Civista Bancshares 10Q 2023 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended - March 31, 2023

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

For the transition period from to

Commission File Number: 001-36192

Civista Bancshares, Inc.

(Exact name of registrant as specified in its charter)


Ohio		34-1558688
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

100 East Water Street, Sandusky, Ohio		44870
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (419) 625-4121

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common	CIVB	NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at May 3, 2023—15,768,410 shares

CIVISTA BANCSHARES, INC.

Index


PART I.	Financial Information	2
Item 1.	Financial Statements:	2
	Consolidated Balance Sheets (Unaudited) March 31, 2023 and December 31, 2022	2
	Consolidated Statements of Operations (Unaudited) Three-months ended March 31, 2023 and 2022	3
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three-months ended March 31, 2023 and 2022	4
	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) Three-months ended March 31, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2023 and 2022	6
	Notes to Interim Consolidated Financial Statements (Unaudited)	7-38
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39-48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49-50
Item 4.	Controls and Procedures	51

PART II.	Other Information	52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
Signatures		54

Part I – Financial Information

ITEM 1. Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets

(In thousands, except share data)


	March 31, 2023
	(Unaudited)			December 31, 2022
ASSETS
Cash and due from financial institutions	$	52,723		$	43,361
Investments in time deposits		1,721			1,477
Securities available-for-sale		627,707			615,402
Equity securities		2,122			2,190
Loans held for sale		1,465			683
Loans, net of allowance for credit losses of $34,196 and $28,511		2,545,870			2,518,155
Other securities		35,383			33,585
Premises and equipment, net		61,895			64,018
Accrued interest receivable		10,254			11,178
Goodwill		125,078			125,695
Other intangible assets, net		10,730			10,759
Bank owned life insurance		53,796			53,543
Swap assets		13,350			16,579
Deferred taxes		17,196			16,009
Other assets		25,268			25,196
Total assets	$	3,584,558		$	3,537,830
LIABILITIES
Deposits
Noninterest-bearing	$	938,967		$	896,333
Interest-bearing		1,904,549			1,723,651
Total deposits		2,843,516			2,619,984
Short-term Federal Home Loan Bank advances		212,000			393,700
Securities sold under agreements to repurchase		15,631			25,143
Long-term Federal Home Loan Bank advances		3,361			3,578
Subordinated debentures		103,841			103,799
Other borrowings		13,938			15,516
Swap liabilities		13,350			16,579
Securities purchased payable		—			1,338
Tax refunds in process		5,752			278
Accrued expenses and other liabilities		25,472			23,080
Total liabilities		3,236,861			3,202,995
SHAREHOLDERS’ EQUITY
Common shares, no par value, 40,000,000 shares authorized, 19,276,857 shares issued at March 31, 2023 and 19,231,061 shares issued at December 31, 2022, including Treasury shares		310,412			310,182
Retained earnings		161,110			156,492
Treasury shares, 3,508,447 common shares at March 31, 2023 and 3,502,827 common shares at December 31, 2022, at cost		(73,915	)		(73,794	)
Accumulated other comprehensive loss		(49,910	)		(58,045	)
Total shareholders’ equity		347,697			334,835
Total liabilities and shareholders’ equity	$	3,584,558		$	3,537,830

See notes to interim unaudited consolidated financial statements

Page 2

CIVISTA BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)


	Three months ended
	March 31,
	2023			2022
Interest and dividend income
Loans, including fees	$	36,398		$	21,038
Taxable securities		2,834			1,720
Tax-exempt securities		2,262			1,789
Deposits in other banks		45			119
Total interest and dividend income		41,539			24,666
Interest expense
Deposits		3,232			705
Federal Home Loan Bank advances		4,277			190
Subordinated debentures		1,169			836
Securities sold under agreements to repurchase and other		260			3
Total interest expense		8,938			1,734
Net interest income		32,601			22,932
Provision for credit losses		620			300
Net interest income after provision for loan losses		31,981			22,632
Noninterest income
Service charges		1,773			1,579
Net gain (loss) on equity securities		(68	)		50
Net gain on sale of loans		631			936
ATM/Interchange fees		1,353			1,241
Wealth management fees		1,193			1,277
Lease revenue and residual income		2,046			—
Bank owned life insurance		253			244
Tax refund processing fees		1,900			1,900
Swap fees		61			—
Other		1,926			416
Total noninterest income		11,068			7,643
Noninterest expense
Compensation expense		15,105			12,223
Net occupancy expense		1,359			1,150
Equipment expense		2,761			495
Contracted data processing		520			620
FDIC assessment		248			203
State franchise tax		526			591
Professional services		1,555			1,049
Amortization of intangible assets		398			217
ATM/Interchange expense		580			513
Marketing		505			317
Software maintenance expense		878			708
Other operating expenses		3,198			2,172
Total noninterest expense		27,633			20,258
Income before taxes		15,416			10,017
Income tax expense		2,528			1,551
Net Income	$	12,888		$	8,466
Earnings per common share, basic	$	0.82		$	0.57
Earnings per common share, diluted	$	0.82		$	0.57

See notes to interim unaudited consolidated financial statements

Page 3

CIVISTA BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)


	Three Months Ended
	March 31,
	2023			2022
Net income	$	12,888		$	8,466
Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale securities		10,302			(37,446	)
Tax effect		(2,167	)		7,882
Reclassification of gains recognized in net income		—			—
Tax effect		—			—
Pension liability adjustment		—			69
Tax effect		—			(14	)
Total other comprehensive income (loss)loss		8,135			(29,509	)
Comprehensive income (loss)	$	21,023		$	(21,043	)

See notes to interim unaudited consolidated financial statements

Page 4

CIVISTA BANCSHARES, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

(In thousands, except share data)


	Common Shares											Accumulated Other			Total
	Outstanding Shares			Amount		Retained Earnings			Treasury Shares			Comprehensive Income (Loss)			Shareholders’ Equity
Balance, December 31, 2022		15,728,234		$	310,182	$	156,492		$	(73,794	)	$	(58,045	)	$	334,835
Cumulative-effect adjustment for adoption of ASC 326		—			—		(6,069	)		—			—			(6,069	)
Balance January 1, 2023		15,728,234		$	310,182	$	150,423		$	(73,794	)	$	(58,045	)	$	328,766
Net Income		—			—		12,888			—			—			12,888
Other comprehensive loss		—			—		—			—			8,135			8,135
Stock-based compensation		45,796			230		—			—			—			230
Common stock dividends ($0.14 per share)		—			—		(2,201	)		—			—			(2,201	)
Purchase of common stock		(5,620	)		—		—			(121	)		—			(121	)
Balance, March 31, 2023		15,768,410		$	310,412	$	161,110		$	(73,915	)	$	(49,910	)	$	347,697

	Common Shares											Accumulated Other			Total
	Outstanding Shares			Amount		Retained Earnings			Treasury Shares			Comprehensive Income			Shareholders’ Equity
Balance, December 31, 2021		14,954,200		$	277,741	$	125,558		$	(56,907	)	$	8,820		$	355,212
Net Income		—			—		8,466			—			—			8,466
Other comprehensive loss		—			—		—			—			(29,509	)		(29,509	)
Stock-based compensation		31,774			178		—			—			—			178
Common stock dividends ($0.14 per share)		—			—		(2,090	)		—			—			(2,090	)
Purchase of common stock		(188,760	)		—		—			(4,565	)		—			(4,565	)
Balance, March 31, 2022		14,797,214		$	277,919	$	131,934		$	(61,472	)	$	(20,689	)	$	327,692

See notes to interim unaudited consolidated financial statements

Page 5

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023			2022
Net cash provided by operating activities	$	19,794		$	9,114
Cash flows used for investing activities:
Maturities, paydowns and calls of securities, available-for-sale		4,980			16,731
Purchases of securities, available-for-sale		(7,179	)		(47,156	)
Purchase of other securities		(9,126	)		(1,500	)
Redemption of other securities		7,328			—
Net change in loans		(34,085	)		(18,809	)
Proceeds from sale of premises and equipment		692			—
Premises and equipment purchases		(1,245	)		(138	)
Net cash used for investing activities		(38,635	)		(50,872	)
Cash flows from financing activities:
Repayment of long-term FHLB advances		(217	)		—
Net change in short-term FHLB advances		(181,700	)		—
Repayment of other borrowings		(1,578	)		—
Increase in deposits		223,532			198,436
Decrease in securities sold under repurchase agreements		(9,512	)		(1,564	)
Purchase of treasury shares		(121	)		(4,565	)
Common dividends paid		(2,201	)		(2,090	)
Net cash provided by financing activities		28,203			190,217
Increasein cash and cash equivalents		9,362			148,459
Cash and cash equivalents at beginning of period		43,361			264,239
Cash and cash equivalents at end of period	$	52,723		$	412,698
Cash paid during the period for:
Interest	$	1,628		$	570
Income taxes		10			—
Supplemental cash flow information:
Transfer of loans from portfolio to other real estate owned		26			—
Change in fair value of swap asset		3,229			4,220
Change in fair value of swap liability		(3,229	)		(4,220	)
Securities purchased not settled		—			1,876

See notes to interim unaudited consolidated financial statements

Page 6

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(1) Consolidated Financial Statements

Nature of Operations and Principles of Consolidation: Civista Bancshares, Inc. (CBI) is an Ohio corporation and a registered financial holding company. The Consolidated Financial Statements include the accounts of CBI and its wholly-owned direct and indirect subsidiaries: Civista Bank (Civista), Vision Financial Group, Inc. (VFG), First Citizens Insurance Agency, Inc. (FCIA), Water Street Properties, Inc. (Water St.), CIVB Risk Management, Inc. (CRMI) and First Citizens Investments, Inc. (FCI).

Civista provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa, Richland, Montgomery, Henry, Wood and Cuyahoga, in the Indiana counties of Dearborn and Ripley and in the Kentucky county of Kenton. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions that are in excess of federally insured limits. Civista also engages in a general equipment leasing and financing business through its wholly-owned subsidiary, VFG, which was acquired in October 2022 and is headquartered in Pittsburgh, Pennsylvania.

FCIA is wholly-owned by CBI and was formed to allow the Company to participate in commission revenue generated through its third-party insurance agreement. Water St. is wholly-owned by CBI and was formed to hold properties repossessed by CBI subsidiaries. CRMI is a captive insurance company that is wholly-owned by CBI and allows CBI and its subsidiaries to insure against certain risks unique to their operations. The operations of CRMI are located in Wilmington, Delaware. FCI is wholly-owned by Civista and holds and manages its securities portfolio. The operations of FCI are located in Wilmington, Delaware.

The above companies together are referred to as the “Company.” Intercompany balances and transactions are eliminated in consolidation. Management considers the Company to operate primarily in one reportable segment, banking.

The Consolidated Financial Statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position as of March 31, 2023 and its results of operations and changes in cash flows for the periods ended March 31, 2023 and 2022 have been made. The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended March 31, 2023 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Company described in the notes to the audited financial statements contained in the Company’s 2022 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.

(2) Significant Accounting Policies

Allowance for Credit Losses: On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 introduces a new credit loss methodology, Current Expected Credit Losses ("CECL"), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the reserve for credit losses. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

Page 7

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the periods beginning after January 1, 2023 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets PCD that were previously classified as PCI and accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $1,668 to the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2023. The adoption of CECL resulted in an increase to our total allowance for credit losses (“ACL”) on loans held for investment of $4.3 million, an increase in allowance for credit losses on unfunded loan commitments of $3.4 million, a reclassification of purchased credit-impaired discount from loans to the ACL of $1.7 million, and an increase in deferred tax asset of $1.6 million. The Company also recorded a net reduction of retained earnings of $6.1 million upon adoption.

