UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-36192
Civista Bancshares, Inc.
(Exact name of registrant as specified in its charter)
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Ohio |
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| 34-1558688 |
State or other jurisdiction of |
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| (IRS Employer |
incorporation or organization |
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| Identification No.) |
100 East Water Street, Sandusky, Ohio 44870
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (419) 625 - 4121
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common shares, no par value | | CIVB | | The NASDAQ Stock Market LLC (NASDAQ Capital Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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| Accelerated filer |
| ☒ |
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Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
Emerging Growth Company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based upon the closing market price as of June 30, 2022 was $296,180,043. For this purpose, shares held by non-affiliates include all outstanding common shares except those beneficially owned by the directors and executive officers of the registrant.
As of February 21, 2023, there were 15,722,614 common shares, no par value, of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2022 (the “2022 Annual Report”) are incorporated by reference into Parts I and II of this Form 10-K. Portions of the registrant’s Proxy Statement for the registrant’s 2023 Annual Meeting of Shareholders to be held on April 18, 2023 (the “2023 Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 10-K (this “Amendment”) amends the Annual Report on Form 10-K for the year ended December 31, 2022 (the “Original Form 10-K”), originally filed with the Securities and Exchange Commission on March 15, 2023, by Civista Bancshares, Inc. (the “Company”). The Company is filing this Amendment solely to correct an administrative error in the Report of Independent Registered Public Accounting Firm (the “Report”) included in Item 8, that resulted in the inadvertent omission of the Statement of Comprehensive Income (Loss) from the list of audited financial statements referred to in the Report.
Except as described above, no other changes have been made to the Company’s financial statements or any other disclosure contained in the Original Form 10-K. The Original Form 10-K continues to speak as of the date of the Original Form 10-K, and the Company has not modified or updated the disclosures contained therein to reflect any events occurring after the filing of the Original Form 10-K.
The Company has attached to this Amendment updated certifications executed as of the date of this Amendment as required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended. The updated certifications are attached as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Amendment. In addition, the Company has attached to this Amendment an updated Consent of FORVIS, LLP as Exhibit 23.1.
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
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.
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Dennis G. Shaffer | | Todd A. Michel |
President and Chief Executive Officer | | Senior Vice President, Controller |
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Sandusky, Ohio | | |
March 15, 2023 | | |
1
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, comprehensive income (loss), 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.
2
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.
3
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
4
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
5
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
6
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
7
CIVISTA BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2022 and 2021
(Amounts in thousands, except share data)
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| | 2022 | | | 2021 | |
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 | | | 683 | | | | 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 | | | | 980 | |
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
8
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands, except per share data)
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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 | | | | 449 | | | | 606 | |
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 | | | | 955 | | | | 945 | |
Securities sold under agreements to repurchase and other | | | 352 | | | | 24 | | | | 380 | |
Total interest expense | | | 11,049 | | | | 6,317 | | | | 10,138 | |
Net interest income | | | 110,204 | | | | 95,425 | | | | 89,727 | |
Provision for loan losses | | | 1,752 | | | | 830 | | | | 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 | | | 10 | | | | 1,786 | | | | 94 | |
Net gain (loss) on equity securities | | | 118 | | | | 186 | | | | (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 | | | 984 | | | | 1,200 | | | | 977 | |
Tax refund processing fees | | | 2,375 | | | | 2,375 | | | | 2,375 | |
Computer center item processing fees | | | 72 | | | | 175 | | | | 252 | |
Swap fees | | | 247 | | | | 207 | | | | 1,459 | |
Other | | | 2,088 | | | | 1,276 | | | | 778 | |
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 | | | 797 | | | | 1,056 | | | | 728 | |
State franchise tax | | | 1,975 | | | | 2,184 | | | | 1,913 | |
Professional services | | | 5,388 | | | | 2,715 | | | | 2,795 | |
Amortization of intangible assets | | | 1,296 | | | | 890 | | | | 913 | |
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
9
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands)
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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 | | | 2 | | | | — | | | | 20 | |
Pension liability adjustment | | | 736 | | | | 992 | | | | (1,326 | ) |
Tax effect | | | (155 | ) | | | (209 | ) | | | 279 | |
Reclassification of actuatial gain recognized in net income | | | — | | | | 240 | | | | 289 | |
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
10
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 | | | | 617 | | | | | | | | | | | | | 617 | |
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 | | | | 702 | | | | | | | | | | | | | 702 | |
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 | | | | 819 | | | | | | | | | | | | | 819 | |
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
