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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 - March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from 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) 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 May 6, 2024—15,727,013 shares

 

 

 


 

CIVISTA BANCSHARES, INC.

Index

PART I.

Financial Information

 

2

 

Item 1.

Financial Statements:

 

2

 

 

Consolidated Balance Sheets (Unaudited) March 31, 2024 and December 31, 2023

 

 

Consolidated Statements of Operations (Unaudited) Three months ended March 31, 2024 and 2023

2

 

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three months ended March 31, 2024 and 2023

4

 

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
Three months ended March 31, 2024 and 2023

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2024 and 2023

6

 

Notes to Interim Consolidated Financial Statements (Unaudited)

7-35

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36-45

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46-47

Item 4.

Controls and Procedures

48

 

 

 

PART II.

Other Information

 

49

 

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

49

Item 6.

Exhibits

50

Signatures

 

51

 

 

 


 

Part I – Financial Information

ITEM 1. Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

March 31, 2024

 

 

 

 

 

 

(Unaudited)

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Cash and due from financial institutions

 

$

50,310

 

 

$

60,406

 

Investments in time deposits

 

 

1,450

 

 

 

1,225

 

Securities available-for-sale

 

 

606,249

 

 

 

618,272

 

Equity securities

 

 

2,027

 

 

 

2,169

 

Loans held for sale

 

 

3,716

 

 

 

1,725

 

Loans, net of allowance for credit losses of $38,849 and $36,170

 

 

2,859,290

 

 

 

2,824,568

 

Other securities

 

 

31,360

 

 

 

29,998

 

Premises and equipment, net

 

 

54,280

 

 

 

56,769

 

Accrued interest receivable

 

 

13,513

 

 

 

12,819

 

Goodwill

 

 

125,520

 

 

 

125,520

 

Other intangible assets, net

 

 

9,098

 

 

 

9,508

 

Bank owned life insurance

 

 

61,685

 

 

 

61,335

 

Swap assets

 

 

14,682

 

 

 

12,481

 

Deferred taxes

 

 

20,296

 

 

 

18,357

 

Other assets

 

 

26,782

 

 

 

26,266

 

Total assets

 

$

3,880,258

 

 

$

3,861,418

 

LIABILITIES

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

707,993

 

 

$

771,699

 

Interest-bearing

 

 

2,272,702

 

 

 

2,213,329

 

Total deposits

 

 

2,980,695

 

 

 

2,985,028

 

Short-term Federal Home Loan Bank advances

 

 

368,500

 

 

 

338,000

 

Long-term Federal Home Loan Bank advances

 

 

2,211

 

 

 

2,392

 

Subordinated debentures

 

 

103,984

 

 

 

103,943

 

Other borrowings

 

 

8,105

 

 

 

9,859

 

Swap liabilities

 

 

14,682

 

 

 

12,481

 

Accrued expenses and other liabilities

 

 

32,422

 

 

 

37,713

 

Total liabilities

 

 

3,510,599

 

 

 

3,489,416

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Common shares, no par value, 40,000,000 shares authorized, 19,328,525 shares issued
    at March 31, 2024 and
19,288,674 shares issued at December 31, 2023, including
    Treasury shares

 

 

311,352

 

 

 

311,166

 

Retained earnings

 

 

187,638

 

 

 

183,788

 

Treasury shares, 3,601,512 common shares at March 31, 2024 and 3,593,250 common
    shares at December 31, 2023, at cost

 

 

(75,574

)

 

 

(75,422

)

Accumulated other comprehensive loss

 

 

(53,757

)

 

 

(47,530

)

Total shareholders’ equity

 

 

369,659

 

 

 

372,002

 

Total liabilities and shareholders’ equity

 

$

3,880,258

 

 

$

3,861,418

 

 

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

 

 

 

 

March 31,

 

 

 

 

2024

 

 

2023

 

 

Interest and dividend income

 

 

 

 

 

 

 

Loans, including fees

 

$

44,484

 

 

$

37,784

 

 

Taxable securities

 

 

2,934

 

 

