EDGAR 10-K Filing

Company CIK: 944745
Filing Year: 2023
Filename: 944745_10-K_2023_0000950170-23-008123.json

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ITEM 1. BUSINESS
Item 1. Business
General Development of Business
CIVISTA BANCSHARES, INC. (“CBI”) was organized under the laws of the State of Ohio on February 19, 1987 and is a registered financial holding company under the Gramm-Leach-Bliley Act of 1999, as amended (the “GLBA”). CBI’s office is located at 100 East Water Street, Sandusky, Ohio. CBI and its subsidiaries are sometimes referred to together as the “Company”. The Company had total consolidated assets of $3,537,830 at December 31, 2022.
CIVISTA BANK (“Civista”), owned by the Company since 1987, opened for business in 1884 as The Citizens National Bank. In 1898, Civista was reorganized under Ohio banking law and was known as The Citizens Bank and Trust Company. In 1908, Civista surrendered its trust charter and began operation as The Citizens Banking Company. The name Civista Bank was introduced during the first quarter of 2015 to solidify our dual Citizens/Champaign brand and distinguish ourselves from the many other banks using the “Citizens” name in our existing and prospective markets. Civista maintains its main office at 100 East Water Street, Sandusky, Ohio and operates branch banking offices in the following Ohio communities: Sandusky (2), Norwalk (2), Berlin Heights, Huron, Port Clinton, Castalia, New Washington, Shelby (2), Willard, Greenwich, Plymouth, Shiloh, Akron, Dublin, Plain City, Russells Point, Urbana (2), West Liberty, Quincy, Dayton (3), Beachwood, Gahanna, Napoleon (3), Malinta, Liberty Center, Holgate, Bowling Green, and in the following Indiana communities: Lawrenceburg (3), Aurora, West Harrison, Milan, Osgood and Versailles. Civista also operates loan production offices in Westlake, Ohio and Fort Mitchell, Kentucky and a leasing company office in Pittsburgh, Pennsylvania. Civista and its consolidated subsidiaries as discussed below, accounted for 99.2% of the Company’s consolidated assets at December 31, 2022.
FIRST CITIZENS INSURANCE AGENCY, INC. (“FCIA”) was formed as a wholly-owned subsidiary of CBI to allow the Company to participate in commission revenue generated through its third party insurance agreement. Assets of FCIA were not significant as of December 31, 2022.
WATER STREET PROPERTIES (“WSP”) was formed as a wholly-owned subsidiary of CBI to hold properties repossessed by CBI subsidiaries. Assets of WSP were not significant as of December 31, 2022.
FIRST CITIZENS INVESTMENTS, INC. (“FCI”) was formed in the fourth quarter of 2007 as a wholly-owned subsidiary of Civista to hold and manage its securities portfolio. The operations of FCI are located in Wilmington, Delaware.
FIRST CITIZENS CAPITAL LLC (“FCC”) was also formed in the fourth quarter of 2007 as a wholly-owned subsidiary of Civista to hold inter-company debt that is eliminated in consolidation. The operations of FCC were discontinued December 31, 2021 as a result of inactivity.
VISION FINANCIAL GROUP, INC. ("VFG") was acquired in the fourth quarter of 2022 as a wholly-owned subsidiary of Civista and is a full-service general equipment leasing & financing company. The operations of VFG are located in Pittsburgh, Pennsylvania.
CIVB RISK MANAGEMENT, INC. (“CRMI”), a wholly-owned subsidiary of CBI which was formed and began operations on December 26, 2017, is a Delaware-based captive insurance company which insures against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. CRMI pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. CRMI is subject to regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.
Acquisition of Comunibanc Corp.
On July 1, 2022, CBI completed the acquisition by merger of Comunibanc Corp. in a stock and cash transaction for aggregate consideration of approximately $46,090. Immediately following the merger, Comunibanc Corp.’s banking subsidiary, The Henry County Bank, was merged into Civista. At the time of the merger, Comunibanc Corp. had total assets of $315,083, including $175,500 in loans, and $271,081 in deposits. As a result of the merger, we acquired seven offices of Comunibanc Corp. in the Ohio communities of Napoleon (3), Malinta, Holgate, Liberty Center, and Bowling Green.
Acquisition of Vision Financial Group
On October 3, 2022, CBI and Civista completed the acquisition by Civista of all of the issued and outstanding shares of capital stock of VFG for aggregate cash and stock consideration of approximately $46,544. Prior to the acquisition, VFG was a privately held, independent, full-service equipment leasing and financing company headquartered in Pittsburgh, Pennsylvania. At the time of the acquisition, VFG had total assets of $93,870, including $62,712 in loans and leases. As a result of the acquisition, VFG became a wholly-owned subsidiary of Civista.
CBI is a financial holding company. Through its subsidiaries, including Civista, the Company is primarily engaged in the business of community banking, which accounts for substantially all of its revenue, operating income and assets. Refer to the Consolidated Financial Statements on pages 64 through 69 of the 2022 Annual Report for additional information.
Narrative Description of Business
General
The Company’s primary business is incidental to the subsidiary bank and its subsidiaries. Civista, through its locations in the Ohio counties of Erie, Crawford, Champaign, Cuyahoga, Franklin, Huron, Logan, Madison, Montgomery, Ottawa, Richland, Henry, Wood and Summit, in the Indiana counties of Dearborn and Ripley and in the Kentucky county of Kenton, conducts a general banking business that involves collecting customer deposits, making loans, purchasing securities, and offering Trust services. Civista also engages in a general equipment leasing and financing business through its wholly-owned subsidiary, VFG, which was acquired in October 2022.
Interest and fees on loans accounted for 69% of total revenue for 2022, 67% of total revenue for 2021, and 69% of total revenue for 2020. The Company’s primary focus of lending continues to be real estate loans, both residential and commercial in nature. Commercial real estate loans comprised 55% of the total loan portfolio in 2022, 56% of the total loan portfolio in 2021, and 48% of the total loan portfolio in 2020. Residential real estate mortgage loans comprised 22% of the total loan portfolio in 2022, 22% of the total loan portfolio in 2021 and 22% of the total loan portfolio in 2020. Commercial and agriculture loans comprised 11% of the total loan portfolio in 2022, 12% in 2021, and 20% in 2020. Civista’s loan portfolio does not include any foreign-based loans, loans to lesser-developed countries or loans to CBI or its other subsidiaries.
On a parent company only basis, CBI’s primary source of funds is the receipt of dividends paid by its subsidiaries, principally Civista. The ability of Civista to pay dividends is subject to limitations under various laws and regulations and to prudent and sound banking principles. Generally, subject to certain minimum capital requirements, Civista may declare a dividend without the approval of the State of Ohio Division of Financial Institutions (the “ODFI”) unless the total of the dividends in a calendar year exceeds the total net profits of the bank for the year combined with the retained profits of the bank for the two preceding years. At December 31, 2022, Civista had $55,501 of accumulated net profits available to pay dividends to CBI without approval of the ODFI.
The Company’s business is not seasonal, nor is it dependent on a single or small group of customers.
Business Strategy
The Company’s strategy is to compete for business by providing high quality, personal service to customers, enhanced local presence and customer access to our decision-makers, rapid decision-making, and competitive interest rates and fees. We develop and maintain business relationships by taking on leadership roles in our communities through the involvement of our experienced commercial and retail bankers, management team and Board of Directors. We believe we will continue to drive growth and increase profitability, while maintaining our high level of asset quality, by doing the following:
Expand Relationships in Our Communities
We emphasize relationship banking by maintaining and growing our customers and contacts with personal interaction by our bankers and management teams in the communities that we serve. We strive to do this by offering a full suite of competitive banking products through efficient and varied delivery channels tailored to the needs of our customers and potential customers. Civista, through its Civista Wealth Management division, also offers investment and advisory solutions. Our approach is personalized and focused on what our clients need. We provide individuals, families, business and non-profits with personalized investment management, 401-(k) advisory services for employers, financial planning, trust services, and tailored lending.
Core Deposit Growth
We plan to continue to focus on growing our core, commercial operating and retail, non-maturity deposit base with an emphasis on relationship banking. Our business model focuses on gaining the majority of our customers’ banking relationships by implementing many best practices for community banks, including personalized service and technology. We believe that these generate “stickier” deposit accounts with larger average balances than might be attracted otherwise. From time to time we also use pricing techniques in our efforts to attract banking relationships having larger than average balances.
Leverage Our Residential Mortgage Banking Infrastructure
We seek to leverage our mortgage banking infrastructure to support the origination of residential mortgage loans for sale into the secondary market. Mortgage loan originations and sales activity are strategies utilized to support growth in our non-interest income, while also serving to help manage the Company’s exposure to interest rate risk through the sale of longer-duration, fixed-rate loans into the secondary market.
Improve Our Operating Efficiency
Expense discipline is a key strategy to improve operating efficiency and contribute to earnings growth. We also strive to operate more efficiently by incorporating technology into our client offerings.
Maintain Robust Capital and Liquidity Levels
The Company’s capital position provides a source of strength and continues to significantly exceed all regulatory capital guidelines as demonstrated by the December 31, 2022 Tier 1 Leverage ratios of the Company and Civista of 8.9 percent and 10.3 percent, respectively. We plan to continue to maintain robust capital reserves.
In addition to our robust capital levels, we maintain significant sources of both on- and off-balance sheet liquidity and plan to continue to do so. At December 31, 2022, our liquid assets included $43.3 million of short-term cash and equivalents supplemented by $615.4 million of investment securities classified as available for sale which can be readily sold or pledged as collateral, if necessary. In addition, we had the capacity to borrow additional funds totaling $374.7 million from the Federal Home Loan Bank of Cincinnati at December 31, 2022.
Ensure the Adequacy of Our Allowance for Credit Losses
Despite the economic implications and challenges resulting from the COVID-19 pandemic on our business over the past three years, our reserve levels have remained adequate with total allowance amounting to $28.5 million at December 31, 2022.
Market Area and Competition
At December 31, 2022, our primary market area consisted of the counties in which we currently operate branches, and loan production offices, including Erie, Crawford, Champaign, Cuyahoga, Franklin, Huron, Logan, Madison, Montgomery, Ottawa, Richland, Henry, Wood and Summit Counties in Ohio, Dearborn and Ripley Counties in Indiana and Kenton County in Kentucky. Our lending is concentrated in these markets and our predominant sources of deposits are the communities in which our offices are located as well as the neighboring communities.
The banking business is highly competitive. We face substantial competition both in attracting deposits and in originating loans anf commercial equipment leasing. We compete with numerous financial institutions, including large regional financial institutions, community banks, thrifts and credit unions operating without our market area. Nontraditional sources of competition for loan and deposit dollars come from captive auto finance companies, mortgage banking companies, internet banks, brokerage companies, insurance companies, business leasing and finance companies and direct mutual funds. As a result of their size, resources and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer, as well as higher lending limits, which may adversely affect the ability of Civista to compete.
Products and Services
We offer a broad range of deposit and loan products and other banking services. These include personal and commercial checking accounts, retirement accounts, money market accounts, time and savings accounts, safe deposit boxes, wire transfers, access to automated teller services, internet banking, ACH origination, telephone banking, and mobile/digital banking. Civista also offers remote deposit capture banking for both retail and business customers, providing the ability to electronically scan and transmit checks for deposit.
Time deposits consist of certificates of deposit, including those held in IRA accounts. Reciprocal deposits are offered through Civista’s participation in the Certificate of Deposit Account Registry Service® (CDARS) and Insured Cash Sweep (ICS) programs offered through Promontory Interfinancial Network, LLC. Customers who are Federal Deposit Insurance Corporation (“FDIC”) insurance sensitive are able to place large dollar deposits with Civista and Civista uses either outlet to place those funds into certificates of deposit or money markets issued by other banks in the Network. This occurs in increments of less than the FDIC insurance limits so that both the principal and interest are eligible for complete FDIC insurance coverage. The FDIC currently considers these funds as brokered deposits.
We offer commercial and personal loans on a secured and unsecured basis, revolving lines of credit, commercial mortgage loans, and residential mortgages on both primary and secondary residences, home equity loans, bridge loans and other personal purpose loans. However, we are not and have not historically been a participant in the sub-prime lending market.
Commercial loans are loans made for business purposes and are primarily secured by collateral such as cash balances with Civista, business assets including accounts receivable, inventory and equipment, and liens on commercial real estate.
Construction loans are loans to finance the construction of commercial or residential properties secured by first liens on such properties. Commercial real estate loans include loans secured by first liens on completed commercial properties, including multi-family properties, to purchase or refinance such properties. Residential mortgages include loans secured by first liens on residential real estate to purchase or refinance primary and secondary residences. Home equity loans and lines of credit include loans secured by first or second liens on residential real estate for primary or secondary residences.
Consumer loans are made to individuals who qualify for auto loans, cash reserve, and installment loans. Our consumer loan portfolio includes unsecured overdraft lines of credit and personal loans as well as loans secured by savings accounts and certificates of deposit on deposit with Civista.
Our portfolio lending activities include the origination of one- to four-family first mortgage loans, primarily in our designated market area. The fixed-rate residential mortgage loans that we originate for portfolio generally meet the secondary mortgage market standards. As a complement to our residential one- to four-family portfolio lending activities, we operate a mortgage banking platform which supports the origination of one- to four-family mortgage loans that generally meet the secondary mortgage market standards. Such loans are generally originated by and sourced from the same resources and markets as those loans originated and held in our portfolio.
Through our equipment leasing and financing business operated by VFG, which was acquired as a whooly-owned subsuduary of Civista in October 2022, we offer commercial equipment leasing services for businesses nationwide.
Through our Civista Wealth Management division we offer investment advisory services to individuals, families, businesses and non-profits with personalized investment management, 401(k) advisory services for employers, financial planning, and trust services.
Human Capital Resources
Our employees are vital to our success in the financial services industry. As a human-capital intensive business, the long-term success of our company depends on our people. Our goal is to ensure that we have the right talent, in the right place, at the right time. We do that through our commitment to attracting, developing and retaining our employees.
We strive to attract individuals who are people-focused and share our values. We have a comprehensive program dedicated to selecting new talent and enhancing the skills of our employees. In our recruiting efforts, we strive to have a diverse group of candidates to consider for our roles. To that end, we have strong relationships with a variety of industry associations that represent diverse professionals and partner with schools in the communities we serve to offer internship opportunities to students interested in the financial industry.
We have designed a compensation structure that we believe is attractive to our current and prospective employees. We also offer our employees the opportunity to participate in a variety of professional and leadership development programs. Our programs include a variety of industry, product, technical, professional, business development, leadership and regulatory topics. These programs are available online and in-person. In addition, we encourage all employees to be involved in the communities we serve through various volunteer activities.
We seek to retain our employees by using their feedback to create and continually enhance programs that support their needs. We use company-wide surveys to solicit feedback from our employees. We have a formal annual goal setting and performance review process for our employees. We promote a values-based culture, an important factor in retaining our employees. Our training, to share and communicate our culture to all employees, plays an important part in this process. We are committed to having a diverse workforce, and an inclusive work environment is a natural extension of our culture. We are committed to ensuring that all our employees feel welcomed, valued, respected and heard so that they can fully contribute their unique talents for the benefit of our customers, their careers, our company and our communities. We have recently established a Diversity, Equity and Inclusion Council (“DEI Council”). This company-wide diversity and inclusion advisory council stewards the Company’s efforts and provides guidance on priorities. The DEI Council is composed of employees from all areas of our Company and locations where we operate.
We monitor and evaluate various turnover and attrition metrics throughout our organization. Our annualized voluntary turnover is relatively low, as is the case for turnover of our top performers, a record which we attribute to our strong values-based culture, commitment to career development, and attractive compensation and benefit programs.
Civista employs approximately 530 full-time equivalent employees to whom a variety of benefits are provided. CBI has no employees. CBI and its subsidiaries are not parties to any collective bargaining agreements. Management considers its relationship with its employees to be good.
Supervision and Regulation
CBI and its subsidiaries are subject to extensive supervision and regulation by federal and state agencies. The regulation of financial holding companies and their subsidiaries is intended primarily for the protection of consumers, depositors, borrowers, the Deposit Insurance Fund (the “DIF”) and the banking system as a whole, and not for the protection of shareholders. Applicable laws and regulations restrict permissible activities and investments and require actions to protect loan, deposit, brokerage, fiduciary and other customers, as well as the DIF. These laws and regulations also may restrict the ability of CBI to pay dividends to its shareholders, to repurchase its common shares or to receive dividends from Civista, and impose capital adequacy and liquidity requirements.
The following is a summary of the regulatory agencies that supervise and regulate CBI and Civista and the statutes and regulations that have, or could have, a material impact on the Company’s business. This discussion is qualified in its entirety by reference to such statutes and regulations. The statutes and regulations applicable to the Company are continually under review by the United States Congress and state legislatures and federal and state regulatory agencies, and a change in statutes, regulations or regulatory policies applicable to the Company could have a material effect on the Company’s business.
The Bank Holding Company Act: As a financial holding company, CBI is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). Under the BHCA, CBI is subject to periodic examination by the Federal Reserve Board and is required to file periodic reports regarding its operations and any additional information that the Federal Reserve Board may require. The Federal Reserve Board also has extensive enforcement authority over financial and bank holding companies, including the ability to assess civil money penalties, issue cease and desist and removal orders, and require that a financial or bank holding company divest subsidiaries, including its subsidiary banks.
Under applicable law and Federal Reserve Board policy, a financial or bank holding company is expected to act as a source of strength to each of its subsidiary banks. The Federal Reserve Board may require a financial or bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice.
The BHCA generally limits the activities of a bank holding company to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries and engaging in any other activities that the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident to those activities. In addition, the BHCA requires every bank holding company to obtain the approval of the Federal Reserve Board prior to acquiring all or substantially all of the assets of any bank or another financial or bank holding company, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank not already majority-owned by it, or merging or consolidating with another financial or bank holding company.
In April 2020, the Federal Reserve Board adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHCA. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve Board generally views as supporting a facts-and-circumstances determination that one company controls another company. The Federal Reserve Board’s final rule applies to questions of control under the BHCA, but does not extend to the Change in Bank Control Act.
Gramm-Leach-Bliley Act (“GLBA)”: The GLBA permits qualifying bank holding companies to elect to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature if (i) the holding company is well capitalized and well managed and (ii) each of the holding company’s subsidiary banks is well capitalized under the FDIC’s Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act (the “CRA”). In March, 2000, CBI became a financial holding company. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or a savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.
The GLBA defines “financial in nature” to include:
•securities underwriting, dealing and market making;
•sponsoring mutual funds and investment companies;
•insurance underwriting and agency;
•merchant banking; and
•activities that the Federal Reserve Board has determined to be closely related to banking.
If a financial holding company or a subsidiary bank fails to maintain all requirements for the holding company to maintain financial holding company status, material restrictions may be placed on the activities of the financial holding company and its subsidiaries and on the ability of the holding company to enter into certain transactions and obtain regulatory approvals for new activities and transactions. The financial holding company could also be required to divest of subsidiaries that engage in activities that are not permitted for bank holding companies that are not financial holding companies. If restrictions are imposed on the activities of a financial holding company, the existence of such restrictions may not be made publicly available pursuant to confidentiality regulations of the bank regulatory agencies.
Transactions with Affiliates, Directors, Executive Officers and Shareholders: Transactions between Civista and its affiliates, including CBI, are subject to Sections 23A and 23B of the Federal Reserve Act, and Federal Reserve Board Regulation W, which generally limit the extent to which Civista may engage in “covered transactions” with affiliates and require that the terms of such transactions be the same, or at least as favorable, to Civista as the terms provided in a similar transaction between Civista and an unrelated party. The term “covered transaction” includes the making of loans to an affiliate, the purchase of assets from an affiliate, the issuance of a guarantee on behalf of an affiliate, the purchase of securities issued by an affiliate and other similar types of transactions.
A bank’s authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms (including interest rates charged and collateral required) substantially similar to those offered to unaffiliated individuals or be made as part of a benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these affiliated persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.
Federal Deposit Insurance Corporation (“FDIC”): The FDIC is an independent federal agency which insures the deposits of federally-insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions. The general insurance limit is $250,000 per separately insured depositor. This insurance is backed by the full faith and credit of the United States Government.
As insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured institutions, including Civista, to prohibit any insured institution from engaging in any activity the FDIC determines to pose a threat to the DIF, and to take enforcement actions against insured institutions. The FDIC may terminate insurance of deposits of any institution if the FDIC finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or other regulatory agency.
The FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the insured institution to the DIF, with institutions deemed less risky paying lower rates. Currently, assessments for institutions with less than $10 billion of total assets are based on financial measures and supervisory ratings derived from statistical models that estimate the probability of failure within three years. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustments can deviate more than two basis points from the base assessment without notice and comment rule making. The FDIC may also impose special assessments in emergency situations. The premiums fund the DIF. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the FDIC has established 2.0% as the designated reserve ratio (“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on insured institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. Although the FDIC's rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reached 1.35%. The DRR met the statutory minimum of 1.35% on September 30, 2018. As a result, the previous surcharge imposed on banks with assets of $10 billion or more was lifted. In addition, preliminary assessment credits have been determined by the FDIC for banks with assets of less than $10 billion, which had previously contributed to the increase of the DRR to 1.35%. On June 30, 2019, the DRR reached 1.40%, and the FDIC applied credits for banks with assets of less than $10 billion ("small bank credits") beginning September 30, 2019. As of June 30, 2020, the DRR fell below the minimum DRR to 1.30%. As a result, the FDIC adopted a restoration plan requiring the restoration of the DRR to 1.35% within eight years (September 30, 2028). The FDIC rules further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk. As of September 30, 2022, the DRR was 1.26%. Because the DRR remained below the statutory minimum, the FDIC adopted a final rule in October 2022 increasing the assessment rate from three basis points to five basis points beginning with the first quarterly assessment period of 2023.
The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement actions against a bank, after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC.
COVID-19 Legislation and Initiatives: In response to the novel COVID-19 pandemic (“COVID-19”), the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as CBI and Civista, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over CBI and Civista. Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act. For example, on December 27, 2020, the Consolidated Appropriations Act, 2021 (the “CAA”) was signed into law, which, among other things, allowed certain banks to temporarily postpone implementation of the current expected credit loss model (accounting standard), which is described below. The Company is continuing to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to COVID-19.
The CARES Act amended the loan program of the Small Business Administration (the “SBA”), in which Civista participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (the “PPP”), to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. After previously being extended by Congress, the application deadline for PPP loans expired on May 31, 2021. No collateral or personal guarantees were required for PPP loans. In addition, neither the government nor lenders have been permitted to charge the recipients of PPP loans any fees. On December 27, 2020, the President signed into the CAA, which included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "HHSB Act"). Among other things, the HHSB Act renewed the PPP, allocating $284.45 billion for both new first-time PPP loans under the existing PPP and the expansion of existing PPP loans for certain qualified, existing PPP borrowers. In addition to extending and amending the PPP, the HHSB Act also creates a new grant program for "shuttered venue operators". As a participating lender in the PPP, Civista continues to monitor legislative, regulatory, and supervisory developments related thereto.
On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or market risk in association with exposures pledged to such facilities. As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19.
On December 2, 2020, the federal bank regulatory agencies issued an interim final rule that provides temporary relief for specified community banking organizations related to certain regulations and reporting requirements as a result, in large part, of their growth in size from the response to COVID-19. Community banking organizations are subject to different rules and requirements based on their risk profile and asset size. Due to their involvement in federal COVID-19 response programs (such as the PPP) and other lending that supports the U.S. economy, many community banking organizations experienced rapid and unexpected increases in their sizes, which were generally expected to be temporary. The temporary increase in size could have subjected community banking organizations to new regulations or reporting requirements. However, community banking organizations with assets approaching the $10.0 billion asset threshold and that would otherwise have become subject to additional regulatory requirements upon crossing such threshold, including requirements related to capital adequacy standards, debit card interchange fees and routing, and management official interlocks, had until January 1, 2022 to either reduce their size or to prepare for the new regulatory and reporting standards.
Consumer Financial Protection Bureau: The Dodd-Frank Act established the Consumer Financial Protection Bureau (the “CFPB”), which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive and abusive acts or practices and seeks to ensure consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. Since it was established the CFPB has exercised extensive rulemaking and interpretive authority.
Consumer Protection Laws and Regulations: Banks are subject to regular examination to ensure compliance with federal consumer protection statutes and regulations, including, but not limited to, the following:
•The Equal Credit Opportunity Act (prohibiting discrimination in any credit transaction on the basis of any of various criteria);
•The Truth in Lending Act (requiring that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably);
•The Fair Housing Act (making it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of certain criteria);
•The Home Mortgage Disclosure Act (requiring financial institutions to collect data that enables regulatory agencies to determine whether financial institutions are serving the housing credit needs of the communities in which they are located); and
•The Real Estate Settlement Procedures Act (requiring that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers’ costs).
The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of a specific banking or consumer finance law.
Community Reinvestment Act: The CRA requires depository institutions to assist in meeting the credit needs of their market areas, including low- and moderate-income areas, consistent with safe and sound banking practice. Under this Act, each institution is required to adopt a statement for each of its market areas describing the depository institution’s efforts to assist in its community’s credit needs. Depository institutions are periodically examined for compliance and assigned one of four ratings: outstanding, satisfactory, needs improvement, or substantial noncompliance. The rating assigned to a financial institution is considered in connection with various applications submitted by a financial institution or its holding company to its banking regulators, including applications to acquire another financial institution or to open a new branch office. In addition, all subsidiary banks of a financial holding company must maintain a satisfactory or outstanding rating in order for the financial holding company to avoid limitations on its activities. Civista received a rating of “satisfactory in its most recent CRA examination.
Economic Growth, Regulatory Relief and Consumer Protection Act: On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the "Regulatory Relief Act") was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased restrictions on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including CBI, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including CBI and Civista, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with consolidated assets in excess of $50 billion and so did not apply to CBI or Civista even before the enactment of the Regulatory Relief Act.
Patriot Act and Anti-Money Laundering: The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) gives the United States government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act encourages information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions. Among other requirements, Title III and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. Civista has established policies and procedures that Civista believes comply with the requirements of the Patriot Act.
The Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the Bank Secrecy Act of 1970 (the “BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower initiatives and protections.
Office of Foreign Assets Control Regulation. The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. Civista is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
Securities and Exchange Commission ("SEC") and The Nasdaq Stock Market LLC ("Nasdaq"): CBI is also under the jurisdiction of the SEC and certain state securities commissions for matters relating to the offering and sale of its securities. CBI is subject to the registration, disclosure, reporting and regulatory requirements of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations promulgated under each of the Securities Act and the Exchange Act, as administered by the SEC. CBI’s common shares are listed with Nasdaq under the symbol "CIVB" and CBI is subject to the rules for Nasdaq listed companies.
Corporate Governance: As mandated by the Sarbanes-Oxley Act of 2002, the SEC has adopted rules and regulations governing, among other matters, corporate governance, auditing and accounting, executive compensation and enhanced and timely disclosure of corporate information. Nasdaq has also adopted corporate governance rules. The Board of Directors of the Company has taken a series of actions to strengthen and improve the Company’s governance practices in light of the rules of the SEC and Nasdaq. The Board of Directors has adopted charters for the Audit Committee, the Compensation Committee and the Nominating Committee, as well as a Code of Conduct (Ethics) applicable to all directors, officers and employees of the Company. Copies of the Code of Conduct and the Audit, Compensation, and Nominating Committee charters can be found on the Company’s website at www.civb.com by first clicking “Corporate Overview” and then “Governance Documents”. In addition, in accordance with Section 302(a) of the Sarbanes-Oxley Act, written certifications by CBI’s Chief Executive Officer and Chief Financial Officer are required. These certifications attest that CBI’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. See Item 9A “Controls and Procedures” in Part II of this Form 10-K for CBI’s evaluation of its disclosure controls and procedures.
Regulation of Bank Subsidiary: As an Ohio chartered bank, Civista is subject to supervision and regulation by the State of Ohio Department of Commerce, Division of Financial Institutions (the “ODFI”). In addition, Civista is a member of the Federal Reserve System and, therefore, is subject to supervision and regulation by the Federal Reserve Board. Civista is subject to periodic examinations by both ODFI and the Federal Reserve Board. These examinations are designed primarily for the protection of the depositors of the bank and not shareholders.
Banking subsidiaries of financial and bank holding companies are also subject to federal regulation regarding such matters as reserves, limitations on the nature and amount of loans and investments, issuance or retirement of its own securities, limitations on the payment of dividends and other aspects of banking operations.
Regulatory Capital Requirements: The Federal Reserve Board has adopted risk-based guidelines for financial holding companies and other bank holding companies as well as state member banks, and the FDIC has adopted risk-based capital guidelines for state non-member banks. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.
In July 2013, the United States banking regulators issued new capital rules applicable to smaller banking organizations which also implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). Community banking organizations, including CBI and Civista, began transitioning to the new rules on January 1, 2015. The new minimum capital requirements became effective on January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phased in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015 through January 1, 2019.
The Basel III Capital Rules include (a) a minimum common equity tier 1 capital ratio of 4.5%, (b) a minimum Tier 1 capital ratio of 6.0%, (c) a minimum total capital ratio of 8.0%, and (d) a minimum leverage ratio of 4.0%.
Common equity for the common equity tier 1 capital ratio generally includes common stock (plus related surplus), retained earnings, accumulated other comprehensive income (unless an institution elects to exclude such income from regulatory capital), and limited amounts of minority interests in the form of common stock, subject to applicable regulatory adjustments and deductions.
Tier 1 capital generally includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.
Tier 2 capital, which can be included in the total capital ratio, generally consists of other preferred stock and subordinated debt meeting certain conditions plus limited amounts of the allowance for loan and lease losses, subject to specified eligibility criteria, less applicable deductions.
The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).
Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the banking organization does not hold a capital conservation buffer of greater than 2.5 percent composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter.
In September 2019, the Federal Reserve Board, along with other federal bank regulatory agencies, issued a final rule, effective January 1, 2020, that gave community banks, including the Company, the option to calculate a simple leverage ratio to measure capital adequacy if the community banks met certain requirements. Under the rule, a community bank is eligible to elect the Community Bank Leverage Ratio ("CBLR") framework if it had less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a leverage ratio greater than 9.0%. Qualifying institutions that elected to use the CBLR framework (each, a “CBLR Bank”) and that maintain a leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage capital requirements in the regulatory agencies' generally applicable capital rules and to have met the well-capitalized ratio requirements. No CBLR Bank was required to calculate or report risk-based capital, and each CBLR Bank could opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rule. Pursuant to the CARES Act, on August 26, 2020, the federal banking agencies adopted a final rule that temporarily lowered the CBLR threshold and provided a gradual transition back to the prior level. Specifically, the CBLR threshold was reduced to 8.0% for the remainder of 2020, increased to 8.5% for 2021, and returned to 9.0% on January 1, 2022. This final rule became effective on October 1, 2020. The Company did not utilize the CBLR in assessing capital adequacy and, instead, continued to follow existing capital rules.
