans from portfolio to other real estate owned |
|
| 26 |
|
|
| — |
|
Change in fair value of swap asset |
|
| 3,229 |
|
|
| 4,220 |
|
Change in fair value of swap liability |
|
| (3,229 | ) |
|
| (4,220 | ) |
Securities purchased not settled |
|
| — |
|
|
| 1,876 |
|
|
|
|
|
|
|
| ||
See notes to interim unaudited consolidated financial statements
Page 6
CIVISTA BANCSHARES, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net cash provided by operating activities |
| $ | 27,421 |
|
| $ | 34,295 |
|
Cash flows used for investing activities: |
|
|
|
|
|
|
|
|
Maturities, paydowns and calls of investments in time deposits |
|
| 245 |
|
|
| — |
|
Proceeds from sale of time certificates |
|
| 742 |
|
|
| — |
|
Maturities, paydowns and calls of securities, available-for-sale |
|
| 36,910 |
|
|
| 41,492 |
|
Purchases of securities, available-for-sale |
|
| (117,974 | ) |
|
| (184,119 | ) |
Proceeds from sale of securities available-for-sale |
|
| 57,322 |
|
|
| — |
|
Purchase of other securities |
|
| (1,606 | ) |
|
| — |
|
Redemption of other securities |
|
| 1,592 |
|
|
| 3,526 |
|
Purchase of equity securities |
|
| (1,000 | ) |
|
| — |
|
Sale of equity securities |
|
| — |
|
|
| 1,785 |
|
Net change in loans |
|
| (158,909 | ) |
|
| 54,926 |
|
Proceeds from sale of other real estate owned properties |
|
| — |
|
|
| 118 |
|
Proceeds from sale of premises and equipment |
|
| — |
|
|
| 13 |
|
Acquisition, net of cash acquired |
|
| (21,870 | ) |
|
| — |
|
Premises and equipment purchases |
|
| (3,208 | ) |
|
| (1,689 | ) |
Net cash used for investing activities |
|
| (207,756 | ) |
|
| (83,948 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayment of long-term FHLB advances |
|
| (89,983 | ) |
|
| (50,000 | ) |
Net change in short-term FHLB advances |
|
| 55,000 |
|
|
| — |
|
Increase in deposits |
|
| 20,358 |
|
|
| 245,368 |
|
Decrease in securities sold under repurchase agreements |
|
| (5,340 | ) |
|
| (5,583 | ) |
Purchase of treasury shares |
|
| (16,734 | ) |
|
| (20,557 | ) |
Common dividends paid |
|
| (6,291 | ) |
|
| (5,932 | ) |
Net cash provided (used) by financing activities |
|
| (42,990 | ) |
|
| 163,296 |
|
Increase (decrease) in cash and cash equivalents |
|
| (223,325 | ) |
|
| 113,643 |
|
Cash and cash equivalents at beginning of period |
|
| 264,239 |
|
|
| 139,522 |
|
Cash and cash equivalents at end of period |
| $ | 40,914 |
|
| $ | 253,165 |
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
| $ | 4,969 |
|
| $ | 4,995 |
|
Income taxes |
|
| 3,737 |
|
|
| 4,690 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Transfer of loans from portfolio to other real estate owned |
|
| — |
|
|
| 26 |
|
Transfer of premises to held-for-sale |
|
| — |
|
|
| 73 |
|
Change in fair value of swap asset |
|
| (7,376 | ) |
|
| 8,906 |
|
Change in fair value of swap liability |
|
| 7,376 |
|
|
| (8,906 | ) |
Securities purchased not settled |
|
| 2,611 |
|
|
| 3,857 |
|
The Company purchased all of the capital stock of Comunibanc Corp. for $46,090 on July 1, 2022. In conjunction with the acquisition, liabilities were assumed as follows: |
|
|
|
|
|
|
|
|
Fair value of assets acquired |
| $ | 340,649 |
|
|
|
|
|
Less: common stock issued |
|
| 21,122 |
|
|
|
|
|
Cash paid for the capital stock |
|
| 24,968 |
|
|
|
|
|
Liabilities assumed |
| $ | 294,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to interim unaudited consolidated financial statements
Page 7
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(1) Consolidated Financial Statements
Nature of Operations and Principles of Consolidation: Civista Bancshares, Inc. (CBI) is an Ohio corporation and a registered financial holding company. The Consolidated Financial Statements include the accounts of CBI and its wholly-owned direct and indirect subsidiaries: Civista Bank (Civista), Vision Financial Group, Inc. (VFG), First Citizens Insurance Agency, Inc. (FCIA), Water Street Properties, Inc. (Water St.) and, CIVB Risk Management, Inc. (CRMI). CRMI is a wholly-owned captive insurance company which allows CBI and its subsidiaries to insure against certain risks unique to their operations. The operations of CRMI are located in Wilmington, Delaware. First Citizens Capital LLC (FCC) is wholly-owned by Civista and holds inter-company debt. The operations of FCC are located in Wilmington, Delaware. First Citizens Investments, Inc. (FCI) is wholly-owned by Civista and holds and manages its securities portfolio. The operations of FCI are located in Wilmington, Delaware. FCIA was formed to allow the Company to participate in commission revenue generated through its third-party insurance agreement. Water St. was formed to hold properties repossessed by CBI subsidiaries. The above companies together are referred to as the “Company.” Intercompany balances and transactions are eliminated in consolidation..Management considers the Company to operate primarily in one reportable segment, banking.
The Consolidated Financial Statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2022 and its results of operations and changes in cash flows for the periods ended September 30, 2022 and 2021 have been made. The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Company described in the notes to the audited financial statements contained in the Company’s 2021 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.
Civista provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa, Richland, Montgomery, Henry, Wood and Cuyahoga, in the Indiana counties of Dearborn and Ripley and in the Kentucky county of Kenton. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions that are in excess of federally insured limits. Civista also engages in a general equipment leasing and financing business through its wholly-owned subsidiary, VFG, which was acquired in October 2022 and is headquartered in Pittsburgh, Pennsylvania.
FCIA is wholly-owned by CBI and was formed to allow the Company to participate in commission revenue generated through its third-party insurance agreement. Water St. is wholly-owned by CBI and was formed to hold properties repossessed by CBI subsidiaries. CRMI is a captive insurance company that is wholly-owned by CBI and allows CBI and its subsidiaries to insure against certain risks unique to their operations. The operations of CRMI are located in Wilmington, Delaware. FCI is wholly-owned by Civista and holds and manages its securities portfolio. The operations of FCI are located in Wilmington, Delaware.
The above companies together are referred to as the “Company.” Intercompany balances and transactions are eliminated in consolidation.Management considers the Company to operate primarily in one reportable segment, banking.
The Consolidated Financial Statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position as of March 31, 2023 and its results of operations and changes in cash flows for the periods ended March 31, 2023 and 2022 have been made. The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended March 31, 2023 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Company described in the notes to the audited financial statements contained in the Company’s 2022 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.
(2) Significant Accounting Policies
Allowance for LoanCredit Losses: On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 introduces a new credit loss methodology, Current Expected Credit Losses ("CECL"), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for loancredit losses is regularly reviewed by management to determinea valuation account that is deducted from the amount is considered adequate to absorb probable losses in the loan portfolio. If not, an additional provision is made to increase the allowance. This evaluation includes specific loss estimates on certain individually reviewed impaired loans, the pooling of commercial credits risk graded as special mention and substandard that are not individually analyzed, and general loss estimates that are based upon the size, quality, and concentration characteristicsamortized cost basis of the various loan portfolios, adverse situations that may affect a borrower’s abilityfinancial assets to repay,present the net amount expected to be collected. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and current economic and industry conditions, among other items.methods for estimating the reserve for credit losses. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.
Those judgments and assumptions that are most critical to the application of this accounting policy are assessing the initial and on-going credit-worthiness of the borrower, the amount and timing of future cash flows of the borrower that are available for repayment of the loan, the sufficiency of underlying collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and risk ratings, emerging or changing trends that might not be fully captured in the historical loss experience, and charges against the allowance for actual losses that are greater than previously estimated. These judgments and assumptions are dependent upon or can be influenced by a variety of factors, including the breadth and depth of experience of lending officers, credit administration and the corporate loan review staff that periodically review the status of the loan, changing economic and industry conditions, changes in the financial condition of the borrower and changes in the value and availability of the underlying collateral and guarantees.
Page 87
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the periods beginning after January 1, 2023 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets PCD that were previously classified as PCI and accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $1,668 to the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2023. The adoption of CECL resulted in an increase to our total allowance for credit losses (“ACL”) on loans held for investment of $4.3 million, an increase in allowance for credit losses on unfunded loan commitments of $3.4 million, a reclassification of purchased credit-impaired discount from loans to the ACL of $1.7 million, and an increase in deferred tax asset of $1.6 million. The Company also recorded a net reduction of retained earnings of $6.1 million upon adoption.
The allowance for credit losses is evaluated on a regular basis and established through charges to earnings in the form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
Portfolio Segmentation (“Pooled Loans”)
Portfolio segmentation is defined as the pooling of loans based upon similar risk characteristics such that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses were constructed for each segment. The Company has identified eight portfolio segments of loans including Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Rela Estate, Real Estate Construction, Farm Real Estate, Lease Financing Receivable and Consumer and Other Loans.
The allowance for credit losses for Pooled Loans estimate is based upon periodic review of the collectability of the loans quantitatively correlating historical loan experience with reasonable and supportable forecasts using forward looking information. The Company utilized a DCF method to estimate the quantitative portion of the allowance for credit losses for loans evaluated in a collective pooled basis. For each segment, a loss driver analysis (LDA) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized the Company’s own Federal Financial Institutions Examination Council’s (“FFIEC”) Call Report data for all segments except indirect auto and all new and unknown values. Peer data was incorporated into the analysis for all segments except indirect auto and all new and unknown values. The Company has established a one-year reasonable and supportable forecast period with a one-year straight-line reversion to the long-term historical average. The Company’s policy is to utilize its own data, which includes loan-level loss data from March 31, 2004 through December 31, 2019 and from December 31, 2021 through June 30, 2022, whenever possible. The two-year period from December 31, 2019 to December 31, 2021 was excluded due to modeling errors stemming from the impact of the COVID-19 pandemic. Peer data is utilized when there are not sufficient defaults for a satisfactory sound calculation, or if the Company does not have its own loan-level detail reflecting similar economic conditions as the forecasted loss drivers.
Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. The Company uses the central tendency midpoint seasonally adjusted forecasts from FOMC. Other key assumptions include the PD, LGD, and prepayment/curtailment rates. When possible, the Company utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period. When possible, the Company utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own LGDs, the LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. Prepayment and curtailment rates were calculated based on the Company’s own data utilizing a one-year average. When the discounted cash flow method is used to determine the allowance for credit losses, management incorporates expected prepayments to determine the effective interest rate utilized to discount expected cash flow.
Page 8
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Adjustments to the quantitative evaluation may be for differences in current or expected qualitative risk characteristics such as changes in: underwriting standards, changes in the value of underlying collateral dependent loans, the existence and effect of portfolio concentration, delinquency level, regulatory environment, economic conditions, Company management and the status of portfolio administration including the Company’s loan review function.
Purchased Credit Deteriorated (PCD) Loans
The Company has purchased loans, some of which have shown evidence of credit deterioration since origination. Upon adoption of ASC 326, the Company elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are written off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for each pool and added to the pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis is the noncredit premium or discount which will be amortized into interest income over the remaining life of the pool. Changes to the allowance for credit losses after adoption are recorded through provision expense.
Individually Evaluated Loans
The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the forecasted allowance for credit losses. These individually evaluated loans are removed from the pooling approach discussed above for the forecasted allowance for credit losses, and include nonaccrual loans, loan and lease modifications experiencing financial difficulty, and other loans deemed appropriate by management.
Available for Sale (“AFS”) Debt Securities
For AFS securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
Page 9
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Accrued Interest Receivable
Upon adoption of ASU 2016-13 and its related amendments on January 1, 2023, the Company made the following elections regarding accrued interest receivable:
Reserve for Unfunded Commitments
The reserve for unfunded commitments (the “Unfunded Reserve”) represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. The Company is defining unconditionally cancelable in its literal sense, meaning that a commitment may be cancelled by the Company for any, and or no reason whatsoever. However, the Company in its business dealings, has no practical history of unconditionally canceling commitments. Commitments are not typically cancelled until a default or a defined condition occurs. Being that its historical practice has been to not cancel credit commitments unconditionally, the Company has made the decision to reserve for Unfunded Commitments. The Unfunded Reserve is recognized as a liability (included within other liabilities in the consolidated balance sheets), with adjustments to the reserve recognized as a provision for credit loss expense in the consolidated statements of income. The Unfunded Reserve is determined by estimating expected future fundings, under each segment, and applying the expected loss rates. Expected future fundings over its estimated life are based on historical averages of funding rates (i.e., the likelihood of draws taken). To estimate future fundings on unfunded balances, current funding rates are compared to historical funding rates. Estimate of credit losses are determined using the same loss rates as funded loans.
Revisions: An immaterial revision has been made to the consolidated financial statements for a change in the fair market value of loans for the period ended December 31, 2022, in Note 13 herein. This revision did not have a significant impact on the financial statement line item affected or total assets, equity or net income.
Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, consideration of impairment of goodwill, fair values of financial instruments, deferred taxes, swap assets/liabilities and pension obligations are particularly subject to change.
EffectAdoption of Newly Issued but Not Yet EffectiveNew Accounting Standards:
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-CreditInstruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The ASU introduces a new credit loss methodology, Current Expected Credit Losses (“CECL”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recordingrequires earlier recognition of credit losses, onwhile also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.
Page 10
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other financial instruments held by financial institutions and other organizations. The underlying premise of ASU 2016-13 is that financial assets measured at amortized cost should be presentedreceivables at the net amounttime the financial asset is originated or acquired. The expected tocredit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current Generally Accepted Accounting Principles (“GAAP”), which generally require that a loss be collected,incurred before it is recognized. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses thatand adjusted each period for changes in credit risk.
On January 1, 2023, the Company adopted the guidance prospectively with a cumulative adjustment to retained earnings. The Company has not restated comparative information for 2022 and, therefore, the comparative information for 2022 is deducted fromreported under the amortized cost basis. Theold model and is not comparable to the information presented for 2023.
At adoption, the Company recognized an incremental allowance for credit losses should reflect management’s current estimateon its loans to customers of $4.3 million, a liability for off-balance sheet unfunded commitments of $3.4 million and a reclassification of the discount ("PCD") on purchased credit-impaired (PCI) loans to the ACL of $1.7 million. Additionally, the Company recorded a $6.1 million after tax decrease in retained earnings associated with the increased estimated credit losses that are expected to occur overlosses. The “Day 1” impact of CECL adoption is summarized below:
CECL Adoption |
| |||||||||||||||
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| Impact of |
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| CECL Adoption |
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| Adopting ASC 326 - |
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| ||||
|
| December 31, 2022 |
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| Impact |
|
| PCD Loans |
|
| January 1, 2023 |
| ||||
Allowance for Credit Losses: |
|
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| ||||
Commercial & Agriculture |
| $ | 3,011 |
|
| $ | 429 |
|
| $ | 390 |
|
| $ | 3,830 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Owner Occupied |
|
| 4,565 |
|
|
| 1,075 |
|
|
| 179 |
|
|
| 5,819 |
|
Non-Owner Occupied |
|
| 14,138 |
|
|
| (2,847 | ) |
|
| — |
|
|
| 11,291 |
|
Residential Real Estate |
|
| 3,145 |
|
|
| 2,762 |
|
|
| 386 |
|
|
| 6,293 |
|
Real Estate Construction |
|
| 2,293 |
|
|
| 1,502 |
|
|
| — |
|
|
| 3,795 |
|
Farm Real Estate |
|
| 291 |
|
|
| (28 | ) |
|
| — |
|
|
| 263 |
|
Lease Financing Receivable |
|
| 429 |
|
|
| 1,743 |
|
|
| 635 |
|
|
| 2,807 |
|
Consumer and Other |
|
| 98 |
|
|
| 201 |
|
|
| 78 |
|
|
| 377 |
|
Unallocated |
|
| 541 |
|
|
| (541 | ) |
|
| — |
|
|
| — |
|
Total Allowance for Credit Losses |
| $ | 28,511 |
|
| $ | 4,296 |
|
| $ | 1,668 |
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| $ | 34,475 |
|
Reserve for Unfunded Commitments |
|
| — |
|
|
| 3,386 |
|
|
| — |
|
|
| 3,386 |
|
Total Reserve for Credit Losses |
| $ | 28,511 |
|
| $ | 7,682 |
|
| $ | 1,668 |
|
| $ | 37,861 |
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| ||||
Retained Earnings |
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| ||||
Total Pre-tax Impact |
|
|
|
| $ | (7,682 | ) |
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|
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| |||
Tax Effect |
|
|
|
|
| 1,613 |
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|
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| |||
Decrease to Retained Earnings |
|
|
|
| $ | (6,069 | ) |
|
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| |||
The Company did not record an allowance for available-for-sale securities on Day 1 as the remaining lifeinvestment portfolio consists primarily of a financial asset.debt securities explicitly or implicitly backed by the U.S. Government for which credit risk is deemed minimal. The income statementimpact going forward will be effected fordepend on the measurementcomposition, characteristics, and credit quality of credit losses for newly recognized financial assets,the securities portfolio as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transitioneconomic conditions at future reporting periods.
Page 11
Civista Bancshares, Inc.
Notes to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting periodInterim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in which the guidance is adopted. ASU 2016-13 was to be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. In November 2019, however, the FASB issued ASU 2019-10, thousands, except share data)
Financial Instruments ‒ Credit Losses (Topic 326)
On January 1, 2023, Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update deferred the effective date of ASU 2016-13 for U.S. Securities and Exchange Commission (“SEC”) filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Management is in the process of evaluating the impact adoption of ASU 2016-13 will have on the Company’s Consolidated Financial Statements. This process has engaged multiple areas of the Company in evaluating loss estimation methods and application of these methods to specific segments of the loan portfolio. Management has been actively monitoring FASB developments and evaluating the use of different methods allowed. Due to continuing development of our methodology, additional time is required to quantify the effect this ASU will have on the Company’s Consolidated Financial Statements. Management has run parallel calculations and is finalizing the methodology for adoption in time for the effective date.
In January 2017, the FASB issuedadopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350):Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is an SEC filer, such as the Company, was to adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In November 2019, however, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles – Goodwill and Other, for SEC filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard willASU provisions did not have a significant impact on the Company’sCompany's consolidated financial position or results of operations.statements.
Page 9
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
In April 2019,On January 1, 2023, the FASB issuedCompany adopted ASU 2019-04, Codification Improvements to Topic 326,2022-02, Financial Instruments – Credit Losses, and Topic 825, Financial Instruments,- which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments to Topic 825 were to be effective for interim and annual reporting periods beginning after December 15, 2019. In November 2019, however, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives: Troubled Debt Restructurings and Hedging (Topic 815),Vintage Disclosures. The ASU eliminates the recognition and Leases (Topic 842).measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This Update defers the effective date of ASU 2016-13also requires enhanced disclosure for SEC filersloans that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update is not expected to have a material impact on the Company’s financial statements.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost uponbeen charged off. The adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective date of ASU 2016-13 for SEC filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial statements.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10.The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, did Financial Instrumentsno, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance, such as the Company, are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Other amendments are effective upon issuance of this ASU. This Update is not expected tot have a significant impact on the Company’s consolidated financial statements.
Effect of Newly Issued but Not Yet Effective Accounting Standards:
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of ReferenceRate Reform on Financial Reporting. The Update is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by reference rate reform. The Update also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022.2022; however, a deferral of the implementation of reference rate reform was issued in December of 2022, which extends the implementation to December 31, 2024. The Company is working through this transition via a multi-disciplinary project team. We are still evaluating the impact the change from LIBOR to a benchmark like SOFR or Prime Rate will have on our financial condition, results of operations or cash flows.
Page 10
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Other recent ASU’s issued by the FASB did not, or are not believed by management to have, a material effect on the Company’s present or future Consolidated Financial Statements.
(3) Securities
The amortized cost and fair market value of available-for-sale securities and the related gross unrealized gains and losses recognized were as follows:
March 31, 2023 |
| Amortized |
|
| Gross |
|
| Gross |
|
| Fair Value |
| ||||
U.S. Treasury securities and obligations of U.S. government |
| $ | 66,781 |
|
| $ | 22 |
|
| $ | (4,290 | ) |
| $ | 62,513 |
|
Obligations of states and political subdivisions |
|
| 356,250 |
|
|
| 1,902 |
|
|
| (27,514 | ) |
|
| 330,638 |
|
Mortgage-backed securities in government sponsored entities |
|
| 261,324 |
|
|
| 24 |
|
|
| (26,792 | ) |
|
| 234,556 |
|
Total debt securities |
| $ | 684,355 |
|
| $ | 1,948 |
|
| $ | (58,596 | ) |
| $ | 627,707 |
|
Page 12
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
December 31, 2022 |
| Amortized |
|
| Gross |
|
| Gross |
|
| Fair Value |
| ||||
U.S. Treasury securities and obligations of U.S. government |
| $ | 66,495 |
|
| $ | 20 |
|
| $ | (5,486 | ) |
| $ | 61,029 |
|
Obligations of states and political subdivisions |
|
| 350,104 |
|
|
| 784 |
|
|
| (33,640 | ) |
|
| 317,248 |
|
Mortgage-backed securities in government sponsored entities |
|
| 265,752 |
|
|
| 15 |
|
|
| (28,642 | ) |
|
| 237,125 |
|
Total debt securities |
| $ | 682,351 |
|
| $ | 819 |
|
| $ | (67,768 | ) |
| $ | 615,402 |
|
September 30, 2022 |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
U.S. Treasury securities and obligations of U.S. government agencies |
| $ | 66,199 |
|
| $ | 22 |
|
| $ | (5,677 | ) |
| $ | 60,544 |
|
Obligations of states and political subdivisions |
|
| 344,225 |
|
|
| 163 |
|
|
| (46,581 | ) |
|
| 297,807 |
|
Mortgage-backed securities in government sponsored entities |
|
| 272,950 |
|
|
| 17 |
|
|
| (29,272 | ) |
|
| 243,695 |
|
Total debt securities |
| $ | 683,374 |
|
| $ | 202 |
|
| $ | (81,530 | ) |
| $ | 602,046 |
|
December 31, 2021 |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
U.S. Treasury securities and obligations of U.S. government agencies |
| $ | 48,390 |
|
| $ | 30 |
|
| $ | (530 | ) |
| $ | 47,890 |
|
Obligations of states and political subdivisions |
|
| 281,247 |
|
|
| 17,696 |
|
|
| (107 | ) |
|
| 298,836 |
|
Mortgage-backed securities in government sponsored entities |
|
| 211,660 |
|
|
| 2,938 |
|
|
| (1,450 | ) |
|
| 213,148 |
|
Total debt securities |
| $ | 541,297 |
|
| $ | 20,664 |
|
| $ | (2,087 | ) |
| $ | 559,874 |
|
The amortized cost and fair value of securities at September 30, 2022,March 31, 2023, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.
Available for sale |
| Amortized Cost |
|
| Fair Value |
|
| Amortized |
|
| Fair |
| ||||
Due in one year or less |
| $ | 1,500 |
|
| $ | 1,490 |
|
| $ | 6,449 |
|
| $ | 6,299 |
|
Due after one year through five years |
|
| 47,323 |
|
|
| 43,934 |
|
|
| 50,074 |
|
|
| 47,145 |
|
Due after five years through ten years |
|
| 72,996 |
|
|
| 66,744 |
|
|
| 66,175 |
|
|
| 62,011 |
|
Due after ten years |
|
| 288,605 |
|
|
| 246,184 |
|
|
| 300,333 |
|
|
| 277,696 |
|
Mortgage-backed securities |
|
| 272,950 |
|
|
| 243,694 |
|
|
| 261,324 |
|
|
| 234,556 |
|
Total securities available-for-sale |
| $ | 683,374 |
|
| $ | 602,046 |
|
| $ | 684,355 |
|
| $ | 627,707 |
|
ProceedsAt March 31, 2023 and March 31, 2022 there were no proceeds from sales of securities available-for-sale, gross realized gains and gross realized losses were as follows:losses.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Sale proceeds |
| $ | 57,322 |
|
| $ | — |
|
| $ | 57,322 |
|
| $ | 1,785 |
|
Gross realized gains |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,785 |
|
Gross realized losses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Gains (losses) from securities called or settled by the issuer |
|
| 4 |
|
|
| 4 |
|
|
| 10 |
|
|
| 2 |
|
Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $176,667$238,726 and $168,345$218,344 as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Page 11
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022March 31, 2023 and December 31, 2021:2022:
September 30, 2022 |
| 12 Months or less |
|
| More than 12 months |
|
| Total |
| |||||||||||||||||||||||||||||||||||||||
March 31, 2023 |
| 12 Months or less |
|
| More than 12 months |
|
| Total |
| |||||||||||||||||||||||||||||||||||||||
Description of Securities |
| Fair Value |
|
| Unrealized Loss |
|
| Fair Value |
|
| Unrealized Loss |
|
| Fair Value |
|
| Unrealized Loss |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||||||||
U.S. Treasury securities and obligations of U.S. government agencies |
| $ | 20,930 |
|
| $ | (880 | ) |
| $ | 39,122 |
|
| $ | (4,797 | ) |
| $ | 60,052 |
|
| $ | (5,677 | ) |
| $ | 20,129 |
|
| $ | (482 | ) |
| $ | 41,506 |
|
| $ | (3,808 | ) |
| $ | 61,635 |
|
| $ | (4,290 | ) |
Obligations of states and political subdivisions |
|
| 266,106 |
|
|
| (43,065 | ) |
|
| 8,192 |
|
|
| (3,516 | ) |
|
| 274,298 |
|
|
| (46,581 | ) |
|
| 55,169 |
|
|
| (620 | ) |
|
| 148,004 |
|
|
| (26,894 | ) |
|
| 203,173 |
|
|
| (27,514 | ) |
Mortgage-backed securities in gov’t sponsored entities |
|
| 159,647 |
|
|
| (12,221 | ) |
|
| 79,790 |
|
|
| (17,051 | ) |
|
| 239,437 |
|
|
| (29,272 | ) |
|
| 91,267 |
|
|
| (2,381 | ) |
|
| 139,927 |
|
|
| (24,411 | ) |
|
| 231,194 |
|
|
| (26,792 | ) |
Total temporarily impaired |
| $ | 446,683 |
|
| $ | (56,166 | ) |
| $ | 127,104 |
|
| $ | (25,364 | ) |
| $ | 573,787 |
|
| $ | (81,530 | ) |
| $ | 166,565 |
|
| $ | (3,483 | ) |
| $ | 329,437 |
|
| $ | (55,113 | ) |
| $ | 496,002 |
|
| $ | (58,596 | ) |
December 31, 2022 |
| 12 Months or less |
|
| More than 12 months |
|
| Total |
| |||||||||||||||
Description of Securities |
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||
U.S. Treasury securities and obligations of |
| $ | 21,042 |
|
| $ | (880 | ) |
| $ | 39,567 |
|
| $ | (4,606 | ) |
| $ | 60,609 |
|
| $ | (5,486 | ) |
Obligations of states and political subdivisions |
|
| 169,594 |
|
|
| (13,016 | ) |
|
| 73,967 |
|
|
| (20,624 | ) |
|
| 243,561 |
|
|
| (33,640 | ) |
Mortgage-backed securities in gov’t sponsored entities |
|
| 111,639 |
|
|
| (4,713 | ) |
|
| 124,622 |
|
|
| (23,929 | ) |
|
| 236,261 |
|
|
| (28,642 | ) |
Total temporarily impaired |
| $ | 302,275 |
|
| $ | (18,609 | ) |
| $ | 238,156 |
|
| $ | (49,159 | ) |
| $ | 540,431 |
|
| $ | (67,768 | ) |
December 31, 2021 |
| 12 Months or less |
|
| More than 12 months |
|
| Total |
| |||||||||||||||
Description of Securities |
| Fair Value |
|
| Unrealized Loss |
|
| Fair Value |
|
| Unrealized Loss |
|
| Fair Value |
|
| Unrealized Loss |
| ||||||
U.S. Treasury securities and obligations of U.S. government agencies |
| $ | 41,432 |
|
| $ | (473 | ) |
| $ | 2,014 |
|
| $ | (57 | ) |
| $ | 43,446 |
|
| $ | (530 | ) |
Obligations of states and political subdivisions |
|
| 25,797 |
|
|
| (107 | ) |
|
| — |
|
|
| — |
|
|
| 25,797 |
|
|
| (107 | ) |
Mortgage-backed securities in gov’t sponsored entities |
|
| 141,327 |
|
|
| (1,343 | ) |
|
| 3,123 |
|
|
| (107 | ) |
|
| 144,450 |
|
|
| (1,450 | ) |
Total temporarily impaired |
| $ | 208,556 |
|
| $ | (1,923 | ) |
| $ | 5,137 |
|
| $ | (164 | ) |
| $ | 213,693 |
|
| $ | (2,087 | ) |
Page 13
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
At September 30, 2022,March 31, 2023, there were a total of 532413 securities in the portfolio with unrealized losses mainly due to higher current market rates when compared to the time of purchase. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to currently higher market rates when compared to the time of purchase. The fair value is expected to recover as the securities approach their maturity date or reset date. The Company does not intend to sell until recovery and does not believe selling will be required before recovery.
