Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL - ------- The CIVISTA Corporation ("CIVISTA"), headquartered in Canton, Ohio, is a unitary savings and loan holding company whose principal asset is the common stock of its wholly owned subsidiary, Citizens Savings Bank of Canton ("Citizens Savings Bank"). In addition, CIVISTA owns all of the common stock of Citizens Savings Corporation of Stark County ("CSC"), The CASNET Group, Inc. ("CASNET"), Citizens Investment Corporation ("CIC") and Crest Investments, Inc.; two apartment complexes, and short-term investments.
CIVISTA was organized in March 1987 and remained inactive until August 17, 1988. On that date, Citizens Savings Bank shareholders became CIVISTA shareholders in a tax-free and regulatory reorganization. This transaction was accounted for as a pooling-of-interests.
As a savings and loan holding company, CIVISTA is principally engaged in management of Citizens Savings Bank. Citizens Savings Bank is an Ohio-chartered savings and loan association headquartered in Canton, Ohio. It has operated continuously under the capital stock form of ownership since its organization in 1899. Citizens Savings Bank conducts its activities from a lending office and a network of 11 full service offices located in Stark County, Ohio. Citizens Savings Bank is a member of the Federal Home Loan Bank ("FHLB") of Cincinnati and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") through the Savings Association Insurance Fund ("SAIF") up to the maximum amount permitted by law.
On August 10, 1994, CIVISTA entered into an Agreement of Affiliation and Plan of Merger with First Bancorporation of Ohio ("FBOH"). Pursuant of this agreement, CIVISTA will be merged into FBOH and the merger will be accounted for as a pooling of interests. It is contemplated that Citizens Savings Bank will merge with The First National Bank in Massillon, a Stark County subsidiary of FBOH. Under the terms of the agreement, FBOH will exchange 1.723 shares of its common stock for each outstanding CIVISTA share. CIVISTA has granted FBOH an option to acquire 350,655 shares of CIVISTA preferred stock at $33.50 per share, which option becomes exercisable upon the occurrence of specified events not consistent with the merger being consummated. The merger is expected to be completed during the first calendar quarter of 1995. FBOH intends to dispose of CIVISTA's non-banking subsidiaries and assets including CSC, CASNET, CIC, Crest Investments, Inc. and the apartment complexes owned by CIVISTA.
LENDING ACTIVITIES - ------------------ Citizens Savings Bank operates in Canton and adjacent communities. Its principal business is utilizing savings deposits from the general public to originate residential mortgage loans. Citizens Savings Bank is engaged, to a limited extent, in making first mortgage loans on income-producing real estate, second mortgage loans on one-to-two family residences, secured home improvement loans, savings deposit secured loans, education loans, consumer loans and credit card loans. Citizens Savings Bank's authorized lending area is the entire United States. However, Citizens Savings Bank's principal lending activity is in the areas in which its offices are located, which encompasses almost all of Stark County, Ohio. Funds for lending activities are obtained largely from savings deposits, loan repayments, advances from the FHLB and other borrowings.
Mortgage loans on single-family dwellings are typically for terms of 10 to 30 years. These loans are often repaid prior to their contractual maturity date by a sale by the borrower, by refinancing the property or by the borrower's acceleration of periodic payments. Generally the loan-to-value ratio does not exceed 95% of the appraised value of improved real estate. Loans in excess of 95% of value may be made on security of single-family dwellings only if such loans are insured or guaranteed by an agency of the federal government. Private mortgage insurance is required for conventional loans in an amount exceeding 80% of the appraised value. All loans are approved by a loan committee consisting of members of senior management and experienced lending personnel and loans are ratified by Citizens Savings Bank's Board of Directors. Title insurance or certification, fire and casualty insurance and appraisals are required on all mortgage loans.
Due to lower interest rates in 1993 and 1992, many borrowers converted their adjustable rate loans into fixed rate loans. Set forth below are the amounts and relative percentages of fixed rate and adjustable rate mortgage loans at September 30, 1994, 1993 and 1992:
To the extent that local loan demand has not met loan production goals, loans and loan participations have been purchased from other financial institutions and brokers throughout the United States. As of September 30, 1994, Citizens Savings Bank owned approximately $30,934,000 of purchased loans and loan participations. The properties securing these loans are located throughout the United States. As a result of the availability of mortgage-backed securities, purchases of loans and loan participations have been minimal in the last five years.
The following table sets forth the contractual maturities for the types of loans and mortgage-backed securities indicated at September 30, 1994.
Due to the nature of Citizens Savings Bank's loan portfolio, loan rollovers are an infrequent event. Citizens Savings Bank does not generally grant short-term secured or unsecured loans that are subject to rollover requests. In addition, Citizens Savings Bank does not grant short-term (5 to 7 year) balloon mortgage loans that might be subject to rollover requests.
Additional information on the mortgage-backed security and loan portfolio is included in Notes 4, 5, and 6 of Notes to Consolidated Financial Statements under Item 8 and Management's Discussion and Analysis of Financial Condition and Results of Operations under Item 7.
A summary of Citizens Savings Bank's mortgage-backed security and loan portfolio at the end of the last five years follows:
CITIZENS SAVINGS BANK
RISK ELEMENTS - ------------- CIVISTA has in place a system for asset review and classification that complies with federal regulations. Federal regulations provide for the classification of loans and other delinquent or problem assets as "substandard", "doubtful" or "loss" assets. The regulations require insured institutions to classify their own assets and to establish appropriate general allowances for losses for assets classified "substandard" or "doubtful". For assets or portions of assets classified "loss", an institution is required to either establish specific allowances of 100% of the amount classified "loss" or charge off such amount.
On a monthly basis, CIVISTA reviews loans, real estate owned and other assets to identify and address delinquent or problem assets. Based upon management's evaluation of these loans and problem assets, assets are classified, if appropriate, as "substandard", "doubtful" or "loss" and provisions for losses are recorded. In addition to providing general and specific reserves on individual assets, CIVISTA establishes general reserves for losses based upon the overall portfolio composition and general market conditions.
Potential problem loans are those loans which have been fully or partially classified as "substandard", "doubtful" or "loss" and are not loans past due 90 days. These loans may be current, delinquent less than 90 days or have a history of late payments. Based on loan to value ratios and other factors, CIVISTA has classified these loans.
The following table sets forth by categories all assets which have been classified "substandard", "doubtful" or "loss":
NON-ACCRUAL LOANS - ----------------- At September 30, 1994, the non-accrual loans declined principally as a result of the sale of a $661,578 loan on property in Santa Rosa Cove, La Quinta, California.
It is Citizens Savings Bank's policy to reserve interest on any loan when, in the opinion of management, such reserve is warranted (generally if principal and/or interest are in default 90 days). This policy has the effect of treating all loans which are past due 90 days as non-accrual. In addition, loans are classified non-accrual when principal and accrued interest exceeds the net realizable value of the underlying collateral and foreclosure is anticipated.
Interest which was reserved is recognized in income upon collection.
At September 30, 1994, the gross interest income that would have been reported during fiscal 1994 if the loans past due 90 days had been current in accordance with their original terms was $60,254. Of this amount, $38,746 was recorded in income as a result of payments.
LOAN PAST DUE 90 DAYS - --------------------- At September 30, 1993, loans past due 90 days consisted of a $1.3 million loan on an industrial manufacturing warehouse facility in Canton. Citizens Savings Bank was paid in full when this property was sold as a result of foreclosure proceedings.
REAL ESTATE OWNED - ----------------- During 1994, the balance of real estate owned declined $516,220 principally as a result of sales of approximately $.6 million of single- family homes, lots and undeveloped land.
RESTRUCTURED LOAN - ----------------- In 1993, Citizens Savings Bank restructured the terms of a first mortgage loan on a strip shopping center in Canal Fulton, Ohio.
JOINT VENTURE LOANS - ------------------- At September 30, 1993, Citizens Savings Bank had a non-earning loan of $476,633 to a CIVISTA-managed joint venture which constructed condominiums, single-family homes and sold lots in La Quinta, California. During 1994, Citizens Savings Bank charged off the $476,633 remaining balance.
REAL ESTATE DEVELOPMENT AND INVESTMENT PROPERTIES - ------------------------------------------------- During 1994, CIVISTA classified 37 lots in a tract known as Enclave Mountain Estates in La Quinta, California and a 12 acre tract which is located near the Enclave Mountain Estates. These assets are further described under "Subsidiary and Other Activities" and in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under "Real Estate Development Assets" and "Asset Review".
POTENTIAL PROBLEM LOANS - ----------------------- The 1994 decrease of $1.8 million in potential problem loans reflects third party refinancing of two apartment complexes, loan payoffs and improving conditions which resulted in fewer loans being classified as problem assets.
At the most recent examination of Citizens Savings Bank conducted by the Division of Savings and Loan Associations of the State of Ohio and the Office of Thrift Supervision in March 1994, CIVISTA had no disagreements with the examiners regarding the classification of assets.
The following table provides an analysis of CIVISTA's reserves for losses on loans, real estate owned, joint venture loans and real estate development assets for the years shown.
The reserves for losses on loans, real estate owned and joint venture loans were allocated as follows:
During 1994, Citizens Savings Bank provided $727,121 provision for losses. This provision coupled with reduced charge-offs resulted in the reserves for losses increasing to $3,539,780.
Management believes that the reserves are adequate and appropriate based on the conditions that existed at September 30, 1994. Although management believes that it uses the best information available to make such determinations, future adjustments to reserves may be necessary, and net income could be affected, if future circumstances differ substantially from the information and assumptions used.
INVESTMENT ACTIVITIES - --------------------- CIVISTA and Citizens Savings Bank invest in various types of liquid assets, including short-term United States Government and agency obligations, certain certificates of deposits at insured banks and savings institutions, certain bankers' acceptances and federal funds.
The carrying values of investment securities at the dates indicated are summarized below:
The carrying value and weighted average yield of United States Government and agency obligations at September 30, 1994 are summarized below:
At September 30, 1994, CIVISTA did not hold any U. S. Government or agency security with a maturity longer than seven years.
Additional information on CIVISTA's investment portfolio is included in Note 3 of Notes to Consolidated Financial Statements under Item 8.
As an Ohio-chartered savings and loan, Citizens Savings Bank is subject to the provisions of Ohio law which govern a savings and loan association's investments. Notwithstanding the authority provided under Ohio law, Citizens Savings Bank is subject foremost to OTS regulations. The implementation of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") generally limits the equity investment activities of state-chartered savings and loan associations. (See Regulation - Restrictions on State-Chartered Savings Associations.)
SAVINGS ACTIVITIES - ------------------ Citizens Savings Bank offers programs designed to attract short-term and long-term savings deposits at rates and terms consistent with profitable investment activities. Rather than pay unprofitable deposit rates, Citizens Savings Bank, has been willing, if necessary, to let deposit balances shrink. The deposit programs include passbook savings accounts, statement savings accounts, club accounts, certificate of deposit accounts, money market fund-competitive accounts, retirement accounts and interest-paying, negotiable order of withdrawal ("NOW") checking accounts.
Citizens Savings Bank has never utilized brokered deposits.
The table set forth below summarizes average deposits and weighted average rates for the years indicated.
The following table summarizes the certificates of deposit issued in amounts of $100,000 or more as of September 30, 1994 by time remaining until maturity.
(Dollars in Thousands)
Additional information on Citizens Savings Bank's savings activities is included in Note 11 of Notes to Consolidated Financial Statements under Item 8.
BORROWINGS - ---------- As a member of the FHLB, Citizens Savings Bank may borrow from the FHLB in accordance with statutory authority and specific loan underwriting considerations determined by Citizens Savings Bank. The policy on maximum borrowings for purposes other than savings withdrawals varies from time to time.
At September 30, 1994 and 1993, Citizens Savings Bank's FHLB advances equaled 1.23% and 1.79% of CIVISTA's assets, respectively. See Note 12 in Notes to Consolidated Financial Statements under Item 8.
In October 1991, CIVISTA borrowed $1,500,000 from an insurance company in order to finance the Perry Hills Colony apartments. Interest is fixed at 10.375% and the loan matures in 2006.
CIVISTA borrowed $7,900,000 from an insurance company in 1991 in order to refinance the Woodlawn Village and London Square apartment complexes. The loans on these apartment complexes have monthly payments totalling $73,184. Interest is fixed at 10.25% and the loans mature in 2005.
INTEREST RATE MARGINS - --------------------- CIVISTA's operating results depend primarily on the margin between the income from earning assets and cost of funds.