 

2,834

 

 

Tax-exempt securities

 

 

2,375

 

 

 

2,262

 

 

Deposits in other banks

 

 

335

 

 

 

45

 

 

Total interest and dividend income

 

 

50,128

 

 

 

42,925

 

 

Interest expense

 

 

 

 

 

 

 

Deposits

 

 

15,987

 

 

 

3,232

 

 

Federal Home Loan Bank advances

 

 

4,528

 

 

 

4,277

 

 

Subordinated debentures

 

 

1,241

 

 

 

1,169

 

 

Securities sold under agreements to repurchase and other

 

 

-

 

 

 

1,646

 

 

Total interest expense

 

 

21,756

 

 

 

10,324

 

 

Net interest income

 

 

28,372

 

 

 

32,601

 

 

Provision for credit losses - loans

 

 

2,042

 

 

 

620

 

 

Provision for credit losses - off-balance sheet credit exposures

 

 

(50

)

 

 

201

 

 

Net interest income after provision

 

 

26,380

 

 

 

31,780

 

 

Noninterest income

 

 

 

 

 

 

 

Service charges

 

 

1,440

 

 

 

1,773

 

 

Net gain on sale of securities

 

 

 

 

 

 

 

Net gain (loss) on equity securities

 

 

(141

)

 

 

(68

)

 

Net gain on sale of loans and leases

 

 

863

 

 

 

631

 

 

ATM/Interchange fees

 

 

1,383

 

 

 

1,353

 

 

Wealth management fees

 

 

1,276

 

 

 

1,193

 

 

Lease revenue and residual income

 

 

1,674

 

 

 

2,046

 

 

Bank owned life insurance

 

 

350

 

 

 

253

 

 

Tax refund processing fees

 

 

 

 

 

1,900

 

 

Swap fees

 

 

57

 

 

 

61

 

 

Other

 

 

1,602

 

 

 

1,926

 

 

Total noninterest income

 

 

8,504

 

 

 

11,068

 

 

Noninterest expense

 

 

 

 

 

 

 

Compensation expense

 

 

15,457

 

 

 

15,105

 

 

Net occupancy expense

 

 

1,368

 

 

 

1,359

 

 

Equipment expense

 

 

2,535

 

 

 

2,761

 

 

Contracted data processing

 

 

545

 

 

 

520

 

 

FDIC assessment

 

 

484

 

 

 

248

 

 

State franchise tax

 

 

485

 

 

 

526

 

 

Professional services

 

 

1,149

 

 

 

1,555

 

 

Amortization of intangible assets

 

 

391

 

 

 

398

 

 

ATM/Interchange expense

 

 

625

 

 

 

580

 

 

Marketing

 

 

479

 

 

 

505

 

 

Software maintenance expense

 

 

1,189

 

 

 

878

 

 

Other operating expenses

 

 

2,982

 

 

 

2,997

 

 

Total noninterest expense

 

 

27,689

 

 

 

27,432

 

 

Income before taxes

 

 

7,195

 

 

 

15,416

 

 

Income tax expense

 

 

835

 

 

 

2,528

 

 

Net Income

 

$

6,360

 

 

$

12,888

 

 

Earnings per common share, basic

 

$

0.41

 

 

$

0.82

 

 

Earnings per common share, diluted

 

$

0.41

 

 

$

0.82

 

 

 

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

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net income

 

$

6,360

 

 

$

12,888

 

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized holding (losses) on available-for-sale securities

 

 

(7,899

)

 

 

10,302

 

Tax effect

 

 

1,672

 

 

 

(2,167

)

Reclassification of gains recognized in net income

 

 

 

 

 

 

Tax effect

 

 

 

 

 

 

Pension liability adjustment

 

 

 

 

 

 

Tax effect

 

 

 

 

 

 

Total other comprehensive (loss)

 

 

(6,227

)

 

 

8,135

 

Comprehensive income (loss)

 

$

133

 

 

$

21,023

 

See notes to interim unaudited consolidated financial statements

Page 4


 

