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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: September 30, 2020 

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: (419625-4121

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 November 5, 2020—15,914,173 shares

 

 

 


 

CIVISTA BANCSHARES, INC.

Index

 

PART I.

 

Financial Information

  

 

 

 

Item 1.

 

Financial Statements:

  

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) September 30, 2020 and December 31, 2019

  

 

2

 

 

 

Consolidated Statements of Operations (Unaudited) Three- and nine-months ended September 30, 2020 and 2019

  

 

3

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)
Three- and nine-months ended September 30, 2020 and 2019

  

 

4

 

 

 

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
Three- and nine-months ended September 30, 2020 and 2019

  

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2020 and 2019

  

 

7

 

 

 

Notes to Interim Consolidated Financial Statements (Unaudited)

  

 

8-37

 

Item 2.

 

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

  

 

38-50

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

 

51-52

 

Item 4.

 

Controls and Procedures

  

 

53

 

 

 

 

PART II.

 

Other Information

  

 

 

 

Item 1.

 

Legal Proceedings

  

 

54

 

Item 1A.

 

Risk Factors

  

 

54

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

 

54

 

Item 3.

 

Defaults Upon Senior Securities

  

 

54

 

Item 4.

 

Mine Safety Disclosures

  

 

54

 

Item 5.

 

Other Information

  

 

54

 

Item 6.

 

Exhibits

  

 

55

 

Signatures

 

 

  

 

56

 

 

 

 


 

Part I – Financial Information

ITEM 1.

Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

 

 

 

September 30, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from financial institutions

 

$

194,773

 

 

$

48,535

 

Securities available for sale

 

 

365,874

 

 

 

358,499

 

Equity securities

 

 

817

 

 

 

1,191

 

Loans held for sale

 

 

13,256

 

 

 

2,285

 

Loans, net of allowance of $22,637 and $14,767

 

 

2,018,303

 

 

 

1,694,203

 

Other securities

 

 

20,537

 

 

 

20,280

 

Premises and equipment, net

 

 

22,958

 

 

 

22,871

 

Accrued interest receivable

 

 

10,227

 

 

 

7,093

 

Goodwill

 

 

76,851

 

 

 

76,851

 

Other intangible assets

 

 

8,045

 

 

 

8,305

 

Bank owned life insurance

 

 

45,732

 

 

 

44,999

 

Swap assets

 

 

24,727

 

 

 

8,918

 

Other assets

 

 

15,893

 

 

 

15,527

 

Total assets

 

$

2,817,993

 

 

$

2,309,557

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

660,120

 

 

$

512,553

 

Interest-bearing

 

 

1,408,649

 

 

 

1,166,211

 

Total deposits

 

 

2,068,769

 

 

 

1,678,764

 

Short-term Federal Home Loan Bank advances

 

 

 

 

 

101,500

 

Long-term Federal Home Loan Bank advances

 

 

125,000

 

 

 

125,000

 

Securities sold under agreements to repurchase

 

 

25,813

 

 

 

18,674

 

Other borrowings

 

 

183,695

 

 

 

 

Subordinated debentures

 

 

29,427

 

 

 

29,427

 

Swap liabilities

 

 

24,727

 

 

 

8,918

 

Accrued expenses and other liabilities

 

 

18,507

 

 

 

17,148

 

Total liabilities

 

 

2,475,938

 

 

 

1,979,431

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Common shares, no par value, 20,000,000 shares authorized, 17,664,951 shares

   issued at September 30, 2020 and 17,623,706 shares issued at December 31, 2019

 

 

276,940

 

 

 

276,422

 

Retained earnings

 

 

84,628

 

 

 

67,974

 

Treasury shares, 1,719,472 common shares at September 30, 2020 and 936,164

   common shares at December 31, 2019, at cost

 

 

(33,900

)

 

 

(21,144

)

Accumulated other comprehensive income

 

 

14,387

 

 

 

6,874

 

Total shareholders’ equity

 

 

342,055

 

 

 

330,126

 

Total liabilities and shareholders’ equity

 

$

2,817,993

 

 

$

2,309,557

 

 

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

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

21,638

 

 

$

20,776

 

 

$

64,924

 

 

$

63,395

 

Taxable securities

 

 

1,325

 

 

 

1,712

 

 

 

4,100

 

 

 

5,155

 

Tax-exempt securities

 

 

1,536

 

 

 

1,449

 

 

 

4,589

 

 

 

4,208

 

Federal funds sold and other

 

 

59

 

 

 

86

 

 

 

531

 

 

 

775

 

Total interest and dividend income

 

 

24,558

 

 

 

24,023

 

 

 

74,144

 

 

 

73,533

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,631

 

 

 

2,099

 

 

 

5,418

 

 

 

5,966

 

Federal Home Loan Bank advances

 

 

452

 

 

 

1,152

 

 

 

1,480

 

 

 

2,581

 

Subordinated debentures

 

 

194

 

 

 

350

 

 

 

757

 

 

 

1,094

 

Other borrowings

 

 

271

 

 

 

 

 

 

275

 

 

 

 

Securities sold under agreements to repurchase and other

 

 

4

 

 

 

4

 

 

 

18

 

 

 

14

 

Total interest expense

 

 

2,552

 

 

 

3,605

 

 

 

7,948

 

 

 

9,655

 

Net interest income

 

 

22,006

 

 

 

20,418

 

 

 

66,196

 

 

 

63,878

 

Provision for loan losses

 

 

2,250

 

 

 

150

 

 

 

7,862

 

 

 

150

 

Net interest income after provision for loan losses

 

 

19,756

 

 

 

20,268

 

 

 

58,334

 

 

 

63,728

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

 

1,414

 

 

 

1,726

 

 

 

3,812

 

 

 

4,733

 

Net gain on sale of securities

 

 

92

 

 

 

3

 

 

 

92

 

 

 

17

 

Net gain (loss) on equity securities

 

 

20

 

 

 

112

 

 

 

(126

)

 

 

81

 

Net gain on sale of loans

 

 

2,413

 

 

 

815

 

 

 

5,501

 

 

 

1,701

 

ATM/Interchange fees

 

 

1,183

 

 

 

1,014

 

 

 

3,226

 

 

 

2,871

 

Wealth management fees

 

 

1,006

 

 

 

975

 

 

 

2,916

 

 

 

2,733

 

Bank owned life insurance

 

 

243

 

 

 

254

 

 

 

733

 

 

 

753

 

Tax refund processing fees

 

 

 

 

 

 

 

 

2,375

 

 

 

2,750

 

Swap fees

 

 

158

 

 

 

199

 

 

 

1,260

 

 

 

287

 

Other

 

 

257

 

 

 

331

 

 

 

727

 

 

 

890

 

Total noninterest income

 

 

6,786

 

 

 

5,429

 

 

 

20,516

 

 

 

16,816

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense

 

 

10,595

 

 

 

9,707

 

 

 

32,063

 

 

 

29,059

 

Net occupancy expense

 

 

1,010

 

 

 

902

 

 

 

3,050

 

 

 

2,906

 

Equipment expense

 

 

494

 

 

 

561

 

 

 

1,507

 

 

 

1,504

 

Contracted data processing

 

 

415

 

 

 

435

 

 

 

1,340

 

 

 

1,301

 

FDIC assessment

 

 

288

 

 

 

(1

)

 

 

531

 

 

 

297

 

State franchise tax

 

 

427

 

 

 

499

 

 

 

1,394

 

 

 

1,398

 

Professional services

 

 

669

 

 

 

756

 

 

 

2,289

 

 

 

2,151

 

Amortization of intangible assets

 

 

227

 

 

 

235

 

 

 

686

 

 

 

710

 

ATM/Interchange expense

 

 

538

 

 

 

514

 

 

 

1,316

 

 

 

1,437

 

Marketing

 

 

361

 

 

 

404

 

 

 

1,056

 

 

 

1,111

 

Software maintenance expense

 

 

506

 

 

 

396

 

 

 

1,350

 

 

 

1,101

 

Other operating expenses

 

 

2,197

 

 

 

2,323

 

 

 

7,115

 

 

 

6,843

 

Total noninterest expense

 

 

17,727

 

 

 

16,731

 

 

 

53,697

 

 

 

49,818

 

Income before taxes

 

 

8,815

 

 

 

8,966

 

 

 

25,153

 

 

 

30,726

 

Income tax expense

 

 

1,133

 

 

 

1,258

 

 

 

3,134

 

 

 

4,688

 

Net Income

 

 

7,682

 

 

 

7,708

 

 

 

22,019

 

 

 

26,038

 

Preferred stock dividends

 

 

 

 

 

162

 

 

 

 

 

 

490

 

Net income available to common shareholders

 

$

7,682

 

 

$

7,546

 

 

$

22,019

 

 

$

25,548

 

Earnings per common share, basic

 

$

0.48

 

 

$

0.48

 

 

$

1.36

 

 

$

1.64

 

Earnings per common share, diluted

 

$

0.48

 

 

$

0.46

 

 

$

1.36

 

 

$

1.54

 

See notes to interim unaudited consolidated financial statements

Page 3


 

CIVISTA BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

7,682

 

 

$

7,708

 

 

$

22,019

 

 

$

26,038

 

Other comprehensive income, net of reclassification adjustment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on available for sale securities

 

 

856

 

 

 

3,724

 

 

 

9,294

 

 

 

16,164

 

Tax effect

 

 

(180

)

 

 

(782

)

 

 

(1,952

)

 

 

(3,393

)

Pension liability adjustment

 

 

72

 

 

 

147

 

 

 

217

 

 

 

441

 

Tax effect

 

 

(15

)

 

 

(31

)

 

 

(46

)

 

 

(93

)

Total other comprehensive income

 

 

733

 

 

 

3,058

 

 

 

7,513

 

 

 

13,119

 

Comprehensive income

 

$

8,415

 

 

$

10,766

 

 

$

29,532

 

 

$

39,157

 

 

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

 

 

Shareholders’

Equity

 

Balance, June 30, 2020

 

 

 

 

 

 

 

 

 

 

16,052,979

 

 

$

276,841

 

 

$

78,712

 

 

$

(32,594

)

 

$

13,654

 

 

$

336,613

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,682

 

 

 

 

 

 

 

 

 

7,682

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

733

 

 

 

733

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

 

 

 

 

 

 

 

 

 

99

 

Common stock dividends

   ($0.11 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,766

)

 

 

 

 

 

 

 

 

(1,766

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

(107,500

)

 

 

 

 

 

 

 

 

(1,306

)

 

 

 

 

 

(1,306

)

Balance, September 30, 2020

 

 

 

 

 

 

 

 

 

 

15,945,479

 

 

$

276,940

 

 

$

84,628

 

 

$

(33,900

)

 

$

14,387

 

 

$

342,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Shares

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

 

Outstanding

Shares

 

 

Amount

 

 

Outstanding

Shares

 

 

Amount

 

 

Retained

Earnings

 

 

Treasury

Shares

 

 

Comprehensive

Income

 

 

Shareholders’

Equity

 

Balance, June 30, 2019

 

 

10,120

 

 

$

9,364

 

 

 

15,633,059

 

 

$

267,275

 

 

$

56,199

 

 

$

(17,235

)

 

$

8,609

 

 

$

324,212

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,708

 

 

 

 

 

 

 

 

 

7,708

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,058

 

 

 

3,058

 

Conversion of Series B preferred

   shares to common shares

 

 

(222

)

 

 

(206

)

 

 

28,416

 

 

 

206

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

 

 

 

78

 

Common stock dividends

   ($0.11 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,722

)

 

 

 

 

 

 

 

 

(1,722

)

Preferred stock dividends

   ($16.25 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

 

 

 

 

 

 

 

 

 

 

(162

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

(188,200

)

 

 

 

 

 

 

 

 

(3,909

)

 

 

 

 

 

(3,909

)

Balance, September 30, 2019

 

 

9,898

 

 

$

9,158

 

 

 

15,473,275

 

 

$

267,559

 

 

$

62,023

 

 

$

(21,144

)

 

$

11,667

 

 

$

329,263

 

 

See notes to interim unaudited consolidated financial statements

Page 5


 

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

 

 

Shareholders’

Equity

 

Balance, December 31, 2019

 

 

 

 

 

 

 

 

 

 

16,687,542

 

 

$

276,422

 

 

$

67,974

 

 

$

(21,144

)

 

$

6,874

 

 

$

330,126

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,019

 

 

 

 

 

 

 

 

 

22,019

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,513

 

 

 

7,513

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

41,245

 

 

 

518

 

 

 

 

 

 

 

 

 

 

 

 

518

 

Common stock dividends

   ($0.33 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,365

)

 

 

 

 

 

 

 

 

(5,365

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

(783,308

)

 

 

 

 

 

 

 

 

(12,756

)

 

 

 

 

 

(12,756

)

Balance, September 30, 2020

 

 

 

 

 

 

 

 

 

 

15,945,479

 

 

$

276,940

 

 

$

84,628

 

 

$

(33,900

)

 

$

14,387

 

 

$

342,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Shares

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

 

Outstanding

Shares

 

 

Amount

 

 

Outstanding

Shares

 

 

Amount

 

 

Retained

Earnings

 

 

Treasury

Shares

 

 

Comprehensive

Income (loss)

 

 

Shareholders’

Equity

 

Balance, December 31, 2018

 

 

10,120

 

 

$

9,364

 

 

 

15,603,499

 

 

$

266,901

 

 

$

41,320

 

 

$

(17,235

)

 

$

(1,452

)

 

$

298,898

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,038

 

 

 

 

 

 

 

 

 

26,038

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,119

 

 

 

13,119

 

Conversion of Series B preferred

   shares to common shares

 

 

(222

)

 

 

(206

)

 

 

28,416

 

 

 

206

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

29,560

 

 

 

452

 

 

 

 

 

 

 

 

 

 

 

 

452

 

Common stock dividends

   ($0.31 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,845

)

 

 

 

 

 

 

 

 

(4,845

)

Preferred stock dividends

   ($48.75 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(490

)

 

 

 

 

 

 

 

 

(490

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

(188,200

)

 

 

 

 

 

 

 

 

(3,909

)

 

 

 

 

 

(3,909

)

Balance, September 30, 2019

 

 

9,898

 

 

$

9,158

 

 

 

15,473,275

 

 

$

267,559

 

 

$

62,023

 

 

$

(21,144

)

 

$

11,667

 

 

$

329,263

 

 

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,

 

 

 

2020

 

 

2019

 

Net cash from operating activities

 

$

25,301

 

 

$

22,522

 

Cash flows used for investing activities:

 

 

 

 

 

 

 

 

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

 

 

38,869

 

 

 

37,688

 

Purchases of securities, available-for-sale

 

 

(39,144

)

 

 

(48,178

)

Sale of securities available for sale

 

 

1,455

 

 

 

16,829

 

Purchase of other securities

 

 

(257

)

 

 

 

Redemption of other securities

 

 

 

 

 

741

 

Sale of equity securities

 

 

247

 

 

 

 

Purchase of bank owned life insurance

 

 

 

 

 

(955

)

Net loan originations

 

 

(339,683

)

 

 

(86,351

)

Proceeds from sale of premises and equipment

 

 

12

 

 

 

 

Premises and equipment purchases

 

 

(1,780

)

 

 

(1,729

)

Net cash used for investing activities

 

 

(340,281

)

 

 

(81,955

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from long-term FHLB advances

 

 

 

 

 

50,000

 

Net change in short-term FHLB advances

 

 

(101,500

)

 

 

(7,500

)

Proceeds from other borrowings

 

 

183,695

 

 

 

 

Increase in deposits

 

 

390,005

 

 

 

52,728

 

Increase (decrease) in securities sold under repurchase agreements

 

 

7,139

 

 

 

(7,111

)

Purchase of treasury shares

 

 

(12,756

)

 

 

(3,909

)

Common dividends paid

 

 

(5,365

)

 

 

(4,845

)

Preferred dividends paid

 

 

 

 

 

(490

)

Net cash provided by financing activities

 

 

461,218

 

 

 

78,873

 

Increase in cash and due from financial institutions

 

 

146,238

 

 

 

19,440

 

Cash and due from financial institutions at beginning of period

 

 

48,535

 

 

 

42,779

 

Cash and due from financial institutions at end of period

 

$

194,773

 

 

$

62,219

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

7,733

 

 

$

9,614

 

Income taxes

 

 

4,595

 

 

 

3,700

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Transfer of premises to held-for-sale

 

 

 

 

 

76

 

Change in fair value of swap asset

 

 

(15,809

)

 

 

(8,719

)

Change in fair value of swap asset liability

 

 

15,809

 

 

 

8,719

 

Conversion of preferred shares to common shares

 

 

 

 

 

206

 

Securities purchased not settled

 

 

 

 

 

2,102

 

Increase in right-of-use asset on leases

 

 

 

 

 

(2,367

)

Increase in lease liability

 

 

 

 

 

2,367

 

 

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 subsidiaries: Civista Bank (Civista), 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 the Company to insure against certain risks unique to the operations of CBI and its subsidiaries. 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. Insurance commission revenue was less than 1.0% of total revenue through September 30, 2020. Water Street Properties was formed to hold properties repossessed by CBI subsidiaries.  Revenue from Water St. was less than 1.0% of total revenue through September 30, 2020. 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, 2020 and its results of operations and changes in cash flows for the periods ended September 30, 2020 and 2019 have been made. The accompanying 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 periods ended September 30, 2020 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 2019 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.