11
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands)
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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 | | 8 | | | 8 | | | | 2 | |
Security amortization, net | | | 1,607 | | | | 1,376 | | | | 1,119 | |
Depreciation | | | 4,456 | | | | 1,976 | | | | 2,253 | |
Amortization of core deposit intangible | | | 1,296 | | | | 890 | | | | 913 | |
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 | ) | | | 57 | |
Provision for loan losses | | | 1,752 | | | | 830 | | | | 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 | | | 819 | | | | 702 | | | | 617 | |
Deferred taxes | | | 483 | | | | 1,319 | | | | (2,277 | ) |
Change in: | | | | | | | | | |
Accrued interest payable | | | 302 | | | | 111 | | | | (73 | ) |
Accrued interest receivable | | | (2,049 | ) | | | 2,036 | | | | (2,328 | ) |
Other, net | | | (20,236 | ) | | | (152 | ) | | | 920 | |
Net cash from operating activities | | | 25,183 | | | | 40,761 | | | | 32,654 | |
Cash flows used for investing activities: | | | | | | | | | |
Investments in time securities | | | | | | | | | |
Maturities | | | 1,312 | | | 980 | | | | 735 | |
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 | | | — | | | | — | | | | 247 | |
Proceeds from bank owned life insurance | | | — | | | | 535 | | | | — | |
Net change in loans | | | (315,190 | ) | | | 71,072 | | | | (343,348 | ) |
Proceeds from sale of OREO properties | | | — | | | | 122 | | | | — | |
Acquisitions, net of cash | | | (51,643 | ) | | | — | | | | — | |
Premises and equipment purchases | | | (6,508 | ) | | | (1,927 | ) | | | (1,972 | ) |
Disposal of premises and equipment | | | 183 | | | | 13 | | | | 12 | |
Net cash used for investing activities | | | (410,364 | ) | | | (130,496 | ) | | | (340,982 | ) |
See accompanying notes to consolidated financial statements
12
CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2022, 2021 and 2020
(Amounts in thousands)
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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 | | | — | | | | 72 | | | | 31 | |
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
13
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.
14
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..
15
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.
16
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.
17
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.
18
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.
19
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.
20
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.
21
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 | |
2023 | | $ | 739 | |
2024 | | | 684 | |
2025 | | | 604 | |
2026 | | | 523 | |
2027 | | | 443 | |
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,
2022
(in thousands) | |
Net interest income after provision for loan losses | | $ | 3,428 | |
Noninterest income | | | 159 | |
Net income | | | 1,719 | |
22
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, | |
| | 2022 | | | 2021 | | | 2020 | |
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 | | | 742 | | | | |
Loans, net | | | 169,202 | | | | |
Other securities | | | 1,553 | | | | |
Premises and equipment | | | 4,665 | | | | |
Accrued interest receivable | | | 670 | | | | |
Core deposit intangible | | | 4,426 | | | | |
Bank owned life insurance | | | 5,918 | | | | |
Other assets | | | 3,767 | | | | |
Noninterest-bearing deposits | | | (122,642 | ) | | | |
Interest-bearing deposits | | | (148,552 | ) | | | |
Other borrowings | | | (21,706 | ) | | | |
Other liabilities | | | (1,659 | ) | | | |
| | | | | | 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.
23
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.
24
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,
2022
(in thousands) | |
Net interest income after provision for loan losses | | $ | 403 | |
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 | | | 80 | | | | |
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.
25
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 | | $ | 635 | |
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.
26
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 | |
2022 | | | | | | | | | | | | |
U.S. Treasury securities and obligations of
U.S. government agencies | | $ | 66,495 | | | $ | 20 | | | $ | (5,486 | ) | | $ | 61,029 | |
Obligations of states and political subdivisions | | | 350,104 | | | | 784 | | | | (33,640 | ) | | | 317,248 | |
Mortgage-back securities in government sponsored
entities | | | 265,752 | | | | 15 | | | | (28,642 | ) | | | 237,125 | |
Total debt securities | | $ | 682,351 | | | $ | 819 | | | $ | (67,768 | ) | | $ | 615,402 | |
| | | | | | | | | | | | | | | | |
| | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Fair Value | |
2021 | | | | | | | | | | | | |
U.S. Treasury securities and obligations of
U.S. government agencies | | $ | 48,390 | | | $ | 30 | | | $ | (530 | ) | | $ | 47,890 | |
Obligations of states and political subdivisions | | | 281,247 | | | | 17,696 | | | | (107 | ) | | | 298,836 | |
Mortgage-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:
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
Sale proceeds | | $ | 57,332 | | | $ | 1,810 | | | $ | 1,455 | |
Gross realized gains | | | — | | | | 1,785 | | | | 94 | |
Gross realized losses | | | — | | | | — | | | | — | |
Gains from securities called or settled by the
issuer | | | 10 | | | | 1 | | | | — | |
27
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:
| | | | | | | | | | | | | | | | | | | | | | | | |
2022 | | 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
2021 | | 12 Months or less | | | More than 12 months | | | Total | |
Description of Securities | | Fair
Value | | | Unrealized
Loss | | | Fair
Value | | | Unrealized
Loss | | | Fair
Value | | | Unrealized
Loss | |
U.S. Treasury securities and obligations of
U.S. government agencies | | $ | 41,432 | | | $ | (473 | ) | | $ | 2,014 | | | $ | (57 | ) | | $ | 43,446 | | | $ | (530 | ) |
Obligations of states and political
subdivisions | | | 25,797 | | | | (107 | ) | | | — | | | | — | | | | 25,797 | | | | (107 | ) |
Mortgage-backed securities in gov’t
sponsored entities | | | 141,327 | | | | (1,343 | ) | | | 3,123 | | | | (107 | ) | | | 144,450 | | | | (1,450 | ) |
Total temporarily impaired | | $ | 208,556 | | | $ | (1,923 | ) | | $ | 5,137 | | | $ | (164 | ) | | $ | 213,693 | | | $ | (2,087 | ) |
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.