CIVISTA BANCSHARES, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

(In thousands, except share data)

 

 

 

Common Shares

 

 

 

 

 

 

 

 

Accumulated
Other

 

 

Total

 

 

 

Outstanding
Shares

 

 

Amount

 

 

Retained
Earnings

 

 

Treasury
Shares

 

 

Comprehensive
Income (Loss)

 

 

Shareholders’
Equity

 

Balance, December 31, 2023

 

 

15,695,424

 

 

$

311,166

 

 

$

183,788

 

 

$

(75,422

)

 

$

(47,530

)

 

$

372,002

 

Net Income

 

 

 

 

 

 

 

 

6,360

 

 

 

 

 

 

 

 

 

6,360

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,227

)

 

 

(6,227

)

Stock-based compensation

 

 

39,851

 

 

 

186

 

 

 

 

 

 

 

 

 

 

 

 

186

 

Common stock dividends
   ($
0.15 per share)

 

 

 

 

 

 

 

 

(2,510

)

 

 

 

 

 

 

 

 

(2,510

)

Purchase of common stock

 

 

(8,262

)

 

 

 

 

 

 

 

 

(152

)

 

 

 

 

 

(152

)

Balance, March 31, 2024

 

 

15,727,013

 

 

$

311,352

 

 

$

187,638

 

 

$

(75,574

)

 

$

(53,757

)

 

$

369,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

 

 

 

Accumulated
Other

 

 

Total

 

 

 

Outstanding
Shares

 

 

Amount

 

 

Retained
Earnings

 

 

Treasury
Shares

 

 

Comprehensive
Income (Loss)

 

 

Shareholders’
Equity

 

Balance, December 31, 2022

 

 

15,728,234

 

 

$

310,182

 

 

$

156,492

 

 

$

(73,794

)

 

$

(58,045

)

 

$

334,835

 

Cumulative-effect adjustment for adoption of ASC 326

 

 

 

 

 

 

 

 

(6,069

)

 

 

 

 

 

 

 

$

(6,069

)

Balance, January 1, 2023

 

 

15,728,234

 

 

 

310,182

 

 

 

150,423

 

 

 

(73,794

)

 

 

(58,045

)

 

$

328,766

 

Net Income

 

 

 

 

 

 

 

 

12,888

 

 

 

 

 

 

 

 

 

12,888

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,135

 

 

 

8,135

 

Stock-based compensation

 

 

45,796

 

 

 

230

 

 

 

 

 

 

 

 

 

 

 

 

230

 

Common stock dividends
   ($
0.14 per share)

 

 

 

 

 

 

 

 

(2,201

)

 

 

 

 

 

 

 

 

(2,201

)

Purchase of common stock

 

 

(5,620

)

 

 

 

 

 

 

 

 

(121

)

 

 

 

 

 

(121

)

Balance, March 31, 2023

 

 

15,768,410

 

 

$

310,412

 

 

$

161,110

 

 

$

(73,915

)

 

$

(49,910

)

 

$

347,697

 

 

See notes to interim unaudited consolidated financial statements

 

Page 5


 

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net cash provided by operating activities

 

$

752

 

 

$

19,794

 

Cash flows used for investing activities:

 

 

 

 

 

 

Maturities, paydowns and calls of securities, available-for-sale

 

 

4,873

 

 

 

4,980

 

Purchases of securities, available-for-sale

 

 

(1,188

)

 

 

(7,179

)

Purchase of other securities

 

 

(2,785

)

 

 

(9,126

)

Redemption of other securities

 

 

1,423

 

 

 

7,328

 

Net change in loans

 

 

(36,372

)

 

 

(34,085

)

Proceeds from sale of premises and equipment

 

 

 

 

 

692

 

Premises and equipment purchases

 

 

(123

)

 

 

(1,245

)

Net cash used for investing activities

 

 

(34,172

)

 

 

(38,635

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of long-term FHLB advances

 

 

(181

)

 

 

(217

)

Net change in short-term FHLB advances

 

 

30,500

 

 

 

(181,700

)