In December 2018, the federal banking agencies issued a final rule to address regulatory capital treatment of credit loss allowances under the current expected credit loss (“CECL”) model (accounting standard). The rule revises the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model. The Company currently anticipates recording a one-time cumulative effect adjustment upon adoption in the first quarter of 2023, and does not anticipate utilizing the three year phase in. The Company expects to maintain risk-based capital ratios in excess of "well-capitalized" after the impact of the one-time cumulative effect adjustment.
At December 31, 2022, both CBI and Civista were in compliance with all of the regulatory capital requirements to which they are subject. For CBI’s and Civista’s capital ratios, see Note 19 to the Company’s 2022 Consolidated Financial Statements.
The Federal Reserve Board has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled state-chartered member banks. At each successively lower defined capital category, a bank is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the Federal Reserve Board has less flexibility in determining how to resolve the problems of the institution. In addition, the Federal Reserve Board generally can downgrade a bank’s capital category, notwithstanding its capital level, if, after notice and opportunity for hearings, the bank is deemed to be engaged in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. Civista’s capital at December 31, 2022, met the standards for the highest capital category, a “well-capitalized” bank.
Federal Reserve Board regulations also limit the payment of dividends by Civista to CBI. Civista may not pay a dividend if it would cause Civista not to meet its capital requirements. In addition, the dividends that Civista may pay to CBI without prior approval of the Federal Reserve Board is limited to net income for the year plus its retained net income for the preceding two years.
Volcker Rule
In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the Dodd-Frank Act (the "Volcker Rule"). The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading activity includes a purchase or sale as principal of a security, derivative, commodity future or option on any such instruments in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempted specified U.S. Government, agency and/or municipal obligations, and it excepts trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-mitigating hedging activities.
The Volcker Rule also prohibits a banking entity from having an ownership interest in, or substantial relationships with, a hedge fund or private equity fund, also known as “covered funds,” with a number of exceptions. To the extent that Civista engages in any of the trading activities or has any ownership interest in or relationship with any of the types of funds regulated by the Volcker Rule, Civista believes that its activities and relationships fall within the scope of one or more of the exceptions provided in the Volcker Rule.
In July 2019, the five federal bank regulatory agencies that adopted the Volcker Rule adopted a final rule to exempt certain community banks, including Civista, from the Volcker Rule, consistent with the Regulatory Relief Act. Under the final rule, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5.0% or less of total consolidated assets were excluded from the restrictions of the Volcker Rule. On June 25, 2020, the federal bank regulatory agencies also finalized a rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring covered funds. Such rule permits certain banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was originally intended to address.
Non-Banking Subsidiaries. The Company’s non-banking subsidiaries are also subject to regulation by the Federal Reserve Board and other applicable federal and state agencies. FCIA, as a licensed insurance agency, is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states where it conducts business. CRMI, as a Delaware-chartered captive insurance company, is subject to the laws and regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.
Executive and Incentive Compensation
The Dodd-Frank Act requires that the federal banking agencies, including the Federal Reserve Board and the FDIC, issue a rule related to incentive-based compensation. No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in 2016 that expanded upon a prior proposed rule published in 2011. The proposed rule is intended to: (i) prohibit incentive-based payment arrangements that the banking agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss; (ii) require the board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation; and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator. Although a final rule has not been issued, the Company has undertaken efforts to ensure that the Company’s incentive compensation plans do not encourage inappropriate risks, consistent with the principles identified above.
In June 2010, the Federal Reserve Board, the OCC and the FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, described above.
The Federal Reserve Board and the OCC review, as part of their respective regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as CBI and Civista, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization's activities and the prevalence of incentive compensation arrangements. Deficiencies will be incorporated into the organization's supervisory ratings, which can affect the organization's ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Public company compensation committee members must meet heightened independence requirements and consider the independence of compensation consultants, legal counsel and other advisors to the compensation committee. A compensation committee must have the authority to hire advisors and to have the public company fund reasonable compensation of such advisors.
Public companies will be required, once stock exchanges impose additional listing requirements under the Dodd-Frank Act and rules adopted by the SEC in October 2022, to adopt and implement "clawback" policies for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within the three completed fiscal years immediately preceding the date the issuer is required to prepare a restatement and would cover all executives who received incentive awards. The Company has implemented a clawback policy and it is posted under the “Corporate Overview” tab on the “Governance Documents” page of CBI’s Internet website.
SEC regulations require public companies such as CBI to provide various disclosures about executive compensation in annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive compensation.
Financial Privacy Provisions: Federal and state regulations limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
Civista is also subject to regulatory guidelines establishing standards for safeguarding customer information. These guidelines describe the federal bank regulatory agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack. If Civista fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.
In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.
In November 2021, the OCC, the Federal Reserve Board and the FDIC issued a final rule which became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality, integrity, or availability of an information system or the information occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident that rises to the level of a notification incident has occurred. These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into larger incidents. This rule also requires bank service providers to notify their bank organization customers of a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
Furthermore, the Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require, once administrative rules are adopted, certain covered entities, including those in the financial services industry, to report a covered cyber incident to the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (“CISA”) within 72 hours after it reasonably believes an incident has occurred. Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. The Company expects this trend of state-level activity in those areas to continue, and is continually monitoring developments in the states in which our customers are located.
In the ordinary course of business, the Company relies on electronic communications and information systems to conduct its operations and to store sensitive data. The Company employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. The Company employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of the Company’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, the Company has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, the Company’s systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
Effect of Environmental Regulation
Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of the Company. In the opinion of management, the Company does not have exposure to material costs associated with compliance with environmental laws and regulations or material expenditures related to environmental hazardous waste mitigation or cleanup.
The Company believes its primary exposure to environmental risk is through the lending activities of Civista. In cases where management believes environmental risk potentially exists, Civista mitigates its environmental risk exposure by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites. In addition, environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.
Effects of Government Monetary Policy
The earnings of the Company are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Board regulates money and credit conditions and interest rates to influence general economic conditions, primarily through open market acquisitions or dispositions of United States Government securities, varying the discount rate on member bank borrowings and setting reserve requirements against member and nonmember bank deposits. Federal Reserve Board monetary policies have had a significant effect on the interest income and interest expense of commercial banks, including Civista, and are expected to continue to do so in the future.
Available Information
CBI maintains an Internet website at www.civb.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate CBI’s website into this Annual Report on Form 10-K). CBI makes available free of charge on or through its Internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as CBI’s definitive proxy statements filed pursuant to Section 14 of the Exchange Act, as soon as reasonably practicable after CBI electronically files such material with, or furnishes it to, the SEC.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to such matters as financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements, and the purpose of this section is to secure the use of the safe harbor provisions.
Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors and events identified in the risk factors set forth below. There is also the risk that the Company’s management or Board of Directors incorrectly analyzes these risks and uncertainties or that the strategies the Company develops to address them are unsuccessful. The forward-looking statements included in this report are only made as of the date of this report, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on the Company’s behalf are qualified in their entirety by the following cautionary statements.
RISK FACTORS
The following sets forth certain risk factors that we are believe are relevant to the Company and its business. These risk factors are not presented in any particular order and do not constitute all of the risks that may affect our business. Additional risks that are not presently known or that we currently deem to be immaterial could also have a material adverse impact on our business, financial condition, or results of operations.
ECONOMIC AND POLITICAL RISKS
CHANGES IN ECONOMIC AND POLITICAL CONDITIONS COULD ADVERSELY AFFECT OUR EARNINGS THROUGH DECLINES IN DEPOSITS, LOAN DEMAND, THE ABILITY OF OUR CUSTOMERS TO REPAY LOANS AND THE VALUE OF THE COLLATERAL SECURING OUR LOANS.
Our success depends to a significant extent upon local and national economic and political conditions, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, an increasing federal government budget deficit, the failure of the federal government to raise the federal debt ceiling and/or possible future U.S. government shutdowns over budget disagreements, slowing gross domestic product, tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars, and other factors beyond our control may adversely affect Civista’s deposit levels and composition, the quality of investment securities available for purchase, demand for loans, the ability of Civista’s borrowers to repay their loans, and the value of the collateral securing loans made by Civista. Disruptions in U.S. and global financial markets, and changes in oil production in the Middle East also affect the economy and stock prices in the U.S., which can affect our earnings capital, as well as the ability of Civista’s customers to repay loans. Because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows.
ADVERSE CHANGES IN THE REAL ESTATE MARKET COULD CAUSE INCREASES IN DELINQUENCIES AND NON-PERFORMING ASSETS, INCLUDING ADDITIONAL LOAN CHARGE-OFFS, AND COULD DEPRESS OUR INCOME, EARNINGS AND CAPITAL.
At December 31, 2022, approximately 21.7% and 54.6%, respectively, of our loan portfolio was comprised of residential and commercial real estate loans. Adverse changes in economic conditions both nationally and in the communities we serve have and may continue to cause deterioration to the value of real estate Civista uses to secure its loans. Adverse changes in the economy, deterioration of our real estate portfolio, a decrease in real estate values, an increase in unemployment, decreased or nonexistent housing price appreciation or increases in interest rates could reduce our earnings and consequently our financial condition because borrowers may not be able to repay their loans. The value of the collateral securing our loans and the quality of our loan portfolio may decline and customers may not want or need our products and services.
Any of these scenarios could cause us to make fewer loans, increase delinquencies and non-performing assets, require us to charge off a higher percentage of our loans or result in additional increases to our provision for loan losses in future periods, which could adversely affect our business, financial condition and results of operations.
CHANGES IN INTEREST RATES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR NET INTEREST INCOME.
Our results of operations are affected principally by net interest income, which is the difference between interest earned on loans and investments and interest expense paid on deposits and other borrowings. The spread between the yield on our interest-earning assets and our overall cost of funds has been compressed in the recent low interest rate environment, and our net interest income may continue to be adversely impacted by an extended period of continued low rates. We cannot predict or control changes in interest rates. National, regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the Federal Reserve System, affect the movement of interest rates and our interest income and interest expense. If the interest rates paid on deposits and other borrowed funds increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowed funds.
In addition, certain assets and liabilities may react in different degrees to changes in market interest rates. For example, interest rates on some types of assets and liabilities may fluctuate prior to changes in broader market interest rates, while interest rates on other types may lag behind. Some of our assets, such as adjustable rate mortgages, have features that restrict changes in their interest rates, including rate caps.
We believe that the impact on our cost of funds from a rise in interest rates will depend on a number of factors, including but not limited to, the competitive environment in the banking sector for deposit pricing, opportunities for clients to invest in other markets such as fixed income and equity markets, and the propensity of customers to invest in their businesses. The effect on our net interest income from an increase in interest rates will ultimately depend on the extent to which the aggregate impact of loan re-pricings exceeds the impact of increases in our cost of funds.
Changes in interest rates may affect the level of voluntary prepayments on our loans and may also affect the level of financing or refinancing by customers. Changes in interest rates may also negatively affect the ability of the Company’s borrowers to repay their loans, particularly as interest rates rise and adjustable rate loans become more expensive.
Interest rates are highly sensitive to many factors that are beyond our control. Some of these factors include:
•inflation;
•recession;
•unemployment;
•money supply;
•international disorders; and
•instability in domestic and foreign financial markets.
The Company’s management uses various measures to monitor interest rate risk and believes it has implemented effective asset and liability management strategies to reduce the potential adverse effects of changes in interest rates on the Company’s financial condition and results of operations. Management also periodically adjusts the mix of assets and liabilities to manage interest rate risk. However, any significant, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.
See the discussion under the caption “Quantitative and Qualitative Disclosures About Market Risk” on pages 51 through 52 of the 2022 Annual Report for additional information related to the Company’s interest rate risk.
A transition away from LIBOR as a reference rate for financial contracts could negatively IMPACT our income and expenses and the value of various financial contracts.
LIBOR has been used extensively in the United States and globally as a benchmark for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. LIBOR is set based on interest rate information reported by certain banks. In the U.S., efforts to identify a set of alternative U.S. dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee (“ARRC”) has recommended the use of a Secured Overnight Funding Rate (“SOFR”) as the set of alternative U.S. dollar reference interest rates. SOFR is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate.
These differences could lead to a greater disconnect between our costs to raise funds for SOFR as compared to LIBOR. For cash products and loans, ARRC has also recommended Term SOFR, which is a forward looking SOFR based on SOFR futures and may in part reduce differences between SOFR and LIBOR. There are operational issues which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across the industry. These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit.
The Company has limited exposure to LIBOR, with total exposure as of December 31, 2022 of approximately $274.0 million. The Company’s primary exposure to LIBOR relates to its promissory notes with borrowers, swap contracts with clients, offsetting swap contracts with third parties related to the swap contracts with clients, the Company’s LIBOR-based borrowings (if any), and Civista’s swap contracts which can be tied to LIBOR. The Company’s contracts generally include a LIBOR term (for example, one month, three month, or one year) plus an incremental margin rate. The Company is working through this transition via a multi-disciplinary project team. We are still evaluating the impact the change to a benchmark like SOFR or Prime Rate will have on our financial condition, results of operations or cash flows.
THE ECONOMIC IMPACT OF THE COVID-19 PANDEMIC, OR AN OUTBREAK OF ANOTHER HIGHLY INFECTIOUS OR CONTAGIOUS DISEASE, COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The COVID-19 pandemic has negatively impacted global, national and local economies, disrupted global and national supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets. The extent to which COVID-19 will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted.
COVID-19, including the spread of new variants thereof, or a new pandemic could subject us to any of the following risks, any of which could, individually or in the aggregate, have a material adverse effect on our business, financial condition, liquidity, and results of operations:
•demand for our products and services may decline, making it difficult to grow assets and income;
•if the economy experiences new closures or downturns as a result of the COVID-19 pandemic, including the spread of new variants thereof, or a new pandemic, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
•a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation allowance against our current outstanding deferred tax assets;
•we rely on third party vendors for certain services and the unavailability of a critical service due to COVID-19 or new pandemic could have an adverse effect on us; and
•adverse economic conditions could result in protracted volatility in the price of our common shares.
We continue to closely monitor the impact of COVID-19 and related risks as they evolve. To the extent the effects of COVID-19 adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this section.
RISKS RELATED TO OUR BUSINESS OPERATIONS
WE ARE EXPOSED TO OPERATIONAL RISK.
We are exposed to many types of operational risk, including reputational risk, legal and compliance risk, cybersecurity risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.
We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, which may include, for example, computer viruses, cyber-attacks, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. Although we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity and availability of our systems, business applications and customer information, such disruptions may give rise to interruptions in service to customers, loss of data privacy and loss or liability to us. Any failure or interruption in our operations or information systems, or any security or data breach, could cause reputational damage, jeopardize the confidentiality of customer information, result in a loss of customer business, subject us to regulatory intervention or expose us to civil litigation and financial loss or liability, any of which could have a material adverse effect on us.
Given the volume of transactions we process, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process our transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that our (or our vendors’) consumer compliance, business continuity and data security systems prove to be inadequate.
Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, social media and other marketing activities, the implementation of environmental, social and governance (ESP) practices, and from actions taken by governmental regulators and community organizations in response to any of the foregoing activities. Negative public opinion could adversely affect our ability to attract and keep customers, could expose us to potential litigation and regulatory action, and could have a material adverse effect on the price of our common shares or result in heightened volatility of our stock price.
UNAUTHORIZED DISCLOSURE OF SENSITIVE OR CONFIDENTIAL CLIENT INFORMATION OR BREACHES IN SECURITY OF OUR SYSTEMS, COULD SEVERELY HARM OUR BUSINESS.
As part of our financial institution business, we collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third-party service providers. Our necessary dependence upon automated systems to record and process transactions poses the risk that technical system flaws, employee errors, tampering or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. We have security and backup and recovery systems in place, as well as a business continuity plan, to ensure the computer systems will not be inoperable, to the extent possible. The Company also routinely reviews documentation of such controls and backups related to third-party service providers. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. In recent years, some banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. Other businesses have been victims of ransomware attacks in which the business becomes unable to access its own information and is presented with a demand to pay a ransom in order to once again have access to its information.
We could be adversely affected if one of our employees or a third-party service provider causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are further exposed to the risk that the third-party service providers may be unable to fulfill their contractual obligations (or will be subject to the same risks as faced by us). These disruptions may interfere with service to our customers, cause additional regulatory scrutiny and result in a financial loss or liability. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.
Misconduct by employees could include fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. We may not be able to prevent employee errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.
In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to our reputation.
We have implemented security controls to prevent unauthorized access to the computer systems, and we require our third-party service providers to maintain similar controls. However, we cannot be certain that these measures will be successful. A security breach of our computer systems and loss of confidential information, such as customer account numbers and related information, could result in a loss of customers’ confidence and, thus, loss of business. While Civista maintains specific “cyber” insurance coverage, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.
Further, we may be impacted by data breaches at retailers and other third parties who participate in data interchanges with us and our customers that involve the theft of customer credit and debit card data, which may include the theft of our debit card personal identification numbers (PINs) and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in us incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on our results of operations.
There can be no assurance that we will not suffer such cyber-attacks or other information security breaches or attempted breaches, incur resulting losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, and our plans to continue to implement internet and mobile banking capabilities to meet customer demand. As cyber and other data security threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance its protective measures or to investigate and remediate any security vulnerabilities.
Our assets at risk for cyber-attacks include financial assets and non-public information belonging to customers. We use several third-party vendors who have access to our assets via electronic media. Certain cyber security risks arise due to this access, including cyber espionage, blackmail, ransom, and theft.
All of the types of cyber incidents discussed above could result in damage to our reputation, loss of customer business, costs of incentives to customers or business partners in order to maintain their relationships, litigation, increased regulatory scrutiny and potential enforcement actions, repairs of system damage, increased investments in cybersecurity (such as obtaining additional technology, making organizational changes, deploying additional personnel, training personnel and engaging consultants), increased insurance premiums, and loss of investor confidence and a reduction in the price of our common shares, all of which could result in financial loss and material adverse effects on our results of operations and financial condition.
Noncompliance with the Bank Secrecy Act (BSA) and other anti-money laundering statutes and regulations could cause a material financial loss.
The BSA and the Patriot Act contain anti-money laundering and financial transparency provisions intended to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The BSA, as amended by the Patriot Act and the AMLA, requires depository institutions and their holding companies to undertake activities including maintaining an anti-money laundering program, verifying the identity of clients, monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law enforcement agencies. Financial Crimes Enforcement Network (also known as FinCEN), a unit of the Treasury Department that administers the BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the federal bank regulatory agencies, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws, which includes a codified risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.
There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control (also known as OFAC). If the Company’s policies, procedures, and systems are deemed deficient, or if the policies, procedures, and systems of the financial institutions that the Company has already acquired or may acquire in the future are deficient, the Company may be subject to liability, including fines and regulatory actions such as restrictions on the Company’s ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain planned business activities, including acquisition plans, which could negatively impact our business, financial condition, and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for the Company.
Our business could be adversely affected through third parties who perform significant operational services on our behalf.
The third parties performing operational services for the Company are subject to risks similar to those faced by the Company relating to cybersecurity, breakdowns or failures of their own systems, or misconduct of their employees. Like many other community banks, Civista also relies, in significant part, on a single vendor for the systems which allow Civista to provide banking services to Civista’s customers, for which the systems are maintained on Civista’s behalf by this single vendor.
One or more of the third parties utilized by us may experience a cybersecurity event or operational disruption and, if any such event does occur, it may not be adequately addressed, either operationally or financially, by such third party. Certain of these third parties may have limited indemnification obligations to us in the event of a cybersecurity event or operational disruption, or may not have the financial capacity to satisfy their indemnification obligations.
Financial or operational difficulties of a third party provider could also impair our operations if those difficulties interfere with such third party’s ability to serve the Company. If a critical third-party provider is unable to meet the needs of the Company in a timely manner, or if the services or products provided by such third party are terminated or otherwise delayed and if the Company is not able to develop alternative sources for these services and products quickly and cost-effectively, our business could be materially adversely effected.
Additionally, regulatory guidance adopted by federal banking regulators addressing how banks select, engage and manage their third-party relationships, affects the circumstances and conditions under which we work with third parties and the cost of managing such relationships.
STRONG COMPETITION WITHIN OUR MARKET AREA MAY REDUCE OUR ABILITY TO ATTRACT AND RETAIN DEPOSITS AND ORIGINATE LOANS.
We face competition both in originating loans and in attracting deposits within our market area, which includes North Central, West Central, South Western Ohio, South Eastern Indiana and Northern Kentucky. We compete for clients by offering personal service and competitive rates on our loans and deposit products. The type of institutions we compete with include large regional financial institutions, community banks, thrifts and credit unions operating within our market areas. Nontraditional sources of competition for loan and deposit dollars come from captive auto finance companies, mortgage banking companies, internet banks, brokerage companies, insurance companies and direct mutual funds. As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer. We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. In addition, to stay competitive in our markets we may need to adjust the interest rates on our products to match the rates offered by our competitors, which could adversely affect our net interest margin. As a result, our profitability depends upon our continued ability to successfully compete in our market areas while achieving our investment objectives.
OUR ALLOWANCE FOR LOAN LOSSES MAY PROVE TO BE INSUFFICIENT TO ABSORB POTENTIAL LOSSES IN OUR LOAN PORTFOLIO.
We maintain an allowance for loan losses that we believe is a reasonable estimate of known and inherent losses within the loan portfolio. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, the credit quality of the loan portfolio, the collateral supporting the loans and the performance of customers relative to their financial obligations with us. However, every loan we make carries a risk of non-payment. This risk is affected by, among other things, cash flow of the borrower and/or the project being financed, changes and uncertainties as to the future value of the collateral securing such loan, the credit history of the particular borrower, changes in economic and industry conditions, and the duration of the loan.
The amount of future losses is also susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. We cannot fully predict the amount or timing of losses or whether the allowance for loan losses will be adequate in the future. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance, which would adversely affect our earnings. Excessive loan losses and significant additions to our allowance for loan losses could have a material adverse impact on our financial condition and results of operations.
In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs. Moreover, the Financial Accounting Standards Board ("FASB") has changed its requirements for establishing the allowance for loan losses.
On June 16, 2016, the FASB issued Accounting Standard Update ("ASU") 2016-13 "Financial Instruments - Credit Losses", which replaces the incurred loss model with an expected loss model, and is referred to as the current expected credit loss ("CECL") model. Under the incurred loss model, loans are recognized as impaired when there is no longer an assumption that future cash flows will be collected in full under the originally contracted terms. Under the CECL model, financial institutions are required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of the loan. The transition to the CECL model requires significantly greater data requirements and changes to methodologies to accurately account for expected losses under the new parameters. If the methodologies and assumptions that we use in the CECL model are proven to be incorrect, or inadequate, the allowance for credit losses may not be sufficient, resulting in the need for additional allowance for credit losses to be established, which could have a material adverse impact on our financial condition and results of operations. The new CECL accounting guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019. However, the FASB deferred the effective date for this ASU for smaller reporting companies, such as the Company, to annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2022. The Company expects to recognize a one-time cumulative effect adjustment (increase) to the allowance for credit losses upon adoption in the first quarter of 2023.
If real estate markets or the economy in general deteriorate, Civista may experience increased delinquencies and credit losses. The allowance for loan losses may not be sufficient to cover actual loan-related losses. Additionally, banking regulators may require Civista to increase its allowance for loan losses in the future, which could have a negative effect on Civista’s financial condition and results of operations. Additions to the allowance for loan losses will result in a decrease in net earnings and capital and could hinder our ability to grow our assets.
Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on our financial condition and results of operations.
THE SMALL TO MEDIUM SIZED BUSINESSES THAT WE LEND TO MAY HAVE FEWER RESOURCES TO WEATHER ADVERSE BUSINESS CONDITIONS, WHICH MAY IMPAIR THEIR ABILITY TO REPAY LOANS, AND SUCH IMPAIRMENT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our business development and marketing strategies primarily result in us serving the banking and financial services needs of small to medium-sized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the success of a small to medium-sized business often depends on the management skills, talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loans. If general economic conditions negatively impact Ohio, Indiana or the specific markets in these states in which we operate and small to medium-sized businesses are adversely affected or our borrowers are otherwise affected by adverse business conditions, our business, financial condition and results of operations could be adversely affected.
OUR BUSINESS AND FINANCIAL RESULTS ARE SUBJECT TO RISKS ASSOCIATED WITH THE CREDITWORTHINESS OF OUR CUSTOMERS AND COUNTERPARTIES.
Credit risk is inherent in the financial services business and results from, among other things, extending credit to customers, purchasing securities, and entering into financial derivative transactions and certain guarantee contracts. Credit risk is one of our most significant risks, particularly given the high percentage of our assets represented directly or indirectly by loans, and the importance of lending to our overall business. We manage credit risk by assessing and monitoring the creditworthiness of our customers and counterparties and by diversifying our loan portfolio. Many factors impact credit risk.
A borrower’s ability to repay a loan can be adversely affected by individual factors, such as business performance, job losses or health issues. A weak or deteriorating economy and changes in the United States or global markets also could adversely impact the ability of our borrowers to repay outstanding loans. Any decrease in our borrowers’ ability to repay loans would result in higher levels of nonperforming loans, net charge-offs, and provision for loan losses.
Despite maintaining a diversified loan portfolio, in the ordinary course of business, we may have concentrated credit exposure to a particular person or entity, industry, region or counterparty. Events adversely affecting specific customers, industries, regions or markets, a decrease in the credit quality of a customer base or an adverse change in the risk profile of a market, industry, or group of customers could adversely affect us.
Our credit risk may be exacerbated when collateral held by us to secure obligations to us cannot be realized upon or is liquidated at prices that are not sufficient to recover the full amount of the loan or derivative exposure due us.
Due in part to improvement in local and general economic conditions, as well as actions we have taken to manage our loan portfolio, our provision for loan losses has declined since the end of the recent recession. However, if we experience higher levels of provision for loan losses in the future, our net income could be negatively affected.
WE RELY HEAVILY ON OUR MANAGEMENT TEAM, AND THE UNEXPECTED LOSS OF KEY MANAGEMENT MAY ADVERSELY AFFECT OUR OPERATIONS.
Our success to date has been strongly influenced by our ability to attract and to retain senior management experienced in banking in the markets we serve. Our ability to retain executive officers and the current management teams will continue to be important to successful implementation of our strategies. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results.
WE DEPEND UPON THE ACCURACY AND COMPLETENESS OF INFORMATION ABOUT CUSTOMERS AND OTHER PARTIES.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and other parties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with accounting principles generally accepted in the United States and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with generally accepted accounting principles or that are materially misleading, or on other financial information that is incomplete or materially misleading.
WE DO NOT HAVE ASSURANCE REGARDING THE FUTURE REVENUES OF OUR TAX REFUND PROGRAM.
The revenues from our tax refund program are based upon a contract with a third party. While the contract has a term of three years expiring October 31, 2023 and contains provisions for automatic renewal after that term, the amount to be paid to us is not fixed for any period after 2022. As a result, the amount paid to us may fluctuate, and there is no assurance that the parties will be able to negotiate compensation that is acceptable to us after that year.
ACQUISITIONS OR OTHER EXPANSION MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULT OF OPERATIONS.
We completed two significant acquisitions during the past year. On July 1, 2022, CBI completed the acquisition by merger of Comunibanc Corp. Immediately following the merger, Comunibanc Corp.'s banking subsidiary, The Henry County Bank, was merged with and into Civista. As a result of the merger, we acquired seven offices of Comunibanc Corp. in the northwest Ohio communities of Napoleon (3), Malinta, Holgate, Liberty Center and Bowling Green. On October 3, 2022, CBI and Civista completed the acquisition by Civista of all of the issued and outstanding shares of capital stock of VFG, a full-service equipment leasing and financing company headquartered in Pittsburgh, Pennsylvania. As a result of the acquisition, VFG became a wholly-owned subsidiary of Civista.
The earnings, financial condition and prospects of Civista after the Comunibanc Corp. and VFG acquisitions will depend in part on our ability to integrate successfully the respective operations of Comunibanc Corp. (and The Henry County Bank) and VFG and continue to implement our business plan. We may not be able to fully achieve our strategic objectives and projected operating efficiencies. The costs and/or challenges involved in integrating the new businesses with our organization may be greater than expected or the cost savings from anticipated economies of scale of the combined organization may be lower or take longer to realize than expected. Inherent uncertainties exist in integrating the operations of an acquired entity. The success of the acquisitions will depend on a number of factors, including, without limitation:
•Our ability to integrate the acquired businesses into our operations;
•With regard to the acquisition of Comunibanc Corp. and The Henry County Bank, our ability to limit the outflow of deposits held by new customers and to successfully retain and manage interest-earning assets and relationships (including lending relationships) acquired in the merger;
•Our ability to control the incremental non-interest expense from the acquired businesses in a manner that enables us to maintain a favorable overall efficiency ratio;
•Our ability to retain and attract key employees and other appropriate personnel; and
•Our ability to earn acceptable levels of interest and non-interest income, including fee income, from the acquired businesses.
In the future, we may acquire other financial institutions or branches or assets of other financial institutions. We may also open new branches, enter into new lines of business, or offer new products or services. Any future acquisition or expansion of our business, will involve a number of expenses and risks, which may include some or all of the following:
•the time and expense associated with identifying and evaluating potential acquisitions or expansions;
•the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to target institutions;
•the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the expansion;
•any financing required in connection with an acquisition or expansion;
•the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;
•entry into unfamiliar markets and the introduction of new products and services into our existing business;
•the possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
•the risk of loss of key employees and customers.
We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we expect. Neither can we assure that integration efforts for any future acquisitions will be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders.
LEGISLATIVE, LEGAL AND REGULATORY RISKS
LEGISLATIVE OR REGULATORY CHANGES OR ACTIONS COULD ADVERSELY IMPACT OUR BUSINESS.
The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. These laws and regulations are primarily intended for the protection of consumers, depositors, borrowers and the deposit insurance fund, not to benefit our shareholders.
Regulations affecting banks and financial services businesses are undergoing continuous change and management cannot predict the effect of those changes. While such changes are generally intended to lessen the regulatory burden on financial institutions, the impact of any changes to laws and regulations or other actions by regulatory agencies could adversely affect our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on the operation of an institution and the ability to determine the adequacy of an institution’s allowance for loan losses. Failure to comply with applicable laws, regulations and policies could result in sanctions being imposed by the regulatory agencies, including the imposition of civil money penalties, which could have a material adverse effect on our operations and financial condition. Even the reduction of regulatory restrictions could have an adverse effect on us if such lessening of restrictions increases competition within our industry or market areas.