28
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:
| | | | | | | | |
| | 2022 | | | 2021 | |
Net gains (losses) recognized on equity securities during the
year | | $ | 118 | | | $ | 186 | |
Less: Net gains realized on the sale of equity securities
during the period | | | — | | | | — | |
Unrealized gains (losses) recognized in equity securities held at
December 31 | | $ | 118 | | | $ | 186 | |
NOTE 4 - LOANS
Loans at year-end were as follows:
| | | | | | | | |
| | 2022 | | | 2021 | |
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.
29
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:
| | | | |
2023 | | $ | 4 | |
2024 | | | 3,509 | |
2025 | | | 5,704 | |
2026 | | | 6,940 | |
2027 | | | 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:
| | | | | | | | |
| | 2022 | | | 2021 | |
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 | ) | | | 143 | |
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.
30
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
31
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 | ) | | $ | 24 | | | $ | 409 | | | $ | 3,011 | |
Commercial Real Estate: | | | | | | | | | | | | | | | |
Owner Occupied | | | 4,464 | | | | — | | | | 42 | | | | 59 | | | | 4,565 | |
Non-Owner Occupied | | | 13,860 | | | | — | | | | 74 | | | | 204 | | | | 14,138 | |
Residential Real Estate | | | 2,597 | | | | (97 | ) | | | 163 | | | | 482 | | | | 3,145 | |
Real Estate Construction | | | 1,810 | | | | — | | | | 4 | | | | 479 | | | | 2,293 | |
Farm Real Estate | | | 287 | | | | — | | | | 6 | | | | (2 | ) | | | 291 | |
Lease financing receivable | | | — | | | | (23 | ) | | | — | | | | 452 | | | | 429 | |
Consumer and Other | | | 176 | | | | (80 | ) | | | 27 | | | | (25 | ) | | | 98 | |
Unallocated | | | 847 | | | | — | | | | — | | | | (306 | ) | | | 541 | |
Total | | $ | 26,641 | | | $ | (222 | ) | | $ | 340 | | | $ | 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.
32
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 | ) | | $ | 165 | | | $ | (360 | ) | | $ | 2,600 | |
Commercial Real Estate: | | | | | | | | | | | | | | | |
Owner Occupied | | | 4,057 | | | | — | | | | 7 | | | | 400 | | | | 4,464 | |
Non-Owner Occupied | | | 12,451 | | | | — | | | | 395 | | | | 1,014 | | | | 13,860 | |
Residential Real Estate | | | 2,484 | | | | (120 | ) | | | 302 | | | | (69 | ) | | | 2,597 | |
Real Estate Construction | | | 2,439 | | | | — | | | | 1 | | | | (630 | ) | | | 1,810 | |
Farm Real Estate | | | 338 | | | | — | | | | 12 | | | | (63 | ) | | | 287 | |
Consumer and Other | | | 209 | | | | (24 | ) | | | 60 | | | | (69 | ) | | | 176 | |
Unallocated | | | 240 | | | | — | | | | — | | | | 607 | | | | 847 | |
Total | | $ | 25,028 | | | $ | (159 | ) | | $ | 942 | | | $ | 830 | | | $ | 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.
33
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 | ) | | $ | 7 | | | $ | 604 | | | $ | 2,810 | |
Commercial Real Estate: | | | | | | | | | | | | | | | |
Owner Occupied | | | 2,541 | | | | (148 | ) | | | 259 | | | | 1,405 | | | | 4,057 | |
Non-Owner Occupied | | | 6,584 | | | | — | | | | 48 | | | | 5,819 | | | | 12,451 | |
Residential Real Estate | | | 1,582 | | | | (236 | ) | | | 218 | | | | 920 | | | | 2,484 | |
Real Estate Construction | | | 1,250 | | | | — | | | | 4 | | | | 1,185 | | | | 2,439 | |
Farm Real Estate | | | 344 | | | | — | | | | 13 | | | | (19 | ) | | | 338 | |
Consumer and Other | | | 247 | | | | (61 | ) | | | 65 | | | | (42 | ) | | | 209 | |
Unallocated | | | — | | | | — | | | | — | | | | 240 | | | | 240 | |
Total | | $ | 14,767 | | | $ | (465 | ) | | $ | 614 | | | $ | 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.