The allowance for credit losses is evaluated on a regular basis and established through charges to earnings in the form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Portfolio Segmentation (“Pooled Loans”)

Portfolio segmentation is defined as the pooling of loans based upon similar risk characteristics such that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses were constructed for each segment. The Company has identified eight portfolio segments of loans including Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Rela Estate, Real Estate Construction, Farm Real Estate, Lease Financing Receivable and Consumer and Other Loans.

The allowance for credit losses for Pooled Loans estimate is based upon periodic review of the collectability of the loans quantitatively correlating historical loan experience with reasonable and supportable forecasts using forward looking information. The Company utilized a DCF method to estimate the quantitative portion of the allowance for credit losses for loans evaluated in a collective pooled basis. For each segment, a loss driver analysis (LDA) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized the Company’s own Federal Financial Institutions Examination Council’s (“FFIEC”) Call Report data for all segments except indirect auto and all new and unknown values. Peer data was incorporated into the analysis for all segments except indirect auto and all new and unknown values. The Company has established a one-year reasonable and supportable forecast period with a one-year straight-line reversion to the long-term historical average. The Company’s policy is to utilize its own data, which includes loan-level loss data from March 31, 2004 through December 31, 2019 and from December 31, 2021 through June 30, 2022, whenever possible. The two-year period from December 31, 2019 to December 31, 2021 was excluded due to modeling errors stemming from the impact of the COVID-19 pandemic. Peer data is utilized when there are not sufficient defaults for a satisfactory sound calculation, or if the Company does not have its own loan-level detail reflecting similar economic conditions as the forecasted loss drivers.

Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. The Company uses the central tendency midpoint seasonally adjusted forecasts from FOMC. Other key assumptions include the PD, LGD, and prepayment/curtailment rates. When possible, the Company utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period. When possible, the Company utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own LGDs, the LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. Prepayment and curtailment rates were calculated based on the Company’s own data utilizing a one-year average. When the discounted cash flow method is used to determine the allowance for credit losses, management incorporates expected prepayments to determine the effective interest rate utilized to discount expected cash flow.

Page 8

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Adjustments to the quantitative evaluation may be for differences in current or expected qualitative risk characteristics such as changes in: underwriting standards, changes in the value of underlying collateral dependent loans, the existence and effect of portfolio concentration, delinquency level, regulatory environment, economic conditions, Company management and the status of portfolio administration including the Company’s loan review function.

Purchased Credit Deteriorated (PCD) Loans

The Company has purchased loans, some of which have shown evidence of credit deterioration since origination. Upon adoption of ASC 326, the Company elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are written off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for each pool and added to the pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis is the noncredit premium or discount which will be amortized into interest income over the remaining life of the pool. Changes to the allowance for credit losses after adoption are recorded through provision expense.

Individually Evaluated Loans

The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the forecasted allowance for credit losses. These individually evaluated loans are removed from the pooling approach discussed above for the forecasted allowance for credit losses, and include nonaccrual loans, loan and lease modifications experiencing financial difficulty, and other loans deemed appropriate by management.

Available for Sale (“AFS”) Debt Securities

For AFS securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

Page 9

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Accrued Interest Receivable

Upon adoption of ASU 2016-13 and its related amendments on January 1, 2023, the Company made the following elections regarding accrued interest receivable:

•

Presenting accrued interest receivable balances separately within another line item on the statement of financial condition.

•

Excluding accrued interest receivable that is included in the amortized cost of financing receivables and debt securities from related disclosure requirements.

•

Continuing our policy to write off accrued interest receivable by reversing interest income. For both commercial and consumer loans, the write off typically occurs upon becoming 90 days past due. Historically, the Company has not experienced uncollectible accrued interest receivable on its investment securities. However, the Company would generally write off accrued interest receivable by reversing interest income if the Company does not reasonably expect to receive payments. Due to the timely manner in which accrued interest receivables are written off, the amounts of such write offs are immaterial.

•

Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner, as described above.

Reserve for Unfunded Commitments

The reserve for unfunded commitments (the “Unfunded Reserve”) represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. The Company is defining unconditionally cancelable in its literal sense, meaning that a commitment may be cancelled by the Company for any, and or no reason whatsoever. However, the Company in its business dealings, has no practical history of unconditionally canceling commitments. Commitments are not typically cancelled until a default or a defined condition occurs. Being that its historical practice has been to not cancel credit commitments unconditionally, the Company has made the decision to reserve for Unfunded Commitments. The Unfunded Reserve is recognized as a liability (included within other liabilities in the consolidated balance sheets), with adjustments to the reserve recognized as a provision for credit loss expense in the consolidated statements of income. The Unfunded Reserve is determined by estimating expected future fundings, under each segment, and applying the expected loss rates. Expected future fundings over its estimated life are based on historical averages of funding rates (i.e., the likelihood of draws taken). To estimate future fundings on unfunded balances, current funding rates are compared to historical funding rates. Estimate of credit losses are determined using the same loss rates as funded loans.

Revisions: An immaterial revision has been made to the consolidated financial statements for a change in the fair market value of loans for the period ended December 31, 2022, in Note 13 herein. This revision did not have a significant impact on the financial statement line item affected or total assets, equity or net income.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, consideration of impairment of goodwill, fair values of financial instruments, deferred taxes, swap assets/liabilities and pension obligations are particularly subject to change.

Adoption of New Accounting Standards:

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

Page 10

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current Generally Accepted Accounting Principles (“GAAP”), which generally require that a loss be incurred before it is recognized. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

On January 1, 2023, the Company adopted the guidance prospectively with a cumulative adjustment to retained earnings. The Company has not restated comparative information for 2022 and, therefore, the comparative information for 2022 is reported under the old model and is not comparable to the information presented for 2023.

At adoption, the Company recognized an incremental allowance for credit losses on its loans to customers of $4.3 million, a liability for off-balance sheet unfunded commitments of $3.4 million and a reclassification of the discount ("PCD") on purchased credit-impaired (PCI) loans to the ACL of $1.7 million. Additionally, the Company recorded a $6.1 million after tax decrease in retained earnings associated with the increased estimated credit losses. The “Day 1” impact of CECL adoption is summarized below:


CECL Adoption
						Impact of
			CECL Adoption			Adopting ASC 326 -
	December 31, 2022		Impact			PCD Loans		January 1, 2023
Allowance for Credit Losses:
Commercial & Agriculture	$	3,011	$	429		$	390	$	3,830
Commercial Real Estate:
Owner Occupied		4,565		1,075			179		5,819
Non-Owner Occupied		14,138		(2,847	)		—		11,291
Residential Real Estate		3,145		2,762			386		6,293
Real Estate Construction		2,293		1,502			—		3,795
Farm Real Estate		291		(28	)		—		263
Lease Financing Receivable		429		1,743			635		2,807
Consumer and Other		98		201			78		377
Unallocated		541		(541	)		—		—
Total Allowance for Credit Losses	$	28,511	$	4,296		$	1,668	$	34,475
Reserve for Unfunded Commitments		—		3,386			—		3,386
Total Reserve for Credit Losses	$	28,511	$	7,682		$	1,668	$	37,861

Retained Earnings
Total Pre-tax Impact			$	(7,682	)
Tax Effect				1,613
Decrease to Retained Earnings			$	(6,069	)

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

Page 11

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

On January 1, 2023, the Company adopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is an SEC filer, such as the Company, was to adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In November 2019, however, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles – Goodwill and Other, for SEC filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption of the ASU provisions did not have a significant impact on the Company's consolidated financial statements.

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off. The adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements.

Effect of Newly Issued but Not Yet Effective Accounting Standards:

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The Update is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by reference rate reform. The Update also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022; however, a deferral of the implementation of reference rate reform was issued in December of 2022, which extends the implementation to December 31, 2024. The Company is working through this transition via a multi-disciplinary project team. We are still evaluating the impact the change from LIBOR to a benchmark like SOFR or Prime Rate will have on our financial condition, results of operations or cash flows.

Other recent ASU’s issued by the FASB did not, or are not believed by management to have, a material effect on the Company’s present or future Consolidated Financial Statements.

(3) Securities

The amortized cost and fair market value of available-for-sale securities and the related gross unrealized gains and losses recognized were as follows:


March 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	66,781	$	22	$	(4,290	)	$	62,513
Obligations of states and political subdivisions		356,250		1,902		(27,514	)		330,638
Mortgage-backed securities in government sponsored entities		261,324		24		(26,792	)		234,556
Total debt securities	$	684,355	$	1,948	$	(58,596	)	$	627,707

Page 12

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


December 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
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-backed securities in government sponsored entities		265,752		15		(28,642	)		237,125
Total debt securities	$	682,351	$	819	$	(67,768	)	$	615,402

The amortized cost and fair value of securities at March 31, 2023, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.


Available for sale	Amortized Cost		Fair Value
Due in one year or less	$	6,449	$	6,299
Due after one year through five years		50,074		47,145
Due after five years through ten years		66,175		62,011
Due after ten years		300,333		277,696
Mortgage-backed securities		261,324		234,556
Total securities available-for-sale	$	684,355	$	627,707

At March 31, 2023 and March 31, 2022 there were no proceeds from sales of securities available-for-sale, gross realized gains and gross realized losses.

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $238,726 and $218,344 as of March 31, 2023 and December 31, 2022, respectively.

The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022:


March 31, 2023	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	$	20,129	$	(482	)	$	41,506	$	(3,808	)	$	61,635	$	(4,290	)
Obligations of states and political subdivisions		55,169		(620	)		148,004		(26,894	)		203,173		(27,514	)
Mortgage-backed securities in gov’t sponsored entities		91,267		(2,381	)		139,927		(24,411	)		231,194		(26,792	)
Total temporarily impaired	$	166,565	$	(3,483	)	$	329,437	$	(55,113	)	$	496,002	$	(58,596	)


December 31, 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	)

Page 13

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

At March 31, 2023, there were a total of 413 securities in the portfolio with unrealized losses mainly due to higher current market rates when compared to the time of purchase. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to currently higher market rates when compared to the time of purchase. The fair value is expected to recover as the securities approach their maturity date or reset date. The Company does not intend to sell until recovery and does not believe selling will be required before recovery.

The following table presents the net gains and losses on equity investments recognized in earnings for the three months ended March 31, 2023 and 2022, and the portion of unrealized gains and losses for the period that relates to equity investments held at March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023			2022
Net gains (losses) recognized on equity securities during the period	$	(68	)	$	50
Less: Net losses realized on the sale of equity securities during the period		—			—
Unrealized gains (losses) recognized on equity securities held at reporting date	$	(68	)	$	50

(4) Loans

Loan balances were as follows:


	March 31, 2023			December 31, 2022
Commercial & Agriculture	$	271,160		$	278,595
Commercial Real Estate- Owner Occupied		375,825			371,147
Commercial Real Estate- Non-Owner Occupied		1,043,635			1,018,736
Residential Real Estate		560,978			552,781
Real Estate Construction		247,253			243,127
Farm Real Estate		24,040			24,708
Lease Financing Receivable		37,570			36,797
Consumer and Other		19,605			20,775
Total loans		2,580,066			2,546,666
Allowance for credit losses		(34,196	)		(28,511	)
Net loans	$	2,545,870		$	2,518,155

Included in Commercial & Agriculture loans above are $464 and $566 of Paycheck Protection Program (“PPP”) loans as of March 31, 2023 and December 31, 2022, respectively.