The following table presents the net gains and losses on equity investments recognized in earnings for the three-three months ended March 31, 2023 and nine-months ended September 30, 2022, and 2021, and the portion of unrealized gains and losses for the period that relates to equity investments held at September 30, 2022March 31, 2023 and 2021:2022:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net gains (losses) recognized on equity securities |
| $ | (68 | ) |
| $ | 50 |
|
Less: Net losses realized on the sale of |
|
| — |
|
|
| — |
|
Unrealized gains (losses) recognized on equity |
| $ | (68 | ) |
| $ | 50 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net gains (losses) recognized on equity securities during the period |
| $ | (133 | ) |
| $ | 50 |
|
| $ | (44 | ) |
| $ | 191 |
|
Less: Net losses realized on the sale of equity securities during the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Unrealized gains (losses) recognized on equity securities held at reporting date |
| $ | (133 | ) |
| $ | 50 |
|
| $ | (44 | ) |
| $ | 191 |
|
Page 12
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(4) Loans
Loan balances were as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Commercial & Agriculture |
| $ | 227,387 |
|
| $ | 246,502 |
|
| $ | 271,160 |
|
| $ | 278,595 |
|
Commercial Real Estate- Owner Occupied |
|
| 364,468 |
|
|
| 295,452 |
|
|
| 375,825 |
|
|
| 371,147 |
|
Commercial Real Estate- Non-Owner Occupied |
|
| 956,169 |
|
|
| 829,310 |
|
|
| 1,043,635 |
|
|
| 1,018,736 |
|
Residential Real Estate |
|
| 531,164 |
|
|
| 430,060 |
|
|
| 560,978 |
|
|
| 552,781 |
|
Real Estate Construction |
|
| 202,793 |
|
|
| 157,127 |
|
|
| 247,253 |
|
|
| 243,127 |
|
Farm Real Estate |
|
| 25,636 |
|
|
| 28,419 |
|
|
| 24,040 |
|
|
| 24,708 |
|
Lease Financing Receivable |
|
| 37,570 |
|
|
| 36,797 |
| ||||||||
Consumer and Other |
|
| 20,997 |
|
|
| 11,009 |
|
|
| 19,605 |
|
|
| 20,775 |
|
Total loans |
|
| 2,328,614 |
|
|
| 1,997,879 |
|
|
| 2,580,066 |
|
|
| 2,546,666 |
|
Allowance for loan losses |
|
| (27,773 | ) |
|
| (26,641 | ) | ||||||||
Allowance for credit losses |
|
| (34,196 | ) |
|
| (28,511 | ) | ||||||||
Net loans |
| $ | 2,300,841 |
|
| $ | 1,971,238 |
|
| $ | 2,545,870 |
|
| $ | 2,518,155 |
|
Included in Commercial & Agriculture loans above are $819$464 and $43,209$566 of Paycheck Protection Program (“PPP”) loans as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Included in total loans above are net deferred loan fees of $1,741$2,066 and $2,924$1,652 at September 30, 2022March 31, 2023 and December 31, 2021, respectively, which included net deferred loan fees2022, respectively.
The Company elected to exclude accrued interest receivable from PPPthe amortized cost basis of loans disclosed throughout this Note 4 and Note 5 (Allowance for Credit Losses). As of $38 and $1,762 as of September 30, 2022March 31, 2023 and December 31, 2021, respectively.
Paycheck Protection Program
In total, we processed over 3,600 PPP loans totaling $399.4 million during 20202022, accrued interest receivable totaled $10,254 and 2021. Of the total PPP loans we originated, $398.4 million had been forgiven or paid off as of September 30, 2022. $We recognized $1.7 million of PPP fees in income during the first nine months of 2022,11,178, respectively, and $38 thousand of unearned PPP fees remained at September 30, 2022.
(5) Allowance for Loan Losses
Management has an established methodology for determining the adequacy of the allowance for loan losses that assesses the risks and losses inherentis included in the loan portfolio. For purposes of determiningaccrued interest receivable line item on the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loss migration rates for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. Loss migration rates are calculated over a Company's Consolidated Balance Sheet.
three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve.
The following economic factors are analyzed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 1314
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(5) Allowance for Credit Losses
As previously mentioned in Note 2 Significant Accounting Policies, the Company’s January 1, 2023, adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” resulted in a significant change to our methodology for estimating the ACL since December 31, 2022. As a result of this adoption, the Company recorded a $5,193 increase to the ACL as a cumulative-effect adjustment on January 1, 2023.
The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Company considers the allowance for loan losses of $27,773 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2022.
The following tables present, by portfolio segment, the changes in the allowance for loan lossesACL for the three- and nine-monthsthree months ended September 30, 2022 and 2021.March 31, 2023.
Allowance for loancredit losses:
For the three months ended September 30, 2022 |
| Beginning balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
| |||||||||||||||||||||||||||||||||
For the three months ended March 31, 2023 |
| Beginning balance |
|
| CECL Adoption Day 1 Impact |
|
| Impact of Adopting ASC 326 - PCD Loans 1 |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
| |||||||||||||||||||||||||||
Commercial & Agriculture |
| $ | 2,790 |
|
| $ | (22 | ) |
| $ | 12 |
|
| $ | (51 | ) |
| $ | 2,729 |
|
| $ | 3,011 |
|
| $ | 429 |
|
| $ | — |
|
| $ | (140 | ) |
| $ | 6 |
|
| $ | 10 |
|
| $ | 3,316 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Owner Occupied |
|
| 4,729 |
|
|
| — |
|
|
| 15 |
|
|
| 182 |
|
|
| 4,926 |
|
|
| 4,565 |
|
|
| 1,075 |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 74 |
|
|
| 5,733 |
|
Non-Owner Occupied |
|
| 14,711 |
|
|
| — |
|
|
| 16 |
|
|
| (300 | ) |
|
| 14,427 |
|
|
| 14,138 |
|
|
| (2,847 | ) |
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 462 |
|
|
| 11,760 |
|
Residential Real Estate |
|
| 2,859 |
|
|
| (39 | ) |
|
| 64 |
|
|
| 152 |
|
|
| 3,036 |
|
|
| 3,145 |
|
|
| 2,762 |
|
|
| 166 |
|
|
| (10 | ) |
|
| 22 |
|
|
| (151 | ) |
|
| 5,934 |
|
Real Estate Construction |
|
| 1,969 |
|
|
| — |
|
|
| — |
|
|
| 44 |
|
|
| 2,013 |
|
|
| 2,293 |
|
|
| 1,502 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 121 |
|
|
| 3,920 |
|
Farm Real Estate |
|
| 236 |
|
|
| — |
|
|
| 1 |
|
|
| 14 |
|
|
| 251 |
|
|
| 291 |
|
|
| (28 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| 269 |
|
Lease Financing Receivables |
|
| 429 |
|
|
| 1,743 |
|
|
| 635 |
|
|
| — |
|
|
| — |
|
|
| 100 |
|
|
| 2,907 |
| ||||||||||||||||||||
Consumer and Other |
|
| 130 |
|
|
| (13 | ) |
|
| 4 |
|
|
| 21 |
|
|
| 142 |
|
|
| 98 |
|
|
| 201 |
|
|
| 77 |
|
|
| (25 | ) |
|
| 8 |
|
|
| (5 | ) |
|
| 354 |
|
Unallocated |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
|
| 249 |
|
|
| 541 |
|
|
| (541 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
Total |
| $ | 27,435 |
|
| $ | (74 | ) |
| $ | 112 |
|
| $ | 300 |
|
| $ | 27,773 |
|
| $ | 28,511 |
|
| $ | 4,296 |
|
| $ | 897 |
|
| $ | (175 | ) |
| $ | 47 |
|
| $ | 620 |
|
| $ | 34,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
1 Day 1 impact of $1,668, of adopting ASC 326-PCD loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
For the three months ended September 30, 2022,March 31, 2023, the Company provided $300$620 to the allowance for loancredit losses, as compared to a provision of $0$300 for the three months ended September 30, 2021.March 31, 2022. Upon adoption of CECL we recorded an increase in the allowance for credit losses of $5,193. The increase in the provision in the third quarter of 2022, as comparedreserves was principally related to the third quarter of 2021, reflects the Company’s strong loan growth during the quarter. Our
Page 15
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Allowance for credit losses:
For the three months ended March 31, 2022 |
| Beginning balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
| |||||
Commercial & Agriculture |
| $ | 2,600 |
|
| $ | — |
|
| $ | 1 |
|
| $ | (17 | ) |
| $ | 2,584 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Owner Occupied |
|
| 4,464 |
|
|
| — |
|
|
| — |
|
|
| 130 |
|
|
| 4,594 |
|
Non-Owner Occupied |
|
| 13,860 |
|
|
| — |
|
|
| 48 |
|
|
| 669 |
|
|
| 14,577 |
|
Residential Real Estate |
|
| 2,597 |
|
|
| (1 | ) |
|
| 61 |
|
|
| (45 | ) |
|
| 2,612 |
|
Real Estate Construction |
|
| 1,810 |
|
|
| — |
|
|
| — |
|
|
| 53 |
|
|
| 1,863 |
|
Farm Real Estate |
|
| 287 |
|
|
| — |
|
|
| 2 |
|
|
| (40 | ) |
|
| 249 |
|
Consumer and Other |
|
| 176 |
|
|
| (29 | ) |
|
| 10 |
|
|
| (21 | ) |
|
| 136 |
|
Unallocated |
|
| 847 |
|
|
| — |
|
|
| — |
|
|
| (429 | ) |
|
| 418 |
|
Total |
| $ | 26,641 |
|
| $ | (30 | ) |
| $ | 122 |
|
| $ | 300 |
|
| $ | 27,033 |
|
For the three months ended March 31, 2022, the Company provided $300 to the allowance for credit losses. The provision in the first quarter of 2022 was due to the stability of our credit quality metrics remain stable despitecoupled with the ongoing headwindscontinued stabilization and, in some cases, improvement of the challenging international, national, regional and local economic conditions.conditions that were adversely impacted by the prior economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. While vaccinations and improved treatments created a level of optimism in the direct impact of COVID-19 wains, we remain cautiousbusiness community, there remained caution due to increasing inflationary pressures. Criticizedthe lingering concerns over potential infection spikes. We remained cautious during the first quarter of 2022 given the level of classified loans were reduced in the third quarter, primarilyportfolio, particularly loans to borrowers in the hotel industry dueas well as the challenging environment that businesses continued to improved occupancy. Economicface. As of March 31, 2022, economic impacts related to the COVID-19 pandemic havehad improved somewhat, but continued concerns lingerlingered due to the disruption of supply chains, workforce shortages,additional employee costs, higher challenges throughout our footprint and rising inflationary pressures. While some of these pressures had eased, ongoing supply chain and staffing challenges, as well as the prospectsimpact of recession.higher inflation remained.
During the three months ended September 30,March 31, 2022, the allowance for Commercial & Agriculture loans decreased due to a decrease in general reserves required for this type as a result of a decrease in PPP loan balances. Commercial &and Agriculture loan balances decreased during the quarter mainly due to the forgiveness or payoff of PPP loans during the quarter. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans decreased due to a decrease in risk rated loans and lower loss rates, offsetbalances, accompanied by an increase in general reserves required as a result of an increase in loan balances. This was represented as a decrease in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in loan balances. This was represented as an increase in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at September 30, 2022.
Page 14
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Allowance for loan losses:
For the three months ended September 30, 2021 |
| Beginning balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
| |||||
Commercial & Agriculture |
| $ | 2,320 |
|
| $ | — |
|
| $ | 1 |
|
| $ | 191 |
|
| $ | 2,512 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| 4,027 |
|
|
| — |
|
|
| — |
|
|
| 389 |
|
|
| 4,416 |
|
Non-Owner Occupied |
|
| 13,546 |
|
|
| — |
|
|
| 381 |
|
|
| (757 | ) |
|
| 13,170 |
|
Residential Real Estate |
|
| 2,531 |
|
|
| (77 | ) |
|
| 53 |
|
|
| 89 |
|
|
| 2,596 |
|
Real Estate Construction |
|
| 2,177 |
|
|
| — |
|
|
| — |
|
|
| 282 |
|
|
| 2,459 |
|
Farm Real Estate |
|
| 290 |
|
|
| — |
|
|
| 3 |
|
|
| 15 |
|
|
| 308 |
|
Consumer and Other |
|
| 202 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| 212 |
|
Unallocated |
|
| 1,104 |
|
|
| — |
|
|
| — |
|
|
| (209 | ) |
|
| 895 |
|
Total |
| $ | 26,197 |
|
| $ | (77 | ) |
| $ | 448 |
|
| $ | — |
|
| $ | 26,568 |
|
For the three months ended September 30, 2021, the Company provided $0 to the allowance for loan losses. The lack of a provision for the third quarter of 2021 was due to the stability of our credit quality metrics coupled with the stabilization and, in some cases, improvement of international, national, regional and local economic conditions that were adversely impacted by the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic.
During the three months ended September 30, 2021, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of an increase in non-PPP loan balances. Commercial & Agriculture loan balances decreased during the quarter mainly as a result of the forgiveness and payoff of PPP loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances, offset by a decrease in classified loans balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans decreased due to decreases in classified loan balances and loss rates, offset by an increase in general reserves required as a result of an increase in loan balances. This was represented as a decrease in the provision. The allowance for Residential Real Estate loans increased due to an increase in loss rates for this type of loan. The result was represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in loss rates on substandard classified loan balances, offset by lower loan balances. This was represented as an increase in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at September 30, 2021.
Page 15
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Allowance for loan losses:
For the nine months ended September 30, 2022 |
| Beginning balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
| |||||
Commercial & Agriculture |
| $ | 2,600 |
|
| $ | (22 | ) |
| $ | 16 |
|
| $ | 135 |
|
| $ | 2,729 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| 4,464 |
|
|
| — |
|
|
| 42 |
|
|
| 420 |
|
|
| 4,926 |
|
Non-Owner Occupied |
|
| 13,860 |
|
|
| — |
|
|
| 68 |
|
|
| 499 |
|
|
| 14,427 |
|
Residential Real Estate |
|
| 2,597 |
|
|
| (97 | ) |
|
| 140 |
|
|
| 396 |
|
|
| 3,036 |
|
Real Estate Construction |
|
| 1,810 |
|
|
| — |
|
|
| — |
|
|
| 203 |
|
|
| 2,013 |
|
Farm Real Estate |
|
| 287 |
|
|
| — |
|
|
| 5 |
|
|
| (41 | ) |
|
| 251 |
|
Consumer and Other |
|
| 176 |
|
|
| (45 | ) |
|
| 25 |
|
|
| (14 | ) |
|
| 142 |
|
Unallocated |
|
| 847 |
|
|
| — |
|
|
| — |
|
|
| (598 | ) |
|
| 249 |
|
Total |
| $ | 26,641 |
|
| $ | (164 | ) |
| $ | 296 |
|
| $ | 1,000 |
|
| $ | 27,773 |
|
For the nine months ended September 30, 2022, the Company provided $1,000 to the allowance for loan losses, as compared to a provision of $830 for the nine months ended September 30, 2021. The increase in provision was due to the strong loan growth during the first nine months of 2022, as compared to the first nine months of 2021. In addition, the challenges of the international, national, regional and local economic conditions, particularly inflation, have taken greater focus from the prior economic shutdown and restrictions in response to the COVID-19 pandemic. Despite these concerns our portfolio quality has remained stable overall with decreases in criticized loans. We continue to be optimistic that asset quality will continue to remain strong despite ongoing headwinds. While we remain cautious given the impact of inflation on all of our borrowers, we are encouraged by strong loan growth.
During the nine months ended September 30, 2022, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of an increase in loss rates, partially offset by a decrease in Commercial & Agriculture loan balances during the first nine months of the year mainly due to the forgiveness or payoff of PPP loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves requirednet recoveries for this type as a result of increased loan balances.loan. The result was represented by an increasea decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in loan balances. This was represented as an increase in the provision. The allowance for Consumer and Other loans decreased due to a decrease in loan balances. This was represented as a decrease in the provision. Management feelsdetermined that the unallocated amount iswas appropriate and within the relevant range for the allowance that iswas reflective of the risk in the portfolio at September 30,March 31, 2022.
Page 16
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Allowance for loan losses:
For the nine months ended September 30, 2021 |
| Beginning balance |
|
| Charge-offs |
|
| Recoveries |
|
| Provision |
|
| Ending Balance |
| |||||
Commercial & Agriculture |
| $ | 2,810 |
|
| $ | (15 | ) |
| $ | 164 |
|
| $ | (447 | ) |
| $ | 2,512 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| 4,057 |
|
|
| — |
|
|
| 6 |
|
|
| 353 |
|
|
| 4,416 |
|
Non-Owner Occupied |
|
| 12,451 |
|
|
| — |
|
|
| 392 |
|
|
| 327 |
|
|
| 13,170 |
|
Residential Real Estate |
|
| 2,484 |
|
|
| (114 | ) |
|
| 232 |
|
|
| (6 | ) |
|
| 2,596 |
|
Real Estate Construction |
|
| 2,439 |
|
|
| — |
|
|
| 1 |
|
|
| 19 |
|
|
| 2,459 |
|
Farm Real Estate |
|
| 338 |
|
|
| — |
|
|
| 9 |
|
|
| (39 | ) |
|
| 308 |
|
Consumer and Other |
|
| 209 |
|
|
| (19 | ) |
|
| 54 |
|
|
| (32 | ) |
|
| 212 |
|
Unallocated |
|
| 240 |
|
|
| — |
|
|
| — |
|
|
| 655 |
|
|
| 895 |
|
Total |
| $ | 25,028 |
|
| $ | (148 | ) |
| $ | 858 |
|
| $ | 830 |
|
| $ | 26,568 |
|
For the nine months ended September 30, 2021, the Company provided $830 to the allowance for loan losses. The decrease in the provision in the first nine months of 2021 as compared to the same period of 2020, was due to the stability of our metrics coupled with the stabilization and, in some cases, improvement of international, national, regional and local economic conditions that were adversely impacted by the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic.
For the nine months ended September 30, 2021, the allowance for Commercial & Agriculture loans decreased due to a decrease in general reserves required for this type as a result of a decrease in loss rates. Commercial & Agriculture loan balances decreased during the period mainly from Civista’s participation in the PPP loan program. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances, offset by decreases in classified loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances, offset by a decrease in classified loan balances and by a decrease in loss rates. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in recoveries for this type of loan. The result was represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in loan balances, represented by an increase in the provision. The allowance for Farm Real Estate loans decreased due to a decrease in general reserves required for this type as a result of decreased loan balances. The result was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at September 30, 2021.
Page 17
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following tables present, by portfolio segment, the allocation of the allowance for loancredit losses and related loan balances as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
March 31, 2023 |
| Loans individually |
|
| Loans collectively |
|
| Total |
| |||
Allowance for credit losses: |
|
|
|
|
|
|
|
| ||||
Commercial & Agriculture |
| $ | 12 |
|
| $ | 3,304 |
|
| $ | 3,316 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
| |||
Owner Occupied |
|
| 7 |
|
|
| 5,726 |
|
|
| 5,733 |
|
Non-Owner Occupied |
|
| — |
|
|
| 11,760 |
|
|
| 11,760 |
|
Residential Real Estate |
|
| 2 |
|
|
| 5,932 |
|
|
| 5,934 |
|
Real Estate Construction |
|
| — |
|
|
| 3,920 |
|
|
| 3,920 |
|
Farm Real Estate |
|
| — |
|
|
| 269 |
|
|
| 269 |
|
Lease Financing Receivables |
|
| 371 |
|
|
| 2,536 |
|
|
| 2,907 |
|
Consumer and Other |
|
| 77 |
|
|
| 277 |
|
|
| 354 |
|
Unallocated |
|
| — |
|
|
| 3 |
|
|
| 3 |
|
Total |
| $ | 469 |
|
| $ | 33,727 |
|
| $ | 34,196 |
|
Outstanding loan balances: |
|
|
|
|
|
|
|
|
| |||
Commercial & Agriculture |
| $ | 165 |
|
| $ | 270,995 |
|
| $ | 271,160 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
| |||
Owner Occupied |
|
| 1,514 |
|
|
| 374,311 |
|
|
| 375,825 |
|
Non-Owner Occupied |
|
| 119 |
|
|
| 1,043,516 |
|
|
| 1,043,635 |
|
Residential Real Estate |
|
| 1,838 |
|
|
| 559,140 |
|
|
| 560,978 |
|
Real Estate Construction |
|
| — |
|
|
| 247,253 |
|
|
| 247,253 |
|
Farm Real Estate |
|
| — |
|
|
| 24,040 |
|
|
| 24,040 |
|
Lease Financing Receivables |
|
| 328 |
|
|
| 37,242 |
|
|
| 37,570 |
|
Consumer and Other |
|
| 77 |
|
|
| 19,528 |
|
|
| 19,605 |
|
Total |
| $ | 4,041 |
|
| $ | 2,576,025 |
|
| $ | 2,580,066 |
|
September 30, 2022 |
| Loans acquired with credit deterioration |
|
| Loans individually evaluated for impairment |
|
| Loans collectively evaluated for impairment |
|
| Total |
| ||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Agriculture |
| $ | — |
|
| $ | — |
|
| $ | 2,729 |
|
| $ | 2,729 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| — |
|
|
| 6 |
|
|
| 4,920 |
|
|
| 4,926 |
|
Non-Owner Occupied |
|
| — |
|
|
| — |
|
|
| 14,427 |
|
|
| 14,427 |
|
Residential Real Estate |
|
| — |
|
|
| 1 |
|
|
| 3,035 |
|
|
| 3,036 |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| 2,013 |
|
|
| 2,013 |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| 251 |
|
|
| 251 |
|
Consumer and Other |
|
| — |
|
|
| — |
|
|
| 142 |
|
|
| 142 |
|
Unallocated |
|
| — |
|
|
| — |
|
|
| 249 |
|
|
| 249 |
|
Total |
| $ | — |
|
| $ | 7 |
|
| $ | 27,766 |
|
| $ | 27,773 |
|
Outstanding loan balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Agriculture |
| $ | 809 |
|
| $ | 343 |
|
| $ | 226,235 |
|
| $ | 227,387 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| 1,770 |
|
|
| 833 |
|
|
| 361,865 |
|
|
| 364,468 |
|
Non-Owner Occupied |
|
| 120 |
|
|
| 140 |
|
|
| 955,909 |
|
|
| 956,169 |
|
Residential Real Estate |
|
| 1,410 |
|
|
| 586 |
|
|
| 529,168 |
|
|
| 531,164 |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| 202,793 |
|
|
| 202,793 |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| 25,636 |
|
|
| 25,636 |
|
Consumer and Other |
|
| 1 |
|
|
| — |
|
|
| 20,996 |
|
|
| 20,997 |
|
Total |
| $ | 4,110 |
|
| $ | 1,902 |
|
| $ | 2,322,602 |
|
| $ | 2,328,614 |
|
December 31, 2021 |
| Loans acquired with credit deterioration |
|
| Loans individually evaluated for impairment |
|
| Loans collectively evaluated for impairment |
|
| Total |
| ||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Agriculture |
| $ | — |
|
| $ | — |
|
| $ | 2,600 |
|
| $ | 2,600 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| — |
|
|
| 7 |
|
|
| 4,457 |
|
|
| 4,464 |
|
Non-Owner Occupied |
|
| — |
|
|
| — |
|
|
| 13,860 |
|
|
| 13,860 |
|
Residential Real Estate |
|
| — |
|
|
| 11 |
|
|
| 2,586 |
|
|
| 2,597 |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| 1,810 |
|
|
| 1,810 |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| 287 |
|
|
| 287 |
|
Consumer and Other |
|
| — |
|
|
| — |
|
|
| 176 |
|
|
| 176 |
|
Unallocated |
|
| — |
|
|
| — |
|
|
| 847 |
|
|
| 847 |
|
Total |
| $ | — |
|
| $ | 18 |
|
| $ | 26,623 |
|
| $ | 26,641 |
|
Outstanding loan balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Agriculture |
| $ | — |
|
| $ | — |
|
| $ | 246,502 |
|
| $ | 246,502 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| — |
|
|
| 187 |
|
|
| 295,265 |
|
|
| 295,452 |
|
Non-Owner Occupied |
|
| — |
|
|
| 0 |
|
|
| 829,310 |
|
|
| 829,310 |
|
Residential Real Estate |
|
| 290 |
|
|
| 526 |
|
|
| 429,244 |
|
|
| 430,060 |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| 157,127 |
|
|
| 157,127 |
|
Farm Real Estate |
|
| — |
|
|
| 509 |
|
|
| 27,910 |
|
|
| 28,419 |
|
Consumer and Other |
|
| — |
|
|
| — |
|
|
| 11,009 |
|
|
| 11,009 |
|
Total |
| $ | 290 |
|
| $ | 1,222 |
|
| $ | 1,996,367 |
|
| $ | 1,997,879 |
|
Page 1817
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
December 31, 2022 |
| Loans acquired |
|
| Loans individually |
|
| Loans collectively |
|
| Total |
| ||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & Agriculture |
| $ | 6 |
|
| $ | — |
|
| $ | 3,005 |
|
| $ | 3,011 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Owner Occupied |
|
| 3 |
|
|
| 6 |
|
|
| 4,556 |
|
|
| 4,565 |
|
Non-Owner Occupied |
|
| — |
|
|
| — |
|
|
| 14,138 |
|
|
| 14,138 |
|
Residential Real Estate |
|
| — |
|
|
| 1 |
|
|
| 3,144 |
|
|
| 3,145 |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| 2,293 |
|
|
| 2,293 |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| 291 |
|
|
| 291 |
|
Consumer and Other |
|
| — |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
Lease Financing Receivables |
|
| — |
|
|
| — |
|
|
| 429 |
|
|
| 429 |
|
Unallocated |
|
| — |
|
|
| — |
|
|
| 541 |
|
|
| 541 |
|
Total |
| $ | 9 |
|
| $ | 7 |
|
| $ | 28,495 |
|
| $ | 28,511 |
|
Outstanding loan balances: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & Agriculture |
| $ | 863.00 |
|
| $ | — |
|
| $ | 277,732 |
|
| $ | 278,595 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Owner Occupied |
|
| 1,988 |
|
|
| 232 |
|
|
| 368,927 |
|
|
| 371,147 |
|
Non-Owner Occupied |
|
| 119 |
|
|
| — |
|
|
| 1,018,617 |
|
|
| 1,018,736 |
|
Residential Real Estate |
|
| 1,414 |
|
|
| 392 |
|
|
| 550,975 |
|
|
| 552,781 |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| 243,127 |
|
|
| 243,127 |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| 24,708 |
|
|
| 24,708 |
|
Lease Financing Receivables |
|
| — |
|
|
| — |
|
|
| 36,797 |
|
|
| 36,797 |
|
Consumer and Other |
|
| 1 |
|
|
| — |
|
|
| 20,774 |
|
|
| 20,775 |
|
Total |
| $ | 4,385 |
|
| $ | 624 |
|
| $ | 2,541,657 |
|
| $ | 2,546,666 |
|
The following tables present credit exposures by internally assigned risk grades as of September 30, 2022March 31, 2023 and December 31, 2021.2022. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.
