10-Q 1 d264336d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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: September 30, 2016

OR

 

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

For the transition period from                      to                     

Commission File Number: 001-36192

 

 

Civista Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Ohio   34-1558688

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

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

 

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

 

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if smaller reporting company)    Smaller reporting company  

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 November 4, 2016 - 8,239,247 shares

 

 

 


Table of Contents

CIVISTA BANCSHARES, INC.

Index

 

PART I.

  

Financial Information

  

Item 1.

  

Financial Statements:

  
  

Consolidated Balance Sheets (Unaudited) September  30, 2016 and December 31, 2015

     3   
  

Consolidated Statements of Operations (Unaudited) Three and nine months ended September 30, 2016 and 2015

     4   
  

Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2016 and 2015

     5   
  

Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) Nine months ended September 30, 2016

     6   
  

Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2016 and 2015

     7-8   
  

Notes to Interim Consolidated Financial Statements (Unaudited)

     9-51   

Item 2.

  

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

     52-67   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     68-70   

Item 4.

  

Controls and Procedures

     71   

PART II.

  

Other Information

  

Item 1.

  

Legal Proceedings

     72   

Item 1A.

  

Risk Factors

     72   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     72   

Item 3.

  

Defaults upon Senior Securities

     72   

Item 4.

  

Mine Safety Disclosures

     72   

Item 5.

  

Other Information

     72   

Item 6.

  

Exhibits

     72   

Signatures

        73   


Table of Contents

Part I – Financial Information

 

ITEM 1. Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

 

     September 30,
2016
    December 31,
2015
 

ASSETS

    

Cash and due from financial institutions

   $ 33,229      $ 35,561   

Securities available for sale

     200,967        196,249   

Loans held for sale

     2,827        2,698   

Loans, net of allowance of $13,451 and $14,361

     1,033,516        987,166   

Other securities

     13,926        13,452   

Premises and equipment, net

     17,340        16,944   

Accrued interest receivable

     4,547        3,902   

Goodwill

     27,095        27,095   

Other intangibles

     1,943        2,409   

Bank owned life insurance

     24,404        20,104   

Other assets

     12,486        9,461   
  

 

 

   

 

 

 

Total assets

   $ 1,372,280      $ 1,315,041   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits

    

Noninterest-bearing

   $ 341,653      $ 300,615   

Interest-bearing

     792,500        751,418   
  

 

 

   

 

 

 

Total deposits

     1,134,153        1,052,033   

Federal Home Loan Bank advances

     35,000        71,200   

Securities sold under agreements to repurchase

     21,713        25,040   

Subordinated debentures

     29,427        29,427   

Accrued expenses and other liabilities

     13,678        12,168   
  

 

 

   

 

 

 

Total liabilities

     1,233,971        1,189,868   
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

Preferred shares, no par value, 200,000 shares authorized, Series B Preferred stock, $1,000 liquidation preference, 21,374 shares issued at September 30, 2016 and 24,072 shares issued at December 31, 2015, net of issuance costs

     19,776        22,273   

Common shares, no par value, 20,000,000 shares authorized, 8,978,899 shares issued at September 30, 2016 and 8,591,542 shares issued at December 31, 2015

     118,126        115,330   

Retained earnings

     16,471        5,300   

Treasury shares, 747,964 common shares at cost

     (17,235     (17,235

Accumulated other comprehensive income (loss)

     1,171        (495
  

 

 

   

 

 

 

Total shareholders’ equity

     138,309        125,173   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,372,280      $ 1,315,041   
  

 

 

   

 

 

 

See notes to interim unaudited consolidated financial statements

 

Page 3


Table of Contents

CIVISTA BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

 

     Three months ended     Nine months ended  
     September 30,     September 30,  
     2016      2015     2016     2015  

Interest and dividend income

         

Loans, including fees

   $ 11,824       $ 11,755      $ 35,311      $ 33,271   

Taxable securities

     872         810        2,494        2,439   

Tax-exempt securities

     664         653        1,979        1,917   

Federal funds sold and other

     10         5        376        98   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total interest income

     13,370         13,223        40,160        37,725   
  

 

 

    

 

 

   

 

 

   

 

 

 

Interest expense

         