34
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 | | $ | 6 | | | $ | — | | | $ | 3,005 | | | $ | 3,011 | |
Commercial Real Estate: | | | | | | | | | | | | |
Owner Occupied | | | 3 | | | | 6 | | | | 4,556 | | | | 4,565 | |
Non-Owner Occupied | | | — | | | | — | | | | 14,138 | | | | 14,138 | |
Residential Real Estate | | | — | | | | 1 | | | | 3,144 | | | | 3,145 | |
Real Estate Construction | | | — | | | | — | | | | 2,293 | | | | 2,293 | |
Farm Real Estate | | | — | | | | — | | | | 291 | | | | 291 | |
Lease financing receivables | | | — | | | | — | | | | 429 | | | | 429 | |
Consumer and Other | | | — | | | | — | | | | 98 | | | | 98 | |
Unallocated | | | — | | | | — | | | | 541 | | | | 541 | |
Total | | $ | 9 | | | $ | 7 | | | $ | 28,495 | | | $ | 28,511 | |
| | | | | | | | | | | | |
Outstanding loan balances: | | | | | | | | | | | | |
Commercial & Agriculture | | $ | 863 | | | $ | — | | | $ | 277,732 | | | $ | 278,595 | |
Commercial Real Estate: | | | | | | | | | | | | |
Owner Occupied | | | 1,988 | | | | 232 | | | | 368,927 | | | | 371,147 | |
Non-Owner Occupied | | | 119 | | | | — | | | | 1,018,617 | | | | 1,018,736 | |
Residential Real Estate | | | 1,414 | | | | 392 | | | | 550,975 | | | | 552,781 | |
Real Estate Construction | | | — | | | | — | | | | 243,127 | | | | 243,127 | |
Farm Real Estate | | | — | | | | — | | | | 24,708 | | | | 24,708 | |
Lease financing receivables | | | — | | | | — | | | | 36,797 | | | | 36,797 | |
Consumer and Other | | | 1 | | | | — | | | | 20,774 | | | | 20,775 | |
Total | | $ | 4,385 | | | $ | 624 | | | $ | 2,541,657 | | | $ | 2,546,666 | |
35
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 | | | — | | | | 7 | | | | 4,457 | | | | 4,464 | |
Non-Owner Occupied | | | — | | | | — | | | | 13,860 | | | | 13,860 | |
Residential Real Estate | | | — | | | | 11 | | | | 2,586 | | | | 2,597 | |
Real Estate Construction | | | — | | | | — | | | | 1,810 | | | | 1,810 | |
Farm Real Estate | | | — | | | | — | | | | 287 | | | | 287 | |
Consumer and Other | | | — | | | | — | | | | 176 | | | | 176 | |
Unallocated | | | — | | | | — | | | | 847 | | | | 847 | |
Total | | $ | — | | | $ | 18 | | | $ | 26,623 | | | $ | 26,641 | |
| | | | | | | | | | | | |
Outstanding loan balances: | | | | | | | | | | | | |
Commercial & Agriculture | | $ | — | | | $ | — | | | $ | 246,502 | | | $ | 246,502 | |
Commercial Real Estate: | | | | | | | | | | | | |
Owner Occupied | | | — | | | | 187 | | | | 295,265 | | | | 295,452 | |
Non-Owner Occupied | | | — | | | | — | | | | 829,310 | | | | 829,310 | |
Residential Real Estate | | | 290 | | | | 526 | | | | 429,244 | | | | 430,060 | |
Real Estate Construction | | | — | | | | — | | | | 157,127 | | | | 157,127 | |
Farm Real Estate | | | — | | | | 509 | | | | 27,910 | | | | 28,419 | |
Consumer and Other | | | — | | | | — | | | | 11,009 | | | | 11,009 | |
Total | | $ | 290 | | | $ | 1,222 | | | $ | 1,996,367 | | | $ | 1,997,879 | |
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.