The Company’s internally assigned risk grades are as follows:
• Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. • Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected. • Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Civista will sustain some loss if the deficiencies are not corrected. • Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances. • Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted. Page 18 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Based on the most recent analysis performed, the risk category of loans, by type and year of originations, at March 31, 2023, is as follows:
Page 19 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data)
Page 20 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Generally, Residential Real Estate, Real Estate Construction and Consumer and Other loans are not risk-graded, except when collateral is used for a business purpose. Only those loans that have been risk rated as of December 31, 2022 are included below.
September 30, 2022 |
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Ending Balance |
| |||||||||||||||||||||||||
December 31, 2022 |
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Ending Balance |
| |||||||||||||||||||||||||
Commercial & Agriculture |
| $ | 212,692 |
|
| $ | 12,155 |
|
| $ | 2,540 |
|
| $ | — |
|
| $ | 227,387 |
|
| $ | 273,291 |
|
| $ | 2,558 |
|
| $ | 2,746 |
|
| $ | — |
|
| $ | 278,595 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Owner Occupied |
|
| 351,464 |
|
|
| 9,751 |
|
|
| 3,253 |
|
|
| — |
|
|
| 364,468 |
|
|
| 367,652 |
|
|
| 734 |
|
|
| 2,761 |
|
|
| — |
|
|
| 371,147 |
|
Non-Owner Occupied |
|
| 932,606 |
|
|
| 19,526 |
|
|
| 4,037 |
|
|
| — |
|
|
| 956,169 |
|
|
| 1,003,942 |
|
|
| 10,947 |
|
|
| 3,847 |
|
|
| — |
|
|
| 1,018,736 |
|
Residential Real Estate |
|
| 141,827 |
|
|
| 116 |
|
|
| 5,506 |
|
|
| — |
|
|
| 147,449 |
|
|
| 114,021 |
|
|
| 183 |
|
|
| 5,787 |
|
|
| — |
|
|
| 119,991 |
|
Real Estate Construction |
|
| 172,120 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 172,123 |
|
|
| 198,734 |
|
|
| — |
|
|
| 221 |
|
|
| — |
|
|
| 198,955 |
|
Farm Real Estate |
|
| 25,197 |
|
|
| 392 |
|
|
| 47 |
|
|
| — |
|
|
| 25,636 |
|
|
| 24,283 |
|
|
| 379 |
|
|
| 46 |
|
|
| — |
|
|
| 24,708 |
|
Lease Financing Receivables |
|
| 36,223 |
|
|
| — |
|
|
| 401 |
|
|
| 173 |
|
|
| 36,797 |
| ||||||||||||||||||||
Consumer and Other |
|
| 11,993 |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| 12,020 |
|
|
| 839 |
|
|
| — |
|
|
| 163 |
|
|
| — |
|
|
| 1,002 |
|
Total |
| $ | 1,847,899 |
|
| $ | 41,940 |
|
| $ | 15,413 |
|
| $ | — |
|
| $ | 1,905,252 |
|
| $ | 2,018,985 |
|
| $ | 14,801 |
|
| $ | 15,972 |
|
| $ | 173 |
|
| $ | 2,049,931 |
|
December 31, 2021 |
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Ending Balance |
| |||||
Commercial & Agriculture |
| $ | 244,787 |
|
| $ | 526 |
|
| $ | 1,189 |
|
| $ | — |
|
| $ | 246,502 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied |
|
| 290,617 |
|
|
| 3,119 |
|
|
| 1,716 |
|
|
| — |
|
|
| 295,452 |
|
Non-Owner Occupied |
|
| 764,181 |
|
|
| 28,042 |
|
|
| 37,087 |
|
|
| — |
|
|
| 829,310 |
|
Residential Real Estate |
|
| 77,594 |
|
|
| 164 |
|
|
| 4,455 |
|
|
| — |
|
|
| 82,213 |
|
Real Estate Construction |
|
| 136,149 |
|
|
| 260 |
|
|
| 5 |
|
|
| — |
|
|
| 136,414 |
|
Farm Real Estate |
|
| 27,023 |
|
|
| 205 |
|
|
| 1,191 |
|
|
| — |
|
|
| 28,419 |
|
Consumer and Other |
|
| 764 |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| 784 |
|
Total |
| $ | 1,541,115 |
|
| $ | 32,316 |
|
| $ | 45,663 |
|
| $ | — |
|
| $ | 1,619,094 |
|
Page 19
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following tables present performing and nonperforming loans based solely on payment activity for the periodsperiod ended September 30, 2022 and December 31, 20212022 that have not been assigned an internal risk grade. The types of loans presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due and if management determines that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
September 30, 2022 |
| Residential Real Estate |
|
| Real Estate Construction |
|
| Consumer and Other |
|
| Total |
| ||||
Performing |
| $ | 383,389 |
|
| $ | 30,670 |
|
| $ | 8,977 |
|
| $ | 423,036 |
|
Nonperforming |
|
| 326 |
|
|
| — |
|
|
| — |
|
|
| 326 |
|
Total |
| $ | 383,715 |
|
| $ | 30,670 |
|
| $ | 8,977 |
|
| $ | 423,362 |
|
December 31, 2022 |
| Residential |
|
| Real Estate |
|
| Consumer |
|
| Total |
| ||||
Performing |
| $ | 432,790 |
|
| $ | 44,172 |
|
| $ | 19,773 |
|
| $ | 496,735 |
|
Nonperforming |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 432,790 |
|
| $ | 44,172 |
|
| $ | 19,773 |
|
| $ | 496,735 |
|
December 31, 2021 |
| Residential Real Estate |
|
| Real Estate Construction |
|
| Consumer and Other |
|
| Total |
| ||||
Performing |
| $ | 347,847 |
|
| $ | 20,713 |
|
| $ | 10,225 |
|
| $ | 378,785 |
|
Nonperforming |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 347,847 |
|
| $ | 20,713 |
|
| $ | 10,225 |
|
| $ | 378,785 |
|
The following tables include an aging analysis of the recorded investment of past due loans outstanding as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
September 30, 2022 |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| 90 Days or Greater Past Due |
|
| Total Past Due |
|
| Current |
|
| Purchased Credit- Impaired Loans |
|
| Total Loans |
|
| Past Due 90 Days and Accruing |
| ||||||||||||||||||||||||||||||||||||
March 31, 2023 |
| 30-59 |
|
| 60-89 |
|
| 90 Days |
|
| Total Past |
|
| Current |
|
| Total Loans |
|
| Past Due |
| |||||||||||||||||||||||||||||||||||||||
Commercial & Agriculture |
| $ | 423 |
|
| $ | 2 |
|
| $ | 694 |
|
| $ | 1,119 |
|
| $ | 225,459 |
|
| $ | 809 |
|
| $ | 227,387 |
|
| $ | — |
|
| $ | 834 |
|
| $ | 201 |
|
| $ | 684 |
|
| $ | 1,719 |
|
| $ | 269,441 |
|
| $ | 271,160 |
|
| $ | — |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Owner Occupied |
|
| 24 |
|
|
| — |
|
|
| 79 |
|
|
| 103 |
|
|
| 362,595 |
|
|
| 1,770 |
|
|
| 364,468 |
|
|
| — |
|
|
| 44 |
|
|
| — |
|
|
| 39 |
|
|
| 83 |
|
|
| 375,742 |
|
|
| 375,825 |
|
|
| — |
|
Non-Owner Occupied |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
|
| 956,047 |
|
|
| 120 |
|
|
| 956,169 |
|
|
| — |
|
|
| 347 |
|
|
| 6,500 |
|
|
| 1,294 |
|
|
| 8,141 |
|
|
| 1,035,494 |
|
|
| 1,043,635 |
|
|
| — |
|
Residential Real Estate |
|
| 416 |
|
|
| 827 |
|
|
| 1,222 |
|
|
| 2,465 |
|
|
| 527,289 |
|
|
| 1,410 |
|
|
| 531,164 |
|
|
| 326 |
|
|
| 2,751 |
|
|
| 355 |
|
|
| 978 |
|
|
| 4,084 |
|
|
| 556,894 |
|
|
| 560,978 |
|
|
| — |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 202,793 |
|
|
| — |
|
|
| 202,793 |
|
|
| — |
|
|
| 506 |
|
|
| — |
|
|
| — |
|
|
| 506 |
|
|
| 246,747 |
|
|
| 247,253 |
|
|
| — |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,636 |
|
|
| — |
|
|
| 25,636 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,040 |
|
|
| 24,040 |
|
|
| — |
|
Lease Financing Receivables |
|
| 1,032 |
|
|
| 87 |
|
|
| 110 |
|
|
| 1,229 |
|
|
| 36,341 |
|
|
| 37,570 |
|
|
| 47 |
| ||||||||||||||||||||||||||||||||
Consumer and Other |
|
| 58 |
|
|
| 63 |
|
|
| 52 |
|
|
| 173 |
|
|
| 20,823 |
|
|
| 1 |
|
|
| 20,997 |
|
|
| — |
|
|
| 101 |
|
|
| 27 |
|
|
| 78 |
|
|
| 206 |
|
|
| 19,399 |
|
|
| 19,605 |
|
|
| — |
|
Total |
| $ | 921 |
|
| $ | 892 |
|
| $ | 2,049 |
|
| $ | 3,862 |
|
| $ | 2,320,642 |
|
| $ | 4,110 |
|
| $ | 2,328,614 |
|
| $ | 326 |
|
| $ | 5,615 |
|
| $ | 7,170 |
|
| $ | 3,183 |
|
| $ | 15,968 |
|
| $ | 2,564,098 |
|
| $ | 2,580,066 |
|
| $ | 47 |
|
December 31, 2021 |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| 90 Days or Greater Past Due |
|
| Total Past Due |
|
| Current |
|
| Purchased Credit- Impaired Loans |
|
| Total Loans |
|
| Past Due 90 Days and Accruing |
| ||||||||||||||||||||||||||||||||||||||||
December 31, 2022 |
| 30-59 |
|
| 60-89 |
|
| 90 Days |
|
| Total Past |
|
| Current |
|
| Purchased |
|
| Total Loans |
|
| Past Due |
| ||||||||||||||||||||||||||||||||||||||||
Commercial & Agriculture |
| $ | 249 |
|
| $ | 13 |
|
| $ | 78 |
|
| $ | 340 |
|
| $ | 246,162 |
|
| $ | — |
|
| $ | 246,502 |
|
| $ | — |
|
| $ | 247 |
|
| $ | 78 |
|
| $ | 534 |
|
| $ | 859 |
|
| $ | 276,873 |
|
| $ | 863 |
|
| $ | 278,595 |
|
| $ | — |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Owner Occupied |
|
| — |
|
|
| — |
|
|
| 106 |
|
|
| 106 |
|
|
| 295,346 |
|
|
| — |
|
|
| 295,452 |
|
|
| — |
|
|
| 21 |
|
|
| 13 |
|
|
| 76 |
|
|
| 110 |
|
|
| 369,049 |
|
|
| 1,988 |
|
|
| 371,147 |
|
|
| — |
|
Non-Owner Occupied |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 4 |
|
|
| 829,306 |
|
|
| — |
|
|
| 829,310 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,164 |
|
|
| 1,164 |
|
|
| 1,017,453 |
|
|
| 119 |
|
|
| 1,018,736 |
|
|
| — |
|
Residential Real Estate |
|
| 1,848 |
|
|
| 879 |
|
|
| 842 |
|
|
| 3,569 |
|
|
| 426,201 |
|
|
| 290 |
|
|
| 430,060 |
|
|
| — |
|
|
| 3,133 |
|
|
| 857 |
|
|
| 1,107 |
|
|
| 5,097 |
|
|
| 546,270 |
|
|
| 1,414 |
|
|
| 552,781 |
|
|
| — |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 157,127 |
|
|
| — |
|
|
| 157,127 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 219 |
|
|
| 219 |
|
|
| 242,908 |
|
|
| — |
|
|
| 243,127 |
|
|
| — |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,419 |
|
|
| — |
|
|
| 28,419 |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 24,701 |
|
|
| — |
|
|
| 24,708 |
|
|
| — |
|
Lease Financing Receivables |
|
| 1,040 |
|
|
| — |
|
|
| 341 |
|
|
| 1,381 |
|
|
| 35,416 |
|
|
| — |
|
|
| 36,797 |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Consumer and Other |
|
| 42 |
|
|
| — |
|
|
| 9 |
|
|
| 51 |
|
|
| 10,958 |
|
|
| — |
|
|
| 11,009 |
|
|
| — |
|
|
| 293 |
|
|
| 49 |
|
|
| 74 |
|
|
| 416 |
|
|
| 20,358 |
|
|
| 1 |
|
|
| 20,775 |
|
|
| — |
|
Total |
| $ | 2,139 |
|
| $ | 892 |
|
| $ | 1,039 |
|
| $ | 4,070 |
|
| $ | 1,993,519 |
|
| $ | 290 |
|
| $ | 1,997,879 |
|
| $ | — |
|
| $ | 4,741 |
|
| $ | 997 |
|
| $ | 3,515 |
|
| $ | 9,253 |
|
| $ | 2,533,028 |
|
| $ | 4,385 |
|
| $ | 2,546,666 |
|
| $ | — |
|
Page 2021
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following table presents loans on nonaccrual status excluding purchased credit-impaired (PCI) loans, as of September 30, 2022 andMarch 31, 2023.
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Nonaccrual loans with a related ACL |
|
| Nonaccrual loans without a related ACL |
|
| Total Nonaccrual loans |
|
| Interest Income Recognized |
| ||||
Commercial & Agriculture |
| $ | 12 |
|
| $ | 945 |
|
| $ | 957 |
|
| $ | — |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Owner Occupied |
|
| — |
|
|
| 358 |
|
|
| 358 |
|
|
| 3 |
|
Non-Owner Occupied |
|
| — |
|
|
| 1,294 |
|
|
| 1,294 |
|
|
| — |
|
Residential Real Estate |
|
| — |
|
|
| 3,892 |
|
|
| 3,892 |
|
|
| 29 |
|
Real Estate Construction |
|
| — |
|
|
| 217 |
|
|
| 217 |
|
|
| — |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Lease Financing Receivables |
|
| — |
|
|
| 61 |
|
|
| 61 |
|
|
| — |
|
Consumer and Other |
|
| 77 |
|
|
| 124 |
|
|
| 201 |
|
|
| — |
|
Total |
| $ | 89 |
|
| $ | 6,891 |
|
| $ | 6,980 |
|
| $ | 32 |
|
The following table presents loans on nonaccrual status as of December 31, 2021.2022, excluding PCI loans.
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| December 31, 2022 |
| |||
Commercial & Agriculture |
| $ | 668 |
|
| $ | 78 |
|
| $ | 774 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
| |
Owner Occupied |
|
| 206 |
|
|
| 334 |
|
|
| 386 |
|
Non-Owner Occupied |
|
| 2 |
|
|
| 4 |
|
|
| 1,109 |
|
Residential Real Estate |
|
| 3,514 |
|
|
| 3,232 |
|
|
| 3,926 |
|
Real Estate Construction |
|
| 3 |
|
|
| 5 |
|
|
| 221 |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
Lease Financing Receivables |
|
| — |
| ||||||||
Consumer and Other |
|
| 60 |
|
|
| 20 |
|
|
| 91 |
|
Total |
| $ | 4,453 |
|
| $ | 3,673 |
|
| $ | 6,507 |
|
Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. Payments received on nonaccrual loans are applied to the unpaid principal balance. A loan may be returned to accruing status only if one of threetwo conditions are met: the loan is well-secured and none of the principal and interest has been past due for a minimum of 90 days; the loan is a TDR and has made a minimum of six months payments;days or the principal and interest payments are reasonably assured and a sustained period of performance has occurred, generally six months.
Modifications: A modification of a loan constitutes a TDR when the Company for economic or legal reasons related to a borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. Exceptions to this policy exist for loan modifications granted as part of the Company’s COVID-19 deferral program, which allows the Company to not classify a modification so long as certain criteria as established in the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”) are met at the time of the modification. The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve reducing the interest rate lower than the current market rate for new debt with similar risk. Residential Real Estate loans modified in a TDR primarily involve interest rate reductions where monthly payments are lowered to accommodate the borrowers’ financial needs.
Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowanceAllowances for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of September 30,December 31, 2022, TDRs accounted for $7$7 of the allowance for loan losses. As of December 31, 2021, TDRs accounted for $18 of the allowance for loan losses.ACL.
Page 22
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
There were no loans modified as TDRs during the three- and nine-month periodsthree-month period ended September 30, 2022 or 2021.March 31, 2022.
Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans.
During the three- and nine-month periodsthree-month period ended September 30,March 31, 2022, and September 30, 2021, there were no defaults on loans that were modified and considered TDRs during the respective previous twelve months.
Page 21
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Impaired
Individually Evaluated Loans: Larger (greater(greater than $350)$350) Commercial & Agricultural and Commercial Real Estate loan relationships, all TDRs and Residential Real Estate and Consumer loans that are part of a larger relationship are tested for impairment on a quarterly basis. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans.
March 31, 2023 |
| Real Estate |
|
| Other |
|
| Allowance for Credit Losses |
| |||
Commercial & Agriculture |
| $ | 49 |
|
| $ | 116 |
|
| $ | 12 |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
| |||
Owner Occupied |
|
| — |
|
|
| — |
|
|
| — |
|
Non-Owner Occupied |
|
| — |
|
|
| — |
|
|
| — |
|
Residential Real Estate |
|
| 689 |
|
|
| — |
|
|
| — |
|
Real Estate Construction |
|
| — |
|
|
| — |
|
|
| — |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
Lease Financing Receivables |
|
| — |
|
|
| — |
|
|
| — |
|
Consumer and Other |
|
| — |
|
|
| 77 |
|
|
| 77 |
|
Total |
| $ | 738 |
|
| $ | 193 |
|
| $ | 89 |
|
Collateral-dependent loans consist primarily of residential real estate, commercial real estate and commercial and industrial loans. These loans are individually evaluated when foreclosure is probable or when the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral. In the case of commercial and industrial loans secured by equipment, the fair value of the collateral is estimated by third-party valuation experts. Loan balances are charged down to the underlying collateral value when they are deemed uncollectible. Note that the Company did not elect to use the collateral maintenance agreement practical expedient available under CECL.
Page 23
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following table includes the recorded investment and unpaid principal balances for impaired loans excluding PCI loans, with the associated allowance amount, if applicable, as of September 30, 2022 and December 31, 2021.2022, excluding PCI loans.
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| December 31, 2022 |
| |||||||||||||||||||||||||||||||||||
|
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Recorded |
|
| Unpaid |
|
| Related |
|
| Average Recorded |
|
| Interest |
| |||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial & Agriculture |
| $ | 343 |
|
| $ | 343 |
|
|
|
|
|
| $ | — |
|
| $ | — |
|
|
|
|
|
| $ | — |
|
| $ | — |
|
|
|
|
| $ | 86 |
|
| $ | — |
| |
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Owner Occupied |
|
| 676 |
|
|
| 676 |
|
|
|
|
|
|
| — |
|
|
| — |
| �� |
|
|
|
|
| 82 |
|
|
| 82 |
|
|
|
|
|
| 192 |
|
|
| 6 |
| |
Non-Owner Occupied |
|
| 140 |
|
|
| 140 |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
| 35 |
|
|
| — |
| |
Residential Real Estate |
|
| 579 |
|
|
| 604 |
|
|
|
|
|
|
| 503 |
|
|
| 528 |
|
|
|
|
|
|
| 385 |
|
|
| 410 |
|
|
|
|
|
| 595 |
|
|
| 40 |
| |
Farm Real Estate |
|
| — |
|
|
| — |
|
|
|
|
|
|
| 509 |
|
|
| 509 |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
| 381 |
|
|
| 14 |
| |
Total |
|
| 1,738 |
|
|
| 1,763 |
|
|
|
|
|
|
| 1,012 |
|
|
| 1,037 |
|
|
|
|
|
|
| 467 |
|
|
| 492 |
|
|
|
|
|
| 1,289 |
|
|
| 60 |
| |
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial & Agriculture |
|
| — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Owner Occupied |
|
| 157 |
|
|
| 157 |
|
| $ | 6 |
|
|
| 187 |
|
|
| 187 |
|
| $ | 7 |
|
|
| 150 |
|
|
| 150 |
|
|
| 6 |
|
|
| 214 |
|
|
| — |
|
Residential Real Estate |
|
| 7 |
|
|
| 11 |
|
|
| 1 |
|
|
| 23 |
|
|
| 27 |
|
|
| 11 |
|
|
| 7 |
|
|
| 11 |
|
|
| 1 |
|
|
| 19 |
|
|
| — |
|
Lease Financing Receivables |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Consumer and Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Total |
|
| 164 |
|
|
| 168 |
|
|
| 7 |
|
|
| 210 |
|
|
| 214 |
|
|
| 18 |
|
|
| 157 |
|
|
| 161 |
|
|
| 7 |
|
|
| 233 |
|
|
| — |
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial & Agriculture |
|
| 343 |
|
|
| 343 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 86 |
|
|
| — |
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Owner Occupied |
|
| 833 |
|
|
| 833 |
|
|
| 6 |
|
|
| 187 |
|
|
| 187 |
|
|
| 7 |
|
|
| 232 |
|
|
| 232 |
|
|
| 6 |
|
|
| 406 |
|
|
| 6 |
|
Non-Owner Occupied |
|
| 140 |
|
|
| 140 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| — |
|
Residential Real Estate |
|
| 586 |
|
|
| 615 |
|
|
| 1 |
|
|
| 526 |
|
|
| 555 |
|
|
| 11 |
|
|
| 392 |
|
|
| 421 |
|
|
| 1 |
|
|
| 614 |
|
|
| 40 |
|
Farm Real Estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 509 |
|
|
| 509 |
|
|
| — |
| ||||||||||||||||||||
Lease Financing Receivables |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 381 |
|
|
| 14 |
| ||||||||||||||||||||||||
Consumer and Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Total |
| $ | 1,902 |
|
| $ | 1,931 |
|
| $ | 7 |
|
| $ | 1,222 |
|
| $ | 1,251 |
|
| $ | 18 |
|
| $ | 624 |
|
| $ | 653 |
|
| $ | 7 |
|
| $ | 1,522 |
|
| $ | 60 |
|
The following table includes the average recorded investment and interest income recognized for impaired financing receivables for the three- and nine-monththree-month periods ended September 30, 2022 and 2021.March 31, 2022.
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| March 31, 2022 |
| |||||||||||||||
For the three months ended |
| Average Recorded Investment |
|
| Interest Income Recognized |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
|
| Average |
|
| Interest |
| ||||||
Commercial & Agriculture |
| $ | 172 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Commercial Real Estate—Owner Occupied |
|
| 504 |
|
|
| 3 |
|
|
| 252 |
|
|
| 4 |
|
|
| 193 |
|
|
| 3 |
|
Commercial Real Estate—Non-Owner Occupied |
|
| 70 |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Residential Real Estate |
|
| 503 |
|
|
| 9 |
|
|
| 551 |
|
|
| 8 |
|
|
| 530 |
|
|
| 7 |
|
Farm Real Estate |
|
| 247 |
|
|
| 2 |
|
|
| 557 |
|
|
| 6 |
|
|
| 514 |
|
|
| 6 |
|
Lease Financing Receivables |
|
| — |
|
|
| — |
| ||||||||||||||||
Consumer and Other |
|
| — |
|
|
| — |
| ||||||||||||||||
Total |
| $ | 1,496 |
|
| $ | 14 |
|
| $ | 1,375 |
|
| $ | 18 |
|
| $ | 1,237 |
|
| $ | 16 |
|
Page 2224
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||||||||
For the nine months ended |
| Average Recorded Investment |
|
| Interest Income Recognized |
|
| Average Recorded Investment |
|
| Interest Income Recognized |
| ||||
Commercial & Agriculture |
| $ | 86 |
|
| $ | — |
|
| $ | 19 |
|
| $ | — |
|
Commercial Real Estate—Owner Occupied |
|
| 349 |
|
|
| 10 |
|
|
| 449 |
|
|
| 15 |
|
Commercial Real Estate—Non-Owner Occupied |
|
| 35 |
|
|
| — |
|
|
| 29 |
|
|
| 1 |
|
Residential Real Estate |
|
| 516 |
|
|
| 19 |
|
|
| 654 |
|
|
| 24 |
|
Farm Real Estate |
|
| 381 |
|
|
| 14 |
|
|
| 584 |
|
|
| 18 |
|
Total |
| $ | 1,367 |
|
| $ | 43 |
|
| $ | 1,735 |
|
| $ | 58 |
|
Changes in the accretable yield for PCI loans as of March 31, 2022 were as follows, since acquisition:
|
| For the Three-Month Period Ended September 30, 2022 |
|
| For the Three-Month Period Ended September 30, 2021 |
|
| For the |
| |||
|
| (In Thousands) |
|
| (In Thousands) |
|
| (In Thousands) |
| |||
Balance at beginning of period |
| $ | 216 |
|
| $ | 224 |
|
| $ | 217 |
|
Acquisition of PCI loans |
|
| — |
|
|
| — |
|
|
| — |
|
Accretion |
|
| (7 | ) |
|
| (6 | ) |
|
| (16 | ) |
Transfer from non-accretable to accretable |
|
| 7 |
|
|
| — |
|
|
| 15 |
|
Balance at end of period |
| $ | 216 |
|
| $ | 218 |
|
| $ | 216 |
|
|
| For the Nine-Month Period Ended September 30, 2022 |
|
| For the Nine-Month Period Ended September 30, 2021 |
| ||
|
| (In Thousands) |
|
| (In Thousands) |
| ||
Balance at beginning of period |
| $ | 217 |
|
| $ | 225 |
|
Acquisition of PCI loans |
|
| — |
|
|
| — |
|
Accretion |
|
| (27 | ) |
|
| (62 | ) |
Transfer from non-accretable to accretable |
|
| 26 |
|
|
| 55 |
|
Balance at end of period |
| $ | 216 |
|
| $ | 218 |
|
The Company has acquired loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. Upon the Company's adoption of ASU 2016-13, remaining credit-related discount on these assets were re-classified to the allowance for credit losses. The Company elected the prospective transition approach and all loans previously considered purchased credit impaired are now classified as purchased with credit deterioration. The remaining non-credit discount will continue to be accreted into income over the remining lives of the assets. The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:310-30 as of December 31, 2022:
|
| At December 31, 2022 |
| |
|
| Acquired Loans with |
| |
|
| (In Thousands) |
| |
Outstanding balance |
| $ | 5,220 |
|
Carrying amount |
|
| 4,386 |
|
|
| At September 30, 2022 |
|
| At December 31, 2021 |
| ||
|
| Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) |
|
| Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) |
| ||
|
| (In Thousands) |
| |||||
Outstanding balance |
| $ | 4,952 |
|
| $ | 512 |
|
Carrying amount |
|
| 4,110 |
|
|
| 290 |
|
There was no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of September 30, 2022 or December 31, 2021.2022.
Foreclosed Assets Held For Sale
Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in Other assets on the Consolidated Balance Sheet. As of September 30, 2022 and DecemberMarch 31, 2021,2023, there were no$26 of foreclosed assets included in Other assets. As of September 30,December 31, 2022, there were no foreclosed assets included in Other assets. As of March 31, 2023 and December 31, 2021,2022, the Company had initiated formal foreclosure procedures on $488$210 and $293,$399, respectively, of consumer residential mortgages.
Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit. The allowance for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit loss expense recognized within other non-interest expense on the Consolidated Statements of Operations. The estimated credit loss includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate of expected credit loss is based on the historical loss rate for the loan class in which the loan commitments would be classified as if funded.
Page 2325
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following table lists the allowance for credit losses on off-balance sheet credit exposures as of March 31, 2023:
|
| Allowance for |
| |
March 31, 2023 |
| Credit Losses |
| |
Commercial & Agriculture |
| $ | 648 |
|
Commercial Real Estate: |
|
|
| |
Owner Occupied |
|
| 91 |
|
Non-Owner Occupied |
|
| 159 |
|
Residential Real Estate |
|
| 486 |
|
Real Estate Construction |
|
| 2,143 |
|
Farm Real Estate |
|
| 26 |
|
Lease Financing Receivables |
|
| — |
|
Consumer and Other |
|
| 34 |
|
Total allowance for credit losses |
| $ | 3,587 |
|
(6) Accumulated Other Comprehensive Income (Loss)Loss
The following table presents the changes in each component of accumulated other comprehensive income (loss),loss, net of tax for the three-month periods ended September 30, 2022March 31, 2023 and September 30, 2021.March 31, 2022.
|
| For the Three-Month Period Ended |
|
| For the Three-Month Period Ended |
| ||||||||||||||||||
|
| March 31, 2023(a) |
|
| March 31, 2022(a) |
| ||||||||||||||||||
|
| Unrealized |
|
| Defined |
|
| Total (a) |
|
| Unrealized |
|
| Defined |
|
| Total (a) |
| ||||||
Beginning balance |
| $ | (52,771 | ) |
| $ | (5,274 | ) |
| $ | (58,045 | ) |
| $ | 14,675 |
|
| $ | (5,855 | ) |
| $ | 8,820 |
|
Other comprehensive income (loss) before reclassifications |
|
| 8,135 |
|
|
| — |
|
|
| 8,135 |
|
|
| (29,564 | ) |
|
| — |
|
|
| (29,564 | ) |
Amounts reclassified from accumulated other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
Net current-period other comprehensive income (loss) |
|
| 8,135 |
|
|
| — |
|
|
| 8,135 |
|
|
| (29,564 | ) |
|
| 55 |
|
|
| (29,509 | ) |
Ending balance |
| $ | (44,636 | ) |
| $ | (5,274 | ) |
| $ | (49,910 | ) |
| $ | (14,889 | ) |
| $ | (5,800 | ) |
| $ | (20,689 | ) |
|
| For the Three-Month Period Ended |
|
| For the Three-Month Period Ended |
| ||||||||||||||||||
|
| September 30, 2022(a) |
|
| September 30, 2021(a) |
| ||||||||||||||||||
|
| Unrealized Gains and (Losses) on Available-for- Sale Securities (a) |
|
| Defined Benefit Pension Items (a) |
|
| Total (a) |
|
| Unrealized Gains and (Losses) on Available-for- Sale Securities (a) |
|
| Defined Benefit Pension Items (a) |
|
| Total (a) |
| ||||||
Beginning balance |
| $ | (40,497 | ) |
| $ | (5,745 | ) |
| $ | (46,242 | ) |
| $ | 18,392 |
|
| $ | (6,699 | ) |
| $ | 11,693 |
|
Other comprehensive income (loss) before reclassifications |
|
| (23,626 | ) |
|
| — |
|
|
| (23,626 | ) |
|
| (2,455 | ) |
|
| — |
|
|
| (2,455 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| (4 | ) |
|
| 54 |
|
|
| 50 |
|
|
| (4 | ) |
|
| 64 |
|
|
| 60 |
|
Net current-period other comprehensive income (loss) |
|
| (23,630 | ) |
|
| 54 |
|
|
| (23,576 | ) |
|
| (2,459 | ) |
|
| 64 |
|
|
| (2,395 | ) |
Ending balance |
| $ | (64,127 | ) |
| $ | (5,691 | ) |
| $ | (69,818 | ) |
| $ | 15,933 |
|
| $ | (6,635 | ) |
| $ | 9,298 |
|
Page 26
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
|
|
The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss)loss for the three-month periods ended September 30, 2022March 31, 2023 and September 30, 2021.March 31, 2022.
|
| Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a) |
|
|
| |||||
Details about Accumulated Other Comprehensive Income (Loss) Components |
| For the Three months ended September 30, 2022 |
|
| For the Three months ended September 30, 2021 |
|
| Affected Line Item in the Statement Where Net Income is Presented | ||
Unrealized gains (losses) on available-for-sale securities |
| $ | 4 |
|
| $ | 4 |
|
| Net gain on sale of securities |
Tax effect |
|
| — |
|
|
| — |
|
| Income tax expense |
|
|
| 4 |
|
|
| 4 |
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
|
Actuarial gains/(losses) (b) |
|
| (69 | ) |
|
| (81 | ) |
| Other operating expenses |
Tax effect |
|
| 15 |
|
|
| 17 |
|
| Income tax expense |
|
|
| (54 | ) |
|
| (64 | ) |
|
|
Total reclassifications for the period |
| $ | (50 | ) |
| $ | (60 | ) |
|
|
Amount Reclassified from |
| |||||||||
Details about Accumulated Other | For the Three | For the Three | Affected Line Item in the | |||||||
Unrealized gains (losses) on available-for-sale securities | $ | — | $ | — | Net gain on sale | |||||
Tax effect | — | — | Income tax expense | |||||||
— | — | |||||||||
Amortization of defined benefit pension items | ||||||||||
Actuarial gains/(losses) (b) |
| — | (69 | ) | Other operating expenses | |||||
Tax effect | — | 14 | Income tax expense | |||||||
— | (55 | ) | ||||||||
Total reclassifications for the | $ | — | $ | (55 | ) | |||||
Page 24
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(
The following table presents the changes in each component ofparentheses indicate expenses/losses and other amounts indicate income/benefit.
|
| For the Nine-Month Period Ended |
|
| For the Nine-Month Period Ended |
| ||||||||||||||||||
|
| September 30, 2022(a) |
|
| September 30, 2021(a) |
| ||||||||||||||||||
|
| Unrealized Gains and (Losses) on Available-for- Sale Securities (a) |
|
| Defined Benefit Pension Items (a) |
|
| Total (a) |
|
| Unrealized Gains and (Losses) on Available-for- Sale Securities (a) |
|
| Defined Benefit Pension Items (a) |
|
| Total (a) |
| ||||||
Beginning balance |
| $ | 14,675 |
|
| $ | (5,855 | ) |
| $ | 8,820 |
|
| $ | 21,447 |
|
| $ | (6,828 | ) |
| $ | 14,619 |
|
Other comprehensive loss before reclassifications |
|
| (78,794 | ) |
|
| — |
|
|
| (78,794 | ) |
|
| (5,512 | ) |
|
| — |
|
|
| (5,512 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| (8 | ) |
|
| 164 |
|
|
| 156 |
|
|
| (2 | ) |
|
| 193 |
|
|
| 191 |
|
Net current-period other comprehensive income (loss) |
|
| (78,802 | ) |
|
| 164 |
|
|
| (78,638 | ) |
|
| (5,514 | ) |
|
| 193 |
|
|
| (5,321 | ) |
Ending balance |
| $ | (64,127 | ) |
| $ | (5,691 | ) |
| $ | (69,818 | ) |
| $ | 15,933 |
|
| $ | (6,635 | ) |
| $ | 9,298 |
|
|
|
The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the nine-month periods ended September 30, 2022 and September 30, 2021.
|
| Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a) |
|
|
| |||||
Details about Accumulated Other Comprehensive Income (Loss) Components |
| For the Nine months ended September 30, 2022 |
|
| For the Nine months ended September 30, 2021 |
|
| Affected Line Item in the Statement Where Net Income is Presented | ||
Unrealized gains (losses) on available-for-sale securities |
| $ | 10 |
|
| $ | 2 |
|
| Net gain on sale of securities |
Tax effect |
|
| (2 | ) |
|
| — |
|
| Income tax expense |
|
|
| 8 |
|
|
| 2 |
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
|
Actuarial gains/(losses) (b) |
|
| (208 | ) |
|
| (244 | ) |
| Other operating expenses |
Tax effect |
|
| 44 |
|
|
| 51 |
|
| Income tax expense |
|
|
| (164 | ) |
|
| (193 | ) |
|
|
Total reclassifications for the period |
| $ | (156 | ) |
| $ | (191 | ) |
|
|
|
|
|
|
Page 25
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(7) Goodwill and Intangible Assets
The carrying amount of goodwill has increased $24,801decreased $617 since December 31, 20212022 as a result of adjustments to estimated fair values of the Comunibanc Corp. acquisition, discussed in Note 18.assets acquired and liabilities assumed since the date of acquisition. The balance of goodwill was $101,652$125,078 at September 30, 2022March 31, 2023 and $76,851$125,695 at December 31, 2021.2022.
Acquired intangible assets, other than goodwill, as of September 30, 2022March 31, 2023 and December 31, 20212022 were as follows:
|
| 2022 |
|
| 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||||||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core deposit intangibles |
| $ | 12,953 |
|
| $ | 4,478 |
|
| $ | 8,475 |
|
| $ | 8,527 |
|
| $ | 3,588 |
|
| $ | 4,939 |
|
| $ | 12,953 |
|
| $ | 5,282 |
|
| $ | 7,671 |
|
| $ | 12,953 |
|
| $ | 4,883 |
|
| $ | 8,070 |
|
Total amortized intangible assets |
| $ | 12,953 |
|
| $ | 4,478 |
|
| $ | 8,475 |
|
| $ | 8,527 |
|
| $ | 3,588 |
|
| $ | 4,939 |
|
| $ | 12,953 |
|
| $ | 5,282 |
|
| $ | 7,671 |
|
| $ | 12,953 |
|
| $ | 4,883 |
|
| $ | 8,070 |
|
Aggregate core deposit intangible amortization expense was $456,$398, and $223,$217, for the three-months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $890 and $668 for the nine-months ended September 30, 2022 and 2021, respectively.
Page 27
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Activity for mortgage servicing rights (MSRs) and the related valuation allowance for the three- and nine-monththree-month periods ended September 30,March 31, 2023 and March 31, 2022 and September 30, 2021 were as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Loan Servicing Rights: |
|
|
|
|
|
| ||
Balance at Beginning of Period |
| $ | 2,689 |
|
| $ | 2,642 |
|
Additions |
|
| 436 |
|
|
| 145 |
|
Additions from acquisition |
|
| — |
|
|
| — |
|
Disposals |
|
| — |
|
|
| — |
|
Amortized to expense |
|
| (66 | ) |
|
| (109 | ) |
Other charges |
|
| — |
|
|
| — |
|
Change in valuation allowance |
|
| — |
|
|
| — |
|
Balance at End of Period |
| $ | 3,059 |
|
| $ | 2,678 |
|
|
|
|
|
|
| |||
|
|
|
|
|
| |||
Valuation allowance: |
|
|
|
|
|
| ||
Balance at Beginning of Period |
| $ | — |
|
| $ | — |
|
Additions expensed |
|
| — |
|
|
| — |
|
Reductions credited to operations |
|
| — |
|
|
| — |
|
Direct write-offs |
|
| — |
|
|
| — |
|
Balance at End of Period |
| $ | — |
|
| $ | — |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Loan Servicing Rights: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | 2,664 |
|
| $ | 2,745 |
|
| $ | 2,642 |
|
| $ | 2,246 |
|
Additions |
|
| 91 |
|
|
| 164 |
|
|
| 317 |
|
|
| 562 |
|
Additions from acquisition |
|
| 419 |
|
|
| — |
|
|
| 419 |
|
|
| — |
|
Disposals |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortized to expense |
|
| (95 | ) |
|
| (144 | ) |
|
| (299 | ) |
|
| (436 | ) |
Other charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Change in valuation allowance |
|
| — |
|
|
| (189 | ) |
|
| — |
|
|
| 204 |
|
Balance at End of Period |
| $ | 3,079 |
|
| $ | 2,576 |
|
| $ | 3,079 |
|
| $ | 2,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | — |
|
| $ | (189 | ) |
| $ | — |
|
| $ | 204 |
|
Additions expensed |
|
| — |
|
|
| 189 |
|
|
| — |
|
|
| 261 |
|
Reductions credited to operations |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (465 | ) |
Direct write-offs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at End of Period |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Estimated amortization expense for each of the next five years and thereafter is as follows:
|
| MSRs |
|
| Core deposit intangibles |
|
| Total |
| |||||||||||||||
2022 |
| $ | 40 |
|
| $ | 407 |
|
| $ | 447 |
| ||||||||||||
|
| MSRs |
|
| Core deposit |
|
| Total |
| |||||||||||||||
2023 |
|
| 161 |
|
|
| 1,579 |
|
|
| 1,740 |
|
| $ | 130 |
|
| $ | 1,181 |
|
| $ | 1,311 |
|
2024 |
|
| 160 |
|
|
| 1,488 |
|
|
| 1,648 |
|
|
| 171 |
|
|
| 1,489 |
|
|
| 1,660 |
|
2025 |
|
| 160 |
|
|
| 1,312 |
|
|
| 1,472 |
|
|
| 170 |
|
|
| 1,312 |
|
|
| 1,482 |
|
2026 |
|
| 159 |
|
|
| 1,193 |
|
|
| 1,352 |
|
|
| 167 |
|
|
| 1,193 |
|
|
| 1,360 |
|
2027 |
|
| 163 |
|
|
| 1,071 |
|
|
| 1,234 |
| ||||||||||||
Thereafter |
|
| 2,399 |
|
|
| 2,496 |
|
|
| 4,895 |
|
|
| 2,258 |
|
|
| 1,425 |
|
|
| 3,683 |
|
|
| $ | 3,079 |
|
| $ | 8,475 |
|
| $ | 11,554 |
|
| $ | 3,059 |
|
| $ | 7,671 |
|
| $ | 10,730 |
|
Page 2628
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(8) Short-Term and Other Borrowings
Short-term and other borrowings, which consist of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, are summarized as follows:
|
| At September 30, 2022 |
|
| At December 31, 2021 |
|
| At March 31, 2023 |
|
| At December 31, 2022 |
| ||||||||||||||||||||
|
| Federal Funds Purchased |
|
| Short-term Borrowings |
|
| Federal Funds Purchased |
|
| Short-term Borrowings |
|
| Federal Funds |
|
| Short-term |
|
| Federal Funds |
|
| Short-term |
| ||||||||
Outstanding balance |
| $ | — |
|
| $ | 55,000 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 212,000 |
|
| $ | — |
|
| $ | 393,700 |
|
Interest rate on balance |
|
| — |
|
|
| 3.02 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.86 | % |
|
| — |
|
|
| 4.24 | % |
|
| Three Months Ended March 31, |
| |||||||||||||
|
| 2023 |
|
| 2023 |
|
| 2022 |
|
| 2022 |
| ||||
|
| Federal Funds |
|
| Short-term |
|
| Federal Funds |
|
| Short-term |
| ||||
Maximum indebtedness |
| $ | 30,000 |
|
| $ | 540,000 |
|
| $ | — |
|
| $ | 15,800 |
|
Average balance |
|
| 333 |
|
|
| 372,226 |
|
|
| — |
|
|
| 358 |
|
Average rate paid |
|
| 5.96 | % |
|
| 4.64 | % |
|
| — |
|
|
| 0.30 | % |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2021 |
| ||||||||
|
| Federal Funds Purchased |
|
| Short-term Borrowings |
|
| Federal Funds Purchased |
|
| Short-term Borrowings |
|
| Federal Funds Purchased |
|
| Short-term Borrowings |
|
| Federal Funds Purchased |
|
| Short-term Borrowings |
| ||||||||
Maximum indebtedness |
| $ | — |
|
| $ | 56,000 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 56,000 |
|
| $ | — |
|
| $ | — |
|
Average balance |
|
| — |
|
|
| 6,713 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,380 |
|
|
| — |
|
|
| — |
|
Average rate paid |
|
| — |
|
|
| 2.84 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.75 | % |
|
| — |
|
|
| — |
|
Average balance during the period represents daily averages. Average rate paid represents interest expense divided by the related average balances.
These borrowing
Short-term borrowings and federal funds purchased transactions can range from overnight to six months in maturity. The average maturity was one day at September 30, 2022.March 31, 2023.
Securities sold under agreements to repurchase are used to facilitate the needs of our customers as well as to facilitate our short-term funding needs. Securities sold under repurchase agreements are carried at the amount of cash received in association with the agreement. We continuously monitor the collateral levels and may be required, from time to time, to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
The following table presents detail regarding the securities pledged as collateral under repurchase agreements as of September 30, 2022March 31, 2023 and December 31, 2021.2022. All of the repurchase agreements are overnight agreements.
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Securities pledged for repurchase agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
U.S. Treasury securities |
| $ | 20,155 |
|
| $ | 16,478 |
|
| $ | 15,631 |
|
| $ | 25,143 |
|
Obligations of U.S. government agencies |
|
| — |
|
|
| 9,017 |
|
|
| — |
|
|
| — |
|
Total securities pledged |
| $ | 20,155 |
|
| $ | 25,495 |
|
| $ | 15,631 |
|
| $ | 25,143 |
|
Gross amount of recognized liabilities for repurchase agreements |
| $ | 20,155 |
|
| $ | 25,495 |
|
| $ | 15,631 |
|
| $ | 25,143 |
|
Amounts related to agreements not included in offsetting disclosures above |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Page 2729
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(9) Earnings per Common Share
The Company has granted restricted stock awards with non-forfeitable rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by ASC 260-10-45. Basic earnings per common share are computed as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Diluted earnings per common share include the dilutive effect, if any, of additional potential common shares issuable under the Company’s equity incentive plan, computed using the treasury stock method. The Company had no dilutive securities for the three-three-months ended March 31, 2023 and nine-months ended September 30, 2022 and 2021.2022.
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Basic |
|
|
|
|
|
| ||
Net income |
| $ | 12,888 |
|
| $ | 8,466 |
|
Less allocation of earnings and dividends to participating securities |
|
| 452 |
|
|
| 32 |
|
Net income available to common shareholders—basic |
| $ | 12,436 |
|
| $ | 8,434 |
|
Weighted average common shares outstanding |
|
| 15,732,092 |
|
|
| 14,909,192 |
|
Less average participating securities |
|
| 552,882 |
|
|
| 55,905 |
|
Weighted average number of shares outstanding used in the calculation of basic earnings per common share |
|
| 15,179,210 |
|
|
| 14,853,287 |
|
Earnings per common share: |
|
|
|
|
|
| ||
Basic |
| $ | 0.82 |
|
| $ | 0.57 |
|
Diluted |
|
| 0.82 |
|
|
| 0.57 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 11,112 |
|
| $ | 9,642 |
|
| $ | 27,279 |
|
| $ | 29,564 |
|
Less allocation of earnings and dividends to participating securities |
|
| 52 |
|
|
| 46 |
|
|
| 123 |
|
|
| 122 |
|
Net income available to common shareholders—basic |
| $ | 11,060 |
|
| $ | 9,596 |
|
| $ | 27,156 |
|
| $ | 29,442 |
|
Weighted average common shares outstanding |
|
| 15,394,898 |
|
|
| 15,168,233 |
|
|
| 14,974,862 |
|
|
| 15,543,488 |
|
Less average participating securities |
|
| 71,604 |
|
|
| 72,071 |
|
|
| 67,323 |
|
|
| 64,064 |
|
Weighted average number of shares outstanding used in the calculation of basic earnings per common share |
|
| 15,323,294 |
|
|
| 15,096,162 |
|
|
| 14,907,539 |
|
|
| 15,479,424 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.72 |
|
| $ | 0.64 |
|
| $ | 1.82 |
|
| $ | 1.90 |
|
Diluted |
|
| 0.72 |
|
|
| 0.64 |
|
|
| 1.82 |
|
|
| 1.90 |
|
(10) Commitments, Contingencies and Off-Balance Sheet Risk
Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amounts of financial instruments with off-balance-sheet risk were as follows at September 30, 2022March 31, 2023 and December 31, 2021:2022:
|
| Contract Amount |
| |||||||||||||
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Fixed Rate |
|
| Variable |
|
| Fixed Rate |
|
| Variable |
| ||||
Commitment to extend credit: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Lines of credit and construction loans |
| $ | 49,661 |
|
| $ | 615,797 |
|
| $ | 42,184 |
|
| $ | 599,185 |
|
Overdraft protection |
|
| 10 |
|
|
| 45,518 |
|
|
| 10 |
|
|
| 45,182 |
|
Letters of credit |
|
| 960 |
|
|
| 708 |
|
|
| 960 |
|
|
| 630 |
|
|
| $ | 50,631 |
|
| $ | 662,023 |
|
| $ | 43,154 |
|
| $ | 644,997 |
|
|
| Contract Amount |
| |||||||||||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Fixed Rate |
|
| Variable Rate |
|
| Fixed Rate |
|
| Variable Rate |
| ||||
Commitment to extend credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of credit and construction loans |
| $ | 45,738 |
|
| $ | 544,286 |
|
| $ | 33,542 |
|
| $ | 455,777 |
|
Overdraft protection |
|
| 10 |
|
|
| 62,637 |
|
|
| 7 |
|
|
| 54,034 |
|
Letters of credit |
|
| 615 |
|
|
| 876 |
|
|
| 615 |
|
|
| 731 |
|
|
| $ | 46,363 |
|
| $ | 607,799 |
|
| $ | 34,164 |
|
| $ | 510,542 |
|
Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from 2.60%3.10% to 7.25%8.50% at September 30, 2022March 31, 2023 and from 3.25%3.25% to 8.00%8.00% at December 31, 2021.2022. Maturities extend up to 30 years.
Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. TheNo reserve balance was maintained, or required to be maintained, in accordance with such requirements was $0 on September 30, 2022at March 31, 2023 and December 31, 2021.2022.
Page 2830
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(11) Pension Information
The Company sponsors a pension plan which is a noncontributory defined benefit retirement plan. Annual payments, subject to the maximum amount deductible for federal income tax purposes, are made to a pension trust fund. In 2006, the Company amended the pension plan to provide that no employee could be added as a participant to the pension plan after December 31, 2006. In 2014, the Company amended the pension plan again to provide that no additional benefits would accrue beyond April 30, 2014.
Net periodic pension cost was as follows:
|
| Three months ended |
|
| Nine Months Ended |
|
| Three months ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Service cost |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Interest cost |
|
| 103 |
|
|
| 95 |
|
|
| 310 |
|
|
| 285 |
|
|
| 125 |
|
|
| 103 |
|
Expected return on plan assets |
|
| (144 | ) |
|
| (160 | ) |
|
| (432 | ) |
|
| (480 | ) |
|
| (132 | ) |
|
| (144 | ) |
Other components |
|
| 69 |
|
|
| 81 |
|
|
| 208 |
|
|
| 244 |
|
|
| — |
|
|
| 69 |
|
Net periodic pension cost |
| $ | 28 |
|
| $ | 16 |
|
| $ | 86 |
|
| $ | 49 |
|
| $ | (7 | ) |
| $ | 28 |
|
The Company does notnot expect to make any contribution to its pension plan in 2022.2023. The Company made no contribution to its pension plan in 2021.2022.
(12) Equity Incentive Plan
At the Company’s 2014 annual meeting, the shareholders adopted the Company’s 2014 Incentive Plan (“2014 Incentive Plan”). The 2014 Incentive Plan authorizes the Company to grant options, stock awards, stock units and other awards for up to 375,000 common shares of the Company. There were 118,53671,866 shares available for future grants under this plan at September 30, 2022.March 31, 2023.
No options were granted under the 2014 Incentive Plan during the periods ended September 30, 2022March 31, 2023 and 2021.2022.
Each year, the Board of Directors has awarded restricted common shares to senior officers of the Company. The restricted shares vest ratably over a three-year or five-year period following the grant date. The product of the number of restricted shares granted and the grant date market price of the Company’s common shares determines the fair value of restricted shares awarded under the Company’s 2014 Incentive Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award.
On May 25, 2022, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 7,224 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2023 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $168.
The Company classifies share-based compensation for employees with “Compensation expense” in the Consolidated Statements of Operations.
Page 29
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following is a summary of the Company’s outstanding restricted shares and changes therein for the three- and nine-monththree-month periods ended September 30, 2022:March 31, 2023:
|
| Three months ended |
|
| Nine Months Ended |
|
| Three months ended |
| |||||||||||||||
|
| September 30, 2022 |
|
| September 30, 2022 |
|
| March 31, 2023 |
| |||||||||||||||
|
| Number of Restricted Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number of Restricted Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number of |
|
| Weighted |
| ||||||
Nonvested at beginning of period |
|
| 71,748 |
|
| $ | 21.88 |
|
|
| 69,840 |
|
| $ | 20.14 |
|
|
| 70,475 |
|
| $ | 21.88 |
|
Granted |
|
| — |
|
|
| — |
|
|
| 31,774 |
|
|
| 24.51 |
|
|
| 47,536 |
|
|
| 21.85 |
|
Vested |
|
| — |
|
|
| — |
|
|
| (27,728 | ) |
|
| 24.28 |
|
|
| (27,694 | ) |
|
| 21.52 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| (2,138 | ) |
|
| 21.99 |
|
|
| (1,740 | ) |
|
| 21.74 |
|
Nonvested at end of period |
|
| 71,748 |
|
| $ | 21.88 |
|
|
| 71,748 |
|
| $ | 21.88 |
|
|
| 88,577 |
|
| $ | 21.98 |
|
Page 31
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following is a summary of the status of the Company’s outstanding restricted shares as of September 30, 2022:March 31, 2023:
At September 30, 2022 |
| |||||||||||||||||||||||
At March 31, 2023 | At March 31, 2023 |
| ||||||||||||||||||||||
Date of Award |
| Shares |
|
| Remaining Expense |
|
| Remaining Vesting Period (Years) |
|
| Shares |
|
| Remaining Expense |
|
| Remaining Vesting |
| ||||||
April 10, 2018 |
|
| 1,470 |
|
| $ | 8 |
|
|
| 0.25 |
| ||||||||||||
March 14, 2019 |
|
| 4,034 |
|
|
| 49 |
|
|
| 1.25 |
|
|
| 1,924 |
|
| $ | 28 |
|
|
| 0.75 |
|
March 14, 2020 |
|
| 4,304 |
|
|
| 21 |
|
|
| 0.25 |
| ||||||||||||
March 14, 2020 |
|
| 6,951 |
|
|
| 106 |
|
|
| 2.25 |
|
|
| 4,265 |
|
|
| 72 |
|
|
| 1.75 |
|
March 3, 2021 |
|
| 11,359 |
|
|
| 170 |
|
|
| 3.25 |
|
|
| 7,776 |
|
|
| 125 |
|
|
| 2.75 |
|
March 3, 2021 |
|
| 13,692 |
|
|
| 164 |
|
|
| 1.25 |
|
|
| 6,852 |
|
|
| 98 |
|
|
| 0.75 |
|
March 3, 2022 |
|
| 12,914 |
|
|
| 264 |
|
|
| 4.25 |
|
|
| 9,554 |
|
|
| 204 |
|
|
| 3.75 |
|
March 3, 2022 |
|
| 17,024 |
|
|
| 296 |
|
|
| 2.25 |
|
|
| 11,357 |
|
|
| 223 |
|
|
| 1.75 |
|
March 14, 2023 |
|
| 17,103 |
|
|
| 337 |
|
|
| 4.75 |
| ||||||||||||
March 14, 2023 |
|
| 29,746 |
|
|
| 588 |
|
|
| 2.75 |
| ||||||||||||
|
|
| 71,748 |
|
| $ | 1,078 |
|
|
| 2.36 |
|
|
| 88,577 |
|
| $ | 1,675 |
|
|
| 2.87 |
|
The Company recorded $153$230 and $132$178 of share-based compensation expense during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded $484 and $392, respectively, of share-based compensation expense. The Company recorded $168 of director retainer fees for shares granted under the 2014 Incentive Plan during the nine months ended September 30, 2022. At September 30, 2022,March 31, 2023, the total compensation cost related to unvested awards not yet recognized was $1,078,$1,675, which was expected to be recognized over the weighted average remaining life of the grants of 2.362.87 years.