Deposits

     506         513        1,480        1,588   

Federal Home Loan Bank advances

     111         111        312        326   

Subordinated debentures

     221         192        650        565   

Other

     6         5        17        15   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total interest expense

     844         821        2,459        2,494   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income

     12,526         12,402        37,701        35,231   

Provision (credit) for loan losses

     —           400        (1,300     1,200   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net interest income after provision (credit) for loan losses

     12,526         12,002        39,001        34,031   
  

 

 

    

 

 

   

 

 

   

 

 

 

Noninterest income

         

Service charges

     1,194         1,262        3,714        3,487   

Net gain on sale of securities

     18         (5     20        (5

Net gain on sale of loans

     541         269        1,341        888   

ATM fees

     541         520        1,584        1,484   

Wealth management fees

     688         659        1,989        2,159   

Bank owned life insurance

     149         116        415        350   

Tax refund processing fees

     —           —          2,750        2,000   

Other

     522         255        1,176        769   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total noninterest income

     3,653         3,076        12,989        11,132   
  

 

 

    

 

 

   

 

 

   

 

 

 

Noninterest expense

         

Salaries, wages and benefits

     6,375         6,025        19,053        17,732   

Net occupancy expense

     708         595        2,009        1,833   

Equipment expense

     494         303        1,158        1,030   

Contracted data processing

     397         399        1,147        1,392   

FDIC assessment

     166         192        597        654   

State franchise tax

     251         205        709        661   

Professional services

     431         597        1,450        1,716   

Amortization of intangible assets

     172         189        527        522   

ATM expense

     183         119        379        563   

Marketing

     249         298        810        842   

Other operating expenses

     1,769         1,744        5,314        5,258   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total noninterest expense

     11,195         10,666        33,153        32,203   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income before taxes

     4,984         4,412        18,837        12,960   

Income tax expense

     1,304         1,159        5,251        3,414   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net Income

     3,680         3,253        13,586        9,546   

Preferred stock dividends

     374         391        1,156        1,186   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

   $ 3,306       $ 2,862      $ 12,430      $ 8,360   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per common share, basic

   $ 0.41       $ 0.36      $ 1.57      $ 1.07   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per common share, diluted

   $ 0.34       $ 0.30      $ 1.24      $ 0.87   
  

 

 

    

 

 

   

 

 

   

 

 

 

See notes to interim unaudited consolidated financial statements

 

Page 4


Table of Contents

CIVISTA BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

     Three months ended     Nine months ended  
     September 30,     September 30,  
     2016     2015     2016     2015  

Net income

   $ 3,680      $ 3,253      $ 13,586      $ 9,546   

Other comprehensive income (loss):

        

Unrealized holding gains (loss) on available for sale securities

     (1,225     1,183        2,273        87   

Tax effect

     417        (403     (772     (30

Pension liability adjustment

     83        70        249        210   

Tax effect

     (28     (24     (84     (72
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     (753     826        1,666        195   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 2,927      $ 4,079      $ 15,252      $ 9,741   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to interim unaudited consolidated financial statements

 

Page 5


Table of Contents

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

(In thousands, except share data)

 

                                        Accumulated        
    Preferred Shares     Common Shares                 Other     Total  
    Outstanding           Outstanding           Retained     Treasury     Comprehensive     Shareholders’  
    Shares     Amount     Shares     Amount     Earnings     Shares     Income (Loss)     Equity  

Balance, December 31, 2015

    24,072      $ 22,273        7,843,578      $ 115,330      $ 5,300      $ (17,235   $ (495   $ 125,173   

Net Income

    —          —          —          —          13,586        —          —          13,586   

Other comprehensive income

    —          —          —          —          —          —          1,666        1,666   

Conversion of Series B preferred shares into common shares

    (2,698     (2,497     345,060        2,497        —          —          —          —     

Stock-based compensation

    —          —          42,297        299        —          —          —          299   

Common stock dividends ($0.16 per share)

    —          —          —          —          (1,259     —          —          (1,259

Preferred stock dividend

    —          —          —          —          (1,156     —          —          (1,156
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2016