DEPOSIT INSURANCE PREMIUMS MAY INCREASE AND HAVE A NEGATIVE EFFECT ON THE COMPANY’S RESULTS OF OPERATIONS.
The DIF maintained by the FDIC to resolve bank failures is funded by fees assessed on insured depository institutions. The costs of resolving bank failures increased for a period of time and decreased the DIF. The FDIC collected a special assessment in 2009 to replenish the DIF and also required a prepayment of an estimated amount of future deposit insurance premiums. If the costs of future bank failures increase, the deposit insurance premiums required to be paid by Civista may also increase. The FDIC recently adopted rules revising its assessments in a manner benefitting banks with assets totaling less than $10 billion. There can be no assurance, however, that assessments will not be changed in the future.
We are subject to examinations and challenges by tax authorities.
In the normal course of business, we are routinely subject to examinations and challenges from federal and state tax authorities regarding positions taken regarding their respective tax returns. State tax authorities have become increasingly aggressive in challenging tax positions taken by financial institutions, especially those positions relating to tax compliance and calculation of taxes subject to apportionment. Any challenge or examination by a tax authority may result in adjustments to the timing or amount of taxable net worth or taxable income, or deductions or the allocation of income among tax jurisdictions.
Management believes it has taken appropriate positions with respect to all tax returns and does not anticipate that any examination would have a material impact on our Consolidated Financial Statements. However, the outcome of such examinations and ultimate resolution of any resulting assessments are inherently difficult to predict. Thus, no assurance can be given that our tax liability for any tax year open to examination will be as reflected in our current and historical Consolidated Financial Statements.
Accounting changes could impact our reported financial condition or results of operations.
The accounting standard setters, including the Financial Accounting Standards Board (the FASB), the SEC and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our consolidated financial statements. The pace of change continues to accelerate and changes in accounting standards can be hard to predict and could materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively, resulting in the restatement of prior period financial statements.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make significant estimates that affect the financial statements. Due to the inherent nature of these estimates, actual results may vary materially from management’s estimates. In June 2016, FASB issued a new accounting standard for recognizing current expected credit losses, commonly referred to as CECL. CECL will result in earlier recognition of credit losses and requires consideration of not only past and current events but also reasonable and supportable forecasts that affect collectability. The Company will be required to comply with the new standard in the first quarter of 2023. Upon adoption of CECL, credit loss allowances may increase, which would decrease retained earnings and regulatory capital. The federal banking regulators have adopted a regulation that will allow banks to phase in the day-one impact of CECL on regulatory capital over three years. CECL implementation poses operational risk, including the failure to properly transition internal processes or systems, which could lead to call report errors, financial misstatements, or operational losses.
WE MAY BE THE SUBJECT OF LITIGATION WHICH COULD RESULT IN LEGAL LIABILITY AND DAMAGE TO OUR BUSINESS AND REPUTATION.
From time to time, we may be subject to claims or legal action from customers, employees or others. Financial institutions like CBI and Civista are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding our business. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other large financial institutions, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations and/or cause significant reputational harm to our business.
WE COULD FACE LEGAL AND REGULATORY RISK ARISING OUT OF OUR RESIDENTIAL MORTGAGE BUSINESS.
Numerous federal and state governmental, legislative and regulatory authorities are investigating practices in the business of mortgage and home equity loan lending and servicing and in the mortgage-related insurance and reinsurance industries. We could face the risk of class actions, other litigation and claims from: the owners of or purchasers of such loans originated or serviced by us, homeowners involved in foreclosure proceedings or various mortgage-related insurance programs, downstream purchasers of homes sold after foreclosure, title insurers, and other potential claimants. Included among these claims are claims from purchasers of mortgage and home equity loans seeking the repurchase of loans where the loans allegedly breached origination covenants and representations and warranties made to the purchasers in the purchase and sale agreements. The CFPB has issued new rules for mortgage origination and mortgage servicing. Both the origination and servicing rules create new private rights of action for consumers against lenders and servicers in the event of certain violations.
RISKS RELATED TO OUR CAPITAL AND STOCK
WE MAY ELECT OR NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, BUT CAPITAL MAY NOT BE AVAILABLE WHEN IT IS NEEDED.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, federal banking agencies have recently finalized extensive changes to their capital requirements, including the adoption of the final “Basel III” rules as discussed above, which result in higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place. If we experience significant loan losses, addition capital may need to be infused. In addition, we may elect to raise additional capital to support business growth and/or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and are based on our financial performance. Accordingly, we cannot be assured of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.
WE ARE A HOLDING COMPANY AND DEPEND ON OUR SUBSIDIARY BANK FOR DIVIDENDS.
As a financial holding company, we are a legal entity separate and distinct from our subsidiaries and affiliates. Our principal source of funds to support our operations, pay dividends on our common and preferred shares and service our debt is dividends from our subsidiary bank, Civista. In the event that Civista is unable to pay dividends to us, we may not be able to service our debt, pay our other obligations or pay dividends on our common or preferred shares. Accordingly, our inability to receive dividends from Civista could also have a material adverse effect on our business, financial condition and results of operations.
Various federal and state statutory provisions and regulations limit the amount of dividends that Civista may pay to us without regulatory approval. Generally, subject to certain minimum capital requirements, Civista may declare a dividend without the approval of the ODFI so long as the total amount of the dividends in a calendar year does not exceed Civista’s total net income for that year combined with its retained net income for the two preceding years. In addition, the Federal Reserve has issued policy statements that provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Thus, the ability of Civista to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines and may restrict our ability to declare and pay dividends on our common or preferred shares.
THE MARKET PRICE OF OUR COMMON SHARES MAY BE SUBJECT TO FLUCTUATIONS AND VOLATILITY.
The market price of our common shares may fluctuate significantly due to, among other things, changes in market sentiment regarding our operations or business prospects, the banking industry generally or the macroeconomic outlook. Factors that could impact our trading price include:
•our operating and financial results, including how those results vary from the expectations of management, securities analysts and investors;
•developments in our business or operations or in the financial sector generally;
•future offerings by us of debt or preferred shares, which would be senior to our common shares upon liquidation and for purposes of dividend distributions;
•legislative or regulatory changes affecting our industry generally or our business and operations specifically;
•the operating and stock price performance of companies that investors consider to be comparable to us;
•announcements of strategic developments, acquisitions and other material events by us or our competitors;
•actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers; and
•other changes in U.S. or global financial markets, global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility.
Equity markets in general and our common shares in particular have experienced considerable volatility over the past few years. The market price of our common shares may continue to be subject to volatility unrelated to our operating performance or business prospects. Increased volatility could result in a decline in the market price of our common shares.
THE SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON SHARES OR SECURITIES CONVERTIBLE INTO OUR COMMON SHARES IN THE PUBLIC MARKET COULD DEPRESS THE PRICE OF OUR COMMON SHARES.
In recent years, the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies have experienced wide fluctuations that have not necessarily been related to their operating performance. Therefore, our shareholders may not be able to sell their shares at the volumes, prices, or times that they desire. We cannot predict the effect, if any, that future sales of our common shares or securities convertible into our common shares in the market, or availability of shares of our common shares or securities convertible into our common shares for sale in the market, will have on the market price of our common shares. We can give no assurance that sales of substantial amounts of our common shares or securities convertible into our common shares in the market, or the potential for large amounts of sales in the market, would not cause the price of our securities to decline or impair our ability to raise capital through sales of our common shares.
GENERAL RISK FACTORS
ADVERSE CHANGES IN FINANCIAL MARKETS AND ECONOMIC CONDITIONS MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS.
Although we primarily invest in securities issued by United States government agencies and sponsored entities and United States state and local governments with limited credit risk, certain of our investment securities possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages, debt obligations and other similar assets. Even securities issued by United States government agencies and sponsored entities may entail risk depending on political and economic changes. Regardless of the level of credit risk, all investment securities are subject to changes in market value due to changing interest rates, implied credit spreads and credit ratings.
We may experience increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance practices.
Financial institutions are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social, and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Increased ESG-related compliance costs for the Company as well as among our suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our common shares. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
CHANGES IN TAX LAWS COULD ADVERSELY AFFECT OUR PERFORMANCE
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to tax laws could have a material adverse effect on our results of operations, fair values of net deferred tax assets and obligations of states and political subdivisions held in our investment securities portfolio. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.
WE NEED TO CONSTANTLY UPDATE OUR TECHNOLOGY IN ORDER TO COMPETE AND MEET CUSTOMER DEMANDS.
The financial services market, including banking services, is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable us to reduce costs. Our future success will depend, in part, on our ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations. Some of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and profit.
WE ARE SUBJECT TO ENVIRONMENTAL LIABILITY RISK ASSOCIATED WITH CIVISTA’S LENDING ACTIVITIES.
A significant portion of Civista’s loan portfolio is secured by real property. During the ordinary course of business, Civista forecloses on and takes title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, Civista may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws and evolving regulation may require Civista to incur substantial expenses and may materially reduce the affected property’s value or limit Civista’s ability to use or sell the affected property. In addition, future laws and regulations or more stringent interpretations or enforcement policies with respect to existing laws or regulations may increase Civista’s exposure to environmental liability. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations.
Climate change, severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business.
Natural disasters, including severe weather events of increasing strength and frequency due to climate change, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us or our customers. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue or cause us to incur additional expenses.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
CBI neither owns nor leases any properties. Civista owns its main office at 100 East Water Street, Sandusky, Ohio, which is also the office of CBI. Civista also owns branch banking offices in the following Ohio and Indiana communities: Sandusky (2), Norwalk (2), Berlin Heights, Willard, Castalia, Port Clinton, New Washington, Shelby (2), Greenwich, Plymouth, Shiloh, Dublin, Plain City, Russells Point, Urbana (2), Dayton (2), Quincy, Napoleon (3), Malinta, Holgate, Liberty Center, Lawrenceburg (3), Aurora, West Harrison, Milan, Osgood and Versailles. Civista leases branch banking offices in the Ohio communities of Akron, Huron, West Liberty, Dayton, Bowling Green and Beachwood. Civista also leases loan production offices in Westlake, Ohio and Fort Mitchell, Kentucky. VFG leases offices for its equipment leasing and financing business in Pittsburgh, Pennsylvania, Franklin, Tennessee and Dover, New Hampshire.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
In the ordinary course of their respective businesses, the Company or its properties may be named or otherwise subject as a plaintiff, defendant or other party to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, the Company cannot state what the eventual outcome of any such matters will be. However, based on current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not Applicable
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
As of February 21, 2023, there were approximately 1,767 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms) of the Company’s common shares.
Information regarding the restrictions applicable to the Company’s payment of dividends is included under Item 1 of this Annual Report on Form 10-K and is incorporated herein by reference.
During the fourth quarter of 2022, the Company purchased common shares as follows:
Period
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number (or
Approximate Dollar
Value) of Shares
that May Yet
Be Purchased Under the
Plans or Programs
October 1, 2022 -
October 31, 2022
7,205
$
21.40
7,205
$
6,055,711
November 1, 2022 -
November 30, 2022
-
$
-
-
$
-
December 1, 2022 -
December 31, 2022
-
$
-
-
$
-
Total
7,205
$
21.40
7,205
$
6,055,711
On May 4, 2022, the Company announced a new common share repurchase program to replace its previous repurchase program. The new repurchase program authorizes the Company to repurchase a maximum aggregate value of $13,500,000 of its outstanding common shares through May 9, 2023. As of December 31, 2022, a total of 349,168 common shares had been repurchased for an aggregate purchase price of $7,444,289 under this repurchase program.
Shareholder Return Performance
Set forth below is a line graph comparing the five-year cumulative return of the common shares of Civista Bancshares, Inc. (ticker symbol CIVB), based on an initial investment of $100 on December 31, 2017 and assuming reinvestment of dividends, with the cumulative return of the Standard & Poor’s 500 Index, and the S&P U.S. BMI Banks Index. The comparative indices were obtained from S&P Global Market Intelligence.
Annual Report on Form 10-K
A copy of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, will be furnished, free of charge, to shareholders, upon written request to Lance A. Morrison, Secretary of Civista Bancshares, Inc., 100 East Water Street, Sandusky, Ohio 44870.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share data)
General
The following paragraphs more fully discuss the significant highlights, changes and trends as they relate to the Company’s financial condition, results of operations, liquidity and capital resources as of December 31, 2022 and 2021, and during the three-year period ended December 31, 2022. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements, which are included elsewhere in this report.
Financial Condition
At December 31, 2022, the Company’s total assets were $3,537,830, compared to $3,012,905 at December 31, 2021. The increase in assets is primarily the result of the Company's acquisition by merger of Comunibanc Corp. and VFG effective July 1, 2022 and October 3, 2022, respectively. In addition, loans and securities increased $546,917 and $55,528, respectively, partially offset by a decrease in cash and due from financial institutions of $210,098. Other factors contributing to the change in assets are discussed in the following sections.
Loans held for sale decreased $1,289, or 65.4%, from $1,972 at December 31, 2021 to $683 at December 31, 2022. The decrease is due to a decrease in refinances, resulting in lower volume. At December 31, 2022, seven loans totaling $683 were held for sale as compared to 14 loans totaling $1,972 at December 31, 2021.
At December 31, 2022, the Company’s net loans totaled $2,518,155 and increased by 27.7% from $1,971,238 at December 31, 2021. The increase in net loans was spread across most segments. Commercial & Agriculture loans increased $32,093, Commercial Real Estate - Owner Occupied loans increased $75,695, Commercial Real Estate - Non-Owner Occupied loans increased $189,426, Residential Real Estate loans increased $122,721, Real Estate Construction loans increased $86,000, Lease financing receivables increased $36,797 and Consumer and Other loans increased $9,766. The increases in the foregoing loan segments were offset by a decrease in Farm Real Estate loans of $3,711. In connection with the acquisition of Comunibanc Corp. in July 2022, the Company acquired Commercial & Agriculture loans totaling $9,972, Commercial Real Estate - Owner Occupied loans totaling $30,515, Commercial Real Estate - Non-Owner Occupied loans totaling $45,917, Residential Real Estate loans totaling $56,621, Real Estate Construction loans totaling $10,587, Farm Real Estate loans totaling $2,925 and Consumer and Other loans totaling $12,665. In connection with the acquisition of VFG in October 2022, the Company acquired Commercial & Agriculture loans and Lease financing receivables totaling $25,509 and $35,909, respectively.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the amount of commercial and agriculture, commercial real estate, residential real estate, real estate construction, farm real estate and consumer and other loans outstanding as of December 31, 2022, which, based on the contract terms for repayments of principal, are due in the periods indicated. In addition, the amounts due after one year are classified according to their sensitivity to changes in interest rates.
Maturing
Within
one year
After one
but within
five years
After five
but within fifteen years
After fifteen years
Total
(Dollars in thousands)
Commercial & Agriculture
$
95,232
$
114,913
$
67,660
$
$
278,595
Commercial Real Estate:
Owner Occupied
6,731
75,064
250,049
39,303
371,147
Non-Owner Occupied
36,703
340,894
593,326
47,813
1,018,736
Residential Real Estate
7,195
26,097
248,249
271,240
552,781
Real Estate Construction
38,826
105,573
52,405
46,323
243,127
Farm Real Estate
5,176
14,796
4,065
24,708
Lease financing receivables
4,732
28,477
3,588
-
36,797
Consumer and Other
1,480
14,839
3,916
20,775
Total
$
191,570
$
711,033
$
1,233,989
$
410,074
$
2,546,666
Due After One Year
Fixed Rate
Variable Rate
(Dollars in thousands)
Commercial & Agriculture
$
129,321
$
54,041
Commercial Real Estate:
Owner Occupied
76,230
288,186
Non-Owner Occupied
253,085
728,949
Residential Real Estate
159,972
385,613
Real Estate Construction
56,800
147,501
Farm Real Estate
6,555
17,483
Lease financing receivables
32,064
-
Consumer and Other
17,668
1,628
Total
$
731,695
$
1,623,401
The preceding maturity information is based on contract terms at December 31, 2022 and does not include any possible “rollover” at maturity date. In the normal course of business, Civista considers and acts on the borrowers’ requests for renewal of loans at maturity. Evaluation of such requests includes a review of the borrower’s credit history, the collateral securing the loan and the purpose for such request.
Analysis of the Allowance for Loan Losses
The following table shows the daily average loan balances and changes in the allowance for credit losses for the years indicated.
(Dollars in thousands)
Total loans outstanding
$
2,546,666
$
1,997,879
$
2,057,502
Allowance for credit losses at year end
28,511
26,641
25,028
Loans accounted for on a nonaccrual basis
6,507
3,673
5,125
Allowance for loan losses to total loans outstanding
1.12
%
1.33
%
1.22
%
Nonaccrual loans to total loans outstanding
0.26
%
0.18
%
0.25
%
Allowance for loan losses to nonaccrual loans
438.16
%
725.32
%
488.35
%
Average loans outstanding:
Commercial & Agriculture
236,315
338,916
359,820
Commercial Real Estate-Owner
Occupied
322,132
278,777
256,962
Commercial Real Estate-Non-Owner
Occupied
896,562
755,578
643,622
Real Estate Mortgage
511,973
433,351
462,834
Real Estate Construction
179,183
176,775
175,573
Farm Real Estate
24,388
28,968
33,935
Lease financing receivables
8,382
-
-
Consumer and Other
20,147
14,542
20,726
Total average loans outstanding
2,199,082
2,026,907
1,953,472
Net charge-offs (recoveries):
Commercial & Agriculture
(2
)
(150
)
Commercial Real Estate-Owner
Occupied
(42
)
(7
)
(111
)
Commercial Real Estate-Non-Owner
Occupied
(74
)
(395
)
(48
)
Real Estate Mortgage
(66
)
(182
)
Real Estate Construction
(4
)
(1
)
(4
)
Farm Real Estate
(6
)
(12
)
(13
)
Lease financing receivables
-
-
Consumer and Other
(36
)
(4
)
Total net charge-offs (recoveries)
(118
)
(783
)
(149
)
Ratio of net charge-offs (recoveries) during
the year to average loans outstanding:
Commercial & Agriculture
(0.00
)%
(0.04
)%
0.00
%
Commercial Real Estate-Owner
Occupied
(0.01
)%
(0.00
)%
(0.04
)%
Commercial Real Estate-Non-Owner
Occupied
(0.01
)%
(0.05
)%
(0.01
)%
Real Estate Mortgage
(0.01
)%
(0.04
)%
0.00
%
Real Estate Construction
(0.00
)%
(0.00
)%
(0.00
)%
Farm Real Estate
(0.02
)%
(0.04
)%
(0.04
)%
Lease financing receivables
-
-
Consumer and Other
0.26
%
(0.25
)%
(0.02
)%
Total net recoveries (charge-offs)
(0.01
)%
(0.04
)%
(0.01
)%
The amount of net charge-offs fluctuates from year to year due to factors relating to the condition of the general economy, decline in market values of collateral and deterioration of specific businesses.
The determination of the balance of the allowance for loan losses is based on a detailed analysis of the loan portfolio and reflects an amount that, in management’s judgment, is adequate to provide for probable incurred loan losses. Such analysis is based on a review of specific loans, the character of the loan portfolio, current economic conditions, risk management practices and such other factors as management believes require current recognition in estimating probable incurred loan losses.
Allocation of Allowance for Loan Losses
The following tables allocate the allowance for loan losses at December 31 to each loan category. The allowance has been allocated according to the amount deemed to be reasonably necessary to provide for the probable losses estimated to be incurred within the following categories of loans at the dates indicated.
Allowance
Percentage
of loans to
total loans
Allowance
Percentage
of loans to
total loans
(Dollars in thousands)
Commercial & Agriculture
$
3,011
10.9
%
$
2,600
12.3
%
Commercial Real Estate-Owner Occupied
4,565
14.5
4,464
14.9
Commercial Real Estate-Non-Owner Occupied
14,138
40.0
13,860
41.5
Real Estate Mortgage
3,145
21.7
2,597
21.5
Real Estate Construction
2,293
9.6
1,810
7.9
Farm Real Estate
1.0
1.4
Lease financing receivables
1.5
0.0
Consumer and Other
0.8
0.5
Unallocated
-
-
$
28,511
100.0
%
$
26,641
100.0
%
Allowance
Percentage
of loans to
total loans
(Dollars in thousands)
Commercial & Agriculture
$
2,810
19.9
%
Commercial Real Estate-Owner Occupied
4,057
13.6
Commercial Real Estate-Non-Owner Occupied
12,451
34.3
Real Estate Mortgage
2,484
21.5
Real Estate Construction
2,439
8.5
Farm Real Estate
1.6
Consumer and Other
0.6
Unallocated
-
$
25,028
100.0
%
Civista measures the adequacy of the allowance for loan losses by using both specific and general components. The specific component relates to the evaluation of each loan identified as impaired. The general component consists of a pooling of commercial credits risk graded as special mention and substandard, based on portfolio experience, and general reserves, which are based on a twelve quarter loss migration analysis, adjusted for current economic factors. Loss migration rates are calculated over a twelve quarter period for all portfolio segments. Factors in the determination of the economic reserve include items such as changes in the economic and business conditions of its market, changes in lending policies and procedures, changes in loan concentrations, as well as a few others. The allowance for loan losses to total loans decreased from 1.33% in 2021 to 1.12% in 2022. The unallocated reserve of Civista decreased to $541 in 2022 from $847 in 2021. Management considers both the decrease in the unallocated reserve and the end-of-period reserve number to be insignificant and within the loan policy guidelines.
Securities available for sale increased by $55,528, or 9.9%, from $559,874 at December 31, 2021 to $615,402 at December 31, 2022. U.S. Treasury securities and obligations of U.S. government agencies increased $13,139, or 27.4% from $47,890 at December 31, 2021 to $61,029 at December 31, 2022. Obligations of states and political subdivisions available for sale increased by $18,412 from 2021 to 2022. Mortgage-backed securities increased by $23,977 to total $237,125 at December 31, 2022. The Company continues to utilize letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing securities that were pledged for public entities. As of December 31, 2022, the Company was in compliance with all applicable pledging requirements.
Mortgage-backed securities totaled $237,125 at December 31, 2022 and none were considered unusual or “high risk” securities as defined by regulatory authorities. Of this total, $234,666 consisted of pass-through securities issued by the Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Government National Mortgage Association (“GNMA”), and the remaining $2,459 of these securities were collateralized by mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA. The average interest rate of the mortgage-backed securities portfolio at December 31, 2022 was 2.4%. The average maturity at December 31, 2022 was approximately 8.4 years.
Securities available for sale had a fair value at December 31, 2022 of $615,402. This fair value includes unrealized gains of approximately $819 and unrealized losses of approximately $67,768. Net unrealized losses totaled $66,949 on December 31, 2022 compared to net unrealized gains of $18,577 on December 31, 2021. The change in unrealized gains is primarily due to changes in market interest rates. Note 3 to the Consolidated Financial Statements provides additional information on unrealized gains and losses.
The following table sets forth the maturities of securities at December 31, 2022 and the weighted average yields of such debt securities. Maturities are reported based on stated maturities and do not reflect principal prepayment assumptions.
Within one year
After one
but within five
years
After five but
within ten years
After ten years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(Dollars in thousands)
Available for Sale (2)
U.S. Treasury securities and
obligations of U.S. government
agencies
$
5,455
0.53
%
$
27,665
1.52
%
$
26,770
2.18
%
$
1,139
2.97
%
Obligations of states and political
subdivisions (1)
3.02
13,639
3.40
37,917
3.20
265,351
2.65
Mortgage-backed securities in
government sponsored entities
2.00
14,469
3.33
21,122
2.44
201,361
2.53
Total
$
5,969
0.71
%
$
55,773
2.45
%
$
85,809
2.99
%
$
467,851
2.58
%
(1)Weighted average yields on nontaxable obligations have been computed based on actual yields stated on the security.
(2)The weighted average yield has been computed using the historical amortized cost for available-for-sale securities.
Premises and equipment, net of accumulated depreciation, increased $41,573 from December 31, 2021 to December 31, 2022. The increase is the result of new purchases of $6,508, offset by disposals of $183 and depreciation of $4,456. Premises and equipment, net, acquired from the acquisitions of Comunibanc Corp. and VFG totaled $4,665 and $35,039, respectively.
Goodwill increased by $48,844, from $76,851 at December 31, 2021 to $125,695 at December 31, 2022. The increase is due to the goodwill created from the acquisitions of Comunibanc Corp. and VFG. Other intangible assets increased $3,973 from year-end 2021. The increase includes $4,426 of core deposit intangibles and $419 of mortgage servicing rights from the acquisition of Comunibanc Corp.
Swap assets increased $5,507 from December 31, 2021 to December 31, 2022. The increase is primarily the result of increases in the fair value of swap assets as compared to December 31, 2021.
Bank owned life insurance (BOLI) increased $6,902 from December 31, 2021 to December 31, 2022. BOLI acquired from the merger with Comunibanc Corp. totaled $5,918. The remaining difference is the result of increases in the cash surrender value of the underlying insurance policies.
Deferred taxes increased $15,029 from December 31, 2021 to December 31, 2022. The increase is primarily the result of an increase in deferred taxes on available for sale securities of $18,017 as a result of increases in interest rates during 2022.
Year-end deposit balances totaled $2,619,984 in 2022 compared to $2,416,701 in 2021, an increase of $203,283, or 8.4%. This increase in deposits at December 31, 2022 compared to December 31, 2021 included increases in noninterest bearing demand deposits of $107,427, or 13.6%, savings and money market accounts of $32,590, or 3.9%, certificate of deposit accounts of $68,734, or 33.6%, and individual retirement accounts of $4,163, or 9.9%, offset by a decrease in interest bearing demand accounts of $9,631, or 1.8%. Average deposit balances for 2022 were $2,614,423 compared to $2,488,105 for 2021, an increase of 5.1%. Noninterest bearing deposits averaged $937,890 for 2022, compared to $907,591 for 2021, increasing $30,299, or 3.3%. Savings, NOW, and MMDA accounts averaged $1,423,134 for 2022 compared to $1,315,220 for 2021, increasing $107,914, or 8.2%. Average certificates of deposit decreased $11,895 to total an average balance of $253,399 for 2022. The increase in year-over-year average balances was impacted by the acquisition of an aggregate of $271,194 of deposits from the Comunibanc Corp. acquisition.
The average daily amount of deposits (all in domestic offices) and average rates paid on such deposits is summarized for the years indicated.
Average
balance
Average
rate paid
Average
balance
Average
rate paid
(Dollars in thousands)
Noninterest-bearing demand deposits
$
937,890
N/A
$
907,591
N/A
Interest-bearing demand deposits
544,351
0.03
%
497,067
0.03
%
Savings, including Money Market deposit
accounts
878,783
0.15
%
818,153
0.13
%
Certificates of deposit, including IRA’s
253,399
0.95
%
265,294
1.11
%
$
2,614,423
$
2,488,105
Uninsured deposits at December 31, 2022 and 2021 were $563,092 and $599,380, respectively. Uninsured deposits as December 31, 2022 and 2021 are based on estimates and include portions of FDIC-insured deposit accounts that exceed the insurance limit of $250,000 per separately insured depositor.
Maturities of certificates of deposits and individual retirement accounts of more than $250,000 outstanding at December 31, 2022 are summarized as follows.
Certificates
of Deposits
Individual
Retirement
Accounts
Total
(Dollars in thousands)
3 months or less
$
129,736
$
7,334
$
137,070
Over 3 through 6 months
35,392
7,125
42,517
Over 6 through 12 months
59,322
10,578
69,900
Over 12 months
48,816
21,042
69,858
$
273,266
$
46,079
$
319,345
FHLB advances increased $322,278 from December 31, 2021 to December 31, 2022. Short-term FHLB advances increased $393,700 year over year due to an increase in over night funding. Long-term FHLB advances decreased due to the repayment in 2022 of an FHLB advance in the amount of $75,000. This advance had terms of one hundred twenty months with a fixed rate of 1.03% and was puttable. The advance was not replaced. Long-term advances acquired in the acquisition of Comunibanc Corp. totaled $21,706, of which $18,128 has been paid down.
Other borrowings increased $15,516 from December 31, 2021 to December 31, 2022. Other borrowings increased due to the assumption of an aggregate of $58,142 of borrowings from the acquisition of VFG and payoffs of $42,626.
Civista offers repurchase agreements in the form of sweep accounts to commercial checking account customers. These repurchase agreements totaled $25,143 at December 31, 2022 compared to $25,495 at December 31, 2021. U.S. Treasury securities and obligations of U.S. government agencies maintained under Civista’s control are pledged as collateral for the repurchase agreements. Additional detail related to these repurchase agreements can be found in Note 12 to the Consolidated Financial Statements.
Swap liabilities increased $5,507 from December 31, 2021 to December 31, 2022. The increase is primarily the result of increases in the fair value of swap liabilities as compared to December 31, 2021.
Total shareholders’ equity decreased $20,377, or 5.7%, during 2022 to $334,835. The change in shareholders’ equity resulted from the issuance of common shares as part of the consideration in the acquisitions of Comunibanc Corp. and VFG, which added $21,122 and $10,500, respectively, to shareholders equity. Shareholders' equity was also positively impacted by net income of $39,427. Additionally, $819 was recognized as stock-based compensation in 2022 in connection with the grant of restricted common shares. These increases to shareholders’ equity were offset by, an increase in the Company’s pension liability, net of tax, of $581, a decrease in the fair value of securities available for sale, net of tax, of $67,446 and decreases due to the purchase of treasury shares and dividends on common shares of $16,887 and $8,493, respectively. For further explanation of these items, see Note 1, Note 15 and Note 16 to the Consolidated Financial Statements. The Company paid $0.56 per common share in dividends in 2022 compared to $0.52 per common share in dividends in 2021.