(13) Fair Value Measurement
The Company uses a fair value hierarchy to measure fair value. This hierarchy describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices for identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; and Level 3: Significant unobservable inputs that reflect the Company’s own view about the assumptions that market participants would use in pricing an asset.
Debt securities: The fair values of securities available-for-sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Equity securities: The Company’s equity securities are not actively traded in an open market. The fair value of these equity securities available-for-sale not actively traded in an open market is determined by using market data inputs for similar securities that are observable (Level 2 inputs).
The fair value of the swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs based on similar transactions as of the valuation date and classified Level 2. The changes in fair value of these assets/liabilities had no impact on net income or comprehensive income.
Page 30
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Mortgage servicing rights: Mortgage servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the discounted cash flow model are those that the Company believes market participants would use in estimating future net servicing income. Significant assumptions in the valuation of mortgage servicing rights include estimated loan repayment rates, the discount rate, servicing costs, and the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.
Impaired loans:Page 32 The Company has measured impairment on impaired loans based on the discounted cash flows of the loan or the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due
Civista Bancshares, Inc.
Notes to the ageInterim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included as a Level 3 measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table below as it is not currently being carried at its fair value.
Assets and liabilities measured at fair value are summarized in the tables below.
|
| Fair Value Measurements at September 30, 2022 Using: |
|
| Fair Value Measurements at March 31, 2023 Using: |
| ||||||||||||||||||
Assets: |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||||
Assets measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
U.S. Treasury securities and obligations of U.S. Government agencies |
| $ | — |
|
| $ | 60,544 |
|
| $ | — |
|
| $ | — |
|
| $ | 62,513 |
|
| $ | — |
|
Obligations of states and political subdivisions |
|
| — |
|
|
| 297,807 |
|
|
| — |
|
|
| — |
|
|
| 330,638 |
|
|
| — |
|
Mortgage-backed securities in government sponsored entities |
|
| — |
|
|
| 243,695 |
|
|
| — |
|
|
| — |
|
|
| 234,556 |
|
|
| — |
|
Total securities available-for-sale |
|
| — |
|
|
| 602,046 |
|
|
| — |
|
|
| — |
|
|
| 627,707 |
|
|
| — |
|
Equity securities |
|
| — |
|
|
| 2,028 |
|
|
| — |
|
|
| — |
|
|
| 2,122 |
|
|
| — |
|
Swap asset |
|
| — |
|
|
| 18,448 |
|
|
| — |
|
|
| — |
|
|
| 13,350 |
|
|
| — |
|
Liabilities measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Swap liability |
| $ | — |
|
| $ | 18,448 |
|
| $ | — |
|
| $ | — |
|
| $ | 13,350 |
|
| $ | — |
|
Assets measured at fair value on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Mortgage servicing rights |
| $ | — |
|
| $ | — |
|
| $ | 3,079 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,059 |
|
|
| Fair Value Measurements at December 31, 2022 Using: |
| |||||||||
Assets: |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| |||
Assets measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
| |||
Securities available-for-sale |
|
|
|
|
|
|
|
|
| |||
U.S. Treasury securities and obligations of U.S. |
| $ | — |
|
| $ | 61,029 |
|
| $ | — |
|
Obligations of states and political subdivisions |
|
| — |
|
|
| 317,248 |
|
|
| — |
|
Mortgage-backed securities in government |
|
| — |
|
|
| 237,125 |
|
|
| — |
|
Total securities available-for-sale |
|
| — |
|
|
| 615,402 |
|
|
| — |
|
Equity securities |
|
| — |
|
|
| 2,190 |
|
|
| — |
|
Swap asset |
|
| — |
|
|
| 16,579 |
|
|
| — |
|
Liabilities measured at fair value on a recurring |
|
|
|
|
|
|
|
|
| |||
Swap liability |
|
| — |
|
|
| 16,579 |
|
|
| — |
|
Assets measured at fair value on a nonrecurring |
|
|
|
|
|
|
|
|
| |||
Mortgage servicing rights |
| $ | — |
|
| $ | — |
|
| $ | 2,689 |
|
Page 3133
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
|
| Fair Value Measurements at December 31, 2021 Using: |
| |||||||||
Assets: |
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| |||
Assets measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies |
| $ | — |
|
| $ | 47,890 |
|
| $ | — |
|
Obligations of states and political subdivisions |
|
| — |
|
|
| 298,836 |
|
|
| — |
|
Mortgage-backed securities in government sponsored entities |
|
| — |
|
|
| 213,148 |
|
|
| — |
|
Total securities available-for-sale |
|
| — |
|
|
| 559,874 |
|
|
| — |
|
Equity securities |
|
| — |
|
|
| 1,072 |
|
|
| — |
|
Swap asset |
|
| — |
|
|
| 11,072 |
|
|
| — |
|
Liabilities measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Swap liability |
|
| — |
|
|
| 11,072 |
|
|
| — |
|
Assets measured at fair value on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
| $ | — |
|
| $ | — |
|
| $ | 2,642 |
|
Impaired loans |
|
| — |
|
|
| — |
|
|
| 11 |
|
The following tables present quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
|
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||
March 31, 2023 |
| Fair Value |
|
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average | |
Mortgage Servicing |
| $ | 3,059 |
|
| Discounted Cash Flow |
| Constant Prepayment |
| 3% - 11.5% |
| 6% |
|
|
|
|
|
|
| Discount Rate |
| 12% |
| 12% | |
|
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||
December 31, 2022 |
| Fair Value |
|
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average | |
Mortgage Servicing |
| $ | 2,689 |
|
| Discounted Cash Flow |
| Constant Prepayment |
| 5% - 20% |
| 7% |
|
|
|
|
|
|
| Discount Rate |
| 12% |
| 12% | |
|
| Quantitative Information about Level 3 Fair Value Measurements |
| ||||||||||
September 30, 2022 |
| Fair Value |
|
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average |
| |
Mortgage Servicing Rights |
| $ | 3,079 |
|
| Discounted Cash Flow |
| Constant Prepayment Rate |
| 5.2% - 18% |
| 7% |
|
|
|
|
|
|
|
|
| Discount Rate |
| 12% |
| 12% |
|
|
| Quantitative Information about Level 3 Fair Value Measurements |
| |||||||||||
December 31, 2021 |
| Fair Value |
|
| Valuation Technique |
| Unobservable Input |
| Range |
|
| Weighted Average |
| |
Impaired loans |
| $ | 11 |
|
| Appraisal of collateral |
| Appraisal adjustments |
| 10% |
|
| 10% |
|
|
|
|
|
|
|
|
| Holding period |
| 24 months |
|
| 24 months |
|
Mortgage Servicing Rights |
| $ | 2,642 |
|
| Discounted Cash Flow |
| Constant Prepayment Rate |
| 8% - 35% |
|
| 15% |
|
|
|
|
|
|
|
|
| Discount Rate |
| 12% |
|
| 12% |
|
Page 32
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at September 30, 2022March 31, 2023 were as follows:
September 30, 2022 |
| Carrying Amount |
|
| Total Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||||||||||||||||||||||
March 31, 2023 |
| Carrying |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||||||||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from financial institutions |
| $ | 40,914 |
|
| $ | 40,914 |
|
| $ | 40,914 |
|
| $ | — |
|
| $ | — |
|
| $ | 52,723 |
|
| $ | 52,723 |
|
| $ | 52,723 |
|
| $ | — |
|
| $ | — |
|
Other securities |
|
| 18,578 |
|
|
| 18,578 |
|
|
| 18,578 |
|
|
| — |
|
|
| — |
|
|
| 35,383 |
|
|
| 35,383 |
|
|
| 35,383 |
|
|
| — |
|
|
| — |
|
Loans, held for sale |
|
| 3,491 |
|
|
| 3,561 |
|
|
| 3,561 |
|
|
| — |
|
|
| — |
|
|
| 1,465 |
|
|
| 1,495 |
|
|
| 1,495 |
|
|
| — |
|
|
| — |
|
Loans, net of allowance |
|
| 2,300,841 |
|
|
| 2,200,018 |
|
|
| — |
|
|
| — |
|
|
| 2,200,018 |
|
|
| 2,545,870 |
|
|
| 2,450,816 |
|
|
| — |
|
|
| — |
|
|
| 2,450,816 |
|
Bank owned life insurance |
|
| 53,291 |
|
|
| 53,291 |
|
|
| 53,291 |
|
|
| — |
|
|
| — |
|
|
| 53,796 |
|
|
| 53,796 |
|
|
| 53,796 |
|
|
| — |
|
|
| — |
|
Accrued interest receivable |
|
| 9,175 |
|
|
| 9,175 |
|
|
| 9,175 |
|
|
| — |
|
|
| — |
|
|
| 10,254 |
|
|
| 10,254 |
|
|
| 10,254 |
|
|
| — |
|
|
| — |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Nonmaturing deposits |
|
| 2,436,219 |
|
|
| 2,436,219 |
|
|
| 2,436,219 |
|
|
| — |
|
|
| — |
|
|
| 2,316,737 |
|
|
| 2,316,737 |
|
|
| 2,316,737 |
|
|
| — |
|
|
| — |
|
Time deposits |
|
| 272,034 |
|
|
| 270,928 |
|
|
| — |
|
|
| — |
|
|
| 270,928 |
|
|
| 526,779 |
|
|
| 529,525 |
|
|
| — |
|
|
| — |
|
|
| 529,525 |
|
Short-term FHLB advances |
|
| 55,000 |
|
|
| 55,000 |
|
|
| 55,000 |
|
|
| — |
|
|
| — |
|
|
| 212,000 |
|
|
| 211,595 |
|
|
| 211,595 |
|
|
| — |
|
|
| — |
|
Long-term FHLB advances |
|
| 6,723 |
|
|
| 6,716 |
|
|
| — |
|
|
| — |
|
|
| 6,716 |
|
|
| 3,361 |
|
|
| 3,047 |
|
|
| — |
|
|
| — |
|
|
| 3,047 |
|
Other borrowings |
|
| 13,938 |
|
|
| 14,199 |
|
|
| — |
|
|
| — |
|
|
| 14,199 |
| ||||||||||||||||||||
Securities sold under agreement to repurchase |
|
| 20,155 |
|
|
| 20,155 |
|
|
| 20,155 |
|
|
| — |
|
|
| — |
|
|
| 15,631 |
|
|
| 15,631 |
|
|
| 15,631 |
|
|
| — |
|
|
| — |
|
Subordinated debentures |
|
| 103,778 |
|
|
| 97,890 |
|
|
| — |
|
|
| — |
|
|
| 97,890 |
|
|
| 103,841 |
|
|
| 102,529 |
|
|
| — |
|
|
| — |
|
|
| 102,529 |
|
Accrued interest payable |
|
| 970 |
|
|
| 970 |
|
|
| 970 |
|
|
| — |
|
|
| — |
|
|
| 1,628 |
|
|
| 1,628 |
|
|
| 1,628 |
|
|
| — |
|
|
| — |
|
Page 34
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at December 31, 20212022 were as follows:
December 31, 2021 |
| Carrying Amount |
|
| Total Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||||||||||||||||||||||
December 31, 2022 |
| Carrying |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||||||||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from financial institutions |
| $ | 264,239 |
|
| $ | 264,239 |
|
| $ | 264,239 |
|
| $ | — |
|
| $ | — |
|
| $ | 43,361 |
|
| $ | 43,361 |
|
| $ | 43,361 |
|
| $ | — |
|
| $ | — |
|
Other securities |
|
| 17,011 |
|
|
| 17,011 |
|
|
| 17,011 |
|
|
| — |
|
|
| — |
|
|
| 33,585 |
|
|
| 33,585 |
|
|
| 33,585 |
|
|
| — |
|
|
| — |
|
Loans, held for sale |
|
| 1,972 |
|
|
| 2,011 |
|
|
| 2,011 |
|
|
| — |
|
|
| — |
|
|
| 683 |
|
|
| 698 |
|
|
| 698 |
|
|
| — |
|
|
| — |
|
Loans, net of allowance |
|
| 1,971,238 |
|
|
| 1,945,638 |
|
|
| — |
|
|
| — |
|
|
| 1,945,638 |
|
|
| 2,518,155 |
|
|
| 2,427,291 |
|
|
| — |
|
|
| — |
|
|
| 2,427,291 |
|
Bank owned life insurance |
|
| 46,641 |
|
|
| 46,641 |
|
|
| 46,641 |
|
|
| — |
|
|
| — |
|
|
| 53,543 |
|
|
| 53,543 |
|
|
| 53,543 |
|
|
| — |
|
|
| — |
|
Accrued interest receivable |
|
| 7,385 |
|
|
| 7,385 |
|
|
| 7,385 |
|
|
| — |
|
|
| — |
|
|
| 11,178 |
|
|
| 11,178 |
|
|
| 11,178 |
|
|
| — |
|
|
| — |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Nonmaturing deposits |
|
| 2,170,253 |
|
|
| 2,170,253 |
|
|
| 2,170,253 |
|
|
| — |
|
|
| — |
|
|
| 2,300,215 |
|
|
| 2,300,215 |
|
|
| 2,300,215 |
|
|
| — |
|
|
| — |
|
Time deposits |
|
| 246,448 |
|
|
| 247,053 |
|
|
| — |
|
|
| — |
|
|
| 247,053 |
|
|
| 319,769 |
|
|
| 318,886 |
|
|
| — |
|
|
| — |
|
|
| 318,886 |
|
Short-term FHLB advances |
|
| 393,700 |
|
|
| 393,247 |
|
|
| 393,247 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Long-term FHLB advances |
|
| 75,000 |
|
|
| 75,930 |
|
|
| — |
|
|
| — |
|
|
| 75,930 |
|
|
| 3,578 |
|
|
| 3,534 |
|
|
| — |
|
|
| — |
|
|
| 3,534 |
|
Securities sold under agreement to repurchase |
|
| 25,495 |
|
|
| 25,495 |
|
|
| 25,495 |
|
|
| — |
|
|
| — |
|
|
| 25,143 |
|
|
| 25,143 |
|
|
| 25,143 |
|
|
| — |
|
|
| — |
|
Subordinated debentures |
|
| 103,735 |
|
|
| 111,118 |
|
|
| — |
|
|
| — |
|
|
| 111,118 |
|
|
| 103,799 |
|
|
| 98,513 |
|
|
| — |
|
|
| — |
|
|
| 98,513 |
|
Other borrowings |
|
| 15,516 |
|
|
| 15,806 |
|
|
| — |
|
|
| — |
|
|
| 15,806 |
| ||||||||||||||||||||
Accrued interest payable |
|
| 315 |
|
|
| 315 |
|
|
| 315 |
|
|
| — |
|
|
| — |
|
|
| 668 |
|
|
| 668 |
|
|
| 668 |
|
|
| — |
|
|
| — |
|
An immaterial revision has been made to the fair market value of loans for the period ended December 31, 2022. This revision did not have a significant impact on the financial statement line item affected or total assets, equity or net income.
(14) Derivatives
To accommodate customer need and to support the Company’s asset/liability positioning, on occasion we enter into interest rate swaps with a customer and a bank counterparty. The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating rate loan and a fixed rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed rate swap with a bank counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a bank counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customer to effectively convert variable rate loans to fixed rate loans. Since the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations. None of the Company’s derivatives are designated as hedging instruments.
Page 3335
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The Company presents derivative positions net on the balance sheet for customers and financial institution counterparty positions subject to master netting arrangements. The following table reflects the derivatives recorded on the balance sheet:
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Notional |
|
| Fair Value |
|
| Notional |
|
| Fair Value |
| ||||
Included in other assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps with loan customers in an |
| $ | 19,275 |
|
| $ | 726 |
|
| $ | 6,980 |
|
| $ | 269 |
|
Counterparty positions with financial institutions |
|
| 211,117 |
|
|
| 12,624 |
|
|
| 212,570 |
|
|
| 16,310 |
|
Total included in other assets |
|
|
|
| $ | 13,350 |
|
|
|
|
| $ | 16,579 |
| ||
Included in accrued expenses and other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps with loan customers in a |
| $ | 191,842 |
|
| $ | 13,350 |
|
| $ | 205,590 |
|
| $ | 16,579 |
|
Counterparty positions with financial institutions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total included in accrued expenses and |
|
|
|
| $ | 13,350 |
|
|
|
|
| $ | 16,579 |
| ||
Gross notional positions with customers |
| $ | 211,117 |
|
|
|
|
| $ | 212,570 |
|
|
|
| ||
Gross notional positions with financial institution |
| $ | 211,117 |
|
|
|
|
| $ | 212,570 |
|
|
|
| ||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Notional Amount |
|
| Fair Value |
|
| Notional Amount |
|
| Fair Value |
| ||||
Included in other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps with loan customers in an asset position |
| $ | — |
|
| $ | — |
|
| $ | 173,491 |
|
| $ | 11,072 |
|
Counterparty positions with financial institutions in an asset position |
|
| 215,383 |
|
|
| 18,448 |
|
|
| — |
|
|
| — |
|
Total included in other assets |
|
|
|
|
| $ | 18,448 |
|
|
|
|
|
| $ | 11,072 |
|
Included in accrued expenses and other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps with loan customers in a liability position |
| $ | 215,383 |
|
| $ | 18,448 |
|
| $ | 71,327 |
|
| $ | 1,628 |
|
Counterparty positions with financial institutions in a liability position |
|
| — |
|
|
| — |
|
|
| 244,818 |
|
|
| 9,444 |
|
Total included in accrued expenses and other liabilities |
|
|
|
|
| $ | 18,448 |
|
|
|
|
|
| $ | 11,072 |
|
Gross notional positions with customers |
| $ | 215,383 |
|
|
|
|
|
| $ | 244,818 |
|
|
|
|
|
Gross notional positions with financial institution counterparties |
| $ | 215,383 |
|
|
|
|
|
| $ | 244,818 |
|
|
|
|
|
The presentation for derivatives for the current and prior periods was revised to present derivative positions net for customer positions. Fair value of swap assets and liabilities for the prior period was not impacted.
The effect of swap fair value changes on the Consolidated Statement of Operations are as follows:
|
| Location of |
| Amount of Gain or (Loss) |
| |||||
Derivatives |
| Gain or (Loss) |
| Recognized in |
| |||||
Not Designated |
| Recognized in |
| Income on Derivatives |
| |||||
as Hedging Instruments |
| Income on Derivative |
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Interest rate swaps related to customer loans |
| Other income |
| $ | — |
|
| $ | 64 |
|
Total |
|
|
| $ | — |
|
| $ | 64 |
|
Location of | Amount of Gain or (Loss) | |||||||||
Derivatives | Gain or (Loss) | Recognized in | ||||||||
Not Designated | Recognized in | Income on Derivatives | ||||||||
as Hedging Instruments | Income on Derivative | March 31, 2023 | March 31, 2022 | |||||||
Interest rate swaps related to customer loans | Other income | $ | — | $ | — | |||||
Total | $ | — | $ | — | ||||||
The Company monitors and controls all derivative products with a comprehensive Board of Director approved commercial loan swap policy. All interest rate swap transactions must be approved in advance by the Lenders Loan Committee or the Directors Loan Committee of the Board of Directors. The Company classifies changes in fair value of derivatives with “Other” in the Consolidated Statements of Operation.
At September 30,March 31, 2023 and December 31, 2022, the Company did notnot have any cash or securities pledged for collateral on its interest rate swaps with third party financial institutions. At December 31, 2021, the Company had cash and securities with a fair value of $10,780 and $509, respectively, pledged as collateral. Cash pledged for collateral on interest rate swaps is classified as restricted cash on the Consolidated Balance Sheet.
(15) Qualified Affordable Housing Project Investments
The Company invests in certain qualified affordable housing projects. At September 30, 2022March 31, 2023 and December 31, 2021,2022, the balance of the investment forCompany's investments in qualified affordable housing projects was $12,377$13,906 and $13,093,$14,149, respectively. These balances are reflected in the Other assets line on the Consolidated Balance Sheet. The unfunded commitments related to the investments in qualified affordable housing projects totaled $4,093$5,493 and $5,706$5,634 at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. These balances are reflected in the Accrued expenses and other liabilities line on the Consolidated Balance Sheet.
Page 3436
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
During the three months ended September 30,March 31, 2023 and 2022, and 2021, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $239$243 and $203,$239, respectively, offset by tax credits and other benefits from its investmentinvestments in affordable housing tax credits of $396$364 and $339,$390, respectively. During the ninethree months ended September 30, 2022 and 2021, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $716 and $608, respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $1,181 and $1,015, respectively. During the three- and nine-month periods ended September 30, 2022 and 2021,March 31, 2023, the Company did notnot incur any impairment losses related to its investments in qualified affordable housing projects. Other operating expenses and Income tax expense were reclassified for the three- and nine-month periods of September 30, 2021 to reflect the change to proportional amortization method of accounting of $203 and $608, respectively.
(16) Revenue Recognition
The Company accounts for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers. Revenue associated with financial instruments, including revenue from loans and securities, are outside the scope of ASC 606 and accounted for under other existing GAAP. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the guidance. Noninterest revenue streams in-scope of ASC 606 are discussed below.
Service Charges
Service charges consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
ATM/Interchange Fees
Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Wealth Management Fees
Wealth management fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received in the following month through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Tax Refund Processing Fees
The Company facilitates the payment of federal and state income tax refunds in partnership with a third-party vendor. Refund Transfers (“RTs”) are fee-based products whereby a tax refund is issued to the taxpayer after the Company has received the refund from the federal or state government. As part of this agreement the Company earns fee income, the majority of which is received in the first quarter of the year. The Company’s fee income revenue is recognized based on the estimated percent of business completed by each date.
Page 3537
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Other
Other
Other noninterest income consists of other recurring revenue streams such as check order fees, wire transfer fees, safety deposit box rental fees, item processing fees and other miscellaneous revenue streams. Check order income mainly represents fees charged to customers for checks. Wire transfer fees represent revenue from processing wire transfers. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Item processing fee income represents fees charged to other financial institutions for processing their transactions. Payment is typically received in the following month.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three- and nine-monthsthree months ended September 30, 2022 and 2021.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-scope of Topic 606: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
| $ | 1,885 |
|
| $ | 1,519 |
|
| $ | 5,004 |
|
| $ | 4,092 |
|
ATM/Interchange fees |
|
| 1,394 |
|
|
| 1,330 |
|
|
| 3,990 |
|
|
| 3,950 |
|
Wealth management fees |
|
| 1,208 |
|
|
| 1,236 |
|
|
| 3,713 |
|
|
| 3,570 |
|
Tax refund processing fees |
|
| — |
|
|
| — |
|
|
| 2,375 |
|
|
| 2,375 |
|
Other |
|
| 274 |
|
|
| 267 |
|
|
| 574 |
|
|
| 944 |
|
Noninterest Income (in-scope of Topic 606) |
|
| 4,761 |
|
|
| 4,352 |
|
|
| 15,656 |
|
|
| 14,931 |
|
Noninterest Income (out-of-scope of Topic 606) |
|
| 973 |
|
|
| 2,074 |
|
|
| 3,356 |
|
|
| 9,710 |
|
Total Noninterest Income |
| $ | 5,734 |
|
| $ | 6,426 |
|
| $ | 19,012 |
|
| $ | 24,641 |
|
(17) Merger
On July 1, 2022, CBI completed the acquisition by merger of Comunibanc Corp. in a stock and cash transaction for aggregate consideration of approximately $46,090. As a result of the acquisition, the Company issued 984,723 common shares and paid approximately $24,968 in cash to the former shareholders of Comunibanc Corp. The Company and Comunibanc Corp. had first announced that they had entered into an agreement to merge in January of 2022. Immediately following the merger, Comunibanc Corp.’s banking subsidiary, The Henry County Bank (HCB), was merged into CBI’s banking subsidiary, Civista Bank.March 31, 2023.
The assets and liabilities of Comunibanc Corp. were recorded on the Company’s Balance Sheet at their preliminary estimated fair values as of July 1, 2022, the acquisition date, and Comunibanc Corp.’s results of operations have been included in the Company’s Consolidated Statements of Operations since that date. Due to the timing of the acquisition relative to the end of the reporting period, the fair values for certain assets and liabilities acquired from Comunibanc Corp on July 1, 2022 represent preliminary estimates. Based on a preliminary purchase price allocation, the Company recorded $24,801 in goodwill and $4,426 in core deposit intangibles, representing the principal change in goodwill and intangibles from December 31, 2021. None of the purchase price is deductible for tax purposes.
|
| Three Months Ended |
| |||||
|
| March |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Noninterest Income |
|
|
|
|
|
| ||
In-scope of Topic 606: |
|
|
|
|
|
| ||
Service charges |
| $ | 1,773 |
|
| $ | 1,579 |
|
ATM/Interchange fees |
|
| 1,353 |
|
|
| 1,241 |
|
Wealth management fees |
|
| 1,193 |
|
|
| 1,277 |
|
Tax refund processing fees |
|
| 1,900 |
|
|
| 1,900 |
|
Other |
|
| 4,136 |
|
|
| 277 |
|
Noninterest Income (in-scope of Topic 606) |
|
| 10,355 |
|
|
| 6,274 |
|
Noninterest Income (out-of-scope of Topic 606) |
|
| 713 |
|
|
| 1,369 |
|
Total Noninterest Income |
| $ | 11,068 |
|
| $ | 7,643 |
|
At the time of the merger, Comunibanc Corp had total consolidated assets of $315,083, including $175,500 in loans, and $271,081 in deposits. The transaction was recorded as a purchase and, accordingly, the operating results of Comunibanc Corp. and HCB have been included in the Company’s Consolidated Financial Statements since the close of business on July 1, 2022.
Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. The identifiable intangible assets consist of core deposit intangible which is being amortized over the estimated useful life. The gross carrying amount of the core deposit intangible at September 30, 2022 was $4,426.
Page 3638
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
In 2022, the Company has incurred additional third-party acquisition-related costs of $1.9 million. These expenses are comprised of employee benefits of $16.6 thousand, occupancy and equipment expenses of $51.6 thousand, software expense of $14.0 thousand, consulting and other professional fees of $839.4 thousand, data processing costs of $558.3 thousand and other operating expenses of $373.0 thousand in the Company’s consolidated statement of operations for the nine-month period ended September 30, 2022.
As of September 30, 2022, the current year and estimated future amortization expense for the core deposit intangible is as follows:
|
| Core deposit intangibles |
| |
2022 |
| $ | 427 |
|
2023 |
|
| 739 |
|
2024 |
|
| 684 |
|
2025 |
|
| 604 |
|
2026 |
|
| 523 |
|
Thereafter |
|
| 1,449 |
|
|
| $ | 4,426 |
|
The following table presents financial information for the former Comunibanc Corp. included in the Consolidated Statements of Operations from the date of acquisition through September 30, 2022.
|
| Actual From Acquisition Date Through September 30, 2022 |
| |
|
| (in thousands) |
| |
Net interest income after provision for loan losses |
| $ | 1,638 |
|
Noninterest income |
|
| 158 |
|
Net income |
|
| 426 |
|
The following table presents pro forma information for the three- and nine-month periods ended September 30, 2022 and 2021 as if the acquisition of Comunibanc Corp. had occurred on January 1, 2021. This table has been prepared for comparative purposes only and is not indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.
|
| Pro Formas |
| Pro Formas |
| ||||||||||
|
| Three months ended September 30, |
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
| 2022 |
|
| 2021 |
| ||||
Net interest income after provision for loan losses |
| $ | 30,405 |
|
| $ | 26,891 |
| $ | 82,100 |
|
| $ | 78,452 |
|
Noninterest income |
|
| 5,734 |
|
|
| 6,693 |
|
| 19,387 |
|
|
| 25,486 |
|
Net income |
|
| 11,176 |
|
|
| 10,100 |
|
| 26,914 |
|
|
| 31,015 |
|
Pro forma earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.74 |
|
| $ | 0.63 |
| $ | 1.80 |
|
| $ | 1.88 |
|
Diluted |
| $ | 0.74 |
|
| $ | 0.63 |
| $ | 1.80 |
|
| $ | 1.88 |
|
Page 37
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Comunibanc Corp. Core deposit intangibles will be amortized over periods of between ten years using an accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment.