Repayment of other borrowings

 

 

 

 

 

(1,578

)

Increase in deposits

 

 

(4,333

)

 

 

223,532

 

Decrease in securities sold under repurchase agreements

 

 

 

 

 

(9,512

)

Purchase of treasury shares

 

 

(152

)

 

 

(121

)

Common dividends paid

 

 

(2,510

)

 

 

(2,201

)

Net cash provided by (used for) financing activities

 

 

23,324

 

 

 

28,203

 

Increase (decrease) in cash and cash equivalents

 

 

(10,096

)

 

 

9,362

 

Cash and cash equivalents at beginning of period

 

 

60,406

 

 

 

43,361

 

Cash and cash equivalents at end of period

 

$

50,310

 

 

$

52,723

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

6,289

 

 

$

1,628

 

Income taxes

 

 

4

 

 

 

10

 

Supplemental cash flow information:

 

 

 

 

 

 

Change in fair value of swap asset

 

 

(2,201

)

 

 

3,229

 

Change in fair value of swap liability

 

 

2,201

 

 

 

(3,229

)

 

 

 

 

 

 

See notes to interim unaudited consolidated financial statements

Page 6


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), First Citizens Insurance Agency, Inc. (FCIA), Water Street Properties, Inc. (Water St.), CIVB Risk Management, Inc. (CRMI) and First Citizens Investments, Inc. (FCI).

 

Civista provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Cuyahoga, Franklin, Logan, Summit, Huron, Ottawa, Madison, Montgomery, Henry, Wood, and Richland, 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. There are no significant concentrations of loans to any one industry or customer. However, our customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions.

 

Civista Leasing and Finance, formerly known as Vision Financial Group, Inc. ("VFG") was acquired in the fourth quarter of 2022 as a wholly owned subsidiary of Civista. As of August 31, 2023, VFG was merged into Civista and now operates as a full-service equipment leasing and financing division of Civista and has been rebranded as Civista Leasing and Finance ("CLF"). The operations of CLF are 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 accompanying Unaudited 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, 2024 and its results of operations and changes in cash flows for the periods ended March 31, 2024 and 2023 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, 2024 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 2023 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.

(2) Significant Accounting Policies

Allowance for Credit 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. ASU 2016-13 eliminates the probable initial recognition threshold previously required under 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 credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and 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.

Page 7


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

The Company adopted Accounting Standards Codification ("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 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 purchased credit deteriorated ("PCD") financial assets that were previously classified as purchased credit impaired ("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 PCI discount from loans to the allowance for credit losses 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 are constructed for each segment. The Company has identified nine portfolio segments of loans including Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction, Home Equity Line of Credit, Farm Real Estate, Lease Financing Receivable and Consumer and Other Loans.

The allowance for credit losses for Pooled Loans is estimated 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 discounted cash flow (DCF) method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on 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 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 uses regression analysis to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. The identified loss drivers for all segments as of December 31, 2023 are national unemployment rate and national gross domestic product growth. Peer data is utilized in our model as more statistically supportable data. The Company uses actual loss data for the lease portfolio due to a lack of appropriate peer leasing data to forecast 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 the Federal Open Market Committee (FOMC). Other key assumptions include the probability of default (PD), loss given default (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.

Adjustments to the quantitative evaluation may be made to account for differences in current or expected qualitative risk characteristics such as changes in: (i) lending policies and procedures; (ii) experience and depth of lending and management staff; (iii) quality of credit

Page 8


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

review system; (iv) nature and volume of portfolio; (v) past due, classified and non accrual loans; (vi) economic and business conditions; (vii) competition or legal and regulatory requirements; (viii) concentrations within the portfolio; (ix) underlying collateral for collateral dependent loans.

 

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.

