Allowance for Loan Losses | (5) Allowance for Loan Losses Management has an established methodology for determining the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loss migration rates for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. Loss migration rates are calculated over a three-year The following economic factors are analyzed: • Changes in lending policies and procedures • Changes in experience and depth of lending and management staff • Changes in quality of credit review system • Changes in nature and volume of the loan portfolio • Changes in past due, classified and nonaccrual loans and TDRs • Changes in economic and business conditions • Changes in competition or legal and regulatory requirements • Changes in concentrations within the loan portfolio • Changes in the underlying collateral for collateral dependent loans The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Company considers the allowance for loan losses of $27,033 adequate to cover loan losses inherent in the loan portfolio, at March 31, 2022. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three months ended March 31, 2022 and March 31, 2021. Allowance for loan losses: For the three months ended March 31, 2022 Beginning 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 loan losses, as compared to a provision of $830 for the three months ended March 31, 2021. The decrease in the provision in the first quarter of 2022, as compared to the first quarter of 2021, 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 have created a level of optimism in the business community, there remains caution due to the lingering concerns over potential infection spikes. We remain cautious given the level of classified loans in the portfolio, particularly loans to borrowers in the hotel industry as well as the challenges businesses face in today’s environment. Economic impacts related to the COVID-19 pandemic have improved somewhat, but continued concerns linger due to the disruption of supply chains, additional employee costs, higher challenges throughout our footprint and rising inflationary pressures. While some of these pressures have eased, ongoing supply chain and staffing challenges, as well as the impact of higher inflation remain. 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 decreased due to a decrease in loan balances. This was represented as a decrease in the provision. The allowance for Consumer and Other loans decreased due to a decrease in loan balances. This was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at March 31, 2022. Allowance for loan losses: For the three months ended March 31, 2021 Beginning balance Charge-offs Recoveries Provision Ending Balance Commercial & Agriculture $ 2,810 $ — $ 145 $ (595 ) $ 2,360 Commercial Real Estate: Owner Occupied 4,057 — 6 (14 ) 4,049 Non-Owner Occupied 12,451 — 7 751 13,209 Residential Real Estate 2,484 (37 ) 142 (80 ) 2,509 Real Estate Construction 2,439 — 1 462 2,902 Farm Real Estate 338 — 3 (58 ) 283 Consumer and Other 209 (9 ) 17 (47 ) 170 Unallocated 240 — — 411 651 Total $ 25,028 $ (46 ) $ 321 $ 830 $ 26,133 For the three months ended March 31, 2021, the Company provided $830 to the allowance for loan losses. The provision was primarily the result of changes in Civista’s qualitative factors, primarily changes in international, national, regional and local conditions, related to the economic shutdown driven by the ongoing COVID-19 pandemic. Economic impacts from the COVID-19 pandemic during the three months ended March 31, 2021 included the loss of revenue experienced by our business clients, disruption of supply chains, additional employee costs for businesses due to the pandemic, higher unemployment rates throughout our footprint and a large number of customers requesting payment relief. For the three months ended March 31, 2021, the allowance for Commercial & Agriculture loans decreased due to a decrease in general reserves required for this type as a result of a decrease in loss rates. While loan balances increased, they increased in balances mainly from Civista’s participated in the PPP loan program. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans decreased due to a decrease in general reserves required for this type as a result of decreased loan balances and loss rates. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances and by an increase in loss rates. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in 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 balances of substandard classified loan balances, represented by an increase in the provision. Management determined that the unallocated amount was appropriate and within the relevant range for the allowance that was reflective of the risk in the portfolio at March 31, 2021. The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of March 31, 2022 and December 31, 2021. March 31, 2022 Loans acquired with credit deterioration Loans individually evaluated for impairment Loans collectively evaluated for impairment Total Allowance for loan losses: Commercial & Agriculture $ — $ — $ 2,584 $ 2,584 Commercial Real Estate: Owner Occupied — 6 4,588 4,594 Non-Owner Occupied — — 14,577 14,577 Residential Real Estate — 12 2,600 2,612 Real Estate Construction — — 1,863 1,863 Farm Real Estate — — 249 249 Consumer and Other — — 136 136 Unallocated — — 418 418 Total $ — $ 18 $ 27,015 $ 27,033 Outstanding loan balances: Commercial & Agriculture $ — $ — $ 218,443 $ 218,443 Commercial Real Estate: Owner Occupied — 181 301,171 301,352 Non-Owner Occupied — — 869,663 869,663 Residential Real Estate 290 514 431,966 432,770 Real Estate Construction — — 161,651 161,651 Farm Real Estate — 507 24,141 24,648 Consumer and Other — — 9,661 9,661 Total $ 290 $ 1,202 $ 2,016,696 $ 2,018,188 December 31, 2021 Loans acquired with credit deterioration Loans individually evaluated for impairment Loans collectively evaluated for impairment Total Allowance for loan losses: Commercial & Agriculture $ — $ — $ 2,600 $ 2,600 Commercial Real Estate: Owner Occupied — 7 4,457 4,464 Non-Owner Occupied — — 13,860 13,860 Residential Real Estate — 11 2,586 2,597 Real Estate Construction — — 1,810 1,810 Farm Real Estate — — 287 287 Consumer and Other — — 176 176 Unallocated — — 847 847 Total $ — $ 18 $ 26,623 $ 26,641 Outstanding loan balances: Commercial & Agriculture $ — $ — $ 246,502 $ 246,502 Commercial Real Estate: Owner Occupied — 187 295,265 295,452 Non-Owner Occupied — 0 829,310 829,310 Residential Real Estate 290 526 429,244 430,060 Real Estate Construction — — 157,127 157,127 Farm Real Estate — 509 27,910 28,419 Consumer and Other — — 11,009 11,009 Total $ 290 $ 1,222 $ 1,996,367 $ 1,997,879 The following tables present credit exposures by internally assigned risk grades as of March 31, 2022 and December 31, 2021. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans. The Company’s internally assigned risk grades are as follows: • Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. • Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected. • Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Civista will sustain some loss if the deficiencies are not corrected. • Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances. • Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted. Generally, Residential Real Estate, Real Estate Construction and Consumer and Other loans are not risk-graded, except when collateral is used for a business purpose. Only those loans that have been risk rated are included below. March 31, 2022 Pass Special Mention Substandard Doubtful Ending Balance Commercial & Agriculture $ 208,752 $ 8,351 $ 1,340 $ — $ 218,443 Commercial Real Estate: Owner Occupied 292,064 7,844 1,444 — 301,352 Non-Owner Occupied 804,373 28,588 36,702 — 869,663 Residential Real Estate 78,620 170 4,405 — 83,195 Real Estate Construction 140,467 — 4 — 140,471 Farm Real Estate 23,353 200 1,095 — 24,648 Consumer and Other 575 — 22 — 597 Total $ 1,548,204 $ 45,153 $ 45,012 $ — $ 1,638,369 December 31, 2021 Pass Special Mention Substandard Doubtful Ending Balance Commercial & Agriculture $ 244,787 $ 526 $ 1,189 $ — $ 246,502 Commercial Real Estate: Owner Occupied 290,617 3,119 1,716 — 295,452 Non-Owner Occupied 764,181 28,042 37,087 — 829,310 Residential Real Estate 77,594 164 4,455 — 82,213 Real Estate Construction 136,149 260 5 — 136,414 Farm Real Estate 27,023 205 1,191 — 28,419 Consumer and Other 764 — 20 — 784 Total $ 1,541,115 $ 32,316 $ 45,663 $ — $ 1,619,094 The following tables present performing and nonperforming loans based solely on payment activity for the periods ended March 31, 2022 and December 31, 2021 that have not been assigned an internal risk grade. The types of loans presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due and if management determines that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. March 31, 2022 Residential Real Estate Real Estate Construction Consumer and Other Total Performing $ 349,575 $ 21,180 $ 9,064 $ 379,819 Nonperforming — — — — Total $ 349,575 $ 21,180 $ 9,064 $ 379,819 December 31, 2021 Residential Real Estate Real Estate Construction Consumer and Other Total Performing $ 347,847 $ 20,713 $ 10,225 $ 378,785 Nonperforming — — — — Total $ 347,847 $ 20,713 $ 10,225 $ 378,785 The following tables include an aging analysis of the recorded investment of past due loans outstanding as of March 31, 2022 and December 31, 2021. March 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 $ 22 $ — $ 78 $ 100 $ 218,343 $ — $ 218,443 $ — Commercial Real Estate: Owner Occupied 62 — 93 155 301,197 — 301,352 — Non-Owner Occupied — — 3 3 869,660 — 869,663 — Residential Real Estate 1,598 34 1,223 2,855 429,625 290 432,770 — Real Estate Construction — — — — 161,651 — 161,651 — Farm Real Estate — — — — 