Total outstanding common shares at December 31, 2022 were 15,728,234, which increased from 14,954,200 common shares outstanding at December 31, 2021. Common shares outstanding increased due to the issuance of 984,723 common shares to former shareholders of Comunibanc Corp. in connection with the acquisition of Comunibanc Corp. effective July 1, 2022 and 500,293 common shares in connection with the acquisition of VFG effective October 3, 2022. Additionally, common shares outstanding was impacted by the Company’s repurchase of 747,443 common shares during 2022 at an average repurchase price of $22.59. The Company repurchased 349,168 common shares pursuant to a stock repurchase program announced on May 4, 2022 and 392,847 common shares pursuant to a stock repurchase program announced on August 12, 2021. The repurchase program publicly announced on May 4, 2022 authorized the Company to repurchase a maximum aggregate value of $13,500 of the Company’s common shares until May 9, 2023. The repurchase plan publicly announced on August 12, 2021 authorized the Company to repurchase a maximum aggregate value of $13,500 of the Company’s common shares until August 10, 2022. An additional 5,428 common shares were surrendered by officers to the Company to pay taxes upon vesting of restricted shares and 3,411 restricted common shares were forfeited. The repurchase of common shares was offset by the grant of 31,774 restricted common shares to certain officers under the Company’s 2014 Incentive Plan. In addition, 8,098 common shares were issued to Civista directors as a retainer payment for service on the Civista Board of Directors.
Results of Operations
The operating results of the Company are affected by general economic conditions, the monetary and fiscal policies of federal agencies and the regulatory policies of agencies that regulate financial institutions. The Company’s cost of funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities are influenced by the demand for real estate loans and other types of loans, which in turn is affected by the interest rates at which such loans are made, general economic conditions and the availability of funds for lending activities.
The Company’s net income primarily depends on its net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and securities, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowings. The level of net interest income is dependent on the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities. Net income is also affected by provisions for loan losses, service charges, gains on the sale of assets, other non-interest income, noninterest expense and income taxes.
Comparison of Results of Operations for the Years Ended December 31, 2022 and December 31, 2021
Net Income
The Company’s net income for the year ended December 31, 2022 was $39,427, compared to $40,546 for the year ended December 31, 2021. The change in net income was the result of the items discussed in the following sections.
Net Interest Income
Net interest income for 2022 was $110,204, an increase of $14,779, or 15.5%, from 2021. From 2021 to 2022, average earning assets increased 4.5%, interest income increased $19,511, and interest expense on interest-bearing liabilities increased $4,732. The Company continually examines its rate structure to ensure that its interest rates are competitive and reflective of the current rate environment in which it competes.
Total interest income increased $19,511 to $121,253 for the year ended December 31, 2022, which is attributable to an increase of $13,581 in interest and fees on loans. This change was the result of an increase in the average balance of loans, accompanied by a higher yield on the portfolio. The average balance of loans increased by $172,175, or 8.5%, to $2,199,082 for the year ended December 31, 2022, as compared to $2,026,907 for the year ended December 31, 2021. The loan yield increased to 4.69% for 2022, from 4.42% in 2021.
Interest on taxable securities increased $3,650 to $9,123 for the year ended December 31, 2022, compared to $5,473 for the same period in 2021. The average balance of taxable securities increased $108,787 to $341,600 for the year ended December 31, 2022, as compared to $232,813 for the year ended December 31, 2021. The yield on taxable securities increased 8 basis points to 2.49% for 2022, compared to 2.41% for 2021. Interest on tax-exempt securities increased $1,609 to $7,859 for the year ended December 31, 2022, compared to $6,250 for the same period in 2021. The average balance of tax-exempt securities increased $46,195 to $263,981 for the year ended December 31, 2022 as compared to $217,786 for the year ended December 31, 2021. The yield on tax-exempt securities decreased 40 basis points to 3.56% for 2021, compared to 3.96% for 2021.
Total interest expense increased $4,732 or 74.9%, to $11,049 for the year ended December 31, 2022, compared with $6,317 for the same period in 2021. The increase in interest expense can be attributed to an increase in the average rate paid, accompanied by an increase in the average balance of interest-bearing liabilities. For the year ended December 31, 2022, the average balance of interest-bearing liabilities increased $181,264 to $1,918,906, as compared to $1,737,642 for the year ended December 31, 2021. Interest incurred on deposits decreased by $335 to $3,840 for the year ended December 31, 2022, compared to $4,175 for the same period in 2021. The decrease in deposit expense was due to a decrease in the average rate paid, as the average rate paid on demand and savings accounts decreased from 0.09% in 2021 to 0.01% in 2022 and the average rate paid on time deposits decreased from 1.11% to 0.95% in 2022, which was partially offset by an increase in the average balance of interest-bearing deposits of $96,019 for the year ended December 31, 2022 as compared to the same period in 2021. Interest expense incurred on FHLB advances and subordinated debentures increased 223.8% from 2021. The increase was due to an increase in the average balance of short-term FHLB balances and subordinated debentures of $66,875 and $66,956, respectively, accompanied by an increas in rates. The average balance of other borrowings increased $4,002 for the period ended December 31, 2022, as compared to the same period in 2021, as a result of the Company’s acquisition of VFG.
Refer to “Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential” and “Changes in Interest Income and Interest Expense Resulting from Changes in Volume and Changes in Rate” on pages 46 through 48 for further analysis of the impact of changes in interest-bearing assets and liabilities on the Company’s net interest income.
Provision and Allowance for Loan Losses
The following table contains information relating to the provision for loan losses, activity in and analysis of the allowance for loan losses as of and for each of the three years in the period ended December 31.
As of and for year
ended December 31,
Net loan charge-offs (recoveries)
$
(118
)
$
(783
)
$
(149
)
Provision for loan losses charged to expense
1,752
10,112
Net loan charge-offs (recoveries) as a
percent of average outstanding loans
(0.01
)%
(0.04
)%
(0.01
)%
Allowance for loan losses
$
28,511
$
26,641
$
25,028
Allowance for loan losses as a percent of
year-end outstanding loans
1.12
%
1.33
%
1.22
%
Impaired loans, excluding purchase credit
impaired loans (PCI)
$
$
1,222
$
2,666
Impaired loans as a percent of gross
year-end loans (1)
0.02
%
0.06
%
0.13
%
Nonaccrual and 90 days or more past due
loans, excluding PCI
$
6,507
$
3,673
$
5,125
Nonaccrual and 90 days or more past due
loans, excluding PCI as a percent of
gross year-end loans (1)
0.26
%
0.18
%
0.25
%
(1)Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category. A loan is considered nonaccrual if it is maintained on a cash basis because of deterioration in the borrower’s financial condition, where payment in full of principal or interest is not expected and where the principal and interest have been in default for 90 days, unless the asset is both well-secured and in process of collection. A loan is considered impaired when it is probable that all of the interest and principal due will not be collected according to the terms of the original contractual agreement.
The Company’s policy is to maintain the allowance for loan losses at a level sufficient to provide for probable losses incurred in the current portfolio. Management believes the analysis of the allowance for loan losses supported a reserve of $28,511 at December 31, 2022. The Company provides for loan losses through regular provisions to the allowance for loan losses as necessary. The amount of the provision is affected by loan charge-offs, recoveries and changes in specific and general allocations required for the allowance for loan losses. A number of factors impact the provisions for loan losses, such as the level of higher risk loans in the portfolio, changes in practices related to loans, changes in collateral values and other factors. We continue to actively manage this process and have provided to maintain the reserve at a level that assures adequate coverage ratios.
Provisions for loan losses totaled $1,752, $830 and $10,112 in 2022, 2021 and 2020, respectively. The Company’s provision for loan losses increased $922 during 2022, as compared to 2021, primarily to support strong organic loan growth in the portfolio. Of this increase, $452,000 was provided to cover lease production from our VFG subsidiary since acquisition. The Bank strengthened the reserve in 2020 due to the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. While conditions improved in 2021 due to vaccinations and booster shots, ongoing challenges due to supply chain and workforce shortages slowed the process improvement. Our risk profile has steadily improved since peak levels, but we remain cautious given the impact of higher inflationary costs, rising interest rates and other pre-recessionary conditions that impact loan customers. Our Commercial and Commercial Real Estate portfolios have been, and are expected to continue to be, impacted the most.
Efforts are continually made to analyze each segment of the loan portfolio and quantify risk to assure that reserves are appropriate for each segment and the overall portfolio. Management specifically evaluates loans that are impaired, which includes restructured loans, to estimate potential loss. This analysis includes a review of the loss migration calculation for all loan categories as well as fluctuations and trends in various risk factors that have occurred within the portfolios’ economic life cycle. The analysis also includes assessment of qualitative factors such as credit trends, unemployment trends, vacancy trends and loan growth. The composition and overall level of the loan portfolio and charge-off activity are also factors used to determine the amount of the allowance for loan losses.
Management analyzes each impaired commercial and commercial real estate loan relationship with a balance of $350 or larger, on an individual basis and when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Loans held for sale and leases are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans or portions thereof are charged-off when deemed uncollectible.
Noninterest Income
Noninterest income decreased $2,376, or 7.6%, to $29,076 for the year ended December 31, 2022, from $31,452 for the comparable 2021 period. The decrease was primarily due to decreases in net gain on sale of securities of $1,776, net gain on sale of loans and leases of $4,645 and bank owned life insurance of $216, which were partially offset by increases in service charges of $1,169, lease revenue and residual income of $2,310 and other income of $812.
Net gain on sale of securities decreased due to the 2021 sale of VISA Class B shares, which resulted in a gain of $1,785. Net gain on sale of loans and leases decreased primarily as a result of a decrease in volume of loans sold. During the twelve-months ended December 31, 2022, 692 loans were sold, totaling $127,795. During the twelve-months ended December 31, 2021, 1,341 loans were sold, totaling $260,294. Bank owned life insurance decreased due to death benefits paid in 2021. Service charges increased due to increased account service charges and overdraft fees of $462 and $680, respectively. Lease revenue and residual income increased due to the acquisition of VFG. Other income increased due to increases in wire transfer fees, merchant credit card fees, loan servicing fees, amortization of mortgage servicing rights and rental and brokerage fee income from the acquisition of VFG.
Noninterest Expense
Noninterest expense increased $12,827, or 16.5%, to $90,493 for the year ended December 31, 2022, from $77,666 for the comparable 2021 period. The increase was primarily due to increases in compensation expense of $6,371, net occupancy expense of $488, equipment expense of $3,232, data processing expense of $1,063, professional services of $2,673, amortization expense of $406, marketing expense of $410 and software expense of $678, which was partially offset by a decrease in FDIC assessments of $450 and other operating expense of $1,960.
The increase in compensation expense was due to increased payroll, payroll taxes, employee insurance and commissions and incentives. The year-to-date average full time equivalent (FTE) employees were 480.8 at December 31, 2022, an increase of 29 FTEs over 2021 due to the acquisitions of Comunibanc Corp. and VFG. The increase in net occupancy expense was due to increases in building repairs and maintenance and building depreciation. The increase in equipment expense was due to a general increase in computer, printer, office and security equipment costs and an increase in equipment depreciation related to the acquisition of VFG. The increase in data processing expense was due to deconversion fees of $1,032 related to the acquisition of Comunibanc Corp. The increase in professional services was due to acquisition related costs of $1,718, accompanied by increases in legal and audit fees and consulting fees. The increase in amortization expense is related to the acquisition of Comunibanc Corp. Marketing expense increased due to a general increase in marketing and increased marketing efforts in newly acquired markets. Software expense increase due to a general increase in legacy software maintenance contracts and the implementation of our new digital banking. The decrease in FDIC assessments was attributable to lower assessment multipliers charged to Civista. Other operating expenses decreased due to the prepayment expense of $3,717 paid in 2021 related to the early payoff of an FHLB long-term advance, offset by increases in travel, lodging and meals, donations, stationery and supplies and bad check expense.
Income Tax Expense
Income tax expense was $7,608 in 2022 compared to $7,835 in 2021. Income tax expense as a percentage of pre-tax income was 16.2% in 2022 compared to 16.2% in 2021. A lower federal effective tax rate than the statutory rate of 21% in 2022 and 2021 is primarily due to tax-exempt interest income from state and municipal investments, municipal loans, income from BOLI and low income housing credits.
Comparison of Results of Operations for the Years Ended December 31, 2021 and December 31, 2020
A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 and year-to-year comparisons between 2021 and 2020, which are not included in this Form 10-K, can be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and are incorporated by reference herein.
Changes in Interest Income and Interest Expense
Resulting from Changes in Volume and Changes in Rate
The following table sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rate (Amounts in thousands):
Increase (decrease) due to:
Volume (1)
Rate (1)
Net
2022 compared to 2021
Interest income:
Loans
$
7,880
$
5,701
$
13,581
Taxable securities
3,438
3,650
Nontaxable securities
2,275
(666
)
1,609
Interest-bearing deposits in other banks
(393
)
1,064
Total interest income
$
13,200
$
6,311
$
19,511
Interest expense:
Savings and interest-bearing demand accounts
$
$
$
Certificates of deposit
(128
)
(430
)
(558
)
Short-term Federal Home Loan Bank advances
2,566
-
2,566
Long-term Federal Home Loan Bank advances
(556
)
(97
)
(653
)
Securities sold under repurchase agreements
(3
)
(9
)
(12
)
Federal funds purchased
-
Other borrowings
-
Subordinated debentures
2,313
2,826
Total interest expense
$
4,631
$
$
4,732
Net interest income
$
8,569
$
6,210
$
14,779
2021 compared to 2020
Interest income:
Loans
$
3,262
$
(1,469
)
$
1,793
Taxable securities
1,360
(1,246
)
Nontaxable securities
(312
)
Interest-bearing deposits in other banks
(579
)
(157
)
Total interest income
$
5,483
$
(3,606
)
$
1,877
Interest expense:
Savings and interest-bearing demand accounts
$
$
(976
)
$
(594
)
Certificates of deposit
(377
)
(1,735
)
(2,112
)
Short-term Federal Home Loan Bank advances
(134
)
(134
)
Long-term Federal Home Loan Bank advances
(405
)
(230
)
(635
)
Securities sold under repurchase agreements
(4
)
(2
)
Federal funds purchased
(1
)
-
Other borrowings
(354
)
-
(354
)
Subordinated debentures
(177
)
Total interest expense
$
(700
)
$
(3,121
)
$
(3,821
)
Net interest income
$
6,183
$
(485
)
$
5,698
(1)The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate.
Distribution of Assets, Liabilities and Shareholders’ Equity;
Interest Rates and Interest Differential
The following table sets forth, for the years ended December 31, 2022, 2021 and 2020, the distribution of assets, including interest amounts and average rates of major categories of interest-earning assets and noninterest-earning assets (Amounts in thousands):
Assets
Average
balance
Interest
Yield/
rate
Average
balance
Interest
Yield/
rate
Average
balance
Interest
Yield/
rate
Interest-earning assets:
Loans (1)(2)(3)(5)
$
2,199,082
$
103,151
4.69
%
$
2,026,907
$
89,570
4.42
%
$
1,953,472
$
87,777
4.49
%
Taxable securities (4)
341,600
9,123
2.49
%
232,813
5,473
2.41
%
183,721
5,359
3.03
%
Non-taxable
securities (4)(5)
263,981
7,859
3.56
%
217,786
6,250
3.96
%
202,982
6,123
4.15
%
Interest-bearing
deposits in other
banks
146,849
1,120
0.76
%
347,573
0.13
%
155,960
0.39
%
Total interest
earning assets
2,951,512
121,253
4.12
%
2,825,079
101,742
3.69
%
2,496,135
99,865
4.10
%
Noninterest-earning assets:
Cash and due from
financial institutions
84,777
35,404
77,848
Premises and
equipment, net
34,577
22,617
22,831
Accrued interest
receivable
8,650
8,010
9,043
Intangible assets
96,492
84,747
84,953
Other assets
50,765
37,378
37,675
Bank owned life
insurance
50,076
46,435
45,454
Less allowance for loan
losses
(27,721
)
(26,366
)
(19,231
)
Total
$
3,249,128
$
3,033,304
$
2,754,708
(1)For purposes of these computations, the daily average loan amounts outstanding are net of unearned income and include loans held for sale.
(2)Included in loan interest income are loan fees of $2,024 in 2022, $1,661 in 2021 and $1,025 in 2020.
(3)Non-accrual loans are included in loan totals and do not have a material impact on the analysis presented.
(4)Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for available for sale securities.
(5)Yield/Rate is calculated using the tax-equivalent adjustment of 21% for 2022, 2021 and 2020.
Distribution of Assets, Liabilities and Shareholders’ Equity;
Interest Rates and Interest Differential (Continued)
The following table sets forth, for the years ended December 31, 2022, 2021 and 2020, the distribution of liabilities, including interest amounts and average rates of major categories of interest-bearing liabilities and shareholders’ equity (Amounts in thousands):
Liabilities and
Shareholders’ Equity
Average
balance
Interest
Yield/
rate
Average
balance
Interest
Yield/
rate
Average
balance
Interest
Yield/
rate
Interest-bearing liabilities:
Savings and
interest-bearing
demand accounts
$
1,423,134
$
1,442
0.01
%
$
1,315,220
$
1,219
0.09
%
$
1,050,544
$
1,813
0.17
%
Certificates of deposit
253,399
2,398
0.95
%
265,294
2,956
1.11
%
288,262
5,068
1.76
%
Short-term Federal Home Loan Bank
advances
66,875
2,566
3.84
%
-
-
-
8,151
1.64
%
Long-term Federal Home Loan Bank
advances
45,325
1.13
%
94,041
1,163
1.24
%
125,000
1,798
1.44
%
Other borrowings
4,002
8.37
%
-
-
-
101,295
0.35
%
Securities sold under
repurchase agreements
22,293
0.05
%
26,165
0.09
%
24,390
0.10
%
Federal funds purchased
4.38
%
0.73
%
0.35
%
Subordinated debentures
103,741
3,781
3.64
%
36,785
2.66
%
29,427
3.21
%
Total interest-bearing
liabilities
1,918,906
11,049
0.58
%
1,737,642
6,317
0.36
%
1,627,357
10,138
0.62
%
Noninterest-bearing
liabilities:
Demand deposits
937,890
907,591
739,648
Other liabilities
76,189
38,868
51,242
1,014,079
946,459
790,890
Shareholders’ equity
316,143
349,203
336,461
Total
$
3,249,128
$
3,033,304
$
2,754,708
Net interest income and
interest rate spread (1)
$
110,204
3.54
%
$
95,425
3.33
%
$
89,727
3.48
%
Net interest margin (2)
3.75
%
3.47
%
3.70
%
(1)Interest rate spread is calculated by subtracting the rate on average interest-bearing liabilities from the yield on average interest-earning assets.
(2)Net interest margin is calculated by dividing tax-equivalent adjusted net interest income by average interest-earning assets.
Liquidity and Capital Resources
Civista maintains a conservative liquidity position. All securities are classified as available for sale. At December 31, 2022, securities with maturities of one year or less totaled $5,796, or 0.9% of the total securities portfolio. The available for sale portfolio helps to provide Civista with the ability to meet its funding needs. The Consolidated Statements of Cash Flows contained in the Consolidated Financial Statements detail the Company’s cash flows from operating activities resulting from net earnings.
Net cash provided by operating activities for 2022, 2021 and 2020 was $25,183, $40,761, and $32,654, respectively. The primary additions to cash from operating activities are from net income, adjusted for amortization of intangible assets, amortization of securities net of accretion, the provision for loan losses, depreciation and proceeds from sale of loans. The primary use of cash from operating activities is from loans originated for sale. Net cash used for investing activities was $410,364, $130,496, and $340,982 in 2022, 2021 and 2020, respectively, principally reflecting our loan and investment security activities. Deposits and borrowings comprised most of our financing activities, which resulted in net cash provided of $164,303, $216,925, and $398,802 for 2022, 2021 and 2020, respectively.
Future loan demand of Civista can be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. As of December 31, 2022, Civista had total credit availability with the FHLB of $829,458, of which $454,788 was outstanding, including standby letters of credit of $57,510.
On a separate entity basis, CBI’s primary source of funds is dividends paid by its subsidiaries, primarily by Civista. Generally, subject to applicable minimum capital requirements, Civista may declare and pay a dividend without the approval of the Federal Reserve Bank of Cleveland (the “Federal Reserve Bank”) and the State of Ohio Department of Commerce, Division of Financial Institutions, provided the total dividends in a calendar year do not exceed the total of its profits for that year combined with its retained profits for the two preceding years. At December 31, 2022, Civista was able to pay approximately $55,501 of dividends to CBI without obtaining regulatory approval. During 2022, Civista paid dividends totaling $26,300 to CBI. This represented approximately 61 percent of Civista’s earnings for the year.
The Company manages its liquidity and capital through quarterly Asset/Liability Management Committee (ALCO) meetings. The ALCO discusses issues like those in the above paragraphs as well as others that may affect the future liquidity and capital position of the Company. The ALCO also examines interest rate risk and the effect that changes in rates will have on the Company. For more information about interest rate risk, please refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” section below.
Capital Adequacy
Shareholders’ equity totaled $334,835 at December 31, 2022 compared to $355,212 at December 31, 2021. The decrease in shareholders’ equity resulted primarily from a $581 net increase in the Company’s pension liability and a decrease in the fair value of securities available for sale, net of tax, of $67,446, together with dividends on common shares of $8,493 and repurchase of common shares totaling $16,887 during 2022 pursuant to the Company’s publicly-announced share purchase programs. The foregoing decreases to shareholders’ equity were partially offset by net income of $39,427.
During the first quarter of 2015, the Company adopted the new BASEL III regulatory capital framework as approved by the federal banking agencies. In addition to the other required capital ratios, the BASEL III rules also require the Company to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) capital to risk-weighted assets (as these terms are defined in the BASEL III rules). Under the BASEL III rules, the Company elected to opt-out of including accumulated other comprehensive income in regulatory capital. All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of December 31, 2022 and 2021 as identified in the following table:
Total Risk
Based
Capital
Tier I Risk
Based
Capital
CET1 Risk
Based
Capital
Leverage
Ratio
Company Ratios-December 31, 2022
14.5
%
10.8
%
9.7
%
8.9
%
Company Ratios-December 31, 2021
19.2
%
14.3
%
12.9
%
10.2
%
For Capital Adequacy Purposes
8.0
%
6.0
%
4.5
%
4.0
%
To Be Well Capitalized Under Prompt Corrective
Action Provisions
10.0
%
8.0
%
6.5
%
5.0
%
Common equity for the CET1 risk-based capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.
Tier 1 capital includes common equity as defined for the CET1 risk-based capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.
Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less applicable deductions.
The deductions from CET1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels). These deductions were phased in from 2015 through 2019.
Under applicable regulatory guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The BASEL III regulatory capital rules and regulations also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5 percent composed of CET1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter. The capital conservation buffer began to phase in starting on January 1, 2016, at 0.625%, and was fully phased in effective January 1, 2019, at 2.5%. The implementation of Basel III did not have a material impact on CBI’s or Civista’s capital ratios.
Effects of Inflation
The Company’s balance sheet is typical of financial institutions and reflects a net positive monetary position whereby monetary assets exceed monetary liabilities. Monetary assets and liabilities are those which can be converted to a fixed number of dollars and include cash assets, securities, loans, money market instruments, deposits and borrowed funds.
During periods of inflation, a net positive monetary position may result in an overall decline in purchasing power of an entity. However, no clear evidence exists of a relationship between the purchasing power of an entity’s net positive monetary position and its future earnings. Moreover, the Company’s ability to preserve the purchasing power of its net positive monetary position will be partly influenced by the effectiveness of its asset/liability management program. As part of the asset/liability management process, management reviews and monitors information and projections on inflation as published by the Federal Reserve Board and other sources. This information speaks to inflation as determined by its impact on consumer prices and also the correlation of inflation and interest rates. This information is but one component in an asset/liability management process designed to limit the impact of inflation on the Company. Management does not believe that the effect of inflation on its nonmonetary assets (primarily bank premises and equipment) is material as such assets are not held for resale and significant disposals are not anticipated.
Fair Value of Financial Instruments
The Company has disclosed the fair value of its financial instruments at December 31, 2022 and 2021 in Note 17 to the Consolidated Financial Statements. The fair value of loans at December 31, 2022 was 85.8% of the carrying value compared to 98.7% at December 31, 2021. The fair value of deposits at December 31, 2022 was 100.0% of the carrying value compared to 100.0% at December 31, 2021. Changes in fair value were primarily due to changes in the discount values used to measure fair value.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure.
Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Company’s safety and soundness.
Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality.
The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve guidance and discusses the importance of these elements in the context of managing interest-rate risk. Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.
Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Company is to periodically analyze its assets and liabilities and make future financing and investment decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Company’s primary asset/liability management technique is the measurement of the Company’s asset/liability gap, that is, the difference between the cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell.
If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities.
Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities and matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. The Company does not have significant derivative financial instruments and does not intend to purchase a significant amount of such instruments in the near future. Prepayments of assets carrying higher rates reduce the Company’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short term or due on demand, while most of its assets may be invested in long term loans or securities. Accordingly, the Company seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. Also, FHLB advances and wholesale borrowings may be used as important sources of liquidity for the Company.
The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 2022 and 2021, based on certain prepayment and account decay assumptions that management believes are reasonable. Although the Company had derivative financial instruments as of December 31, 2022 and 2021, the changes in fair value of the assets and liabilities of the underlying contracts offset each other. For more information about derivative financial instruments see Note 22 to the Consolidated Financial Statements. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Company’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates.
Net Portfolio Value
December 31, 2022
December 31, 2021
Change in
Rates
Dollar
Amount
Dollar
Change
Percent
Change
Dollar
Amount
Dollar
Change
Percent
Change
+200bp
$
571,328
$
14,733
%
$
531,385
$
44,276
%
+100bp
566,596
10,001
%
521,707
34,598
%
Base
556,595
-
-
487,109
-
-
-100bp
548,575
(8,020
)
(1
)%
495,963
8,854
%
-200bp
526,702
(29,893
)
(5
)%
548,326
61,217
%
The change in net portfolio value from December 31, 2021 to December 31, 2022, can be attributed to a couple of factors. The yield curve has risen and inverted compared to the end of 2021, and both the volume and mix of assets and funding sources has changed. The volume of cash has decreased, and the mix has shifted toward loans. The loan portfolio increased due to growth and acquisition, but the market value of loans has decreased due to market rate increases, tempering the increase due to growth. The volume non-maturing deposits has increased due to acquisition, but the market value has decreased. The volume and mix shifts from the end of 2021 led to an increase in the base value, but this was partially offset due to market rate changes. Beyond the change in the base level of net portfolio value, projected movements in rates, up or down, would also lead to changes in market values. The change in the rates up scenarios for both the 100 and 200 basis point movements would lead to a larger decrease in the market value of liabilities than assets. Accordingly, we see an increase in the net portfolio value. The change in the rates down scenario for both the 100 and 200 basis point movements would lead to a larger increase in the market value of liabilities than assets, leading to a decrease in the net portfolio value.
Critical Accounting Policies
Allowance for Loan Losses: The allowance for loan losses is regularly reviewed by management to determine that the amount is considered adequate to absorb probable losses in the loan portfolio. If not, an additional provision is made to increase the allowance. This evaluation includes specific loss estimates on certain individually reviewed impaired loans, the pooling of commercial credits risk graded as special mention and substandard that are not individually analyzed, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and current economic and industry conditions, among other items.
Those judgments and assumptions that are most critical to the application of this accounting policy are assessing the initial and on-going credit-worthiness of the borrower, the amount and timing of future cash flows of the borrower that are available for repayment of the loan, the sufficiency of underlying collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and risk ratings, emerging or changing trends that might not be fully captured in the historical loss experience, and charges against the allowance for actual losses that are greater than previously estimated. These judgments and assumptions are dependent upon or can be influenced by a variety of factors, including the breadth and depth of experience of lending officers, credit administration and the corporate loan review staff that periodically review the status of the loan, changing economic and industry conditions, changes in the financial condition of the borrower and changes in the value and availability of the underlying collateral and guarantees.
Note 1 and Note 5 to the Consolidated Financial Statements provide additional information regarding the Allowance for Loan Losses.
Goodwill: The Company accounts for business combinations using the acquisition method of accounting. Accordingly, the identifiable assets acquired and the liabilities assumed are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value recorded as goodwill. The Company performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The evaluation for impairment involves comparing the current estimated fair value of the Company to its carrying value. If the current estimated fair value exceeds the carrying value, no additional testing is required and an impairment loss is not recorded. If the estimated fair value is less than the carrying value, further valuation procedures are performed that could result in impairment of goodwill being recorded. Management estimated the fair value of the Reporting Unit as of the measurement date utilizing four valuation approaches: the comparable transactions approach, the control premium approach, the public market peers control premium approach and the discounted cash flow approach. These approaches were all considered in reaching a conclusion on fair value. The estimated fair value of the Reporting Unit was then compared to the current carrying value to determine if impairment had occurred. It is our opinion that, as of the November 30, 2022 measurement date, the aggregate fair value of the Reporting Unit exceeds the carrying value of the Reporting Unit. Therefore management concluded that goodwill was not impaired and made no adjustment in 2022.
Income Taxes: Management’s determination of the realization of net deferred tax assets is based upon management’s judgment of various future events and uncertainties, including the timing and amount of future income, as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.
Management analyzes material tax positions taken in any income tax return for any tax jurisdiction and determines the likelihood of the positions being sustained in a tax examination. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
Other-Than-Temporary Impairment of Investment Securities: The Company performs a quarterly valuation to determine if a decline in the value of an investment security is other than temporary. Although the term “other than temporary” is not intended to indicate that the decline is permanent, it does indicate that the prospects for a near-term recovery of value are not necessarily favorable, or that there is lack of evidence to support fair values equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary.
Pension Benefits: Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation of future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense. Our pension benefits are described further in Note 15 of the “Notes to Consolidated Financial Statements.”
Derivative Financial Instruments: In the ordinary course of business, the Company enters into derivative financial instruments in connection with its asset/liability management activities and to accommodate the needs of its customers. Derivative financial instruments are stated at fair value on the Consolidated Statement of Conditions with changes in fair value reposted in current earnings.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Financial Data
CIVISTA BANCSHARES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID:686)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the Years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Shareholders’ Equity for the Years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the Years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
We, as management of Civista Bancshares, Inc., are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
As permitted by guidance provided by the Staff of U.S. Securities and Exchange Commission, the scope of management’s assessment of internal control over financial reporting as of December 31, 2022, has excluded Comunibanc Corp. (“Comunibanc”) acquired on July 1, 2022 and Vision Financial Group (“VFG”), acquired on October 3, 2022. Comunibanc represented 2.68% and 6.41% of consolidated revenue (total interest income and total noninterest income) and consolidated assets, respectively, as of December 31, 2022. VFG represented 3.90% and 3.76% of consolidated revenue (total interest income and total noninterest income) and consolidated assets, respectively, as of December 31, 2022.
Management assessed the Company’s system of internal control over financial reporting as of December 31, 2022, in relation to criteria for effective internal control over financial reporting as described in “2013 Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2022, its system of internal control over financial reporting is effective and meets the criteria of the “2013 Internal Control - Integrated Framework”. FORVIS, LLP, independent registered public accounting firm, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.