36
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 | | | | 734 | | | | 2,761 | | | | — | | | | 371,147 | |
Non-Owner Occupied | | | 1,003,942 | | | | 10,947 | | | | 3,847 | | | | — | | | | 1,018,736 | |
Residential Real Estate | | | 114,021 | | | | 183 | | | | 5,787 | | | | — | | | | 119,991 | |
Real Estate Construction | | | 198,734 | | | | — | | | | 221 | | | | — | | | | 198,955 | |
Farm Real Estate | | | 24,283 | | | | 379 | | | | 46 | | | | — | | | | 24,708 | |
Lease financing receivables | | | 36,223 | | | | — | | | | 401 | | | | 173 | | | | 36,797 | |
Consumer and Other | | | 839 | | | | — | | | | 163 | | | | — | | | | 1,002 | |
Total | | $ | 2,018,985 | | | $ | 14,801 | | | $ | 15,972 | | | $ | 173 | | | $ | 2,049,931 | |
| | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | | Pass | | | Special
Mention | | | Substandard | | | Doubtful | | | Ending
Balance | |
Commercial & Agriculture | | $ | 244,787 | | | $ | 526 | | | $ | 1,189 | | | $ | — | | | $ | 246,502 | |
Commercial Real Estate: | | | | | | | | | | | | | | | |
Owner Occupied | | | 290,617 | | | | 3,119 | | | | 1,716 | | | | — | | | | 295,452 | |
Non-Owner Occupied | | | 764,181 | | | | 28,042 | | | | 37,087 | | | | — | | | | 829,310 | |
Residential Real Estate | | | 77,594 | | | | 164 | | | | 4,455 | | | | — | | | | 82,213 | |
Real Estate Construction | | | 136,149 | | | | 260 | | | | 5 | | | | — | | | | 136,414 | |
Farm Real Estate | | | 27,023 | | | | 205 | | | | 1,191 | | | | — | | | | 28,419 | |
Consumer and Other | | | 764 | | | | — | | | | 20 | | | | — | | | | 784 | |
Total | | $ | 1,541,115 | | | $ | 32,316 | | | $ | 45,663 | | | $ | — | | | $ | 1,619,094 | |
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.
37
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 | | $ | 247 | | | $ | 78 | | | $ | 534 | | | $ | 859 | | | $ | 276,873 | | | $ | 863 | | | $ | 278,595 | | | $ | — | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 21 | | | | 13 | | | | 76 | | | | 110 | | | | 369,049 | | | | 1,988 | | | | 371,147 | | | | — | |
Non-Owner Occupied | | | — | | | | — | | | | 1,164 | | | | 1,164 | | | | 1,017,453 | | | | 119 | | | | 1,018,736 | | | | — | |
Residential Real Estate | | | 3,133 | | | | 857 | | | | 1,107 | | | | 5,097 | | | | 546,270 | | | | 1,414 | | | | 552,781 | | | | — | |
Real Estate Construction | | | — | | | | — | | | | 219 | | | | 219 | | | | 242,908 | | | | — | | | | 243,127 | | | | — | |
Farm Real Estate | | | 7 | | | | — | | | | — | | | | 7 | | | | 24,701 | | | | — | | | | 24,708 | | | | — | |
Lease financing receivables | | | 1,040 | | | | — | | | | 341 | | | | 1,381 | | | | 35,416 | | | | — | | | | 36,797 | | | | |
Consumer and Other | | | 293 | | | | 49 | | | | 74 | | | | 416 | | | | 20,358 | | | | 1 | | | | 20,775 | | | | — | |
Total | | $ | 4,741 | | | $ | 997 | | | $ | 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 | | $ | 249 | | | $ | 13 | | | $ | 78 | | | $ | 340 | | | $ | 246,162 | | | $ | — | | | $ | 246,502 | | | $ | — | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | — | | | | — | | | | 106 | | | | 106 | | | | 295,346 | | | | — | | | | 295,452 | | | | — | |
Non-Owner Occupied | | | — | | | | — | | | | 4 | | | | 4 | | | | 829,306 | | | | — | | | | 829,310 | | | | — | |
Residential Real Estate | | | 1,848 | | | | 879 | | | | 842 | | | | 3,569 | | | | 426,201 | | | | 290 | | | | 430,060 | | | | — | |
Real Estate Construction | | | — | | | | — | | | | — | | | | — | | | | 157,127 | | | | — | | | | 157,127 | | | | — | |
Farm Real Estate | | | — | | | | — | | | | — | | | | — | | | | 28,419 | | | | — | | | | 28,419 | | | | — | |
Consumer and Other | | | 42 | | | | — | | | | 9 | | | | 51 | | | | 10,958 | | | | — | | | | 11,009 | | | | — | |
Total | | $ | 2,139 | | | $ | 892 | | | $ | 1,039 | | | $ | 4,070 | | | $ | 1,993,519 | | | $ | 290 | | | $ | 1,997,879 | | | $ | — | |
38
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.
| | | | | | | | |
| | 2022 | | | 2021 | |
Commercial & Agriculture | | $ | 774 | | | $ | 78 | |
Commercial Real Estate: | | | | | | |
Owner Occupied | | | 386 | | | | 334 | |
Non-Owner Occupied | | | 1,109 | | | | 4 | |
Residential Real Estate | | | 3,926 | | | | 3,232 | |
Real Estate Construction | | | 221 | | | | 5 | |
Farm Real Estate | | | — | | | | — | |
Lease financing receivables | | | — | | | | — | |
Consumer and Other | | | 91 | | | | 20 | |
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.