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:

Presenting accrued interest receivable balances separately within another line item on the statement of financial condition.
Excluding accrued interest receivable that is included in the amortized cost of financing receivables and debt securities from related disclosure requirements.
Continuing our policy to write off accrued interest receivable by reversing interest income. For both commercial and consumer loans, the write off typically occurs upon becoming 90 days past due. Historically, the Company has not experienced uncollectible accrued interest receivable on its investment securities. However, the Company would generally write off accrued interest receivable by reversing interest income if the Company does not reasonably expect to receive payments. Due to the timely manner in which accrued interest receivables are written off, the amounts of such write offs are immaterial.
Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner, as described above.

Page 9


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

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. No allowance is recognized if the Company has the unconditional right to cancel the obligation. The Company is defining unconditionally cancelable in its literal sense, meaning that a commitment may be cancelled by the Company for any, or for 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 hprovision in the Consolidated Statements of Operations. The Unfunded Reserve is determined by estimating expected future fundings, under each segment, and applying the expected loss rates. Expected future fundings over the estimated life of commitments 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: Interest income and interest expense increased $1,386 in the Consolidated Statement of Operations as of and for the quarter ended March 31, 2023 for certain loan participations sold that were deemed to not qualify for sales accounting under ASC 860. This revision did not have a significant impact on the consolidated financial statement line items impacted and had no effect on net income.

 

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America "GAAP", 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 credit losses, consideration of impairment of goodwill, fair values of financial instruments, deferred taxes, swap assets/liabilities and pension obligations are particularly subject to change.

Adoption of New Accounting Standards:

 

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The ASU introduces a new credit loss methodology, CECL, which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.

 

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 receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods under prior GAAP, which generally require that a loss be 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 and 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.

 

Page 10


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

At adoption, the Company recognized an incremental allowance for credit losses on 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 on 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. The “Day 1” impact of CECL adoption is summarized below:

 

CECL Adoption

 

 

 

 

 

 

 

 

 

Impact of

 

 

 

 

 

 

 

 

 

CECL Adoption

 

 

Adopting ASC 326 -

 

 

 

 

 

 

December 31, 2022

 

 

Impact

 

 

PCD Loans

 

 

January 1, 2023

 

Allowance for Credit Losses:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

$

34,475

 

Reserve for Unfunded Commitments

 

 

 

 

 

3,386

 

 

 

 

 

 

3,386

 

Total Reserve for Credit Losses

 

$

28,511

 

 

$

7,682

 

 

$

1,668

 

 

$

37,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Total Pre-tax Impact

 

 

 

 

$

(7,682

)

 

 

 

 

 

 

Tax Effect

 

 

 

 

 

1,613

 

 

 

 

 

 

 

Decrease to Retained Earnings

 

 

 

 

$

(6,069

)

 

 

 

 

 

 

 

The Company did not record an allowance for available-for-sale securities on Day 1 as the investment portfolio consists primarily of debt securities explicitly or implicitly backed by the U.S. Government for which credit risk is deemed minimal. The impact going forward will depend on the composition, characteristics, and credit quality of the securities portfolio as well as the economic conditions at future reporting periods.

 

On January 1, 2023, the Company adopted 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 adoption of the ASU provisions did not have a significant impact on the Company's Consolidated Financial Statements.

 

Page 11


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). ASU 2022-02 eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off. The adoption of ASU 2022-02 provisions did not 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 Reference Rate 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; 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 has implemented a replacement for the reference rate using SOFR or the Prime Rate and has determined that the changes to the reference rate is not expected to have a material impact on our financial condition, results of operations or cash flows.

 

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments apply to all public entities that are required to report segment information in accordance with FASB ASC Topic 280, Segment Reporting. The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss. Public entities are required to disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. In addition, public entities must provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting, in interim periods. The amendments clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements. The Amendments require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Finally, the amendments require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in ASC Topic 280. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the potential impacts related to the adoption of the ASU.

 

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." The amendments require that public business entities on an annual basis (a) disclose specific categories in the rate reconciliation and (b) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The amendments also require that all entities disclose on an annual basis the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments require that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The ASU is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company does not intend to adopt early. The Company does not anticipate a significant impact to the consolidated financial statements upon adoption.

 

 

Page 12


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

(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, 2024

 

Amortized
Cost

 

 

Gross