Management is responsible for compliance with the federal and state laws and regulations concerning dividend restrictions and federal laws and regulations concerning loans to insiders designated by the FDIC as safety and soundness laws and regulations. Management has assessed compliance by the Company with the designated laws and regulations relating to safety and soundness. Based on the assessment, management believes that the Company complied, in all significant respects, with the designated laws and regulations related to safety and soundness for the year ended December 31, 2022.
Dennis G. Shaffer
Todd A. Michel
President and Chief Executive Officer
Senior Vice President, Controller
Sandusky, Ohio
March 15, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, Board of Directors and Audit Committee
Civista Bancshares, Inc.
Sandusky, Ohio
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Civista Bancshares, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, shareholders’ equity, and cash flows9 for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters12F
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Loan Losses
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated allowance for loan losses (ALL) was $28.5 million at December 31, 2022. The Company describes in Note 1 of the consolidated financial statements the “Allowance for Loan Losses” accounting policy around this estimate. The ALL is an estimate of losses inherent in the loan portfolio. The determination of the reserve requires significant judgment reflecting the Company’s best estimate of probable loan losses.
The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.
Current methodology used by management to estimate the allowance for loan losses takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historic categorical trends, current delinquency levels as related to historical levels, portfolio growth rates, changes in composition of the portfolio, the current economic environment, as well as current allowance adequacy in relation to the portfolio. The Company considers all of these factors prior to making any adjustments to the allowance due to the subjectivity involved in allocation methodology. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The primary reason for our determination that the allowance for loan losses is a critical audit matter is that auditing the estimated allowance for loan losses involved significant judgment and complex review. There is a high degree of subjectivity in evaluating management’s estimate, such as evaluating management’s assessment of economic conditions and other environmental factors on the loan portfolio, evaluating the adequacy of specific allowances associated with impaired loans and assessing the appropriateness of loan grades.
Our audit procedures related to the estimated allowance for loan losses included:
•Evaluated and tested the design and operating effectiveness of related controls over the reliability and accuracy of data used to calculate and tested management’s estimate of various components of the ALL including:
oClassification of loans by segment
oHistorical loss data and loss rates
oEstablishment of qualitative adjustments
oGrading and risk classification
oEstablishment of specific reserves on impaired loans\
•Testing the clerical and computational accuracy of the formulas and information utilized within the ALL model
•Evaluating the qualitative and environmental adjustment to the historical loss rates, including assessing the basis for the adjustments and the reasonableness of the significant assumptions
•Evaluating the relevance and reliability of data and assumptions
•Testing of the loan review function and the accuracy of how loan grades are determined. Specifically, evaluating the appropriateness of loan grades and to assess the reasonableness of specific impairments on loans
•Evaluating the overall reasonableness of qualitative factors and the appropriateness of their direction and magnitude and the Company’s support for the direction and magnitude compared to previous years
•Evaluating credit quality indicators such as trends in delinquencies, nonaccruals, and charge-offs.
•Evaluating the adequacy of disclosures in the consolidated financial statements.
Mergers and Acquisitions
As described in Note 2 to the consolidated financial statements, the Company consummated the acquisitions of two companies during the year ended December 31, 2022. As part of the acquisitions consummated during the year, management determined that each acquisition qualified as a business and accordingly all identifiable assets and liabilities acquired were measured at fair value as of acquisition date. The identification and valuation of such acquired assets and assumed liabilities requires management to exercise significant judgment to estimate the fair value allocations.
We identified the consummated acquisitions and the valuation of acquired assets and assumed liabilities as a critical audit matter. Auditing the acquired balance sheets and acquisition related considerations involved a high degree of subjectivity in evaluating management's estimate of fair value, purchase price allocations and assessing the appropriateness of assumptions and methodologies utilized in determining fair value.
The primary procedures we performed to address this critical audit matter included:
•Obtaining and reviewing executed Plan and Agreement of Merger documents to gain an understanding of the underlying terms of the consummated acquisitions
•Testing the design effectiveness of management’s acquisition controls to gain an understanding of cut-off procedures performed and identification of acquired assets and liabilities
•Testing management’s purchase accounting documentation focusing on the completeness and accuracy of the assets and liabilities assumed and related fair value purchase price allocations made to identified assets and liabilities
•Challenging management’s analysis of the appropriateness of the fair valuation estimates allocated to assets acquired and liabilities assumed; including but not limited to, testing all critical inputs, assumptions applied, and valuation models utilized
•Utilization of firm valuation specialists to assist with testing the related fair value purchase price allocations made to identified assets acquired and liabilities assumed
•Reviewing and evaluating the adequacy of disclosures related to the acquisitions
We have served as the Company’s auditor since 2021.
FORVIS, LLP (Formerly, BKD, LLP)
Cincinnati, Ohio
March 15, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, Board of Directors and Audit Committee
Civista Bancshares, Inc.
Sandusky, Ohio
Opinion on the Internal Control over Financial Reporting
We have audited Civista Bancshares, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for the years then ended, and our report dated March 15, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
As described in Management’s Report on Internal Control Over Financial Reporting, the scope of management’s assessment of internal control over financial reporting as of December 31, 2022, has excluded Comunibanc Corp. and Vision Financial Group, Inc. acquired on July 1, 2022 and October 3, 2022, respectively. We have also excluded Comunibanc Corp. and Vision Financial Group, Inc. from the scope of our audit of internal control over financial reporting. Comunibanc Corp. and Vision Financial Group, Inc. represented 7 percent of consolidated revenues for the year ended December 31, 2022 and 10 percent of consolidated total assets as of December 31, 2022.F
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
FORVIS, LLP (Formerly, BKD, LLP)
Cincinnati, Ohio
March 15, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Civista Bancshares, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows of Civista Bancshares, Inc. and subsidiaries (the “Company”) for the year ended December 31, 2020, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the consolidated results of operations and cash flows of the Company for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Weconducted our auditin accordance with the standardsof the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We served as the Company’s auditor from 2009 to 2020
S.R. Snodgrass, P.C.
Cranberry Township, Pennsylvania
March 15, 2023
CIVISTA BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2022 and 2021
(Amounts in thousands, except share data)
ASSETS
Cash and due from financial institutions
$
43,361
$
253,459
Restricted cash
-
10,780
Cash and cash equivalents
43,361
264,239
Investments in time deposits
1,477
1,730
Securities available for sale
615,402
559,874
Equity securities
2,190
1,072
Loans held for sale
1,972
Loans, net of allowance of $28,511 and $26,641
2,518,155
1,971,238
Other securities
33,585
17,011
Premises and equipment, net
64,018
22,445
Accrued interest receivable
11,178
7,385
Goodwill
125,695
76,851
Other intangible assets
10,759
7,581
Bank owned life insurance
53,543
46,641
Swap assets
16,579
11,072
Deferred taxes
16,009
Other assets
25,196
22,814
Total assets
$
3,537,830
$
3,012,905
LIABILITIES
Deposits
Noninterest-bearing
$
896,333
$
788,906
Interest-bearing
1,723,651
1,627,795
Total deposits
2,619,984
2,416,701
Short-term Federal Home Loan Bank advances
393,700
-
Long-term Federal Home Loan Bank advances
3,578
75,000
Securities sold under agreements to repurchase
25,143
25,495
Subordinated debentures
103,799
103,735
Other borrowings
15,516
-
Swap liabilities
16,579
11,072
Accrued expenses and other liabilities
24,696
25,690
Total liabilities
3,202,995
2,657,693
SHAREHOLDERS’ EQUITY
Common stock, no par value, 40,000,000 shares authorized, 19,231,061
shares issued at December 31, 2022 and 17,709,584 shares issued at
December 31, 2021
310,182
277,741
Accumulated earnings
156,492
125,558
Treasury stock, 3,502,827 common shares at December 31, 2022 and
2,755,384 common shares at December 31, 2021, at cost
(73,794
)
(56,907
)
Accumulated other comprehensive income (loss)
(58,045
)
8,820
Total shareholders’ equity
334,835
355,212
Total liabilities and shareholders’ equity
$
3,537,830
$
3,012,905
See accompanying notes to consolidated financial statements
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands, except per share data)
Interest and dividend income
Loans, including fees
$
103,151
$
89,570
$
87,777
Taxable securities
9,123
5,473
5,359
Tax-exempt securities
7,859
6,250
6,123
Federal funds sold and other
1,120
Total interest and dividend income
121,253
101,742
99,865
Interest expense
Deposits
3,840
4,175
6,881
Federal Home Loan Bank advances
3,076
1,163
1,932
Subordinated debentures
3,781
Securities sold under agreements to repurchase and other
Total interest expense
11,049
6,317
10,138
Net interest income
110,204
95,425
89,727
Provision for loan losses
1,752
10,112
Net interest income after provision for loan losses
108,452
94,595
79,615
Noninterest income
Service charges
7,074
5,905
5,288
Net gain on sale of securities
1,786
Net gain (loss) on equity securities
(57
)
Net gain on sale of loans and leases
3,397
8,042
8,563
ATM/Interchange fees
5,499
5,443
4,472
Wealth management fees
4,902
4,857
3,981
Lease revenue & residual income
2,310
-
-
Bank owned life insurance
1,200
Tax refund processing fees
2,375
2,375
2,375
Computer center item processing fees
Swap fees
1,459
Other
2,088
1,276
Total noninterest income
29,076
31,452
28,182
Noninterest expense
Compensation expense
51,061
44,690
42,480
Net occupancy expense
4,701
4,213
4,079
Equipment expense
5,070
1,838
2,006
Contracted data processing
2,788
1,725
1,880
FDIC Assessment
1,056
State franchise tax
1,975
2,184
1,913
Professional services
5,388
2,715
2,795
Amortization of intangible assets
1,296
ATM/Interchange expense
2,248
2,314
1,868
Marketing expense
1,513
1,103
1,074
Software maintenance expenses
3,433
2,755
1,833
Other operating expenses
10,223
12,183
9,096
Total noninterest expense
90,493
77,666
70,665
Income before income taxes
47,035
48,381
37,132
Income taxes
7,608
7,835
4,940
Net income
39,427
40,546
32,192
Net income available to common shareholders
$
39,427
$
40,546
$
32,192
Earnings per common share, basic
$
2.60
$
2.63
$
2.00
Earnings per common share, diluted
$
2.60
$
2.63
$
2.00
See accompanying notes to consolidated financial statements
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands)
Net income
$
39,427
$
40,546
$
32,192
Other comprehensive income (loss):
Unrealized holding gains (loss) on available for sale securities
(85,517
)
(8,570
)
10,935
Tax effect
18,079
1,799
(2,297
)
Reclassification of gains recognized in net income
(10
)
(1
)
(94
)
Tax effect
-
Pension liability adjustment
(1,326
)
Tax effect
(155
)
(209
)
Reclassification of actuatial gain recognized in net income
-
Tax effect
-
(50
)
(61
)
Total other comprehensive income (loss)
(66,865
)
(5,799
)
7,745
Comprehensive income (loss)
$
(27,438
)
$
34,747
$
39,937
See accompanying notes to consolidated financial statements
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
Common Shares
Accumulated
Treasury
Accumulated
Other
Comprehensive
Total
Shareholders’
Shares
Amount
Earnings
Stock
Income (Loss)
Equity
Balance, December 31, 2019
16,687,542
$
276,422
$
67,974
$
(21,144
)
$
6,874
$
330,126
Net income
32,192
32,192
Other comprehensive income
7,745
7,745
Stock-based compensation
41,245
Common share dividends ($0.44 per share)
(7,118
)
(7,118
)
Repurchase of common stock
(830,755
)
(13,454
)
(13,454
)
Balance, December 31, 2020
15,898,032
$
277,039
$
93,048
$
(34,598
)
$
14,619
$
350,108
Net income
40,546
40,546
Other comprehensive loss
(5,799
)
(5,799
)
Stock-based compensation
44,633
Common share dividends ($0.52 per share)
(8,036
)
(8,036
)
Repurchase of common stock
(988,465
)
(22,309
)
(22,309
)
Balance, December 31, 2021
14,954,200
$
277,741
$
125,558
$
(56,907
)
$
8,820
$
355,212
Net income
39,427
39,427
Other comprehensive income
(66,865
)
(66,865
)
Stock-based compensation
36,461
Common share dividends ($0.56 per share)
(8,493
)
(8,493
)
Stock issued for acquisition of Comunibanc Corp.
984,723
21,122
21,122
Stock issued for acquisition of Vision Financial Group, Inc.
500,293
10,500
10,500
Repurchase of common stock
(747,443
)
-
(16,887
)
(16,887
)
Balance, December 31, 2022
15,728,234
$
310,182
$
156,492
$
(73,794
)
$
(58,045
)
$
334,835
See accompanying notes to consolidated financial statements
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands)
Cash flows from operating activities:
Net income
$
39,427
$
40,546
$
32,192
Adjustments to reconcile net income to net cash from
operating activities
Time deposits amortization
Security amortization, net
1,607
1,376
1,119
Depreciation
4,456
1,976
2,253
Amortization of core deposit intangible
1,296
Amortization of net deferred loan fees
(2,859
)
(10,738
)
(5,066
)
Net gain on sale of securities
(10
)
(1,786
)
(94
)
Net (gain) loss on equity securities
(118
)
(186
)
Provision for loan losses
1,752
10,112
Loans originated for sale
(126,507
)
(255,265
)
(308,742
)
Proceeds from sale of loans
131,193
268,336
312,589
Net gain on sale of loans
(3,397
)
(8,042
)
(8,563
)
Increase in cash surrender value of bank owned life insurance
(984
)
(1,200
)
(977
)
Share-based compensation
Deferred taxes
1,319
(2,277
)
Change in:
Accrued interest payable
(73
)
Accrued interest receivable
(2,049
)
2,036
(2,328
)
Other, net
(20,236
)
(152
)
Net cash from operating activities
25,183
40,761
32,654
Cash flows used for investing activities:
Investments in time securities
Maturities
1,312
Purchases
(245
)
(245
)
(1,250
)
Securities available for sale
Maturities, prepayments and calls
49,276
61,927
58,246
Sales
57,332
1,810
1,455
Purchases
(128,860
)
(268,309
)
(54,850
)
Purchases of other securities
(16,646
)
-
(257
)
Redemption of other securities
1,625
3,526
-
Purchase of equity securities
(1,000
)
-
-
Redemption of equity securities
-
-
Proceeds from bank owned life insurance
-
-
Net change in loans
(315,190
)
71,072
(343,348
)
Proceeds from sale of OREO properties
-
-
Acquisitions, net of cash
(51,643
)
-
-
Premises and equipment purchases
(6,508
)
(1,927
)
(1,972
)
Disposal of premises and equipment
Net cash used for investing activities
(410,364
)
(130,496
)
(340,982
)
See accompanying notes to consolidated financial statements
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands)
Cash flows from financing activities:
Increase (decrease) in deposits
(67,911
)
227,303
510,634
Net change in short-term FHLB advances
393,700
-
(101,500
)
Repayment of long-term FHLB advances
(93,128
)
(50,000
)
-
Repayment of other borrowings
(42,626
)
-
(183,695
)
Proceeds from other borrowings
-
-
183,695
Proceeds from subordinated debentures
-
73,386
-
Increase (decrease) in securities sold under repurchase agreements
(352
)
(3,419
)
10,240
Repurchase of common stock
(16,887
)
(22,309
)
(13,454
)
Cash dividends paid
(8,493
)
(8,036
)
(7,118
)
Net cash from financing activities
164,303
216,925
398,802
Increase (decrease) in cash and due from financial institutions
(220,878
)
127,190
90,474
Cash and cash equivalents at beginning of year
264,239
137,049
46,575
Cash and cash equivalents at end of year
$
43,361
$
264,239
$
137,049
Supplemental disclosures of cash flow information:
Interest paid
$
10,696
$
6,206
$
10,211
Income taxes paid
3,145
6,180
7,095
Transfer of loans from portfolio to other real estate owned
-
Securities purchased not settled
1,338
3,524
-
The Company purchased all of the capital stock of Comunbanc
Corp. for $46,090 on July 1, 2022. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired
$
340,649
Less: common stock issued
21,122
Less: cash paid for the capital
24,968
Liabilities assumed
$
294,559
The Company purchased all of the capital stock of Vision
Financial Group for $46,544 on October 1, 2022. In
conjunction with the acquisition, liabilities were assumed
as follows:
Fair value of assets acquired
$
126,852
Less: common stock issued
10,500
Less: cash paid for the capital
36,044
Liabilities assumed
$
80,308
See accompanying notes to consolidated financial statements
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the accounting policies adopted by Civista Bancshares, Inc., which have a significant effect on the Consolidated Financial Statements.
Nature of Operations and Principles of Consolidation: The Consolidated Financial Statements include the accounts of Civista Bancshares, Inc. (“CBI”) and its wholly-owned direct and indirect subsidiaries: Civista Bank (“Civista”), First Citizens Insurance Agency, Inc. (“FCIA”), Water Street Properties, Inc. (“WSP”), FC Refund Solutions, Inc. (“FCRS”), CIVB Risk Management, Inc. (“CRMI”), Vision Financial Group, Inc. ("VFG"), First Citizens Capital LLC (“FCC”) and First Citizens Investments, Inc. (“FCI”). The above companies together are sometimes referred to as the “Company”. Intercompany balances and transactions are eliminated in consolidation.
Civista provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Cuyahoga, Franklin, Logan, Summit, Huron, Ottawa, Madison, Montgomery, Henry, Wood and Richland, in the Indiana counties of Dearborn and Ripley and in the Kentucky county of Kenton. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, our customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions.
VFG was acquired in the fourth quarter of 2022 as a wholly-owned subsidiary of Civista and os a full-service general equipment leasing and financing company. The operations of VFG are located in Pittsburgh, Pennsylvania.
FCIA was formed to allow the Company to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue was less than 1.0% of total revenue for each of the years ended December 31, 2022, 2021 and 2020. WSP was formed to hold repossessed assets of CBI’s subsidiaries. WSP revenue was less than 1% of total revenue for each of the years ended December 31, 2022, 2021 and 2022. FCRS was formed in 2012 to facilitate payment of individual state and federal tax refunds. The operations of FCRS were discontinued June 30, 2019. CRMI was formed in 2017 to provide property and casualty insurance coverage to CBI and its subsidiaries for which insurance may not be currently available or economically feasible in the insurance marketplace. CRMI revenue was less than 1% of total revenue for each of the years ended December 31, 2022, 2021 and 2020. FCC was formed as a wholly-owned subsidiary of Civista in Wilmington, Delaware to hold inter-company debt. The operations of FCC were discontinued December 31, 2021. FCI is wholly-owned by Civista and holds and manages its securities portfolio. The operations of FCI are located in Wilmington, Delaware.
Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, determination of goodwill impairment, fair values of financial instruments, valuation of deferred tax assets, pension obligations and other-than-temporary-impairment of securities are considered material estimates that are particularly susceptible to significant change in the near term.
Cash Flows: Cash and cash equivalents include cash on hand and demand deposits with financial institutions with original maturities of less than 90 days. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, federal funds purchased, short-term borrowings and repurchase agreements. The Company routinely maintains balances that exceed FDIC insured limits and the the risk of loss is very low with respect to such deposits.
Securities: Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are based on the amortized cost of the security sold using the specific identification method.
Securities are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary. For debt securities, management considers whether the present value of cash flows expected to be collected are less than the security’s amortized cost basis, the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings.
Other securities which include FHLB stock, Federal Reserve Bank (“FRB”) stock, Federal Agricultural Mortgage Corporation stock, Bankers’ Bancshares Inc. (“BB”) stock, and Norwalk Community Development Corp (“NCDC”) stock are carried at cost.
Equity securities: Equity securities are held at fair value. Holding gains and losses are recorded in noninterest income. Dividends are recognized as income when earned.
Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market and loans that management no longer intends to hold for the foreseeable future, are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.
Loans and leases: Loans and leases that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan and leases losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Interest income on consumer loans is discontinued when management determines future collection is unlikely. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued, but not received, for loans placed on nonaccrual, is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The Company provides financing leases for the purchase of business equipment. At the inception of each lease, the lease receivables, together with the present value of the estimated unguaranteed residual values are recorded as lease receivables within loans in the consolidated financial statements. Direct financing leases are carried at the aggregate of lease payments plus estimated residual value of the leased property, net of unamortized deferred lease origination fees and costs and unearned income. Only those costs incurred as a direct result of closing a lease transaction are capitalized and all initial direct costs are expensed immediately. Interest income on direct financing leases is recognized over the term of the lease to achieve a constant periodic rate of return on the outstanding investment..
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Purchased Loans: The Company purchases individual loans and groups of loans. Purchased loans that show evidence of credit deterioration since origination are recorded at the amount paid (or allocated fair value in a purchase business combination), such that there is no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan losses.
Purchased loans are accounted for individually or aggregated into pools of loans based on common risk characteristics (e.g., credit score, loan type, and date of origination). The Company estimates the amount and timing of expected cash flows for each purchased loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s, or pool’s, contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).
Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected future cash flows is greater than the carrying amount, the excess is recognized as part of future interest income.
Allowance for Loan Losses: The allowance for loan losses (allowance) is calculated with the objective of maintaining a reserve sufficient to absorb inherent loan losses in the loan portfolio. Management establishes the allowance for loan losses based upon its evaluation of the pertinent factors underlying the types and quality of loans in the portfolio. In determining the allowance and the related provision for loan losses, the Company considers three principal elements: (i) specific impairment reserve allocations (valuation allowances) based upon probable losses identified during the review of impaired loans in the Commercial loan portfolio, (ii) allocations established for adversely-rated loans in the Commercial loan portfolio and nonaccrual Real Estate Residential, Consumer installment and Home Equity loans, and (iii) allocations on all other loans based principally on the use of a three-year period for loss migration analysis. These allocations are adjusted for consideration of general economic and business conditions, credit quality and delinquency trends, collateral values, and recent loss experience for these similar pools of loans. The Company analyzes its loan portfolio each quarter to determine the appropriateness of its allowance for loan losses.
All Commercial, Commercial Real Estate and Farm Real Estate loans are monitored on a regular basis with a detailed loan review completed for all loan relationships greater than $1,500. All Commercial, Commercial Real Estate and Farm Real Estate loans that are 90 days past due or in nonaccrual status, are analyzed to determine if they are “impaired”, which means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. All loans that are delinquent 90 days are classified as substandard and placed on nonaccrual status unless they are well-secured and in the process of collection. The remaining loans are evaluated and segmented with loans with similar risk characteristics. The Company allocates reserves based on risk categories and portfolio segments described below, which conform to the Company’s asset classification policy. In reviewing risk within Civista’s loan portfolio, management has identified specific segments to categorize loan portfolio risk: (i) Commercial & Agriculture loans; (ii) Commercial Real Estate - Owner Occupied loans; (iii) Commercial Real Estate - Non-Owner Occupied loans; (iv) Residential Real Estate loans; (v) Real Estate Construction loans; (vi) Farm Real Estate loans; and (vii) Consumer and Other loans. Additional information related to economic factors can be found in Note 5.
Loan Charge-off Policies: All unsecured open- and closed-ended retail loans that become past due 90 days from the contractual due date are charged off in full. In lieu of charging off the entire loan balance, loans with non-real estate collateral may be written down to the net realizable value of the collateral, if repossession of collateral is assured and in process. For open- and closed-ended loans secured by residential real estate, a current assessment of fair value is made no later than 180 days past due. Any outstanding loan balance in excess of the net realizable value of the property is charged off. All other loans are generally charged down to the net realizable value when Civista recognizes the loan is permanently impaired, which is generally after the loan is 90 days past due.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Troubled Debt Restructurings: In certain situations based on economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered. The related loan is classified as a troubled debt restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for impaired loans. In addition to the allowance for the pooled portfolios, management has developed a separate reserve for loans that are identified as impaired through a TDR. These loans are excluded from pooled loss forecasts and a separate reserve is provided under the accounting guidance for loan impairment. Consumer loans whose terms have been modified in a TDR are also individually analyzed for estimated impairment.
Other Real Estate: Other real estate acquired through or instead of loan foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis and any deficiency in the value is charged off through the allowance. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using both accelerated and straight-line methods over the estimated useful life of the asset, ranging from three to seven years for furniture and equipment and seven to fifty years for buildings and improvements.
Equipment Owned Under Operating Leases: As a lessor, the Company finances equipment under leases to a wide variety of customers, from commercial and industrial to government and healthcare classified as operating leases. The equipment underlying the operating leases is reported at cost, net of accumulated depreciation, within Premises and Equipment on the Consolidated Balance Sheets. These operating lease arrangements require the lessee to make a fixed monthly rental payment over a specified lease term generally ranging from 3 years to 6 years. Revenue consists of the contractual lease payments and is recognized on a straight-line basis over the lease term and reported in Noninterest Income on the Consolidated Statements of Operations. Leased assets are depreciated on a straight-line method over the lease term to the estimate of the equipment’s fair market value at lease termination, also referred to as “residual” value. The depreciation of these operating lease assets is reported in Noninterest Expense on the Consolidated Statements of Operations. For equipment leases, fair value may be based upon observable market prices, third-party valuations, or prices received on sales of similar assets at the end of the lease term. These residual values are reviewed annually to ensure the recorded amount does not exceed the fair market value at the lease termination. At the end of the lease, the operating lease asset is either purchased by the lessee or returned to the Company.
Federal Home Loan Bank (FHLB) Stock: Civista is a member of the FHLB of Cincinnati and as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB, and (d) the liquidity position of the FHLB. With consideration given to these factors, management concluded that the FHLB stock was not impaired at December 31, 2022 or 2021. FHLB Stock is included in Other Securities on the Consolidated Balance Sheet.
Federal Reserve Bank (FRB) Stock: Civista is a member of the Federal Reserve System. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. FRB Stock is included in Other Securities on the Consolidated Balance Sheet.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Bank Owned Life Insurance (BOLI): Civista has purchased BOLI policies on certain key executives. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Changes in the cash surrender value are recorded as income in the period that the change occurs.
Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.
Other intangible assets consist of core deposit intangibles arising from whole bank and branch acquisitions. These intangible assets are measured at fair value and then amortized on an accelerated method over their estimated useful lives, which range from five to twelve years.
Mortgage Servicing Rights: Mortgage servicing rights are recognized as assets for the allocated value of retained mortgage servicing rights on loans sold. Mortgage servicing rights are initially recorded at fair value at the date of transfer. The valuation technique uses the present value of estimated future cash flows using current market discount rates. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance to the extent that fair value is less than the capitalized asset for the grouping.
Long-lived Assets: Premises and equipment and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.
Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay.
Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information.
A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards at the grant date. The market price of the Company’s common shares at the date of the grant is used for restricted shares.
Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Retirement Plans: Pension expense is the net of service and interest cost, expected return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) and profit sharing plan expense consists of the amount of matching contributions. Deferred compensation allocates the benefits over the years of service.
Earnings per Common Share: Earnings per share is computed using the two-class method. Basic earnings per share are net income available to common shareholders divided by the weighted average number of common shares outstanding during the period, which excludes participating securities. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable related to convertible preferred shares. Treasury shares are not deemed outstanding for earnings per share calculations.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded status of the pension plan.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that any such loss contingencies currently exist that will have a material effect on the financial statements.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank is required to meet regulatory reserve and clearing requirements. These balances do not earn interest. The required reserve amount at December 31, 2022 was $0. The Company did not have any cash pledged as collateral on its interest rate swaps with third party financial institutions at December 31, 2022.
Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by Civista to CBI or by CBI to shareholders. Additional information related to dividend restrictions can be found in Note 19.
Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions that reflect exit price value, as more fully disclosed in Note 17. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
Operating Segments: While the Company’s chief decision makers monitor the revenue streams of the Company’s various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the Company’s financial service operations are considered by management to be aggregated in one reportable operating segment.
Treasury Stock: CBI common shares that are repurchased are recorded in treasury stock at cost.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Business Combinations: At the date of acquisition the Company records the assets and liabilities of acquired companies on the Consolidated Balance Sheets at their fair value. The results of operations for acquired companies are included in the Company’s Consolidated Statements of Operations beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Operations during the period incurred.
Derivative Instruments and Hedging Activities: The Company enters into interest rate swap agreements to facilitate the risk management strategies of a small number of commercial banking customers. All derivatives are accounted for in accordance with ASC-815, Derivatives and Hedging. The Company mitigates the risk of entering into these agreements by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s Consolidated Balance Sheets. Changes in fair value are recorded as income or expense in the period that they occur. The Company is party to master netting arrangements with its financial institution counterparties. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, in the form of cash and marketable securities, is posted by the counterparty with net liability positions in accordance with contract thresholds.
Revisions: Certain revisions have been made to the 2021 consolidated financial statements related to the deconsolidation of trust preferred debt. Other assets and subordinated debentures both increased $922,000. This revision did not have a significant impact on the consolidated financial statement line items impacted and had no effect on net income.
Effect of Newly Issued but Not Yet Effective Accounting Standards:
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of ASU 2016-13 is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments - Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, which was codified in the final ASU issued by the FASB on November 15, 2019. As a result, because the Company qualified as a smaller reporting company, based on its most recent determination under applicable rules of the Securities and Exchange Commission (“SEC”), as of November 15, 2019, the Company will not be subject to ASU 2016-13 until its annual and interim periods beginning after December 15, 2022. Civista currently estimates that, upon adoption of ASU 2016-13, that the allowance for credit losses will increase by approximately $3.3 million. In addition, Civista expects to recognize a liability for unfunded loan commitments of approximately $3.4 million upon adoption. The impact of adoption will not be significant to Civista's regulatory capital. Civista will not elect to phase in, over a three-year period, the standards impact on regulatory capital as permitted by the regulatory transition rules. Civista will finalize the adoption during the first quarter of 2023.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is an SEC filer, such as the Company, should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles - Goodwill and Other, for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU was issued by the FASB on November 15, 2019. The impact of this new accounting guidance is highly depenent on changes in financial markets and future events. The Company will monitor indicators of goodwill impairment and will record impairment when it is determined to have occurred.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. This Update is not expected to have a significant impact on the Company’s financial statements.
In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. However, a deferral of the implementation of reference rate reform was issued in December of 2022, which extends the implementation to December 31, 2024. The Company is working through this transition via a multi-disciplinary project team. However, the financial impact on our financial condition, results of operations and cash flows will depend on the population of contracts that are still outstanding on the date the underlying indexes are no longer published.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 2 - ACQUISITIONS
On July 1, 2022, CBI completed the acquisition by merger of Comunibanc Corp. in a stock and cash transaction for aggregate consideration of approximately $46,090. As a result of the acquisition, the Company issued 984,723 common shares and paid approximately $24,968 in cash to the former shareholders of Comunibanc Corp. The Company and Comunibanc Corp. had first announced that they had entered into an agreement to merge in January of 2022. Immediately following the merger, Comunibanc Corp.’s banking subsidiary, The Henry County Bank (HCB), was merged into CBI’s banking subsidiary, Civista Bank.