Included in total loans above are net deferred loan fees of $2,066 and $1,652 at March 31, 2023 and December 31, 2022, respectively.

The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this Note 4 and Note 5 (Allowance for Credit Losses). As of March 31, 2023 and December 31, 2022, accrued interest receivable totaled $10,254 and $11,178, respectively, and is included in the accrued interest receivable line item on the Company's Consolidated Balance Sheet.

Page 14

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(5) Allowance for Credit Losses

As previously mentioned in Note 2 Significant Accounting Policies, the Company’s January 1, 2023, adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” resulted in a significant change to our methodology for estimating the ACL since December 31, 2022. As a result of this adoption, the Company recorded a $5,193 increase to the ACL as a cumulative-effect adjustment on January 1, 2023.

The following tables present, by portfolio segment, the changes in the ACL for the three months ended March 31, 2023.

Allowance for credit losses:


For the three months ended March 31, 2023	Beginning balance		CECL Adoption Day 1 Impact			Impact of Adopting ASC 326 - PCD Loans 1		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	3,011	$	429		$	—	$	(140	)	$	6	$	10		$	3,316
Commercial Real Estate:
Owner Occupied		4,565		1,075			19		—			—		74			5,733
Non-Owner Occupied		14,138		(2,847	)		—		—			7		462			11,760
Residential Real Estate		3,145		2,762			166		(10	)		22		(151	)		5,934
Real Estate Construction		2,293		1,502			—		—			4		121			3,920
Farm Real Estate		291		(28	)		—		—			—		6			269
Lease Financing Receivables		429		1,743			635		—			—		100			2,907
Consumer and Other		98		201			77		(25	)		8		(5	)		354
Unallocated		541		(541	)		—		—			—		3			3
Total	$	28,511	$	4,296		$	897	$	(175	)	$	47	$	620		$	34,196

1 Day 1 impact of $1,668, of adopting ASC 326-PCD loans was netted by changes in estimates of $771.

For the three months ended March 31, 2023, the Company provided $620 to the allowance for credit losses, as compared to a provision of $300 for the three months ended March 31, 2022. Upon adoption of CECL we recorded an increase in the allowance for credit losses of $5,193. The increase in the reserves was principally related to loan growth during the quarter.

Page 15

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Allowance for credit losses:


For the three months ended March 31, 2022	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	2,600	$	—		$	1	$	(17	)	$	2,584
Commercial Real Estate:
Owner Occupied		4,464		—			—		130			4,594
Non-Owner Occupied		13,860		—			48		669			14,577
Residential Real Estate		2,597		(1	)		61		(45	)		2,612
Real Estate Construction		1,810		—			—		53			1,863
Farm Real Estate		287		—			2		(40	)		249
Consumer and Other		176		(29	)		10		(21	)		136
Unallocated		847		—			—		(429	)		418
Total	$	26,641	$	(30	)	$	122	$	300		$	27,033

For the three months ended March 31, 2022, the Company provided $300 to the allowance for credit losses. The provision in the first quarter of 2022 was due to the stability of our credit quality metrics coupled with the continued stabilization and, in some cases, improvement of international, national, regional and local economic conditions that were adversely impacted by the prior economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. While vaccinations and improved treatments created a level of optimism in the business community, there remained caution due to the lingering concerns over potential infection spikes. We remained cautious during the first quarter of 2022 given the level of classified loans in the portfolio, particularly loans to borrowers in the hotel industry as well as the challenging environment that businesses continued to face. As of March 31, 2022, economic impacts related to the COVID-19 pandemic had improved somewhat, but continued concerns lingered due to the disruption of supply chains, additional employee costs, higher challenges throughout our footprint and rising inflationary pressures. While some of these pressures had eased, ongoing supply chain and staffing challenges, as well as the impact of higher inflation remained.

During the three months ended March 31, 2022, 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 PPP loan balances. Commercial and Agriculture loan balances decreased during the quarter mainly due to the forgiveness or payoff of PPP loans during the quarter. 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, accompanied by an increase 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. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to net recoveries for this type of loan. The result was represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in 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 determined that the unallocated amount was appropriate and within the relevant range for the allowance that was reflective of the risk in the portfolio at March 31, 2022.

Page 16

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present, by portfolio segment, the allocation of the allowance for credit losses and related loan balances as of March 31, 2023 and December 31, 2022.


March 31, 2023	Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for credit losses:
Commercial & Agriculture	$	12	$	3,304	$	3,316
Commercial Real Estate:
Owner Occupied		7		5,726		5,733
Non-Owner Occupied		—		11,760		11,760
Residential Real Estate		2		5,932		5,934
Real Estate Construction		—		3,920		3,920
Farm Real Estate		—		269		269
Lease Financing Receivables		371		2,536		2,907
Consumer and Other		77		277		354
Unallocated		—		3		3
Total	$	469	$	33,727	$	34,196
Outstanding loan balances:
Commercial & Agriculture	$	165	$	270,995	$	271,160
Commercial Real Estate:
Owner Occupied		1,514		374,311		375,825
Non-Owner Occupied		119		1,043,516		1,043,635
Residential Real Estate		1,838		559,140		560,978
Real Estate Construction		—		247,253		247,253
Farm Real Estate		—		24,040		24,040
Lease Financing Receivables		328		37,242		37,570
Consumer and Other		77		19,528		19,605
Total	$	4,041	$	2,576,025	$	2,580,066

Page 17

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


December 31, 2022	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for credit 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
Consumer and Other		—		—		98		98
Lease Financing Receivables		—		—		429		429
Unallocated		—		—		541		541
Total	$	9	$	7	$	28,495	$	28,511
Outstanding loan balances:
Commercial & Agriculture	$	863.00	$	—	$	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

The following tables present credit exposures by internally assigned risk grades as of March 31, 2023 and December 31, 2022. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned risk grades are as follows:

•

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

•

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

•

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Civista will sustain some loss if the deficiencies are not corrected.

•

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

•

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

Page 18

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Based on the most recent analysis performed, the risk category of loans, by type and year of originations, at March 31, 2023, is as follows:


	Term Loans Amortized Cost Basis by Origination Year
															Revolving
															Loans
													Revolving		Converted
March 31, 2023	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total
Commercial & Agriculture
Pass	$	29,720	$	57,104	$	40,428	$	11,291	$	10,846	$	3,204	$	115,283	$	—	$	267,876
Special Mention		—		—		—		135		—		—		1,409		—		1,544
Substandard		—		—		542		466		93		93		276		—		1,470
Doubtful		—		184		61		25		—		—		—		—		270
Total Commercial & Agriculture	$	29,720	$	57,288	$	41,031	$	11,917	$	10,939	$	3,297	$	116,968	$	—	$	271,160
Commercial & Agriculture:
Current-period gross charge-offs	$	—	$	59	$	—	$	—	$	—	$	81	$	—	$	—	$	140

Commercial Real Estate - Owner Occupied
Pass	$	11,769	$	92,658	$	73,561	$	62,938	$	35,118	$	92,494	$	5,152	$	—	$	373,690
Special Mention		—		—		—		—		400		320		—		—		720
Substandard		—		—		3		—		—		1,408		4		—		1,415
Doubtful		—		—		—		—		—		—		—		—		—
Total Commercial Real Estate - Owner Occupied	$	11,769	$	92,658	$	73,564	$	62,938	$	35,518	$	94,222	$	5,156	$	—	$	375,825
Commercial Real Estate - Owner Occupied:
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Non-Owner Occupied
Pass	$	43,761	$	288,143	$	216,483	$	150,088	$	115,865	$	192,348	$	19,286	$	—	$	1,025,974
Special Mention		—		5,207		—		—		277		8,235		277		—		13,996
Substandard		—		—		—		—		146		3,519		—		—		3,665
Doubtful		—		—		—		—		—		—		—		—		—
Total Commercial Real Estate - Non-Owner Occupied	$	43,761	$	293,350	$	216,483	$	150,088	$	116,288	$	204,102	$	19,563	$	—	$	1,043,635
Commercial Real Estate - Non-Owner Occupied:
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate
Pass	$	19,267	$	103,972	$	92,892	$	78,060	$	39,193	$	91,023	$	130,964	$	—	$	555,371
Special Mention		—		54		—		—		—		46		55		—		155
Substandard		—		29		271		155		768		3,574		655		—		5,452
Doubtful		—		—		—		—		—		—		—		—		—
Total Residential Real Estate	$	19,267	$	104,055	$	93,163	$	78,215	$	39,961	$	94,643	$	131,674	$	—	$	560,978
Residential Real Estate:
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	10	$	—	$	—	$	10

Page 19

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)


Real Estate Construction
Pass	$	10,367	$	124,262	$	73,422	$	28,258	$	—	$	—	$	10,727	$	—	$	247,036
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		44		—		173		—		—		—		217
Doubtful		—		—		—		—		—		—		—		—		—
Total Real Estate Construction	$	10,367	$	124,262	$	73,466	$	28,258	$	173	$	—	$	10,727	$	—	$	247,253
Real Estate Construction:
Current-period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Farm Real Estate
Pass	$	572	$	1,368	$	2,284	$	5,418	$	840	$	12,723	$	602	$	—	$	23,807
Special Mention		—		—		—		—		—		189		—		—		189
Substandard		—		—		—		44		—		—		—		—		44
Doubtful		—		—		—		—		—		—		—		—		—
Total Farm Real Estate	$	572	$	1,368	$	2,284	$	5,462	$	840	$	12,912	$	602	$	—	$	24,040
Farm Real Estate:
Current-period charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Lease Financing Receivables
Pass	$	11,925	$	16,335	$	5,210	$	2,252	$	1,492	$	248	$	—	$	—	$	37,462
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		47		—		—		—		—		—		47
Doubtful		—		—		26		—		35		—		—		—		61
Total Lease Financing Receivables	$	11,925	$	16,335	$	5,283	$	2,252	$	1,527	$	248	$	—	$	—	$	37,570
Lease Financing Receivables:
Current-period charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer and Other
Pass	$	1,693	$	6,214	$	5,736	$	2,451	$	984	$	618	$	1,715	$	—	$	19,411
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		141		33		12		—		8		—		—		194
Doubtful		—		—		—		—		—		—		—		—		—
Total Consumer and Other	$	1,693	$	6,355	$	5,769	$	2,463	$	984	$	626	$	1,715	$	—	$	19,605
Consumer and Other:
Current-period charge-offs	$	—	$	1	$	10	$	2	$	10	$	—	$	2	$	—	$	25
Total Loans	$	129,074	$	695,671	$	511,043	$	341,593	$	206,230	$	410,050	$	286,405	$	—	$	2,580,066
Total Loans:
Current-period charge-offs	$	—	$	60	$	10	$	2	$	10	$	91	$	2	$	—	$	175

Page 20

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Generally, Residential Real Estate, Real Estate Construction and Consumer and Other loans are not risk-graded, except when collateral is used for a business purpose. Only those loans that have been risk rated as of December 31, 2022 are included below.


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

The following tables present performing and nonperforming loans based solely on payment activity for the period ended December 31, 2022 that have not been assigned an internal risk grade.


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

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of March 31, 2023 and December 31, 2022.