The net yield on interest-earning assets (net interest earnings divided by average interest-earning assets, with net interest earnings equalling the difference between the dollar amount of interest earned and paid) was 3.86%, 4.16% and 3.94%, for the years ended September 30, 1994, 1993 and 1992, respectively. Interest-earning assets were calculated based on a daily interval.
During 1994, the net yield on interest-earning assets declined to 3.86% from 4.16% in fiscal 1993. This decrease was caused by a .59% decline in the yield on interest-earning assets compared to a .26% decline in the average interest rate on interest-bearing liabilities. The much larger decline in yield on interest-earning assets was only partially offset by the growth in average interest-earning assets.
During 1993, the net yield on interest-earning assets grew from 1992's record of 3.94% to a new record of 4.16%. In 1993, the net yield on interest-earning assets grew .22% compared to the much larger increase of .77% between 1991 and 1992. The 1993 increase in net yield was caused by two factors. The first factor was a decline in average interest rate on interest-bearing liabilities which was slightly larger than the decrease in yield on average interest-earning assets as noted in the table below. 1993's net yield also increased because the average balance of interest-earning assets grew $26.4 million while average interest-bearing liabilities only grew $3.9 million.
The following table sets forth for CIVISTA the average balances, interest income/expense and average rates for the periods indicated.
The following tables present certain information regarding changes in interest income and interest expense of CIVISTA for the years ended September 30, 1994, 1993 and 1992, respectively. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in volume (change in volume multiplied by old rate) and (2) changes in rate (change in rate multiplied by old volume). The net change attributable to the combined impact of volume and rate has been allocated in proportion to the relationship of the absolute dollar amounts of change in each.
Classified assets are included in the average balances for the periods presented. Loan interest, which has been reserved, has been excluded from the average yields for the periods presented.
ASSET/LIABILITY MANAGEMENT - -------------------------- CIVISTA's interest rate risk management program is administered through Citizens Savings Bank's Asset and Liability Committee ("ALCO"). In addition to managing Citizens Savings Bank's exposure to changes in interest rates, ALCO also monitors economic conditions, lending activity, savings activity and liquidity.
Citizens Savings Bank is similar to many financial institutions in that its interest-bearing liabilities mature or otherwise reprice faster than its assets. Since liabilities reprice much faster than assets, a falling interest rate environment will generally improve net interest income while a rising interest environment will generally decrease net interest income.
The OTS has issued a regulation which adds an interest rate risk component to the risk-based capital rule. This interest rate risk component is predicated on the net portfolio value of an institution's assets, liabilities and off balance sheet commitments under a range of interest rate scenarios. The OTS calculates the change in net portfolio value due to an immediate interest rate increase or decrease of 200 basis points.
Using September 30, 1994 data, the OTS calculated Citizens Savings Bank's current net portfolio value at $76,466,000. With an instantaneous drop of 200 basis points, this net portfolio value grew $13,684,000 to $90,150,000. If interest rates immediately rise 200 basis points, the OTS calculated that the net portfolio value would drop $20,161,000 to $56,305,000. These calculations reflect the fact that Citizens Savings Bank is subject to significant interest rate risk.
Through its ongoing interest rate risk management program, Citizens Savings Bank seeks to maintain interest rate risk at an acceptable level. This program does not attempt to eliminate interest rate risk.
SUBSIDIARY AND OTHER ACTIVITIES - ------------------------------- CSC owns and manages approximately 350 residential rental units in apartment and duplex complexes which are primarily in the suburban Canton, area. CSC owns a large portion of the Lakeview Office Condominium located in the Belden Village area of Stark County, Ohio. Through its division, CIVISTA Real Estate Company, CSC is engaged in property management for third parties.
CIC was incorporated in 1981 for residential real estate development in La Quinta, California. During 1990, CIC acquired title to 40 acres of land in La Quinta, California which are contiguous to the land developed by a CIVISTA-managed joint venture. Approximately 28 acres have been developed into 54 residential lots. As of September 30, 1994, 17 lots have been sold and closed. No plans have been finalized for the remaining acreage. In addition, CIC is managing partner of a joint venture in La Quinta, California. In 1991, the joint venture completed the sellout of its real estate inventory; however, the joint venture will not be terminated until a remaining warranty issue is resolved.
CIVISTA also owns CASNET, Crest Investments, Inc. and the Woodlawn Village and London Square apartments. CASNET provides data processing services for Citizens Savings Bank and other savings and loan associations in three states through a service center in Canton, Ohio. In addition, CASNET develops computer software for financial institutions, provides microfiche services, interactive voice response technology and personal computer consulting. During 1992, CASNET entered the credit union on-line servicing market by purchasing nine credit union contracts from Cascade Financial Services. Crest Investments, Inc. owns Crest Insurance Agency, Inc., which sells securities and tax-deferred annuities under an agreement with a registered broker/dealer. Woodlawn Village and London Square are residential apartment complexes in suburban Canton. The complexes contain 422 units.
CERTAIN RATIOS - -------------- The following table shows certain income and financial condition ratios of CIVISTA for the periods indicated.
The ratios shown above utilize averages calculated on a daily interval.
FEDERAL AND STATE TAXATION - -------------------------- Federal income tax returns for CIVISTA and its subsidiaries are reported on a consolidated basis. Savings and loan associations, such as Citizens Savings Bank, which qualify by meeting certain definitional requirements primarily relating to their asset investments and sources of income, are permitted to establish a reserve for bad debts and to make annual additions thereto. Such additions qualify as deductions from taxable income. A qualifying savings and loan association may elect, annually, either of the following two methods to compute its allowable bad debt deduction: (i) the percentage of taxable income method or (ii) the experience method. Under the percentage of taxable income method, the bad debt reserve deduction is computed as 8% of taxable income. Each year Citizens Savings Bank utilizes the most advantageous method available for that year. During the past several years, Citizens Savings Bank has computed additions to its bad debt reserve under both the percentage of taxable income and the experience methods. With the corporate income tax rate at 35% for taxable income in excess of $10 million, the marginal federal income tax rate for a savings and loan association using the percentage of taxable income bad debt deduction is approximately 32%.
Earnings appropriated to bad debt reserves are not available for any other purpose than to absorb losses. They are not available for the payment of cash dividends or other distributions to shareholders, including distributions on redemption, dissolution or liquidation, without payment of federal income taxes by Citizens Savings Bank on such distribution at the then current tax rate. However, such amounts added to the bad debt reserves for federal income tax purposes may also be used to meet regulatory reserve requirements.
If an association's specified assets (generally, loans secured by residential real estate or deposits, educational loans, cash and certain government obligations) constitute less than 60% of its total assets, the association may not deduct any addition to the bad debt reserve and generally must include existing reserves in income over a four-year period. At September 30, 1994, over 95% of Citizens Savings Bank's total assets were specified assets.
Additional information on the application of federal income taxes is contained in Notes 14 and 15 of Notes to Consolidated Financial Statements under Item 8.
During 1994, 1993 and 1992, Ohio taxed financial institutions at the rate of $1.50 per $100 of shareholders' equity.
COMPETITION - ----------- Citizens Savings Bank actively competes with other savings and lending institutions in central and western Stark County. Competition for savings comes principally from other savings and loan associations, commercial banks, credit unions located in its primary market area and brokerage house money market and other funds. The primary factors in competing for savings are interest rates paid on deposits and convenience of office hours and locations. During periods when money market rates are relatively high, obligations offered by governments, government agencies and other entities seeking funds add significantly to competition for savings.
Citizens Savings Bank's principal competition for loans is provided by other savings and loan associations, commercial banks, mortgage companies, governmental agencies and, to a lesser extent, credit unions. The primary factors in loan competition are interest rates, extent and time interval of interest rate adjustments, origination charges and convenience of office location for applications, closing and servicing.
EMPLOYEES - --------- On September 30, 1994, CIVISTA and its subsidiaries employed approximately 298 full-time and 57 part-time employees. None of the employees is represented by a union or collective bargaining group. Management considers its relations with employees to be excellent. Employee benefit programs are considered by management to be competitive with benefits provided by other savings associations and major employers within the normal operating area.
REGULATION - ---------- SAVINGS AND LOAN HOLDING COMPANY LAW - ------------------------------------ CIVISTA is a non-diversified, unitary savings and loan holding company within the meaning of the Savings and Loan Holding Company Act (the "Holding Company Act"), as amended by FIRREA, is registered with the OTS and is subject to OTS regulations, examinations, supervision and reporting requirements.
As a unitary savings and loan holding company, CIVISTA generally is permitted to engage in activities that are unrelated to the activities of Citizens Savings Bank, provided that Citizens Savings Bank continues to qualify as a "domestic building and loan association" under the Internal Revenue Code and as a "Qualified Thrift Lender" ("QTL").
REGULATION OF SAVINGS ASSOCIATIONS - ---------------------------------- CAPITAL REQUIREMENTS The OTS has established capital regulations based on minimum tangible capital, minimum leverage limit and risk- based capital. The capital requirements are designed to be "no less stringent than capital standards applicable to national banks." Citizens Savings Bank is in full compliance with these capital requirements. See Management's Discussion and Analysis of Financial Condition and Results of Operations under Item 7 and Note 15 of Notes to Consolidated Financial Statements under Item 8.
Savings associations must generally maintain minimum tangible capital of 1.5 percent of total assets. Tangible capital consists of common shareholders' equity, noncumulative perpetual preferred stock and related surplus and minority interest in consolidated subsidiaries less goodwill and certain other intangible assets.
The leverage ratio requirement mandates capital of 3 percent of total assets subject to certain adjustments.
For the risk-based capital requirement, the OTS assigned risk weighting factors to all assets and certain commitments. Savings institutions must maintain capital at 8 percent of these risk weighted assets. The OTS issued a final regulation adding an interest rate risk component to the risk-based regulatory capital requirement. This regulation began affecting capital calculations on September 30, 1994.
On December 19, 1992, the prompt corrective action regulations of the Federal Deposit Insurance Corporation Improvement Act became effective. These regulations define specific capital categories based on an institution's capital ratios. The capital categories are "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". Institutions categorized as "undercapitalized" or worse are subject to certain restrictions, including the requirement to file a capital plan with the OTS, prohibitions on the payment of dividends and management fees, restrictions on executive compensation and increased supervisory monitoring, among other things. Other restrictions may be imposed on the institution either by the OTS or by the FDIC, including requirements to raise additional capital, sell assets or sell the entire institution. Once an institution becomes "critically undercapitalized" it is generally placed in receivership or conservatorship within 90 days.
To be considered "well capitalized", an institution must generally have a leverage ratio of at least 5 percent, a Tier 1 (core capital) risk-based capital ratio of at least 6 percent, and a total risk-based capital ratio of at least 10 percent.
At September 30, 1994, Citizens Savings Bank exceeded all regulatory capital requirements.
DEPOSIT INSURANCE SYSTEM Savings deposit accounts in Citizens Savings Bank are insured by the FDIC through SAIF to the maximum amount permitted by law. Although the FDIC manages both SAIF and the Bank Insurance Fund ("BIF"), the two funds are administered separately and their resources may not be commingled.
On January 1, 1993, the FDIC enacted a risk-based deposit insurance premium system with premiums ranging from 23 cents to 31 cents per $100 of deposits. In general, SAIF is required to build and maintain reserves at a level of 1.25% of insured deposits. This designated reserve ratio may be raised up to 1.50% if the FDIC board determines that the increase is "justified by circumstances that raise a probable risk of substantial future losses" to SAIF. FDIC is permitted to semiannually raise premiums for banks and savings institutions as high as necessary.
If a savings institution fails to meet its required regulatory net worth, the FDIC and the OTS may cause the institution to take such actions as the FDIC and the OTS may deem appropriate for the protection of the SAIF or the institution.
TRANSFERS BETWEEN INSURANCE FUNDS Beginning in 1994, conversions between the BIF and SAIF funds will be permitted with the prior consent of the FDIC and the payment of both an entrance and exit fee. The exit fee to leave the SAIF fund is 90 cents for every $100 of insured deposits. The entrance fee to join the BIF fund is based on the BIF reserve ratio at the time of conversion.
QUALIFIED THRIFT LENDER TEST Savings associations are required to comply with the requirements of the QTL test. Savings institutions that fail to comply with the QTL test will either have to convert to a bank charter or will have limits placed on their activities, branching authority, FHLB advances and dividend payments. If the savings association subsidiary of a unitary savings and loan holding company fails to meet the QTL test, then such unitary holding company will become subject to the activities restrictions applicable to multiple holding companies and ultimately to the activities restriction applicable to bank holding companies.