The Company provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa, Richland, Montgomery 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. Civista has two loan concentrations, one is to Lessors of Non-Residential Buildings and Dwellings totaling $498,819, or 24.3% of total loans, as of September 30, 2020, and the other is to Lessors of Residential Buildings and Dwellings totaling $237,783, or 11.6% of total loans, as of September 30, 2020. These segments of the loan portfolio have been conservatively underwritten, monitored and managed by experienced commercial bankers. However, the customers’ ability to repay their loans is dependent on the real estate market and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions that are in excess of federally insured limits.

(2) Significant Accounting Policies

Allowance for Loan Losses:  The allowance for loan losses is regularly reviewed by management to determine that 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 characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and current economic and industry conditions, among other items.

Page 8


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

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.  

 

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, impairment of goodwill, fair values of financial instruments, deferred taxes, swap assets/liabilities and pension obligations are particularly subject to change.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Such reclassifications had no effect on net income or shareholders’ equity.

 

Adoption of New Accounting Standards:

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.  The amendments in this Update remove the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The amendments in this Update require disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements.  We adopted ASU 2018-13 effective January 1, 2020, which did not have a material impact on the Company’s Consolidated Financial Statements.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendment in this ASU addressed customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also added certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment in this ASU aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We adopted ASU 2018-15 effective January 1, 2020, which did not have a material impact on the Company’s Consolidated Financial Statements.

 

In October, 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810), which made improvements in (1) applying the variable interest entity (VIE) guidance to private companies under common control and (2) considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests.  Under the amendments in this Update, a private company may elect not to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities.  In addition, indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.  We adopted ASU 2018-17 effective January 1, 2020, which did not have a material impact on the Company’s Consolidated Financial Statements.

 

Page 9


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

In November, 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), which made the following targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements: (1) clarified that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (2) added unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and (3) required that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.  We adopted ASU 2018-18 effective January 1, 2020, which did not have a material impact on the Company’s Consolidated Financial Statements.

Effect of Newly Issued but Not Yet Effective Accounting Standards:

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans 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 presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period 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, Financial Instruments ‒ Credit Losses (Topic 326), 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 are eligible to be smaller reporting companies, 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 plans on running parallel calculations and finalizing a method or methods of adoption in time for the effective date.

 

In January 2017, the FASB issued ASU 2017-04, 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 smaller reporting companies, 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 will have on the Company’s financial position or results of operations.

 

Page 10


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, 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 Company is currently evaluating the potential impact of the Topic 326 amendments on the Company’s Consolidated Financial Statements. 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 and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, 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 upon 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 are eligible to be smaller reporting companies, 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 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.  Management is currently evaluating reference rate options and is reviewing loan agreements, debt securities, derivatives and borrowings impacted by reference rate reform.

 

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:

 

September 30, 2020

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

U.S. Treasury securities and obligations of U.S.

   government agencies

 

$

19,083

 

 

$

304

 

 

$

(1

)

 

$

19,386

 

Obligations of states and political subdivisions

 

 

207,077

 

 

 

19,170

 

 

 

(149

)

 

 

226,098

 

Mortgage-backed securities in government sponsored

   entities

 

 

114,113

 

 

 

6,317

 

 

 

(40

)

 

 

120,390

 

Total debt securities

 

$

340,273

 

 

$

25,791

 

 

$

(190

)

 

$

365,874

 

Page 11


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

December 31, 2019

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

U.S. Treasury securities and obligations of U.S.

   government agencies

 

$

19,401

 

 

$

204

 

 

$

(4

)

 

$

19,601

 

Obligations of states and political subdivisions

 

 

193,646

 

 

 

12,409

 

 

 

(21

)

 

 

206,034

 

Mortgage-backed securities in government sponsored

   entities

 

 

129,145

 

 

 

3,863

 

 

 

(144

)

 

 

132,864

 

Total debt securities

 

$

342,192

 

 

$

16,476

 

 

$

(169

)

 

$

358,499

 

 

The amortized cost and fair value of securities at September 30, 2020, 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

 

Due in one year or less

 

$

11,232

 

 

$

11,311

 

Due after one year through five years

 

 

14,540

 

 

 

14,913

 

Due after five years through ten years

 

 

25,421

 

 

 

27,602

 

Due after ten years

 

 

174,967

 

 

 

191,658

 

Mortgage-backed securities

 

 

114,113

 

 

 

120,390

 

Total securities available for sale

 

$

340,273

 

 

$

365,874

 

 

Proceeds from sales of securities available for sale, gross realized gains and gross realized losses were as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Sale proceeds

 

$

1,455

 

 

$

 

 

$

1,455

 

 

$

16,829

 

Gross realized gains

 

 

94

 

 

 

 

 

 

94

 

 

 

47

 

Gross realized losses

 

 

 

 

 

 

 

 

 

 

 

(43

)

Gains (losses) from securities called or settled by the issuer

 

 

(2

)

 

 

3

 

 

 

(2

)

 

 

13

 

 

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $165,109 and $139,004 as of September 30, 2020 and December 31, 2019, respectively.

Securities with unrealized losses at September 30, 2020 and December 31, 2019 not recognized in income are as follows:

 

September 30, 2020

 

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

 

$

 

 

$

 

 

$

134

 

 

$

(1

)

 

$

134

 

 

$

(1

)

Obligations of states and political subdivisions

 

 

5,373

 

 

 

(149

)

 

 

 

 

 

 

 

 

5,373

 

 

 

(149

)

Mortgage-backed securities in gov’t sponsored

   entities

 

 

2,984

 

 

 

(40

)

 

 

 

 

 

 

 

 

2,984

 

 

 

(40

)

Total temporarily impaired

 

$

8,357

 

 

$

(189

)

 

$

134

 

 

$

(1

)

 

$

8,491

 

 

$

(190

)

Page 12


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

December 31, 2019

 

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

 

$

 

 

$

 

 

$

3,408

 

 

$

(4

)

 

$

3,408

 

 

$

(4

)

Obligations of states and political subdivisions

 

 

1,947

 

 

 

(21

)

 

 

 

 

 

 

 

 

1,947

 

 

 

(21

)

Mortgage-backed securities in gov’t sponsored

   entities

 

 

10,653

 

 

 

(91

)

 

 

7,732

 

 

 

(53

)

 

 

18,385

 

 

 

(144

)

Total temporarily impaired

 

$

12,600

 

 

$

(112

)

 

$

11,140

 

 

$

(57

)

 

$

23,740

 

 

$

(169

)

 

At September 30, 2020, there were a total of 10 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 and nine months ended September 30, 2020 and 2019, and the portion of unrealized gains and losses for the period that relates to equity investments held at September 30, 2020 and 2019:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net gains (losses) recognized on equity securities

   during the period

 

$

20

 

 

$

112

 

 

$

(126

)

 

$

81

 

Less: Net losses realized on the sale of

   equity securities during the period

 

 

 

 

 

 

 

 

6

 

 

 

 

Unrealized gains (losses) recognized on equity

   securities held at reporting date

 

$

20

 

 

$

112

 

 

$

(120

)

 

$

81

 

 

(4) Loans

Loan balances were as follows:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Commercial & Agriculture

 

$

435,285

 

 

$

203,110

 

Commercial Real Estate- Owner Occupied

 

 

261,235

 

 

 

245,606

 

Commercial Real Estate- Non-Owner Occupied

 

 

683,579

 

 

 

592,222

 

Residential Real Estate

 

 

443,960

 

 

 

463,032

 

Real Estate Construction

 

 

167,560

 

 

 

155,825

 

Farm Real Estate

 

 

35,232

 

 

 

34,114

 

Consumer and Other

 

 

14,089

 

 

 

15,061

 

Total loans

 

 

2,040,940

 

 

 

1,708,970

 

Allowance for loan losses

 

 

(22,637

)

 

 

(14,767

)

Net loans

 

$

2,018,303

 

 

$

1,694,203

 

 

Included in Commercial & Agriculture as of September 30, 2020 is $259,097 of Paycheck Protection Program (“PPP”) loans.

 

Included in total loans above are net deferred loan fees of $8,208 and $488 at September 30, 2020 and December 31, 2019, respectively.  Included in net deferred loan fees as of September 30, 2020 is $7,498 of net deferred loans fees from PPP loans.

 

Page 13


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

Loan Modifications/Troubled Debt Restructurings

 

During 2020, Civista modified 813 loans totaling $431,283, primarily consisting of the deferral of principal and/or interest payments.  All of the loans modified were performing at December 31, 2019 and comply with the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to not be considered a troubled debt restructuring.

 

While most of the loans that received some form of modification have returned to making payments, Civista has received customer deferral requests for another round of modifications on loans. As of September 30, 2020, Civista has 47 loans totaling $52,186 that remain on a CARES Act modification.  Details with respect to loan modifications that remain on deferred status are as follows:

 

 

Number of

 

 

 

 

 

 

Weighted

Average

 

Type of Loan

 

Loans

 

 

Balance

 

 

Interest Rate

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Commercial & Agriculture

 

 

12

 

 

$

1,370

 

 

 

4.61

%

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

19

 

 

 

16,076

 

 

 

4.51

%

Non-Owner Occupied

 

 

14

 

 

 

27,720

 

 

 

4.96

%

Real Estate Construction

 

 

2

 

 

 

7,020

 

 

 

3.59

%

Total

 

 

47

 

 

$

52,186

 

 

 

4.63

%

 

(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 inherent in the loan portfolio. For purposes of determining 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 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:

 

Changes in lending policies and procedures

 

Changes in experience and depth of lending and management staff

 

Changes in quality of credit review system

 

Changes in nature and volume of the loan portfolio

 

Changes in past due, classified and nonaccrual loans and TDRs

 

Changes in economic and business conditions

 

Changes in competition or legal and regulatory requirements

 

Changes in concentrations within the loan portfolio

 

Changes in the underlying collateral for collateral dependent loans

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 $22,637 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2020. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three and nine months ended September 30, 2020 and 2019.

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, 2020

 

Beginning balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending Balance

 

Commercial & Agriculture

 

$

2,799

 

 

$

 

 

$

1

 

 

$

(139

)

 

$

2,661

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

3,411

 

 

 

(147

)

 

 

6

 

 

 

685

 

 

 

3,955

 

Non-Owner Occupied

 

 

9,169

 

 

 

 

 

 

3

 

 

 

1,406

 

 

 

10,578

 

Residential Real Estate

 

 

2,434

 

 

 

(11

)

 

 

117

 

 

 

(83

)

 

 

2,457

 

Real Estate Construction

 

 

1,844

 

 

 

 

 

 

1

 

 

 

500

 

 

 

2,345

 

Farm Real Estate

 

 

361

 

 

 

 

 

 

3

 

 

 

(4

)

 

 

360

 

Consumer and Other

 

 

247

 

 

 

(27

)

 

 

21

 

 

 

(21

)

 

 

220

 

Unallocated

 

 

155

 

 

 

 

 

 

 

 

 

(94

)

 

 

61

 

Total

 

$

20,420

 

 

$

(185

)

 

$

152

 

 

$

2,250

 

 

$

22,637

 

 

For the three months ended September 30, 2020, the Company provided $2,250 to the allowance for loan losses.  The provision was primarily the result of an increase in Civista’s qualitative factors, primarily changes in international, national, regional and local conditions, related to the economic shutdown driven by the ongoing COVID-19 pandemic, as well as the significant increase in classified assets during the quarter, particularly in the special mention category. Economic impacts from the COVID-19 pandemic include the loss of revenue being experienced by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. 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 loan balances. 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 factors related to the COVID-19 pandemic, increased loan balances and loss rates and by increased classified and non-accrual loans. 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 and by an increase in classified loans.  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 loss rates on classified loans, represented by 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, 2020.

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 three months ended September 30, 2019

 

Beginning balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending Balance

 

Commercial & Agriculture

 

$

1,828

 

 

$

 

 

$

61

 

 

$

43

 

 

$

1,932

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

2,009

 

 

 

 

 

 

43

 

 

 

85

 

 

 

2,137

 

Non-Owner Occupied

 

 

5,867

 

 

 

 

 

 

55

 

 

 

226

 

 

 

6,148

 

Residential Real Estate

 

 

1,698

 

 

 

(20

)

 

 

67

 

 

 

(136

)

 

 

1,609

 

Real Estate Construction

 

 

1,135

 

 

 

 

 

 

1

 

 

 

47

 

 

 

1,183

 

Farm Real Estate

 

 

365

 

 

 

 

 

 

1

 

 

 

1

 

 

 

367

 

Consumer and Other

 

 

201

 

 

 

(16

)

 

 

16

 

 

 

52

 

 

 

253

 

Unallocated

 

 

683

 

 

 

 

 

 

 

 

 

(168

)

 

 

515

 

Total

 

$

13,786

 

 

$

(36

)

 

$

244

 

 

$

150

 

 

$

14,144

 

 

For the three months ended September 30, 2019, the Company provided $150 to the allowance for loan losses.  The allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of higher loan balances. 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 higher 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 decreased due to a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of an increase in loan balances.  The allowance for Consumer and Other loans increased due to an increase in loss rates. The result was represented as an increase in the provision. Management determined that the unallocated amount was appropriate and within the relevant range for the allowance that was reflective of the risk in the portfolio at September 30, 2019.

 

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, 2020

 

Beginning balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending Balance

 

Commercial & Agriculture

 

$

2,219

 

 

$

(15

)

 

$

5

 

 

$

452

 

 

$

2,661

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

2,541

 

 

 

(148

)

 

 

20

 

 

 

1,542

 

 

 

3,955

 

Non-Owner Occupied

 

 

6,584

 

 

 

 

 

 

44

 

 

 

3,950

 

 

 

10,578

 

Residential Real Estate

 

 

1,582

 

 

 

(108

)

 

 

196

 

 

 

787

 

 

 

2,457

 

Real Estate Construction

 

 

1,250

 

 

 

 

 

 

3

 

 

 

1,092

 

 

 

2,345

 

Farm Real Estate

 

 

344

 

 

 

 

 

 

10

 

 

 

6

 

 

 

360

 

Consumer and Other

 

 

247

 

 

 

(54

)

 

 

55

 

 

 

(28

)

 

 

220

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

61

 

Total

 

$

14,767

 

 

$

(325

)

 

$

333

 

 

$

7,862

 

 

$

22,637

 

 

For the nine months ended September 30, 2020, the Company provided $7,862 to the allowance for loan losses.  The provision was primarily the result of an increase in Civista’s qualitative factors, primarily changes in international, national, regional and local conditions, related to the economic shutdown driven by the ongoing COVID-19 pandemic. Economic impacts related to the COVID-19 pandemic include the loss of revenue being experienced by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. 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 loan balances mainly from Civista’s participation in the PPP loan program, offset by a decrease in loss rates, resulting in an increase in the provision. PPP loans are eligible for a 100% guaranty by the SBA.  However, in the event of a loss resulting from a default on a PPP loan, and a determination by the SBA that there was a deficiency in the manner on which the PPP loan was originated or funded, the SBA may deny its liability under the guaranty.  The reserve percentage for PPP loans is substantially less than the other loans in this segment resulting in an overall decrease in the reserve percentage.  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 higher loan balances, an increase in classified and non-accrual loans and an increase in loss rates. 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, an increase in classified loans, offset 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 general reserves required for this type as a result of factors related to the COVID-19 pandemic, offset by a decrease in loan balances and loss rates, represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of an increase in loan balances and an increase in loss rates on classified loans, represented by an increase in the provision.  The allowance for Farm Real Estate loans increased due to an increase in general reserves required as a result of an increase in loan balances.  The result 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, 2020.