The assets and liabilities of Comunibanc Corp. were recorded on the Company’s Consolidated Balance Sheet at their preliminary estimated fair values as of July 1, 2022, the acquisition date, and Comunibanc Corp.’s results of operations have been included in the Company’s Consolidated Statements of Operations since that date. The Company recorded $26,209 in goodwill and $4,426 in core deposit intangibles, representing the principal change in goodwill and intangibles from December 31, 2021. None of the purchase price is deductible for tax purposes.
At the time of the merger, Comunibanc Corp had total consolidated assets of $315,083, including $175,500 in loans, and $271,081 in deposits. The transaction was recorded as a purchase and, accordingly, the operating results of Comunibanc Corp. and HCB have been included in the Company’s Consolidated Financial Statements since the close of business on July 1, 2022.
Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. The identifiable intangible assets consist of core deposit intangible which is being amortized over the estimated useful life. The gross carrying amount of the core deposit intangible at December 31, 2022 was $3,999.
In onnection with the Comunibanc merger in 2022, the Company incurred additional third-party acquisition-related costs of $2.9 million. These expenses are comprised of employee benefits of $210.7 thousand, occupancy and equipment expenses of $110.7 thousand, software expense of $36.0 thousand, consulting and other professional fees of $905.2 thousand, data processing costs of $1.0 million and other operating expenses of $647.5 thousand in the Company’s Consolidated Statement of Operations for the twelve-month period ended December 31, 2022.
As of December 31, 2022, the estimated future amortization expense for the core deposit intangible is as follows:
Core deposit intangibles
$
Thereafter
1,006
$
3,999
The following table presents financial information for the former Comunibanc Corp. included in the Consolidated Statements of Operations from the date of acquisition through December 31, 2022.
Actual From
Acquisition Date
Through December 31,
(in thousands)
Net interest income after provision for loan losses
$
3,428
Noninterest income
Net income
1,719
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 2 - ACQUISITIONS (Continued)
The following table presents pro forma information for the twelve-month periods ended December 31, 2022, 2021 and 2020 as if the acquisition of Comunibanc Corp. had occurred on January 1, 2020. This table has been prepared for comparative purposes only and is not indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.
Pro Formas (unaudited) Twelve Months
ended December 31,
Net interest income after provision for loan losses
$
113,689
$
103,583
$
88,293
Noninterest income
29,451
32,768
29,870
Net income
39,095
42,482
34,374
Pro forma earnings per share:
Basic
$
2.42
$
2.59
$
2.01
Diluted
$
2.42
$
2.59
$
2.01
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Comunibanc Corp. Core deposit intangibles will be amortized over ten years using an accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment.
Cash paid
$
24,968
Common shares issued (984,723 shares)
21,122
Total
$
46,090
Net assets acquired:
Cash and due from financial institutions
$
3,098
Securities available for sale
120,399
Time deposits
Loans, net
169,202
Other securities
1,553
Premises and equipment
4,665
Accrued interest receivable
Core deposit intangible
4,426
Bank owned life insurance
5,918
Other assets
3,767
Noninterest-bearing deposits
(122,642
)
Interest-bearing deposits
(148,552
)
Other borrowings
(21,706
)
Other liabilities
(1,659
)
19,881
Goodwill resulting from Comunibanc Corp. acquisition
$
26,209
Loans purchased with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date included information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans were accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which included estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporated the estimate of the current assumptions, such as default rates, severity and prepayment speeds.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 2 - ACQUISITIONS (Continued)
The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:
At December 31, 2022
Acquired Loans with
Specific Evidence of
Deterioration of Credit
Quality (ASC 310-30)
(In Thousands)
Outstanding balance
$
4,768
Carrying amount
4,121
The gross principal due under the contract for acquired receivables not subject to ASC 310-30 is $171.1 million. The fair value adjustment is $2.1 million and the contractual cash flows not expected to be collected is $5.7 million.
The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgment in accounting for the acquisition.
The amount of goodwill recorded reflects a strategic opportunity to expand into new markets that, while similar to existing markets, are projected to be more vibrant in population growth and business opportunity growth. The goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. Additionally, the acquisition will provide exposure to suburbs of larger urban areas without the commitment of operating inside large metropolitan areas dominated by regional and national financial organizations. The acquisition is also expected to create synergies on the operational side of the Company by allowing noninterest expenses to be spread over a larger operating base.
On October 3, 2022, CBI and Civista completed the acquisition by Civista of all of the issued and outstanding shares of capital stock of VFG for aggregate cash and stock consideration of approximately $46,544. As a result of the acquisition, the Company issued 500,293 common shares and paid approximately $36,044 in cash.
The assets and liabilities of VFG were recorded on the Company’s Consolidated Balance Sheet at their preliminary estimated fair values as of October 3, 2022, the acquisition date, and VFG’s results of operations have been included in the Company’s Consolidated Statements of Operations since that date. The Company recorded $22,635 in goodwill, representing the principal change in goodwill from December 31, 2021. None of the purchase price is deductible for tax purposes.
At the time of the acquisition, VFG had total consolidated assets of $93,870, including $62,712 in loans and leases. The transaction was recorded as a purchase and, accordingly, the operating results of VFG have been included in the Company’s Consolidated Financial Statements since the close of business on October 3, 2022.
In connection with the VFG acquisition in 2022, the Company incurred additional third-party acquisition-related costs of $814.3 thousand. These expenses are comprised of consulting and other professional fees of $812.8 thousand and other operating expenses of $1.5 thousand in the Company’s Consolidated Statement of Operations for the twelve-month period ended December 31, 2022.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 2 - ACQUISITIONS (Continued)
The following table presents financial information for VFG included in the Consolidated Statements of Operations from the date of acquisition through December 31, 2022.
Actual From
Acquisition Date
Through December 31,
(in thousands)
Net interest income after provision for loan losses
$
Noninterest income
3,926
Net loss
(992
)
Pro forma information for the twelve-month periods ended December 31, 2022, 2021 and 2020 is not presented as the acquisition of VFG was determined to not to be a significant transaction.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for VFG. Goodwill will not be amortized, but instead will be evaluated for impairment.
Cash paid
$
36,044
Common shares issued (250,145 shares)
5,250
Common shares issued (contingent consideration) (250,148 shares)
5,250
Total
$
46,544
Net assets acquired:
Cash and due from financial institutions
$
6,271
Time Deposits
Loans, net
61,418
Premises and equipment
35,039
Other assets
1,409
Other borrowings
(58,142
)
Other liabilities
(22,166
)
23,909
Goodwill resulting from VFG acquisition
$
22,635
Loans purchased with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date included information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans were accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which included estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporated the estimate of the current assumptions, such as default rates, severity and prepayment speeds.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 2 - ACQUISITIONS (Continued)
The contingent consideration arrangement requires Civista to pay the former owners of VFG, over two years, and subject to meeting certain lease origination thresholds for each year, or meeting a combined threshold for the two years, up to a maximum amount of $5,250, undiscounted. The potential undiscounted amount of all future payments Civista could be required to make under the contingent consideration arrangement is between $0 and $5,250. The fair value of the contingent consideration arrangement of $5,250 was estimated based on significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820. Key assumptions include the CIVB share price at close, management’s assumptions and the probability that the vesting thresholds will be met. The common shares subject to the contingent consideration arrangement have been issued and are considered restricted with participating rights with voting, dividends and distribution rights prior to vesting or forfeiture. If the lease origination thresholds are not met, the shares issued will be forfeited.
The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:
At December 31, 2022
Acquired Loans with
Specific Evidence of
Deterioration of Credit
Quality (ASC 310-30)
(In Thousands)
Outstanding balance
$
Carrying amount
-
The gross principal due under the contract for acquired receivables not subject to ASC 310-30 is $62.1 million. The fair value adjustment is $2.3 million and the contractual cash flows not expected to be collected is $658.8 thousand.
The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgment in accounting for the acquisition.
The amount of goodwill recorded reflects the excess purchase price over the estimated fair value of the net assets acquired.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 3 - SECURITIES
The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. Treasury securities and obligations of
U.S. government agencies
$
66,495
$
$
(5,486
)
$
61,029
Obligations of states and political subdivisions
350,104
(33,640
)
317,248
Mortgage-back securities in government sponsored
entities
265,752
(28,642
)
237,125
Total debt securities
$
682,351
$
$
(67,768
)
$
615,402
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. Treasury securities and obligations of
U.S. government agencies
$
48,390
$
$
(530
)
$
47,890
Obligations of states and political subdivisions
281,247
17,696
(107
)
298,836
Mortgage-back securities in government sponsored
entities
211,660
2,938
(1,450
)
213,148
Total debt securities
$
541,297
$
20,664
$
(2,087
)
$
559,874
The amortized cost and fair value of securities at year end 2022 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.
Available for sale
Amortized Cost
Fair Value
Due in one year or less
$
5,990
$
5,796
Due from one to five years
44,482
41,304
Due from five to ten years
70,413
64,687
Due after ten years
295,714
266,490
Mortgage-backed securities in government sponsored
entities
265,752
237,125
Total securities available for sale
$
682,351
$
615,402
Securities with a carrying value of $218,344 and $168,435 were pledged as of December 31, 2022 and 2021, respectively, to secure public deposits, other deposits and liabilities as required or permitted by law.
Proceeds from sales of securities, gross realized gains and gross realized losses were as follows:
Sale proceeds
$
57,332
$
1,810
$
1,455
Gross realized gains
-
1,785
Gross realized losses
-
-
-
Gains from securities called or settled by the
issuer
-
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 3 - SECURITIES (Continued)
Debt securities with unrealized losses at year end 2022 and 2021 not recognized in income were as follows:
12 Months or less
More than 12 months
Total
Description of Securities
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. Treasury securities and obligations of
U.S. government agencies
$
21,042
$
(880
)
$
39,567
$
(4,606
)
$
60,609
$
(5,486
)
Obligations of states and political
subdivisions
169,594
(13,016
)
73,967
(20,624
)
243,561
(33,640
)
Mortgage-backed securities in gov’t
sponsored entities
111,639
(4,713
)
124,622
(23,929
)
236,261
(28,642
)
Total temporarily impaired
$
302,275
$
(18,609
)
$
238,156
$
(49,159
)
$
540,431
$
(67,768
)
12 Months or less
More than 12 months
Total
Description of Securities
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. Treasury securities and obligations of
U.S. government agencies
$
41,432
$
(473
)
$
2,014
$
(57
)
$
43,446
$
(530
)
Obligations of states and political
subdivisions
25,797
(107
)
-
-
25,797
(107
)
Mortgage-backed securities in gov’t
sponsored entities
141,327
(1,343
)
3,123
(107
)
144,450
(1,450
)
Total temporarily impaired
$
208,556
$
(1,923
)
$
5,137
$
(164
)
$
213,693
$
(2,087
)
The Company periodically evaluates securities for other-than-temporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in accumulated other comprehensive loss on the Consolidated Balance Sheet.
The Company has assessed each available for sale security position for credit impairment. Factors considered in determining whether a loss is temporary include:
•The length of time and the extent to which fair value has been below cost;
•The severity of impairment;
•The cause of the impairment and the financial condition and near-term prospects of the issuer;
•If the Company intends to sell the investment;
•If it’s more-likely-than-not the Company will be required to sell the investment before recovering its amortized cost basis; and
•If the Company does not expect to recover the investment’s entire amortized cost basis (even if the Company does not intend to sell the investment).
The Company’s review for impairment generally entails:
•Identification and evaluation of investments that have indications of impairment;
•Analysis of individual investments that have fair values less than amortized cost, including consideration of length of time each investment has been in unrealized loss position and the expected recovery period;
•Evaluation of factors or triggers that could cause individual investments to qualify as having other-than-temporary impairment; and
•Documentation of these analyses, as required by policy.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 3 - SECURITIES (Continued)
At December 31, 2022, the Company owned 474 securities that were considered temporarily impaired. The unrealized losses on these securities have not been recognized into income because the issuers’ bonds are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to changes in market interest rates. The Company also considers sector specific credit rating changes in its analysis. The fair value is expected to recover as the securities approach their maturity date or reset date. The Company does not intend to sell until recovery and does not believe selling will be required before recovery.
The following table presents the net gains and losses on equity investments recognized in earnings at year-end 2022 and 2021, and the portion of unrealized gains and losses for the period that relates to equity investments held at year-end 2022 and 2021:
Net gains (losses) recognized on equity securities during the
year
$
$
Less: Net gains realized on the sale of equity securities
during the period
-
-
Unrealized gains (losses) recognized in equity securities held at
December 31
$
$
NOTE 4 - LOANS
Loans at year-end were as follows:
Commercial & Agriculture
$
278,595
$
246,502
Commercial Real Estate - Owner Occupied
371,147
295,452
Commercial Real Estate - Non-Owner Occupied
1,018,736
829,310
Residential Real Estate
552,781
430,060
Real Estate Construction
243,127
157,127
Farm Real Estate
24,708
28,419
Lease financing receivable
36,797
-
Consumer and Other
20,775
11,009
Total Loans
2,546,666
1,997,879
Allowance for loan losses
(28,511
)
(26,641
)
Net loans
$
2,518,155
$
1,971,238
Included in Commercial & Agriculture loans as of December 31, 2022 and 2021 is $566 and $43,209, respectively, of Paycheck Protection Program (“PPP”) loans.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 4 - LOANS (Continued)
Included in total loans above are deferred loan fees of $1,652 and $2,924 at December 31, 2022 and 2021, respectively. Included in net deferred loan fees as of December 31, 2022 and 2021 is $0 and $1,762, respectively, of net deferred loan fees from PPP loans.
Scheduled maturities of lease financing receivables at December 31, 2022 were as follows:
$
3,509
5,704
6,940
12,527
Thereafter
8,113
Total
$
36,797
Paycheck Protection Program
In response to the novel COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the "CARES Act"), was signed into law on March 27, 2020, to provide national emergency economic relief measures. The CARES Act amended the loan program of the Small Business Administration (the "SBA"), in which Civista participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (the "PPP"), to fund operational costs of eligible businesses, organizations and self-employed persons during the COVID-19 pandemic. During 2020, Civista processed over 2,300 PPP loans totaling $268.3 million.
The Consolidated Appropriations Act 2021, was signed into law on December 27, 2020 to provide an additional funding of $284.5 billion under the PPP and the establishment of PPP Second Draw Loans under the Economic Aid to Hard-Hit Small Businesses, Nonprofit, and Venues Act (the “Relief Act”). This additional funding was made available from original PPP lenders on January 19, 2021, and the deadline (as extended) for submitting applications for PPP Second Draw Loans was May 31, 2021.
Funds provided under the Relief Act were earmarked both for first time PPP borrowers (subject to original PPP eligibility and limits) as well as ‘Second Draw’ Loans for borrowers that already received an original PPP loan. Additional Second Draw eligibility requirements were as follows: (1) entities must have no more than 300 employees, (2) entities must have suffered a 25% of more reduction in gross revenues between comparable quarters in 2019 and 2020, (3) some entities previously excluded are eligible for this round, such as local TV, newspaper, and radio, and (4) loan size limited to 2.5 times average monthly payroll with a maximum allowable amount of $2 million.
During 2021, Civista received SBA approval on, and funded, 1,340 PPP loans totaling $131,109 under the Relief Act.
Loans to principal officers, directors, and their affiliates at year-end 2022 and 2021 were as follows:
Balance - Beginning of year
$
17,447
$
8,475
New loans and advances
15,408
15,522
Repayments
(9,255
)
(6,693
)
Effect of changes to related parties
(2,493
)
Balance - End of year
$
21,107
$
17,447
The Company had credit lines to principal officers, directors, and their affiliates with an availability of $8,017 and $6,115 as of December 31, 2022 and 2021, respectively.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: Commercial & Agriculture loans, Commercial Real Estate - Owner Occupied loans, Commercial Real Estate - Non-Owner Occupied loans, Residential Real Estate loans, Real Estate Construction loans, Farm Real Estate loans and Consumer and Other loans. Loss migration rates for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. The following economic factors are analyzed:
•Changes in lending policies and procedures
•Changes in experience and depth of lending and management staff
•Changes in quality of credit review system
•Changes in the nature and volume of the loan portfolio
•Changes in past due, classified and nonaccrual loans and TDRs
•Changes in economic and business conditions
•Changes in competition or legal and regulatory requirements
•Changes in concentrations within the loan portfolio
•Changes in the underlying collateral for collateral dependent loans
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the consolidated balance sheet date. The Company considers the allowance for loan losses of $28,511 adequate to cover loan losses inherent in the loan portfolio, at December 31, 2022. The following tables present, by portfolio segment, the changes in the allowance for loan losses, the ending allocation of the allowance for loan losses and the loan balances outstanding for the years ended December 31, 2022, 2021 and 2020. The changes can be impacted by overall loan volume, adversely graded loans, historical charge-offs and economic factors.
Allowance for loan losses:
December 31, 2022
Beginning
balance
Charge-offs
Recoveries
Provision
(Credit)
Ending
Balance
Commercial & Agriculture
$
2,600
$
(22
)
$
$
$
3,011
Commercial Real Estate:
Owner Occupied
4,464
-
4,565
Non-Owner Occupied
13,860
-
14,138
Residential Real Estate
2,597
(97
)
3,145
Real Estate Construction
1,810
-
2,293
Farm Real Estate
-
(2
)
Lease financing receivable
-
(23
)
-
Consumer and Other
(80
)
(25
)
Unallocated
-
-
(306
)
Total
$
26,641
$
(222
)
$
$
1,752
$
28,511
For the year ended December 31, 2022, the Company provided $1,752 to the allowance for loan losses, as compared to a provision of $830 for the year ended December 31, 2021. The increase in the provision was to support strong organic loan growth in the portfolio. Of this increase, $452,000 was provided to cover lease production from our VFG subsidiary since acquisition. Civista strengthened the reserve in 2020 due to the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. While conditions improved in 2021 due to vaccinations and booster shots, ongoing challenges due to supply chain and workforce shortages slowed the process improvement. Our risk profile has steadily improved since peak levels, but we remain cautious given the impact of higher inflationary costs, rising interest rates and other pre-recessionary conditions that impact loan customers. Our Commercial and Commercial Real Estate portfolios have been, and are expected to continue to be, impacted the most.
For the year ended December 31, 2022, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of an increase in loan balances, accompanied by an increase in classified loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate - Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances, partially offset by a decrease in classified loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate - Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances, partially offset by a decrease in loss rates and classified loan balances. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in loan balances. This was represented as an increase in the provision. The allowance for Consumer and Other loans decreased due to a decrease in loan balances. This was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at December 31, 2022.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
Allowance for loan losses:
December 31, 2021
Beginning
balance
Charge-offs
Recoveries
Provision
(Credit)
Ending
Balance
Commercial & Agriculture
$
2,810
$
(15
)
$
$
(360
)
$
2,600
Commercial Real Estate:
Owner Occupied
4,057
-
4,464
Non-Owner Occupied
12,451
-
1,014
13,860
Residential Real Estate
2,484
(120
)
(69
)
2,597
Real Estate Construction
2,439
-
(630
)
1,810
Farm Real Estate
-
(63
)
Consumer and Other
(24
)
(69
)
Unallocated
-
-
Total
$
25,028
$
(159
)
$
$
$
26,641
For the year ended December 31, 2021, the Company provided $830 to the allowance for loan losses, as compared to a provision of $10,112 for the year ended December 31, 2020. The decrease in the provision was due to the stability of our credit quality metrics coupled with the stabilization and, in some cases, improvement of international, national, regional and local economic conditions that were adversely impacted by the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. While vaccinations and booster shots in 2021 created some level of optimism in the business community, there remained uncertainty due to the continued concern over increased infections from the Delta and Omicron variants of COVID, and we remained cautious given the level of classified loans in the portfolio, particularly loans to borrowers in the hotel industry. The lingering economic impacts related to the COVID-19 pandemic included the loss of revenue experienced by our business clients, disruption of supply chains, higher employee wages coupled with workforce shortages and increased costs of materials and services. While some of the pressures eased in 2021, ongoing supply chain and staffing challenges, as well as inflationary pressures remained. Our Commercial and Commercial Real Estate portfolios have been, and are expected to continue to be, impacted the most.
For the year ended December 31, 2021, the allowance for Commercial & Agriculture loans decreased due to a decrease in general reserves required for this type as a result of a decrease in loss rates. Commercial & Agriculture loan balances decreased during the year mainly from Civista’s participation in the PPP loan program. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate - Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances, offset by a decrease in classified loans balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate - Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances, offset by decreases in classified loan balances and loss rates. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in loss rates for this type of loan. The result was represented by an increase in the provision. The allowance for Real Estate Construction loans decreased due to a decrease in loan balances. This was represented as a decrease in the provision.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
Allowance for loan losses:
December 31, 2020
Beginning
balance
Charge-offs
Recoveries
Provision
(Credit)
Ending
Balance
Commercial & Agriculture
$
2,219
$
(20
)
$
$
$
2,810
Commercial Real Estate:
Owner Occupied
2,541
(148
)
1,405
4,057
Non-Owner Occupied
6,584
-
5,819
12,451
Residential Real Estate
1,582
(236
)
2,484
Real Estate Construction
1,250
-
1,185
2,439
Farm Real Estate
-
(19
)
Consumer and Other
(61
)
(42
)
Unallocated
-
-
-
Total
$
14,767
$
(465
)
$
$
10,112
$
25,028
For the year ended December 31, 2020, the Company provided $10,112 to the allowance for loan losses. The provision was primarily the result of an increase in Civista’s qualitative factors, primarily changes in international, national, regional and local conditions, related to the economic shutdown driven by the ongoing COVID-19 pandemic. Economic impacts related to the COVID-19 pandemic during 2020 included the loss of revenue by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. The allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of an increase in loan balances mainly from Civista’s participation in the PPP loan program and by an increase in loss rates, resulting in an increase in the provision. PPP loans are eligible for a 100% guaranty by the U.S. Small Business Administration (“SBA”) and, as a result, the reserve percentage for PPP loans is substantially less than the other loans in this segment. However, in the event of a loss resulting from a default on a PPP loan, and a determination by the SBA that there was a deficiency in the manner on which the PPP loan was originated or funded, the SBA may deny its liability under the guaranty.
For the year ended December 31, 2020, the allowance for Commercial Real Estate - Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances, an increase in classified loans and the volume of loans in payment deferral, and an increase in loss rates. The result was represented as an increase in the provision. The allowance for Commercial Real Estate - Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances, an increase in classified loans and the volume of loans in payment deferral, and an increase in loss rates. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves required for this type as a result of factors related to the COVID-19 pandemic, offset by a decrease in loan balances, represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of an increase in loan balances and an increase in loss rates, represented by an increase in the provision. The allowance for Farm Real Estate loans decreased due to a decrease in general reserves required as a result of a decrease in loan balances. The result was represented as a decrease in the provision. The allowance for Consumer and Other loans decreased due to a decrease in general reserves required as a result of a decrease in loan balances and loss rates. The result was represented as a decrease in the provision.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of December 31, 2022 and December 31, 2021.
December 31, 2022
Loans acquired
with credit
deterioration
Loans
individually
evaluated for
impairment
Loans
collectively
evaluated for
impairment
Total
Allowance for loan losses:
Commercial & Agriculture
$
$
-
$
3,005
$
3,011
Commercial Real Estate:
Owner Occupied
4,556
4,565
Non-Owner Occupied
-
-
14,138
14,138
Residential Real Estate
-
3,144
3,145
Real Estate Construction
-
-
2,293
2,293
Farm Real Estate
-
-
Lease financing receivables
-
-
Consumer and Other
-
-
Unallocated
-
-
Total
$
$
$
28,495
$
28,511
Outstanding loan balances:
Commercial & Agriculture
$
$
-
$
277,732
$
278,595
Commercial Real Estate:
Owner Occupied
1,988
368,927
371,147
Non-Owner Occupied
-
1,018,617
1,018,736
Residential Real Estate
1,414
550,975
552,781
Real Estate Construction
-
-
243,127
243,127
Farm Real Estate
-
-
24,708
24,708
Lease financing receivables
-
-
36,797
36,797
Consumer and Other
-
20,774
20,775
Total
$
4,385
$
$
2,541,657
$
2,546,666
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
December 31, 2021
Loans acquired
with credit
deterioration
Loans
individually
evaluated for
impairment
Loans
collectively
evaluated for
impairment
Total
Allowance for loan losses:
Commercial & Agriculture
$
-
$
-
$
2,600
$
2,600
Commercial Real Estate:
Owner Occupied
-
4,457
4,464
Non-Owner Occupied
-
-
13,860
13,860
Residential Real Estate
-
2,586
2,597
Real Estate Construction
-
-
1,810
1,810
Farm Real Estate
-
-
Consumer and Other
-
-
Unallocated
-
-
Total
$
-
$
$
26,623
$
26,641
Outstanding loan balances:
Commercial & Agriculture
$
-
$
-
$
246,502
$
246,502
Commercial Real Estate:
Owner Occupied
-
295,265
295,452
Non-Owner Occupied
-
-
829,310
829,310
Residential Real Estate
429,244
430,060
Real Estate Construction
-
-
157,127
157,127
Farm Real Estate
-
27,910
28,419
Consumer and Other
-
-
11,009
11,009
Total
$
$
1,222
$
1,996,367
$
1,997,879
The following tables represent credit exposures by internally assigned risk ratings for the periods ended December 31, 2022 and 2021. The remaining loans in the Residential Real Estate, Real Estate Construction and Consumer and Other loan categories that are not assigned a risk grade are presented in a separate table below. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk rating system is based on experiences with similarly graded loans.
The Company’s internally assigned grades are as follows:
•Pass - loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
•Special Mention - loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.
•Substandard - loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Civista will sustain some loss if the deficiencies are not corrected.
•Doubtful - loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.
•Loss - loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.
•Unrated - Generally, Residential Real Estate, Real Estate Construction and Consumer and Other loans are not risk-graded, except when collateral is used for a business purpose.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
December 31, 2022
Pass
Special
Mention
Substandard
Doubtful
Ending
Balance
Commercial & Agriculture
$
273,291
$
2,558
$
2,746
$
-
$
278,595
Commercial Real Estate:
Owner Occupied
367,652
2,761
-
371,147
Non-Owner Occupied
1,003,942
10,947
3,847
-
1,018,736
Residential Real Estate
114,021
5,787
-
119,991
Real Estate Construction
198,734
-
-
198,955
Farm Real Estate
24,283
-
24,708
Lease financing receivables
36,223
-
36,797
Consumer and Other
-
-
1,002
Total
$
2,018,985
$
14,801
$
15,972
$
$
2,049,931
December 31, 2021
Pass
Special
Mention
Substandard
Doubtful
Ending
Balance
Commercial & Agriculture
$
244,787
$
$
1,189
$
-
$
246,502
Commercial Real Estate:
Owner Occupied
290,617
3,119
1,716
-
295,452
Non-Owner Occupied
764,181
28,042
37,087
-
829,310
Residential Real Estate
77,594
4,455
-
82,213
Real Estate Construction
136,149
-
136,414
Farm Real Estate
27,023
1,191
-
28,419
Consumer and Other
-
-
Total
$
1,541,115
$
32,316
$
45,663
$
-
$
1,619,094
Due to the business disruptions and shut-downs due to the Covid-19 pandemic, in 2020, management offered payment deferments to a number of customers that had previously been current in all respects. Civista instituted an enhanced portfolio management process which included meeting with customers, requesting additional financial information and evaluating cashflow and adjusting risk ratings as conditions warrant. During this process we systematically downgraded a significant number of loans to recognize the increased risk attributed to the pandemic. Additionally, Civista offered longer term deferrals under Section 4013 of the Cares Act, that were also downgraded as appropriate. Based on improved financial performance, Civista upgraded 48% of criticized loans during 2022. The lodging industry was hit the hardest and recovery is taking longer for that segment. Civista believes it has prudently identified risk, assigned appropriate risk ratings, and has a comprehensive portfolio management process to identify and quantify risk.
The following tables present performing and nonperforming loans based solely on payment activity for the years ended December 31, 2022 and December 31, 2021 that have not been assigned an internal risk grade. The types of loans presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due or if management thinks that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
December 31, 2022
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
Performing
$
432,790
$
44,172
$
19,773
$
496,735
Nonperforming
-
-
-
-
Total
$
432,790
$
44,172
$
19,773
$
496,735
December 31, 2021
Residential
Real Estate
Real Estate
Construction
Consumer
and Other
Total
Performing
$
347,847
$
20,713
$
10,225
$
378,785
Nonperforming
-
-
-
-
Total
$
347,847
$
20,713
$
10,225
$
378,785
The following tables include an aging analysis of the recorded investment of past due loans outstanding as of December 31, 2022 and 2021.
December 31, 2022
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or Greater
Total Past
Due
Current
Purchased
Credit-
Impaired
Loans
Total Loans
Past Due
90 Days
and
Accruing
Commercial & Agriculture
$
$
$
$
$
276,873
$
$
278,595
$
-
Commercial Real Estate:
Owner Occupied
369,049
1,988
371,147
-
Non-Owner Occupied
-
-
1,164
1,164
1,017,453
1,018,736
-
Residential Real Estate
3,133
1,107
5,097
546,270
1,414
552,781
-
Real Estate Construction
-
-
242,908
-
243,127
-
Farm Real Estate
-
-
24,701
-
24,708
-
Lease financing receivables
1,040
-
1,381
35,416
-
36,797
Consumer and Other
20,358
20,775
-
Total
$
4,741
$
$
3,515
$
9,253
$
2,533,028
$
4,385
$
2,546,666
$
-
December 31, 2021
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or Greater
Total Past
Due
Current
Purchased
Credit-
Impaired
Loans
Total Loans
Past Due
90 Days
and
Accruing
Commercial & Agriculture
$
$
$
$
$
246,162
$
-
$
246,502
$
-
Commercial Real Estate:
Owner Occupied
-
-
295,346
-
295,452
-
Non-Owner Occupied
-
-
829,306
-
829,310
-
Residential Real Estate
1,848
3,569
426,201
430,060
-
Real Estate Construction
-
-
-
-
157,127
-
157,127
-
Farm Real Estate
-
-
-
-
28,419
-
28,419
-
Consumer and Other
-
10,958
-
11,009
-
Total
$
2,139
$
$
1,039
$
4,070
$
1,993,519
$
$
1,997,879
$
-
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of December 31, 2022 and 2021.