Cash paid |
|
|
|
|
| $ | 24,968 |
|
Common Shares issued (984,723 shares) |
|
|
|
|
|
| 21,122 |
|
Total |
|
|
|
|
| $ | 46,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired: |
|
|
|
|
|
|
|
|
Cash and due from financial institutions |
| $ | 3,098 |
|
|
|
|
|
Securities available for sale |
|
| 120,399 |
|
|
|
|
|
Time deposits |
|
| 742 |
|
|
|
|
|
Loans, net |
|
| 169,202 |
|
|
|
|
|
Other securities |
|
| 1,553 |
|
|
|
|
|
Premises and equipment |
|
| 6,073 |
|
|
|
|
|
Accrued interest receivable |
|
| 670 |
|
|
|
|
|
Core deposit intangible |
|
| 4,426 |
|
|
|
|
|
Bank owned life insurance |
|
| 5,918 |
|
|
|
|
|
Other assets |
|
| 3,767 |
|
|
|
|
|
Noninterest-bearing deposits |
|
| (122,642 | ) |
|
|
|
|
Interest-bearing deposits |
|
| (148,552 | ) |
|
|
|
|
Other borrowings |
|
| (21,706 | ) |
|
|
|
|
Other liabilities |
|
| (1,659 | ) |
|
|
|
|
|
|
|
|
|
|
| 21,289 |
|
Goodwill resulting from Comunibanc Corp. acquisition |
|
|
|
|
| $ | 24,801 |
|
Loans purchased with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date included information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans were accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which included estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporated the estimate of the current assumptions, such as default rates, severity and prepayment speeds.
The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:
|
| At September 30, 2022 |
| |
|
| Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) |
| |
|
| (In Thousands) |
| |
Outstanding balance |
| $ | 4,421 |
|
Carrying amount |
|
| 3,774 |
|
The gross principal due under the contract for acquired receivables not subject to ASC 310-30 is $171.1 million. The fair value adjustment is $2.1 million and the contractual cash flows not expected to be collected is $5.7 million.
The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgment in accounting for the acquisition.
Page 38
Civista Bancshares, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The amount of goodwill recorded reflects a strategic opportunity to expand into new markets that, while similar to existing markets, are projected to be more vibrant in population growth and business opportunity growth. The goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. Additionally, the acquisition will provide exposure to suburbs of larger urban areas without the commitment of operating inside large metropolitan areas dominated by regional and national financial organizations. The acquisition is also expected to create synergies on the operational side of the Company by allowing noninterest expenses to be spread over a larger operating base.
(18) Subsequent Events
On September 29, 2022, CBI and Civista, entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Vision Financial Group, Inc., a Pennsylvania corporation (“VFG”), and Frederick S. Summers, a resident of the State of Florida (“Seller”), pursuant to which Civista agreed to acquire all of the issued and outstanding shares of capital stock of VFG. VFG is a privately held, independent, full-service equipment leasing and financing company headquartered in Pittsburgh, Pennsylvania. The acquisition of VFG subsequently closed on October 3, 2022.
Under the terms and conditions of the Purchase Agreement, upon closing, Civista acquired all of the issued and outstanding shares of capital stock of VFG from Seller in exchange for: (i) payment to Seller of cash consideration equal to approximately $28,600 (subject to adjustment based on the Shareholder Equity of VFG at the time of closing); and (ii) issuance to Seller and certain members of VFG management of an aggregate of 150,145 shares of CBI common stock (“CBI Shares”), equal to $5,250 divided by the volume weighted average closing price of a CBI Share on The NASDAQ—Capital Market® for the ten consecutive trading days immediately preceding the closing date. Approximately $7,900 of outstanding subordinated debt of VFG was also assumed and paid off by Civista in connection with the transaction. Pursuant to the Purchase Agreement, Seller and certain members of VFG management received an additional amount of contingent consideration in the form of 250,148 restricted CBI Shares with an aggregate value of $5,250. The restricted shares will be subject to vesting or forfeiture based on agreed upon targets of actual originations of equipment leases and similar financing products offered by VFG in 2023 and 2024.
The Purchase Agreement contains customary representations, warranties and covenants by each of the parties and contains indemnification provisions under which the parties agreed, subject to certain limitations, to indemnify each other against certain liabilities. At closing, Civista deposited certain portions of the cash consideration with an escrow agent to be held in escrow and made available to satisfy post-closing indemnification claims under the Purchase Agreement. To supplement the indemnification provided by Seller, Civista obtained representation and warranty insurance.
The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. Due to the recent closing, management remains in the early stages of reviewing the estimated fair values and evaluating the assumed tax positions of this acquisition. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction within one year of the acquisition.
Page 39
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
| ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
The following discussion focuses on the consolidated financial condition of the Company at September 30, 2022March 31, 2023 compared to December 31, 2021,2022, and the consolidated results of operations for the three-and nine-monththree-month periods ended September 30, 2022,March 31, 2023, compared to the same periods in 2021.2022. This discussion should be read in conjunction with the Consolidated Financial Statements and footnotes included in this Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to such matters as the Company’s financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from those discussed in the forward-looking statements include, but are not limited to:
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Page 4039
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
| • risks inherent in pursuing strategic growth initiatives, including integration and other risks involved in past, pending and possible future acquisitions, including, without limitation, the recently completed acquisitions of Comunibanc Corp. and VFG; • uncertainty regarding the nature, timing, cost and effect of legislative or regulatory changes in the banking industry or otherwise affecting the Company, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry; • changes in federal, state and/or local tax laws; • the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (FASB), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect our reported financial condition or results of operations; • litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or inquiries; • continued availability of earnings and dividends from Civista and excess capital sufficient for us to service our debt and pay dividends to our shareholders in compliance with applicable legal and regulatory requirements; • our ability to raise additional capital in the future if and when needed and/or on terms acceptable to us; • our ability to conform and comply with regulatory requirements and increasing scrutiny and evolving expectations from customers, regulatory authorities, shareholders, investors and other stakeholders with regard to our environmental, social and governance (ESG) policies and practices, which could affect our reputation and business and operating results; • our ability to anticipate and successfully keep pace with technological changes affecting the financial services industry; and • other risks identified from time-to-time in the Company’s other public documents on file with the SEC, including those risks identified in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as supplemented by “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q.
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The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law.
Financial Condition
Total assets of the Company at September 30, 2022March 31, 2023 were $3,241,719$3,584,558 compared to $3,012,905$3,537,830 at December 31, 2021,2022, an increase of $228,814,$46,728, or 7.6%1.3%. The increase in total assets was due to the Company’s acquisition by merger of Comunibanc Corp. effective July 1, 2022 and increases in loans of $329,603, accompanied by increases in securities available-for-sale, and other assets of $42,172 and $24,260, respectively, partially offset by a decrease in cash and cash equivalents of $223,325.$9,362, accompanied by other increases in securities available for sale, other securities and loans of $12,305, $1,798 and $27,715, respectively, partially offset by decreases in office premises and equipment, net and swap assets of $2,123 and $3,229, respectively. Total liabilities at September 30, 2022March 31, 2023 were $2,939,117$3,236,861 compared to $2,657,693$3,202,995 at December 31, 2021,2022, an increase of $281,424,$33,866, or 10.6%1.1%. The increase in total liabilities was primarily attributable to an increase in total deposit accounts of $291,552,$223,532, accompanied by an increase in short term FHLB borrowingstax refunds in process and accrued interest, taxes and other liabilities of $55,000,$5,474 and $2,392, respectively, partially offset by decreases in longshort term FHLB borrowings, securities sold under agreements to repurchase and swap liabilities of $68,277.$181,700, $9,512 and $3,229, respectively.
Page 4140
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Loans outstanding as of September 30, 2022March 31, 2023 and December 31, 20212022 were as follows:
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| September 30, 2022 |
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| December 31, 2021 |
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| $ Change |
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| % Change |
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| March 31, 2023 |
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| December 31, 2022 |
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| $ Change |
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| % Change |
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Commercial & Agriculture |
| $ | 227,387 |
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| $ | 246,502 |
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| $ | (19,115 | ) |
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| -7.8 | % |
| $ | 271,160 |
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| $ | 278,595 |
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| $ | (7,435 | ) |
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| -2.7 | % |
Commercial Real Estate—Owner Occupied |
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| 364,468 |
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| 295,452 |
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| 69,016 |
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| 23.4 | % |
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| 375,825 |
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| 371,147 |
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| 4,678 |
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| 1.3 | % |
Commercial Real Estate—Non-Owner Occupied |
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| 956,169 |
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| 829,310 |
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| 126,859 |
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| 15.3 | % |
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| 1,043,635 |
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| 1,018,736 |
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| 24,899 |
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| 2.4 | % |
Residential Real Estate |
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| 531,164 |
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| 430,060 |
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| 101,104 |
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| 23.5 | % |
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| 560,978 |
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| 552,781 |
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| 8,197 |
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| 1.5 | % |
Real Estate Construction |
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| 202,793 |
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| 157,127 |
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| 45,666 |
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| 29.1 | % |
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| 247,253 |
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| 243,127 |
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| 4,126 |
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| 1.7 | % |
Farm Real Estate |
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| 25,636 |
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| 28,419 |
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| (2,783 | ) |
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| -9.8 | % |
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| 24,040 |
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| 24,708 |
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| (668 | ) |
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| -2.7 | % |
Lease Financing Receivables |
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| 37,570 |
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| 36,797 |
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| 773 |
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| 2.1 | % | ||||||||||||||||
Consumer and Other |
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| 20,997 |
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| 11,009 |
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| 9,988 |
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| 90.7 | % |
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| 19,605 |
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| 20,775 |
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| (1,170 | ) |
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| -5.6 | % |
Total loans |
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| 2,328,614 |
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| 1,997,879 |
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| 330,735 |
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| 16.6 | % |
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| 2,580,066 |
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| 2,546,666 |
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| 33,400 |
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| 1.3 | % |
Allowance for loan losses |
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| (27,773 | ) |
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| (26,641 | ) |
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| (1,132 | ) |
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| 4.2 | % | ||||||||||||||||
Allowance for credit losses |
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| (34,196 | ) |
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| (28,511 | ) |
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| (5,685 | ) |
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| 19.9 | % | ||||||||||||||||
Net loans |
| $ | 2,300,841 |
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| $ | 1,971,238 |
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| $ | 329,603 |
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| 16.7 | % |
| $ | 2,545,870 |
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| $ | 2,518,155 |
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| $ | 27,715 |
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| 1.1 | % |
Included in Commercial & Agriculture loans above were $819$464 of PPP loans as of September 30, 2022March 31, 2023 and $43,209$566 of PPP loans as of December 31, 2021.2022.
Loans held for sale increased $1,519,$782, or 77.0%114.5%, since December 31, 2021.2022. The increase was due to an increaseincreases in both the number of loans and average loan balance held for sale. At September 30, 2022, 19March 31, 2023, 10 loans totaling $3,491$1,465 were held for sale as compared to 147 loans totaling $1,972$683 at December 31, 2021.2022.
Net loans have increased $329,603,$27,715, or 16.7%1.1%, since December 31, 2021.2022. The Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction and Consumer and OtherLease Financing Receivables loan portfolios increased $69,016, $126,859, $101,104, $45,666$4,678, $24,899, $8,197, $4,126 and $9,988,$773, respectively, since December 31, 2021,2022, while the Commercial & Agriculture, and Farm Real Estate loan portfolios decreased $19,115 and $2,783, respectively, since December 31, 2021. Loans acquired as part of the Comunibanc Corp. acquisition for Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction, Farm Real Estate and Consumer and Other loan portfolios totaled $9,731, $30,680, $45,731, $61,752, $12,394 $2,872decreased $7,435, $668 and $11,757, respectively.$1,170, respectively, since December 31, 2022. At September 30, 2022,March 31, 2023, the net loan to deposit ratio was 85.0%89.5% compared to 81.6%96.1% at December 31, 2021.2022. The increasedecrease in the net loan to deposit ratio is primarily the result of an increase in loans, partially offset bydeposits.
Upon adoption of CECL we recorded an increase in deposits.
the allowance for credit losses of $5,193. During the first nine monthsquarter of 2022, provisions made to the allowance for loan losses totaled $1,000, compared to2023 we recorded a provision for credit losses of $830$620, an increase of $320, from $300 during the same period in 2021. three months ended March 31, 2022. The increase in provisionthe reserves was dueprincipally related to the strong loan growth during the first nine monthsquarter. As time progresses the results of 2022. The challenges of the international, national, regional and local economic conditions particularly inflation, has taken greater focus from the prior economic shutdownwill require CECL model assumption inputs to change and restrictions in responsefurther refinements to the ongoing COVID-19 pandemic. Despite these concerns, our portfolio quality has remained stable overall with decreases in criticized loans. We continue toestimation process may also be optimistic that asset quality will continue to remain strong despite ongoing headwinds. While we remain cautious given the impact of inflation on all of our borrowers, we are encouraged by strong loan growth.identified.
Net recoveriescharge-offs for the first ninethree months of 20222023 totaled $132,$175, compared to net recoveries of $710$92 in the first ninethree months of 2021.2022. For the first ninethree months of 2022,2023, the Company charged off a total of 1415 loans. OneFive Commercial and Agriculture loan totaling $22, five$140, one Residential Real Estate loan totaling $97$10 and eightnine Consumer and Other loans totaling $45$25 were charged off in the first ninethree months of the year. In addition, during the first ninethree months of 2022,2023, the Company had recoveries on previously charged-off Commercial and Agriculture loans of $16, Commercial Real Estate – Owner Occupied loans of $42,$6, Commercial Real Estate – Non-Owner Occupied loans of $68,$7, Residential Real Estate loans of $140, Farm$22, Real Estate Construction loans of $5$4 and Consumer and Other loans of $25.$8. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans increased by $1,106$520 since December 31, 2021,2022, which was due to a $780$473 increase in loans on nonaccrual status and an increase in loans past due 90 days and accruing of $326.$47. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance.
Management specifically evaluates loans that are impaired for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve.
Page 4241
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Management analyzes each impairedindividually evaluated Commercial and Commercial Real Estate loan relationship with a balance of $350 or larger, on an individual basis and designates a loan as impairedindividually evaluated when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loancredit losses as a percent of total loans was 1.19%1.33% at September 30, 2022March 31, 2023 and 1.33%1.12% at December 31, 2021.2022.
The available-for-sale security portfolio increased by $42,172,$12,305, from $559,874$615,402 at December 31, 20212022 to $602,046$627,707 at September 30, 2022. Securities acquired as part of the acquisition of Comunibanc Corp. totaled $120,399 and $57,322 were sold immediately after the merger.March 31, 2023. Management continually evaluates our securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability and the level of interest rate risk to which the Company is exposed. These evaluations may cause the Company to change the level of funds it deploys into investment securities and change the composition of its investment securities portfolio. As of September 30, 2022,March 31, 2023, the Company was in compliance with all pledging requirements.
Premises and equipment, net, increased $7,723decreased $2,123 from December 31, 20212022 to September 30, 2022.March 31, 2023. The increasedecrease is the result of new purchases of $3,208,$1,245, offset by depreciation of $1,558. Premises$2,676 and equipment, net, acquireddisposals of $692.
Goodwill decreased by $617, from the acquisition of Comunibanc Corp. totaled $6,073.
Goodwill increased by $24,801, from $76,851$125,695 at December 31, 20212022 to $101,652$125,078 at September 30, 2022.March 31, 2023. The increasedecrease is due to adjustments to estimated fair values of the goodwill created fromassets acquired and liabilities assumed since the acquisitiondate of Comunibanc Corp. Other intangible assets increased $3,973 from year-end 2021. The increase includes $4,426 of core deposit intangibles and $419 of mortgage servicing rights from the acquisition of Comunibanc Corp.acquisition.
Bank owned life insurance (BOLI) increased $6,650$253 from December 31, 20212022 to September 30, 2022. BOLI acquired from the merger with Comunibanc Corp. totaled $5,918.March 31, 2023. The remaining differenceincrease is the result of increases in the cash surrender value of the underlying insurance policies.
Swap assets increased $7,376decreased $3,229 from December 31, 20212022 to September 30, 2022.March 31, 2023. The increasedecrease is primarily the result of an increasea decrease in market value.
Deferred taxes available-for-sale securities increased $24,138 from December 31, 2021 to September 30, 2022. The increase is the result of an increase in deferred taxes - securities of $21,044.
Total deposits as of September 30, 2022March 31, 2023 and December 31, 20212022 were as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| $ Change |
|
| % Change |
|
| March 31, 2023 |
|
| December 31, 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
Noninterest-bearing demand |
| $ | 944,241 |
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| $ | 788,906 |
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| $ | 155,335 |
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| 19.7 | % |
| $ | 938,967 |
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| $ | 896,333 |
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| $ | 42,634 |
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| 4.8 | % |
Interest-bearing demand |
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| 560,594 |
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|
| 537,510 |
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| 23,084 |
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| 4.3 | % |
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| 541,027 |
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| 527,879 |
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|
| 13,148 |
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|
| 2.5 | % |
Savings and money market |
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| 931,393 |
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|
| 843,837 |
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| 87,556 |
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|
| 10.4 | % |
|
| 836,743 |
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|
| 876,427 |
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|
| (39,684 | ) |
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| -4.5 | % |
Time deposits |
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| 272,025 |
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| 246,448 |
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|
| 25,577 |
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|
| 10.4 | % |
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| 526,779 |
|
|
| 319,345 |
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|
| 207,434 |
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|
| 65.0 | % |
Total Deposits |
| $ | 2,708,253 |
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| $ | 2,416,701 |
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| $ | 291,552 |
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|
| 12.1 | % |
| $ | 2,843,516 |
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| $ | 2,619,984 |
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| $ | 223,532 |
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| 8.5 | % |
The Company had approximately $594,376 and $563,092 of uninsured deposits as of March 31, 2023 and December 31, 2022, respectively. Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limit of $250,000.
Total deposits at September 30, 2022March 31, 2023 increased $291,552$223,532 from year-end 2021.2022. Noninterest-bearing deposits increased $155,335$42,634 from year-end 2021,2022, while interest-bearing deposits, including savings and time deposits, increased $136,217$180,898 from December 31, 2021. Noninterest-bearing deposits acquired in the acquisition of Comunibanc Corp. totaled $65,491, while interest-bearing deposits, including savings and time deposits totaled $185,332.2022. The increase in noninterest-bearing deposits was partially due to increases in cash balances related to the Company’s participation in a tax refund processing program, which added noninterest-bearing deposits of $60,070.$82,013. This increase is temporary as transactions are processed and is expected to return to levels more consistent with December 31, 2022 over the next two quarters. In addition, demand deposit and public fund demand deposit accounts increased $19,672$10,350, offset by decreases in personal and $10,212,business demand deposit accounts of $7,497 and $37,690, respectively. Noninterest-bearing deposits acquired from Comunibanc Corp. totaled $65,491 at September 30, 2022. The increase in interest-bearing deposits was primarily due to increases in personal interest-bearing demandbrokered deposits and public fund interest-bearing demand accounts of $8,044$201,201 and $11,782,$15,796, respectively, accompanied by decreases in business interest-bearing demand and JUMBO NOW accounts of $30,951 and $9,523, respectively. Interest-bearing demand deposits acquired from Comunibanc Corp. totaled $41,376 at September 30, 2022. Statementstatement savings, business money market savings and public fund money market savings accounts increased by $25,012, $5,376 and $1,669, respectively, accompanied by a decrease in brokered money market savings accounts of $16,997. Savings$14,539, $5,179 and money market$19,060, respectively. Time certificates over $250, time certificates increased $3,732 from year-end 2022. The year-to-date average balance of total deposits increased $68,486, compared to the average balance for the same period in 2022, mainly due to a $67,788 increase in the average balance of time deposits.
Short-term FHLB advances decreased $181,700 from December 31, 2022 to March 31, 2023. The decrease is due to the repayment of overnight borrowings.
Page 4342
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
acquired from Comunibanc Corp. totaled $87,641 at September 30, 2022. Time certificates over $250, time certificates and Jumbo time certificates decreased $7,767, $11,365 and $9,676, respectively. Time deposits acquired from Comunibanc Corp. totaled $56,315 at September 30, 2022. The year-to-date average balance of total deposits increased $93,652, compared to the average balance for the same period in 2021, mainly due to increases in the average balances of interest-bearing demand and savings and money markets accounts of $47,234 and $46,890, respectively. In addition, the average balance of time deposits decreased $19,909 as compared to the same period in 2021.
FHLB advances decreased $13,277 from December 31, 2021 to September 30, 2022. The decrease is due to the repayment of an FHLB advance in the amount of $75,000. This advance had terms of one hundred twenty months with a fixed rate of 1.03% and was puttable. The advance was not replaced. Long-term advances acquired in the acquisition of Comunibanc Corp. totaled $21,706, of which $14,983 has been paid down. The Company had $55,000 in overnight funds with FHLB as of September 30, 2022.
Securities sold under agreements to repurchase, which tend to fluctuate based on the liquidity needs of customers and short-term nature of the instrument, decreased $5,340$9,512 from December 31, 20212022 to September 30, 2022.March 31, 2023.
Securities purchased payable decreased $913$1,338 from December 31, 20212022 to September 30, 2022.March 31, 2023. The decrease is primarily the result of a decrease in accounts payable related to securities purchased but not yet funded of $913.$1,338.
Tax refunds in process increased $2,160$5,474 from December 31, 20212022 to September 30, 2022.March 31, 2023. The increase is primarily the result of an increase in a clearing account related to our tax refund processing program of $2,160.$5,474.
Swap liabilities decreased $3,229 from December 31, 2022 to March 31, 2023. The decrease of $3,229 is primarily the result of a decrease in fair value of swap liabilities.
Accrued expenses and other liabilities increased $2,392 from December 31, 2022 to March 31, 2023. The increase is primarily the result of an increase in allowance for credit losses on unfunded commitments of $3,587 as a result of the Company's adoption of ASU 2013-16.
Shareholders’ equity at September 30, 2022March 31, 2023 was $302,602,$347,697, or 9.3%9.7% of total assets, compared to $355,212,$334,835, or 11.8%9.5% of total assets, at December 31, 2021.2022. The decreaseincrease was the result of a decreasean increase in the fair value of securities available-for-sale, net of tax, of $78,802,$8,135 and net income of $12,888, offset by dividends on common shares of $6,291 and$2,201, the purchase of treasury shares of $16,734, offset by net income$121 and the cumulative effect of $27,279 and a decrease in the Company’s pension liability, netadopting ASU 2016-13 of tax, of $164.$6,069.
Total outstanding common shares at September 30, 2022March 31, 2023 were 15,235,545,15,768,410, which increased from 14,954,20015,728,234 common shares outstanding at December 31, 2021.2022. Common shares outstanding increased due to the issuancegrant of 984,72347,536 restricted common shares to former shareholders of Comunibanc Corp. in connection with the acquisition of Comunibanc Corp. effective July 1, 2022. Additionally, common share outstanding was impacted by 740,238 common shares being repurchased by the Company at an average repurchase price of $22.61. The Company repurchased 341,963 common shares pursuant to a stock repurchase program announced on May 4, 2022 and 392,847 common shares pursuant to a stock repurchase program announced on August 12, 2021. The repurchase program publicly announced on May 4, 2022 authorized the Company to repurchase a maximum aggregate value of $13,500 ofcertain officers under the Company’s 2014 Incentive Plan, offset by 5,620 common shares until May 9, 2023. The repurchase plan publicly announced on August 12, 2021 authorized the Company to repurchase a maximum aggregate value of $13,500 of the Company’s common shares until August 10, 2022. An additional 5,428 common shares were surrendered by officers to the Company to pay taxes upon vesting of restricted shares and 2,1381,740 restricted common shares were forfeited. The repurchase of common shares was offset by the grant of 31,774 restricted common shares to certain officers under the Company’s 2014 Incentive Plan. In addition, 7,224 common shares were issued to Civista directors as a retainer payment for service on the Civista Board of Directors.
Results of Operations
Three Months Ended September 30,March 31, 2023 and 2022 and 2021
The Company had net income of $11,112$12,888 for the three months ended September 30, 2022,March 31, 2023, an increase of $1,470$4,422 from net income of $9,642$8,466 for the same three months of 2021.2022. Basic earnings per common share were $0.72$0.82 for the quarter ended September 30, 2022,March 31, 2023, compared to $0.64$0.57 for the same period in 2021.2022. Diluted earnings per common share were $0.72$0.82 for the quarter ended September 30, 2022,March 31, 2023, compared to $0.64$0.57 for the same period in 2021.2022. The primary reasons for the changes in net income are explained below.
Net interest income for the three months ended September 30, 2022March 31, 2023 was $30,439,$32,601, an increase of $6,006$9,669 from $24,433$22,932 for the same three months of 2021.2022. This increase is the result of an increase of $6,749$16,873 in total interest income, offset by an increase of $743$7,204 in interest expense. Interest-earning assets averaged $3,002,256$3,211,902 during the three months ended September 30, 2022,March 31, 2023, an increase of $254,806$397,313 from $2,747,450$2,814,589 for the same period of 2021.2022. The Company’s average interest-bearing liabilities increased from $1,716,512$1,828,283 during the three months ended September 30, 2021March 31, 2022 to $1,893,092$2,207,592 during the three months ended September 30, 2022.March 31, 2023. The Company’s fully tax equivalent net interest margin for the three months ended September 30,March 31, 2023 and 2022 was 4.11% and 2021 was 4.03% and 3.62%3.38%, respectively.
Page 44
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Total interest income was $32,533$41,539 for the three months ended September 30, 2022,March 31, 2023, an increase of $6,749$16,873 from $25,784$24,666 of total interest income for the same period in 2021.2022. The increase in interest income is attributable to increases in interest and fees on loans and interest income on taxable and tax-exempt securities of $4,472, $1,513,$15,360, $1,114, and $443,$473, respectively. Interest on loans increased $4,472$15,360 to $27,176$36,398 for the three months ended September 30, 2022,March 31, 2023, as compared to $22,704$21,038 for the same period in 2021.2022. The average balance of loans increased by $278,923,$541,534, or 13.9%27.0%, to $2,289,588$2,548,518 for the three months ended September 30, 2022March 31, 2023 as compared to $2,010,665$2,006,984 for the same period in 2021.2022. The loan yield increased to 4.71%5.79% for the three months ended September 30, 2022,March 31, 2023, from 4.48%4.25% for the same period in 2021.2022.
Page 43
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Interest on taxable securities increased $1,513$1,114 to $2,936$2,834 for the three months ended September 30, 2022,March 31, 2023, compared to $1,423$1,720 for the same period in 2021.2022. The average balance of taxable securities increased $89,942$60,358 to $354,597$374,851 for the three months ended September 30, 2022,March 31, 2023, as compared to $264,655$314,493 for the same period in 2021.2022. The yield on taxable securities increased 8857 basis points to 3.06%2.77% for 2022,2023, compared to 2.18%2.20% for 2021.2022. Interest on tax-exempt securities increased $443$473 to $1,998$2,262 for the three months ended September 30, 2022,March 31, 2023, compared to $1,555$1,789 for the same period in 2021.2022. The average balance of tax-exempt securities increased $50,340$20,270 to $268,327$281,136 for the three months ended September 30, 2022,March 31, 2023, as compared to $217,987$260,866 for the same period in 2021.2022. The yield on tax-exempt securities decreased 4414 basis points to 3.47%3.81% for 2023, compared to 3.67% for 2022 compared to 3.91% for 2021 due to the impact of lower interest rates in 2022 as compared to the same period of 2021..