 

Page 17


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, 2019

 

Beginning balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending Balance

 

Commercial & Agriculture

 

$

1,747

 

 

$

(27

)

 

$

65

 

 

$

147

 

 

$

1,932

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

1,962

 

 

 

(60

)

 

 

282

 

 

 

(47

)

 

 

2,137

 

Non-Owner Occupied

 

 

5,803

 

 

 

 

 

 

99

 

 

 

246

 

 

 

6,148

 

Residential Real Estate

 

 

1,531

 

 

 

(223

)

 

 

229

 

 

 

72

 

 

 

1,609

 

Real Estate Construction

 

 

1,046

 

 

 

(24

)

 

 

1

 

 

 

160

 

 

 

1,183

 

Farm Real Estate

 

 

397

 

 

 

 

 

 

3

 

 

 

(33

)

 

 

367

 

Consumer and Other

 

 

284

 

 

 

(97

)

 

 

67

 

 

 

(1

)

 

 

253

 

Unallocated

 

 

909

 

 

 

 

 

 

 

 

 

(394

)

 

 

515

 

Total

 

$

13,679

 

 

$

(431

)

 

$

746

 

 

$

150

 

 

$

14,144

 

 

For the nine months ended September 30, 2019, the Company provided $150 to the allowance for loan losses.  The allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of higher loan balances, offset by a decrease in the loss rates. 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 as a result of higher loan balances and higher loss rates, offset by net recoveries on previously charged off amounts, resulting in a decrease 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 higher loan balances, offset by a decrease in the loss rates.  This was represented as an increase 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 an increase in loan balances and loss rates, represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of higher loan balances.  The allowance for Farm Real Estate loans was reduced by a decrease in classified loan balances and the reserve required for this type of loan. The result was represented as a decrease in the provision. The allowance for Consumer and Other loans decreased due to a decrease in the general reserves required for the type as a result of a decrease in loan balances and loss rates.  The result was represented as a decrease in the provision.  Management determined that the unallocated amount was appropriate and within the relevant range for the allowance that was reflective of the risk in the portfolio at September 30, 2019.

Page 18


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 loan losses and related loan balances as of September 30, 2020 and December 31, 2019.

 

September 30, 2020

 

Loans acquired

with credit

deterioration

 

 

Loans individually

evaluated for

impairment

 

 

Loans collectively

evaluated for

impairment

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Agriculture

 

$

 

 

$

 

 

$

2,661

 

 

$

2,661

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

 

 

 

8

 

 

 

3,947

 

 

 

3,955

 

Non-Owner Occupied

 

 

 

 

 

 

 

 

10,578

 

 

 

10,578

 

Residential Real Estate

 

 

 

 

 

85

 

 

 

2,372

 

 

 

2,457

 

Real Estate Construction

 

 

 

 

 

 

 

 

2,345

 

 

 

2,345

 

Farm Real Estate

 

 

 

 

 

 

 

 

360

 

 

 

360

 

Consumer and Other

 

 

 

 

 

 

 

 

220

 

 

 

220

 

Unallocated

 

 

 

 

 

 

 

 

61

 

 

 

61

 

Total

 

$

 

 

$

93

 

 

$

22,544

 

 

$

22,637

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Agriculture

 

$

 

 

$

 

 

$

435,285

 

 

$

435,285

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

 

 

 

379

 

 

 

260,856

 

 

 

261,235

 

Non-Owner Occupied

 

 

 

 

 

55

 

 

 

683,524

 

 

 

683,579

 

Residential Real Estate

 

 

377

 

 

 

1,168

 

 

 

442,415

 

 

 

443,960

 

Real Estate Construction

 

 

 

 

 

 

 

 

167,560

 

 

 

167,560

 

Farm Real Estate

 

 

 

 

 

634

 

 

 

34,598

 

 

 

35,232

 

Consumer and Other

 

 

 

 

 

 

 

 

14,089

 

 

 

14,089

 

Total

 

$

377

 

 

$

2,236

 

 

$

2,038,327

 

 

$

2,040,940

 

 

December 31, 2019

 

Loans acquired

with credit

deterioration

 

 

Loans individually

evaluated for

impairment

 

 

Loans collectively

evaluated for

impairment

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Agriculture

 

$

 

 

$

 

 

$

2,219

 

 

$

2,219

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

 

 

 

9

 

 

 

2,532

 

 

 

2,541

 

Non-Owner Occupied

 

 

 

 

 

 

 

 

6,584

 

 

 

6,584

 

Residential Real Estate

 

 

 

 

 

82

 

 

 

1,500

 

 

 

1,582

 

Real Estate Construction

 

 

 

 

 

 

 

 

1,250

 

 

 

1,250

 

Farm Real Estate

 

 

 

 

 

 

 

 

344

 

 

 

344

 

Consumer and Other

 

 

 

 

 

 

 

 

247

 

 

 

247

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

 

$

91

 

 

$

14,676

 

 

$

14,767

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Agriculture

 

$

 

 

$

367

 

 

$

202,743

 

 

$

203,110

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

 

 

 

426

 

 

 

245,180

 

 

 

245,606

 

Non-Owner Occupied

 

 

 

 

 

374

 

 

 

591,848

 

 

 

592,222

 

Residential Real Estate

 

 

467

 

 

 

1,764

 

 

 

460,801

 

 

 

463,032

 

Real Estate Construction

 

 

 

 

 

 

 

 

155,825

 

 

 

155,825

 

Farm Real Estate

 

 

 

 

 

666

 

 

 

33,448

 

 

 

34,114

 

Consumer and Other

 

 

 

 

 

 

 

 

15,061

 

 

 

15,061

 

Total

 

$

467

 

 

$

3,597

 

 

$

1,704,906

 

 

$

1,708,970

 

 

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 credit exposures by internally assigned risk grades as of September 30, 2020 and December 31, 2019. 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.

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 are included below.

 

September 30, 2020

 

Pass

 

 

Special Mention

 

 

Substandard

 

 

Doubtful

 

 

Ending Balance

 

Commercial & Agriculture

 

$

427,539

 

 

$

6,009

 

 

$

1,737

 

 

$

 

 

$

435,285

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

227,536

 

 

 

27,108

 

 

 

6,591

 

 

 

 

 

 

261,235

 

Non-Owner Occupied

 

 

597,582

 

 

 

83,622

 

 

 

2,375

 

 

 

 

 

 

683,579

 

Residential Real Estate

 

 

75,648

 

 

 

647

 

 

 

5,686

 

 

 

 

 

 

81,981

 

Real Estate Construction

 

 

153,132

 

 

 

 

 

 

493

 

 

 

 

 

 

153,625

 

Farm Real Estate

 

 

32,297

 

 

 

490

 

 

 

2,445

 

 

 

 

 

 

35,232

 

Consumer and Other

 

 

1,616

 

 

 

 

 

 

18

 

 

 

 

 

 

1,634

 

Total

 

$

1,515,350

 

 

$

117,876

 

 

$

19,345

 

 

$

 

 

$

1,652,571

 

 

December 31, 2019

 

Pass

 

 

Special Mention

 

 

Substandard

 

 

Doubtful

 

 

Ending Balance

 

Commercial & Agriculture

 

$

199,649

 

 

$

2,236

 

 

$

1,225

 

 

$

 

 

$

203,110

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

237,171

 

 

 

5,617

 

 

 

2,818

 

 

 

 

 

 

245,606

 

Non-Owner Occupied

 

 

588,633

 

 

 

2,155

 

 

 

1,434

 

 

 

 

 

 

592,222

 

Residential Real Estate

 

 

73,289

 

 

 

528

 

 

 

6,495

 

 

 

 

 

 

80,312

 

Real Estate Construction

 

 

145,251

 

 

 

 

 

 

9

 

 

 

 

 

 

145,260

 

Farm Real Estate

 

 

30,808

 

 

 

567

 

 

 

2,739

 

 

 

 

 

 

34,114

 

Consumer and Other

 

 

1,289

 

 

 

 

 

 

6

 

 

 

 

 

 

1,295

 

Total

 

$

1,276,090

 

 

$

11,103

 

 

$

14,726

 

 

$

 

 

$

1,301,919

 

 

Page 20


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 periods ended September 30, 2020 and December 31, 2019 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, 2020

 

Residential

Real Estate

 

 

Real Estate

Construction

 

 

Consumer

and Other

 

 

Total

 

Performing

 

$

361,979

 

 

$

13,935

 

 

$

12,455

 

 

$

388,369

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

361,979

 

 

$

13,935

 

 

$

12,455

 

 

$

388,369

 

 

December 31, 2019

 

Residential

Real Estate

 

 

Real Estate

Construction

 

 

Consumer

and Other

 

 

Total

 

Performing

 

$

382,720

 

 

$

10,565

 

 

$

13,766

 

 

$

407,051

 

Nonperforming

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

382,720

 

 

$

10,565

 

 

$

13,766

 

 

$

407,051

 

 

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of September 30, 2020 and December 31, 2019.

 

September 30, 2020

 

30-59

Days

Past Due

 

 

60-89

Days

Past Due

 

 

90 Days

or Greater

 

 

Total Past

Due

 

 

Current

 

 

Purchased

Credit-

Impaired

Loans

 

 

Total Loans

 

 

Past Due

90 Days

and

Accruing

 

Commercial & Agriculture

 

$

176

 

 

$

300

 

 

$

55

 

 

$

531

 

 

$

434,754

 

 

$

 

 

$

435,285

 

 

$

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

168

 

 

 

369

 

 

 

359

 

 

 

896

 

 

 

260,339

 

 

 

 

 

 

261,235

 

 

 

 

Non-Owner Occupied

 

 

 

 

 

 

 

 

7

 

 

 

7

 

 

 

683,572

 

 

 

 

 

 

683,579

 

 

 

 

Residential Real Estate

 

 

84

 

 

 

441

 

 

 

1,269

 

 

 

1,794

 

 

 

441,789

 

 

 

377

 

 

 

443,960

 

 

 

 

Real Estate Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

167,560

 

 

 

 

 

 

167,560

 

 

 

 

Farm Real Estate

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

35,228

 

 

 

 

 

 

35,232

 

 

 

 

Consumer and Other

 

 

54

 

 

 

6

 

 

 

7

 

 

 

67

 

 

 

14,022

 

 

 

 

 

 

14,089

 

 

 

 

Total

 

$

482

 

 

$

1,116

 

 

$

1,701

 

 

$

3,299

 

 

$

2,037,264

 

 

$

377

 

 

$

2,040,940

 

 

$

 

 

December 31, 2019

 

30-59

Days

Past Due

 

 

60-89

Days

Past Due

 

 

90 Days

or Greater

 

 

Total Past

Due

 

 

Current

 

 

Purchased

Credit-

Impaired

Loans

 

 

Total Loans

 

 

Past Due

90 Days

and

Accruing

 

Commercial & Agriculture

 

$

27

 

 

$

35

 

 

$

106

 

 

$

168

 

 

$

202,942

 

 

$

 

 

$

203,110

 

 

$

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

453

 

 

 

63

 

 

 

663

 

 

 

1,179

 

 

 

244,427

 

 

 

 

 

 

245,606

 

 

 

 

Non-Owner Occupied

 

 

 

 

 

 

 

 

8

 

 

 

8

 

 

 

592,214

 

 

 

 

 

 

592,222

 

 

 

 

Residential Real Estate

 

 

2,399

 

 

 

198

 

 

 

1,775

 

 

 

4,372

 

 

 

458,193

 

 

 

467

 

 

 

463,032

 

 

 

 

Real Estate Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

155,825

 

 

 

 

 

 

155,825

 

 

 

 

Farm Real Estate

 

 

 

 

 

 

 

 

7

 

 

 

7

 

 

 

34,107

 

 

 

 

 

 

34,114

 

 

 

 

Consumer and Other

 

 

129

 

 

 

46

 

 

 

 

 

 

175

 

 

 

14,886

 

 

 

 

 

 

15,061

 

 

 

 

Total

 

$

3,008

 

 

$

342

 

 

$

2,559

 

 

$

5,909

 

 

$

1,702,594

 

 

$

467

 

 

$

1,708,970

 

 

$

 

 

Page 21


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, 2020 and December 31, 2019.

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Commercial & Agriculture

 

$

156

 

 

$

173

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

Owner Occupied

 

 

1,241

 

 

 

938

 

Non-Owner Occupied

 

 

7

 

 

 

8

 

Residential Real Estate

 

 

3,854

 

 

 

4,183

 

Real Estate Construction

 

 

7

 

 

 

9

 

Farm Real Estate

 

 

85

 

 

 

284

 

Consumer and Other

 

 

16

 

 

 

4

 

Total

 

$

5,366

 

 

$

5,599

 

 

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 three 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; 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 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 allowance 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, 2020, TDRs accounted for $93 of the allowance for loan losses. As of December 31, 2019, TDRs accounted for $91 of the allowance for loan losses.

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-month periods ended September 30, 2020 or 2019 or during the nine-month period ended September 30, 2020. Loan modifications that are considered TDRs completed during the nine-month period ended September 30, 2019 were as follows:

 

 

 

 

For the Nine-Month Period Ended

 

 

 

September 30, 2019

 

 

 

Number of

Contracts

 

 

Pre-

Modification

Outstanding

Recorded

Investment

 

 

Post-

Modification

Outstanding

Recorded

Investment

 

Commercial & Agriculture

 

 

 

 

$

 

 

$

 

Commercial Real Estate—Owner Occupied

 

 

 

 

 

 

 

 

 

Commercial Real Estate—Non-Owner Occupied

 

 

1

 

 

 

382

 

 

 

382

 

Residential Real Estate

 

 

 

 

 

 

 

 

 

Real Estate Construction

 

 

 

 

 

 

 

 

 

Farm Real Estate

 

 

 

 

 

 

 

 

 

Consumer and Other

 

 

 

 

 

 

 

 

 

Total Loan Modifications

 

 

1

 

 

$

382

 

 

$

382

 

 

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 both the three- and nine-month periods ended September 30, 2020 and September 30, 2019, there were no defaults on loans that were modified and considered TDRs during the respective previous twelve months.

Impaired Loans: Larger (greater than $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.

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, 2020 and December 31, 2019.