Commercial & Agriculture
$
$
Commercial Real Estate:
Owner Occupied
Non-Owner Occupied
1,109
Residential Real Estate
3,926
3,232
Real Estate Construction
Farm Real Estate
-
-
Lease financing receivables
-
-
Consumer and Other
Total
$
6,507
$
3,673
Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although Civista may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. A loan may be returned to accruing status only if one of three conditions are met: the loan is well-secured and none of the principal and interest has been past due for a minimum of 90 days; the loan is a TDR and the borrower has made a minimum of six months payments; or the principal and interest payments are reasonably assured and a sustained period of performance has occurred, generally six months. The gross interest income that would have been recorded on nonaccrual loans in 2022, 2021 and 2020 if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the period, was $384, $307 and $536, respectively. The amount of interest income on such loans recognized on a cash basis was $451 in 2022, $716 in 2021 and $477 in 2020.
Modifications: A modification of a loan constitutes a TDR when Civista for economic or legal reasons related to a borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. Civista offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve reducing the interest rate lower than the current market rate for new debt with similar risk. Real Estate loans modified in a TDR were primarily comprised of interest rate reductions where monthly payments were lowered to accommodate the borrowers’ financial needs.
Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. TDRs accounted for $7 of the allowance for loan losses as of December 31, 2022, $18 as of December 31, 2021 and $35 as of December 31, 2020.
There were no loans modified in a TDR during the twelve month period ended December 31, 2022, 2021 and 2020.
Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new originations loans, so modified loans present a higher risk of loss than do new origination loans. During the periods ended December 31, 2022, 2021 and 2020, there were no defaults on loans that were modified and considered TDRs during the previous twelve months.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired Loans: Larger (greater than $350) commercial loan, commercial real estate loan and farm real estate loan relationships, all TDRs and residential real estate and consumer loans that are part of a larger relationship are tested for impairment. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.
The following table includes the recorded investment and unpaid principal balances for impaired financing receivables, excluding PCI loans, with the associated allowance amount, if applicable, as of December 31, 2022 and 2021.
December 31, 2022
December 31, 2021
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied
$
$
$
-
$
-
Non-Owner Occupied
-
-
-
-
Residential Real Estate
Farm Real Estate
-
-
Total
1,012
1,037
With an allowance recorded:
Commercial Real Estate:
Owner Occupied
$
$
Residential Real Estate
Total
Total:
Commercial & Agriculture
-
-
-
-
-
-
Commercial Real Estate:
Owner Occupied
Non-Owner Occupied
-
-
-
-
-
-
Residential Real Estate
Farm Real Estate
-
-
-
-
Total
$
$
$
$
1,222
$
1,251
$
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables include the average recorded investment and interest income recognized for impaired financing receivables as of, and for the years ended, December 31, 2022, 2021 and 2020.
For the year ended:
December 31, 2022
December 31, 2021
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Commercial & Agriculture
$
$
$
$
-
Commercial Real Estate:
Owner Occupied
Non-Owner Occupied
Residential Real Estate
Farm Real Estate
Total
$
1,522
$
$
1,632
$
For the year ended:
December 31, 2020
Average
Recorded
Investment
Interest
Income
Recognized
Commercial & Agriculture
$
$
Commercial Real Estate:
Owner Occupied
Non-Owner Occupied
Residential Real Estate
1,361
Farm Real Estate
Total
$
2,859
$
Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in Other assets on the Consolidated Balance Sheet. As of December 31, 2022 and 2021, there were no foreclosed assets included in Other assets. As of December 31, 2022 and 2021, the Company had initiated formal foreclosure procedures on $399 and $293, respectively, of Residential Real Estate loans.
Changes in the amortizable yield for PCI loans were as follows, since acquisition:
At December 31,
At December 31,
(In Thousands)
(In Thousands)
Balance at beginning of period
$
$
Acquisition of PCI loans
-
-
Accretion
(36
)
(77
)
Transfers from non-accretable to accretable
Balance at end of period
$
$
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:
At December 31, 2022
At December 31, 2021
Acquired Loans with
Specific Evidence of
Deterioration of Credit
Quality (ASC 310-30)
Acquired Loans with
Specific Evidence of
Deterioration of Credit
Quality (ASC 310-30)
(In Thousands)
Outstanding balance
$
5,220
$
Carrying amount
4,386
There was no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of December 31, 2022 and 2021, respectively.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 6 - OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the components of other comprehensive income (loss), net of tax, as of December 31, 2022, 2021 and 2020:
Before Tax
Tax Effect
Net of Tax
Year Ended December 31, 2022
Net unrealized losses on investment securities:
Other comprehensive loss before reclassifications
$
(85,517
)
$
(18,079
)
$
(67,438
)
Amounts reclassified from accumulated other comprehensive
loss
(10
)
(2
)
(8
)
Net unrealized losses on investment securities
(85,527
)
(18,081
)
(67,446
)
Defined benefit plans:
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive
income
-
-
-
Defined benefit plans, net
Other comprehensive loss
$
(84,791
)
$
(17,926
)
$
(66,865
)
Year Ended December 31, 2021
Net unrealized losses on investment securities:
Other comprehensive loss before reclassifications
$
(8,570
)
$
(1,799
)
$
(6,771
)
Amounts reclassified from accumulated other comprehensive
loss
(1
)
-
(1
)
Net unrealized losses on investment securities
(8,571
)
(1,799
)
(6,772
)
Defined benefit plans:
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive
income
Defined benefit plans, net
1,232
Other comprehensive loss
$
(7,339
)
$
(1,540
)
$
(5,799
)
Year Ended December 31, 2020
Net unrealized gains on investment securities:
Other comprehensive income before reclassifications
$
10,935
$
2,297
$
8,638
Amounts reclassified from accumulated other comprehensive
income
(94
)
(20
)
(74
)
Net unrealized gains on investment securities
10,841
2,277
8,564
Defined benefit plans:
Other comprehensive loss before reclassifications
(1,326
)
(279
)
(1,047
)
Amounts reclassified from accumulated other comprehensive
loss
Defined benefit plans, net
(1,037
)
(218
)
(819
)
Other comprehensive income
$
9,804
$
2,059
$
7,745
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 6 - OTHER COMPREHENSIVE INCOME (LOSS) (Continued)
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, as of December 31, 2022, 2021 and 2020.
For the Year Ended
December 31, 2022
For the Year Ended
December 31, 2021
For the Year Ended
December 31, 2020
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Defined
Benefit
Pension
Items
Total
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Defined
Benefit
Pension
Items
Total
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Defined
Benefit
Pension
Items
Total
Beginning balance
$
14,675
$
(5,855
)
$
8,820
$
21,447
$
(6,828
)
$
14,619
$
12,883
$
(6,009
)
$
6,874
Other
comprehensive
income (loss)
beforere
classifications
(67,438
)
(66,857
)
(6,771
)
(5,988
)
8,638
(1,047
)
7,591
Amounts
reclassified
from
accumulated
other
comprehensive
income (loss)
(8
)
-
(8
)
(1
)
(74
)
Net current-period
other
comprehensive
income(loss)
(67,446
)
(66,865
)
(6,772
)
(5,799
)
8,564
(819
)
7,745
Ending balance
$
(52,771
)
$
(5,274
)
$
(58,045
)
$
14,675
$
(5,855
)
$
8,820
$
21,447
$
(6,828
)
$
14,619
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 6 - OTHER COMPREHENSIVE INCOME (LOSS) (Continued)
The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss as of December 31, 2022, 2021 and 2020.
Amount Reclassified from
Accumulated Other
Comprehensive Loss (a)
For the year ended December 31,
Details about Accumulated Other
Comprehensive Income
(Loss) Components
Affected Line Item in the
Statement Where Net Income is
Presented
Unrealized gains (losses) on available for sale
securities
$
$
$
Net gain on sale of securities
Tax effect
(2
)
-
(20
)
Income taxes
Amortization of defined benefit pension items
Actuarial losses
-
(b)
(240
)
(b)
(289
)
(b)
Other operating expenses
Tax effect
-
Income taxes
-
(190
)
(228
)
Total reclassifications for the period
$
$
(189
)
$
(154
)
(a)Amounts in parentheses indicate expenses and other amounts indicate income.
(b)These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost.
NOTE 7 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
At December 31,
Land and improvements
$
7,919
$
6,970
Buildings and improvements
35,138
29,305
Furniture and equipment
63,033
23,786
Total
106,090
60,061
Accumulated depreciation
(42,072
)
(37,616
)
Premises and equipment, net
$
64,018
$
22,445
Depreciation expense was $4,456, $1,976 and $2,253 for 2022, 2021 and 2020, respectively.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 8 - GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill has increased $48,844 since December 31, 2021 as a result of the Comunibanc Corp. and VFG acquisitions, as discussed in Note 2. The balance of goodwill was $125,695 at December 31, 2022 and $76,851 at December 31, 2021.
Management performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Management performed an evaluation of the Company’s goodwill during the fourth quarter of 2022. Based on this test, management concluded that the Company’s goodwill was not impaired at December 31, 2022.
Acquired intangible assets were as follows as of year-end.
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Core deposit intangible assets(1):
Core deposit intangibles
12,953
4,883
8,070
8,527
3,588
4,939
Total core deposit intangible assets
$
12,953
$
4,883
$
8,070
$
8,527
$
3,588
$
4,939
(1)Excludes fully amortized core deposit intangible assets
Aggregate core deposit intangible amortization expense was $1,296, $890 and $913 for 2022, 2021 and 2020, respectively.
Activity for mortgage servicing rights (MSRs) and the related valuation allowance follows:
Mortgage Servicing Rights:
Beginning of year
$
2,642
$
2,246
Additions
Disposals
-
-
Amortized to expense
Other Charges
-
-
Change in valuation allowance
-
(204
)
End of year
$
2,689
$
2,642
Valuation allowance:
Beginning of year
$
-
$
Additions expensed
-
Reductions credited to operations
-
(465
)
Direct write-offs
-
-
End of year
$
-
$
-
The unpaid principal balance of mortgage loans serviced for third parties was $456,149 at December 31, 2022, compared to $405,786 at December 31, 2021 and $353,473 at December 31, 2020.
Aggregate mortgage servicing rights (MSRs) amortization was $350, $572 and $524 for 2022, 2021 and 2020, respectively.
Mortgage loan contractual servicing fees were $1,063, $947 and $634 for 2022, 2021 and 2020, respectively. Mortgage loan contractual servicing fees are included in Other income on the Consolidated Statements of Operations.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 8 - GOODWILL AND INTANGIBLE ASSETS (Continued)
The fair value of servicing rights was $2,689 and $2,642 at year-end 2022 and 2021, respectively. Fair value at year-end 2022 was determined using a discount rate of 12.0%, prepayment speeds ranging from 5.0% to 20.0%, depending on the stratification of the specific right, and a weighted average default rate of 0.14%. Fair value at year-end 2021 was determined using a discount rate of 12.0%, prepayment speeds ranging from 8.0% to 35.0%, depending on the stratification of the specific right, and a default rate of 0.41%.
Estimated amortization expense for each of the next five years and thereafter is as follows:
MSRs
Core deposit
intangibles
Total
$
$
1,581
$
1,721
1,489
1,629
1,311
1,451
1,193
1,332
1,071
1,208
Thereafter
1,993
1,425
3,418
$
2,689
$
8,070
$
10,759
NOTE 9 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as of December 31, 2022 and 2021 were as follows:
Demand
$
527,879
$
537,510
Savings and Money markets
876,427
843,837
Certificates of Deposit:
$250 and over
45,380
55,011
Other
227,886
149,521
Individual Retirement Accounts
46,079
41,916
Total
$
1,723,651
$
1,627,795
Scheduled maturities of certificates of deposit, including IRAs at December 31, 2021 were as follows:
$
249,487
51,494
8,172
5,539
3,372
Thereafter
1,281
Total
$
319,345
Deposits from the Company’s principal shareholders, officers, directors, and their affiliates at year-end 2022 and 2021 were $10,166 and $7,690, respectively.
As of December 31, 2022, CDs and IRAs totaling $50,349 met or exceeded the FDIC’s insurance limit of $250,000.
As of December 31, 2022, brokered deposits totaled $96,400.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 10 - SHORT-TERM BORROWINGS
Short-term borrowings, which consist of federal funds purchased and other short-term borrowings are summarized as follows:
At December 31, 2022
At December 31, 2021
Federal
Funds
Purchased
Short-term
Borrowings
Federal
Funds
Purchased
Short-term
Borrowings
Outstanding balance at year end
$
-
$
393,700
$
-
$
-
Maximum indebtedness during the year
50,000
435,500
50,000
-
Average balance during the year
66,875
-
Average rate paid during the year
4.38
%
3.84
%
0.73
%
-
Interest rate on year end balance
-
4.24
%
-
-
At December 31, 2020
Federal
Funds
Purchased
Short-term
Borrowings
Outstanding balance at year end
$
-
$
-
Maximum indebtedness during the year
50,000
102,700
Average balance during the year
8,151
Average rate paid during the year
0.35
%
1.64
%
Interest rate on year end balance
-
-
Average balances during the year represent daily averages. Average interest rates represent interest expense divided by the related average balances.
These borrowing transactions can range from overnight to six months in maturity. The average maturity was 20.2 days at December 31, 2022. At December 31, 2021 and 2020, there were no short-term borrowings with outstanding balances.
NOTE 11 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Long-term advances from the FHLB were $3,578 and $75,000 at December 31, 2022 and December 31, 2021, respectively. Outstanding balances have a maturity dates between July 2023 and June 2028 with fixed rates ranging from 1.18% to 2.97%. The average rate on outstanding advances was 2.21% at December 31, 2022. Outstanding advances are prepayable in whole or in part and could be subject to a termination fee.
Other borrowings totaled $15,516 at December 31, 2022, and include borrowings assumed in the acquisition of VFG. The weighted average rate on these borrowings was 5.67% and the weighted average life was 39 months.
Scheduled principal reductions of FHLB advances outstanding at December 31, 2022 were as follows:
$
1,246
Thereafter
Total
$
3,578
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 11 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Continued)
In addition to FHLB borrowings, the Company had outstanding letters of credit with the FHLB totaling $57,510 and $21,300 at year-end 2022 and 2021, respectively, used for pledging to secure public funds. FHLB borrowings and the letters of credit were collateralized by FHLB stock and by $932,373 and $737,389 of residential mortgage loans under a blanket lien arrangement at year-end 2022 and 2021, respectively.
The Company had a FHLB maximum borrowing capacity of $829,458 as of December 31, 2022, with remaining borrowing capacity of approximately $374,670. The borrowing arrangement with the FHLB is subject to annual renewal. The maximum borrowing capacity is recalculated at least quarterly.
NOTE 12 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are used to facilitate the needs of our customers as well as to facilitate our short-term funding needs. Securities sold under repurchase agreements are carried at the amount of cash received in association with the agreement. We continuously monitor the collateral levels and may be required, from time to time, to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
The following table presents detail regarding the securities pledged as collateral under repurchase agreements as of December 31, 2022 and 2021. All of the repurchase agreements are overnight agreements.
December 31, 2022
December 31, 2021
Securities pledged for repurchase agreements:
U.S. Treasury securities
$
25,143
$
16,478
Obligations of U.S. government agencies
-
9,017
Total securities pledged
$
25,143
$
25,495
Gross amount of recognized liabilities for
repurchase agreements
$
25,143
$
25,495
Amounts related to agreements not included in
offsetting disclosures above
$
-
$
-
Information concerning securities sold under agreements to repurchase was as follows:
Outstanding balance at year end
$
25,143
$
25,495
$
28,914
Average balance during the year
24,390
24,390
24,390
Average interest rate during the year
0.05
%
0.09
%
0.10
%
Maximum month-end balance during the year
$
26,044
$
34,200
$
31,885
Weighted average interest rate at year end
0.05
%
0.05
%
0.10
%
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 13 - SUBORDINATED DEBENTURES
The following table summarizes the Company's subordinated debentures at December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
Subordinated Note - fixed interest rate until November 30, 2026 then variable
interest rate equal to SOFR plus 2.19%, the rate was 3.25% at December
31, 2022 and 2021, respectively - $75,000 maturing December 31, 2031
$
73,450
$
73,386
First Citizens Statutory Trust II - variable interest equal to 3-month LIBOR
plus 3.15%, which was 6.79% and 3.28% at December 31, 2022 and
2021, respectively - $7,732 maturing March 26, 2033
7,732
7,732
First Citizens Statutory Trust III - variable interest equal to 3-month LIBOR
plus 2.25%, which was 5.78% and 2.37% at December 31, 2022 and
2021, respectively - $12,887 maturing September 20, 2034
12,887
12,887
First Citizens Statutory Trust IV - variable interest equal to 3-month LIBOR
plus 1.60%, which was 4.89% and 1.72% at December 31, 2022 and
2021, respectively - $5,155 maturing March 23, 2037
5,155
5,155
Futura TPF Trust I - variable interest rate equal to 3-month LIBOR plus
1.66%, which was 4.95% and 1.78% at December 31, 2022 and 2021,
respectively - $2,578 maturing June 15, 2035
2,578
2,578
Futura TPF Trust II - variable interest rate equal to 3-month LIBOR plus
1.66%, which was 4.95% and 1.78% at December 31, 2022 and 2021,
respectively - $2,070 maturing June 15, 2035
1,997
1,997
Total subordinated debentures
$
103,799
$
103,735
On November 30, 2021, the Company entered into a Subordinated Note Purchase Agreement pursuant to which the Company sold and issued $75,000 aggregate principal amount of its 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031. The Notes have a stated maturity of December 31, 2031.
The Notes will initially bear interest at a fixed rate of 3.25% per annum, from and including November 30, 2021, to but excluding December 1, 2026, with interest payable semi-annually in arrears. From and including December 1, 2026, to but excluding the stated maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal the then-current benchmark rate, which will initially be the three-month Secured Overnight Financing Rate (SOFR) plus 219 basis points, with interest during such period payable quarterly in arrears. If three-month SOFR cannot be determined during the applicable floating rate period, a different index will be determined and used in accordance with the terms of Notes and underlying Indenture.
Prior to December 1, 2026, the Company may redeem the Notes, in whole but not in part, only under certain limited circumstances as set forth in the Indenture. On or after December 1, 2026, the Company may, at its option, redeem the Notes, in whole or in part, on any interest payment date, subject to the receipt of any required regulatory approvals.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.
On March 26, 2003, the Company formed First Citizens Statutory Trust II. The Company issued $7,700 of subordinated debentures to First Citizens Statutory Trust II in exchange for ownership of all the common securities of the First Citizens Statutory Trust II. The Company is not considered the primary beneficiary of First Citizens Statutory Trust II; therefore, the trust is not consolidated in the Company's financial statements, but rather the subordinated debentures are shown as a liability. The Company's investment in the common stock of the trust was $232 and is included in Other assets.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 13 - SUBORDINATED DEBENTURES (Continued)
On September 20, 2004, the Company formed First Citizens Statutory Trust III. The Company issued $12,900 of subordinated debentures to First Citizens Statutory Trust III in exchange for ownership of all the common securities of the First Citizens Statutory Trust III. The Company is not considered the primary beneficiary of First Citizens Statutory Trust III; therefore, the trust is not consolidated in the Company's financial statements, but rather the subordinated debentures are shown as a liability. The Company's investment in the common stock of the trust was $387 and is included in Other assets.
On March 23, 2007, the Company formed First Citizens Statutory Trust IV. The Company issued $5,200 of subordinated debentures to First Citizens Statutory Trust IV in exchange for ownership of all the common securities of the First Citizens Statutory Trust IV. The Company is not considered the primary beneficiary of First Citizens Statutory Trust IV; therefore, the trust is not consolidated in the Company's financial statements, but rather the subordinated debentures are shown as a liability. The Company's investment in the common stock of the trust was $155 and is included in Other assets.
In conjunction with the acquisition of Futura Banc Corp. ("Futura") on December 17, 2007, the Company assumed $4,700 of subordinated debentures that were recorded at a fair value of $4,600 at the time of acquisition. On June 15, 2005, Futura issued $2,600 of subordinated debentures to Futura TPF Trust I in exchange for ownership of all the common securities of the trust. On June 15, 2005, Futura issued $2,100 of subordinated debentures to Futura TPF Trust II in exchange for ownership of all the common securities of the trust. The Company is not considered the primary beneficiary of Futura TPF Trust I or Futura TPF Trust II; therefore, the trusts are not consolidated in the Company's financial statements, but rather the subordinated debentures are shown as a liability. The Company's investment in the common stock of the trusts was $148 and is included in Other assets.
For all the debentures mentioned above, interest is payable quarterly. The debentures and the common securities issued by each of the trusts are redeemable in whole or in part on dates specified in the trust indenture document. All of the subordinated debentures mentioned above may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
NOTE 14 - INCOME TAXES
Income taxes were as follows for the years ended December 31:
Current
$
6,973
$
5,111
$
6,947
State
Deferred
1,319
(2,277
)
Income taxes
$
7,608
$
7,017
$
4,940
Effective tax rates differed from the statutory federal income tax rate of 21% in 2022, 2021 and 2020 due to the following:
Income taxes computed at the statutory federal tax
rate
$
9,878
$
9,988
$
7,798
Add (subtract) tax effect of:
Nontaxable interest income, net of nondeductible
interest expense
(1,666
)
(1,315
)
(1,293
)
Low income housing tax credit
(679
)
(1,402
)
(1,186
)
Cash surrender value of BOLI
(207
)
(252
)
(205
)
Other
(2
)
(174
)
Income tax expense
$
7,608
$
7,017
$
4,940
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 14 - INCOME TAXES (Continued)
Year-end deferred tax assets and liabilities were due to the following:
Deferred tax assets
Allowance for loan losses
$
6,106
$
5,595
Deferred compensation
1,143
1,213
Pension costs
-
Intangible assets
Net operating loss carryforward
-
Deferred loan fees
Unrealized gain on securities available for sale
14,218
-
Unrealized gain on securities purchased
1,966
Other
Deferred tax asset
24,928
8,422
Deferred tax liabilities
Tax depreciation in excess of book depreciation
(2,124
)
(973
)
Discount accretion on securities
(244
)
(86
)
FHLB stock dividends
(822
)
(969
)
Purchase accounting adjustments
(2,220
)
-
Unrealized gain on securities available for sale
-
(3,806
)
Prepaids
(334
)
(276
)
Other
(735
)
(1,243
)
Deferred tax liability
(6,479
)
(7,353
)
Net deferred tax asset
$
18,449
$
1,069
No valuation allowance was established at December 31, 2022 and 2021, due to the Company’s ability to carryforward net operating losses to taxes paid in future years and certain tax strategies, coupled with the anticipated future income as evidenced by the Company’s earning potential.
The Company files income tax returns in the U.S. Federal and various state jurisdictions. The Company records interest and penalties, if any, in other interest income.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company’s federal tax returns for taxable years through 2018 have been closed for purposes of examination by the Internal Revenue Service. At December 21, 2022, the Company had $3.3 million in net operating losses subject to 382 limitations. No valuation allowance is recorded as these are expected to be fully utilized and have no expiration.
NOTE 15 - RETIREMENT PLANS
The Company sponsors a savings and retirement 401(k) plan, which covers all employees who meet certain eligibility requirements and who choose to participate in the plan. The matching contribution to the 401(k) plan was $1,377, $1,258 and $1,226 in 2022, 2021 and 2020, respectively. The Company’s matching contribution is 100% of an employee’s first three percent contributed and 50% of the next two percent contributed.
The Company also sponsors a pension plan which is a noncontributory defined benefit retirement plan for all employees who have attained the age of 20 1 ⁄ 2, completed six months of service and work 1,000 or more hours per year. Annual payments, subject to the maximum amount deductible for federal income tax purposes, are made to a pension trust fund. In 2006, the Company amended the pension plan to provide that no employee could be added as a participant to the pension plan after December 31, 2006. In April 2014, the Company amended the pension plan again to provide that no additional benefits would accrue beyond April 30, 2014.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 15 - RETIREMENT PLANS (Continued)
In October 2015, the Company, on behalf of it and its subsidiaries, entered into Pension Shortfall Agreements (the “Shortfall Agreements”) with ten employees of Civista. When the Company ceased accruals to its defined benefit pension plan on April 30, 2014, the circumstances of some participants with limited periods until their anticipated retirement dates would not permit them to use other available alternatives to make up for the shortfall in their expected pension. The Company calculated the total amount of the shortfall for each of the referenced individuals after considering its contributions to other retirement benefits. Pension shortfall expense was $145 in 2022, $130 in 2021 and $130 in 2020. Included in pension shortfall expense was interest expense, totaling $24, $9 and $9 in 2022, 2021 and 2020, respectively, which was also recorded in and credited to the accounts of the ten individuals covered by this plan.
Information about the pension plan is as follows:
Change in benefit obligation:
Beginning benefit obligation
$
15,384
$
16,656
Service cost
-
-
Interest cost
Curtailment gain
-
-
Settlement loss
-
-
Actuarial (gain)/loss
(3,455
)
(921
)
Benefits paid
(2,198
)
(711
)
Settlement payments
-
(18
)
Ending benefit obligation
10,123
15,384
Change in plan assets, at fair value:
Beginning plan assets
15,120
15,257
Actual return
(1,988
)
Employer contribution
-
-
Benefits paid
(2,198
)
(711
)
Settlement payments
-
-
Administrative expenses
-
-
Ending plan assets
10,934
15,120
Funded status at end of year
$
$
(264
)
Amounts recognized in accumulated other comprehensive income (loss) at December 31, consist of unrecognized actuarial loss of $5,274, net of $1,402 tax in 2022 and $5,855, net of $1,556 tax in 2021.
The accumulated benefit obligation for the defined benefit pension plan was $10,123 at December 31, 2022 and $15,384 at December 31, 2021.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 15 - RETIREMENT PLANS (Continued)
The components of net periodic pension expense were as follows:
Service cost
$
-
$
-
$
-
Interest cost
Expected return on plan assets
(732
)
(574
)
(748
)
Net amortization and deferral
-
Net periodic pension cost (benefit)
(340
)
Additional loss due to settlement
-
-
-
Total pension cost (benefit)
$
(340
)
$
$
Net loss (gain) recognized in other comprehensive
income
$
(736
)
$
(854
)
$
Total recognized in net periodic benefit cost
and other comprehensive loss (before tax)
$
(1,076
)
$
(810
)
$
1,011
The components of net periodic benefit cost other than the service cost component are included in the line item “Other operating expenses” in the Consolidated Statement of Operations.
The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $28. The Company incurred settlement costs in 2022, 2021 and 2020 of $0, $(18) and $0, respectively.
The weighted average assumptions used to determine benefit obligations at year-end were as follows:
Discount rate on benefit obligation
4.95
%
2.74
%
2.39
%
Long-term rate of return on plan assets
4.84
%
3.84
%
4.44
%
Rate of compensation increase
0.00
%
0.00
%
0.00
%
The weighted average assumptions used to determine net periodic pension cost were as follows:
Discount rate on benefit obligation
2.74
%
2.39
%
3.13
%
Long-term rate of return on plan assets
3.84
%
4.44
%
4.96
%
Rate of compensation increase
0.00
%
0.00
%
0.00
%
The Company uses long-term market rates to determine the discount rate on the benefit obligation. Declines in the discount rate lead to increases in the actuarial loss related to the benefit obligation.
The expectation for long-term rate of return on the pension assets and the expected rate of compensation increases are reviewed periodically by management in consultation with outside actuaries and primary investment consultants. Factors considered in setting and adjusting these rates are historic and projected rates of return on the portfolio and historic and estimated rates of increases of compensation. Since the pension plan is frozen, the rate of compensation increase used to determine the benefit obligation for 2022, 2021 and 2020 was zero.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 15 - RETIREMENT PLANS (Continued)
The Company’s pension plan asset allocation at year-end 2022 and 2021 and target allocation for 2023 by asset category are as follows:
Target
Allocation
Percentage of Plan
Assets
at Year-end
Asset Category
Equity securities
0-30%
20.0
%
20.0
%
Debt securities
70-100
80.0
80.0
Total
100.0
%
100.0
%
The Company developed the pension plan investment policies and strategies for plan assets with its pension management firm. The assets are currently invested in seven diversified investment funds, which include four equity funds and three bond funds. The long-term guidelines from above were created to maximize the return on portfolio assets while reducing the risk of the portfolio. The management firm may allocate assets among the separate accounts within the established long-term guidelines. Transfers among these accounts will be at the management firm’s discretion based on their investment outlook and the investment strategies that are outlined at periodic meetings with the Company. The expected long-term rate of return on the plan assets was 4.84% in 2022 and 3.84% in 2021. This return is based on the expected return for each of the asset categories, weighted based on the target allocation for each class.
The Company does not expect to make any contribution to its pension plan in 2023. Employer contributions totaled $0 in 2021 and 2021. An increase in the benefit obligations, offset by a decrease in the fair value of plan assets led to a decrease in the deficit from $264 at December 31, 2021 to a funded status of $811 at December 31, 2022.
Common/Collective Trust Funds
Valued at the daily NAV as reported by the funds. These funds are not traded in an active market or exchange, and the NAV per unit is calculated by dividing the net assets of the fund by the number of units outstanding, which includes observable inputs. The method described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the pension plan believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient are not required to be categorized in the fair value hierarchy tables.
Fair Value of Investments in Entities That Use NAV
The following table summarizes investments measured at fair value based on NAV per share as of December 31, 2022 and 2021, respectively:
December 31, 2022
Fair Value
Unfunded Commitments
Redemption Frequency (if currently eligible)
Redemption Notice Period
Common/collective trust funds
$
10,934
N/A
Daily
Daily
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 15 - RETIREMENT PLANS (Continued)
December 31, 2021
Fair Value
Unfunded Commitments
Redemption Frequency (if currently eligible)
Redemption Notice Period
Common/collective trust funds
$
15,120
N/A
Daily
Daily
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Pension Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Expected benefit payments, which reflect expected future service, are as follows:
$
2028 through 2031
3,428
Total
$
5,385
Supplemental Retirement Plan
Civista established a supplemental retirement plan (“SERP”) in 2013, which covers key members of management. Under the SERP, participants will receive annually, following retirement, a percentage of their base compensations at the time of their retirement for a maximum of ten years. The SERP liability recorded at December 31, 2022, was $3,580, compared to $3,334 at December 31, 2021. The expense related to the SERP was $420, $404 and $429 for 2022, 2021 and 2020, respectively. Distributions to participants made in 2022, 2021 and 2020 totaled $173, $167, and $168, respectively.
NOTE 16 - EQUITY INCENTIVE PLAN
At the Company’s 2014 annual meeting, the shareholders adopted the Company’s 2014 Incentive Plan (“2014 Incentive Plan”). The 2014 Incentive Plan authorizes the Company to grant options, stock awards, stock units and other awards for up to 375,000 common shares of the Company. There were 117,662 shares available for grants under this plan at December 31, 2022.