39
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 | | $ | 82 | | | $ | 82 | | | | | | $ | — | | | $ | — | | | | |
Non-Owner Occupied | | | — | | | | — | | | | | | | — | | | | — | | | | |
Residential Real Estate | | | 385 | | | | 410 | | | | | | | 503 | | | | 528 | | | | |
Farm Real Estate | | | — | | | | — | | | | | | | 509 | | | | 509 | | | | |
Total | | | 467 | | | | 492 | | | | | | | 1,012 | | | | 1,037 | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 150 | | | | 150 | | | $ | 6 | | | | 187 | | | | 187 | | | $ | 7 | |
Residential Real Estate | | | 7 | | | | 11 | | | | 1 | | | | 23 | | | | 27 | | | | 11 | |
Total | | | 157 | | | | 161 | | | | 7 | | | | 210 | | | | 214 | | | | 18 | |
Total: | | | | | | | | | | | | | | | | | | |
Commercial & Agriculture | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Commercial Real Estate: | | | | | | | | | | | | | | | | | | |
Owner Occupied | | | 232 | | | | 232 | | | | 6 | | | | 187 | | | | 187 | | | | 7 | |
Non-Owner Occupied | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Residential Real Estate | | | 392 | | | | 421 | | | | 1 | | | | 526 | | | | 555 | | | | 11 | |
Farm Real Estate | | | — | | | | — | | | | — | | | | 509 | | | | 509 | | | | — | |
Total | | $ | 624 | | | $ | 653 | | | $ | 7 | | | $ | 1,222 | | | $ | 1,251 | | | $ | 18 | |
40
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 | | $ | 86 | | | $ | 3 | | | $ | 15 | | | $ | — | |
Commercial Real Estate: | | | | | | | | | | | | |
Owner Occupied | | | 406 | | | | 22 | | | | 396 | | | | 18 | |
Non-Owner Occupied | | | 35 | | | | 1 | | | | 23 | | | | 1 | |
Residential Real Estate | | | 614 | | | | 33 | | | | 629 | | | | 31 | |
Farm Real Estate | | | 381 | | | | 14 | | | | 569 | | | | 24 | |
Total | | $ | 1,522 | | | $ | 73 | | | $ | 1,632 | | | $ | 74 | |
| | | | | | | | |
For the year ended: | | December 31, 2020 | |
| | Average
Recorded
Investment | | | Interest
Income
Recognized | |
Commercial & Agriculture | | $ | 88 | | | $ | 4 | |
Commercial Real Estate: | | | | | | |
Owner Occupied | | | 520 | | | | 27 | |
Non-Owner Occupied | | | 243 | | | | 16 | |
Residential Real Estate | | | 1,361 | | | | 43 | |
Farm Real Estate | | | 647 | | | | 26 | |
Total | | $ | 2,859 | | | $ | 116 | |
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,
2022 | | | At December 31,
2021 | |
| | (In Thousands) | | | (In Thousands) | |
Balance at beginning of period | | $ | 217 | | | $ | 225 | |
Acquisition of PCI loans | | | — | | | | — | |
Accretion | | | (36 | ) | | | (77 | ) |
Transfers from non-accretable to accretable | | | 33 | | | | 69 | |
Balance at end of period | | $ | 214 | | | $ | 217 | |
41
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 | | | $ | 512 | |
Carrying amount | | | 4,386 | | | | 290 | |
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.
42
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 | | | 736 | | | | 155 | | | | 581 | |
Amounts reclassified from accumulated other comprehensive
income | | | — | | | | — | | | | — | |
Defined benefit plans, net | | | 736 | | | | 155 | | | | 581 | |
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 | | | 992 | | | | 209 | | | | 783 | |
Amounts reclassified from accumulated other comprehensive
income | | | 240 | | | | 50 | | | | 190 | |
Defined benefit plans, net | | | 1,232 | | | | 259 | | | | 973 | |
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 | | | 289 | | | | 61 | | | | 228 | |
Defined benefit plans, net | | | (1,037 | ) | | | (218 | ) | | | (819 | ) |
Other comprehensive income | | $ | 9,804 | | | $ | 2,059 | | | $ | 7,745 | |
| | | | | | | | | |
43
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 | ) | | | 581 | | | | (66,857 | ) | | | (6,771 | ) | | | 783 | | | | (5,988 | ) | | | 8,638 | | | | (1,047 | ) | | | 7,591 | |
Amounts
reclassified
from
accumulated
other
comprehensive
income (loss) | | | (8 | ) | | | — | | | | (8 | ) | | | (1 | ) | | | 190 | | | | 189 | | | | (74 | ) | | | 228 | | | | 154 | |
Net current-period
other
comprehensive
income(loss) | | | (67,446 | ) | | | 581 | | | | (66,865 | ) | | | (6,772 | ) | | | 973 | | | | (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 | |
44
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 | | 2022 | | | | 2021 | | | | 2020 | | | | Affected Line Item in the
Statement Where Net Income is
Presented |
Unrealized gains (losses) on available for sale
securities | | $ | 10 | | | | $ | 1 | | | | $ | 94 | | | | Net gain on sale of securities |
Tax effect | | | (2 | ) | | | | — | | | | | (20 | ) | | | Income taxes |
| | | 8 | | | | | 1 | | | | | 74 | | | | |
Amortization of defined benefit pension items | | | | | | | | | | | | | | |
Actuarial losses | | | — | | (b) | | | (240 | ) | (b) | | | (289 | ) | (b) | | Other operating expenses |
Tax effect | | | — | | | | | 50 | | | | | 61 | | | | Income taxes |
| | | — | | | | | (190 | ) | | | | (228 | ) | | | |
Total reclassifications for the period | | $ | 8 | | | | $ | (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, | |
| | 2022 | | | 2021 | |
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.