    21,374      $ 19,776        8,230,935      $ 118,126      $ 16,471      $ (17,235   $ 1,171      $ 138,309   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to interim unaudited consolidated financial statements

 

Page 6


Table of Contents

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

     Nine months ended  
     September 30,  
     2016     2015  

Net cash from operating activities

   $ 11,318      $ 14,375   
  

 

 

   

 

 

 

Cash flows used for investing activities:

    

Maturities and calls of securities, available-for-sale

     23,264        20,538   

Purchases of securities, available-for-sale

     (31,130     (22,250

Sale of securities available for sale

     4,379        —     

Redemption of Federal Reserve stock

     —          138   

Purchase of Federal Reserve stock

     (474     (160

Purchase of bank owned life insurance

     (3,885     —     

Net loan originations

     (43,285     (9,426

Loans purchased

     (1,643     (3,826

Proceeds from sale of other real estate owned properties

     238        289   

Net cash from acquisition

     —          926   

Premises and equipment purchases

     (1,292     (933
  

 

 

   

 

 

 

Net cash used for investing activities

     (53,828     (14,704
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Repayment of long-term FHLB advances

     —          (5,000

Net change in short-term FHLB advances

     (36,200     12,000   

Increase in deposits

     82,120        172   

Decrease in securities sold under repurchase agreements

     (3,327     (726

Common dividends paid

     (1,259     (1,170

Preferred dividends paid

     (1,156     (1,186
  

 

 

   

 

 

 

Net cash provided by financing activities

     40,178        4,090   
  

 

 

   

 

 

 

Increase (decrease) in cash and due from financial institutions

     (2,332     3,761   

Cash and due from financial institutions at beginning of period

     35,561        29,858   
  

 

 

   

 

 

 

Cash and due from financial institutions at end of period

   $ 33,229      $ 33,619   
  

 

 

   

 

 

 

See notes to interim unaudited consolidated financial statements

 

Page 7


Table of Contents

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)

(In thousands)

 

     Nine months ended  
     September 30,  
     2016      2015  

Cash paid during the period for:

     

Interest

   $ 2,442       $ 2,468   

Income taxes

   $ 4,700       $ 2,250   

Supplemental cash flow information:

     

Transfer of loans from portfolio to other real estate owned

   $ 73       $ 174   

Conversion of preferred shares to common shares

   $ 2,497       $ 859   

Acquisition of TCNB Financial Corp.

     

Noncash assets acquired:

     

Loans receivable

      $ 76,444   

Other securities

        716   

Accrued interest receivable

        194   

Premises and equipment, net

        1,738   

Core deposit intangible

        1,009   

Other assets

        472   
     

 

 

 

Total non cash assets acquired

        80,573   

Liabilities assumed:

     

Deposits

        86,869   

Other liabilities

        5   
     

 

 

 

Total liabilities assumed

        86,874   

Net noncash liabilities acquired

      $ 6,301   
     

 

 

 

See notes to interim unaudited consolidated financial statements

 

Page 8


Table of Contents

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. As of May 1, 2015, CBI changed its name from First Citizens Banc Corp to Civista Bancshares, Inc. The Consolidated Financial Statements include the accounts of CBI and its wholly-owned subsidiaries: Civista Bank (Civista), First Citizens Insurance Agency, Inc., Water Street Properties, Inc. (Water St.) and FC Refund Solutions, Inc. (FCRS). FCRS was formed to facilitate payment of individual state and federal income tax refunds. First Citizens Capital LLC (FCC) is wholly-owned by Civista and holds inter-company debt. The operations of FCC are located in Wilmington, Delaware. First Citizens Investments, Inc. (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.

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 September 30, 2016 and its results of operations and changes in cash flows for the periods ended September 30, 2016 and 2015 have been made. The accompanying 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 September 30, 2016 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 2015 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.

The Company provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa, Richland, Montgomery and Cuyahoga. 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. Civista has two loan concentrations of greater than 10% of total loans: one is to Lessors of Non-Residential Buildings and Dwellings totaling $239,878, or 22.9% of total loans, as of September 30, 2016 and the other is to Lessors of Residential Buildings and Dwellings totaling $136,094, or 13.0% of total loans, as of September 30, 2016. These segments of the portfolio are stable and have been conservatively underwritten, monitored and managed by experienced commercial bankers. However, the customers’ ability to repay their loans is dependent on the real estate market and general economic conditions in the area.

Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and Federal Funds sold that are in excess of federally insured limits. First Citizens Insurance Agency, Inc. was formed to allow the Company to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue was less than 1.0% of total revenue through September 30, 2016. Revenue from Water St. was less than 1.0% of total revenue through September 30, 2016. Management considers the Company to operate primarily in one reportable segment, banking.

 

Page 9


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

(2) Significant Accounting Policies

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, impairment of goodwill, fair values of financial instruments, deferred taxes and pension obligations are particularly subject to change.

Income Taxes: Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Business Combinations: At the date of acquisition, the Company records the assets and liabilities of an acquired company on the Consolidated Balance Sheet at its fair value. The results of operations for acquired companies are included in the Company’s Consolidated Statements of Operations beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Operations during the period incurred.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

Derivative Instruments and Hedging Activities: The Company enters into interest rate swap agreements to facilitate the risk management strategies of a small number of commercial banking customers. All derivatives are accounted for in accordance with ASC-815, Derivatives and Hedging. The Company mitigates the risk of entering into these agreements by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes because the Company does not currently intend to execute a setoff with its’ counterparties. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of marketable securities, is posted by the counterparty with net liability positions in accordance with contract thresholds.

 

Page 10


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Effect of Newly Issued but Not Yet Effective Accounting Standards:

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. However, In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) to defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the

 

Page 11


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard in this Update requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815). The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815). The amendments apply to all entities that are issuers of, or investors in, debt instruments (or hybrid financial instruments in this Update that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

 

Page 12


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic 323). The Update affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments in this Update require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is

 

Page 13


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

 

Page 14


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

(3) Securities

The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

 

                                                                   

September 30, 2016

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

U.S. Treasury securities and obligations of U.S. government agencies

   $ 37,811       $ 256       $ (18    $ 38,049   

Obligations of states and political subdivisions

     89,967         6,299         (39      96,227   

Mortgage-backed securities in government sponsored entities

     65,049         957         (29      65,977   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     192,827         7,512         (86      200,253   

Equity securities in financial institutions

     481         233         —           714   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 193,308       $ 7,745       $ (86    $ 200,967   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                   

December 31, 2015

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

U.S. Treasury securities and obligations of U.S. government agencies

   $ 40,992       $ 74       $ (129    $ 40,937   

Obligations of states and political subdivisions

     87,255         4,959         (62      92,152   

Mortgage-backed securities in government sponsored entities

     62,135         681         (243      62,573   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     190,382         5,714         (434      195,662   

Equity securities in financial institutions

     481         106         —           587   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 190,863       $ 5,820       $ (434    $ 196,249   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 15


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

The amortized cost and fair value of securities at September 30, 2016, 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 and equity securities are shown separately.

 

Available for sale    Amortized Cost      Fair Value  

Due in one year or less

   $ 8,697       $ 8,710   

Due after one year through five years

     27,208         27,523   

Due after five years through ten years

     28,533         30,440   

Due after ten years

     63,340         67,603   

Mortgage-backed securities

     65,049         65,977   

Equity securities

     481         714   
  

 

 

    

 

 

 

Total securities available for sale

   $ 193,308       $ 200,967   
  

 

 

    

 

 

 

Proceeds from sales of securities, gross realized gains and gross realized losses were as follows:

 

     Three months ended      Nine months ended  
     September 30,      September 30,  
     2016      2015      2016      2015  

Sale proceeds

   $ 2,385       $ —         $ 4,379       $ —     

Gross realized gains

     18         —           18         —     

Gross realized losses

     —           —           —           —     

Gains (losses) from securities called or settled by the issuer

     —           (5      2         (5

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $156,087 and $142,888 as of September 30, 2016 and December 31, 2015, respectively.