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Agriculture

 

$

 

 

$

 

 

 

 

 

 

$

367

 

 

$

367

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

149

 

 

 

149

 

 

 

 

 

 

 

168

 

 

 

168

 

 

 

 

 

Non-Owner Occupied

 

 

55

 

 

 

55

 

 

 

 

 

 

 

374

 

 

 

374

 

 

 

 

 

Residential Real Estate

 

 

993

 

 

 

1,017

 

 

 

 

 

 

 

1,571

 

 

 

1,643

 

 

 

 

 

Farm Real Estate

 

 

634

 

 

 

634

 

 

 

 

 

 

 

666

 

 

 

666

 

 

 

 

 

Total

 

 

1,831

 

 

 

1,855

 

 

 

 

 

 

 

3,146

 

 

 

3,218

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

230

 

 

 

230

 

 

$

8

 

 

 

258

 

 

 

258

 

 

$

9

 

Residential Real Estate

 

 

175

 

 

 

179

 

 

 

85

 

 

 

193

 

 

 

197

 

 

 

82

 

Total

 

 

405

 

 

 

409

 

 

 

93

 

 

 

451

 

 

 

455

 

 

 

91

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & Agriculture

 

 

 

 

 

 

 

 

 

 

 

367

 

 

 

367

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner Occupied

 

 

379

 

 

 

379

 

 

 

8

 

 

 

426

 

 

 

426

 

 

 

9

 

Non-Owner Occupied

 

 

55

 

 

 

55

 

 

 

 

 

 

374

 

 

 

374

 

 

 

 

Residential Real Estate

 

 

1,168

 

 

 

1,196

 

 

 

85

 

 

 

1,764

 

 

 

1,840

 

 

 

82

 

Farm Real Estate

 

 

634

 

 

 

634

 

 

 

 

 

 

666

 

 

 

666

 

 

 

 

Total

 

$

2,236

 

 

$

2,264

 

 

$

93

 

 

$

3,597

 

 

$

3,673

 

 

$

91

 

 

The following tables include the average recorded investment and interest income recognized for impaired financing receivables for the three-and nine-month periods ended September 30, 2020 and 2019.

 

 

 

September 30, 2020

 

 

September 30, 2019

 

For the three months ended

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

Commercial & Agriculture

 

$

 

 

$

 

 

$

367

 

 

$

12

 

Commercial Real Estate—Owner Occupied

 

 

391

 

 

 

7

 

 

 

448

 

 

 

8

 

Commercial Real Estate—Non-Owner Occupied

 

 

212

 

 

 

5

 

 

 

378

 

 

 

6

 

Residential Real Estate

 

 

1,175

 

 

 

10

 

 

 

1,083

 

 

 

14

 

Farm Real Estate

 

 

644

 

 

 

7

 

 

 

681

 

 

 

7

 

Total

 

$

2,422

 

 

$

29

 

 

$

2,957

 

 

$

47

 

 

 

 

 

September 30, 2020

 

 

September 30, 2019

 

For the nine months ended

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

Commercial & Agriculture

 

$

92

 

 

$

4

 

 

$

367

 

 

$

24

 

Commercial Real Estate—Owner Occupied

 

 

406

 

 

 

21

 

 

 

463

 

 

 

25

 

Commercial Real Estate—Non-Owner Occupied

 

 

292

 

 

 

15

 

 

 

292

 

 

 

15

 

Residential Real Estate

 

 

1,464

 

 

 

34

 

 

 

1,148

 

 

 

45

 

Farm Real Estate

 

 

655

 

 

 

20

 

 

 

687

 

 

 

22

 

Total

 

$

2,909

 

 

$

94

 

 

$

2,957

 

 

$

131

 

 

Page 24


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

Changes in the accretable yield for PCI loans were as follows, since acquisition: 

 

 

 

For the

Three-Month

Period Ended

September 30, 2020

 

 

For the

Three-Month

Period Ended

September 30, 2019

 

 

 

(In Thousands)

 

 

(In Thousands)

 

Balance at beginning of period

 

$

205

 

 

$

259

 

Acquisition of PCI loans

 

 

 

 

 

 

Accretion

 

 

(101

)

 

 

(3

)

Transfer from non-accretable to accretable

 

 

74

 

 

 

 

Balance at end of period

 

$

178

 

 

$

256

 

 

 

 

For the Nine-Month

Period Ended

September 30, 2020

 

 

For the Nine-Month

Period Ended

September 30, 2019

 

 

 

(In Thousands)

 

 

(In Thousands)

 

Balance at beginning of period

 

$

255

 

 

$

336

 

Acquisition of PCI loans

 

 

 

 

 

 

Accretion

 

 

(270

)

 

 

(80

)

Transfer fron non-accretable to accretable

 

 

193

 

 

 

 

Balance at end of period

 

$

178

 

 

$

256

 

 

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:

 

 

 

At September 30, 2020

 

 

At December 31, 2019

 

 

 

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

 

$

789

 

 

$

1,149

 

Carrying amount

 

 

377

 

 

 

467

 

 

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, 2020 or December 31, 2019, respectively.

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, 2020 and December 31, 2019, respectively, there were no foreclosed assets included in other assets. As of September 30, 2020 and December 31, 2019, the Company had initiated formal foreclosure procedures on $1,056 and $1,022, respectively, of consumer residential mortgages.

Page 25


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

(6) Other Comprehensive Income

 

 

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax.

 

 

 

For the Three-Month Period Ended

 

 

For the Three-Month Period Ended

 

 

 

September 30, 2020(a)

 

 

September 30, 2019(a)

 

 

 

Unrealized

Gains and

Losses on

Available-for-

Sale

Securities

 

 

Defined

Benefit

Pension

Items

 

 

Total

 

 

Unrealized

Gains and

Losses on

Available-for-

Sale

Securities

 

 

Defined

Benefit

Pension

Items

 

 

Total

 

Beginning balance

 

$

19,549

 

 

$

(5,895

)

 

$

13,654

 

 

$

12,176

 

 

$

(3,567

)

 

$

8,609

 

Other comprehensive income before

   reclassifications

 

 

749

 

 

 

 

 

 

749

 

 

 

2,944

 

 

 

 

 

 

2,944

 

Amounts reclassified from accumulated other

   comprehensive income (loss)

 

 

(73

)

 

 

57

 

 

 

(16

)

 

 

(2

)

 

 

116

 

 

 

114

 

Net current-period other comprehensive income

 

 

676

 

 

 

57

 

 

 

733

 

 

 

2,942

 

 

 

116

 

 

 

3,058

 

Ending balance

 

$

20,225

 

 

$

(5,838

)

 

$

14,387

 

 

$

15,118

 

 

$

(3,451

)

 

$

11,667

 

 

(a)

Amounts in parentheses indicate debits on the Consolidated Balance Sheets.

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss).

 

 

 

Amount Reclassified from

Accumulated Other Comprehensive

Income (Loss) (a)

 

 

 

Details about Accumulated Other

Comprehensive Income (Loss)

Components

 

For the Three

months ended

September 30, 2020

 

 

For the Three

months ended

September 30, 2019

 

 

Affected Line Item in the

Statement Where Net Income is

Presented

Unrealized gains on available-for-sale securities

 

$

92

 

 

$

3

 

 

Net gain (loss) on sale

   of securities

Tax effect

 

 

(19

)

 

 

(1

)

 

Income tax expense

 

 

 

73

 

 

 

2

 

 

 

Amortization of defined benefit pension items

 

 

 

 

 

 

 

 

 

 

Actuarial gains/(losses) (b)

 

 

(72

)

 

 

(147

)

 

Other operating expenses

Tax effect

 

 

15

 

 

 

31

 

 

Income tax expense

 

 

 

(57

)

 

 

(116

)

 

 

Total reclassifications for the period

 

$

16

 

 

$

(114

)

 

 

 

(a)

Amounts in parentheses indicate expenses/losses and other amounts indicate income/benefit.

(b)

These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

 

 

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 changes in each component of accumulated other comprehensive income (loss), net of tax.

 

 

 

For the Nine-Month Period Ended

 

 

For the Nine-Month Period Ended

 

 

 

September 30, 2020(a)

 

 

September 30, 2019(a)

 

 

 

Unrealized

Gains and

Losses on

Available-for-

Sale

Securities

 

 

Defined

Benefit

Pension

Items

 

 

Total

 

 

Unrealized

Gains and

Losses on

Available-for-

Sale

Securities

 

 

Defined

Benefit

Pension

Items

 

 

Total

 

Beginning balance

 

$

12,883

 

 

$

(6,009

)

 

$

6,874

 

 

$

2,347

 

 

$

(3,799

)

 

$

(1,452

)

Other comprehensive income before

   reclassifications

 

 

7,415

 

 

 

 

 

 

7,415

 

 

 

12,784

 

 

 

 

 

 

12,784

 

Amounts reclassified from accumulated other

   comprehensive income (loss)

 

 

(73

)

 

 

171

 

 

 

98

 

 

 

(13

)

 

 

348

 

 

 

335

 

Net current-period other comprehensive income

 

 

7,342

 

 

 

171

 

 

 

7,513

 

 

 

12,771

 

 

 

348

 

 

 

13,119

 

Ending balance

 

$

20,225

 

 

$

(5,838

)

 

$

14,387

 

 

$

15,118

 

 

$

(3,451

)

 

$

11,667

 

 

(a)

Amounts in parentheses indicate debits on the Consolidated Balance Sheets.

 

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss).

 

 

 

Amount Reclassified from

Accumulated Other Comprehensive

Income (Loss) (a)

 

 

 

Details about Accumulated Other

Comprehensive Income (Loss)

Components

 

For the Nine

months ended

September 30, 2020

 

 

For the Nine

months ended

September 30, 2019

 

 

Affected Line Item in the

Statement Where Net Income is

Presented

Unrealized gains on available-for-sale securities

 

$

92

 

 

$

17

 

 

Net gain (loss) on sale

   of securities

Tax effect

 

 

(19

)

 

 

(4

)

 

Income tax expense

 

 

 

73

 

 

 

13

 

 

 

Amortization of defined benefit pension items

 

 

 

 

 

 

 

 

 

 

Actuarial gains/(losses) (b)

 

 

(217

)

 

 

(441

)

 

Other operating expenses

Tax effect

 

 

46

 

 

 

93

 

 

Income tax expense

 

 

 

(171

)

 

 

(348

)

 

 

Total reclassifications for the period

 

$

(98

)

 

$

(335

)

 

 

 

(a)

Amounts in parentheses indicate expenses/losses and other amounts indicate income/benefit.

(b)

These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Page 27


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

(7) Goodwill and Intangible Assets

There was no change in the carrying amount of goodwill of $76,851 for the periods ended September 30, 2020 and December 31, 2019.

Acquired intangible assets, other than goodwill, as of September 30, 2020 and December 31, 2019 were as follows:

 

 

 

2020

 

 

2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Amortized intangible assets(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangibles

 

$

14,792

 

 

$

8,735

 

 

$

6,057

 

 

$

14,792

 

 

$

8,049

 

 

$

6,743

 

Total amortized intangible assets

 

$

14,792

 

 

$

8,735

 

 

$

6,057

 

 

$

14,792

 

 

$

8,049

 

 

$

6,743

 

 

(1)

Excludes fully amortized intangible assets

Aggregate core deposit intangible amortization expense was $227, $235, $686 and $710 for the three and nine months ended September 30, 2020 and 2019, respectively.

Activity for mortgage servicing rights (MSRs) and the related valuation allowance for the three- and nine-months ended September 30, 2020 and September 30, 2019 were as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Loan Servicing Rights:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

1,717

 

 

$

1,642

 

 

$

1,562

 

 

$

1,664

 

Additions

 

 

381

 

 

 

71

 

 

 

924

 

 

 

144

 

Disposals

 

 

 

 

 

 

 

 

 

 

 

 

Amortized to expense

 

 

(135

)

 

 

(81

)

 

 

(361

)

 

 

(176

)

Other charges

 

 

 

 

 

 

 

 

 

 

 

 

Change in valuation allowance

 

 

25

 

 

 

 

 

 

(137

)

 

 

 

Balance at End of Period

 

$

1,988

 

 

$

1,632

 

 

$

1,988

 

 

$

1,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

264

 

 

$

 

 

$

102

 

 

$

 

Additions expensed

 

 

 

 

 

 

 

 

162

 

 

 

 

Reductions credited to operations

 

 

(25

)

 

 

 

 

 

(25

)

 

 

 

Direct write-offs

 

 

 

 

 

 

 

 

 

 

 

 

Balance at End of Period

 

$

239

 

 

$

 

 

$

239

 

 

$

 

 

 

Estimated amortization expense for each of the next five years and thereafter is as follows:

 

 

 

MSRs

 

 

Core deposit

intangibles

 

 

Total

 

2020

 

$

29

 

 

$

227

 

 

$

256

 

2021

 

 

116

 

 

 

891

 

 

 

1,007

 

2022

 

 

115

 

 

 

868

 

 

 

983

 

2023

 

 

115

 

 

 

841

 

 

 

956

 

2024

 

 

114

 

 

 

804

 

 

 

918

 

Thereafter

 

 

1,499

 

 

 

2,426

 

 

 

3,925

 

 

 

$

1,988

 

 

$

6,057

 

 

$

8,045

 

 

Page 28


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 borrowings, which consist of federal funds purchased and other short-term borrowings, are included in Short-term Federal Home Loan Bank advances on the Consolidated Balance Sheets and are summarized as follows:

 

 

 

At September 30, 2020

 

 

At December 31, 2019

 

 

 

Federal Funds

Purchased

 

 

Short-term

Borrowings

 

 

Federal Funds

Purchased

 

 

Short-term

Borrowings

 

Outstanding balance

 

$

 

 

$

 

 

$

 

 

$

101,500

 

Interest rate on balance

 

 

 

 

 

 

 

 

 

 

 

1.63

%

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2020

 

 

2019

 

 

2019

 

 

2020

 

 

2020

 

 

2019

 

 

2019

 

 

 

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

 

$

35,000

 

 

$

 

 

$

 

 

$

167,500

 

 

$

50,000

 

 

$

102,700

 

 

$

 

 

$

192,700

 

Average balance

 

 

543

 

 

 

 

 

 

 

 

 

146,977

 

 

 

385

 

 

 

10,888

 

 

 

 

 

 

117,229

 

Average rate paid

 

 

(1.47

)%

 

 

 

 

 

 

 

 

2.34

%

 

 

0.35

%

 

 

1.64

%

 

 

 

 

 

2.44

%

 

Average balance during the period represents daily averages. Average rate paid represents interest expense divided by the related average balances.

These borrowing transactions can range from overnight to six months in maturity. The average maturity was one day at September 30, 2020.

Other borrowings consist of the Paycheck Protection Program Lending Facility (“PPPLF”).  The PPPLF makes funds available to lenders who qualify as “eligible borrowers” and is intended to facilitate lending, to small businesses under the PPP of the CARES Act.  Under the PPPLF, the Federal Reserve Banks will lend to eligible borrowers on a non-recourse basis, taking PPP loans as collateral.  During the second quarter of 2020, the Company borrowed $183,695 under the PPPLF.  The maturity date of the PPPLF borrowing will equal the maturity date of the PPP loans pledged to secure the borrowing.  The rate paid on the borrowing is at 0.35%.

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, 2020 and December 31, 2019. All of the repurchase agreements are overnight agreements.

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Securities pledged for repurchase agreements:

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

910

 

 

$

810

 

Obligations of U.S. government agencies

 

 

24,903

 

 

 

17,864

 

Total securities pledged

 

$

25,813

 

 

$

18,674

 

Gross amount of recognized liabilities for repurchase

   agreements

 

$

25,813

 

 

$

18,674

 

Amounts related to agreements not included in offsetting

   disclosures above

 

$

 

 

$

 

 

Page 29


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

(9) Earnings per Common Share

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. 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, and the impact of the Company’s convertible preferred shares using the “if converted” method.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

7,682

 

 

$

7,708

 

 

$

22,019

 

 

$

26,038

 

Preferred stock dividends

 

 

 

 

 

162

 

 

 

 

 

 

490

 

Net income available to common shareholders—basic

 

$

7,682

 

 

$

7,546

 

 

$

22,019

 

 

$

25,548

 

Weighted average common shares outstanding—basic

 

 

16,045,544

 

 

 

15,577,371

 

 

 

16,201,898

 

 

 

15,604,410

 

Basic earnings per common share

 

$

0.48

 

 

$

0.48

 

 

$

1.36

 

 

$

1.64

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders—basic

 

$

7,682

 

 

$

7,546

 

 

$

22,019

 

 

$

25,548

 

Preferred stock dividends

 

 

 

 

 

162

 

 

 

0

 

 

 

490

 

Net income available to common shareholders—diluted

 

$

7,682

 

 

$

7,708

 

 

$

22,019

 

 

$

26,038

 

Weighted average common shares outstanding for basic

   earnings per common share

 

 

16,045,544

 

 

 

15,577,371

 

 

 

16,201,898

 

 

 

15,604,410

 

Add: Dilutive effects of convertible preferred shares

 

 

 

 

 

1,272,516

 

 

 

 

 

 

1,286,876

 

Average shares and dilutive potential common shares

   outstanding—diluted

 

 

16,045,544

 

 

 

16,849,887

 

 

 

16,201,898

 

 

 

16,891,286

 

Diluted earnings per common share

 

$

0.48

 

 

$

0.46

 

 

$

1.36

 

 

$

1.54

 

 

For the three- and nine-month periods ended September 30, 2019, there were 1,272,516 and 1,286,876, respectively of average dilutive shares related to the Company’s convertible preferred shares.  Under the “if converted” method, all convertible preferred shares are assumed to be converted into common shares at the corresponding conversion rate. These additional shares are then added to the common shares outstanding to calculate diluted earnings per share.  Effective December 20, 2019, the Company redeemed all convertible preferred shares and corresponding depositary shares that remained outstanding.