An insured savings association is required to maintain 65 percent of its assets in designated "qualified thrift investments". The list of qualified thrift investments includes principally housing-related assets such as mortgage loans, home improvement loans, home equity loans, residential mortgage-backed securities and FHLB stock.
FEDERAL HOME LOAN BANK ADVANCES The Federal Housing Finance Board has adopted a rule which ties continued access to long-term FHLB advances to how well an institution meets community investment needs. Once every two years, FHLB member institutions will be required to submit a community support statement. These reports will include an institution's Community Reinvestment Act ("CRA") evaluation, information on how first-time buyers were assisted and a description of other community investment support. Long-term advances may only be used for the purpose of providing funds for housing finance.
BANK HOLDING COMPANY ACQUISITION OF HEALTHY SAVINGS ASSOCIATIONS FIRREA permits bank holding companies to acquire any savings association regardless of whether the savings association is healthy or unhealthy.
TRANSACTIONS WITH AFFILIATES Savings associations follow the affiliate rules as set forth in Sections 23A, 23B and 22(h) of the Federal Reserve Act subject to additional limitations in FIRREA and as adopted by the Director of the OTS. The FIRREA definition of affiliate excludes service corporation subsidiaries of the savings association. Sections 23A and 23B generally do not require prior regulatory approval of transactions but provide that:
o "Covered transactions", which include loans, purchase of assets, acceptance of affiliate securities as collateral and the issuance of guarantees and letters of credit cannot exceed 10% of capital and surplus in the aggregate with any one affiliate. The aggregate limit with all affiliates is limited to 20% of capital stock and surplus.
o Certain covered transactions must be secured by collateral having a market value equal to between 100% and 130% of the transactions.
o Generally low-quality assets may not be purchased.
o Covered transactions and most other transactions such as sales of assets or contracts for services must be on terms that are equivalent to those available to unrelated parties.
FIRREA provides that a savings association may not make a loan or extension of credit to an affiliate unless the affiliate is only engaged in activities which the FRB has determined are permissible for bank holding companies.
LOANS TO ONE BORROWER LIMITATION The loans to one borrower limitations applicable to thrifts are generally the same as those for national banks, subject to certain exceptions for residential construction lending. Generally, a savings association cannot lend more than 15% of the institution's unimpaired capital and surplus to one borrower. An additional 10% can be loaned to a borrower if the loans are fully secured by readily marketable collateral. Real estate is not included within the definition of readily marketable collateral. However, an association meeting the fully phased-in capital rules may lend 30% of its unimpaired capital and surplus to one borrower to construct certain residential housing units.
Citizens Savings Bank has not utilized the exception permitting higher loans to one borrower lending limits for residential construction lending. At September 30, 1994, Citizens Savings Bank's general loans to one borrower limit was approximately $9.3 million. At September 30, 1994, the largest amount of outstanding loans in the aggregate to one borrower was approximately $7.2 million.
LOANS TO INSIDERS Savings associations are subject to the restrictions contained in the Federal Reserve Board's Regulation O on loans to directors, executive officers, principal shareholders and certain of their related interests. Extensions of credit to executive officers, directors, principal shareholders or their related interests cannot be made on preferential terms. Citizens Savings Bank has adopted a policy requiring advance Board of Director approval for all requests for extension of credit by insiders. Loans by Citizens Savings Bank to any director, executive officer, principal shareholder or to any related interest of such person cannot exceed the limits established by the OTS on loans to a single borrower when aggregated with all loans to such person and their related interests.
CAPITAL DISTRIBUTION REGULATION Limitations are imposed upon all "capital distributions" by savings associations, including cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another association in a cash-out merger and other distributions charged against capital. The regulation establishes a three-tiered system of regulation, with the greatest flexibility being afforded to well-capitalized associations such as Citizens Savings Bank. The regulation also provides the OTS with the authority to prohibit capital distributions otherwise permitted by this rule if such distribution would constitute an unsafe or unsound practice.
An association that has capital that is at least equal to its fully phased-in capital requirement and that has NOT been advised by the OTS that it is in need of more than normal supervision is a Tier 1 association ("Tier 1 Association"). Citizens Savings Bank is a Tier 1 Association. An association that has capital at least equal to its minimum regulatory capital requirement, but less than its fully phased-in capital requirement, is a Tier 2 association ("Tier 2 Association"). An association having capital that is less than its minimum regulatory capital requirement is a Tier 3 association ("Tier 3 Association").
A Tier 1 Association such as Citizens Savings Bank can, upon 30 days notice to the OTS, make capital distributions during a calendar year in an amount up to 100% of its net income to date during the calendar year plus the amount that would reduce its "surplus capital ratio" (the percentage by which the ratio of its capital to assets exceeds the ratio of its fully phased-in capital requirement to assets) by one-half of its surplus capital ratio at the beginning of the calendar year, as adjusted to reflect its net income to date during the year. Any additional amount of capital distributions will require prior regulatory approval.
Citizens Savings Bank's ability to pay future cash dividends to CIVISTA is also limited by a dividend agreement with the OTS. Under its dividend agreement, as long as Citizens Savings Bank exceeds its fully phased-in capital requirement, Citizens Savings Bank can dividend 100 percent of its net income for the prior eight quarters less cumulative dividends paid for such prior eight quarters.
A Tier 2 Association can make a capital distribution, upon 30 days notice to the OTS. If the association's current capital satisfies the 8% risk-based capital standard, it may make distributions up to 75% of net income over the most recent four quarters.
A Tier 3 Association is not authorized under the regulation to make any capital distributions unless it receives prior regulatory approval, or in the case of an association operating in compliance with an approved capital plan, the distribution is consistent with such approved capital plan.
FEDERAL HOME LOAN BANK SYSTEM - ----------------------------- The twelve district Federal Home Loan Banks are the central credit source for member institutions.
As a member of the FHLB of Cincinnati, Citizens Savings Bank is required to acquire and hold shares of stock in that Bank in an amount at least equal to 1% of the aggregate principal amount of its unpaid home mortgage loans, home purchase contracts, and similar mortgages at the beginning of each calendar year, or one-twentieth of its unpaid borrowings from the FHLB of Cincinnati, whichever is greater.
LIQUIDITY REQUIREMENTS - ---------------------- The OTS currently requires a member savings and loan association to maintain liquid assets (cash, certain time deposits, banker's acceptances and specified United States Government, state or federal agency obligations) equal to a monthly average of at least 5% of its net withdrawable savings deposits plus short-term borrowings. This liquidity requirement may be changed from time to time by the OTS to an amount within the range of 3% to 10%. Monetary penalties may be imposed for failure to meet liquidity requirements. Citizens Savings Bank has consistently exceeded its liquidity requirements. At September 30, 1994, Citizens Savings Bank's liquidity ratio was 19.9%.
FEDERAL RESERVE - --------------- The Monetary Control Act of 1980 imposed Federal Reserve requirements on all depository institutions that maintain transaction (NOW) accounts and/or non-personal time deposits. Citizens Savings Bank has met its reserve requirements throughout the fiscal year ended September 30, 1994.
The Monetary Control Act also requires that the Federal Reserve System's lending facility be made available to savings and loan associations on the same basis as that enjoyed by System member commercial banks. Accordingly, Citizens Savings Bank is authorized to borrow funds from the Federal Reserve under conditions prescribed from time to time by the System's Board of Governors.
COMMUNITY REINVESTMENT ACT - -------------------------- The CRA requires financial institutions to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA encourages financial institutions to develop the types of products and services which it believes are best suited to its own community.
The OTS is required as part of its examination process to assess the institution's record of meeting the credit needs of its entire community and lending to first time home buyers. The OTS prepares a written evaluation of the institution's compliance with the CRA using a four-tiered rating system consisting of the terms "outstanding", "satisfactory", "needs to improve" and "substantial noncompliance". During its last exam, the OTS rated Citizens Savings Bank's compliance with the CRA as "outstanding".
INTERNAL CONTROL AND COMPLIANCE REPORTING - ----------------------------------------- As a result of FDICIA, all financial institutions have new internal control and compliance reporting requirements which apply to financial statements for years ending after December 31, 1993. Beginning in fiscal 1994, Citizens Savings Bank's management is required to prepare an annual report on the internal controls over financial reporting of the institution. This report is provided by management, attested to by the chief executive and financial officers and publicly available. Management must also report on the institution's compliance with a designated set of laws and regulations. These laws and regulations govern loans to insiders and dividend restrictions. The institution's external auditor must provide an attestation report on agreed-upon procedures covering compliance with these laws and regulations.
RESTRICTIONS ON STATE-CHARTERED SAVINGS ASSOCIATIONS - ---------------------------------------------------- Effective January 1, 1990, FIRREA applied new restrictions that affected state-chartered institutions. As of that date, state-chartered savings associations were prohibited from directly engaging in any activity or in any activity in an amount impermissible for a federal savings association unless (1) the savings association was, and continues to be, in compliance with the fully phased-in capital standards and (2) the FDIC determines that the activity would not pose a significant risk to the deposit insurance fund.
If an activity is permissible for a federal savings association, a state-chartered savings association may engage directly in that activity in an amount greater than that allowed a federal institution if (1) the savings and loan association was, and continues to be, in compliance with the fully phased-in capital standards, (2) the FDIC determines that engaging in the greater amount of the activity would not pose a significant risk to the deposit insurance fund and (3) the activity does not involve nonresidential real property loans.
FIRREA prohibits a state-chartered savings association from directly acquiring or retaining any equity investment of a type or in an amount not permitted for a federal savings association. If a state-chartered institution is in compliance with the fully phased-in capital standards and the FDIC determines there is no significant risk, an institution may acquire or retain service corporation investments that are not otherwise permitted if the institution complies with certain FDIC application requirements.
STATE REGULATION - ---------------- CIVISTA is subject to certain regulations imposed under Ohio law and Citizens Savings Bank is regulated by the Superintendent of Savings and Loan Associations of Ohio. The Ohio Superintendent has the right to examine the books and records of CIVISTA and may also enter into cooperative agreements with other state and federal savings and loan regulatory authorities to facilitate the examination of Citizens Savings Bank. The Superintendent may accept the reports of examinations and other records from such other authorities in lieu of conducting the Superintendent's own examination of such savings and loan holding companies. The Superintendent may take any action jointly with other regulatory agencies having concurrent jurisdiction over such savings and loan holding companies or may take action independently in order to carry out the Superintendent's responsibilities under Ohio law. The Superintendent may require any savings and loan holding company that has acquired an Ohio savings and loan association to submit such reports to the Superintendent as may be determined to be necessary or appropriate.
The approval of the Superintendent is required for the declaration of dividends by Citizens Savings Bank to CIVISTA if the total of all such dividends declared in any fiscal year exceeds the total of its net profits of that year combined with the retained net profits of the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock.
Under Ohio law, restrictions also exist with respect to the acquisition of a controlling interest in a savings and loan holding company or a savings and loan association. Under Ohio law, no person or entity can, directly or indirectly, acquire a controlling interest (greater than a 15% stock ownership interest) in a savings and loan holding company or a savings and loan association without the prior written approval of the Superintendent of Savings and Loan Associations of Ohio.
ITEM 2.



ITEM 2. PROPERTIES
PROPERTIES USED IN SAVINGS AND LOAN OPERATIONS - ---------------------------------------------- The operations of CIVISTA and Citizens Savings Bank are conducted through its principal office located in leased space in Canton. The principal building lease expires in 2003 and includes options to renew for an additional 25 years. Citizens Savings Bank's loan origination office is in the CIVISTA Building located in suburban Canton. At September 30, 1994, Citizens Savings Bank had 9 additional branch offices in Stark County of which 4 were owned and 5 leased. Citizens Savings Bank constructed an additional office in Stark County which is owned and was opened in October 1994.
CASNET - ------ CASNET operates out of the CIVISTA Building.
OTHER PROPERTIES - ---------------- CIVISTA owns two residential communities located in Jackson and Perry Township, both near the western corporate limits of the city of Canton. Woodlawn Village includes 198 apartments and townhouses with recreational facilities for common use by the tenants. The second property, London Square, consists of 224 apartments and townhouses, and recreational facilities.
The principal asset of CSC is Perry Hills Colony which is located in Canton and which consists of 140 apartments and townhouses, 6 one- story duplexes and recreational facilities. CSC also owns Diamond Estates which consists of 49 duplexes. CSC has other properties which it owns and manages which are located in the general Stark County area.