45
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | | 2021 | |
| | 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:
| | | | | | | | |
| | 2022 | | | 2021 | |
Mortgage Servicing Rights: | | | | | | |
Beginning of year | | $ | 2,642 | | | $ | 2,246 | |
Additions | | | 397 | | | | 764 | |
Disposals | | | — | | | | — | |
Amortized to expense | | | 350 | | | | 572 | |
Other Charges | | | — | | | | — | |
Change in valuation allowance | | | — | | | | (204 | ) |
End of year | | $ | 2,689 | | | $ | 2,642 | |
| | | | | | |
Valuation allowance: | | | | | | |
Beginning of year | | $ | — | | | $ | 204 | |
Additions expensed | | | — | | | | 261 | |
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.
46
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 | |
2023 | | $ | 140 | | | $ | 1,581 | | | $ | 1,721 | |
2024 | | | 140 | | | | 1,489 | | | | 1,629 | |
2025 | | | 140 | | | | 1,311 | | | | 1,451 | |
2026 | | | 139 | | | | 1,193 | | | | 1,332 | |
2027 | | | 137 | | | | 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:
| | | | | | | | |
| | 2022 | | | 2021 | |
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:
| | | | |
2023 | | $ | 249,487 | |
2024 | | | 51,494 | |
2025 | | | 8,172 | |
2026 | | | 5,539 | |
2027 | | | 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.
47
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 | | | 137 | | | | 66,875 | | | | 137 | | | | — | |
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 | | | 228 | | | | 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:
| | | | |
2023 | | $ | 1,246 | |
2024 | | | 880 | |
2025 | | | 636 | |
2026 | | | 469 | |
2027 | | | 273 | |
Thereafter | | | 74 | |
Total | | $ | 3,578 | |
48
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:
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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 | % |
49
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. 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.
50
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:
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
Current | | $ | 6,973 | | | $ | 5,111 | | | $ | 6,947 | |
State | | | 152 | | | | 587 | | | | 270 | |
Deferred | | | 483 | | | | 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:
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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 | | | 282 | | | | (2 | ) | | | (174 | ) |
Income tax expense | | $ | 7,608 | | | $ | 7,017 | | | $ | 4,940 | |
51
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:
| | | | | | | | |
| | 2022 | | | 2021 | |
Deferred tax assets | | | | | | |
Allowance for loan losses | | $ | 6,106 | | | $ | 5,595 | |
Deferred compensation | | | 1,143 | | | | 1,213 | |
Pension costs | | | — | | | | 56 | |
Intangible assets | | | 154 | | | | 231 | |
Net operating loss carryforward | | | 699 | | | | — | |
Deferred loan fees | | | 347 | | | | 614 | |
Unrealized gain on securities available for sale | | | 14,218 | | | | — | |
Unrealized gain on securities purchased | | | 1,966 | | | | 258 | |
Other | | | 295 | | | | 455 | |
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.
52
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:
| | | | | | | | |
| | 2022 | | | 2021 | |
Change in benefit obligation: | | | | | | |
Beginning benefit obligation | | $ | 15,384 | | | $ | 16,656 | |
Service cost | | | — | | | | — | |
Interest cost | | | 392 | | | | 378 | |
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 | ) | | | 574 | |
Employer contribution | | | — | | | | — | |
Benefits paid | | | (2,198 | ) | | | (711 | ) |
Settlement payments | | | — | | | | — | |
Administrative expenses | | | — | | | | — | |
Ending plan assets | | | 10,934 | | | | 15,120 | |
Funded status at end of year | | $ | 811 | | | $ | (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.
53
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:
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
Service cost | | $ | — | | | $ | — | | | $ | — | |
Interest cost | | | 392 | | | | 378 | | | | 484 | |
Expected return on plan assets | | | (732 | ) | | | (574 | ) | | | (748 | ) |
Net amortization and deferral | | | — | | | | 240 | | | | 289 | |
Net periodic pension cost (benefit) | | | (340 | ) | | | 44 | | | | 25 | |
Additional loss due to settlement | | | — | | | | — | | | | — | |
Total pension cost (benefit) | | $ | (340 | ) | | $ | 44 | | | $ | 25 | |
| | | | | | | | | |
Net loss (gain) recognized in other comprehensive
income | | $ | (736 | ) | | $ | (854 | ) | | $ | 986 | |
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:
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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:
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
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.