March 31, 2023	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Past Due 90 Days and Accruing
Commercial & Agriculture	$	834	$	201	$	684	$	1,719	$	269,441	$	271,160	$	—
Commercial Real Estate:
Owner Occupied		44		—		39		83		375,742		375,825		—
Non-Owner Occupied		347		6,500		1,294		8,141		1,035,494		1,043,635		—
Residential Real Estate		2,751		355		978		4,084		556,894		560,978		—
Real Estate Construction		506		—		—		506		246,747		247,253		—
Farm Real Estate		—		—		—		—		24,040		24,040		—
Lease Financing Receivables		1,032		87		110		1,229		36,341		37,570		47
Consumer and Other		101		27		78		206		19,399		19,605		—
Total	$	5,615	$	7,170	$	3,183	$	15,968	$	2,564,098	$	2,580,066	$	47


December 31, 2022	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		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	$	—

Page 21

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents loans on nonaccrual status as of March 31, 2023.


March 31, 2023
	Nonaccrual loans with a related ACL		Nonaccrual loans without a related ACL		Total Nonaccrual loans		Interest Income Recognized
Commercial & Agriculture	$	12	$	945	$	957	$	—
Commercial Real Estate:
Owner Occupied		—		358		358		3
Non-Owner Occupied		—		1,294		1,294		—
Residential Real Estate		—		3,892		3,892		29
Real Estate Construction		—		217		217		—
Farm Real Estate		—		—		—		—
Lease Financing Receivables		—		61		61		—
Consumer and Other		77		124		201		—
Total	$	89	$	6,891	$	6,980	$	32

The following table presents loans on nonaccrual status as of December 31, 2022, excluding PCI loans.


	December 31, 2022
Commercial & Agriculture	$	774
Commercial Real Estate:
Owner Occupied		386
Non-Owner Occupied		1,109
Residential Real Estate		3,926
Real Estate Construction		221
Farm Real Estate		—
Lease Financing Receivables		—
Consumer and Other		91
Total	$	6,507

Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. Payments received on nonaccrual loans are applied to the unpaid principal balance. A loan may be returned to accruing status only if one of two 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 or the principal and interest payments are reasonably assured and a sustained period of performance has occurred, generally six months.

Modifications: A modification of a loan constitutes a TDR when the Company for economic or legal reasons related to a borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve reducing the interest rate lower than the current market rate for new debt with similar risk. Residential Real Estate loans modified in a TDR primarily involve interest rate reductions where monthly payments are lowered to accommodate the borrowers’ financial needs.

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. Allowances for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of December 31, 2022, TDRs accounted for $7 of the ACL.

Page 22

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

There were no loans modified as TDRs during the three-month period ended March 31, 2022.

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans.

During the three-month period ended March 31, 2022, there were no defaults on loans that were modified and considered TDRs during the respective previous twelve months.

Individually Evaluated Loans: Larger (greater than $350) Commercial & Agricultural and Commercial Real Estate loan relationships, and Residential Real Estate and Consumer loans that are part of a larger relationship are tested for impairment on a quarterly basis. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans.


March 31, 2023	Real Estate		Other		Allowance for Credit Losses
Commercial & Agriculture	$	49	$	116	$	12
Commercial Real Estate:
Owner Occupied		—		—		—
Non-Owner Occupied		—		—		—
Residential Real Estate		689		—		—
Real Estate Construction		—		—		—
Farm Real Estate		—		—		—
Lease Financing Receivables		—		—		—
Consumer and Other		—		77		77
Total	$	738	$	193	$	89

Collateral-dependent loans consist primarily of residential real estate, commercial real estate and commercial and industrial loans. These loans are individually evaluated when foreclosure is probable or when the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral. In the case of commercial and industrial loans secured by equipment, the fair value of the collateral is estimated by third-party valuation experts. Loan balances are charged down to the underlying collateral value when they are deemed uncollectible. Note that the Company did not elect to use the collateral maintenance agreement practical expedient available under CECL.

Page 23

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, as of December 31, 2022, excluding PCI loans.


	December 31, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial & Agriculture	$	—	$	—			$	86	$	—
Commercial Real Estate:
Owner Occupied		82		82				192		6
Non-Owner Occupied		—		—				35		—
Residential Real Estate		385		410				595		40
Farm Real Estate		—		—				381		14
Total		467		492				1,289		60
With an allowance recorded:
Commercial & Agriculture		—		—	$	—		—		—
Commercial Real Estate:
Owner Occupied		150		150		6		214		—
Residential Real Estate		7		11		1		19		—
Lease Financing Receivables		—		—		—		—		—
Consumer and Other		—		—		—		—		—
Total		157		161		7		233		—
Total:
Commercial & Agriculture		—		—		—		86		—
Commercial Real Estate:
Owner Occupied		232		232		6		406		6
Non-Owner Occupied		—		—		—		35		—
Residential Real Estate		392		421		1		614		40
Lease Financing Receivables		—		—		��		381		14
Consumer and Other		—		—		—		—		—
Total	$	624	$	653	$	7	$	1,522	$	60

The following table includes the average recorded investment and interest income recognized for impaired financing receivables for the three-month periods ended March 31, 2022.


	March 31, 2022
For the three months ended	Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	—	$	—
Commercial Real Estate—Owner Occupied		193		3
Commercial Real Estate—Non-Owner Occupied		—		—
Residential Real Estate		530		7
Farm Real Estate		514		6
Lease Financing Receivables		—		—
Consumer and Other		—		—
Total	$	1,237	$	16

Page 24

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Changes in the accretable yield for PCI loans as of March 31, 2022 were as follows, since acquisition:


	For the Three-Month Period Ended March 31, 2022
	(In Thousands)
Balance at beginning of period	$	217
Acquisition of PCI loans		—
Accretion		(16	)
Transfer from non-accretable to accretable		15
Balance at end of period	$	216

The Company has acquired loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. Upon the Company's adoption of ASU 2016-13, remaining credit-related discount on these assets were re-classified to the allowance for credit losses. The Company elected the prospective transition approach and all loans previously considered purchased credit impaired are now classified as purchased with credit deterioration. The remaining non-credit discount will continue to be accreted into income over the remining lives of the assets. The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 as of December 31, 2022:


	At December 31, 2022
	Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30)
	(In Thousands)
Outstanding balance	$	5,220
Carrying amount		4,386

There was no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of December 31, 2022.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in Other assets on the Consolidated Balance Sheet. As of March 31, 2023, there were $26 of foreclosed assets included in Other assets. As of December 31, 2022, there were no foreclosed assets included in Other assets. As of March 31, 2023 and December 31, 2022, the Company had initiated formal foreclosure procedures on $210 and $399, respectively, of consumer residential mortgages.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit. The allowance for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit loss expense recognized within other non-interest expense on the Consolidated Statements of Operations. The estimated credit loss includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate of expected credit loss is based on the historical loss rate for the loan class in which the loan commitments would be classified as if funded.

Page 25

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table lists the allowance for credit losses on off-balance sheet credit exposures as of March 31, 2023:


	Allowance for
March 31, 2023	Credit Losses
Commercial & Agriculture	$	648
Commercial Real Estate:
Owner Occupied		91
Non-Owner Occupied		159
Residential Real Estate		486
Real Estate Construction		2,143
Farm Real Estate		26
Lease Financing Receivables		—
Consumer and Other		34
Total allowance for credit losses	$	3,587

(6) Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax for the three-month periods ended March 31, 2023 and March 31, 2022.


	For the Three-Month Period Ended									For the Three-Month Period Ended
	March 31, 2023(a)									March 31, 2022(a)
	Unrealized Gains and (Losses) on Available-for- Sale Securities (a)			Defined Benefit Pension Items (a)			Total (a)			Unrealized Gains and (Losses) on Available-for- Sale Securities (a)			Defined Benefit Pension Items (a)			Total (a)
Beginning balance	$	(52,771	)	$	(5,274	)	$	(58,045	)	$	14,675		$	(5,855	)	$	8,820
Other comprehensive income (loss) before reclassifications		8,135			—			8,135			(29,564	)		—			(29,564	)
Amounts reclassified from accumulated other comprehensive loss		—			—			—			—			55			55
Net current-period other comprehensive income (loss)		8,135			—			8,135			(29,564	)		55			(29,509	)
Ending balance	$	(44,636	)	$	(5,274	)	$	(49,910	)	$	(14,889	)	$	(5,800	)	$	(20,689	)

(a)

Amounts in parentheses indicate debits on the Consolidated Balance Sheets.

Page 26

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three-month periods ended March 31, 2023 and March 31, 2022.


	Amount Reclassified from Accumulated Other Comprehensive Loss (a)
Details about Accumulated Other Comprehensive Loss Components	For the Three months ended March 31, 2023		For the Three months ended March 31, 2022			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains (losses) on available-for-sale securities	$	—	$	—		Net gain on sale of securities
Tax effect		—		—		Income tax expense
		—		—
Amortization of defined benefit pension items
Actuarial gains/(losses) (b)		—		(69	)	Other operating expenses
Tax effect		—		14		Income tax expense
		—		(55	)
Total reclassifications for the period	$	—	$	(55	)

(a)

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

(b)

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

(7) Goodwill and Intangible Assets

The carrying amount of goodwill has decreased $617 since December 31, 2022 as a result of adjustments to estimated fair values of the assets acquired and liabilities assumed since the date of acquisition. The balance of goodwill was $125,078 at March 31, 2023 and $125,695 at December 31, 2022.

Acquired intangible assets, other than goodwill, as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit intangibles	$	12,953	$	5,282	$	7,671	$	12,953	$	4,883	$	8,070
Total amortized intangible assets	$	12,953	$	5,282	$	7,671	$	12,953	$	4,883	$	8,070

Aggregate core deposit intangible amortization expense was $398, and $217, for the three-months ended March 31, 2023 and 2022, respectively.

Page 27

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Activity for mortgage servicing rights (MSRs) and the related valuation allowance for the three-month periods ended March 31, 2023 and March 31, 2022 were as follows:


	Three Months Ended March 31,
	2023			2022
Loan Servicing Rights:
Balance at Beginning of Period	$	2,689		$	2,642
Additions		436			145
Additions from acquisition		—			—
Disposals		—			—
Amortized to expense		(66	)		(109	)
Other charges		—			—
Change in valuation allowance		—			—
Balance at End of Period	$	3,059		$	2,678


Valuation allowance:
Balance at Beginning of Period	$	—		$	—
Additions expensed		—			—
Reductions credited to operations		—			—
Direct write-offs		—			—
Balance at End of Period	$	—		$	—

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


	MSRs		Core deposit intangibles		Total
2023	$	130	$	1,181	$	1,311
2024		171		1,489		1,660
2025		170		1,312		1,482
2026		167		1,193		1,360
2027		163		1,071		1,234
Thereafter		2,258		1,425		3,683
	$	3,059	$	7,671	$	10,730

Page 28

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(8) Short-Term and Other Borrowings

Short-term and other borrowings, which consist of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, are summarized as follows:


	At March 31, 2023					At December 31, 2022
	Federal Funds Purchased		Short-term Borrowings			Federal Funds Purchased		Short-term Borrowings
Outstanding balance	$	—	$	212,000		$	—	$	393,700
Interest rate on balance		—		4.86	%		—		4.24	%


	Three Months Ended March 31,
	2023			2023			2022		2022
	Federal Funds Purchased			Short-term Borrowings			Federal Funds Purchased		Short-term Borrowings
Maximum indebtedness	$	30,000		$	540,000		$	—	$	15,800
Average balance		333			372,226			—		358
Average rate paid		5.96	%		4.64	%		—		0.30	%

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

Short-term borrowings and federal funds purchased transactions can range from overnight to six months in maturity. The average maturity was one day at March 31, 2023.