CIC is engaged in marketing residential lots in La Quinta, California. CIC acquired 40 acres of land in La Quinta, California. CIC has developed approximately 28 acres into 54 residential lots. As of September 30, 1994, 17 lots have been sold and closed. Plans have not been finalized for the remaining acreage. These properties are further described in "Subsidiary and Other Activities" under Item 1 and in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under "Real Estate Development Assets" and "Asset Review".
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, relating to CIVISTA and its subsidiaries.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter ended September 30, 1994.
PART II ------- ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
CIVISTA common shares are traded over-the-counter. Although it is not actively traded, the stock has an established public market through two brokerage firms which make a market in CIVISTA common shares. Approximate prices for the last two years are shown below as quoted in the local daily newspaper by McDonald & Company Securities, Inc. This firm is a member of the New York Stock Exchange and other exchanges.
The following bid prices reflect inter-dealer prices without adjustments for retail markups, markdowns, or commissions and may not represent actual transactions. The bid prices and the per share data reflect the two-for-one stock split of November 22, 1993.
As of September 30, 1994, CIVISTA had 497 shareholders of record.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following provides an overview of CIVISTA's financial condition, results of operations and capital adequacy.
FINANCIAL CONDITION
LENDING
In addition to the primary business of granting first mortgage loans, CIVISTA's lending activity includes short-term consumer financing, loans for education and equity lines of credit. CIVISTA endeavors to maintain high loan standards in underwriting all of these types of loans. CIVISTA's first mortgage lending is primarily restricted to single-family residences.
CIVISTA is an equal housing lender and is committed to serving the credit and housing needs of its primary marketing area. During 1993, CIVISTA created the position of Affordable Housing Loan Originator in order to attract greater numbers of low and moderate income and minority applicants. During the years ended September 30, 1994 and 1993, CIVISTA originated $39.6 million and $42.6 million, respectively, in mortgage loans to Stark County borrowers with low and moderate incomes (considered to be up to 115% of the Stark County median income). This represented almost 43% of the total number of mortgage loans and equity lines of credit closed and over 32% of the total mortgage dollars loaned during the most recent year.
CIVISTA actively promotes the health and vitality of the communities which it serves. This is evidenced by special loan programs, a strong marketing outreach, credit counseling programs, and nearly 300 lower priced rental units owned by CIVISTA which are located in southwest and northeast Canton and in Alliance. CIVISTA's directors, officers and employees give of their time and energy in many civic activities in order to strengthen the communities in CIVISTA's market.
During its most recent Community Reinvestment Act examination, CIVISTA received an "outstanding" rating which is the highest possible rating.
Lending activity in 1994 was very strong through May when increased interest rates seemed to dampen the real estate market. Most of CIVISTA's customers continued to select fixed rate loans. Few borrowers were willing to accept an adjustable rate loan and CIVISTA has been unwilling to offer "teaser" rates to obtain adjustable rate loans. During 1994, borrowers refinanced loans totalling $16.6 million. This was a $13.6 million drop from the $30.2 million which was refinanced in 1993, as a result of falling interest rates.
CIVISTA's mortgage loan originations in 1994 totalled a record $102.7 million which exceeded the previous record of $97.9 million which had been achieved in 1993. In spite of record originations, mortgage loans grew only .7% or $3.3 million in 1994. Originations were barely enough to offset payoffs, principal reductions, customers who refinanced with other lenders and CIVISTA's decision to sell approximately $8.0 million of thirty-year fixed rate loans. By selling these loans, CIVISTA was able to reinvest the proceeds in shorter term products and better match its assets and liabilities.
Fixed rate loans continued to become a larger portion of the loan portfolio. Fixed rate loans increased approximately $14.1 million during 1994 while adjustable rate loans decreased approximately $11.8 million. During 1993, fixed rate loans increased approximately $39.7 million while adjustable rate loans declined approximately $29.3 million. At September 30, 1994, fixed rate loans amounted to 78% of mortgage loans.
CIVISTA has been successful over the last three years in originating a larger portion of loans with fifteen-year or shorter maturities instead of the traditional thirty-year loan. During 1994 and 1993, respectively, approximately 50% and 56% of mortgage loan originations were for fifteen-year or shorter terms. Shorter maturities were attractive to many borrowers because these loans carried slightly lower interest rates than longer maturities. The shorter maturities of these loans are advantageous to CIVISTA since they materially reduce the average life of the mortgage loan portfolio. These shorter maturity loans better match CIVISTA's customer deposit liabilities and provide a higher level of amortization than thirty-year loans. If interest rates continue to rise, CIVISTA believes that borrowers will prefer thirty-year loans which have lower monthly payments than shorter term loans.
At September 30, 1992, CIVISTA classified all of its mortgage-backed securities, except those with five-year balloon maturities, as available for sale. CIVISTA classified mortgage-backed securities with carrying values of approximately $65.9 million as available for sale in order to provide flexibility in responding to interest rate changes. In 1993, as interest rates continued to decline these mortgage-backed securities experienced rapid prepayments. While CIVISTA held these mortgage-backed securities, the high level of refinancing combined with normal principal payments reduced the mortgage-backed security balance by $13.6 million. During February and June 1993, CIVISTA sold $25.4 million and $16.7 million, respectively, of mortgage-backed securities. In July 1993, CIVISTA sold the remaining $10.2 million of mortgage- backed securities. These sales resulted in gains of approximately $2.4 million.
1993 reflects the prepayment risk which is inherent in mortgage-backed securities and mortgage loans. In periods of declining interest rates, many borrowers refinance. As a result, mortgage loans and mortgage-backed securities prepay at rates that are far faster than normal amortization. CIVISTA continually monitors the prepayment speed of mortgage loans and mortgage-backed securities.
During 1994 and 1993, CIVISTA purchased $27.7 million and $65.4 million, respectively, of mortgage-backed securities. These mortgage- backed securities have five-, seven- and ten-year maturities and are held for investment. These purchases met CIVISTA's strategy of acquiring shorter term market rate mortgage-backed securities.
During December 1991, CIVISTA analyzed the weighted average lives of the mortgage-backed security portfolio. All mortgage-backed securities with a weighted average life in excess of six years were transferred into the available for sale category. These mortgage-backed securities had weighted average lives of six to twenty-one years and a composite weighted life over twelve years. During February and March 1992, CIVISTA sold these longer-term mortgage-backed securities which had book values totalling $25.8 million and recorded net gains of $.7 million. During the second and third quarters of 1992, CIVISTA purchased $34.9 million of five- and seven-year balloon mortgage-backed securities. As a result, CIVISTA was able to better match its assets and liabilities by shortening the life of this group of assets from beyond twelve years to a much shorter period.
As a result of CIVISTA's acquisitions of five-, seven- and ten-year mortgage-backed securities, at September 30, 1994, 97% of CIVISTA's mortgage-backed securities mature in less than ten years. The weighted average life of the mortgage-backed security portfolio was slightly over 3.6 years at September 30, 1994.
During 1994, other loans decreased principally as a result of the sale of $1.6 million of college loans. Due to processing requirements on these loans, CIVISTA has adopted the policy of selling education loans before payments commence.
CUSTOMER DEPOSITS
CIVISTA continues to follow the policy of seeking deposits on rates and terms which will support profitable investment opportunities. Rather than pay unprofitable rates, CIVISTA has been willing, if necessary, to let deposit balances shrink. Customer account balances decreased during 1994 by approximately $5.4 million as a result of interest credits of $23.1 million which were offset by net cash outflows of $28.5 million.
Interest rates also continued to impact the composition of CIVISTA's customer deposits. As interest rates declined in 1992 and 1993, customers shifted their maturing certificates of deposit into savings and transaction accounts. This trend continued in 1994 on a very slight scale. During 1994, certificates of deposit fell from 36.4% of total customer deposits to 35.6%. In fiscal 1993, certificates of deposit fell from 40.0% to 36.4% of total customer deposits. Savings accounts grew from 45.3% at the beginning of 1994 to 45.5% of customer deposits at September 30, 1994, and transaction accounts grew from 18.3% to 18.9%. During fiscal 1993, savings accounts grew from 42.5% to 45.3% of customer deposits while transaction accounts grew from 17.5% to 18.3% of customer deposits.
LIQUIDITY
CIVISTA's cash, short-term cash investments, and investment securities are monitored to help ensure that sufficient liquidity exists to cover potential cash requirements. CIVISTA also has available additional sources of liquidity which include customer deposits, loan repayments and borrowing from the Federal Home Loan Bank.
Throughout 1994, CIVISTA's cash, short-term cash investments and investment securities averaged $172.3 million or 21.4% of average assets. In 1994, liquidity was higher than planned due to cash flows in excess of loan demand. In 1993, liquidity averaged $148.5 million or 19.3% of average assets. CIVISTA has been maintaining a higher than normal portfolio of liquid assets as a hedge against the rise in interest rates. If interest rates continue to rise, the yields on liquid assets will adjust quickly and help offset increased interest on customer deposits.
REAL ESTATE INVESTMENT PROPERTY
CIVISTA owns and manages residential rental properties. At year-end, CIVISTA owned approximately 770 residential rental units. These units are primarily in communities of apartments and town houses located in the Canton, Ohio area. During 1993, CIVISTA constructed seven duplexes specifically for low income housing.
CIVISTA views the Canton, Ohio area as a relatively stable market. CIVISTA has experienced high occupancy in its rental properties over the past twenty years. CIVISTA is not aware of any factors which would be expected to have a significant impact on rental rates or occupancy.
Mortgage loans are outstanding on three apartment complexes. The cash flows from these properties are more than adequate to service the debt. Footnote 13 of the Notes to Consolidated Financial Statements provides additional information on these mortgage loans.
REAL ESTATE DEVELOPMENT ASSETS
CIVISTA has one real estate development project located in California. The Enclave Mountain Estates consists of 27.6 acres which have been developed into 54 residential lots. This development is contiguous to the La Quinta Hotel Golf and Tennis Resort in La Quinta, California. In May 1991, CIVISTA received approval from the State of California to close sales on the 54 residential lots. As of September 30, 1994, sales have been closed on seventeen lots; one was closed in fiscal 1994, one was closed in fiscal 1993 and four were closed in fiscal 1992. CIVISTA believes that the primary reasons for the slow pace of the sellout of the development are discussed in the following paragraph. CIVISTA also owns a 12 acre tract which is located only a short distance from the Enclave Mountain Estates. Plans for this acreage have not yet been finalized.
Sale of the remaining 37 Enclave Mountain Estates lots are very dependent upon the condition of the southern California real estate market. CIVISTA does not expect significant sales activity until California recovers from the current recession and the southern California real estate market improves. At the end of December 1993, the KSL Recreation Group, Ltd. purchased the La Quinta Hotel Golf and Tennis Resort from the Resolution Trust Corporation. This sale eliminated the uncertainty of the past several years concerning who would own the La Quinta Hotel Golf and Tennis Resort and how it would be maintained and managed. Unfortunately, this has not resulted in sales activity in the Enclave Mountain Estates. CIVISTA's investment in the Enclave Mountain Estates is carried at the net realizable value of the remaining lots under current economic conditions in southern California. CIVISTA does not have any outstanding debt on this project.
During fiscal 1994, CIVISTA sold the final six homes in the 37-unit single-family home development in Indio, California, known as Park Madison.
In 1994, CIVISTA recorded sales of $962,781 and cost of sales of $951,998 from the sales of the six Park Madison homes and one Enclave Mountain Estates lot. Sales in 1993 were higher as a result of the closing of one Enclave Mountain Estates lot, six Park Madison homes and a 28 acre undeveloped parcel in Stark County, Ohio. In 1992, CIVISTA closed four Enclave Mountain Estates lots and thirteen Park Madison homes.
ASSET REVIEW
Loans, real estate and other assets are monitored monthly to identify and address problem assets. Reserves are provided for potential losses. At year-end, the potential problem (classified) assets being closely monitored included approximately $5.8 million of loans and real estate owned and $8.2 million of real estate development assets. See the table contained in "Business-Risk Elements" under Item 1. Reserves of $3.5 million were provided on these assets. At September 30, 1993, CIVISTA was closely monitoring approximately $10.3 million of loans and real estate owned and $1.1 million of real estate development assets. The more significant changes in classified loans and real estate owned in 1994 are as follows:
CIVISTA was paid in full on a $1.3 million loan on an industrial warehouse complex in Canton, Ohio when the property was sold as a result of foreclosure proceedings.
During 1994, CIVISTA sold a $661,578 loan on property in Santa Rosa Cove, La Quinta, California to a second lien holder.