No options had been granted under the 2014 Incentive Plan as of December 31, 2022 and 2021.
In recent years, the Board of Directors has awarded restricted common shares to senior officers of the Company. The restricted shares vest ratably over a three-year period following the grant date. The product of the number of restricted shares granted and the grant date market price of the Company’s common shares determines the fair value of restricted shares under the Company’s 2014 Incentive Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award.
During the twelve months ended December 31, 2022, 2021 and 2020, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. An aggregate of 8,098, 8,792 and 14,266 common shares were issued to Civista directors in 2022, 2021 and 2021, respectively, as payment of their retainer for their service on the Civista Board of Directors. The issuances were expensed in their entirety when the shares were issued in the amounts of $189, $196 and $196, respectively.
The Company includes share-based compensation for employees as “Compensation expense” in the Consolidated Statements of Operations.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 16 - EQUITY INCENTIVE PLAN (Continued)
The following is a summary of the status of the Company’s restricted shares, and changes therein during the twelve months ended December 31, 2022:
December 31, 2022
Number of
Restricted
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested at beginning of period
69,840
$
20.14
Granted
31,774
24.51
Vested
(27,728
)
24.28
Forfeited
(3,411
)
21.88
Nonvested at end of period
70,475
21.88
The following is a summary of the status of the Company’s awarded restricted shares as of December 31, 2022:
At December 31, 2022
Date of Award
Shares
Remaining Expense
Remaining Vesting Period (Years)
April 10, 2018
1,470
$
-
0.00
March 14, 2019
4,034
1.00
March 14, 2020
4,304
-
0.00
March 14, 2020
6,669
2.00
March 3, 2021
10,858
3.00
March 3, 2021
13,692
1.00
March 3, 2022
12,424
4.00
March 3, 2022
17,024
2.00
70,475
$
2.09
During the twelve months ended December 31, 2022, 2021 and 2020, the Company recorded share-based compensation expense of $630, $506 and $421, respectively, and director retainer fees of $189, $196 and $196, respectively, for shares granted under the 2014 Incentive Plan. At December 31, 2022, the total compensation cost related to unvested awards not yet recognized was $905, which is expected to be recognized over the weighted average remaining life of the grants of 2.09 years.
NOTE 17 - FAIR VALUE MEASUREMENT
U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows: Level 1: Quoted prices for identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; Level 3: Significant unobservable inputs that reflect the Company’s own view about the assumptions that market participants would use in pricing an asset.
Securities: The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 17 - FAIR VALUE MEASUREMENT (Continued)
Equity securities: The Company has two types of equity securities, one is not actively traded in an open market, while the other is listed on an exchange and is less frequently traded. The fair value of the equity security available for sale not actively traded in an open market is determined by using market data inputs for similar securities that are observable. (Level 2 inputs).
Fair value swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date and classified Level 2.
Impaired loans: The Company generally measures impairment on impaired loans based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table below as a Level 3 measurement.
Mortgage servicing rights: Mortgage servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the discounted cash flow model are those that the Company believes market participants would use in estimating future net servicing income. Significant assumptions in the valuation of mortgage servicing rights include estimated loan repayment rates, the discount rate, servicing costs, and the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.
Other real estate owned: OREO is carried at the lower of cost or fair value, which is measured at the date foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table below. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. Management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the properties are categorized in the below table as Level 3 measurements since these adjustments are considered to be unobservable inputs. Income and expenses from operations are included in other operating expenses. Further declines in the fair value of the collateral subsequent to foreclosure are included in net gain on sale of other real estate owned.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 17 - FAIR VALUE MEASUREMENT (Continued)
Assets and liabilities measured at fair value are summarized below.
Fair Value Measurements at December 31, 2022 using:
(Level 1)
(Level 2)
(Level 3)
Assets measured at fair value on a recurring basis:
Securities available for sale
U.S. Treasury securities and obligations of
U.S. Government agencies
$
-
$
61,029
$
-
Obligations of states and political subdivisions
-
317,248
-
Mortgage-backed securities in government
sponsored entities
-
237,125
-
Total securities available for sale
-
615,402
-
Equity securities
-
2,190
-
Swap asset
-
16,579
-
Liabilities measured at fair value on a recurring
basis:
Swap liability
-
16,579
-
Assets measured at fair value on a nonrecurring
basis:
Mortgage servicing rights
$
-
$
-
$
2,689
Fair Value Measurements at December 31, 2021 using:
(Level 1)
(Level 2)
(Level 3)
Assets measured at fair value on a recurring basis:
Securities available for sale
U.S. Treasury securities and obligations of
U.S. Government agencies
$
-
$
47,890
$
-
Obligations of states and political subdivisions
-
298,836
-
Mortgage-backed securities in government
sponsored entities
-
213,148
-
Total securities available for sale
-
559,874
-
Equity securities
-
1,072
-
Swap asset
-
11,072
-
Liabilities measured at fair value on a recurring
basis:
Swap liability
-
11,072
-
Assets measured at fair value on a nonrecurring
basis:
Impaired loans
$
-
$
-
$
Mortgage servicing rights
-
-
2,642
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 17 - FAIR VALUE MEASUREMENT (Continued)
The following tables presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2022 and 2021.
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2022
Fair Value
Valuation
Technique
Unobservable
Input
Range
Weighted
Average
Mortgage Servicing Rights
$
2,689
Discounted Cash Flows
Constant Prepayment Rate
5% -20%
7%
Discount Rate
12%
12%
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2021
Fair Value
Valuation
Technique
Unobservable
Input
Range
Weighted
Average
Impaired loans
$
Appraisal of collateral
Appraisal adjustments
10%
10%
Holding period
24 months
24 months
Mortgage Servicing Rights
$
2,642
Discounted Cash Flows
Constant Prepayment Rate
8% -35%
15%
Discount Rate
12%
12%
The carrying amount and fair value of financial instruments carried at amortized cost were as follows:
December 31, 2022
Carrying
Amount
Total
Fair Value
Level 1
Level 2
Level 3
Financial Assets:
Cash and due from financial institutions
$
43,361
$
43,361
$
43,361
$
-
$
-
Other securities
33,585
33,585
33,585
-
-
Loans, held for sale
-
-
Loans, net of allowance for loan losses
2,518,155
2,160,920
-
-
2,160,920
Bank owned life insurance
53,543
53,543
53,543
-
-
Accrued interest receivable
11,178
11,178
11,178
-
-
Financial Liabilities:
Nonmaturing deposits
2,300,215
2,300,215
2,300,215
-
-
Time deposits
319,769
318,886
-
-
318,886
Short-term FHLB advances
393,700
393,247
393,247
-
-
Long-term FHLB advances
3,578
3,534
-
-
3,534
Securities sold under agreement to repurchase
25,143
25,143
25,143
-
-
Subordinated debentures
103,799
98,513
-
-
98,513
Other borrowings
15,516
15,806
-
-
15,806
Accrued interest payable
-
-
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 17 - FAIR VALUE MEASUREMENT (Continued)
December 31, 2021
Carrying
Amount
Total
Fair Value
Level 1
Level 2
Level 3
Financial Assets:
Cash and due from financial institutions
$
265,969
$
265,969
$
265,969
$
-
$
-
Other securities
17,011
17,011
17,011
-
-
Loans, held for sale
1,972
2,011
2,011
-
-
Loans, net of allowance for loan losses
1,971,238
1,945,638
-
-
1,945,638
Bank owned life insurance
47,176
47,176
47,176
-
-
Accrued interest receivable
7,385
7,385
7,385
-
-
Financial Liabilities:
Nonmaturing deposits
2,170,253
2,170,253
2,170,253
-
-
Time deposits
246,448
247,053
-
-
247,053
Long-term FHLB advances
75,000
75,930
-
-
75,930
Securities sold under agreement to repurchase
25,495
25,495
25,495
-
-
Subordinated debentures
102,813
111,118
-
-
111,118
Accrued interest payable
-
-
NOTE 18 - COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET RISK
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end.
Fixed
Rate
Variable
Rate
Fixed
Rate
Variable
Rate
Commitments to extend credit:
Lines of credit and construction loans
$
42,184
$
599,185
$
33,542
$
455,777
Overdraft protection
45,182
54,034
Letters of credit
$
43,154
$
644,997
$
34,164
$
510,542
Commitments to make loans are generally made for a period of one year or less. Fixed-rate loan commitments included above had interest rates ranging from 3.25% to 8.00% at December 31, 2022 and 3.25% to 8.00% at December 31, 2021. Maturities extend up to 30 years.
Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements was $0 on December 31, 2022 and December 31, 2021, respectively.
CBI and Civista are parties to various claims and proceedings arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the consolidated balance sheet or results of operations.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 19 - CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS
CBI and Civista (collectively, the “Companies”) are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary -actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Companies must meet specific capital guidelines that involve quantitative measures of the Companies’ assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements, and regulatory capital standards. The Companies’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Companies to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets, common equity Tier 1 capital to total risk-weighted assets, and Tier 1 capital to average assets. Management believes, as of December 31, 2022, that the Companies met all capital adequacy requirements to which they were subject.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 19 - CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued)
As of December 31, 2022, and 2021, the most recent notification from the Federal Reserve Bank categorized Civista as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Civista must maintain minimum total risk-based capital, Tier 1 risk-based capital, common equity Tier 1 risk-based capital, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed Civista’s category.
The Company’s and Civista’s actual capital levels and minimum required capital levels at December 31, 2022 and 2021 were as follows:
To Be Well
Capitalized Under
For Capital
Prompt Corrective
Actual
Adequacy Purposes
Action Purposes
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Risk Based Capital
Consolidated
$
395,125
14.5
%
$
217,681
8.0
%
n/a
n/a
Civista
366,377
13.4
219,357
8.0
$
274,196
10.0
%
Tier I Risk Based Capital
Consolidated
293,164
10.8
163,261
6.0
n/a
n/a
Civista
337,866
12.3
164,517
6.0
219,357
8.0
CET1 Risk Based Capital
Consolidated
263,736
9.7
122,446
4.5
n/a
n/a
Civista
337,866
12.3
123,388
4.5
178,227
6.5
Leverage
Consolidated
293,164
8.9
131,479
4.0
n/a
n/a
Civista
337,866
10.3
131,240
4.0
164,050
5.0
Total Risk Based Capital
Consolidated
$
394,164
19.2
%
$
164,498
8.0
%
n/a
n/a
Civista
338,383
16.5
164,483
8.0
$
205,604
10.0
%
Tier I Risk Based Capital
Consolidated
295,064
14.3
123,373
6.0
n/a
n/a
Civista
312,671
15.2
123,362
6.0
164,483
8.0
CET1 Risk Based Capital
Consolidated
265,637
12.9
92,530
4.5
n/a
n/a
Civista
312,671
15.2
92,522
4.5
133,642
6.5
Leverage
Consolidated
295,064
10.2
115,543
4.0
n/a
n/a
Civista
312,671
10.8
115,408
4.0
144,260
5.0
CBI’s primary source of funds for paying dividends to its shareholders and for operating expense is the cash accumulated from dividends received from Civista. Payment of dividends by Civista to CBI is subject to restrictions by Civista’s regulatory agencies. These restrictions generally limit dividends to the current and prior two years retained earnings as defined by the regulations. In addition, dividends may not reduce capital levels below minimum regulatory requirements. At December 31, 2022, Civista had $55,501 of net profits available to pay dividends to CBI without requiring regulatory approval.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of CBI follows:
December 31,
Condensed Balance Sheets
Assets:
Cash
$
21,812
$
45,800
Equity securities
2,190
1,072
Investment in bank subsidiary
414,263
408,255
Investment in nonbank subsidiaries
3,236
4,396
Other assets
3,332
2,016
Total assets
$
444,833
$
461,539
Liabilities:
Deferred income taxes and other liabilities
$
6,199
$
2,592
Subordinated debentures
103,799
103,735
Total liabilities
109,998
106,327
Shareholders’ Equity:
Common stock
310,182
277,741
Accumulated earnings
156,492
125,558
Treasury stock
(73,794
)
(56,907
)
Accumulated other comprehensive income (loss)
(58,045
)
8,820
Total shareholders’ equity
334,835
355,212
Total liabilities and shareholders’ equity
$
444,833
$
461,539
For the years ended December 31,
Condensed Statements of Operations
Dividends from bank subsidiaries
$
26,300
$
19,900
$
15,300
Dividends from non-bank subsidiaries
1,150
1,000
Interest expense
(3,781
)
(956
)
(945
)
Pension expense
(47
)
(25
)
Other expense, net
(2,384
)
(1,004
)
(1,241
)
Income before equity in undistributed net
earnings of subsidiaries
21,625
18,893
13,529
Income tax benefit
1,140
Equity in undistributed net earnings of subsidiaries
16,662
21,228
18,188
Net income
$
39,427
$
40,546
$
32,192
Comprehensive income (loss)
$
(27,438
)
$
34,747
$
39,937
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
For the years ended December 31,
Condensed Statements of Cash Flows
Operating activities:
Net income
$
39,427
$
40,546
$
32,192
Adjustment to reconcile net income to net cash
from operating activities:
Change in other assets and other liabilities
4,587
2,495
1,925
Equity in undistributed net earnings of
subsidiaries
(16,662
)
(21,228
)
(18,188
)
Net cash from operating activities
27,352
21,813
15,929
Investing activities:
Disposal of minority interest
-
11,500
-
Acquisition and additional capitalization of
subsidiary, net of cash acquired
(25,960
)
(50,000
)
-
Net cash used for investing activities
(25,960
)
(38,500
)
-
Financing activities:
Proceeds from subordinated debenture, net of issuance costs
-
73,386
-
Purchase of treasury stock
(16,887
)
(22,309
)
(13,454
)
Cash dividends paid
(8,493
)
(8,036
)
(7,118
)
Net cash provided by (used for) financing activities
(25,380
)
43,041
(20,572
)
Net change in cash and cash equivalents
(23,988
)
26,354
(4,643
)
Cash and cash equivalents at beginning of year
45,800
19,446
24,089
Cash and cash equivalents at end of year
$
21,812
$
45,800
$
19,446
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 21 - EARNINGS PER COMMON SHARE
The factors used in the earnings per share computation follow.
Basic
Net income
$
39,427
$
40,546
$
32,192
Less allocation of earnings and dividends to
participating securities
Net income available to common
shareholders-basic
$
38,929
$
40,373
$
32,094
Weighted average common shares outstanding
15,162,032
15,408,863
16,129,875
Less average participating securities
191,402
65,648
49,012
Weighted average number of shares outstanding
used in the calculation of basic earnings
per common share
14,970,630
15,343,215
16,080,863
Basic earnings per share
$
2.60
$
2.63
$
2.00
Diluted
Net income available to common
shareholders-basic
$
38,929
$
40,373
$
32,094
Net income available to common
shareholders-diluted
$
38,929
$
40,373
$
32,094
Weighted average common shares
outstanding used in the calculation of
earnings per common share basic
14,970,630
15,343,215
16,080,863
Add: dilutive effects of convertible
preferred shares
-
-
-
Average shares and dilutive potential
common shares outstanding-diluted
14,970,630
15,343,215
16,080,863
Diluted earnings per share
$
2.60
$
2.63
$
2.00
Basic earnings per common share are calculated by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share include the dilutive effect, if any, of additional potential common shares issuable under the equity incentive plan, computed using the treasury stock method, and the impact of the Company’s convertible preferred shares using the “if converted” method.
NOTE 22 - DERIVATIVES
To accommodate customer need and to support the Company’s asset/liability positioning, on occasion we enter into interest rate swaps with a customer and a bank counterparty. The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating rate loan and a fixed rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed rate swap with a bank counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a bank counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customer to effectively convert variable rate loans to fixed rate loans. Since the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations unless a significant difference in credit risk emerges between the counterparties at either end of one of the swap contracts. None of the Company’s derivatives are designated as hedging instruments.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 22 - DERIVATIVE HEDGING INSTRUMENTS (Continued)
The Company presents derivative positions gross on the balance sheet for customers and net for financial institution counterparty positions subject to master netting arrangements. The following table reflects the derivatives recorded on the balance sheet as of December 31:
Notional
Amount
Fair Value
Notional
Amount
Fair Value
Included in other assets:
Interest rate swaps with loan customers in
an asset position
$
6,980
$
$
173,490
$
11,072
Counterparty positions with financial
institutions in an asset position
212,570
16,310
-
-
Total included in other assets
$
16,579
$
11,072
Included in accrued expenses and other
liabilities:
Interest rate swaps with loan customers in a
liability position
$
205,590
$
16,579
$
71,328
$
1,628
Counterparty positions with financial
institutions in an asset position
-
-
71,328
(1,628
)
Counterparty positions with financial
institutions in a liability position
-
-
173,490
11,072
Total included in accrued expenses and
other liabilities
$
16,579
$
11,072
Gross notional positions with customers
$
212,570
$
244,818
Gross notional positions with financial
institution counterparties
$
212,570
$
244,818
The effect of swap fair value changes on the Consolidated Statement of Operations for the years ended December 31, 2022, 2021 and 2020 are as follows:
Location of
Amount of Gain or (Loss)
Derivatives
Gain or (Loss)
Recognized in
Not Designated
Recognized in
Income on Derivatives
as Hedging Instruments
Income on Derivative
Interest rate swaps related to customer loans
Other income
$
-
$
$
(64
)
Total
$
-
$
$
(64
)
The Company monitors and controls all derivative products with a comprehensive Board of Director approved commercial loan swap policy. All hedge transactions must be approved in advance by the Lenders Loan Committee or the Directors Loan Committee of the Board of Directors. The Company classifies changes in the fair value of derivatives with “Other” in the Consolidated Statements of Operation. Any fees paid to enter the swap contract at inception are recognized in earnings when received. Such fees amounted to $247 and $207 during the years ended December 31, 2022 and 2021, respectively.
At December 31, 2022, the Company did not have any cash or securities pledged as collateral on its interest rate swaps with third party financial institutions. At December 31, 2021, the Company had cash and securities at fair value pledged as collateral on its interest rate swaps with third party financial institutions of $10,780 and $509, respectively.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 23 - QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS
The Company invests in qualified affordable housing projects. At December 31, 2022 and 2021, the balance of the Company’s investments in qualified affordable housing projects was $14,149 and $13,093, respectively. These balances are reflected in the other assets line on the Consolidated Balance Sheet. The unfunded commitments related to the investments in qualified affordable housing projects totaled $5,634 and $5,706 at December 31, 2022 and 2021, respectively. These balances are reflected in the Accrued expenses and other liabilities line on the Consolidated Balance Sheet.
During the years ended December 31, 2022, 2021 and 2020, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $1,086, $818 and $661, respectively, which was included within pre-tax income on the Consolidated Statements of Operations.
Additionally, during the years ended December 31, 2022, 2021 and 2020, the Company recognized tax credits and other benefits from its investments in affordable housing tax credits of $1,391, $1,402 and $1,186, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company did not incur impairment losses related to its investment in qualified affordable housing projects.
NOTE 24 - REVENUE RECOGNITION
The Company accounts for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers. Revenue associated with financial instruments, including revenue from loans and securities are outside the scope of the new standard and accounted for under existing GAAP. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives and certain credit card fees are also not in scope of the new guidance. Noninterest revenue streams in-scope of ASC 606 are discussed below.
Service Charges
Service charges consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
ATM/Interchange Fees
Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Wealth Management Fees
Wealth management fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received in the following month through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 24 - REVENUE RECOGNITION (Continued)
Tax Refund Processing Fees
The Company facilitates the payment of federal and state income tax refunds in partnership with a third-party vendor. Refund Transfers (“RTs”) are fee-based products whereby a tax refund is issued to the taxpayer after the Company has received the refund from the federal or state government. As part of this agreement the Company earns fee income, the majority of which is received in the first quarter of the year. The Company’s fee income revenue is recognized based on the estimated percent of business completed by each date.
Other
Other noninterest income consists of other recurring revenue streams such as check order fees, wire transfer fees, safety deposit box rental fees, item processing fees and other miscellaneous revenue streams. Check order income mainly represents fees charged to customers for checks. Wire transfer fees represent revenue from processing wire transfers. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Item processing fee income represents fees charged to other financial institutions for processing their transactions. Payment is typically received in the following month.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2022, 2021 and 2020.
For the years ended December 31,
Noninterest Income
In-scope of Topic 606:
Service charges
$
7,074
$
5,905
$
5,288
ATM/Interchange fees
5,499
5,443
4,472
Wealth management fees
4,902
4,857
3,981
Tax refund processing fees
2,375
2,375
2,375
Other
4,686
1,055
Noninterest Income (in-scope of Topic 606)
24,536
19,635
16,947
Noninterest Income (out-of-scope of Topic 606)
4,540
11,817
11,235
Total Noninterest Income
$
29,076
$
31,452
$
28,182
NOTE 25 - LEASES
We have operating leases for several branch locations and office space. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. We also lease certain office equipment under operating leases. Many of our leases include both lease (e.g., minimum rent payments) and non-lease (e.g., common-area or other maintenance costs) components. The Company accounts for each component separately based on the standalone price of each component. In addition, we have several operating leases with lease terms of less than one year and therefore, we have elected the practical expedient to exclude these short-term leases from our right-of-use (ROU) assets and lease liabilities.
Most leases include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion. The majority of renewals to extend the lease terms are included in our ROU assets and lease liabilities as they are reasonably certain of exercise.
As most of our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate, commensurate with the lease terms based on the information available at the lease commencement date in determining the present value of the lease payments.
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
NOTE 25 - LEASES (Continued)
The balance sheet information related to our operating leases were as follows as of December 31, 2022 and 2021:
Classification on the Consolidated Balance Sheet
December 31, 2022
December 31, 2021
Assets:
Operating lease
Other assets
$
2,108
$
2,314
Liabilities:
Operating lease
Accrued expenses and other liabilities
$
2,108
$
2,314
The cost components of our operating leases were as follows for the periods ended December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
Lease cost
Operating lease cost
$
$
Short-term lease cost
Sublease income
(29
)
(29
)
Total lease cost
$
$
Maturities of our lease liabilities for all operating leases for each of the next five years and thereafter is as follows:
$
Thereafter
Total lease payments
$
2,274
Less: Imputed Interest
Present value of lease liabilities
$
2,108
The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of December 31, 2022:
Weighted-average remaining lease term - operating leases (years)
4.29
Weighted-average discount rate - operating leases
2.90
%
The Company is the lessor of equipment under operating leases to a wide variety of customers, from commercial and industrial to government and healthcare. The operating lease assets are presented on the balance sheet as Premises and equipment. The Company records lease revenue over the term of the lease and retains ownership of the related assets which are depreciated over the estimated useful life, normally two to six years.
The Company also leases equipment to customers under direct financing leases. At the inception of each lease, the lease receivables, together with the present value of the estimated unguaranteed residual values are presented on the
CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, 2021 and 2020
(Amounts in thousands, except share data)
balance sheet as Loans. The excess of the lease receivables and residual values over the cost of the equipment is recorded as unearned lease income and will be recognized over the lease term, normally two to six years as well.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
The Company has had no disagreements with its independent accountants on matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure required to be reported under this Item.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Accounting Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15 under the Exchange Act, as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Principal Accounting Officer concluded that our disclosure controls and procedures as of December 31, 2022, were effective.
Management’s Annual Report on Internal Control over Financial Reporting
The “MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING” is included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Audit Report of the Registered Public Accounting Firm
The “REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” is included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
There was no information the Company was required to disclose in a current report on Form 8-K during the fourth quarter of 2022 that was not reported.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers, and Corporate Governance
The information contained under the captions “Proposal 1 - Election of Directors”, “Beneficial Ownership of Common Shares of the Corporation -Section 16(a) Reports”, “Board of Director Meetings and Committees - Committees of the Board - Audit Committee”, “Corporate Governance - Code of Ethics”, “Corporate Governance - Nominating Procedure” and “Executive Officers of the Corporation” in the 2023 Proxy Statement is incorporated herein by reference in response to this Item.
The procedures by which shareholders of the Company may recommend nominees to the Company’s Board of Directors are described under the caption “Corporate Governance - Nominating Procedure” in the 2023 Proxy Statement. The procedures by which shareholders of the Company may recommend nominees to the Company’s Board of Directors have not materially changed from those described in the Company’s definitive Proxy Statement for the 2022 annual meeting of shareholders held on April 19, 2022.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information contained under the captions “2022 Compensation of Directors”, “Compensation Committee Interlocks and Insider Participation” and “Executive Compensation” in the 2023 Proxy Statement is incorporated herein by reference in response to this Item.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information contained under the caption “Beneficial Ownership of Common Shares of the Company” in the 2023 Proxy Statement is incorporated herein by reference in response to this Item.
The following table shows the number of common shares remaining available for awards under the Company’s 2014 Incentive Plan at December 31, 2022.
Equity Compensation Plan Information
Plan category
(a)
Number of Common
Shares to be issued upon
exercise
of outstanding options,
warrants and rights (a)
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights (b)
(c)
Number of Common
Shares remaining
available for future
issuance under equity
compensation plans
(excluding common
shares reflected in
column (a) )
Equity compensation plans approved by
shareholders
-
-
154,123
Equity compensation plans not approved by
shareholders
-
-
-
Total
-
-
154,123

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information contained under the caption “Corporate Governance - Director Independence” and “Corporate Governance - Transactions with Directors, Officers and Related Persons” in the 2023 Proxy Statement is incorporated herein by reference in response to this Item.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
The information contained under the caption “Audit Committee Matters” of the 2023 Proxy Statement is incorporated herein by reference in response to this Item.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibit and Financial Statement Schedules
(a)Documents filed as a Part of the Report
1.Financial Statements. Civista Bancshares, Inc.’s Report of Independent Auditors and Consolidated Financial Statements and accompanying notes are filed as part of this document under Item 8.
Report of Independent Registered Public Accounting Firm on Financial Statements (PCAOB ID: 686)
Consolidated Balance Sheets - December 31, 2022 and 2021
Consolidated Statements of Operations - For the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income - For the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Shareholders’ Equity - For the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows - For the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
2.Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3.Exhibits
Exhibit
Description
Location
2.1
Agreement and Plan of Merger, dated January 10, 2022 by and between Civista Bancshares, Inc. and Comunibanc Corp.
Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on January 10, 2022 and incorporated herein by reference. (File No. 001-36192).
2.2
Stock Purchase Agreement, dated as of September 29, 2022, by and among Civista Bancshares, Inc., Vision Financial Group, Inc., and Frederick Summers
Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated September 29, 2022 and filed on September 30, 2022 and incorporated herein by reference. (File No. 001-36192).
3.1
Second Amended and Restated Articles of Incorporation of Civista Bancshares, Inc., as filed with the Ohio Secretary of State on November 15, 2018
Filed as Exhibit 3.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on November 16, 2018 and incorporated herein by reference (File No. 001-36192).
3.2
Amended and Restated Code of Regulations of Civista Bancshares, Inc. (adopted April 15, 2008).
Filed as Exhibit 3.2 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed on November 8, 2017 and incorporated herein by reference. (File No. 001-36192)
4.1
Indenture dated November 30, 2021, by and between Civista Bancshares, Inc. and UMB Bank, National Association, as Trustee.
Filed as Exhibit 4.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on November 30, 2022 and incorporated herein by reference (File No. 001-36192).
4.2
Forms of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031.
Included as Exhibit A-1 and Exhibit A-2 to the Indenture filed as Exhibit 4.1 hereto.
4.3
Agreement to furnish instrument and agreements defining rights of holders of long-term debt.
Included herewith.
4.4
Description of Capital Stock of Civista Bancshares, Inc.
Filed as Exhibit 4.2 to Civista Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 15, 2021 and incorporated herein by reference (File No. 001-36192).
10.1*
Form of Change in Control Agreement by and among Civista Bancshares, Inc., Civista Bank and certain executive officers.
Filed as Exhibit 10.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on March 8, 2019 and incorporated herein by reference. (File No. 001-36192).
10.2*
Form of Amended and Restated Change in Control Agreement by and among Civista Bancshares, Inc., Civista Bank and certain executive officers.
Filed as Exhibit 10.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on March 8, 2019 and incorporated herein by reference. (File No. 001-36192).
10.3*
Form of Pension Shortfall Agreement by and among Civista Bancshares, Inc., Civista Bank and certain executive officers.
Filed as Exhibit 10.2 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on October 29, 2015 and incorporated herein by reference. (File No. 001-36192).
10.4*
Supplemental Nonqualified Executive Retirement Plan
Filed as Exhibit 10.12 to Civista Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 15, 2012 and incorporated herein by reference (File No. 0-25980).
10.5*
Amendment to Supplemental Nonqualified Executive Retirement Plan
Filed as Exhibit 10.13 to Civista Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 15, 2012 and incorporated herein by reference (File No. 0-25980).
10.6*
Second Amendment to Supplemental Nonqualified Executive Retirement Plan
Filed as Exhibit 10.1 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed on August 9, 2016 and incorporated herein by reference (File No. 1-36192)
Exhibit
Description
Location
10.7*
2018 Amendment to Supplemental Nonqualified Executive Retirement Plan
Filed as Exhibit 10.1 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2018, filed on August 8, 2018 and incorporated herein by reference (File No. 1-36192).
10.8*
Civista Bancshares, Inc. 2014 Incentive Plan
Filed as Exhibit 10.1 to Civista Bancshares, Inc.’s Registration Statement on Form S-8 filed on February 26, 2015 and incorporated herein by reference (File No. 333-202316).
10.9*
Form of Restricted Stock Award Agreement under Civista Bancshares, Inc. 2014 Incentive Plan
Filed as Exhibit 10.8 to Civista Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 15, 2019 and incorporated herein by reference. (File No. 1-36192)
21.1
Subsidiaries of Civista Bancshares, Inc
Included herewith
23.1
Consent of FORVIS, LLP
Included herewith
23.2
Consent of S.R. Snodgrass, P.C.
Included herewith
31.1
Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer
Included herewith
31.2
Rule 13a-14(a)/15-d-14(a) Certification of Principal Accounting Officer
Included herewith
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Included herewith
32.2
Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Included herewith
The following materials from Civista Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2022 and 2021; (ii) Consolidated Statements of Operations for each of the three years ended December 31, 2022, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2022, 2021 and 2020; (iv) Consolidated Statements of Changes in Shareholders’ Equity for each of the three years ended December 31, 2022, 2021 and 2020; (v) Consolidated Statement of Cash Flows for each of the three years ended December 31, 2022, 2021 and 2020; and (vi) Notes to Consolidated Financial Statements .
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Management contract or compensatory plan or arrangement