 

Page 30


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

(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 for September 30, 2020 and December 31, 2019:

 

 

 

Contract Amount

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Fixed Rate

 

 

Variable

Rate

 

 

Fixed Rate

 

 

Variable

Rate

 

Commitment to extend credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of credit and construction loans

 

$

25,020

 

 

$

432,210

 

 

$

15,155

 

 

$

396,516

 

Overdraft protection

 

 

6

 

 

 

41,212

 

 

 

5

 

 

 

37,286

 

Letters of credit

 

 

600

 

 

 

986

 

 

 

624

 

 

 

776

 

 

 

$

25,626

 

 

$

474,408

 

 

$

15,784

 

 

$

434,578

 

 

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 3.50% to 8.00% at September 30, 2020 and from 4.50% to 8.50% at December 31, 2019. Maturities extend up to 30 years.

Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The reserve balance maintained in accordance with such requirements was $0 on September 30, 2020 and $7,127 on December 31, 2019. Such amounts are included within cash and due from financial institutions on the Consolidated Balance Sheet.

(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

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Service cost

 

$

 

 

$

 

 

$

 

 

$

 

Interest cost

 

 

121

 

 

 

128

 

 

 

363

 

 

 

384

 

Expected return on plan assets

 

 

(187

)

 

 

(256

)

 

 

(561

)

 

 

(768

)

Other components

 

 

72

 

 

 

147

 

 

 

217

 

 

 

441

 

Net periodic pension cost

 

$

6

 

 

$

19

 

 

$

19

 

 

$

57

 

 

The Company does not expect to make any contribution to its pension plan in 2020. The Company made no contribution to its pension plan in 2019.

Page 31


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

(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 198,756 shares available for future grants under this plan at September 30, 2020.

No options were granted under the 2014 Incentive Plan during the periods ended September 30, 2020 and 2019.

 

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 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 21, 2019, 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 8,946 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 2020 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $196.

On May 21, 2020, 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 14,266 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 2021 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $196.

The Company classifies share-based compensation for employees with “Compensation expense” in the Consolidated Statements of Operations.

The following is a summary of the Company’s outstanding restricted shares and changes therein for the three- and nine-month periods ended September 30, 2020:

 

 

 

Three months ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2020

 

 

 

Number of

Restricted

Shares

 

 

Weighted

Average Grant

Date Fair Value

 

 

Number of

Restricted

Shares

 

 

Weighted

Average Grant

Date Fair Value

 

Nonvested at beginning of period

 

 

54,274

 

 

$

20.90

 

 

 

44,027

 

 

$

20.48

 

Granted

 

 

 

 

 

 

 

 

26,979

 

 

 

21.26

 

Vested

 

 

 

 

 

 

 

 

(16,732

)

 

 

20.36

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested at end of period

 

 

54,274

 

 

$

20.90

 

 

 

54,274

 

 

$

20.90

 

 

The following is a summary of the status of the Company’s outstanding restricted shares as of September 30, 2020:

 

At June 30, 2020

 

Date of Award

 

Shares

 

 

Remaining Expense

 

 

Remaining Vesting

Period (Years)

 

January 15, 2016

 

 

2,056

 

 

$

5

 

 

 

0.25

 

March 20, 2017

 

 

2,388

 

 

 

31

 

 

 

1.25

 

April 10, 2018

 

 

2,643

 

 

 

11

 

 

 

0.25

 

April 10, 2018

 

 

4,670

 

 

 

70

 

 

 

2.25

 

March 14, 2019

 

 

6,796

 

 

 

79

 

 

 

1.25

 

March 14, 2019

 

 

8,742

 

 

 

129

 

 

 

3.25

 

March 13, 2020

 

 

12,982

 

 

 

212

 

 

 

4.25

 

March 13, 2020

 

 

13,997

 

 

 

214

 

 

 

2.25

 

 

 

 

54,274

 

 

$

751

 

 

 

2.55

 

 

Page 32


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

The Company recorded $99, $78, $322 and $256 of share-based compensation expense during the three- and nine-months ended September 30, 2020 and 2019, respectively, and $196 of director retainer fees for shares granted under the 2014 Incentive Plan. At September 30, 2020, the total compensation cost related to unvested awards not yet recognized is $751, which is expected to be recognized over the weighted average remaining life of the grants of 2.55 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; 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 security 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.

Impaired loans: 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 to the age 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 table below.

 

 

 

Fair Value Measurements at September 30, 2020 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

 

$

 

 

$

19,366

 

 

$

 

Obligations of states and political subdivisions

 

 

 

 

 

226,098

 

 

 

 

Mortgage-backed securities in government sponsored

   entities

 

 

 

 

 

120,390

 

 

 

 

Total securities available for sale

 

 

 

 

 

365,854

 

 

 

 

Equity securities

 

 

 

 

 

817

 

 

 

 

Swap asset

 

 

 

 

 

24,727

 

 

 

 

Liabilities measured at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Swap liability

 

$

 

 

$

24,727

 

 

$

 

Page 33


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, 2019 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

 

$

 

 

$

19,601

 

 

$

 

Obligations of states and political subdivisions

 

 

 

 

 

206,034

 

 

 

 

Mortgage-backed securities in government

   sponsored entities

 

 

 

 

 

132,864

 

 

 

 

Total securities available for sale

 

 

 

 

 

358,499

 

 

 

 

Equity securities

 

 

 

 

 

1,191

 

 

 

 

Swap asset

 

 

 

 

 

8,918

 

 

 

 

Liabilities measured at fair value on a recurring

   basis:

 

 

 

 

 

 

 

 

 

 

 

 

Swap liability

 

 

 

 

 

8,918

 

 

 

 

Assets measured at fair value on a nonrecurring

   basis:

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

 

 

$

 

 

$

1

 

 

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2019.

 

 

 

Quantitative Information about Level 3 Fair Value Measurements

 

December 31, 2019

 

Fair Value

 

 

Valuation Technique

 

Unobservable Input

 

Range

 

Weighted Average

 

Impaired loans

 

$

1

 

 

Appraisal of collateral

 

Appraisal adjustments

 

30%

 

30%

 

 

 

 

 

 

 

 

 

Holding period

 

22 months

 

22 months

 

 

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at September 30, 2020 are as follows:

 

September 30, 2020

 

Carrying

Amount

 

 

Total

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from financial institutions

 

$

194,773

 

 

$

194,773

 

 

$

194,773

 

 

$

 

 

$

 

Other securities

 

 

20,537

 

 

 

20,537

 

 

 

20,537

 

 

 

 

 

 

 

Loans, held for sale

 

 

13,256

 

 

 

13,521

 

 

 

13,521

 

 

 

 

 

 

 

Loans, net of allowance

 

 

2,018,303

 

 

 

2,046,882

 

 

 

 

 

 

 

 

 

2,046,882

 

Bank owned life insurance

 

 

45,732

 

 

 

45,732

 

 

 

45,732

 

 

 

 

 

 

 

Accrued interest receivable

 

 

10,227

 

 

 

10,227

 

 

 

10,227

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonmaturing deposits

 

 

1,776,668

 

 

 

1,776,668

 

 

 

1,776,668

 

 

 

 

 

 

 

Time deposits

 

 

292,101

 

 

 

293,168

 

 

 

 

 

 

 

 

 

293,168

 

Long-term FHLB advances

 

 

125,000

 

 

 

131,095

 

 

 

 

 

 

 

 

 

131,095

 

Other borrowings

 

 

183,695

 

 

 

183,677

 

 

 

 

 

 

 

 

 

183,677

 

Securities sold under agreement to repurchase

 

 

25,813

 

 

 

25,813

 

 

 

25,813

 

 

 

 

 

 

 

Subordinated debentures

 

 

29,427

 

 

 

31,990

 

 

 

 

 

 

 

 

 

31,990

 

Accrued interest payable

 

 

492

 

 

 

492

 

 

 

492

 

 

 

 

 

 

 

 

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, 2019 are as follows:

 

December 31, 2019

 

Carrying

Amount

 

 

Total

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from financial institutions

 

$

48,535

 

 

$

48,535

 

 

$

48,535

 

 

$

 

 

$

 

Other securities

 

 

20,280

 

 

 

20,280

 

 

 

20,280

 

 

 

 

 

 

 

Loans, held for sale

 

 

2,285

 

 

 

2,331

 

 

 

2,331

 

 

 

 

 

 

 

Loans, net of allowance

 

 

1,694,203

 

 

 

1,713,863

 

 

 

 

 

 

 

 

 

1,713,863

 

Bank owned life insurance

 

 

44,999

 

 

 

44,999

 

 

 

44,999

 

 

 

 

 

 

 

Accrued interest receivable

 

 

7,093

 

 

 

7,093

 

 

 

7,093

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonmaturing deposits

 

 

1,402,924

 

 

 

1,402,924

 

 

 

1,402,924

 

 

 

 

 

 

 

Time deposits

 

 

275,840

 

 

 

276,616

 

 

 

 

 

 

 

 

 

276,616

 

Short-term FHLB advances

 

 

101,500

 

 

 

101,500

 

 

 

101,500

 

 

 

 

 

 

 

Long-term FHLB advances

 

 

125,000

 

 

 

123,893

 

 

 

 

 

 

 

 

 

123,893

 

Securities sold under agreement to repurchase

 

 

18,674

 

 

 

18,674

 

 

 

18,674

 

 

 

 

 

 

 

Subordinated debentures

 

 

29,427

 

 

 

34,452

 

 

 

 

 

 

 

 

 

34,452

 

Accrued interest payable

 

 

277

 

 

 

277

 

 

 

277

 

 

 

 

 

 

 

 

(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.

 

The following table summarizes the Company’s interest rate swap positions as of September 30, 2020.

 

 

 

Classification on the Consolidated Balance Sheet

 

Notional

Amount

 

 

Fair Value

 

 

Weighted

Average Rate

Received/(Paid)

 

Derivative Assets

 

Other Assets

 

$

232,397

 

 

$

24,727

 

 

 

4.52

%

Derivative Liabilities

 

Accrued expenses and other liabilities

 

 

(232,397

)

 

 

(24,727

)

 

 

-4.52

%

Net Exposure

 

 

 

$

 

 

$

 

 

 

 

 

 

The following table summarizes the Company’s interest rate swap positions as of December 31, 2019.

 

 

 

Classification on the Consolidated Balance Sheet

 

Notional

Amount

 

 

Fair Value

 

 

Weighted

Average Rate

Received/(Paid)

 

Derivative Assets

 

Other Assets

 

$

151,648

 

 

$

8,918

 

 

 

5.04

%

Derivative Liabilities

 

Accrued expenses and other liabilities

 

 

(151,648

)

 

 

(8,918

)

 

 

-5.04

%

Net Exposure

 

 

 

$

 

 

$

 

 

 

 

 

 

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.

Page 35


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

At September 30, 2020, the Company had cash and securities at fair value pledged for collateral on its interest rate swaps with third party financial institutions of $10,310 and $16,139, respectively. At December 31, 2019, securities with a fair value of $14,032 were pledged as collateral.

 

(15) Qualified Affordable Housing Project Investments

The Company invests in certain qualified affordable housing projects. At September 30, 2020 and December 31, 2019, the balance of the investment for qualified affordable housing projects was $5,624 and $5,154, 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 $6,459 and $5,417 at September 30, 2020 and December 31, 2019, respectively.

During the three months ended September 30, 2020 and 2019, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $156 and $133, respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $304 and $275, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $489 and $399, respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $888 and $827, respectively.  During the three and nine months ended September 30, 2020 and 2019, the Company did not incur impairment losses related to its investment in qualified affordable housing projects.

 

(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 the new standard 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 new 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.

 

Page 36


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

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.

 

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 months ended September 30, 2020 and 2019.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-scope of Topic 606:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

$

1,414

 

 

$

1,726

 

 

$

3,812

 

 

$

4,733

 

ATM/Interchange fees

 

 

1,183

 

 

 

1,014

 

 

 

3,226

 

 

 

2,871

 

Wealth management fees

 

 

1,006

 

 

 

975

 

 

 

2,916

 

 

 

2,733

 

Tax refund processing fees

 

 

 

 

 

 

 

 

2,375

 

 

 

2,750

 

Other

 

 

214

 

 

 

280

 

 

 

633

 

 

 

675

 

Noninterest Income (in-scope of Topic 606)

 

 

3,817

 

 

 

3,995

 

 

 

12,962

 

 

 

13,762

 

Noninterest Income (out-of-scope of Topic 606)

 

 

2,969

 

 

 

1,434

 

 

 

7,554

 

 

 

3,054

 

Total Noninterest Income

 

$

6,786

 

 

$

5,429

 

 

$

20,516

 

 

$

16,816

 

 

 

 

 

Page 37


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, 2020 compared to December 31, 2019, and the consolidated results of operations for the three- and nine-month periods ended September 30, 2020, compared to the same periods in 2019. 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, changes in financial markets or national or local economic conditions, including impacts from the COVID-19 pandemic on local, national and global economic conditions; higher default rates on loans made to our customers related to the impact of COVID-19 on our customers’ operations and financial conditions; the effects of various governmental responses to the COVID-19 pandemic, including stimulus packages and programs; potential litigation or other risks related to participating in the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), sustained weakness or deterioration in the real estate market; volatility and direction of market interest rates; credit risks of lending activities; changes in the allowance for loan losses; legislation or regulatory changes or actions; increases in Federal Deposit Insurance Corporation (“FDIC”) insurance premiums and assessments; changes in tax laws; failure of or breach in our information and data processing systems; unforeseen litigation; 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, 2019, as supplemented by “Item 1A. Risk Factors” of the Company’s Quarterly Reports on Form 10-Q. 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, 2020 were $2,817,993 compared to $2,309,557 at December 31, 2019, an increase of $508,436, or 22.0%. The increase in total assets was due to increases in cash and due from financial institutions of $146,238, accompanied by other increases in securities available for sale, loans held for sale, loans, accrued interest receivable and swap assets of $7,375, $10,971, $324,100, $3,134 and $15,809, respectively. Total liabilities at September 30, 2020 were $2,475,938 compared to $1,979,431 at December 31, 2019, an increase of $496,507, or 25.1%. The increase in total liabilities was primarily attributable to increases in noninterest-bearing demand accounts, interest-bearing demand accounts, other borrowings and swap liabilities of $147,567, $242,438, $183,695 and $15,809, respectively, partially offset by a decrease in short-term FHLB advances of $101,500.