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 March 31, 2023 and December 31, 2022. All of the repurchase agreements are overnight agreements.


	March 31, 2023		December 31, 2022
Securities pledged for repurchase agreements:
U.S. Treasury securities	$	15,631	$	25,143
Obligations of U.S. government agencies		—		—
Total securities pledged	$	15,631	$	25,143
Gross amount of recognized liabilities for repurchase agreements	$	15,631	$	25,143
Amounts related to agreements not included in offsetting disclosures above	$	—	$	—

Page 29

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(9) Earnings per Common Share

The Company has granted restricted stock awards with non-forfeitable rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by ASC 260-10-45. Basic earnings per common share are computed as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Diluted earnings per common share include the dilutive effect, if any, of additional potential common shares issuable under the Company’s equity incentive plan, computed using the treasury stock method. The Company had no dilutive securities for the three-months ended March 31, 2023 and 2022.


	Three Months Ended
	March 31,
	2023		2022
Basic
Net income	$	12,888	$	8,466
Less allocation of earnings and dividends to participating securities		452		32
Net income available to common shareholders—basic	$	12,436	$	8,434
Weighted average common shares outstanding		15,732,092		14,909,192
Less average participating securities		552,882		55,905
Weighted average number of shares outstanding used in the calculation of basic earnings per common share		15,179,210		14,853,287
Earnings per common share:
Basic	$	0.82	$	0.57
Diluted		0.82		0.57

(10) Commitments, Contingencies and Off-Balance Sheet Risk

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amounts of financial instruments with off-balance-sheet risk were as follows at March 31, 2023 and December 31, 2022:


	Contract Amount
	March 31, 2023				December 31, 2022
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitment to extend credit:
Lines of credit and construction loans	$	49,661	$	615,797	$	42,184	$	599,185
Overdraft protection		10		45,518		10		45,182
Letters of credit		960		708		960		630
	$	50,631	$	662,023	$	43,154	$	644,997

Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from 3.10% to 8.50% at March 31, 2023 and from 3.25% to 8.00% at December 31, 2022. Maturities extend up to 30 years.

Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. No reserve balance was maintained, or required to be maintained, in accordance with such requirements at March 31, 2023 and December 31, 2022.

Page 30

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(11) Pension Information

The Company sponsors a pension plan which is a noncontributory defined benefit retirement plan. Annual payments, subject to the maximum amount deductible for federal income tax purposes, are made to a pension trust fund. In 2006, the Company amended the pension plan to provide that no employee could be added as a participant to the pension plan after December 31, 2006. In 2014, the Company amended the pension plan again to provide that no additional benefits would accrue beyond April 30, 2014.

Net periodic pension cost was as follows:


	Three months ended
	March 31,
	2023			2022
Service cost	$	—		$	—
Interest cost		125			103
Expected return on plan assets		(132	)		(144	)
Other components		—			69
Net periodic pension cost	$	(7	)	$	28

The Company does not expect to make any contribution to its pension plan in 2023. The Company made no contribution to its pension plan in 2022.

(12) Equity Incentive Plan

At the Company’s 2014 annual meeting, the shareholders adopted the Company’s 2014 Incentive Plan (“2014 Incentive Plan”). The 2014 Incentive Plan authorizes the Company to grant options, stock awards, stock units and other awards for up to 375,000 common shares of the Company. There were 71,866 shares available for future grants under this plan at March 31, 2023.

No options were granted under the 2014 Incentive Plan during the periods ended March 31, 2023 and 2022.

Each year, the Board of Directors has awarded restricted common shares to senior officers of the Company. The restricted shares vest ratably over a three-year or five-year period following the grant date. The product of the number of restricted shares granted and the grant date market price of the Company’s common shares determines the fair value of restricted shares awarded under the Company’s 2014 Incentive Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award.

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

The following is a summary of the Company’s outstanding restricted shares and changes therein for the three-month periods ended March 31, 2023:


	Three months ended
	March 31, 2023
	Number of Restricted Shares			Weighted Average Grant Date Fair Value
Nonvested at beginning of period		70,475		$	21.88
Granted		47,536			21.85
Vested		(27,694	)		21.52
Forfeited		(1,740	)		21.74
Nonvested at end of period		88,577		$	21.98

Page 31

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following is a summary of the status of the Company’s outstanding restricted shares as of March 31, 2023:


At March 31, 2023
Date of Award	Shares		Remaining Expense		Remaining Vesting Period (Years)
March 14, 2019		1,924	$	28		0.75
March 14, 2020		4,265		72		1.75
March 3, 2021		7,776		125		2.75
March 3, 2021		6,852		98		0.75
March 3, 2022		9,554		204		3.75
March 3, 2022		11,357		223		1.75
March 14, 2023		17,103		337		4.75
March 14, 2023		29,746		588		2.75
		88,577	$	1,675		2.87

The Company recorded $230 and $178 of share-based compensation expense during the three months ended March 31, 2023 and 2022, respectively. At March 31, 2023, the total compensation cost related to unvested awards not yet recognized was $1,675, which was expected to be recognized over the weighted average remaining life of the grants of 2.87 years.

(13) Fair Value Measurement

The Company uses a fair value hierarchy to measure fair value. This hierarchy describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices for identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; and Level 3: Significant unobservable inputs that reflect the Company’s own view about the assumptions that market participants would use in pricing an asset.

Debt securities: The fair values of securities available-for-sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Equity securities: The Company’s equity securities are not actively traded in an open market. The fair value of these equity securities available-for-sale not actively traded in an open market is determined by using market data inputs for similar securities that are observable (Level 2 inputs).

The fair value of the swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs based on similar transactions as of the valuation date and classified Level 2. The changes in fair value of these assets/liabilities had no impact on net income or comprehensive income.

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.

Page 32

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Assets and liabilities measured at fair value are summarized in the tables below.


	Fair Value Measurements at March 31, 2023 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value on a recurring basis:
Securities available-for-sale
U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	62,513	$	—
Obligations of states and political subdivisions		—		330,638		—
Mortgage-backed securities in government sponsored entities		—		234,556		—
Total securities available-for-sale		—		627,707		—
Equity securities		—		2,122		—
Swap asset		—		13,350		—
Liabilities measured at fair value on a recurring basis:
Swap liability	$	—	$	13,350	$	—
Assets measured at fair value on a nonrecurring basis:
Mortgage servicing rights	$	—	$	—	$	3,059


	Fair Value Measurements at December 31, 2022 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value on a recurring basis:
Securities available-for-sale
U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	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

Page 33

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2023 and December 31, 2022.

Quantitative Information about Level 3 Fair Value Measurements

March 31, 2023

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

Mortgage Servicing
Rights

3,059

Discounted Cash Flow

Constant Prepayment
Rate

3% - 11.5%

Discount Rate

12%

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 Flow

Constant Prepayment
Rate

5% - 20%

Discount Rate

12%

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at March 31, 2023 were as follows:


March 31, 2023	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	52,723	$	52,723	$	52,723	$	—	$	—
Other securities		35,383		35,383		35,383		—		—
Loans, held for sale		1,465		1,495		1,495		—		—
Loans, net of allowance		2,545,870		2,450,816		—		—		2,450,816
Bank owned life insurance		53,796		53,796		53,796		—		—
Accrued interest receivable		10,254		10,254		10,254		—		—
Financial Liabilities:
Nonmaturing deposits		2,316,737		2,316,737		2,316,737		—		—
Time deposits		526,779		529,525		—		—		529,525
Short-term FHLB advances		212,000		211,595		211,595		—		—
Long-term FHLB advances		3,361		3,047		—		—		3,047
Other borrowings		13,938		14,199		—		—		14,199
Securities sold under agreement to repurchase		15,631		15,631		15,631		—		—
Subordinated debentures		103,841		102,529		—		—		102,529
Accrued interest payable		1,628		1,628		1,628		—		—

Page 34

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at December 31, 2022 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		2,518,155		2,427,291		—		—		2,427,291
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		—		—

An immaterial revision has been made to the fair market value of loans for the period ended December 31, 2022. This revision did not have a significant impact on the financial statement line item affected or total assets, equity or net income.

(14) Derivatives

To accommodate customer need and to support the Company’s asset/liability positioning, on occasion we enter into interest rate swaps with a customer and a bank counterparty. The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating rate loan and a fixed rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed rate swap with a bank counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a bank counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customer to effectively convert variable rate loans to fixed rate loans. Since the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations. None of the Company’s derivatives are designated as hedging instruments.

Page 35

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The Company presents derivative positions net on the balance sheet for customers and financial institution counterparty positions subject to master netting arrangements. The following table reflects the derivatives recorded on the balance sheet:


	March 31, 2023				December 31, 2022
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Interest rate swaps with loan customers in an asset position	$	19,275	$	726	$	6,980	$	269
Counterparty positions with financial institutions in an asset position		211,117		12,624		212,570		16,310
Total included in other assets			$	13,350			$	16,579
Included in accrued expenses and other liabilities:
Interest rate swaps with loan customers in a liability position	$	191,842	$	13,350	$	205,590	$	16,579
Counterparty positions with financial institutions in a liability position		—		—		—		—
Total included in accrued expenses and other liabilities			$	13,350			$	16,579
Gross notional positions with customers	$	211,117			$	212,570
Gross notional positions with financial institution counterparties	$	211,117			$	212,570

The presentation for derivatives for the current and prior periods was revised to present derivative positions net for customer positions. Fair value of swap assets and liabilities for the prior period was not impacted.

The effect of swap fair value changes on the Consolidated Statement of Operations 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	March 31, 2023		March 31, 2022
Interest rate swaps related to customer loans	Other income	$	—	$	—
Total		$	—	$	—

The Company monitors and controls all derivative products with a comprehensive Board of Director approved commercial loan swap policy. All interest rate swap transactions must be approved in advance by the Lenders Loan Committee or the Directors Loan Committee of the Board of Directors. The Company classifies changes in fair value of derivatives with “Other” in the Consolidated Statements of Operation.

At March 31, 2023 and December 31, 2022, the Company did not have any cash or securities pledged for collateral on its interest rate swaps with third party financial institutions. Cash pledged for collateral on interest rate swaps is classified as restricted cash on the Consolidated Balance Sheet.

(15) Qualified Affordable Housing Project Investments

The Company invests in certain qualified affordable housing projects. At March 31, 2023 and December 31, 2022, the balance of the Company's investments in qualified affordable housing projects was $13,906 and $14,149, 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 $5,493 and $5,634 at March 31, 2023 and December 31, 2022, respectively. These balances are reflected in the Accrued expenses and other liabilities line on the Consolidated Balance Sheet.

Page 36

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

During the three months ended March 31, 2023 and 2022, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $243 and $239, respectively, offset by tax credits and other benefits from its investments in affordable housing tax credits of $364 and $390, respectively. During the three months ended March 31, 2023, the Company did not incur any impairment losses related to its investments in qualified affordable housing projects.

(16) Revenue Recognition

The Company accounts for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers. Revenue associated with financial instruments, including revenue from loans and securities, are outside the scope of ASC 606 and accounted for under other existing GAAP. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the 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.

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.

Page 37

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Other

Other noninterest income consists of other recurring revenue streams such as check order fees, wire transfer fees, safety deposit box rental fees, item processing fees and other miscellaneous revenue streams. Check order income mainly represents fees charged to customers for checks. Wire transfer fees represent revenue from processing wire transfers. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Item processing fee income represents fees charged to other financial institutions for processing their transactions. Payment is typically received in the following month.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2023.