24,648 — 24,648 — Consumer and Other 135 — 12 147 9,514 — 9,661 — Total $ 1,817 $ 34 $ 1,409 $ 3,260 $ 2,014,638 $ 290 $ 2,018,188 $ — December 31, 2021 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 $ 249 $ 13 $ 78 $ 340 $ 246,162 $ — $ 246,502 $ — Commercial Real Estate: Owner Occupied — — 106 106 295,346 — 295,452 — Non-Owner Occupied — — 4 4 829,306 — 829,310 — Residential Real Estate 1,848 879 842 3,569 426,201 290 430,060 — Real Estate Construction — — — — 157,127 — 157,127 — Farm Real Estate — — — — 28,419 — 28,419 — Consumer and Other 42 — 9 51 10,958 — 11,009 — Total $ 2,139 $ 892 $ 1,039 $ 4,070 $ 1,993,519 $ 290 $ 1,997,879 $ — The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of March 31, 2022 and December 31, 2021. March 31, 2022 December 31, 2021 Commercial & Agriculture $ 78 $ 78 Commercial Real Estate: Owner Occupied 292 334 Non-Owner Occupied 3 4 Residential Real Estate 3,326 3,232 Real Estate Construction 4 5 Farm Real Estate — — Consumer and Other 22 20 Total $ 3,725 $ 3,673 Nonaccrual Loans: Modifications: Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of March 31, 2022, TDRs accounted for $18 of the allowance for loan losses. As of December 31, 2021, TDRs accounted for $18 of the allowance for loan losses. There were no loans modified as TDRs during the three-month periods ended March 31, 2022 or 2021. 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 periods ended March 31, 2022 and March 31, 2021, there were no defaults on loans that were modified and considered TDRs during the respective previous twelve months. Impaired Loans: Loan Modifications/Troubled Debt Restructurings In the second quarter of 2020, in the initial days of the pandemic, Civista booked 90-day payment modifications on 813 loans with an aggregate principal balance outstanding of $431.3 million. Additional 90-day modifications were extended on 100 loans with an aggregate principal balance outstanding of $124.4 million. Both deferral programs primarily consisted of the deferral of principal and/or interest payments. All such modified loans were performing at December 31, 2019 and complied with the provisions of the CARES Act to not be considered a TDR. As of March 31, 2022, Civista had five loans with an aggregate principal balance outstanding of $2,764 that remained on CARES Act modifications. Details with respect to loan modifications that remain on deferred status are as follows: Type of Loan Number of Loans Balance Percent of Loans Outstanding (In thousands) Commercial & Agriculture 1 $ 245 0.01 % Commercial Real Estate: Non-Owner Occupied 4 2,519 0.12 % Total 5 $ 2,764 0.14 % The following table includes the recorded investment and unpaid principal balances for impaired loans, excluding PCI loans, with the associated allowance amount, if applicable, as of March 31, 2022 and December 31, 2021. March 31, 2022 December 31, 2021 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Residential Real Estate $ 491 $ 516 $ 503 $ 528 Farm Real Estate 507 507 509 509 Total 998 1,023 1,012 1,037 With an allowance recorded: Commercial Real Estate: Owner Occupied 181 181 $ 6 187 187 $ 7 Residential Real Estate 23 27 12 23 27 11 Total 204 208 18 210 214 18 Total: Commercial & Agriculture — — — — — — Commercial Real Estate: Owner Occupied 181 181 6 187 187 7 Non-Owner Occupied — — — — — — Residential Real Estate 514 543 12 526 555 11 Farm Real Estate 507 507 — 509 509 — Total $ 1,202 $ 1,231 $ 18 $ 1,222 $ 1,251 $ 18 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 and 2021. March 31, 2022 March 31, 2021 For the three months ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial & Agriculture $ — $ — $ 37 $ — Commercial Real Estate—Owner Occupied 193 3 644 6 Commercial Real Estate—Non-Owner Occupied — — 43 1 Residential Real Estate 530 7 758 8 Farm Real Estate 514 6 611 6 Total $ 1,237 $ 16 $ 2,093 $ 21 Changes in the accretable yield for PCI loans were as follows, since acquisition: For the Three-Month Period Ended March 31, 2022 For the Three-Month Period Ended March 31, 2021 (In Thousands) (In Thousands) Balance at beginning of period $ 217 $ 225 Acquisition of PCI loans — — Accretion (16 ) (1 ) Transfer from non-accretable to accretable 15 — Balance at end of period $ 216 $ 224 The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30: At March 31, 2022 At December 31, 2021 Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) (In Thousands) Outstanding balance $ 498 $ 512 Carrying amount 290 290 There was no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of March 31, 2022 or December 31, 2021. 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, 2022 and December 31, 2021, there were no foreclosed assets included in Other assets. As of March 31, 2022 and December 31, 2021, the Company had initiated formal foreclosure procedures on $437 and $293, respectively, of consumer residential mortgages. |