Page 38


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, 2020 and December 31, 2019 were as follows:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

$ Change

 

 

% Change

 

Commercial & Agriculture

 

$

435,285

 

 

$

203,110

 

 

$

232,175

 

 

 

114.3

%

Commercial Real Estate—Owner Occupied

 

 

261,235

 

 

 

245,606

 

 

 

15,629

 

 

 

6.4

%

Commercial Real Estate—Non-Owner Occupied

 

 

683,579

 

 

 

592,222

 

 

 

91,357

 

 

 

15.4

%

Residential Real Estate

 

 

443,960

 

 

 

463,032

 

 

 

(19,072

)

 

 

-4.1

%

Real Estate Construction

 

 

167,560

 

 

 

155,825

 

 

 

11,735

 

 

 

7.5

%

Farm Real Estate

 

 

35,232

 

 

 

34,114

 

 

 

1,118

 

 

 

3.3

%

Consumer and Other

 

 

14,089

 

 

 

15,061

 

 

 

(972

)

 

 

-6.5

%

Total loans

 

 

2,040,940

 

 

 

1,708,970

 

 

 

331,970

 

 

 

19.4

%

Allowance for loan losses

 

 

(22,637

)

 

 

(14,767

)

 

 

(7,870

)

 

 

53.3

%

Net loans

 

$

2,018,303

 

 

$

1,694,203

 

 

$

324,100

 

 

 

19.1

%

 

Included in Commercial & Agriculture as of September 30, 2020 is $259,097 of PPP loans.

Loans held for sale increased $10,971 or 480.1% since December 31, 2019.  The increase is due to an increase in volume due to refinances as rates have declined.  At September 30, 2020, 68 loans totaling $13,256 were held for sale as compared to 15 loans totaling $2,285 at December 31, 2019.

 

Net loans have increased $324,100 or 19.1% since December 31, 2019. The Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Real Estate Construction and Farm Real Estate loan portfolios increased $232,175, $15,629, $91,357, $11,735 and $1,118, respectively, since December 31, 2019, while the Residential Real Estate and Consumer and Other loan portfolios decreased $19,072 and $972, respectively, since December 31, 2019.  The increase in Commercial & Agriculture loans is the result of PPP loans totaling $259,097 at September 30, 2020.  At September 30, 2020, the net loan to deposit ratio was 97.6% compared to 100.9% at December 31, 2019. The decrease in the net loan to deposit ratio is the result of an increase in deposits.

 

During the first nine months of 2020, provisions made to the allowance for loan losses from earnings totaled $7,862, compared to a provision of $150 during the same period in 2019. The increase in provision was due to an increase in the bank’s qualitative factors, primarily changes in international, national, regional and local conditions, related to the economic shutdown driven by the ongoing COVID-19 pandemic and the significant increase in classified loans during the period. Economic impacts related to the COVID-19 pandemic include the loss of revenue being experienced by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. Net recoveries for the first nine months of 2020 totaled $8, compared to net recoveries of $315 in the first nine months of 2019. For the first nine months of 2020, the Company charged off a total of 20 loans. One Commercial and Agriculture loan totaling $15, two Commercial Real Estate – Owner Occupied totaling $148, eight Residential Real Estate loans totaling $108 and nine Consumer and Other loans totaling $54 were charged off in the first nine months of the year. In addition, during the first nine months of 2020, the Company had recoveries on previously charged-off Commercial and Agriculture loans of $5, Commercial Real Estate – Owner Occupied loans of $20, Commercial Real Estate – Non-Owner Occupied loans of $44, Residential Real Estate loans of $196, Real Estate Construction loans of $3, Farm Real Estate loans of $10 and Consumer and Other loans of $55. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans decreased by $233 since December 31, 2019, which was due to a decrease in loans on nonaccrual status of $233. 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 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)

 

Management analyzes each impaired Commercial and Commercial Real Estate loan relationship with a balance of $350 or larger, on an individual basis and designates a loan as impaired 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 loan losses as a percent of total loans was 1.11% at September 30, 2020 and 0.86% December 31, 2019.

 

The available for sale security portfolio increased by $7,375, from $358,499 at December 31, 2019 to $365,874 at September 30, 2020.  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, 2020, the Company was in compliance with all pledging requirements.

 

Accrued interest receivable increased $3,134, from $7,093 at December 31, 2019 to $10,227 at September 30, 2020.  The increase is the result of loan modifications consisting of the deferral of principal and/or interest payments, which are the result of the COVID-19 pandemic.

 

Premises and equipment, net, increased $87 from December 31, 2019 to September 30, 2020. The increase is the result of new purchases of $1,780, offset by depreciation of $1,683 and proceeds from the sale of premises and equipment of $10.

 

Bank owned life insurance (BOLI) increased $733 from December 31, 2019 to September 30, 2020. The increase is the result of increases in the cash surrender value of the underlying insurance policies.

Swap assets increased $15,809 from December 31, 2019 to September 30, 2020.  The increase of $15,809 is primarily the result of an increase in volume of swap activity related to our Commercial Real Estate loan growth.

 

Total deposits as of September 30, 2020 and December 31, 2019 were as follows:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

$ Change

 

 

% Change

 

Noninterest-bearing demand

 

$

660,120

 

 

$

512,553

 

 

$

147,567

 

 

 

28.8

%

Interest-bearing demand

 

 

394,975

 

 

 

301,674

 

 

 

93,301

 

 

 

30.9

%

Savings and money market

 

 

721,571

 

 

 

588,697

 

 

 

132,874

 

 

 

22.6

%

Time deposits

 

 

292,103

 

 

 

275,840

 

 

 

16,263

 

 

 

5.9

%

Total Deposits

 

$

2,068,769

 

 

$

1,678,764

 

 

$

390,005

 

 

 

23.2

%

 

Total deposits at September 30, 2020 increased $390,005 from year-end 2019. Noninterest-bearing deposits increased $147,567 from year-end 2019, while interest-bearing deposits, including savings and time deposits, increased $242,438 from December 31, 2019. 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 $24,533. In addition, personal demand and business demand deposit accounts increased $16,207 and $107,479, respectively.  Much of the increase in business demand deposit accounts resulted from customer deposits of PPP loan proceeds.  The increase in interest-bearing deposits was primarily due to an increase in non-public interest-bearing demand, savings and money markets and brokered money market accounts of $45,565, $98,619 and $29,801, respectively.  Public fund interest-bearing demand and public fund time deposit accounts increased $47,045 and $20,072, respectively. The year-to-date average balance of total deposits increased $356,818 compared to the average balance for the same period in 2019 mainly due to increases in noninterest-bearing business demand and tax refund processing program accounts of $116,689 and $73,694, respectively, accompanied by increases in non-public interest-bearing demand, savings and money markets and public funds interest-bearing demand of $33,434, $67,661 and $38,446, respectively.  In addition, the average balance of time deposits increased $16,263 as compared to the same period in 2019.

 

Short-term FHLB advances decreased $101,500 from December 31, 2019 to September 30, 2020. The decrease is due to a decrease in overnight borrowings. Securities sold under agreements to repurchase, which tend to fluctuate, have increased $7,139 from December 31, 2019 to September 30, 2020.

 

Page 40


Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

 

Other borrowings increased $183,695 from December 31, 2019 to September 30, 2020.  The increase is the result of borrowings by Civista under the Paycheck Protection Program Lending Facility (“PPPLF”) to provide funding for PPP loans.

 

Swap liabilities increased $15,809 from December 31, 2019 to September 30, 2020.  The increase of $15,809 is primarily the result of an increase in volume of swap activity related to our Commercial Real Estate loan growth, as well as an increase in the fair value resulting from the low interest rate environment.

 

Shareholders’ equity at September 30, 2020 was $342,055, or 12.1% of total assets, compared to $330,126, or 14.3% of total assets, at December 31, 2019. The increase was the result of net income of $22,019, a decrease in the Company’s pension liability, net of tax, of $171, and an increase in the fair value of securities available for sale, net of tax, of $7,342, offset by dividends on common shares of $5,365 and the purchase of treasury shares of $12,756.

 

Total outstanding common shares at September 30, 2020 were 15,945,479, which decreased from 16,687,542 common shares outstanding at December 31, 2019. Common shares outstanding decreased as a result of 783,308 common shares being repurchased by the Company at an average repurchase price of $16.29. The Company repurchased 672,000 common shares pursuant to a stock repurchase program announced on December 17, 2019, 107,500 common shares pursuant to a stock repurchase program announced on May 4, 2020 and 3,808 common shares surrendered to pay taxes upon vesting of restricted shares. The repurchase plan publicly-announced on December 17, 2019 authorized the Company to repurchase up to 672,000 shares of the Company’s common shares until December 17, 2020.  The repurchase plan publicly-announced on May 4, 2020 authorized the Company to repurchase a maximum aggregate value of $13,500 of the Company’s common shares until April 20, 2021.  The repurchase of in common shares was offset by the grant of 26,979 restricted common shares to certain officers under the Company’s 2014 Incentive Plan. In addition, 14,266 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, 2020 and 2019

The Company had net income of $7,682 for the three months ended September 30, 2020, a decrease of $26 from net income of $7,708 for the same three months of 2019. Basic earnings per common share were $0.48 for the quarter ended September 30, 2020, compared to $0.48 for the same period in 2019. Diluted earnings per common share were $0.48 for the quarter ended September 30, 2020, compared to $0.46 for the same period in 2019. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended September 30, 2020 was $22,006, an increase of $1,588 from $20,418 for the same three months of 2019. This increase is the result of an increase of $535 in total interest income with a decrease of $1,053 in interest expense. Interest-earning assets averaged $2,617,884 during the three months ended September 30, 2020, an increase of $596,104 from $2,021,780 for the same period of 2019.  The Company’s average interest-bearing liabilities increased from $1,385,867 during the three months ended September 30, 2019 to $1,764,283 during the three months ended September 30, 2020.  The Company’s fully tax equivalent net interest margin for the three months ended September 30, 2020 and 2019 was 3.44% and 4.12%, respectively.

Total interest income was $24,558 for the three months ended September 30, 2020, an increase of $535 from $24,023 of total interest income for the same period in 2019.  The increase in interest income is attributable to an increase of $862 in interest and fees on loans, partially offset by an increase in the average balance of loans, which resulted from a lower yield on the portfolio. The average balance of loans increased by $414,482 or 25.5% to $2,040,492 for the three months ended September 30, 2020 as compared to $1,626,010 for the same period in 2019.  The loan yield decreased to 4.22% for 2020, from 5.07% in 2019 mainly due to the impact of lower interest rates in 2020 as compared to the same period of 2019.  During the quarter, the average balance of PPP loans was $259,037.  These loans had an average yield of 2.90% including the amortization of PPP fees.

Page 41


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 decreased $387 to $1,325 for the three months ended September 30, 2020, compared to $1,712 for the same period in 2019.  The average balance of taxable securities decreased $15,798 to $183,196 for the three months ended September 30, 2020 as compared to $198,994 for the same period in 2019.  The yield on taxable securities decreased 49 basis points to 3.01% for 2020, compared to 3.50% for 2019.  Interest on tax-exempt securities increased $87 to $1,536 for the three months ended September 30, 2020, compared to $1,449 for the same period in 2019.  The average balance of tax-exempt securities increased $24,867 to $205,398 for the three months ended September 30, 2020 as compared to $180,531 for the same period in 2019.  The yield on tax-exempt securities decreased 19 basis points to 4.14% for 2020, compared to 4.33% for 2019 due to the impact of lower interest rates in 2020 as compared to the same period of 2019.

 

Interest expense decreased $1,053 or 29.2% to $2,552 for the three months ended September 30, 2020, compared with $3,605 for the same period in 2019.  The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, offset by a decrease in rates on demand and savings accounts, FHLB borrowings and subordinated debentures.  For the three months ended September 30, 2020, the average balance of interest-bearing liabilities increased $378,416 to $1,764,283, as compared to $1,385,867 for the same period in 2019.  Interest incurred on deposits decreased by $468 to $1,631 for the three months ended September 30, 2020, compared to $2,099 for the same period in 2019.  Although the average balance of interest-bearing deposits increased to $261,686 for the three months ended September 30, 2020 as compared to the same period in 2019, deposit expense decreased due to a decrease in the rate paid on demand and savings accounts from 0.33% in 2019 to 0.14% in 2020.  The rate paid on time deposits decreased from 2.03% to 1.69% in 2020.  Interest expense incurred on FHLB advances and subordinated debentures decreased 38.9% from 2019.  The average balance on FHLB balances decreased $76,977 for the three months ended September 30, 2020 as compared to the same period in 2019.  In addition, the rate paid on subordinated debentures decreased 210 basis points for the three months ended September 30, 2020 as compared to the same period in 2019. The average balance of other borrowings increased $183,695 for the three months ended September 30, 2020 as compared to the same period in 2019 as a result of the Company’s borrowings under the PPPLF to fund PPP loans.

Page 42


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, 2020 and 2019. 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,

 

 

 

2020

 

 

2019

 

Assets:

 

Average

balance

 

 

Interest

 

 

Yield/

rate*

 

 

Average

balance

 

 

Interest

 

 

Yield/

rate*

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees**

 

$

2,040,492

 

 

$

21,638

 

 

 

4.22

%

 

$

1,626,010

 

 

$

20,776

 

 

 

5.07

%

Taxable securities

 

 

183,196

 

 

 

1,325

 

 

 

3.01

%

 

 

198,994

 

 

 

1,712

 

 

 

3.50

%

Tax-exempt securities

 

 

205,398

 

 

 

1,536

 

 

 

4.14

%

 

 

180,531

 

 

 

1,449

 

 

 

4.33

%

Interest-bearing deposits in other banks

 

 

188,798

 

 

 

59

 

 

 

0.12

%

 

 

16,245

 

 

 

86

 

 

 

2.10

%

Total interest-earning assets

 

$

2,617,884

 

 

$

24,558

 

 

 

3.83

%

 

$

2,021,780

 

 

$

24,023

 

 

 

4.83

%

Noninterest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from financial institutions

 

 

29,647

 

 

 

 

 

 

 

 

 

 

 

29,745

 

 

 

 

 

 

 

 

 

Premises and equipment, net

 

 

23,214

 

 

 

 

 

 

 

 

 

 

 

21,790

 

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

10,109

 

 

 

 

 

 

 

 

 

 

 

6,926

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

84,906

 

 

 

 

 

 

 

 

 

 

 

85,617

 

 

 

 

 

 

 

 

 

Other assets

 

 

42,916

 

 

 

 

 

 

 

 

 

 

 

25,432

 

 

 

 

 

 

 

 

 

Bank owned life insurance

 

 

45,574

 

 

 

 

 

 

 

 

 

 

 

44,579

 

 

 

 

 

 

 

 

 

Less allowance for loan losses

 

 

(21,214

)

 

 

 

 

 

 

 

 

 

 

(13,920

)

 

 

 

 

 

 

 

 

Total Assets

 

$

2,833,036

 

 

 

 

 

 

 

 

 

 

$

2,221,949

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings

 

$

1,108,512

 

 

$

389

 

 

 

0.14

%

 

$

871,673

 

 

$

730

 

 

 

0.33

%

Time

 

 

292,806

 

 

 

1,242

 

 

 

1.69

%

 

 

267,959

 

 

 

1,369

 

 

 

2.03

%

Short-term FHLB advances

 

 

 

 

 

 

 

 

0.00

%

 

 

146,977

 

 

 

867

 

 

 

2.34

%

Long-term FHLB advances

 

 

125,000

 

 

 

452

 

 

 

1.44

%

 

 

55,000

 

 

 

285

 

 

 

2.06

%

Other borrowings

 

 

183,695

 

 

 

271

 

 

 

0.59

%

 

 

 

 

 

 

 

 

0.00

%

Federal funds purchased

 

 

543

 

 

 

(2

)

 

 

-1.47

%

 

 

 

 

 

 

 

 

0.00

%

Subordinated debentures

 

 

29,427

 

 

 

194

 

 

 

2.62

%

 

 

29,427

 

 

 

350

 

 

 

4.72

%

Repurchase Agreements

 

 

24,300

 

 

 

6

 

 

 

0.10

%

 

 

14,831

 

 

 

4

 

 

 

0.11

%

Total interest-bearing liabilities

 

$

1,764,283

 

 

$

2,552

 

 

 

0.58

%

 

$

1,385,867

 

 

$

3,605

 

 

 

1.03

%

Noninterest-bearing deposits

 

 

683,473

 

 

 

 

 

 

 

 

 

 

 

482,895

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

46,002

 

 

 

 

 

 

 

 

 

 

 

27,084

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

339,278

 

 

 

 

 

 

 

 

 

 

 

326,103

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

2,833,036

 

 

 

 

 

 

 

 

 

 

$

2,221,949

 

 

 

 

 

 

 

 

 

Net interest income and interest rate spread

 

 

 

 

 

$

22,006

 

 

 

3.25

%

 

 

 

 

 

$

20,418

 

 

 

3.80

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.44

%

 

 

 

 

 

 

 

 

 

 

4.12

%

 

*—Average yields are presented on a tax equivalent basis.  The tax equivalent effect associated with loans and investments, included in the yields above, was $411 and $389 for the periods ended September 30, 2020 and 2019, respectively.