54
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 | | 2023 | | 2022 | | | 2021 | |
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 |
55
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:
| | | | |
2023 | | $ | 284 | |
2024 | | | 333 | |
2025 | | | 410 | |
2026 | | | 451 | |
2027 | | | 479 | |
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.
56
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 | | | | 40 | | | | 1.00 | |
March 14, 2020 | | | 4,304 | | | | — | | | | 0.00 | |
March 14, 2020 | | | 6,669 | | | | 90 | | | | 2.00 | |
March 3, 2021 | | | 10,858 | | | | 150 | | | | 3.00 | |
March 3, 2021 | | | 13,692 | | | | 131 | | | | 1.00 | |
March 3, 2022 | | | 12,424 | | | | 236 | | | | 4.00 | |
March 3, 2022 | | | 17,024 | | | | 258 | | | | 2.00 | |
| | | 70,475 | | | $ | 905 | | | | 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).
57
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.
58
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 | | $ | — | | | $ | — | | | $ | 11 | |
Mortgage servicing rights | | | — | | | | — | | | | 2,642 | |
59
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 | | $ | 11 | | | 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 | | | 683 | | | | 698 | | | | 698 | | | | — | | | | — | |
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 | | | 668 | | | | 668 | | | | 668 | | | | — | | | | — | |
60
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 | | | 315 | | | | 315 | | | | 315 | | | | — | | | | — | |
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.
| | | | | | | | | | | | | | | | |
| | 2022 | | | 2021 | |
| | 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 | | | 10 | | | | 45,182 | | | | 7 | | | | 54,034 | |
Letters of credit | | | 960 | | | | 630 | | | | 615 | | | | 731 | |
| | $ | 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.
61
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.
62
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 | |
2022 | | | | | | | | | | | | | | | | | | |
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 | |
2021 | | | | | | | | | | | | | | | | | | |
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.
63
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 | | 2022 | | | 2021 | |
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 | | 2022 | | | 2021 | | | 2020 | |
Dividends from bank subsidiaries | | $ | 26,300 | | | $ | 19,900 | | | $ | 15,300 | |
Dividends from non-bank subsidiaries | | | 1,150 | | | | 1,000 | | | | 440 | |
Interest expense | | | (3,781 | ) | | | (956 | ) | | | (945 | ) |
Pension expense | | | 340 | | | | (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 | | | | 425 | | | | 475 | |
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 | |
64
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 | | 2022 | | | 2021 | | | 2020 | |
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 | |
65
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.
| | | | | | | | | | | | |
| | 2022 | | | 2021 | | | 2020 | |
Basic | | | | | | | | | |
Net income | | $ | 39,427 | | | $ | 40,546 | | | $ | 32,192 | |
Less allocation of earnings and dividends to
participating securities | | | 498 | | | | 173 | | | | 98 | |
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.
66
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:
| | | | | | | | | | | | | | | | |
| | 2022 | | | 2021 | |
| | Notional
Amount | | | Fair Value | | | Notional
Amount | | | Fair Value | |
Included in other assets: | | | | | | | | | | | | |
Interest rate swaps with loan customers in
an asset position | | $ | 6,980 | | | $ | 269 | | | $ | 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 | | 2022 | | | 2021 | | | 2020 | |
Interest rate swaps related to customer loans | | Other income | | $ | — | | | $ | 64 | | | $ | (64 | ) |
Total | | | | $ | — | | | $ | 64 | | | $ | (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.
67
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.
68
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, | |
| | 2022 | | | 2021 | | | 2020 | |
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 | | | | 831 | |
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.
69
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 | | $ | 445 | | | $ | 427 | |
Short-term lease cost | | | 182 | | | | 161 | |
Sublease income | | | (29 | ) | | | (29 | ) |
Total lease cost | | $ | 598 | | | $ | 559 | |
Maturities of our lease liabilities for all operating leases for each of the next five years and thereafter is as follows:
| | | | |
2023 | | $ | 494 | |
2024 | | | 487 | |
2025 | | | 308 | |
2026 | | | 258 | |
2027 | | | 259 | |
Thereafter | | | 468 | |
Total lease payments | | $ | 2,274 | |
Less: Imputed Interest | | | 166 | |
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 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.
70
PART IV
Item 15. Exhibit and Financial Statement Schedules
| | |
Exhibit | Description | Location |
23.1 | Consent of FORVIS, LLP | 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 |
101 | 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 . | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
(Registrant) Civista Bancshares, Inc. |
| | |
/s/ Dennis G. Shaffer | | /s/ Todd A. Michel |
Dennis G. Shaffer, President & CEO, (Principal Accounting Officer) | | Todd A. Michel, Senior Vice President, (Principal Accounting Officer) |
Date: April 3, 2023
72