CIVISTA reduced classified assets by approximately $668,000 when two apartment complexes were refinanced with third party lenders.
Through sales, CIVISTA disposed of approximately $580,000 of real estate owned.
The balance in the decline in classified loans and real estate owned is the result of loan payoffs and improving conditions which resulted in fewer loans being classified as problem assets.
Classified real estate development assets increased significantly in 1994. In March 1994, CIVISTA classified the Enclave Mountain Estates lots and a 12 acre tract which is located only a short distance from the Enclave Mountain Estates. This increased classified assets by $8,220,121.
At September 30,1993, CIVISTA had a non-earning loan of $476,633 to a CIVISTA-managed joint venture which constructed condominiums, single-family homes and sold lots in La Quinta, California. During 1994, CIVISTA charged off the $476,633 balance.
The sale of six Park Madison homes in 1994 served to reduce classified assets by $583,394. In February 1992, CIVISTA had classified the Park Madison residential home development and reserved $150,000 as a result of the projected sellout schedule. The $150,000 reserve was reversed.
Management believes that the reserves are adequate and appropriate based on the conditions that existed at September 30, 1994.
NOTES PAYABLE TO FEDERAL HOME LOAN BANK
At September 30, 1994, CIVISTA had $9.5 million of short-term advances from the Federal Home Loan Bank which had been used for short-term cash management purposes.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income during 1994 was affected by a number of factors. Interest rates increased, which can be illustrated in the yields CIVISTA received on new mortgage loan originations. In the month of September 1993, newly originated mortgage loans yielded an average 7.03%. This compared to an average yield of 8.01% in September 1994. This increase in yield on newly originated loans is principally a function of the increase in interest rates. Even though interest rates on loans originated in 1994 increased, the average yield on loans decreased. This was a result of the full impact in 1994 of lower rate loans which had been granted in 1993 and 1992 and the amortization, payoff and refinancing of higher rate loans. The average yield on loans decreased from 8.73% in 1993 to 8.09% in 1994 while the average balance outstanding decreased $2.5 million. This resulted in a $3.4 million decrease in interest on loans. The average yield on mortgage-backed securities decreased from 7.56% in 1993 to 5.99% in 1994 while the average balance outstanding increased $12.2 million. This resulted in a $.5 million decrease in interest on mortgage-back securities. At the same time, interest on investment securities increased as a result of significantly higher average balances offsetting lower average yields. The average balance of investment securities increased from $104.3 million in 1993 to $146.8 million in 1994. However, the yield on investment securities declined from 5.11% in 1993 to 4.97% in 1994. Other interest and dividend income decreased in 1994 as a result of lower average balances of short-term cash investments.
During 1993, interest rates continued the decline which began in 1991. This resulted in lower interest income. As a result of the sluggish economy, interest rates declined on mortgage loans and investment securities. This drop in rates can be illustrated in the yields CIVISTA received on new mortgage loan originations. In the month of September 1992, newly originated mortgage loans yielded an average 7.84%. This compared to an average yield of 7.03% in September 1993. This drop in yield on newly originated loans is principally a function of the decline in interest rates. However, it is also affected by the trend to shorter-term loans which have slightly lower interest rates. The average yield on loans decreased from 9.52% in 1992 to 8.74% in 1993 while the average balance outstanding decreased $1.7 million. This resulted in a $4.1 million decrease in interest on loans. The average yield on mortgage-backed securities decreased from 8.76% in 1992 to 7.09% in 1993 while the average balance outstanding decreased $9.8 million. This resulted in a $1.8 million decrease in interest on mortgage- backed securities. At the same time, interest on investment securities increased as a result of significantly higher average balances offsetting lower average yields. The average balance of investment securities increased from $59.2 million in 1992 to $104.3 million in 1993. However, the yield on investment securities declined from 5.93% in 1992 to 5.11% in 1993. Other interest and dividend income decreased in 1993 as a result of lower yields on short-term cash investments which declined from 4.45% in 1992 to 2.84% in 1993 and lower average balances of short-term cash investments.
INTEREST EXPENSE
In spite of an increase in average total customer account balances from $673.0 million in 1993 to $688.0 million in 1994, interest on customer deposits fell from $24.3 million in 1993 to $23.1 million. The average rate paid on customer accounts was 3.36% in 1994 compared with 3.62% in 1993. At September 30, 1994, and September 30, 1993, CIVISTA's cost of customer deposits was 3.51% and 3.70%, respectively.
During 1993, CIVISTA experienced a 23% drop in interest expense. In spite of an increase in average total customer account balances from $663.5 million in 1992 to $673.0 million in 1993, interest on customer deposits fell from $31.8 million in 1992 to $24.3 million in 1993. The average rate paid on customer accounts was 3.62% in 1993 compared with 4.79% in 1992. At September 30, 1993, and September 30, 1992, CIVISTA's cost of customer deposits was 3.70% and 4.07%, respectively.
Interest on notes payable to Federal Home Loan Bank and other borrowings increased in 1994 as a result of an increased average balance of Federal Home Loan Bank advances for short-term cash management purposes.
The decrease in interest on notes payable to Federal Home Loan Bank and other borrowings in 1993 is a result of the repayment of Federal Home Loan Bank advances in 1992.
INTEREST RATE SENSITIVITY
The largest influence on CIVISTA's net interest income is the spread between the yield on interest-earning assets and the rates paid on interest-bearing deposits. This spread can vary considerably over time because of the relative levels of these assets and liabilities and because asset and liability repricings do not always coincide. CIVISTA, as well as the majority of other savings and loan associations, has shorter term liabilities funding longer term assets, which results in liabilities repricing faster than assets as interest rates change. In this scenario, net interest income is positively affected by falling interest rates and negatively affected by rising interest rates. During 1992 and 1993, CIVISTA benefited from the faster repricing of liabilities as interest rates fell. During 1994 as interest rates began to rise, net interest income decreased approximately $1.4 million. Rate changes can have a substantial impact on net interest income because the nature of CIVISTA's principal business is to borrow short-term funds and lend the funds in longer term loans.
By following the policy of basing the price paid for funds on the yield available on quality profitable investments and as a result of declining interest rates in 1992 and 1993, and rising interest rates in 1994, CIVISTA's net interest income increased from $28.2 million in 1992 to $31.3 million in 1993 and decreased to $29.9 million in 1994. During the same period, CIVISTA's net yield on earning assets (net interest earnings divided by average interest-earning assets) rose from 3.94% in 1992 to 4.16% in 1993 and fell to 3.86% in 1994. The net yield on earning assets of 4.16% in 1993 represents the highest net yield and resulted in the highest earnings in CIVISTA's history. Since CIVISTA's liabilities reprice faster than its assets, CIVISTA recognizes that future increases in interest rates could substantially reduce net interest income and net income.
This is especially true since a larger portion of customer deposits are held in transaction and savings accounts. If rates move up, customers are positioned to move into longer term certificates of deposit which generally carry higher rates.
PROVISION FOR LOAN LOSSES
During 1994, CIVISTA provided $.2 million as a provision for loan losses. This provision reflects the continual monitoring of classified assets and the reduction in classified loans as noted under ASSET REVIEW.
DATA PROCESSING SALES AND SERVICE
The continuing consolidation of the savings and loan industry was the principal cause of the $1,138,000 decrease in data processing sales and service in 1994. During 1994, CASNET had a $1.5 million decline in traditional savings and loan processing revenue as a result of losing two customers in 1994 and experiencing the full impact of five customers which were lost during 1993.
Recognizing that the savings and loan industry has been consolidating, CASNET has been working to expand its other services. Over the last few years, CASNET has marketed interactive voice response technology to hospitals and other organizations. As a result, sales and installation of interactive voice response systems grew by $376,000 in 1994. CASNET is also marketing its microfiche services in Ohio and western Pennsylvania. CASNET entered the credit union on-line servicing business in 1992. This processing added $518,000 of revenue in 1993 and $179,000 of revenue during the last four months of 1992.
INVESTMENT SECURITY GAINS
In January 1994, CIVISTA sold 15,000 shares of Student Loan Marketing Association stock which resulted in a gain of $713,450.
DEPOSIT INSURANCE PREMIUMS
During 1993, CIVISTA was allowed by law to reduce its deposit insurance premium by offsetting against its premiums $362,434 of payments which had been made prior to 1969 into the Federal Savings and Loan Insurance Corporation. As a result, 1993's deposit insurance premiums were less than 1994 and 1992.
PROVISION FOR REAL ESTATE LOSSES
During 1994, CIVISTA provided $564,487 for real estate losses in order to reserve $378,000 on the Enclave Mountain Estates and a nearby 12 acre parcel and to fully reserve and charge off the $476,633 non-earning loan. The $150,000 reserve on the Park Madison residential development was reversed.
During 1993, CIVISTA provided $50,000 for real estate losses on the remaining loan to the joint venture in La Quinta, California and charged off $135,000 against the reserve. During 1992, CIVISTA provided $705,712 for real estate losses. This was comprised of $150,000 on the Park Madison residential development, $50,000 on the remaining loan to the joint venture in La Quinta, California, and $505,712 representing a provision for losses on real estate acquired in settlement of loans. In 1992, CIVISTA charged off the $800,000 reserve on undeveloped Florida land and provided an additional $375,000 reserve.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan". This Statement requires that impaired loans that are within the scope of this Statement be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or at the loan's observable market price or at the fair value of the collateral if the loan is collateral dependent. CIVISTA is required to adopt this Statement on October 1, 1995. The adoption of this Statement is not expected to have a material impact on CIVISTA's financial position or results of operations.
In May 1993, the FASB issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". This Statement requires that debt and equity securities be classified in three categories and accounted for as follows: 1) held- to-maturity securities are reported at amortized cost; 2) trading securities are reported at fair value with unrealized gains and losses included in earnings; and 3) available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. CIVISTA adopted this Statement on October 1, 1994. If CIVISTA had adopted this Statement on September 30, 1994, the carrying value of the FNMA and SLMA common stock would have been increased by $560,137 and shareholders' equity would have reflected an additional $364,089 representing the impact of the unrealized gain net of income tax.
CAPITAL ADEQUACY
CAPITAL REQUIREMENTS
OTS regulations require savings institutions to meet three capital requirements - tangible capital, leverage capital and risk-based capital. Citizens Savings Bank exceeds all current capital requirements.
Savings associations must generally maintain minimum tangible capital of 1.5% of total assets. Tangible capital consists of common shareholders' equity, noncumulative perpetual preferred stock and related surplus and minority interest in consolidated subsidiaries less goodwill and certain other intangible assets. The leverage ratio requirement mandates capital of 3% of total assets subject to certain adjustments. For the risk-based capital requirement, the OTS has assigned risk weighting factors to all assets and certain commitments. Savings institutions must maintain capital at 8% of these risk weighted assets. The OTS issued a final regulation adding an interest rate risk component to the risk-based regulatory capital requirement effective March 31, 1995.
On December 19, 1992, the prompt corrective action regulations of the Federal Deposit Insurance Corporation Improvement Act became effective. These regulations define specific capital categories based on an institution's capital ratios. The capital categories are "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". To be considered "well capitalized", an institution must generally have a leverage ratio of at least 5 percent, a Tier 1 risk-based capital ratio of at least 6 percent, and a total risk-based capital ratio of at least 10 percent.
CAPITAL POSITION
CIVISTA has a very strong capital position. At year-end, shareholders' equity was $91.8 million which represented 11.5% of assets and 13.0% of liabilities. Citizens Savings Bank had shareholder's equity totalling 8.2% of its assets and 8.9% of its liabilities at September 30, 1994.
Citizens Savings Bank's compliance with the fully phased-in capital requirements in effect at September 30, 1994 is as follows (000's omitted):
INFLATION
CIVISTA's consolidated financial statements have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.
Virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of inflation.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required for Item 8 follows:
THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF CONDITION SEPTEMBER 30, 1994 AND 1993
See accompanying notes to consolidated financial statements.
THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
See accompanying notes to consolidated financial statements.
THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(Continued)
THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting and reporting policies of The CIVISTA Corporation (CIVISTA) and its subsidiaries which are followed in preparing and presenting its consolidated financial statements. CIVISTA's activities are considered to be a single industry segment for financial reporting purposes.
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CIVISTA and its wholly owned subsidiaries, Citizens Savings Bank of Canton (Citizens Savings Bank), Citizens Savings Corporation (CSC), The CASNET Group, Inc. (CASNET), Crest Investments, Inc., and Citizens Investment Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation.