 

**—Average balance includes nonaccrual loans.

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)

 

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, 2020 and 2019.

 

 

 

Increase (decrease) due to:

 

 

 

Volume (1)

 

 

Rate (1)

 

 

Net

 

 

 

(Dollars in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

4,756

 

 

$

(3,894

)

 

$

862

 

Taxable securities

 

 

(154

)

 

 

(233

)

 

 

(387

)

Tax-exempt securities

 

 

158

 

 

 

(71

)

 

 

87

 

Interest-bearing deposits in other banks

 

 

124

 

 

 

(151

)

 

 

(27

)

Total interest income

 

$

4,884

 

 

$

(4,349

)

 

$

535

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings

 

$

162

 

 

$

(503

)

 

$

(341

)

Time

 

 

119

 

 

 

(246

)

 

 

(127

)

Short-term FHLB advances

 

 

(867

)

 

 

 

 

 

(867

)

Long-term FHLB advances

 

 

274

 

 

 

(107

)

 

 

167

 

Other borrowings

 

 

271

 

 

 

 

 

 

271

 

Federal funds purchased

 

 

(2

)

 

 

 

 

 

(2

)

Subordinated debentures

 

 

 

 

 

(156

)

 

 

(156

)

Repurchase agreements

 

 

2

 

 

 

 

 

 

2

 

Total interest expense

 

$

(41

)

 

$

(1,012

)

 

$

(1,053

)

Net interest income

 

$

4,925

 

 

$

(3,337

)

 

$

1,588

 

 

(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 $2,250 and $150 during the quarters ended September 30, 2020 and 2019. The increase in the provision was due to an increase in the bank’s qualitative factors, primarily changes in international, national, regional and local conditions, related to the economic shutdown driven by the ongoing COVID-19 pandemic and the substantial increase in special mention loans. Economic impacts relating to the COVID-19 pandemic include the loss of revenue being experienced by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. Our Commercial, Commercial Real Estate and Consumer portfolios have been, and are expected to continue to be impacted the most.

Noninterest income for the three-month periods ended September 30, 2020 and 2019 are as follows:

 

 

 

Three months ended September 30,

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Service charges

 

$

1,414

 

 

$

1,726

 

 

$

(312

)

 

 

-18.1

%

Net gain on sale of securities

 

 

92

 

 

 

3

 

 

 

89

 

 

 

2966.7

%

Net loss on equity securities

 

 

20

 

 

 

112

 

 

 

(92

)

 

 

-82.1

%

Net gain on sale of loans

 

 

2,413

 

 

 

815

 

 

 

1,598

 

 

 

196.1

%

ATM/Interchange fees

 

 

1,183

 

 

 

1,014

 

 

 

169

 

 

 

16.7

%

Wealth management fees

 

 

1,006

 

 

 

975

 

 

 

31

 

 

 

3.2

%

Bank owned life insurance

 

 

243

 

 

 

254

 

 

 

(11

)

 

 

-4.3

%

Swap fees

 

 

158

 

 

 

199

 

 

 

(41

)

 

 

-20.6

%

Other

 

 

257

 

 

 

331

 

 

 

(74

)

 

 

-22.4

%

Total noninterest income

 

$

6,786

 

 

$

5,429

 

 

$

1,357

 

 

 

25.0

%

 

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)

 

Noninterest income for the three months ended September 30, 2020 was $6,786, an increase of $1,357 or 25.0% from $5,429 for the same period of 2019. The increase was primarily due to increases in net gain on sale of securities, net gain on sale of loans and ATM/Interchange fees, offset by decreases in service charges, swap fees and other.  Net loss on equity securities decreased as a result of market value decreases.  Net gain on sale of loans increased primarily as a result of an increase in volume of loans sold.  During the three-months ended September 30, 2020, 418 loans were sold, totaling $84,315.  During the three-months ended September 30, 2019, 214 loans were sold, totaling $36,040. ATM/Interchange fees increased as a result of increased transaction volume.  Service charges decreased as a result of lower overdraft charges. Swap fees decreased due to the volume of swaps performed during the quarter ended September 30, 2020 as compared to the same period of 2019.  Other income decreased due to a decrease in wire transfer fees, an increase in claims paid and loss reserves related to our captive insurance company and the amortization of mortgage servicing rights as a result of higher loan payoffs.

 

Noninterest expense for the three-month periods ended September 30, 2020 and 2019 are as follows:

 

 

 

Three months ended September 30,

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Compensation expense

 

$

10,595

 

 

$

9,707

 

 

$

888

 

 

 

9.1

%

Net occupancy expense

 

 

1,010

 

 

 

902

 

 

 

108

 

 

 

12.0

%

Equipment expense

 

 

494

 

 

 

561

 

 

 

(67

)

 

 

-11.9

%

Contracted data processing

 

 

415

 

 

 

435

 

 

 

(20

)

 

 

-4.6

%

FDIC assessment

 

 

288

 

 

 

(1

)

 

 

289

 

 

 

28900.0

%

State franchise tax

 

 

427

 

 

 

499

 

 

 

(72

)

 

 

-14.4

%

Professional services

 

 

669

 

 

 

756

 

 

 

(87

)

 

 

-11.5

%

Amortization of intangible assets

 

 

227

 

 

 

235

 

 

 

(8

)

 

 

-3.4

%

ATM/Interchange expense

 

 

538

 

 

 

514

 

 

 

24

 

 

 

4.7

%

Marketing

 

 

361

 

 

 

404

 

 

 

(43

)

 

 

-10.6

%

Software maintenance expense

 

 

506

 

 

 

396

 

 

 

110

 

 

 

27.8

%

Other

 

 

2,197

 

 

 

2,323

 

 

 

(126

)

 

 

-5.4

%

Total noninterest expense

 

$

17,727

 

 

$

16,731

 

 

$

996

 

 

 

6.0

%

 

Noninterest expense for the three months ended September 30, 2020 was $17,727, an increase of $996, or 6.0%, from $16,731 reported for the same period of 2019. The primary reasons for the increase were increases in compensation expense, net occupancy expense, FDIC assessment and software maintenance expense, offset by decreases in equipment expense, state franchise tax, professional services and marketing expense. The increase in compensation expense was due to increased commission and incentive based costs, offset by a decrease in employee insurance costs.  The increase in net occupancy is the result of increased COVID-19 pandemic related expenses to janitorial services and supplies of $94. The quarter-over-quarter decrease in equipment expense is due to lower equipment repair and maintenance cost.  The quarter-over-quarter increase in FDIC assessments was attributable to an increase in the assessment base and small bank credits applied to the 2019 assessments.  The state franchise tax decrease is related to a refund of taxes paid in 2020.  The quarter-over-quarter decrease in professional services costs is the result of decreases in investment advisory fees, examination fees and legal and audit fees.  The increase in software maintenance expense is due to a general increase in software maintenance contracts. The quarter-over-quarter decrease in marketing expense is primarily due to a decrease in business promotion expense.

 

Income tax expense for the three months ended September 30, 2020 totaled $1,133, down $125 compared to the same period in 2019. The effective tax rates for the three-month periods ended September 30, 2020 and 2019 were 12.9% and 14.0%, 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.  The decrease in the effective tax rate is due to higher non-taxable income and lower taxable income for the three months ended September 30, 2020, as compared to the same period in 2019.

 

Page 45


Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

 

Nine Months Ended September 30, 2020 and 2019

 

The Company had net income of $22,019 for the nine months ended September 30, 2020, a decrease of $4,019 from net income of $26,038 for the same nine months of 2019. Basic earnings per common share were $1.36 for the period ended September 30, 2020, compared to $1.64 for the same period in 2019. Diluted earnings per common share were $1.36 for the period ended September 30, 2020, compared to $1.54 for the same period in 2019. The primary reasons for the changes in net income are explained below.

Net interest income for the nine months ended September 30, 2020 was $66,196, an increase of $2,318 from $63,878 in the same nine months of 2019.  This increase is the result of an increase of $611 in total interest income with a decrease of $1,707 in interest expense.  Interest-earning assets averaged $2,459,933 during the nine months ended September 30, 2020, an increase of $451,202 from $2,008,731 for the same period of 2019.  The Company’s average interest-bearing liabilities increased from $1,326,084 at September 30, 2019 to $1,590,433 at September 30, 2020.  The Company’s fully tax equivalent net interest margin for the nine months ended September 30, 2020 and 2019 was 3.70% and 4.35%, respectively.

Total interest income increased $611 to $74,144 for the period ended September 30, 2020, which is attributable to an increase of $1,529 in interest and fees on loans.  This change was the result of an increase in the average balance of loans, accompanied by a lower yield on the portfolio.  The average balance of loans increased by $322,037 or 20.2% to $1,913,514 for the period ended September 30, 2020, as compared to $1,591,477 for the period ended September 30, 2019.  The loan yield decreased to 4.53% for 2020, from 5.33% in 2019.

Interest on taxable securities decreased $1,055 to $4,100 for the period ended September 30, 2020, compared to $5,155 for the same period in 2019.  The average balance of taxable securities decreased $17,588 to $185,577 for the period ended September 30, 2020 as compared to $203,165 for the period ended September 30, 2019.  The yield on taxable securities decreased 37 basis points to 3.07% for 2020, compared to 3.44% for 2019.  Interest on tax-exempt securities increased $381 to $4,589 for the period ended September 30, 2020, compared to $4,208 for the same period in 2019.  The average balance of tax-exempt securities increased $31,501 to $201,303 for the period ended September 30, 2020 as compared to $169,802 for the period ended September 30, 2019.  The yield on tax-exempt securities decreased 22 basis points to 4.18% for 2020, compared to 4.40% for 2019.

Interest on interest-bearing deposits in other banks decreased $244 to $531 for the period ended September 30, 2020, compared to $775 for the same period in 2019.  The average balance of interest-bearing deposits in other banks increased $115,252 to $159,539 for the period ended September 30, 2020 as compared to $44,287 for the period ended September 30, 2019.  The yield on interest-bearing deposits in other banks decreased 190 basis points to 0.44% for 2020, compared to 2.34% for 2019.  

Interest expense decreased $1,707 or 17.7% to $7,948 for the period ended September 30, 2020, compared with $9,655 for the same period in 2019.  The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, offset by a decrease in rate.  For the period ended September 30, 2020, the average balance of interest-bearing liabilities increased $264,349 to $1,590,433, as compared to $1,326,084 for the period ended September 30, 2019.  Interest incurred on deposits decreased by $548 to $5,418 for the period ended September 30, 2020, compared to $5,966 for the same period in 2019. Although the average balance of interest-bearing deposits increased by $166,487 for the period ended September 30, 2020 as compared to the same period in 2019, deposit expense decreased due to a decrease in the rate paid on demand and savings accounts from 0.33% in 2019 to 0.19% in 2020. The rate paid on time deposits decreased from 1.89% to 1.85% in 2020.  Interest expense incurred on FHLB advances and subordinated debentures decreased 39.1% from 2019.  The average balance on Short-term FHLB balances decreased $106,341 for the period ended September 30, 2020 as compared to the same period in 2019, while the average balance on Long-term FHLB advances increased $96,007 for the period ended September 30, 2020 as compared to the same period in 2019.  The rate paid on Short-term and Long-term FHLB advances decreased 80 and 61 basis points, respectively for the period ended September 30, 2020 as compared to the same period in 2019.  In addition, the rate paid on subordinated debentures decreased 153 basis points for the period ended September 30, 2020 as compared to the same period in 2019. The average balance of other borrowings increased $103,133 for the period ended September 30, 2020 as compared to the same period in 2019 as a result of the Company’s borrowings under the PPPLF to fund PPP loans.

Page 46


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, 2020 and 2019. 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,

 

 

 

2020

 

 

2019

 

Assets:

 

Average

balance

 

 

Interest

 

 

Yield/

rate*

 

 

Average

balance

 

 

Interest

 

 

Yield/

rate*

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees**

 

$

1,913,514

 

 

$

64,924

 

 

 

4.53

%

 

$

1,591,477

 

 

$

63,395

 

 

 

5.33

%

Taxable securities

 

 

185,577

 

 

 

4,100

 

 

 

3.07

%

 

 

203,165

 

 

 

5,155

 

 

 

3.44

%

Tax-exempt securities

 

 

201,303

 

 

 

4,589

 

 

 

4.18

%

 

 

169,802

 

 

 

4,208

 

 

 

4.40

%

Interest-bearing deposits in other banks

 

 

159,539

 

 

 

531

 

 

 

0.44

%

 

 

44,287

 

 

 

775

 

 

 

2.34

%

Total interest-earning assets

 

$

2,459,933

 

 

$

74,144

 

 

 

4.13

%

 

$

2,008,731

 

 

$

73,533

 

 

 

5.00

%

Noninterest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from financial institutions

 

 

94,083

 

 

 

 

 

 

 

 

 

 

 

53,517

 

 

 

 

 

 

 

 

 

Premises and equipment, net

 

 

22,830

 

 

 

 

 

 

 

 

 

 

 

21,844

 

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

8,729

 

 

 

 

 

 

 

 

 

 

 

6,929

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

84,965

 

 

 

 

 

 

 

 

 

 

 

85,863

 

 

 

 

 

 

 

 

 

Other assets

 

 

37,802

 

 

 

 

 

 

 

 

 

 

 

22,607

 

 

 

 

 

 

 

 

 

Bank owned life insurance

 

 

45,332

 

 

 

 

 

 

 

 

 

 

 

44,186

 

 

 

 

 

 

 

 

 

Less allowance for loan losses

 

 

(17,759

)

 

 

 

 

 

 

 

 

 

 

(13,896

)

 

 

 

 

 

 

 

 

Total Assets

 

$

2,735,915

 

 

 

 

 

 

 

 

 

 

$

2,229,781

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings

 

$

1,010,719

 

 

$

1,433

 

 

 

0.19

%

 

$

862,098

 

 

$

2,159

 

 

 

0.33

%

Time

 

 

287,740

 

 

 

3,985

 

 

 

1.85

%

 

 

269,874

 

 

 

3,807

 

 

 

1.89

%

Short-term FHLB advance

 

 

10,888

 

 

 

134

 

 

 

1.64

%

 

 

117,229

 

 

 

2,137

 

 

 

2.44

%

Long-term FHLB advance

 

 

125,000

 

 

 

1,346

 

 

 

1.44

%

 

 

28,993

 

 

 

444

 

 

 

2.05

%

Other borrowings

 

 

103,133

 

 

 

275

 

 

 

0.36

%

 

 

 

 

 

 

 

 

 

Federal funds purchased

 

 

385

 

 

 

1

 

 

 

0.35

%

 

 

 

 

 

 

 

 

 

Subordinated debentures

 

 

29,427

 

 

 

757

 

 

 

3.44

%

 

 

29,427

 

 

 

1,094

 

 

 

4.97

%

Repurchase Agreements

 

 

23,141

 

 

 

17

 

 

 

0.10

%

 

 

18,463

 

 

 

14

 

 

 

0.10

%

Total interest-bearing liabilities

 

$

1,590,433

 

 

$

7,948

 

 

 

0.67

%

 

$

1,326,084

 

 

$

9,655

 

 

 

0.97

%

Noninterest-bearing deposits

 

 

757,696

 

 

 

 

 

 

 

 

 

 

 

567,365

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

53,633

 

 

 

 

 

 

 

 

 

 

 

21,843

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

334,153

 

 

 

 

 

 

 

 

 

 

 

314,489

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

2,735,915

 

 

 

 

 

 

 

 

 

 

$

2,229,781

 

 

 

 

 

 

 

 

 

Net interest income and interest rate spread

 

 

 

 

 

$

66,196

 

 

 

3.46

%

 

 

 

 

 

$

63,878

 

 

 

4.03

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.70

%

 

 

 

 

 

 

 

 

 

 

4.35

%

 

*—Average yields are presented on a tax equivalent basis.  The tax equivalent effect associated with loans and investments, included in the yields above, was $1,230 and $1,130 for the periods ended September 30, 2020 and 2019, respectively.