Interest expense increased $743,$7,204, or 55.0%415.5%, to $2,094$8,938 for the three months ended September 30, 2022,March 31, 2023, compared with $1,351$1,734 for the same period in 2021.2022. The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, accompanied by increases in rates. For the three months ended September 30, 2022,March 31, 2023, the average balance of interest-bearing liabilities increased $176,580$379,309 to $1,893,092,$2,207,592, as compared to $1,716,512$1,828,283 for the same period in 2021.2022. Interest incurred on deposits decreased by $34$2,527 to $936$3,232 for the three months ended September 30, 2022,March 31, 2023, compared to $970$705 for the same period in 2021. Although the2022. The average balance of interest-bearing deposits increased by $149,936$68,486 for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021, deposit expense decreased due to a decrease2022, accompanied by an increase in the rate paid on time deposits from 1.03% in 2021 to 0.79% in 2022.2022 to 2.82% in 2023. Interest expense incurred on short-term FHLB advances decreased 6.7% from 2021. Theincreased as a result of higher average balancebalances on short-term FHLB balances decreased $42,951advances of $371,868 for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021,2022, as a result of the repayment of a long-term advance.increased overnight borrowings. Interest expense incurred on subordinated debentures increased $793,$333, to $975$1,169 for the three months ended September 30, 2022,March 31, 2023, compared to $182$836 for the same period in 2021. For the three months ended September 30, 2022, the average balance of2022. The rate paid on subordinated debentures increased $73,402from 3.27% in 2022 to $103,751, as compared to $30,349 for the same period4.57% in 2021. During the fourth quarter of 2021, the Company entered into a Subordinated Note Purchase Agreement pursuant to which the Company sold and issued $75,000 aggregate principal amount of its 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031.2023
Page 4544
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
The following table presents the condensed average balance sheets for the three months ended September 30, 2022March 31, 2023 and 2021.2022. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.
|
| Three Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||||||||||||||||||
Assets: |
| Average balance |
|
| Interest |
|
| Yield/ rate* |
|
| Average balance |
|
| Interest |
|
| Yield/ rate* |
|
| Average |
|
| Interest |
|
| Yield/ |
|
| Average |
|
| Interest |
|
| Yield/ |
| ||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans, including fees** |
| $ | 2,289,588 |
|
| $ | 27,176 |
|
|
| 4.71 | % |
| $ | 2,010,665 |
|
| $ | 22,704 |
|
|
| 4.48 | % |
| $ | 2,548,518 |
|
| $ | 36,398 |
|
|
| 5.79 | % |
| $ | 2,006,984 |
|
| $ | 21,038 |
|
|
| 4.25 | % |
Taxable securities |
|
| 354,597 |
|
|
| 2,936 |
|
|
| 3.06 | % |
|
| 264,655 |
|
|
| 1,423 |
|
|
| 2.18 | % |
|
| 374,851 |
|
|
| 2,834 |
|
|
| 2.77 | % |
|
| 314,493 |
|
|
| 1,720 |
|
|
| 2.20 | % |
Tax-exempt securities |
|
| 268,327 |
|
|
| 1,998 |
|
|
| 3.47 | % |
|
| 217,987 |
|
|
| 1,555 |
|
|
| 3.91 | % |
|
| 281,136 |
|
|
| 2,262 |
|
|
| 3.81 | % |
|
| 260,866 |
|
|
| 1,789 |
|
|
| 3.67 | % |
Interest-bearing deposits in other banks |
|
| 89,744 |
|
|
| 423 |
|
|
| 1.87 | % |
|
| 254,143 |
|
|
| 102 |
|
|
| 0.16 | % |
|
| 7,397 |
|
|
| 45 |
|
|
| 2.47 | % |
|
| 232,246 |
|
|
| 119 |
|
|
| 0.21 | % |
Total interest-earning assets |
| $ | 3,002,256 |
|
| $ | 32,533 |
|
|
| 4.30 | % |
| $ | 2,747,450 |
|
| $ | 25,784 |
|
|
| 3.82 | % |
| $ | 3,211,902 |
|
| $ | 41,539 |
|
|
| 5.22 | % |
| $ | 2,814,589 |
|
| $ | 24,666 |
|
|
| 3.63 | % |
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and due from financial institutions |
|
| 58,581 |
|
|
|
|
|
|
|
|
|
|
| 33,803 |
|
|
|
|
|
|
|
|
|
|
| 54,136 |
|
|
|
|
|
|
|
|
| 223,353 |
|
|
|
|
|
|
| ||||
Premises and equipment, net |
|
| 28,633 |
|
|
|
|
|
|
|
|
|
|
| 22,845 |
|
|
|
|
|
|
|
|
|
|
| 62,776 |
|
|
|
|
|
|
|
|
| 22,320 |
|
|
|
|
|
|
| ||||
Accrued interest receivable |
|
| 8,907 |
|
|
|
|
|
|
|
|
|
|
| 7,417 |
|
|
|
|
|
|
|
|
|
|
| 10,655 |
|
|
|
|
|
|
|
|
| 7,157 |
|
|
|
|
|
|
| ||||
Intangible assets |
|
| 84,265 |
|
|
|
|
|
|
|
|
|
|
| 84,949 |
|
|
|
|
|
|
|
|
|
|
| 135,554 |
|
|
|
|
|
|
|
|
| 84,374 |
|
|
|
|
|
|
| ||||
Other assets |
|
| 48,013 |
|
|
|
|
|
|
|
|
|
|
| 39,111 |
|
|
|
|
|
|
|
|
|
|
| 61,292 |
|
|
|
|
|
|
|
|
| 37,346 |
|
|
|
|
|
|
| ||||
Bank owned life insurance |
|
| 53,131 |
|
|
|
|
|
|
|
|
|
|
| 46,557 |
|
|
|
|
|
|
|
|
|
|
| 53,630 |
|
|
|
|
|
|
|
|
| 46,726 |
|
|
|
|
|
|
| ||||
Less allowance for loan losses |
|
| (27,546 | ) |
|
|
|
|
|
|
|
|
|
| (26,683 | ) |
|
|
|
|
|
|
|
|
|
| (30,454 | ) |
|
|
|
|
|
|
|
| (26,775 | ) |
|
|
|
|
|
| ||||
Total Assets |
| $ | 3,256,240 |
|
|
|
|
|
|
|
|
|
| $ | 2,955,449 |
|
|
|
|
|
|
|
|
|
| $ | 3,559,491 |
|
|
|
|
|
|
|
| $ | 3,209,090 |
|
|
|
|
|
|
| ||||
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand and savings |
| $ | 1,457,112 |
|
| $ | 379 |
|
|
| 0.10 | % |
| $ | 1,331,032 |
|
| $ | 302 |
|
|
| 0.09 | % |
| $ | 1,384,070 |
|
| $ | 1,084 |
|
|
| 0.32 | % |
| $ | 1,383,372 |
|
| $ | 234 |
|
|
| 0.07 | % |
Time |
|
| 280,903 |
|
|
| 557 |
|
|
| 0.79 | % |
|
| 257,047 |
|
|
| 668 |
|
|
| 1.03 | % |
|
| 308,400 |
|
|
| 2,148 |
|
|
| 2.82 | % |
|
| 240,612 |
|
|
| 471 |
|
|
| 0.79 | % |
Short-term FHLB advances |
|
| 6,713 |
|
|
| 48 |
|
|
| 2.08 | % |
|
| - |
|
|
| — |
|
|
| 0.00 | % |
|
| 372,226 |
|
|
| 4,258 |
|
|
| 4.64 | % |
|
| 358 |
|
|
| — |
|
|
| 0.00 | % |
Long-term FHLB advances |
|
| 25,336 |
|
|
| 133 |
|
|
| 2.84 | % |
|
| 75,000 |
|
|
| 194 |
|
|
| 1.03 | % |
|
| 3,442 |
|
|
| 19 |
|
|
| 2.24 | % |
|
| 75,000 |
|
|
| 190 |
|
|
| 1.03 | % |
Other borrowings |
|
| 14,484 |
|
|
| 252 |
|
|
| 7.06 | % |
|
| — |
|
|
| — |
|
|
| 0.00 | % | ||||||||||||||||||||||||
Federal funds purchased |
|
| 333 |
|
|
| 5 |
|
|
| 6.09 | % |
|
| — |
|
|
| — |
|
|
| 0.00 | % | ||||||||||||||||||||||||
Subordinated debentures |
|
| 103,751 |
|
|
| 975 |
|
|
| 3.73 | % |
|
| 30,349 |
|
|
| 182 |
|
|
| 2.45 | % |
|
| 103,814 |
|
|
| 1,169 |
|
|
| 4.57 | % |
|
| 103,713 |
|
|
| 836 |
|
|
| 3.27 | % |
Repurchase Agreements |
|
| 19,277 |
|
|
| 2 |
|
|
| 0.04 | % |
|
| 23,084 |
|
|
| 5 |
|
|
| 0.09 | % |
|
| 20,823 |
|
|
| 3 |
|
|
| 0.06 | % |
|
| 25,228 |
|
|
| 3 |
|
|
| 0.05 | % |
Total interest-bearing liabilities |
| $ | 1,893,092 |
|
| $ | 2,094 |
|
|
| 0.44 | % |
| $ | 1,716,512 |
|
| $ | 1,351 |
|
|
| 0.31 | % |
| $ | 2,207,592 |
|
| $ | 8,938 |
|
|
| 1.64 | % |
| $ | 1,828,283 |
|
| $ | 1,734 |
|
|
| 0.38 | % |
Noninterest-bearing deposits |
|
| 980,999 |
|
|
|
|
|
|
|
|
|
|
| 849,501 |
|
|
|
|
|
|
|
|
|
|
| 961,886 |
|
|
|
|
|
|
|
|
| 933,654 |
|
|
|
|
|
|
| ||||
Other liabilities |
|
| 77,015 |
|
|
|
|
|
|
|
|
|
|
| 40,466 |
|
|
|
|
|
|
|
|
|
|
| 48,854 |
|
|
|
|
|
|
|
|
| 99,851 |
|
|
|
|
|
|
| ||||
Shareholders’ Equity |
|
| 305,134 |
|
|
|
|
|
|
|
|
|
|
| 348,970 |
|
|
|
|
|
|
|
|
|
|
| 341,159 |
|
|
|
|
|
|
|
|
| 347,302 |
|
|
|
|
|
|
| ||||
Total Liabilities and Shareholders’ Equity |
| $ | 3,256,240 |
|
|
|
|
|
|
|
|
|
| $ | 2,955,449 |
|
|
|
|
|
|
|
|
|
| $ | 3,559,491 |
|
|
|
|
|
|
|
| $ | 3,209,090 |
|
|
|
|
|
|
| ||||
Net interest income and interest rate spread |
|
|
|
|
| $ | 30,439 |
|
|
| 3.86 | % |
|
|
|
|
| $ | 24,433 |
|
|
| 3.51 | % |
|
|
|
| $ | 32,601 |
|
|
| 3.58 | % |
|
|
|
| $ | 22,932 |
|
|
| 3.25 | % | ||
Net interest margin |
|
|
|
|
|
|
|
|
|
| 4.03 | % |
|
|
|
|
|
|
|
|
|
| 3.62 | % |
|
|
|
|
|
|
|
| 4.11 | % |
|
|
|
|
|
|
|
| 3.38 | % | ||||
*—Average yields are presented on a tax equivalent basis. The tax equivalent effect associated with loans and investments, included in the yields above, was $532$601 and $414$476 for the periods ended September 30,March 31, 2023 and 2022, and 2021, respectively.
**—Average balance includes nonaccrual loans.
Page 4645
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended September 30, 2022March 31, 2023 and 2021.2022.
|
| Increase (decrease) due to: |
| |||||||||
|
| Volume (1) |
|
| Rate (1) |
|
| Net |
| |||
|
| (Dollars in thousands) |
| |||||||||
Interest income: |
|
|
|
|
|
|
|
|
| |||
Loans, including fees |
| $ | 6,555 |
|
| $ | 8,805 |
|
| $ | 15,360 |
|
Taxable securities |
|
| 598 |
|
|
| 516 |
|
|
| 1,114 |
|
Tax-exempt securities |
|
| 404 |
|
|
| 69 |
|
|
| 473 |
|
Interest-bearing deposits in other banks |
|
| (218 | ) |
|
| 144 |
|
|
| (74 | ) |
Total interest income |
| $ | 7,339 |
|
| $ | 9,534 |
|
| $ | 16,873 |
|
Interest expense: |
|
|
|
|
|
|
|
|
| |||
Demand and savings |
| $ | — |
|
| $ | 850 |
|
| $ | 850 |
|
Time |
|
| 166 |
|
|
| 1,511 |
|
|
| 1,677 |
|
Short-term FHLB advances |
|
| 4,258 |
|
|
| — |
|
|
| 4,258 |
|
Long-term FHLB advances |
|
| (277 | ) |
|
| 106 |
|
|
| (171 | ) |
Other borrowings |
|
| 252 |
|
|
| — |
|
|
| 252 |
|
Federal funds purchased |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Subordinated debentures |
|
| 1 |
|
|
| 332 |
|
|
| 333 |
|
Repurchase agreements |
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
Total interest expense |
| $ | 4,404 |
|
| $ | 2,800 |
|
| $ | 7,204 |
|
Net interest income |
| $ | 2,935 |
|
| $ | 6,734 |
|
| $ | 9,669 |
|
|
| Increase (decrease) due to: |
| |||||||||
|
| Volume (1) |
|
| Rate (1) |
|
| Net |
| |||
|
| (Dollars in thousands) |
| |||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 3,267 |
|
| $ | 1,205 |
|
| $ | 4,472 |
|
Taxable securities |
|
| 819 |
|
|
| 694 |
|
|
| 1,513 |
|
Tax-exempt securities |
|
| 633 |
|
|
| (190 | ) |
|
| 443 |
|
Interest-bearing deposits in other banks |
|
| (106 | ) |
|
| 427 |
|
|
| 321 |
|
Total interest income |
| $ | 4,613 |
|
| $ | 2,136 |
|
| $ | 6,749 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings |
| $ | 30 |
|
| $ | 47 |
|
| $ | 77 |
|
Time |
|
| 58 |
|
|
| (169 | ) |
|
| (111 | ) |
Short-term FHLB advances |
|
| 48 |
|
|
| — |
|
|
| 48 |
|
Long-term FHLB advances |
|
| (180 | ) |
|
| 119 |
|
|
| (61 | ) |
Subordinated debentures |
|
| 642 |
|
|
| 151 |
|
|
| 793 |
|
Repurchase agreements |
|
| (1 | ) |
|
| (2 | ) |
|
| (3 | ) |
Total interest expense |
| $ | 597 |
|
| $ | 146 |
|
| $ | 743 |
|
Net interest income |
| $ | 4,016 |
|
| $ | 1,990 |
|
| $ | 6,006 |
|
|
|
The Company provides for loan losses through regular provisions to the allowance for loan losses. ProvisionsUpon adoption of CECL we recorded an increase in the allowance for loancredit losses totaledof $5,193. During the first quarter of 2023 we recorded a provision for credit losses of $620, an increase of $320, from $300 and $0 during the quartersthree months ended September 30, 2022 and 2021, respectively.March 31, 2022. The increase in the provision in the third quarter of 2022 reflects the Company’s strongreserves was principally related to loan growth during the quarter. Our credit quality metrics remain stable despiteAs time progresses the ongoing headwindsresults of the challenging international, national, regionaleconomic conditions will require CECL model assumption inputs to change and local economic conditions. While the direct impact of COVID-19 wains, we remain cautious due to increasing inflationary pressures. Criticized loans were reduced in the third quarter, primarily loans to borrowers in the hotel industry due to improved occupancy. Economic impacts relatedfurther refinements to the COVID-19 pandemic have improved somewhat, but continued concerns linger due to the disruption of supply chains, workforce shortages, rising inflationary pressures and the prospects of recession.estimation process may also be identified.
Noninterest income for the three-month periods ended September 30,March 31, 2023 and 2022 and 2021 are as follows:
|
| Three months ended September 30, |
|
| Three months ended March 31, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
Service charges |
| $ | 1,885 |
|
| $ | 1,519 |
|
| $ | 366 |
|
|
| 24.1 | % |
| $ | 1,773 |
|
| $ | 1,579 |
|
| $ | 194 |
|
|
| 12.3 | % |
Net gain on sale of securities |
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| 0.0 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.0 | % |
Net gain (loss) on equity securities |
|
| (133 | ) |
|
| 50 |
|
|
| (183 | ) |
|
| -366.0 | % |
|
| (68 | ) |
|
| 50 |
|
|
| (118 | ) |
|
| -236.0 | % |
Net gain on sale of loans |
|
| 637 |
|
|
| 1,612 |
|
|
| (975 | ) |
|
| -60.5 | % |
|
| 631 |
|
|
| 936 |
|
|
| (305 | ) |
|
| -32.6 | % |
ATM/Interchange fees |
|
| 1,394 |
|
|
| 1,330 |
|
|
| 64 |
|
|
| 4.8 | % |
|
| 1,353 |
|
|
| 1,241 |
|
|
| 112 |
|
|
| 9.0 | % |
Wealth management fees |
|
| 1,208 |
|
|
| 1,236 |
|
|
| (28 | ) |
|
| -2.3 | % |
|
| 1,193 |
|
|
| 1,277 |
|
|
| (84 | ) |
|
| -6.6 | % |
Lease revenue and residual income |
|
| 2,046 |
|
|
| — |
|
|
| 2,046 |
|
|
| 0.0 | % | ||||||||||||||||
Bank owned life insurance |
|
| 255 |
|
|
| 261 |
|
|
| (6 | ) |
|
| -2.3 | % |
|
| 253 |
|
|
| 244 |
|
|
| 9 |
|
|
| 3.7 | % |
Tax refund processing fees |
|
| 1,900 |
|
|
| 1,900 |
|
|
| — |
|
|
| 0.0 | % | ||||||||||||||||
Swap fees |
|
| — |
|
|
| 41 |
|
|
| (41 | ) |
|
| -100.0 | % |
|
| 61 |
|
|
| — |
|
|
| 61 |
|
|
| 0.0 | % |
Other |
|
| 484 |
|
|
| 373 |
|
|
| 111 |
|
|
| 29.8 | % |
|
| 1,926 |
|
|
| 416 |
|
|
| 1,510 |
|
|
| 363.0 | % |
Total noninterest income |
| $ | 5,734 |
|
| $ | 6,426 |
|
| $ | (692 | ) |
|
| -10.8 | % |
| $ | 11,068 |
|
| $ | 7,643 |
|
| $ | 3,425 |
|
|
| 44.8 | % |
Page 4746
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Noninterest income for the three months ended September 30, 2022March 31, 2023 was $5,734, a decrease$11,068, an increase of $692,$3,425, or 10.8%44.8%, from $6,426$7,643 for the same period of 2021.2022. The decreaseincrease was primarily due to the addition of Lease revenue and residual income of $2,046 for the three months ended March 31, 2023, as a result of the acquisition of Vision Financial Group, Inc. (VFG) in October 2023, coupled with increases in service charges and other income , offset by decreases in net gain (loss) on equity securities and net gain on sale of loans and swap fees, offset by increases inloans. Service charges increased due to higher service charges of $105 and other income.overdraft fees of $89. Other income increased as result of a $1,500 fee collected with the renewal of the company's contract with MasterCard. Net gain (loss) on equity securities decreased as a result of market value decreases. Net gain on sale of loans decreased primarily as a result of a decrease in volume of loans sold. During the three-months ended September 30, 2022, 117March 31, 2023, 63 loans were sold, totaling $33,929.$9,239. During the three-months ended September 30, 2021, 303March 31, 2022, 208 loans were sold, totaling $56,887. Swap$38,164.
Additionally, the Company processes state and federal income tax refunds for customers of third-party income tax preparation vendors for which we receive a fee for processing the refund payments. Tax refund processing fees decreased due towere $1,900 for each of the volumethree months ended March 31, 2023 and 2022. This fee income is seasonal in nature, the majority of swaps performed duringwhich is earned in the first quarter ended September 30, 2022 as compared toof the same period of 2021. Service charges increased due to higher service charges of $196 and overdraft fees of $130. Other income increased as result of an increase in servicing fee income.year.
Noninterest expense for the three-month periods ended September 30,March 31, 2023 and 2022 and 2021 are as follows:
|
| Three months ended September 30, |
|
| Three months ended March 31, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
Compensation expense |
| $ | 12,484 |
|
| $ | 11,390 |
|
| $ | 1,094 |
|
|
| 9.6 | % |
| $ | 15,105 |
|
| $ | 12,223 |
|
| $ | 2,882 |
|
|
| 23.6 | % |
Net occupancy expense |
|
| 1,252 |
|
|
| 985 |
|
|
| 267 |
|
|
| 27.1 | % |
|
| 1,359 |
|
|
| 1,150 |
|
|
| 209 |
|
|
| 18.2 | % |
Equipment expense |
|
| 637 |
|
|
| 444 |
|
|
| 193 |
|
|
| 43.5 | % |
|
| 2,761 |
|
|
| 495 |
|
|
| 2,266 |
|
|
| 457.8 | % |
Contracted data processing |
|
| 846 |
|
|
| 429 |
|
|
| 417 |
|
|
| 97.2 | % |
|
| 520 |
|
|
| 620 |
|
|
| (100 | ) |
|
| -16.1 | % |
FDIC assessment |
|
| 170 |
|
|
| 247 |
|
|
| (77 | ) |
|
| -31.2 | % |
|
| 248 |
|
|
| 203 |
|
|
| 45 |
|
|
| 22.2 | % |
State franchise tax |
|
| 629 |
|
|
| 511 |
|
|
| 118 |
|
|
| 23.1 | % |
|
| 526 |
|
|
| 591 |
|
|
| (65 | ) |
|
| -11.0 | % |
Professional services |
|
| 1,335 |
|
|
| 776 |
|
|
| 559 |
|
|
| 72.0 | % |
|
| 1,555 |
|
|
| 1,049 |
|
|
| 506 |
|
|
| 48.2 | % |
Amortization of intangible assets |
|
| 456 |
|
|
| 223 |
|
|
| 233 |
|
|
| 104.5 | % |
|
| 398 |
|
|
| 217 |
|
|
| 181 |
|
|
| 83.4 | % |
ATM/Interchange expense |
|
| 604 |
|
|
| 594 |
|
|
| 10 |
|
|
| 1.7 | % |
|
| 580 |
|
|
| 513 |
|
|
| 67 |
|
|
| 13.1 | % |
Marketing |
|
| 372 |
|
|
| 359 |
|
|
| 13 |
|
|
| 3.6 | % |
|
| 505 |
|
|
| 317 |
|
|
| 188 |
|
|
| 59.3 | % |
Software maintenance expense |
|
| 942 |
|
|
| 819 |
|
|
| 123 |
|
|
| 15.0 | % |
|
| 878 |
|
|
| 708 |
|
|
| 170 |
|
|
| 24.0 | % |
Other |
|
| 2,828 |
|
|
| 2,474 |
|
|
| 354 |
|
|
| 14.3 | % |
|
| 3,198 |
|
|
| 2,172 |
|
|
| 1,026 |
|
|
| 47.2 | % |
Total noninterest expense |
| $ | 22,555 |
|
| $ | 19,251 |
|
| $ | 3,304 |
|
|
| 17.2 | % |
| $ | 27,633 |
|
| $ | 20,258 |
|
| $ | 7,375 |
|
|
| 36.4 | % |
Noninterest expense for the three months ended September 30, 2022March 31, 2023 was $22,555,$27,633, an increase of $3,304,$7,375, or 17.2%36.4%, from $19,251$20,258 reported for the same period of 2021.2022. The primary reasons for the increase were increases in compensation expense, net occupancy, equipment expense, contracted data processing expense, state franchise tax,FDIC assessment, professional services, amortization expense, ATM/Interchange expense, marketing, software maintenance expense and other operating expense, offset by a decreasedecreases in FDIC assessment.contracted data processing expense and state franchise tax. The increase in compensation expense was mainlydue to increased salaries, payroll taxes and employee insurance. The average full time equivalent (FTE) employees were 532.4 at March 31, 2023, an increase of 89 FTEs over the same period of 2022 due to the acquisitionacquisitions of Comunibanc Corp. and VFG in 2022. The increase in occupancy expense is due to increases related to the acquisition of Comunibanc Corp. and the opening of a new branch in utilities and ground maintenance.Ohio. Equipment expense increased due to increases in computer, security and office equipment purchasesdepreciation related to the acquisition of $101.VFG. Contracted data processing fees increaseddecreased due to the payment of deconversion fees related to the merger with Comunibanc Corp. in the first quarter of $349.2022. The quarter-over-quarter decreaseincrease in FDIC assessments was attributable to lower assessment multipliers charged to Civista.higher average consolidated assets and average tangible equity. The increasedecrease in state franchise tax expense was attributable to an increaselower estimated tax payments during the first quarter of 2023 as compared to the same period in equity capital, which is the basis of the Ohio Financial Institutions tax.2022. Professional services increased due to acquisition advisory costs of $115, advisory fees for the company's MasterCard contract of $400 and mergerconsulting fees related legal, accounting and tax professional feesto CECL implementation of $430, accompanied by increases in recruitment fees and increased call volumes at the Company’s call center.$29. The increase in amortization of intangible assets is related to the merger with Comunibanc Corp. Marketing expense increased due to a general increase in marketing and increase marketing efforts in newly acquired markets. The increase in software maintenance expense is due to a general increase in legacy software maintenance contracts and the implementation of our new digital banking. The increase in other operating expense is primarily due to mergerincreases in promotional expenses of $274, loan related expenses of $116$11, bad check losses of $115, ATM/ACH losses of $217 and travel, lodging and mealsa provision for credit losses on unfunded commitments of $64.$201.
Income tax expense for the three months ended September 30, 2022March 31, 2023 totaled $2,206,$2,528, up $240$977 compared to the same period in 2021.2022. The effective tax rates for the three-month periods ended September 30,March 31, 2023 and 2022 were 16.4% and 2021 were 16.7% and 16.9%15.5%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting
Page 47
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income.
Capital Resources
Nine Months Ended September 30, 2022 and 2021
Page 48
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
The Company had net income of $27,279 for the nine months ended September 30, 2022, a decrease of $2,285 from net income of $29,564 for the same nine months of 2021. Basic earnings per common share were $1.82 for the period ended September 30, 2022,Shareholders’ equity totaled $347,697 at March 31, 2023, compared to $1.90 for the same period in 2021. Diluted earnings per common share were $1.82 for the period ended September 30, 2022, compared to $1.90 for the same period in 2021. The primary reasons for the changes in net income are explained below.
Net interest income for the nine months ended September 30, 2022 was $77,639, an increase of $5,537 from $72,102 in the same nine months of 2021. This increase is the result of an increase of $6,255 in total interest income, partially offset by an increase of $718 in interest expense. Interest-earning assets averaged $2,895,090 during the nine months ended September 30, 2022, an increase of $52,628 from $2,842,462 for the same period of 2021. The Company’s average interest-bearing liabilities$334,835 at December 31, 2022. Shareholders’ equity increased from $1,724,858 for the first nine months of 2021 to $1,850,724 for the same period in 2022. The Company’s fully tax equivalent net interest margin for the nine months ended September 30, 2022 and 2021 was 3.62% and 3.48%, respectively.
Total interest income increased $6,255 to $83,263 for the period ended September 30, 2022. This change was the result of increases in the average balance of interest-earning assets, accompanied by higher yields on the portfolio. The average balance of loans increased by $66,278, or 3.2%, to $2,111,019 for the period ended September 30, 2022, as compared to $2,044,741 for the period ended September 30, 2021. The loan yield decreased to 4.44% for 2022, from 4.46% in 2021.