B. REVENUE RECOGNITION
Interest income is recognized on the accrual basis as earned based on rates applied to principal amounts outstanding.
C. CASH EQUIVALENTS
Cash equivalents include short-term investments in amounts due from banks, interest bearing deposits and federal funds sold with original maturity of three months or less. Generally, federal funds sold are purchased and sold for one-day periods.
D. PROVISION FOR LOAN LOSSES
Provisions for losses on loans are charged to earnings when it is determined that the investment in such assets is greater than the estimated net realizable value. Additionally, accrual of interest on potential problem loans is excluded from income (by an offsetting increase in a specific allowance for loss) when, in the opinion of management, such suspension is warranted. In addition to providing reserves on specific loans, CIVISTA establishes general reserves for losses based upon the overall portfolio composition and general market conditions. While management uses the best available information to make these evaluations, future adjustments to the reserves may be necessary if economic circumstances differ substantially from the information and assumptions used.
E. LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are deferred and amortized, generally, over the contractual life of the related loan using a level yield method.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
F. MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES
Mortgage loans and mortgage-backed securities held for investment are carried at cost and the related premium or discount is amortized using the level yield method over the estimated remaining lives of the underlying investments. These investments are carried at cost because of management's intention and CIVISTA's ability to hold them to maturity.
Mortgage loans and mortgage-backed securities available for sale are carried at the lower of cost or estimated market value in the aggregate. CIVISTA classifies as available for sale, certain mortgage loans and mortgage-backed securities which it expects to hold for indefinite periods of time. Such assets may be sold in response to changes in interest rates. Gains or losses on the sales of mortgage loans and mortgage-backed securities are recognized on realization.
G. OFFICE PROPERTIES AND EQUIPMENT AND REAL ESTATE INVESTMENT PROPERTY
Office properties and equipment are depreciated using a straight-line method over the estimated useful lives of the related assets. Estimated lives for buildings are 50 years and furniture and equipment 3-10 years. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the term of the lease.
Real estate investment property is depreciated generally using a straight-line method over the estimated useful lives. Estimated lives for buildings are 25-55 years and furniture and fixtures 3-20 years.
Maintenance and repairs are charged to appropriate expense accounts in the year incurred.
H. INVESTMENT SECURITIES
Investment securities are carried at cost, adjusted for amortization of premium. Investment securities are carried at cost because of management's intention and CIVISTA's ability to hold them to maturity. Marketable equity securities are carried at the lower of cost or market. Gains or losses on the sales of securities are recognized on realization.
I. FEDERAL INCOME TAXES
CIVISTA adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" on October 1, 1993. This statement prescribes the asset and liability method of accounting for income taxes. Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect of a change in tax rates is recognized in income in the period of the enactment date. The impact of the adoption of this method for income taxes was insignificant.
Prior to fiscal 1994, deferred income taxes were provided for income and expense items which were reported for tax purposes in different years than for financial statement purposes.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
J. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired through foreclosure is initially recorded at the lower of cost or fair value. Subsequent to acquisition, real estate acquired through foreclosure is carried at the lower of cost or fair value minus estimated costs to sell. Declines in value are reserved through the allowance disclosed in note 7 and subsequently charged off if appropriate. Costs relating to development and improvement are capitalized up to fair value minus estimated costs to sell.
K. REAL ESTATE DEVELOPMENT ASSETS
Real estate development assets are held for sale and are carried at the lower of cost or net realizable value. Costs relating to development and improvement are capitalized up to net realizable value.
L. PENSION PLAN
CIVISTA's policy is to fund pension costs in accordance with the Employee Retirement Income Security Act of 1974.
M. POSTRETIREMENT HEALTH CARE
In 1992, CIVISTA adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" with immediate recognition of the transition obligation. This change did not have a material impact on net earnings and net earnings per share.
N. NET EARNINGS PER SHARE
Net earnings per share are based upon the weighted average number of common shares and common share equivalents outstanding during each year, adjusted to reflect the two-for-one stock split of November 22, 1993. The weighted average number of common shares and common share equivalents outstanding during 1994, 1993 and 1992 was 3,663,862, 3,594,718 and 3,529,640, respectively.
O. RECLASSIFICATIONS
Certain previously reported financial statement amounts have been reclassified to conform to the 1994 presentation.
2. PENDING MERGER
On August 10, 1994, CIVISTA entered into an Agreement of Affiliation and Plan of Merger with First Bancorporation of Ohio (FBOH). Pursuant of this agreement, CIVISTA will be merged into FBOH and the merger will be accounted for as a pooling of interests. It is contemplated that Citizens Savings Bank will merge with The First National Bank in Massillon, a Stark County subsidiary of FBOH. Under the terms of the agreement, FBOH will exchange 1.723 shares of its common stock for each outstanding CIVISTA share. CIVISTA has granted FBOH an option to acquire 350,655 shares of CIVISTA preferred stock at $33.50 per share, which option becomes exercisable upon the occurrence of specified events not consistent with the merger being consummated. Subject to regulatory approval, the merger is expected to be completed during the first calendar quarter of 1995.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES
A summary of investment securities follows:
A summary of United States Government and agency obligations at September 30, 1994 by maturity follows:
The $5,000,000 Ford Motor Credit note matures September 16, 1998.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
A summary of sales proceeds and realized gains and losses follows:
4. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of the following:
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The contractual maturities of mortgage-backed securities are as follows. Actual maturities are expected to be less than contractual maturities due to anticipated prepayments.
A summary of sales proceeds and realized gains and losses follows:
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. MORTGAGE LOANS, NET
A summary of mortgage loans follows:
A summary of sales proceeds and realized gains and losses follows:
Transactions in the reserve for loan losses are summarized as follows:
Interest which was reserved is recognized in income upon collection.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Outstanding commitments to fund fixed rate and adjustable rate mortgage loans aggregated approximately $3,667,000 and $425,000, respectively, at September 30, 1994.
CIVISTA's primary lending area is within Stark County, Ohio. At September 30, 1994, approximately $393,747,000 of CIVISTA's gross loans were to borrowers located in Stark County. In addition, at September 30, 1994, approximately $50,666,000 of CIVISTA's gross loans were located in other Ohio counties.
At September 30, 1994, 1993, and 1992, CIVISTA serviced loans for others aggregating approximately $26,737,000, $29,584,000 and $24,016,000, respectively.
6. OTHER LOANS, NET
A summary of other loans follows:
Due to the processing requirements, CIVISTA has adopted the policy of selling education loans before payments commence. The market value of education loans approximates book value.
Transactions in the reserve for other loan losses are summarized as follows:
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CIVISTA had unused consumer home equity and credit card lines of credit of $20,812,000 and $10,210,000, respectively, at September 30, 1994. CIVISTA extends home equity and credit card lines of credit in the normal course of business to meet the financing needs of customers. While CIVISTA expects a significant portion of these lines of credit to remain undrawn, the exposure to credit loss in the event of nonperformance by the borrower is represented by the amount drawn down. The credit policies and underwriting guidelines used in issuing lines of credit are the same as for other loans receivable.
7. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS, NET
Transactions in the reserve for losses on real estate acquired in settlement of loans are summarized as follows:
8. REAL ESTATE INVESTMENT PROPERTY, NET
Real estate investment property consists primarily of residential communities of apartments and town houses located in the Canton, Ohio area. A summary of real estate investment property follows:
Depreciation expense was $878,833, $900,118, and $920,985 in 1994, 1993, and 1992, respectively.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. OFFICE PROPERTIES AND EQUIPMENT, NET
A summary of office properties and equipment follows:
Depreciation and amortization expense was $810,425, $819,469, and $704,912 in 1994, 1993, and 1992, respectively.
At September 30, 1994, CIVISTA was obligated to pay rental commitments under noncancellable operating leases on certain offices and equipment as follows:
It is anticipated that certain leases which terminate in 1995 will be renewed.
Rentals charged to operations under all operating leases amounted to approximately $1,162,000, $1,262,000, and $1,575,000 in 1994, 1993, and 1992, respectively.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. REAL ESTATE DEVELOPMENT ASSETS, NET
Real estate development assets are summarized as follows:
CIVISTA acquired title to 40 acres in La Quinta, California in June 1990. CIVISTA has developed 27.6 acres into 54 residential lots known as the Enclave Mountain Estates. In May, 1991, CIVISTA received approval from the State of California to close sales on the 54 residential lots. CIVISTA has closed sales on seventeen lots as of September 30, 1994, and is continuing to market the remaining lots. CIVISTA has not yet finalized plans for the remaining 12.4 acres.
During 1994, CIVISTA completed the sell out of the last six Park Madison homes and charged off the non-earning loan.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Transactions in the reserve for losses on real estate development assets are summarized as follows:
Condensed statements of operations for CIVISTA's real estate development operations are as follows:
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. CUSTOMER DEPOSITS
Customer deposit balances are summarized as follows (000's omitted):
The components of interest expense were as follows (000's omitted):
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
At September 30, 1994, certificates of deposit summarized by year of maturity are as follows (000's omitted):
Certificates of deposit issued in amounts of $100,000 or more totalled $18,513,000 at September 30, 1994.
12. NOTES PAYABLE TO THE FEDERAL HOME LOAN BANK
The notes payable to the Federal Home Loan Bank of Cincinnati are payable at maturity with interest rates ranging from 5.000% to 6.757% (weighted average 5.111%) at September 30, 1994. Under a blanket floating lien security agreement with the Federal Home Loan Bank of Cincinnati, Citizens Savings Bank is required to maintain as collateral qualifying first mortgage loans equal to 150% of the notes payable.
Principal maturities for notes payable outstanding at September 30, 1994 are as follows by year of maturity:
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. MORTGAGE LOANS PAYABLE
Mortgage loans payable are summarized as follows:
The above loans are secured by real estate investment properties with book values of $11,262,993 at September 30, 1994.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. FEDERAL INCOME TAXES
As discussed in Note 1, CIVISTA adopted SFAS No. 109 as of October 1, 1993 on a prospective basis, resulting in no material cumulative adjustment to current net income or stockholders' equity. CIVISTA files a consolidated federal income tax return with its subsidiaries. Citizens Savings Bank has qualified under provisions of the Internal Revenue Code that permit it to deduct from taxable income an allowance for bad debts based on experience or a percentage of taxable income before such deduction. The differences between the statutory tax rates and the effective tax rates used in determining CIVISTA's tax provision are as follows (000's omitted):
The significant temporary differences included in the net deferred tax asset are as follows (000's omitted):
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The net deferred tax asset at October 1, 1993, the date of implementation of SFAS No. 109, was $656,000. The difference between this balance and the $693,000 balance at year end results in the deferred benefit of $37,000. Prior year deferred tax benefits were calculated using the deferred income method, and have not been restated.
Deferred federal income tax benefit resulted from timing differences in the recognition of income and expense for tax and financial statement purposes. The source of these differences and the tax effect of each are as follows:
As required by SFAS No. 109, CIVISTA has determined that it is not required to establish a valuation reserve for the deferred tax asset since it is "more likely than not" that the deferred tax of $693,000 will be principally realized through future reversals of existing taxable temporary differences, future taxable income, and tax planning strategies. CIVISTA's conclusion that it is "more likely than not" that the deferred tax asset will be realized is based on a history of growth in earnings and the prospects for continued growth including an analysis of potential uncertainties that may affect future operating results. CIVISTA will continue to review the tax criteria related to the recognition of deferred tax assets on a quarterly basis.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. SHAREHOLDERS' EQUITY
The number of common shares and treasury shares reflect the two-for-one stock split of November 22, 1993.
OTS regulations require savings institutions to maintain certain minimum levels of regulatory capital. An institution that fails to comply with its regulatory capital requirements must obtain OTS approval of a capital plan and can be subject to a capital directive and certain restrictions on its operations. At September 30, 1994, the minimum regulatory capital regulations require institutions to have tangible capital equal to 1.5 percent of adjusted total assets, a 3 percent leverage capital ratio and an 8 percent risk-based capital ratio.
The 8 percent risk-based regulatory capital requirement is based solely on the credit risk weighting of the institution's assets. The OTS has issued a final regulation adding an interest rate risk component to the risk-based regulatory capital requirement. This regulation affects capital calculations beginning March 31, 1995.