	Three Months Ended
	March
	2023		2022
Noninterest Income
In-scope of Topic 606:
Service charges	$	1,773	$	1,579
ATM/Interchange fees		1,353		1,241
Wealth management fees		1,193		1,277
Tax refund processing fees		1,900		1,900
Other		4,136		277
Noninterest Income (in-scope of Topic 606)		10,355		6,274
Noninterest Income (out-of-scope of Topic 606)		713		1,369
Total Noninterest Income	$	11,068	$	7,643

Page 38

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion focuses on the consolidated financial condition of the Company at March 31, 2023 compared to December 31, 2022, and the consolidated results of operations for the three-month periods ended March 31, 2023, compared to the same periods in 2022. This discussion should be read in conjunction with the Consolidated Financial Statements and footnotes included in this Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to such matters as the Company’s financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from those discussed in the forward-looking statements include, but are not limited to:

•

current and future economic and financial market conditions, including the effects of inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, an increasing federal government budget deficit, the failure of the federal government to raise the federal debt ceiling and/or possible future U.S. government shutdowns over budget disagreements, slowing gross domestic product, tariffs, a U.S. withdrawal from or renegotiation of trade agreements, trade wars, and other factors beyond our control, any of which may result in adverse impacts on our deposit levels and composition, the quality of investment securities available for purchase, demand for loans, the ability of our borrowers to repay their loans, and the value of the collateral securing loans made by Civista;

•

recent and future bank failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational impact on the banking industry as a whole, and of which could adversely affect the Company’s business, financial condition and results of operations;

•

adverse changes in the real estate market, which could cause increases in delinquencies and non-performing assets, including additional loan charge-offs, and could depress our income, earnings and capital;

•

changes in interest rates resulting from national and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the Federal Reserve System, which may adversely affect interest rates, interest margins, loan demand and interest rate sensitivity;

•

the transition away from LIBOR as a reference rate for financial contracts, which could negatively impact our income and expenses and the value of various financial contracts;

•

continuing economic impacts and recovery from the COVID-19 pandemic, or the outbreak of another highly infectious or contagious disease, which could adversely affect our business, financial condition and results of operations;

•

operational risks, reputational risks, legal and compliance risks, and other risks related to potential fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, or failures, disruptions or breaches in security of our systems, including those resulting from computer viruses or cyber-attacks;

•

our ability to secure sensitive or confidential client information against unauthorized disclosure or access through computer systems and telecommunication networks, including those of our third-party vendors and other service providers, which may prove inadequate;

•

a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber-attacks;

•

competitive pressures and factors among financial services organizations could increase significantly, including product and pricing pressures, changes to third-party relationships and our ability to recruit and retain qualified management and banking personnel;

•

unexpected losses of services of our key management personnel, or the inability to recruit and retain qualified personnel in the future;

•

the lack of assurances regarding the future revenues of our tax refund program;

Page 39

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

•

risks inherent in pursuing strategic growth initiatives, including integration and other risks involved in past, pending and possible future acquisitions, including, without limitation, the recently completed acquisitions of Comunibanc Corp. and VFG;

•

uncertainty regarding the nature, timing, cost and effect of legislative or regulatory changes in the banking industry or otherwise affecting the Company, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry;

•

changes in federal, state and/or local tax laws;

•

the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (FASB), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect our reported financial condition or results of operations;

•

litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or inquiries;

•

continued availability of earnings and dividends from Civista and excess capital sufficient for us to service our debt and pay dividends to our shareholders in compliance with applicable legal and regulatory requirements;

•

our ability to raise additional capital in the future if and when needed and/or on terms acceptable to us;

•

our ability to conform and comply with regulatory requirements and increasing scrutiny and evolving expectations from customers, regulatory authorities, shareholders, investors and other stakeholders with regard to our environmental, social and governance (ESG) policies and practices, which could affect our reputation and business and operating results;

•

our ability to anticipate and successfully keep pace with technological changes affecting the financial services industry; and

•

other risks identified from time-to-time in the Company’s other public documents on file with the SEC, including those risks identified in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as supplemented by “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q.

The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law.

Financial Condition

Total assets of the Company at March 31, 2023 were $3,584,558 compared to $3,537,830 at December 31, 2022, an increase of $46,728, or 1.3%. The increase in total assets was due to increases in cash and cash equivalents of $9,362, accompanied by other increases in securities available for sale, other securities and loans of $12,305, $1,798 and $27,715, respectively, partially offset by decreases in office premises and equipment, net and swap assets of $2,123 and $3,229, respectively. Total liabilities at March 31, 2023 were $3,236,861 compared to $3,202,995 at December 31, 2022, an increase of $33,866, or 1.1%. The increase in total liabilities was primarily attributable to an increase in total deposit accounts of $223,532, accompanied by an increase in tax refunds in process and accrued interest, taxes and other liabilities of $5,474 and $2,392, respectively, partially offset by decreases in short term FHLB borrowings, securities sold under agreements to repurchase and swap liabilities of $181,700, $9,512 and $3,229, respectively.

Page 40

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Loans outstanding as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023			December 31, 2022			$ Change			% Change
Commercial & Agriculture	$	271,160		$	278,595		$	(7,435	)		-2.7	%
Commercial Real Estate—Owner Occupied		375,825			371,147			4,678			1.3	%
Commercial Real Estate—Non-Owner Occupied		1,043,635			1,018,736			24,899			2.4	%
Residential Real Estate		560,978			552,781			8,197			1.5	%
Real Estate Construction		247,253			243,127			4,126			1.7	%
Farm Real Estate		24,040			24,708			(668	)		-2.7	%
Lease Financing Receivables		37,570			36,797			773			2.1	%
Consumer and Other		19,605			20,775			(1,170	)		-5.6	%
Total loans		2,580,066			2,546,666			33,400			1.3	%
Allowance for credit losses		(34,196	)		(28,511	)		(5,685	)		19.9	%
Net loans	$	2,545,870		$	2,518,155		$	27,715			1.1	%

Included in Commercial & Agriculture loans above were $464 of PPP loans as of March 31, 2023 and $566 of PPP loans as of December 31, 2022.

Loans held for sale increased $782, or 114.5%, since December 31, 2022. The increase was due to increases in both the number of loans and average loan balance held for sale. At March 31, 2023, 10 loans totaling $1,465 were held for sale as compared to 7 loans totaling $683 at December 31, 2022.

Net loans have increased $27,715, or 1.1%, since December 31, 2022. The Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction and Lease Financing Receivables loan portfolios increased $4,678, $24,899, $8,197, $4,126 and $773, respectively, since December 31, 2022, while the Commercial & Agriculture, Farm Real Estate and Consumer and Other loan portfolios decreased $7,435, $668 and $1,170, respectively, since December 31, 2022. At March 31, 2023, the net loan to deposit ratio was 89.5% compared to 96.1% at December 31, 2022. The decrease in the net loan to deposit ratio is primarily the result of an increase in deposits.

Upon adoption of CECL we recorded an increase in the allowance for credit losses of $5,193. During the first quarter of 2023 we recorded a provision for credit losses of $620, an increase of $320, from $300 during the three months ended March 31, 2022. The increase in the reserves was principally related to loan growth during the quarter. As time progresses the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified.

Net charge-offs for the first three months of 2023 totaled $175, compared to net recoveries of $92 in the first three months of 2022. For the first three months of 2023, the Company charged off a total of 15 loans. Five Commercial and Agriculture loan totaling $140, one Residential Real Estate loan totaling $10 and nine Consumer and Other loans totaling $25 were charged off in the first three months of the year. In addition, during the first three months of 2023, the Company had recoveries on previously charged-off Commercial and Agriculture loans of $6, Commercial Real Estate – Non-Owner Occupied loans of $7, Residential Real Estate loans of $22, Real Estate Construction loans of $4 and Consumer and Other loans of $8. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans increased by $520 since December 31, 2022, which was due to a $473 increase in loans on nonaccrual status and an increase in loans past due 90 days and accruing of $47. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance.

Management specifically evaluates loans that are impaired for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve.

Page 41

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Management analyzes each individually evaluated Commercial and Commercial Real Estate loan relationship with a balance of $350 or larger, on an individual basis and designates a loan as individually evaluated when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for credit losses as a percent of total loans was 1.33% at March 31, 2023 and 1.12% at December 31, 2022.

The available-for-sale security portfolio increased by $12,305, from $615,402 at December 31, 2022 to $627,707 at March 31, 2023. Management continually evaluates our securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability and the level of interest rate risk to which the Company is exposed. These evaluations may cause the Company to change the level of funds it deploys into investment securities and change the composition of its investment securities portfolio. As of March 31, 2023, the Company was in compliance with all pledging requirements.

Premises and equipment, net, decreased $2,123 from December 31, 2022 to March 31, 2023. The decrease is the result of new purchases of $1,245, offset by depreciation of $2,676 and disposals of $692.

Goodwill decreased by $617, from $125,695 at December 31, 2022 to $125,078 at March 31, 2023. The decrease is due to adjustments to estimated fair values of the assets acquired and liabilities assumed since the date of acquisition.

Bank owned life insurance (BOLI) increased $253 from December 31, 2022 to March 31, 2023. The increase is the result of increases in the cash surrender value of the underlying insurance policies.

Swap assets decreased $3,229 from December 31, 2022 to March 31, 2023. The decrease is primarily the result of a decrease in market value.

Total deposits as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023		December 31, 2022		$ Change			% Change
Noninterest-bearing demand	$	938,967	$	896,333	$	42,634			4.8	%
Interest-bearing demand		541,027		527,879		13,148			2.5	%
Savings and money market		836,743		876,427		(39,684	)		-4.5	%
Time deposits		526,779		319,345		207,434			65.0	%
Total Deposits	$	2,843,516	$	2,619,984	$	223,532			8.5	%

The Company had approximately $594,376 and $563,092 of uninsured deposits as of March 31, 2023 and December 31, 2022, respectively. Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limit of $250,000.

Total deposits at March 31, 2023 increased $223,532 from year-end 2022. Noninterest-bearing deposits increased $42,634 from year-end 2022, while interest-bearing deposits, including savings and time deposits, increased $180,898 from December 31, 2022. The increase in noninterest-bearing deposits was partially due to increases in cash balances related to the Company’s participation in a tax refund processing program, which added noninterest-bearing deposits of $82,013. This increase is temporary as transactions are processed and is expected to return to levels more consistent with December 31, 2022 over the next two quarters. In addition, public fund demand deposit accounts increased $10,350, offset by decreases in personal and business demand deposit accounts of $7,497 and $37,690, respectively. The increase in interest-bearing deposits was primarily due to increases in brokered deposits and public fund interest-bearing demand accounts of $201,201 and $15,796, respectively, accompanied by decreases in statement savings, business savings and money market savings accounts of $14,539, $5,179 and $19,060, respectively. Time certificates over $250, time certificates increased $3,732 from year-end 2022. The year-to-date average balance of total deposits increased $68,486, compared to the average balance for the same period in 2022, mainly due to a $67,788 increase in the average balance of time deposits.

Short-term FHLB advances decreased $181,700 from December 31, 2022 to March 31, 2023. The decrease is due to the repayment of overnight borrowings.

Page 42

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Securities sold under agreements to repurchase, which tend to fluctuate based on the liquidity needs of customers and short-term nature of the instrument, decreased $9,512 from December 31, 2022 to March 31, 2023.