Interest on taxable securities increased $2,503 to $6,431 for the period ended September 30, 2022, compared to $3,928 for the same period in 2021. The average balance of taxable securities increased $107,283 to $322,262 for the period ended September 30, 2022, as compared to $214,979 for the period ended September 30, 2021. The yield on taxable securities increased 2 basis points to 2.53% for 2022, compared to 2.51% for 2021. Interest on tax-exempt securities increased $1,070 to $5,669 for the period ended September 30, 2022, compared to $4,599 for the same period in 2021. The average balance of tax-exempt securities increased $51,252 to $262,790 for the period ended September 30, 2022, as compared to $211,538 for the period ended September 30, 2021. The yield on tax-exempt securities decreased 47 basis points to 3.55% for 2022, compared to 4.02% for 2021.
Interest on interest-bearing deposits in other banks increased $757 to $1,098 for the period ended September 30, 2022, compared to $341 for the same period in 2021. The average balance of interest-bearing deposits in other banks decreased $172,185 to $199,019 for the period ended September 30, 2022, as compared to $371,204 for the period ended September 30, 2021. The yield on interest-bearing deposits in other banks increased 62 basis points to 0.74% for 2022, compared to 0.12% for 2021.
Interest expense increased $718, or 14.6%, to $5,624 for the period ended September 30, 2022, compared with $4,906 for the same period in 2021. The change in interest expense can be attributed to an increase in rate, accompanied by an increase in the average balance of interest-bearing liabilities. For the period ended September 30, 2022, the average balance of interest-bearing liabilities increased $125,866 to $1,850,724, as compared to $1,724,858 for the period ended September 30, 2021. Interest incurred on deposits decreased by $1,015 to $2,351 for the period ended September 30, 2022, compared to $3,366 for the same period in 2021. Although the average balance of interest-bearing deposits increased by $97,088 for the period ended September 30, 2022, as compared to the same period in 2021, deposit expense decreased due to a decrease in the rate paid on demand and savings accounts from 0.10% in 2021 to 0.08% in 2022. The rate paid on time deposits decreased from 1.18% in 2021 to 0.80% in 2022. Interest expense incurred on FHLB advances and subordinated debentures increased 114.7% from 2021. The average balance on FHLB balances decreased $39,815 as a result of the repayment of a long-term advance for the period ended September 30, 2022, as compared to the same period in 2021, while the rate paid decreased 11 basis points. In addition, the average balance of subordinated debentures increased $73,377 to $103,726, as compared to $30,349 for the same period in 2021. During the fourth quarter of 2021, the Company entered into a Subordinated Note Purchase Agreement pursuant to which the Company sold and issued $75,000 aggregate principal amount of its 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031. The rate paid on subordinated debentures increased 97 basis points for the period ended September 30, 2022, as compared to the same period in 2021.
Page 49
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
The following table presents the condensed average balance sheets for the nine months ended September 30, 2022 and 2021. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
Assets: |
| Average balance |
|
| Interest |
|
| Yield/ rate* |
|
| Average balance |
|
| Interest |
|
| Yield/ rate* |
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees** |
| $ | 2,111,019 |
|
| $ | 70,065 |
|
|
| 4.44 | % |
| $ | 2,044,741 |
|
| $ | 68,140 |
|
|
| 4.46 | % |
Taxable securities |
|
| 322,262 |
|
|
| 6,431 |
|
|
| 2.53 | % |
|
| 214,979 |
|
|
| 3,928 |
|
|
| 2.51 | % |
Tax-exempt securities |
|
| 262,790 |
|
|
| 5,669 |
|
|
| 3.55 | % |
|
| 211,538 |
|
|
| 4,599 |
|
|
| 4.02 | % |
Interest-bearing deposits in other banks |
|
| 199,019 |
|
|
| 1,098 |
|
|
| 0.74 | % |
|
| 371,204 |
|
|
| 341 |
|
|
| 0.12 | % |
Total interest-earning assets |
| $ | 2,895,090 |
|
| $ | 83,263 |
|
|
| 3.88 | % |
| $ | 2,842,462 |
|
| $ | 77,008 |
|
|
| 3.71 | % |
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions |
|
| 108,220 |
|
|
|
|
|
|
|
|
|
|
| 37,763 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
| 24,429 |
|
|
|
|
|
|
|
|
|
|
| 22,578 |
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
| 8,025 |
|
|
|
|
|
|
|
|
|
|
| 8,146 |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
| 84,268 |
|
|
|
|
|
|
|
|
|
|
| 84,817 |
|
|
|
|
|
|
|
|
|
Other assets |
|
| 44,077 |
|
|
|
|
|
|
|
|
|
|
| 38,426 |
|
|
|
|
|
|
|
|
|
Bank owned life insurance |
|
| 48,965 |
|
|
|
|
|
|
|
|
|
|
| 46,310 |
|
|
|
|
|
|
|
|
|
Less allowance for loan losses |
|
| (27,168 | ) |
|
|
|
|
|
|
|
|
|
| (26,288 | ) |
|
|
|
|
|
|
|
|
Total Assets |
| $ | 3,185,906 |
|
|
|
|
|
|
|
|
|
| $ | 3,054,214 |
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings |
| $ | 1,414,215 |
|
| $ | 860 |
|
|
| 0.08 | % |
| $ | 1,297,217 |
|
| $ | 979 |
|
|
| 0.10 | % |
Time |
|
| 250,230 |
|
|
| 1,491 |
|
|
| 0.80 | % |
|
| 270,139 |
|
|
| 2,387 |
|
|
| 1.18 | % |
Short-term FHLB advance |
|
| 2,380 |
|
|
| 49 |
|
|
| 2.75 | % |
|
| — |
|
|
| — |
|
|
| — |
|
Long-term FHLB advance |
|
| 58,263 |
|
|
| 515 |
|
|
| 1.18 | % |
|
| 100,458 |
|
|
| 968 |
|
|
| 1.29 | % |
Subordinated debentures |
|
| 103,726 |
|
|
| 2,701 |
|
|
| 3.48 | % |
|
| 30,349 |
|
|
| 553 |
|
|
| 2.51 | % |
Repurchase Agreements |
|
| 21,910 |
|
|
| 8 |
|
|
| 0.05 | % |
|
| 26,695 |
|
|
| 19 |
|
|
| 0.10 | % |
Total interest-bearing liabilities |
| $ | 1,850,724 |
|
| $ | 5,624 |
|
|
| 0.41 | % |
| $ | 1,724,858 |
|
| $ | 4,906 |
|
|
| 0.38 | % |
Noninterest-bearing deposits |
|
| 936,686 |
|
|
|
|
|
|
|
|
|
|
| 940,123 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 76,748 |
|
|
|
|
|
|
|
|
|
|
| 39,952 |
|
|
|
|
|
|
|
|
|
Shareholders’ Equity |
|
| 321,748 |
|
|
|
|
|
|
|
|
|
|
| 349,281 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
| $ | 3,185,906 |
|
|
|
|
|
|
|
|
|
| $ | 3,054,214 |
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread |
|
|
|
|
| $ | 77,639 |
|
|
| 3.47 | % |
|
|
|
|
| $ | 72,102 |
|
|
| 3.33 | % |
Net interest margin |
|
|
|
|
|
|
|
|
|
| 3.62 | % |
|
|
|
|
|
|
|
|
|
| 3.48 | % |
*—Average yields are presented on a tax equivalent basis. The tax equivalent effect associated with loans and investments, included in the yields above, was $1,508 and $1,228 for the periods ended September 30, 2022 and 2021, respectively.
**—Average balance includes nonaccrual loans.
Page 50
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the nine months ended September 30, 2022 and 2021. The table is presented on a fully tax-equivalent basis.
|
| Increase (decrease) due to: |
| |||||||||
|
| Volume (1) |
|
| Rate (1) |
|
| Net |
| |||
|
| (Dollars in thousands) |
| |||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 2,201 |
|
| $ | (276 | ) |
| $ | 1,925 |
|
Taxable securities |
|
| 2,470 |
|
|
| 33 |
|
|
| 2,503 |
|
Tax-exempt securities |
|
| 1,657 |
|
|
| (587 | ) |
|
| 1,070 |
|
Interest-bearing deposits in other banks |
|
| (225 | ) |
|
| 982 |
|
|
| 757 |
|
Total interest income |
| $ | 6,103 |
|
| $ | 152 |
|
| $ | 6,255 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings |
| $ | 83 |
|
| $ | (202 | ) |
| $ | (119 | ) |
Time |
|
| (165 | ) |
|
| (731 | ) |
|
| (896 | ) |
Short-term FHLB advance |
|
| 49 |
|
|
| — |
|
|
| 49 |
|
Long-term FHLB advance |
|
| (378 | ) |
|
| (75 | ) |
|
| (453 | ) |
Subordinated debentures |
|
| 1,824 |
|
|
| 324 |
|
|
| 2,148 |
|
Repurchase agreements |
|
| (3 | ) |
|
| (8 | ) |
|
| (11 | ) |
Total interest expense |
| $ | 1,410 |
|
| $ | (692 | ) |
| $ | 718 |
|
Net interest income |
| $ | 4,693 |
|
| $ | 844 |
|
| $ | 5,537 |
|
(1)The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate.
The Company provides for loan losses through regular provisions to the allowance for loan losses. Provisions for loan losses totaled $1,000 and $830 during the periods ended September 30, 2022 and 2021, respectively. The increase in provision was due to the strong loan growth during the first ninethree months of 2022. The challenges of the international, national, regional and local economic conditions, particularly inflation, has taken greater focus from the prior economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. Despite these concerns, our portfolio quality has remained stable overall with decreases in criticized loans. We continue to be optimistic that asset quality will continue to remain strong despite ongoing headwinds. While we remain cautious given the impact of inflation on all of our borrowers, we are encouraged by strong loan growth.
Noninterest income for the nine-month periods ended September 30, 2022 and 2021 are2023 as follows:
|
| Nine months ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Service charges |
| $ | 5,004 |
|
| $ | 4,092 |
|
| $ | 912 |
|
|
| 22.3 | % |
Net gain on sale of securities |
|
| 10 |
|
|
| 1,787 |
|
|
| (1,777 | ) |
|
| -99.4 | % |
Net gain (loss) on equity securities |
|
| (44 | ) |
|
| 191 |
|
|
| (235 | ) |
|
| -123.0 | % |
Net gain on sale of loans |
|
| 2,146 |
|
|
| 6,575 |
|
|
| (4,429 | ) |
|
| -67.4 | % |
ATM/Interchange fees |
|
| 3,990 |
|
|
| 3,950 |
|
|
| 40 |
|
|
| 1.0 | % |
Wealth management fees |
|
| 3,713 |
|
|
| 3,570 |
|
|
| 143 |
|
|
| 4.0 | % |
Bank owned life insurance |
|
| 732 |
|
|
| 752 |
|
|
| (20 | ) |
|
| -2.7 | % |
Tax refund processing fees |
|
| 2,375 |
|
|
| 2,375 |
|
|
| — |
|
|
| 0.0 | % |
Swap fees |
|
| — |
|
|
| 135 |
|
|
| (135 | ) |
|
| -100.0 | % |
Other |
|
| 1,086 |
|
|
| 1,214 |
|
|
| (128 | ) |
|
| -10.5 | % |
Total noninterest income |
| $ | 19,012 |
|
| $ | 24,641 |
|
| $ | (5,629 | ) |
|
| -22.8 | % |
Noninterest income for the nine months ended September 30, 2022 was $19,012, a decrease of $5,629, or 22.8%, from $24,641 for the same period of 2021. The decrease was primary due to decreases in net gain on the sale of securities of $1,777, net gain (loss) on equity securities of $235, net gain on sale of loans of $4,429, swap fees of $135 and other income of $1289, which was offset by an increase in service charges of $912. Net gain on sale of securities decreased due to the sale of Visa Class B shares in 2021. Net gain (loss) on equity securities decreased as a result of market value decreases. Net gain on sale of
Page 51
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
loans decreased primarily as a result of a decrease in volume of loans sold. During the nine-months ended September 30, 2022, 571 loans were sold, totaling $107,587. During the nine-months ended September 30, 2021, 1,055 loans were sold, totaling $204,728. Swap fees decreased due to the volume of swaps performed during the nine-months ended September 30, 2022, as compared to the same period of 2021. Other income decreased as result of an increase in insurance loss reserves from the Company’s reinsurance subsidiary. Service charges increased due to an increase in service charges and overdraft fees of $336 and $576, respectively.
Tax refund processing fees were $2,375 for each of the nine months ended September 30, 2022 and 2021. These fees are received for processing state and federal income tax refund payments for customers of third-party income tax preparation vendors. This fee income is seasonal in nature, the majority of which is earned in the first quarter of the year.
Noninterest expense for the nine-month periods ended September 30, 2022 and 2021 are as follows:
|
| Nine months ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Compensation expense |
| $ | 36,654 |
|
| $ | 34,578 |
|
| $ | 2,076 |
|
|
| 6.0 | % |
Net occupancy expense |
|
| 3,428 |
|
|
| 3,216 |
|
|
| 212 |
|
|
| 6.6 | % |
Equipment expense |
|
| 1,694 |
|
|
| 1,340 |
|
|
| 354 |
|
|
| 26.4 | % |
Contracted data processing |
|
| 1,899 |
|
|
| 1,362 |
|
|
| 537 |
|
|
| 39.4 | % |
FDIC assessment |
|
| 568 |
|
|
| 829 |
|
|
| (261 | ) |
|
| -31.5 | % |
State franchise tax |
|
| 1,848 |
|
|
| 1,607 |
|
|
| 241 |
|
|
| 15.0 | % |
Professional services |
|
| 3,593 |
|
|
| 2,255 |
|
|
| 1,338 |
|
|
| 59.3 | % |
Amortization of intangible assets |
|
| 890 |
|
|
| 668 |
|
|
| 222 |
|
|
| 33.2 | % |
ATM/Interchange expense |
|
| 1,659 |
|
|
| 1,843 |
|
|
| (184 | ) |
|
| -10.0 | % |
Marketing |
|
| 1,069 |
|
|
| 1,000 |
|
|
| 69 |
|
|
| 6.9 | % |
Software maintenance expense |
|
| 2,440 |
|
|
| 1,872 |
|
|
| 568 |
|
|
| 30.3 | % |
Other operating expenses |
|
| 7,450 |
|
|
| 10,132 |
|
|
| (2,682 | ) |
|
| -26.5 | % |
Total noninterest expense |
| $ | 63,192 |
|
| $ | 60,702 |
|
| $ | 2,490 |
|
|
| 4.1 | % |
Noninterest expense for the nine months ended September 30, 2022 was $63,192, an increase of $2,490, or 4.1%, from $60,702 reported for the same period of 2021. The primary reasons for the increase were increases in compensation expenses of $2,076, equipment expense of $354, contracted data processing of $537, state franchise tax of $241, professional services of $1,338, amortization of intangible assets of $222 and software maintenance expense of $568, offset by decreases in FDIC assessments of $261, ATM/Interchange expense of $184 and other operating expenses of $2,682. The increase in compensation expense was due to increased payroll, 401k expenses, payroll taxes and commission and incentive based costs and the acquisition by merger of Comunibanc Corp. Payroll and payroll related expenses increased due to annual pay increases. Equipment expense increased due to an increase in computer and security equipment purchases of $202 and reimbursement of COVID-19 expenses of $12 in 2021. Contracted data processing fees increased due to merger related system deconversion fees of $564, offset by a decrease in computer processing fees. The decrease in FDIC assessments was attributable to lower assessment multipliers charged to Civista. The increase in state franchise tax expense was attributable to an increase in equity capital, which is the basis of the Ohio Financial Institutions tax, offset by the payment of $172 of additional taxes in 2021 as a result of findings from a State of Ohio audit. Professional services increased due to merger related legal, accounting and tax professional fees, accompanied by increases in recruitment fees and increased call volumes at the Company’s call center. The decrease in ATM/Interchange expense is the result of a decrease in billings from Mastercard in 2022 and lower processing fees. The increase in software maintenance expense is due to a general increase in legacy software maintenance contracts and the implementation of our new digital banking. The decrease in other operating expense is primarily due to the prepayment expense of $3,717 related to the early payoff of an FHLB long-term advance, offset by a credit to the valuation adjustment for mortgage servicing rights and increases in travel, lodging and meals, stationery and supplies and bad check expense.
Income tax expense for the nine months ended September 30, 2022 totaled $5,180, down $467 compared to the same period in 2021. The effective tax rates for the nine-month periods ended September 30, 2022 and 2021 were 16.0% and 16.0%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income.
Page 52
Civista Bancshares, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Capital Resources
Shareholders’ equity totaled $302,602 at September 30, 2022, compared to $355,212 at December 31, 2021. Shareholders’ equity decreased during the first nine months of 2022 as a result of a decrease in fair value of securities available-for-sale, net of tax, of $78,802,$8,135 and net income of $12,888, offset by dividends on common stockshares of $6,291$2,201, the purchase of treasury shares of $121 and the Company’s repurchasecumulative effect of common shares during the period, which totaled $16,734, offset by net incomeadopting ASU 2016-13 of $27,279 and a $164 net decrease in the Company’s pension liability.$6,069.
All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of September 30, 2022March 31, 2023 and December 31, 20212022 as identified in the following table:
|
| Total Risk Based Capital |
|
| Tier I Risk Based Capital |
|
| CET1 Risk Based Capital |
|
| Leverage Ratio |
| ||||||||||||||||||||
Company Ratios—September 30, 2022 |
|
| 15.6 | % |
|
| 11.6 | % |
|
| 10.5 | % |
|
| 9.3 | % | ||||||||||||||||
Company Ratios—December 31, 2021 |
|
| 19.2 | % |
|
| 14.3 | % |
|
| 12.9 | % |
|
| 10.2 | % | ||||||||||||||||
|
| Total Risk |
|
| Tier I Risk |
|
| CET1 Risk |
|
| Leverage |
| ||||||||||||||||||||
Company Ratios—March 31, 2023 |
|
| 14.7 | % |
|
| 10.8 | % |
|
| 9.7 | % |
|
| 8.6 | % | ||||||||||||||||
Company Ratios—December 31, 2022 |
|
| 14.5 | % |
|
| 10.8 | % |
|
| 9.7 | % |
|
| 8.9 | % | ||||||||||||||||
For Capital Adequacy Purposes |
|
| 8.0 | % |
|
| 6.0 | % |
|
| 4.5 | % |
|
| 4.0 | % |
|
| 8.0 | % |
|
| 6.0 | % |
|
| 4.5 | % |
|
| 4.0 | % |
To Be Well Capitalized Under Prompt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Corrective Action Provisions |
|
| 10.0 | % |
|
| 8.0 | % |
|
| 6.5 | % |
|
| 5.0 | % |
|
| 10.0 | % |
|
| 8.0 | % |
|
| 6.5 | % |
|
| 5.0 | % |
Liquidity
The Company maintains a conservative liquidity position. All securities, with the exception of equity securities, are classified as available-for-sale. Securities, with maturities of one year or less, totaled $1,490,$6,299, or 0.3%1.0% of the total security portfolio at September 30, 2022.March 31, 2023. The available-for-sale portfolio helps to provide the Company with the ability to meet its funding needs. The Condensed Consolidated Statements of Cash Flows (Unaudited) contained in the Consolidated Financial Statements detail the Company’s cash flows from operating activities resulting from net earnings.
As reported in the Condensed Consolidated Statements of Cash Flows (Unaudited), our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $27,421$19,794 and $34,295$9,114 for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The primary additions to cash from operating activities are from proceeds from the sale of loans. The primary use of cash from operating activities is from loans originated for sale. Net cash used by investing activities was $207,756$38,635 and $83,948$50,872 for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively, principally reflecting our loan and investment security activities. Cash provided by and used for deposits and purchase of treasury shares comprised most of our financing activities, which resulted in net cash provided by of $42,990$28,203 and $163,296$190,217 for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.
Future loan demand of Civista may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available-for-sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $50,000.$30,000. As of September 30, 2022,March 31, 2023, Civista had total credit availability with the FHLB of $753,521$880,481 with standby letters of credit totaling $110,900$32,920 and a remaining borrowing capacity of approximately $580,827.$632,200. In addition, CBI maintains a credit line with a third party lender totaling $10,000. No borrowings were outstanding by CBI under this credit line as of September 30, 2022.March 31, 2023.
Page 5348
Civista Bancshares, Inc.
Quantitative and Qualitative Disclosures About Market Risk
Form 10-Q
(Amounts in thousands, except share data)
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
|
|
The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure.
Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Company’s safety and soundness.
Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality.
The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, issue policy statements and guidance on sound practices for managing interest-rate risk, which form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The guidance also outlines fundamental elements of sound management and discusses the importance of these elements in the context of managing interest-rate risk. The guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk.
Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.
Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Company is to periodically analyze its assets and liabilities and make future financing and investment decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Company’s primary asset/liability management technique is the measurement of the Company’s asset/liability gap, that is, the difference between the cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities.
Page 5449
Civista Bancshares, Inc.
Quantitative and Qualitative Disclosures About Market Risk
Form 10-Q
(Amounts in thousands, except share data)
Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. The Company has not purchased derivative financial instruments to hedge interest rate risk in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Company’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Company seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Company.
The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 20212022 and September 30, 2022,March 31, 2023, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Company’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and interest rate decreases of 100 basis points and 200 basis points at September 30, 2022March 31, 2023 and December 31, 2021.2022.
The Company had derivative financial instruments as of December 31, 20212022 and September 30, 2022.March 31, 2023. The changes in fair value of the assets and liabilities of the underlying contracts offset each other. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Company’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates.
Net Portfolio Value | Net Portfolio Value |
| Net Portfolio Value |
| ||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||||||||||||||||||||
Change in Rates |
| Dollar Amount |
|
| Dollar Change |
|
| Percent Change |
|
| Dollar Amount |
|
| Dollar Change |
|
| Percent Change |
|
| Dollar |
|
| Dollar |
|
| Percent |
|
| Dollar |
|
| Dollar |
|
| Percent |
| ||||||||||||
+200bp |
|
| 536,144 |
|
|
| 27,071 |
|
|
| 5 | % |
|
| 531,385 |
|
|
| 44,276 |
|
|
| 9 | % |
|
| 601,071 |
|
|
| 20,539 |
|
|
| 4 | % |
|
| 571,328 |
|
|
| 14,733 |
|
|
| 3 | % |
+100bp |
|
| 525,656 |
|
|
| 16,583 |
|
|
| 3 | % |
|
| 521,707 |
|
|
| 34,598 |
|
|
| 7 | % |
|
| 594,553 |
|
|
| 14,021 |
|
|
| 2 | % |
|
| 566,596 |
|
|
| 10,001 |
|
|
| 2 | % |
Base |
|
| 509,073 |
|
|
| — |
|
|
| — |
|
|
| 487,109 |
|
|
| — |
|
|
| — |
|
|
| 580,532 |
|
|
| — |
|
|
| — |
|
|
| 556,595 |
|
|
| — |
|
|
| — |
|
-100bp |
|
| 498,583 |
|
|
| (10,490 | ) |
|
| (2 | )% |
|
| 495,963 |
|
|
| 8,854 |
|
|
| 2 | % |
|
| 568,591 |
|
|
| (11,941 | ) |
|
| (2 | )% |
|
| 548,575 |
|
|
| (8,020 | ) |
|
| (1 | )% |
-200bp |
|
| 483,999 |
|
|
| (25,074 | ) |
|
| (5 | )% |
|
| 548,326 |
|
|
| 61,217 |
|
|
| 13 | % |
|
| 543,911 |
|
|
| (36,621 | ) |
|
| (6 | )% |
|
| 526,702 |
|
|
| (29,893 | ) |
|
| (5 | )% |
The change in net portfolio value from December 31, 20212022 to September 30, 2022,March 31, 2023, can be attributed to a couple of factors. The yield curve has risenfallen and inverted compared tosince the end of the year, and both the volume and mix of assets and funding sources has changed. The volume of cash has decreased,loans and securities have increased, and the asset mix has shifted towardremains centered on loans. While the loan portfolio increased due to growth, and acquisition, the market value of loans has decreased due to marketinterest rate increases. The volume non-maturing deposits hasof certificates of deposit have increased due to acquisition, but the market valueand borrowed money has decreased. The volume and mix shifts from the end of the year along with market rate changes, contributed to a small decreasean increase in the base net portfolio value, which was partially offset by the increasedecrease due to acquisition.interest rate changes. Beyond the change in the base level of net portfolio value, projected movements in rates, up or down, would also lead to changes in market values. The change in the rates up scenarios for both the 100 and 200 basis point movements would lead to a larger decrease in the market value of liabilities than assets. Accordingly, we see an increase in the net portfolio value. The change in the rates down scenario for both the 100 and 200 basis point movements would lead to a larger increase in the market value of liabilities than assets, leading to a decrease in the net portfolio value.
Page 5550
Civista Bancshares, Inc.
Controls and Procedures
Form 10-Q
(Amounts in thousands, except share data)
ITEM 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive and our principal financial officers, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive and our principal financial officers concluded that our disclosure controls and procedures as of September 30, 2022,March 31, 2023, were effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Page 5651
Civista Bancshares, Inc.
Other Information
Form 10-Q
Part II—Other Information
Item 1. Legal Proceedings
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|
In the ordinary course of their respective businesses, CBI or Civista or their respective properties may be named or otherwise subject as a plaintiff, defendant or other party to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, the Company cannot state what the eventual outcome of any such matters will be. However, based on current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of CBI or Civista.
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There were no material changes during the current period toItem 1A. Risk Factors
The following information updates our risk factors and should be read in conjunction with the risk factors disclosed in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
Recent and future bank failures may adversely affect the Company's business, earnings and financial condition. The failure of other U.S. banks can significantly impact the national, regional and local banking industry and the business environment in which the Company operates. The recent bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during the first and second quarters of 2023 have caused a degree of panic and uncertainty in the investor community and among bank customers generally. While the Company does not believe that the circumstances of these three bank failures are indicators of broader issues with the banking system, these and any future bank failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the Company and the banking industry as a whole. The Company will continue to monitor the ongoing events concerning these three bank failures, as well as any future potential bank failures and/or volatility within the banking industry in general, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the banking industry. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
During the thirdfirst quarter of 2022,2023, the Company purchased common shares as follows:
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Number (or Approximate Dollar Value) of Shares (Units) that May Yet Be Purchased Under the Plans or Programs |
| ||||
July 1, 2022 - July 31, 2022 |
|
| 91,245 |
|
| $ | 21.40 |
|
|
| 91,245 |
|
| $ | 10,369,055 |
|
August 1, 2022 - August 31, 2022 |
|
| 57,182 |
|
| $ | 21.71 |
|
|
| 57,182 |
|
| $ | 9,127,902 |
|
September 1, 2022 - September 30, 2022 |
|
| 138,184 |
|
| $ | 21.13 |
|
|
| 138,184 |
|
| $ | 6,208,107 |
|
Total |
|
| 286,611 |
|
| $ | 21.33 |
|
|
| 286,611 |
|
| $ | 6,208,107 |
|
Period |
| Total Number of |
|
| Average Price Paid |
|
| Total Number of Shares |
|
| Maximum Number |
| ||||
January 1, 2023 - |
|
| 5,620 |
|
| $ | 21.52 |
|
|
| — |
|
| $ | 6,055,711 |
|
February 1, 2023 - |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 6,055,711 |
|
March 1, 2023 - |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 6,055,711 |
|
Total |
|
| 5,620 |
|
| $ | 21.52 |
|
|
| — |
|
| $ | 6,055,711 |
|
On May 4, 2022,January 3, 2023, the Company announced a newrepurchased 5,620 common share repurchase programshares that were surrendered by officers to replace its previous repurchase program. The new repurchase program authorizes the Company to repurchase a maximum aggregate valuepay taxes upon vesting of $13,500,000 of its outstanding common shares through May 9, 2023. As of September 30, 2022 a total of 341,963 common shares had been repurchased for an aggregate purchase price of $7,291,893 under this repurchase program. restricted shares.
Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information None Page 52 Civista Bancshares, Inc. Other Information Form 10-Q Item 6. Exhibits
Page Civista Bancshares, Inc. Signatures Form 10-Q Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Civista Bancshares, Inc.
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