On December 19, 1992, the prompt corrective action regulations of the Federal Deposit Insurance Corporation Improvement Act became effective. These regulations define specific capital categories based on an institution's capital ratios. The capital categories are "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". Institutions categorized as "undercapitalized" or worse are subject to certain restrictions, including the requirement to file a capital plan with the OTS, prohibitions on the payment of dividends and management fees, restrictions on executive compensation and increased supervisory monitoring, among other things. Other restrictions may be imposed on the institution either by the OTS or the FDIC, including requirements to raise additional capital, sell assets or sell the entire institution. Once an institution becomes "critically undercapitalized" it is generally placed in receivership or conservatorship within 90 days.
To be considered "well capitalized", an institution must generally have a leverage ratio of at least 5 percent, a Tier 1 risk-based capital ratio of at least 6 percent and a total risk-based capital ratio of at least 10 percent.
At September 30, 1994, Citizens Savings Bank exceeded all regulatory capital requirements.
For federal income tax purposes, Citizens Savings Bank is allowed a bad debt deduction on taxable income and is subject to certain limitations based on aggregate loans and savings deposits at the end of the year. Retained earnings at September 30, 1994 and 1993 include approximately $31,158,000 which represents allocations of earnings for bad debt deductions for tax purposes only. If the amounts which qualify as deductions for federal income tax purposes are later used for purposes other than to absorb loan losses, including distributions in liquidation, they will be subject to federal income tax at the then current corporate tax rate.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. EMPLOYEE BENEFIT PLANS
A defined benefit pension plan covers substantially all employees. In general, benefits are based on years of service and the employee's compensation.
CIVISTA also maintains a supplemental employee retirement plan in order to provide certain officers with retirement benefits which had previously been provided through the qualified pension plan's integration with Social Security. As a result of changes in the Internal Revenue Code, the plan's integration with Social Security was eliminated. In general, benefits are based on years of service and the employee's compensation.
The following table sets forth the funded status of these plans as of July 31, 1994 and 1993 and the amounts recognized in the consolidated financial statements. There are no material differences in the following data as a result of using a July 31 instead of a September 30 measurement date.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Net pension expense included the following components:
Significant assumptions used in determining plan obligations and net pension expense are as follows:
In addition to pension benefits, CIVISTA provides certain health care benefits for retirees who have at least 15 years of full-time service and elect to continue health care coverage. CIVISTA will contribute the lesser of 75% of the monthly premiums or certain dollar caps based on whether the participants are eligible for Medicare. CIVISTA's postretirement health care plan is an unfunded plan.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CIVISTA's net periodic postretirement benefit cost including accrued postretirement benefit liability and accumulated postretirement benefit obligation are as follows:
In determining these amounts, CIVISTA assumed in 1994 that future increases in health care cost trend rates would be 11.5% for the next several years and then decline gradually to 5.5% in 2000. In 1993, CIVISTA assumed that future increases in health care cost trend rates would be 11.5% for the next several years and then decline gradually to 5.5% in 2000. CIVISTA used 7.00% and 6.00% in 1994 and 1993, respectively as the discount rates for valuing these future payments.
Based on the dollar caps which CIVISTA has in the plan, a one percentage point increase in the assumed health care cost trend rate would not increase the aggregate of the service and interest cost components of net periodic postretirement health care benefits cost.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. STOCK OPTION PLAN
In January 1993, shareholders approved the 1993 CIVISTA Corporation Stock Option Plan with 320,000 common shares authorized for grants of options and stock appreciation rights to full-time employees at the discretion of the Stock Option Committee of the Board. The option prices are fixed by the Stock Option Committee of the Board at not less than fair market value at the time the option is granted and no option has a life of more than ten years. Options are exercisable upon grant. The 1993 Plan superceded the previously existing stock option plan. Options granted under such previous plan remain outstanding and have terms identical to the 1993 Plan.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. PARENT COMPANY
Citizens Savings Bank's ability to pay future cash dividends to CIVISTA is limited by regulations and a dividend agreement with the Office of Thrift Supervision. By regulation, as long as Citizens Savings Bank has capital immediately prior to, and on a pro forma basis after giving effect to, a proposed dividend that is equal to or greater than the amount of its fully phased-in (July 1, 1996) capital requirement, Citizens Savings Bank can dividend 100 percent of its net income during a calendar year plus one-half of its surplus capital at the beginning of the calendar year. Under its dividend agreement, as long as Citizens Savings Bank exceeds its fully phased-in capital requirement, Citizens Savings Bank can dividend 100 percent of its net income for the prior eight quarters less cumulative dividends paid for such prior eight quarters.
Condensed financial information of CIVISTA (parent company only) is as follows:
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial and per share data for the years ended September 30, 1994 and 1993 are summarized as follows:
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. Where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. As a result, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in a current market exchange. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of CIVISTA.
THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The estimated fair values of CIVISTA's financial instruments are as follows (000's omitted):
CASH INCLUDING SHORT-TERM CASH INVESTMENTS. For cash and short-term cash investments, the carrying amount is a reasonable estimate of fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Fair values for investment and mortgage-backed securities are based on quoted market prices.
MORTGAGE AND OTHER LOANS. For certain homogeneous categories of loans, such as some residential mortgages, and consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit rating and the same remaining maturities.
FEDERAL HOME LOAN BANK STOCK. The fair value is estimated to be the carrying value which is par. All transactions in the capital stock of the Federal Home Loan Bank of Cincinnati are executed at par.
DEPOSITS. The fair value of transaction and savings deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated using rates currently offered for deposits of similar remaining maturities.
NOTES PAYABLE TO FEDERAL HOME LOAN BANK AND MORTGAGE LOANS PAYABLE. Rates currently available to CIVISTA for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.
MANAGEMENT'S REPORT - ------------------- The management of The CIVISTA Corporation is responsible for the preparation and accuracy of the financial information presented in this annual report. These consolidated financial statements were prepared in accordance with generally accepted accounting principles, based on the best estimates and judgement of management.
CIVISTA maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with CIVISTA's authorization and policies, and that transactions are properly recorded so as to permit preparation of financial statements that fairly present the financial position and results of operations in conformity with generally accepted accounting principles. These systems and controls are reviewed by our internal auditors and independent auditors.
The Audit Committee of the Board of Directors is composed of only outside directors and has the responsibility for the recommendation of the independent auditors for CIVISTA. The Audit Committee meets annually with internal auditors and our independent auditors to review accounting, auditing and financial matters. The independent auditors and the internal auditors have direct access to the Audit Committee.
Richard G. Gilbert Chairman and Chief Executive Officer
Jack R. Gravo President
KPMG Peat Marwick LLP Certified Public Accountants 1 Cascade Plaza, Suite 1110 Akron, OH 44308
INDEPENDENT AUDITORS' REPORT
The Board of Directors The CIVISTA Corporation:
We have audited the accompanying consolidated statements of condition of The CIVISTA Corporation and subsidiaries as of September 30, 1994 and 1993 , and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended September 30, 1994. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The CIVISTA Corporation and subsidiaries as of September 30, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1(i) to the consolidated financial statements, the Corporation adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, on October 1, 1993.
KPMG Peat Marwick LLP
November 23, 1994
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III -------- ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF CIVISTA - -------------------- PAUL G. BASNER, age 65, is Vice Chairman of the Board of CIVISTA, a position he has held since 1988. He is President and Chief Executive Officer of Citizens Savings, positions he has held since 1983 and 1993 respectively, and was Chief Operating Officer of Citizens Savings from 1983 to 1993. Mr. Basner first joined Citizens Savings in 1955 and has been a director of Citizens Savings since 1971.
KAREN S. BELDEN, age 52, is President and Co-owner of Easterday's Gift Shop and Florist in Canton, Ohio, positions she has held since 1982. Mrs. Belden has been a director of both CIVISTA and Citizens Savings boards since 1993.
JAMES T. DOUGHERTY, age 71, is a business consultant in Canton, Ohio. Mr. Dougherty was President of Forest Hill Cemetery Association until 1986. He has been a director of Citizens Savings since 1978 and a director of CIVISTA since 1988.
RICHARD G. GILBERT, age 74, is Chairman and Chief Executive Officer of CIVISTA, positions he has held since 1988. He is also the Chairman of Citizens Savings, a position he has held since 1971, and was Chief Executive Officer of Citizens Savings from 1958 to January 1993. Mr. Gilbert first joined Citizens Savings in 1947. He has been a director of Citizens Savings since 1954. Mr. Gilbert is also Chairman of all other CIVISTA subsidiaries.
JACK R. GRAVO, age 48, is President and a director of CIVISTA, positions he has held since 1988. He is Executive Vice President and Chief Operating Officer (since January 1993), and Chief Financial Officer (since 1980) of Citizens Savings. Mr. Gravo was Senior Vice President of Citizens Savings from 1980 to January 1993. He joined Citizens Savings in 1972 and became a director in 1991.
EMMANUEL D. PARADESES, age 60, is President and Chief Executive Officer of Citizens Savings Corporation, a subsidiary of CIVISTA, positions he has held since 1982 and 1993, respectively. He has been Senior Vice President-Marketing of Citizens Savings since 1980. Mr. Paradeses first joined Citizens Savings in 1967 and became a director in 1991. He has been a director of CIVISTA since 1988.
DONALD A. PEPPARD, age 77, is Chairman of the Board of Vail Industries, Inc. in Navarre, Ohio, a holding company whose subsidiaries engage in the manufacture of packaging materials. Mr. Peppard was President of Massillon Container Company, a manufacturer of packaging materials and a subsidiary of Vail Industries, Inc., until 1986. He has been a director of Citizens Savings since 1978 and a director of CIVISTA since 1988.
DONALD M. STEIN, age 78, is President of National Iron and Metal Company, an iron and metal broker and processor located in Canton, Ohio. He has been a director of Citizens Savings since 1965 and a director of CIVISTA since 1988.
JACK T. WHELAN, age 76, retired in 1982 as President of Ohio Paper Products Company, a can manufacturer located in Massillon, Ohio. He has been a director of Citizens Savings since 1978 and a director of CIVISTA since 1988.
F. STUART WILKINS, age 66, is a member of the Canton law firm of Krugliak, Wilkins, Griffiths & Dougherty, Co., L.P.A. He has been a director of Citizens Savings since 1967 and a director of CIVISTA since 1988.
EXECUTIVE OFFICERS OF CIVISTA - ----------------------------- Listed below are the elected officers of CIVISTA who are considered to be executive officers of CIVISTA. Officers are elected annually by the Board of Directors. All of the listed officers have held their positions with CIVISTA since August 17, 1988, except David A. Sarver who was elected Treasurer on January 17, 1990.
Listed below are the persons who are elected officers of Citizens Savings Bank , CSC and CASNET who are also considered to be executive officers of CIVISTA.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation of CIVISTA's chief executive officer and the other four most highly compensated executive officers of CIVISTA for each of the three fiscal years ended September 30, 1994, 1993 and 1992. CIVISTA officers are compensated by the subsidiaries of CIVISTA for which they principally provide services and not by CIVISTA.
STOCK OPTIONS
No stock options or SARS were granted during the fiscal year ended September 30, 1994. The following table provides information regarding exercises of stock options during the fiscal year ended September 30, 1994 and outstanding stock options at September 30, 1994.
Pursuant to the merger agreement with FBOH, upon consummation of the merger, FBOH will assume the CIVISTA Stock Option Plans such that all outstanding options will remain outstanding and be exercisable for shares of FBOH common stock, with the number of FBOH shares and the option exercise price to be determined based upon the exchange ratio applicable in the merger.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee administers the executive compensation program for CIVISTA and its subsidiaries. A primary purpose of the Committee's actions is to provide incentive for the executives to manage CIVISTA's business effectively for the benefit of its shareholders. The Committee reviews all issues pertaining to executive compensation and submits its recommendations to the Board of Directors for approval. The components of executive compensation are annual salary, cash bonuses and, for selected executives, stock option grants.
The Committee determines and recommends the annual salary to be paid to Mr. Gilbert, Chairman and Chief Executive Officer, and, after considering the recommendation of Mr. Gilbert, the annual salary to be paid to each of the other executive officers. An executive's annual salary is based upon the Committee's and the Board's subjective judgment as to the executive's individual performance and contribution to the profitability of CIVISTA and its subsidiaries, considered in the context of the range of annual salaries of executives of comparably-sized financial institutions in CIVISTA's general geographic area. Profitability of CIVISTA and its subsidiaries and the market price of CIVISTA's shares also are considered by the Committee in recommending the annual salaries of executives, but no specific formulas or guidelines are utilized in considering such factors.