Securities purchased payable decreased $1,338 from December 31, 2022 to March 31, 2023. The decrease is primarily the result of a decrease in accounts payable related to securities purchased but not yet funded of $1,338.

Tax refunds in process increased $5,474 from December 31, 2022 to March 31, 2023. The increase is primarily the result of an increase in a clearing account related to our tax refund processing program of $5,474.

Swap liabilities decreased $3,229 from December 31, 2022 to March 31, 2023. The decrease of $3,229 is primarily the result of a decrease in fair value of swap liabilities.

Accrued expenses and other liabilities increased $2,392 from December 31, 2022 to March 31, 2023. The increase is primarily the result of an increase in allowance for credit losses on unfunded commitments of $3,587 as a result of the Company's adoption of ASU 2013-16.

Shareholders’ equity at March 31, 2023 was $347,697, or 9.7% of total assets, compared to $334,835, or 9.5% of total assets, at December 31, 2022. The increase was the result of an increase in the fair value of securities available-for-sale, net of tax, of $8,135 and net income of $12,888, offset by dividends on common shares of $2,201, the purchase of treasury shares of $121 and the cumulative effect of adopting ASU 2016-13 of $6,069.

Total outstanding common shares at March 31, 2023 were 15,768,410, which increased from 15,728,234 common shares outstanding at December 31, 2022. Common shares outstanding increased due to the grant of 47,536 restricted common shares to certain officers under the Company’s 2014 Incentive Plan, offset by 5,620 common shares surrendered by officers to the Company to pay taxes upon vesting of restricted shares and 1,740 restricted common shares forfeited.

Results of Operations

Three Months Ended March 31, 2023 and 2022

The Company had net income of $12,888 for the three months ended March 31, 2023, an increase of $4,422 from net income of $8,466 for the same three months of 2022. Basic earnings per common share were $0.82 for the quarter ended March 31, 2023, compared to $0.57 for the same period in 2022. Diluted earnings per common share were $0.82 for the quarter ended March 31, 2023, compared to $0.57 for the same period in 2022. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended March 31, 2023 was $32,601, an increase of $9,669 from $22,932 for the same three months of 2022. This increase is the result of an increase of $16,873 in total interest income, offset by an increase of $7,204 in interest expense. Interest-earning assets averaged $3,211,902 during the three months ended March 31, 2023, an increase of $397,313 from $2,814,589 for the same period of 2022. The Company’s average interest-bearing liabilities increased from $1,828,283 during the three months ended March 31, 2022 to $2,207,592 during the three months ended March 31, 2023. The Company’s fully tax equivalent net interest margin for the three months ended March 31, 2023 and 2022 was 4.11% and 3.38%, respectively.

Total interest income was $41,539 for the three months ended March 31, 2023, an increase of $16,873 from $24,666 of total interest income for the same period in 2022. The increase in interest income is attributable to increases in interest and fees on loans and interest income on taxable and tax-exempt securities of $15,360, $1,114, and $473, respectively. Interest on loans increased $15,360 to $36,398 for the three months ended March 31, 2023, as compared to $21,038 for the same period in 2022. The average balance of loans increased by $541,534, or 27.0%, to $2,548,518 for the three months ended March 31, 2023 as compared to $2,006,984 for the same period in 2022. The loan yield increased to 5.79% for the three months ended March 31, 2023, from 4.25% for the same period in 2022.

Page 43

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Interest on taxable securities increased $1,114 to $2,834 for the three months ended March 31, 2023, compared to $1,720 for the same period in 2022. The average balance of taxable securities increased $60,358 to $374,851 for the three months ended March 31, 2023, as compared to $314,493 for the same period in 2022. The yield on taxable securities increased 57 basis points to 2.77% for 2023, compared to 2.20% for 2022. Interest on tax-exempt securities increased $473 to $2,262 for the three months ended March 31, 2023, compared to $1,789 for the same period in 2022. The average balance of tax-exempt securities increased $20,270 to $281,136 for the three months ended March 31, 2023, as compared to $260,866 for the same period in 2022. The yield on tax-exempt securities decreased 14 basis points to 3.81% for 2023, compared to 3.67% for 2022 .

Interest expense increased $7,204, or 415.5%, to $8,938 for the three months ended March 31, 2023, compared with $1,734 for the same period in 2022. The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, accompanied by increases in rates. For the three months ended March 31, 2023, the average balance of interest-bearing liabilities increased $379,309 to $2,207,592, as compared to $1,828,283 for the same period in 2022. Interest incurred on deposits decreased by $2,527 to $3,232 for the three months ended March 31, 2023, compared to $705 for the same period in 2022. The average balance of interest-bearing deposits increased by $68,486 for the three months ended March 31, 2023, as compared to the same period in 2022, accompanied by an increase in the rate paid on time deposits from 0.79% in 2022 to 2.82% in 2023. Interest expense incurred on short-term FHLB advances increased as a result of higher average balances on short-term FHLB advances of $371,868 for the three months ended March 31, 2023, as compared to the same period in 2022, as a result of increased overnight borrowings. Interest expense incurred on subordinated debentures increased $333, to $1,169 for the three months ended March 31, 2023, compared to $836 for the same period in 2022. The rate paid on subordinated debentures increased from 3.27% in 2022 to 4.57% in 2023

Page 44

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the condensed average balance sheets for the three months ended March 31, 2023 and 2022. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.


	Three Months Ended March 31,
	2023								2022
Assets:	Average balance			Interest		Yield/ rate*			Average balance			Interest		Yield/ rate*
Interest-earning assets:
Loans, including fees**	$	2,548,518		$	36,398		5.79	%	$	2,006,984		$	21,038		4.25	%
Taxable securities		374,851			2,834		2.77	%		314,493			1,720		2.20	%
Tax-exempt securities		281,136			2,262		3.81	%		260,866			1,789		3.67	%
Interest-bearing deposits in other banks		7,397			45		2.47	%		232,246			119		0.21	%
Total interest-earning assets	$	3,211,902		$	41,539		5.22	%	$	2,814,589		$	24,666		3.63	%
Noninterest-earning assets:
Cash and due from financial institutions		54,136								223,353
Premises and equipment, net		62,776								22,320
Accrued interest receivable		10,655								7,157
Intangible assets		135,554								84,374
Other assets		61,292								37,346
Bank owned life insurance		53,630								46,726
Less allowance for loan losses		(30,454	)							(26,775	)
Total Assets	$	3,559,491							$	3,209,090
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	1,384,070		$	1,084		0.32	%	$	1,383,372		$	234		0.07	%
Time		308,400			2,148		2.82	%		240,612			471		0.79	%
Short-term FHLB advances		372,226			4,258		4.64	%		358			—		0.00	%
Long-term FHLB advances		3,442			19		2.24	%		75,000			190		1.03	%
Other borrowings		14,484			252		7.06	%		—			—		0.00	%
Federal funds purchased		333			5		6.09	%		—			—		0.00	%
Subordinated debentures		103,814			1,169		4.57	%		103,713			836		3.27	%
Repurchase Agreements		20,823			3		0.06	%		25,228			3		0.05	%
Total interest-bearing liabilities	$	2,207,592		$	8,938		1.64	%	$	1,828,283		$	1,734		0.38	%
Noninterest-bearing deposits		961,886								933,654
Other liabilities		48,854								99,851
Shareholders’ Equity		341,159								347,302
Total Liabilities and Shareholders’ Equity	$	3,559,491							$	3,209,090
Net interest income and interest rate spread				$	32,601		3.58	%				$	22,932		3.25	%
Net interest margin							4.11	%							3.38	%

*—Average yields are presented on a tax equivalent basis. The tax equivalent effect associated with loans and investments, included in the yields above, was $601 and $476 for the periods ended March 31, 2023 and 2022, respectively.

**—Average balance includes nonaccrual loans.

Page 45

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended March 31, 2023 and 2022.


	Increase (decrease) due to:
	Volume (1)			Rate (1)		Net
	(Dollars in thousands)
Interest income:
Loans, including fees	$	6,555		$	8,805	$	15,360
Taxable securities		598			516		1,114
Tax-exempt securities		404			69		473
Interest-bearing deposits in other banks		(218	)		144		(74	)
Total interest income	$	7,339		$	9,534	$	16,873
Interest expense:
Demand and savings	$	—		$	850	$	850
Time		166			1,511		1,677
Short-term FHLB advances		4,258			—		4,258
Long-term FHLB advances		(277	)		106		(171	)
Other borrowings		252			—		252
Federal funds purchased		5			—		5
Subordinated debentures		1			332		333
Repurchase agreements		(1	)		1		—
Total interest expense	$	4,404		$	2,800	$	7,204
Net interest income	$	2,935		$	6,734	$	9,669

(1)

The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate.

The Company provides for loan losses through regular provisions to the allowance for loan losses. Upon adoption of CECL we recorded an increase in the allowance for credit losses of $5,193. During the first quarter of 2023 we recorded a provision for credit losses of $620, an increase of $320, from $300 during the three months ended March 31, 2022. The increase in the reserves was principally related to loan growth during the quarter. As time progresses the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified.

Noninterest income for the three-month periods ended March 31, 2023 and 2022 are as follows:


	Three months ended March 31,
	2023			2022		$ Change			% Change
Service charges	$	1,773		$	1,579	$	194			12.3	%
Net gain on sale of securities		—			—		—			0.0	%
Net gain (loss) on equity securities		(68	)		50		(118	)		-236.0	%
Net gain on sale of loans		631			936		(305	)		-32.6	%
ATM/Interchange fees		1,353			1,241		112			9.0	%
Wealth management fees		1,193			1,277		(84	)		-6.6	%
Lease revenue and residual income		2,046			—		2,046			0.0	%
Bank owned life insurance		253			244		9			3.7	%
Tax refund processing fees		1,900			1,900		—			0.0	%
Swap fees		61			—		61			0.0	%
Other		1,926			416		1,510			363.0	%
Total noninterest income	$	11,068		$	7,643	$	3,425			44.8	%

Page 46

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Noninterest income for the three months ended March 31, 2023 was $11,068, an increase of $3,425, or 44.8%, from $7,643 for the same period of 2022. The increase was primarily due to the addition of Lease revenue and residual income of $2,046 for the three months ended March 31, 2023, as a result of the acquisition of Vision Financial Group, Inc. (VFG) in October 2023, coupled with increases in service charges and other income , offset by decreases in net gain (loss) on equity securities and net gain on sale of loans. Service charges increased due to higher service charges of $105 and overdraft fees of $89. Other income increased as result of a $1,500 fee collected with the renewal of the company's contract with MasterCard. Net gain (loss) on equity securities decreased as a result of market value decreases. Net gain on sale of loans decreased primarily as a result of a decrease in volume of loans sold. During the three-months ended March 31, 2023, 63 loans were sold, totaling $9,239. During the three-months ended March 31, 2022, 208 loans were sold, totaling $38,164.

Additionally, the Company processes state and federal income tax refunds for customers of third-party income tax preparation vendors for which we receive a fee for processing the refund payments. Tax refund processing fees were $1,900 for each of the three months ended March 31, 2023 and 2022. This fee income is seasonal in nature, the majority of which is earned in the first quarter of the year.