 

**—Average balance includes nonaccrual loans.

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)

 

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, 2020 and 2019. 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

 

$

11,730

 

 

$

(10,201

)

 

$

1,529

 

Taxable securities

 

 

(526

)

 

 

(529

)

 

 

(1,055

)

Tax-exempt securities

 

 

593

 

 

 

(212

)

 

 

381

 

Interest-bearing deposits in other banks

 

 

771

 

 

 

(1,015

)

 

 

(244

)

Total interest income

 

$

12,568

 

 

$

(11,957

)

 

$

611

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings

 

$

326

 

 

$

(1,052

)

 

$

(726

)

Time

 

 

248

 

 

 

(70

)

 

 

178

 

Short-term FHLB advance

 

 

(1,475

)

 

 

(528

)

 

 

(2,003

)

Long-term FHLB advance

 

 

1,070

 

 

 

(168

)

 

 

902

 

Other borrowings

 

 

275

 

 

 

 

 

 

275

 

Federal funds purchased

 

 

1

 

 

 

 

 

 

1

 

Subordinated debentures

 

 

 

 

 

(337

)

 

 

(337

)

Repurchase agreements

 

 

3

 

 

 

 

 

 

3

 

Total interest expense

 

$

448

 

 

$

(2,155

)

 

$

(1,707

)

Net interest income

 

$

12,120

 

 

$

(9,802

)

 

$

2,318

 

 

(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 $7,862 and $150 during the periods ended September 30, 2020 and 2019, respectively. The increase in the provision was due to an increase in the bank’s qualitative factors, primarily changes in international, national, regional and local conditions, related to the economic shutdown driven by the ongoing COVID-19 pandemic. Economic impacts related to the COVID-19 pandemic include the loss of revenue being experience by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. Our Commercial, Commercial Real Estate and Consumer portfolios have been, and are expected to continue to be impacted the most.

Noninterest income for the nine-month periods ended September 30, 2020 and 2019 are as follows:

 

 

 

Nine months ended September 30,

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Service charges

 

$

3,812

 

 

$

4,733

 

 

$

(921

)

 

 

-19.5

%

Net gain on sale of securities

 

 

92

 

 

 

17

 

 

 

75

 

 

 

441.2

%

Net gain (loss) on equity securities

 

 

(126

)

 

 

81

 

 

 

(207

)

 

 

-255.6

%

Net gain on sale of loans

 

 

5,501

 

 

 

1,701

 

 

 

3,800

 

 

 

223.4

%

ATM/Interchange fees

 

 

3,226

 

 

 

2,871

 

 

 

355

 

 

 

12.4

%

Wealth management fees

 

 

2,916

 

 

 

2,733

 

 

 

183

 

 

 

6.7

%

Bank owned life insurance

 

 

733

 

 

 

753

 

 

 

(20

)

 

 

-2.7

%

Tax refund processing fees

 

 

2,375

 

 

 

2,750

 

 

 

(375

)

 

 

-13.6

%

Swap fees

 

 

1,260

 

 

 

287

 

 

 

973

 

 

 

339.0

%

Other

 

 

727

 

 

 

890

 

 

 

(163

)

 

 

-18.3

%

Total noninterest income

 

$

20,516

 

 

$

16,816

 

 

$

3,700

 

 

 

22.0

%

 

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)

 

Noninterest income for the nine months ended September 30, 2020 was $20,516, an increase of $3,700 or 22.0% from $16,816 for the same period of 2019. The increase was primary due to increases in net gain on sale of loans of $3,800, ATM/Interchange fees of $355 and swap fees of $973, partially offset by a decrease in service charges of $921, tax refund processing fees of $375 and other income of $163.  In addition, net gain on sale of securities increased $75 due to security sales, while net gain (loss) on equity securities decreased $207 as a result of market value decreases.  Net gain on sale of loans increased primarily as a result of an increase in volume of loans sold.  During the nine-months ended September 30, 2020, 1,076 loans were sold, totaling $211,143.  During the nine-months ended September 30, 2019, 465 loans were sold, totaling $80,482.  ATM/Interchange fees increased as a result of increased transaction volume.  Swap fees increased due to the volume of swaps performed during the nine-months ended September 30, 2020 as compared to the same period of 2019.  Service charges decreased due to Civista waiving $93 of service fees on deposits accounts related to the COVID-19 pandemic. In addition, overdraft fees decreased during 2020.  Other income decreased due to the amortization of mortgage servicing rights as a result of higher loan payoffs.

 

Additionally, the Company processes state and federal income tax refund payments for customers of third-party income tax preparation vendors for which we receive a fee for processing the refund payments.  Tax refund processing fees were $2,375 for the period ended September 30, 2019, a decrease of $375 from $2,750 for the same period of 2019.  The decrease is the result of a decrease in volume of transactions processed during the period.  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, 2020 and 2019 are as follows:

 

 

 

Nine months ended September 30,

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Compensation expense

 

$

32,063

 

 

$

29,059

 

 

$

3,004

 

 

 

10.3

%

Net occupancy expense

 

 

3,050

 

 

 

2,906

 

 

 

144

 

 

 

5.0

%

Equipment expense

 

 

1,507

 

 

 

1,504

 

 

 

3

 

 

 

0.2

%

Contracted data processing

 

 

1,340

 

 

 

1,301

 

 

 

39

 

 

 

3.0

%

FDIC assessment

 

 

531

 

 

 

297

 

 

 

234

 

 

 

78.8

%

State franchise tax

 

 

1,394

 

 

 

1,398

 

 

 

(4

)

 

 

-0.3

%

Professional services

 

 

2,289

 

 

 

2,151

 

 

 

138

 

 

 

6.4

%

Amortization of intangible assets

 

 

686

 

 

 

710

 

 

 

(24

)

 

 

-3.4

%

ATM/Interchange expense

 

 

1,316

 

 

 

1,437

 

 

 

(121

)

 

 

-8.4

%

Marketing

 

 

1,056

 

 

 

1,111

 

 

 

(55

)

 

 

-5.0

%

Software maintenance expense

 

 

1,350

 

 

 

1,101

 

 

 

249

 

 

 

22.6

%

Other operating expenses

 

 

7,115

 

 

 

6,843

 

 

 

272

 

 

 

4.0

%

Total noninterest expense

 

$

53,697

 

 

$

49,818

 

 

$

3,879

 

 

 

7.8

%

 

Noninterest expense for the nine months ended September 30, 2020 was $53,697, an increase of $3,879, or 7.8%, from $49,818 reported for the same period of 2019. The primary reasons for the increase were increases in compensation expenses of $3,004, FDIC assessments of $234, professional services costs of $138, software maintenance expense of $249 and other operating expenses of $272, offset by decreases in ATM/Interchange expense of $121.  The increase in compensation expense was due to increased payroll, overtime pay, 401k expenses, payroll taxes and commission and incentive based costs, offset by a decrease in employee insurance costs.  The year-to-date average full time equivalent (FTE) employees were 452.1 at September 30, 2020, an increase of 11.3 FTEs over 2019, which increased payroll and payroll related expenses. Payroll and payroll related expenses also increased due to annual pay increases and increases in commission based costs as the result of increased loan activity.  The year-over-year increase in FDIC assessments was attributable to small bank assessment credits applied to the 2019 assessment charges.  The increase in professional services costs is the result of increased consulting services to implement cost savings and customer services and increased recruitment costs.  The decrease in ATM/Interchange expense is primarily due to a settlement received in the second quarter of 2020.  The increase in software maintenance expense is due to a general increase in software maintenance contracts. The increase in other operating expense is primarily due to increases in software depreciation, amortization of low income housing investments, other loan expense, MSR valuation expense, ATM/debit card losses and communication expense, offset by decreases in travel, lodging and meals.

 

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)

 

Income tax expense for the nine months ended September 30, 2020 totaled $3,134, down $1,554 compared to the same period in 2019. The effective tax rates for the nine month periods ended September 30, 2020 and 2019 were 12.5% and 15.3%, 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.  The decrease in the effective tax rate is due to lower taxable income for the nine-months ended September 30, 2020, as compared to the same period in 2019.

Capital Resources

Shareholders’ equity totaled $342,055 at September 30, 2020 compared to $330,126 at December 31, 2019. The Company repurchased common shares during the period, which totaled $12,756. The increase in shareholders’ equity was also impacted by net income of $22,019, a $171 net decrease in the Company’s pension liability and an increase in the fair value of securities available for sale, net of tax, of $7,342, which was partially offset by dividends on common stock of $5,365.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of September 30, 2020 and December 31, 2019 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, 2020

 

 

15.9

%

 

 

14.7

%

 

 

13.2

%

 

 

10.7

%

Company Ratios—December 31, 2019

 

 

16.1

%

 

 

15.3

%

 

 

13.6

%

 

 

12.3

%

For Capital Adequacy Purposes

 

 

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

%

 

Liquidity

The Company maintains a conservative liquidity position. All securities are classified as available for sale. Securities, with maturities of one year or less, totaled $11,311, or 3.1% of the total security portfolio at September 30, 2020. 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 $25,301 and $22,522 for the nine months ended September 30, 2020 and 2019, respectively. The primary additions to cash from operating activities are from proceeds from the sale of loans. In addition, in 2020, additions from the change in the provision of loan losses and net deferred loan fees of $7,862 and $7,721, respectively added to cash from operating activities. The primary use of cash from operating activities is from loans originated for sale. The increase in originations and sales of loans held for sale is due to an increase in volume due to refinances as rates have declined.  Net cash used for investing activities was $340,281 and $81,955 for the nine months ended September 30, 2020 and 2019, respectively, principally reflecting our loan and investment security activities.  Cash provided by and used for deposits, borrowings and purchase of treasury shares comprised most of our financing activities, which resulted in net cash provided by of $461,218 and $78,873 for the nine months ended September 30, 2020 and 2019, 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. As of September 30, 2020, Civista had total credit availability with the FHLB of $617,547 with standby letters of credit totaling $20,000 and a remaining borrowing capacity of approximately $472,547. In addition, CBI maintains a credit line totaling $10,000.

 

 

 

Page 50


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, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve guidance and discusses the importance of these elements in the context of managing interest-rate risk. Specifically, 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 51


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, 2019 and September 30, 2020, 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, 2020 and December 31, 2019.

The Company had derivative financial instruments as of December 31, 2019 and September 30, 2020. 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

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Change in Rates

 

Dollar

Amount

 

 

Dollar

Change

 

 

Percent

Change

 

 

Dollar

Amount

 

 

Dollar

Change

 

 

Percent

Change

 

+200bp

 

 

494,363

 

 

 

45,414

 

 

 

10

%

 

 

449,843

 

 

 

31,596

 

 

 

8

%

+100bp

 

 

481,410

 

 

 

32,461

 

 

 

7

%

 

 

437,195

 

 

 

18,948

 

 

 

5

%

Base

 

 

448,949

 

 

 

 

 

 

 

 

 

418,247

 

 

 

 

 

 

 

-100bp

 

 

488,371

 

 

 

39,422

 

 

 

9

%

 

 

394,943

 

 

 

(23,304

)

 

 

-6

%

-200bp

 

 

516,305

 

 

 

67,356

 

 

 

15

%

 

 

416,878

 

 

 

(1,369

)

 

 

0

%

 

The change in net portfolio value from December 31, 2019 to September 30, 2020, can be attributed to a couple of factors.  There was a drop in the yield curve from the end of the year, and both the volume and mix of assets and funding sources has changed.  The volume of loans has increased, but the mix has shifted toward cash.  Both the increase in loans and cash are primarily a result of PPP loans and the proceeds of those loans on deposit, respectively.  Similarly, the volume and mix of liabilities has shifted toward deposits and other borrowings.  Deposits increased as a result of PPP loan proceeds on deposit and other borrowings increased as a result of PPP funding acquired from the PPPLF.  The mix shifts from the end of the year led to a slight increase in the base net portfolio value.  Generally, assets have shifted toward less volatile components while liabilities have shifted toward more volatile components.  Combined, this led to an increase in volatility.  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.  For 100 and 200 basis point downward changes in rates, the market value of assets would increase more quickly than the market value of liabilities, leading to an increase in the net portfolio value.

 

 

Page 52


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, 2020, 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 53


Civista Bancshares, Inc.

Other Information

Form 10-Q

 

Part II—Other Information

Item 1.

 

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, CBI 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.

 

Item 1A.

Risk Factors

There were no material changes during the current period to 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, 2019, as supplemented by the risk factors in “Item 1A. Risk Factors” of the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2020, 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, 2020 -

   July 30, 2020

 

 

 

 

$

 

 

 

 

 

$

13,500,000

 

August 1, 2020 -

   August 31, 2020

 

 

 

 

$

 

 

 

 

 

$

13,500,000

 

September 1, 2020 -

   September 30, 2020

 

 

107,500

 

 

$

12.15

 

 

 

107,500

 

 

$

12,193,701

 

Total

 

 

107,500

 

 

$

12.15

 

 

 

107,500

 

 

$

12,193,701

 

 

On May 4, 2020, the Company announced the implementation of a common share repurchase program which authorized the Company to repurchase a maximum aggregate value of $13,500,000 of its outstanding common shares. The expiration date of the common share repurchase program is April 20, 2021.  A total of 107,500 common shares had been repurchased for an aggregate purchase price of $1,306,299 as of September 30, 2020 under the repurchase program.

 

Item 3.

Defaults Upon Senior Securities

 

None

 

Item 4.Mine Safety Disclosures

 

Not applicable

 

Item 5.

Other Information

None

 

Page 54


Civista Bancshares, Inc.

Other Information

Form 10-Q

 

Item 6.

Exhibits

 

Exhibit

 

Description

 

Location

 

 

 

 

 

  3.1

 

Second Amended and Restated Articles of Incorporation of Civista Bancshares, Inc., as filed with the Ohio Secretary of State on November 15, 2018.

 

Filed as Exhibit 3.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K, filed on November 16, 2018 and incorporated herein by reference. (File No. 001-36192)

 

 

 

 

 

  3.2

 

Amended and Restated Code of Regulations of Civista Bancshares, Inc. (adopted April 15, 2008)

 

Filed as Exhibit 3.2 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed on November 8, 2017 and incorporated herein by reference.  (File No. 001-36192)

 

 

 

 

 

31.1

 

Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer.

 

Included herewith

 

 

 

 

 

31.2

 

Rule 13a-14(a)/15-d-14(a) Certification of Principal Accounting Officer.

 

Included herewith

 

 

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Included herewith

 

 

 

 

 

32.2

 

Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Included herewith

 

 

 

 

 

101

 

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, formatted in Inline Extensible Business Reporting Language: (i) Consolidated Balance Sheets (Unaudited) as of September 30, 2020 and December 31, 2019; (ii) Consolidated Statements of Income (Unaudited) for the three- and nine- months ended September 30, 2020 and 2019; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three- and nine- months ended September 30, 2020 and 2019; (iv) Consolidated Statement of Shareholders’ Equity (Unaudited) for the three- and nine- months ended September 30, 2020 and 2019; (v)  Condensed Consolidated Statement of Cash Flows (Unaudited) for the nine months ended September 30, 2020 and 2019; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).

 

Included herewith

 

 

 

 

 

104

 

Cover page formatted in Inline Extensible Business Reporting Language.

 

Included herewith

 

 

 

Page 55


 

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.

 

 

 

 

/s/ Dennis G. Shaffer

 

November 9, 2020

Dennis G. Shaffer

 

Date

Chief Executive Officer and President

 

 

 

 

 

 

/s/ Todd A. Michel

 

November 9, 2020

Todd A. Michel

 

Date

Senior Vice President, Controller

 

 

 

Page 56