Cash bonuses are determined and recommended in accordance with the same procedures applicable to annual salaries. These bonuses are paid to executive officers and other key employees of CIVISTA and its subsidiaries, based upon company performance and perceived individual contribution. Company performance includes the profitability of CIVISTA and its subsidiaries on a consolidated basis, the market price of CIVISTA common shares, and the profitability of the CIVISTA subsidiary for which the executive or key employee provides services. The relationship of bonuses to individual and company performance reflects the general subjective judgment of the Committee and the Board of Directors rather than application of any specific formulas or guidelines.
During each fiscal year, a Stock Option Committee considers the granting of stock options to senior executives under CIVISTA's Stock Option Plan. Stock options are utilized as the primary vehicle for rewarding executives for the long-term achievement of company goals. The Stock Option Committee, consisting entirely of nonemployee directors of the Compensation Committee, meets annually to determine option grants for senior executives. In considering whether to grant options to an executive and in determining the size of the grant, the Stock Option Committee considers the individual's level of responsibility, performance, compensation and assessed potential as well as the historical option practices of CIVISTA.
The merger agreement with FBOH contains various limitations regarding executive compensation pending consummation of the merger. One of these provisions precludes the granting of merit increases to officers of CIVISTA and its subsidiaries who are parties to a Severance Agreement. The salary increases shown in the Summary Compensation Table for fiscal 1994 were determined in September 1993 and the effect of the merger agreement was to preclude the granting of merit increases that customarily would have been considered in September 1994. Another provision limits bonuses to executive officers and other employees to the aggregate of bonuses paid for fiscal year 1993 plus an agreed upon amount. Bonuses for executive officers for fiscal year 1994 were determined on the basis described above but subject to this merger agreement limitation. The merger agreement also precludes the granting of stock options subsequent to the time it was signed and no stock options were granted during fiscal year 1994.
COMPENSATION COMMITTEE
Richard G. Gilbert, Chairman Jack T. Whelan Paul G. Basner F. Stuart Wilkins Donald M. Stein
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of CIVISTA is comprised of Messrs. Gilbert, Basner, Stein, Whelan and Wilkins. Mr. Gilbert is Chairman and Chief Executive Officer of CIVISTA and Chairman of all CIVISTA subsidiaries. Mr. Basner is Vice Chairman of CIVISTA and President and Chief Executive Officer of Citizens Savings.
STOCK PERFORMANCE GRAPH
Graph Here
The above graph represents the five year cumulative total return on $100 invested on September 30, 1989 in CIVISTA common shares compared to $100 invested in all U.S. companies traded on NASDAQ or $100 invested in all savings and loan companies traded on NASDAQ. This graph shows that CIVISTA experienced a moderate return between September 30, 1989 and September 30, 1991. Between September 30, 1991 and September 30, 1993, CIVISTA's total return increased dramatically from $120 to $333. In 1994, CIVISTA's total return jumped to $583. The 1994 increase directly relates to CIVISTA's pending merger with FBOH. The index of all U.S. Companies traded on NASDAQ fell during the year ended September 30, 1990, but then rose to $117 and $131 in the years ended September 30, 1991 and 1992, respectively. From this point, the NASDAQ U.S. companies rose to $172 at September 30, 1993 and remained at this level at September 30, 1994. An index comprised of all savings and loan companies which are traded on NASDAQ showed a drop to $55 at September 30, 1990 before rising to $84 at September 30, 1991 and $116 at September 30, 1992. This was followed by a jump to $190 at September 30, 1993 and $218 at September 30, 1994. The dollar value of $100 invested at September 30, 1989 compared to September 30, 1990 through 1994, assuming immediate reinvestment of dividends, is as follows:
PENSION BENEFITS
With the exception of Mr. Gilbert, each individual shown in the Summary Compensation Table is a participant in The CIVISTA Corporation Pension Trust, which is open for participation to all full-time officers and employees who have attained age 20-1/2 and have completed one year's service. Mr. Gilbert received his pension benefits during 1985 and Mr. Basner during 1994 when they reached the normal distribution age of 65 under the terms of the pension plan. Retirement benefits and participant contributions to the plan are in proportion to the participant's base rate of compensation which for executive officers is their annual salary. Benefits payable at the normal distribution age of 65 are reduced proportionately for service of less than 40 years. Funding costs in excess of participant contributions are met by investment of plan assets and contributions by CIVISTA's affiliates. Each individual shown in the Summary Compensation Table, except Mr. Gilbert and Mr. Basner, is also a participant in The CIVISTA Corporation Supplemental Employee Retirement Plan (SERP). During 1991, CIVISTA adopted the SERP to provide retirement benefits which had previously been provided through the qualified pension plan's integration with Social Security. As a result of changes in the Internal Revenue Code, the pension plan's integration with Social Security was eliminated. Benefits payable at the normal retirement age of 65 are reduced proportionately for service of less than 40 years. At September 30, 1994, the officers (other than Mr. Gilbert and Mr. Basner) shown in the Summary Compensation Table had years of credited service as follows: Mr. Gravo - 22 years; Mr. Paradeses - 28 years; Mr. Harbert - 26 years.
The estimated annual benefits payable upon retirement are as follows: Mr. Gravo $70,656; Mr. Paradeses $67,248; and Mr. Harbert $53,316. The amounts of estimated annual benefits assume: (a) that the participant remains in full-time service until the normal distribution age of 65; (b) that the participant's base rate of compensation continues at the same rate as that paid at September 30, 1994 (c) that the plan will be continued without substantial modification until retirement age; and (d) that the benefit will be received as a life annuity without provision for survivor payments.
It is the intent to merge the CIVISTA pension plan into FBOH's defined benefit plan. CIVISTA employees will be entitled to their accrued benefits as of the merger date (subject to vesting requirements) and will be credited with service for CIVISTA employment for participation and vesting purposes.
SEVERANCE PAYMENT AGREEMENTS
In 1989, the Severance Payment Agreements which had previously been entered into with officers of Citizens Savings were revised to add CIVISTA as a party. Each of the individuals named in the Summary Compensation Table is a party to such an agreement. The purpose of the Severance Agreements is to reinforce and encourage the continued attention and dedication of said officers to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control of CIVISTA or any operating company of CIVISTA. Benefits are payable only if a change in control has occurred and the officer's employment is terminated within one to three years, depending on the applicable Severance Agreement, after such change in control for reasons other than "just cause," "good reason," death or normal retirement.
The principal benefits to be provided to the officers under the Severance Agreements are (i) a lump sum severance payment equal to a full year's compensation multiplied by the years for which the Severance Agreement is written, or a lesser proportional number that relates to the attainment of age 65 (75 in the case of Mr. Gilbert and 66 in the case of Mr. Basner) by such officer; (ii) a lump sum in lieu of any further profit sharing or incentive compensation payments equal to 15% of a full year's compensation multiplied as stated in (i); (iii) a lump sum calculated to approximate the present value of the additional retirement benefits to which the officer would have become entitled had the officer remained in the employment of CIVISTA or an operating company for the same number of years used in computing the lump sum severance payment; (iv) continued participation in employee benefit programs such as group life, health and medical insurance coverage for the same number of years used in computing the lump sum severance payment; and (v) a cash payment equal to the difference between the exercise price of all outstanding stock options held by the officer on the date of his or her termination and the higher of the fair market value of CIVISTA's Common Shares on the date of termination or the highest price paid for CIVISTA's Common Shares in connection with the change in control.
Each Severance Agreement for the officers who have stock options outstanding has been amended, effective at the time of consummation of the merger with FBOH, to delete the section which provides for a cash payment in lieu of the right of the holder to exercise CIVISTA's stock options, as summarized in (v) in the preceding paragraph. The merger agreement provides that FBOH will assume CIVISTA's obligations under the Severance Agreements as so amended.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF COMMON SHARES
The following table sets forth, as of December 1, 1994, information concerning the number of CIVISTA common shares beneficially owned, directly or indirectly, by each director individually, by each executive officer named in the Summary Compensation Table, and by all directors and executive officers of CIVISTA as a group. The totals include shares owned individually, by or jointly with family members and in trusts, and shares acquirable within sixty days through the exercise of stock options.
[FN] (10) Includes 60,616 shares owned by or jointly with spouses or held in a trust, for which members of the group share voting and investment powers, and 281,200 shares which the members of the group have the right to acquire within sixty days through the exercise of stock options.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
The following loan benefits are made available to employees of CIVISTA and its subsidiaries. Directors and executive officers are ineligible for these benefits except for balances outstanding at the time of passage of the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA). Mortgage loans and home equity line-of-credit loans are made by Citizens Savings Bank in the ordinary course of business to employees secured by their principal residence. Except as described below, such loans are granted on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with the public at the time the loan is granted, and do not involve more than the normal risk of collectibility or present other unfavorable features. While an employee of CIVISTA or a subsidiary, interest on a mortgage loan on their principal residence is charged at the lesser of the loan contract rate or 3/4% above Citizens Savings Bank's weighted average cost of money. The rate charged on such loans averaged 4.08% during the year ended September 30, 1994. Interest is currently charged at the rate of 4.25% per annum. The rate charged on equity line-of-credit loans is 2 percentage points lower than the rate charged non-affiliated persons. Consumer loans are made at the lowest rate at which such loans are made to non-affiliated persons. Loans secured by a savings passbook account or a savings certificate are available to employees at a rate 1 to 2 percentage points lower than the rate charged non-affiliated persons.
Thomas L. Tuersley, President of The CASNET Group, Inc., has a mortgage loan on his residence, a consumer loan and a loan on a savings account for which he receives interest rates as described in the above paragraph. His largest aggregate amount of indebtedness since October 1, 1993 was $64,850 and his unpaid balance as of September 30, 1994 was $49,094 at a weighted average rate of 4.50%.
F. Stuart Wilkins, a director of CIVISTA, is a member of the law firm of Krugliak, Wilkins, Griffiths & Dougherty, Co., L.P.A. This firm renders legal services to CIVISTA and its subsidiaries. During the fiscal year ended September 30, 1994, fees paid by CIVISTA and its subsidiaries for legal services performed by this law firm did not exceed five percent of the firm's gross revenues for its last fiscal year.
PART IV -------
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following financial statements appear in Part II of this report:
Consolidated Statements of Condition September 30, 1994 and 1993 Consolidated Statements of Operations Years ended September 30, 1994, 1993 and 1992 Consolidated Statements of Shareholders' Equity Years ended September 30, 1994, 1993 and 1992 Consolidated Statements of Cash Flows Years ended September 30, 1994, 1993 and 1992 Notes to Consolidated Financial Statements September 30, 1994, 1993 and 1992 Management's Report Independent Auditors' Report
(a) 2. No financial statement schedules are filed with this report as the required information is inapplicable.
(b) On August 16, 1994, CIVISTA filed a Form 8-K reporting under Item 5 that CIVISTA had entered into an Agreement of Affiliation and Plan of Merger with First Bancorporation of Ohio (FBOH) on August 10, 1994, providing for the merger of CIVISTA into FBOH and the merger of Citizens Savings Bank of Canton, CIVISTA's savings and loan subsidiary, into The First National Bank in Massillon, a Stark County subsidiary of FBOH.
SIGNATURES
Pursuant to the requirements of Section 13 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. Dated: December 12, 1994
THE CIVISTA CORPORATION
By /s/ Richard G. Gilbert ------------------------ Richard G. Gilbert Chairman of the Board, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Dated: December 12, 1994
/s/ Richard G. Gilbert /s/ Jack R. Gravo - ------------------------------ ------------------------- Richard G. Gilbert Jack R. Gravo Chairman of the Board, Director President, Director (Principal Executive Officer) (Principal Financial and Accounting Officer)
/s/ Paul G. Basner /s/ Donald A. Peppard - ------------------------------ ------------------------- Paul G. Basner Donald A. Peppard Vice Chairman of the Board, Director Director
/s/ Karen S. Belden /s/ Donald M. Stein - ------------------------------ ------------------------- Karen S. Belden Donald M. Stein Director Director
/s/ James T. Dougherty /s/ Jack T. Whelan - ------------------------------ ------------------------- James T. Dougherty Jack T. Whelan Director Director
/s/ Emmanuel D. Paradeses /s/ F. Stuart Wilkins - ------------------------------ ------------------------- Emmanuel D. Paradeses F. Stuart Wilkins Director Director
EXHIBIT INDEX
Exhibit Paper (P) - ------- --------- Electronic (E) ------------- 11.1 Computation of Earnings Per Share. E
22.1 Subsidiaries of the Registrant. E
24.1 Consent of KPMG Peat Marwick. E
27.1 Financial Data Schedule E