Noninterest expense for the three-month periods ended March 31, 2023 and 2022 are as follows:


	Three months ended March 31,
	2023		2022		$ Change			% Change
Compensation expense	$	15,105	$	12,223	$	2,882			23.6	%
Net occupancy expense		1,359		1,150		209			18.2	%
Equipment expense		2,761		495		2,266			457.8	%
Contracted data processing		520		620		(100	)		-16.1	%
FDIC assessment		248		203		45			22.2	%
State franchise tax		526		591		(65	)		-11.0	%
Professional services		1,555		1,049		506			48.2	%
Amortization of intangible assets		398		217		181			83.4	%
ATM/Interchange expense		580		513		67			13.1	%
Marketing		505		317		188			59.3	%
Software maintenance expense		878		708		170			24.0	%
Other		3,198		2,172		1,026			47.2	%
Total noninterest expense	$	27,633	$	20,258	$	7,375			36.4	%

Noninterest expense for the three months ended March 31, 2023 was $27,633, an increase of $7,375, or 36.4%, from $20,258 reported for the same period of 2022. The primary reasons for the increase were increases in compensation expense, net occupancy, equipment expense, FDIC assessment, professional services, amortization expense, ATM/Interchange expense, marketing, software maintenance expense and other operating expense, offset by decreases in contracted data processing expense and state franchise tax. The increase in compensation expense was due to increased salaries, payroll taxes and employee insurance. The average full time equivalent (FTE) employees were 532.4 at March 31, 2023, an increase of 89 FTEs over the same period of 2022 due to the acquisitions of Comunibanc Corp. and VFG in 2022. The increase in occupancy expense is due to increases related to the acquisition of Comunibanc Corp. and the opening of a new branch in Ohio. Equipment expense increased due to increases in equipment depreciation related to the acquisition of VFG. Contracted data processing fees decreased due to the payment of deconversion fees related to the merger with Comunibanc Corp. in the first quarter of 2022. The quarter-over-quarter increase in FDIC assessments was attributable to higher average consolidated assets and average tangible equity. The decrease in state franchise tax expense was attributable to lower estimated tax payments during the first quarter of 2023 as compared to the same period in 2022. Professional services increased due to acquisition advisory costs of $115, advisory fees for the company's MasterCard contract of $400 and consulting fees related to CECL implementation of $29. The increase in amortization of intangible assets is related to the merger with Comunibanc Corp. Marketing expense increased due to a general increase in marketing and increase marketing efforts in newly acquired markets. The increase in software maintenance expense is due to a general increase in legacy software maintenance contracts and the implementation of our new digital banking. The increase in other operating expense is primarily due to increases in promotional expenses of $274, loan related expenses of $11, bad check losses of $115, ATM/ACH losses of $217 and a provision for credit losses on unfunded commitments of $201.

Income tax expense for the three months ended March 31, 2023 totaled $2,528, up $977 compared to the same period in 2022. The effective tax rates for the three-month periods ended March 31, 2023 and 2022 were 16.4% and 15.5%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting

Page 47

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income.

Capital Resources

Shareholders’ equity totaled $347,697 at March 31, 2023, compared to $334,835 at December 31, 2022. Shareholders’ equity increased during the first three months of 2023 as a result of an increase in the fair value of securities available-for-sale, net of tax, of $8,135 and net income of $12,888, offset by dividends on common shares of $2,201, the purchase of treasury shares of $121 and the cumulative effect of adopting ASU 2016-13 of $6,069.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of March 31, 2023 and December 31, 2022 as identified in the following table:


	Total Risk Based Capital			Tier I Risk Based Capital			CET1 Risk Based Capital			Leverage Ratio
Company Ratios—March 31, 2023		14.7	%		10.8	%		9.7	%		8.6	%
Company Ratios—December 31, 2022		14.5	%		10.8	%		9.7	%		8.9	%
For Capital Adequacy Purposes		8.0	%		6.0	%		4.5	%		4.0	%
To Be Well Capitalized Under Prompt
Corrective Action Provisions		10.0	%		8.0	%		6.5	%		5.0	%

Liquidity

The Company maintains a conservative liquidity position. All securities, with the exception of equity securities, are classified as available-for-sale. Securities, with maturities of one year or less, totaled $6,299, or 1.0% of the total security portfolio at March 31, 2023. The available-for-sale portfolio helps to provide the Company with the ability to meet its funding needs. The Condensed Consolidated Statements of Cash Flows (Unaudited) contained in the Consolidated Financial Statements detail the Company’s cash flows from operating activities resulting from net earnings.

As reported in the Condensed Consolidated Statements of Cash Flows (Unaudited), our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $19,794 and $9,114 for the three months ended March 31, 2023 and 2022, respectively. The primary additions to cash from operating activities are from proceeds from the sale of loans. The primary use of cash from operating activities is from loans originated for sale. Net cash used by investing activities was $38,635 and $50,872 for the three months ended March 31, 2023 and 2022, respectively, principally reflecting our loan and investment security activities. Cash provided by and used for deposits and purchase of treasury shares comprised most of our financing activities, which resulted in net cash provided by of $28,203 and $190,217 for the three months ended March 31, 2023 and 2022, respectively.

Future loan demand of Civista may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available-for-sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $30,000. As of March 31, 2023, Civista had total credit availability with the FHLB of $880,481 with standby letters of credit totaling $32,920 and a remaining borrowing capacity of approximately $632,200. In addition, CBI maintains a credit line with a third party lender totaling $10,000. No borrowings were outstanding by CBI under this credit line as of March 31, 2023.

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Civista Bancshares, Inc.

Quantitative and Qualitative Disclosures About Market Risk

Form 10-Q

(Amounts in thousands, except share data)

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure.

Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Company’s safety and soundness.

Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality.

The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, issue policy statements and guidance on sound practices for managing interest-rate risk, which form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The guidance also outlines fundamental elements of sound management and discusses the importance of these elements in the context of managing interest-rate risk. The guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk.

Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Company is to periodically analyze its assets and liabilities and make future financing and investment decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Company’s primary asset/liability management technique is the measurement of the Company’s asset/liability gap, that is, the difference between the cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities.

Page 49

Civista Bancshares, Inc.

Quantitative and Qualitative Disclosures About Market Risk

Form 10-Q

(Amounts in thousands, except share data)

Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. The Company has not purchased derivative financial instruments to hedge interest rate risk in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Company’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Company seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Company.

The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 2022 and March 31, 2023, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Company’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and interest rate decreases of 100 basis points and 200 basis points at March 31, 2023 and December 31, 2022.

The Company had derivative financial instruments as of December 31, 2022 and March 31, 2023. The changes in fair value of the assets and liabilities of the underlying contracts offset each other. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Company’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates.


Net Portfolio Value
	March 31, 2023								December 31, 2022
Change in Rates	Dollar Amount		Dollar Change			Percent Change			Dollar Amount		Dollar Change			Percent Change
+200bp		601,071		20,539			4	%		571,328		14,733			3	%
+100bp		594,553		14,021			2	%		566,596		10,001			2	%
Base		580,532		—			—			556,595		—			—
-100bp		568,591		(11,941	)		(2	)%		548,575		(8,020	)		(1	)%
-200bp		543,911		(36,621	)		(6	)%		526,702		(29,893	)		(5	)%

The change in net portfolio value from December 31, 2022 to March 31, 2023, can be attributed to a couple of factors. The yield curve has fallen and inverted since the end of the year, and both the volume and mix of assets and funding sources has changed. The volume of loans and securities have increased, and the asset mix remains centered on loans. While the loan portfolio increased due to growth, the market value of loans has decreased due to interest rate increases. The volume of certificates of deposit have increased and borrowed money has decreased. The volume and mix shifts from the end of the year contributed to an increase in the base net portfolio value, which was partially offset by the decrease due to interest rate changes. Beyond the change in the base level of net portfolio value, projected movements in rates, up or down, would also lead to changes in market values. The change in the rates up scenarios for both the 100 and 200 basis point movements would lead to a larger decrease in the market value of liabilities than assets. Accordingly, we see an increase in the net portfolio value. The change in the rates down scenario for both the 100 and 200 basis point movements would lead to a larger increase in the market value of liabilities than assets, leading to a decrease in the net portfolio value.

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Civista Bancshares, Inc.

Controls and Procedures

Form 10-Q

(Amounts in thousands, except share data)

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive and our principal financial officers, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive and our principal financial officers concluded that our disclosure controls and procedures as of March 31, 2023, were effective.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Civista Bancshares, Inc.

Other Information

Form 10-Q

Part II—Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The following information updates our risk factors and should be read in conjunction with the risk factors disclosed in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Recent and future bank failures may adversely affect the Company's business, earnings and financial condition.

The failure of other U.S. banks can significantly impact the national, regional and local banking industry and the business environment in which the Company operates. The recent bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during the first and second quarters of 2023 have caused a degree of panic and uncertainty in the investor community and among bank customers generally. While the Company does not believe that the circumstances of these three bank failures are indicators of broader issues with the banking system, these and any future bank failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the Company and the banking industry as a whole. The Company will continue to monitor the ongoing events concerning these three bank failures, as well as any future potential bank failures and/or volatility within the banking industry in general, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the banking industry.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the first quarter of 2023, the Company purchased common shares as follows:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2023 - January 31, 2023		5,620	$	21.52		—	$	6,055,711
February 1, 2023 - February 28, 2023		—	$	—		—	$	6,055,711
March 1, 2023 - March 31, 2023		—	$	—		—	$	6,055,711
Total		5,620	$	21.52		—	$	6,055,711

On January 3, 2023, the Company repurchased 5,620 common shares that were surrendered by officers to the Company to pay taxes upon vesting of restricted shares.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

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Civista Bancshares, Inc.

Other Information

Form 10-Q

Item 6. Exhibits


Exhibit	Description	Location

2.1	Agreement and Plan of Merger, dated January 10, 2022 by and between Civista Bancshares, Inc. and Comunibanc Corp.	Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on January 10, 2022 and incorporated herein by reference. (File No. 001-36192)
2.2	Stock Purchase Agreement, dated as of September 29, 2022, by and among Civista Bancshares, Inc., Civista Bank, Vision Financial Group, Inc. and Frederick Summers	Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference. (File No. 001-36192)

3.1	Second Amended and Restated Articles of Incorporation of Civista Bancshares, Inc., as filed with the Ohio Secretary of State on November 15, 2018.	Filed as Exhibit 3.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K, filed on November 16, 2018 and incorporated herein by reference. (File No. 001-36192)

3.2	Amended and Restated Code of Regulations of Civista Bancshares, Inc. (adopted April 15, 2008)	Filed as Exhibit 3.2 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed on November 8, 2017 and incorporated herein by reference. (File No. 001-36192)

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

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

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

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

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, formatted in Inline Extensible Business Reporting Language: (i) Consolidated Balance Sheets (Unaudited) as of March 31, 2023 and December 31, 2022; (ii) Consolidated Statements of Income (Unaudited) for the three-months ended March 31, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three-months ended March 31, 2023 and 2022; (iv) Consolidated Statement of Shareholders’ Equity (Unaudited) for the three-months ended March 31, 2023 and 2022; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three months ended March 31, 2023 and 2022; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).	Included herewith

104	Cover page formatted in Inline Extensible Business Reporting Language.	Included herewith

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Civista Bancshares, Inc.

Signatures

Form 10-Q

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Civista Bancshares, Inc.



/s/ Dennis G. Shaffer		May 8, 2023
Dennis G. Shaffer		Date
Chief Executive Officer and President



/s/ Todd A. Michel		May 8, 2023
Todd A. Michel		Date
Senior Vice President, Controller

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Civista Bancshares (CIVB) 10-Q2023 Q1 Quarterly report

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