 

Page 16


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Securities with unrealized losses at September 30, 2016 and December 31, 2015 not recognized in income were as follows:

 

September 30, 2016

   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

   $ 2,998       $ (2   $ 944       $ (16   $ 3,942       $ (18

Obligations of states and political subdivisions

     3,101         (26     526         (13     3,627         (39

Mortgage-backed securities in gov’t sponsored entities

     8,511         (16     1,240         (13     9,751         (29
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired

   $ 14,610       $ (44   $ 2,710       $ (42   $ 17,320       $ (86
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2015

   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

   $ 25,464       $ (112   $ 1,132       $ (17   $ 26,596       $ (129

Obligations of states and political subdivisions

     2,932         (20     1,469         (42     4,401         (62

Mortgage-backed securities in gov’t sponsored entities

     27,263         (172     5,041         (71     32,304         (243
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired

   $ 55,659       $ (304   $ 7,642       $ (130   $ 63,301       $ (434
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

At September 30, 2016, there were nineteen securities in the portfolio with unrealized losses mainly due to higher 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 market yields increasing. 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.

 

Page 17


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

(4) Loans

Loan balances were as follows:

 

     September 30,
2016
     December 31,
2015
 

Commercial & Agriculture

   $ 129,700       $ 124,402   

Commercial Real Estate- Owner Occupied

     167,564         167,897   

Commercial Real Estate- Non-Owner Occupied

     385,863         348,439   

Residential Real Estate

     247,174         236,338   

Real Estate Construction

     56,919         58,898   

Farm Real Estate

     41,862         46,993   

Consumer and Other

     17,885         18,560   
  

 

 

    

 

 

 

Total Loans

     1,046,967         1,001,527   

Allowance for Loan Losses

     (13,451      (14,361
  

 

 

    

 

 

 

Net Loans

   $ 1,033,516       $ 987,166   
  

 

 

    

 

 

 

Included in total loans above are deferred loan fees of $117 at September 30, 2016 and $78 at December 31, 2015.

(5) Allowance for Loan Losses

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan and lease 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 period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. The following qualitative 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

 

Page 18


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

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 $13,451 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2016. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three and nine months ended September 30, 2016 and 2015.

Allowance for loan losses:

For the nine months ended September 30, 2016

 

     Beginning
balance
     Charge-
offs
    Recoveries      Provision     Ending
Balance
 

Commercial & Agriculture

   $ 1,478       $ (870   $ 79       $ 1,023      $ 1,710   

Commercial Real Estate:

            

Owner Occupied

     2,467         (166     53         (44     2,310   

Non-Owner Occupied

     4,657         (23     1,365         (1,456     4,543   

Residential Real Estate

     4,086         (280     384         (735     3,455   

Real Estate Construction

     371         (115     8         160        424   

Farm Real Estate

     538         —          —           (108     430   

Consumer and Other

     382         (85     40         —          337   

Unallocated

     382         —          —           (140     242   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 14,361       $ (1,539   $ 1,929       $ (1,300   $ 13,451   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

For the nine months ended September 30, 2016, the increase in allowance for Commercial & Agriculture loans was due to an increase in general reserves as a result of higher balances and higher loss rates in criticized loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced not only by a decrease in specific reserves required for this type, but also by decreases in past due, classified and non-accrual loans for this type. The result of these changes was represented as a decrease in the provision. The decrease in allowance for Commercial Real Estate – Non-Owner Occupied loans was the result of a decrease in general reserves required as a result of lower loss rates and improvement in past due, classified and non-accrual loans for this type. In addition, a payoff on a previously charged down loan was received resulting in a recovery of approximately $1,303. The net result was represented as a decrease in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in loss rates for this type of loan, which was represented as an increase in the provision. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances and a decrease in loss rates. The result of these changes 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.

 

Page 19


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Allowance for loan losses:

For the nine months ended September 30, 2015

 

     Beginning
balance
     Charge-
offs
    Recoveries      Provision     Ending
Balance
 

Commercial & Agriculture

   $ 1,819       $ (187   $ 158       $ (412   $ 1,378   

Commercial Real Estate:

            

Owner Occupied

     2,221         (362     162         661        2,682   

Non-Owner Occupied

     4,334         (81     105         581        4,939   

Residential Real Estate

     3,747         (779     289         965        4,222   

Real Estate Construction

     428         —          4         (4     428   

Farm Real Estate

     822         —          60         (224     658   

Consumer and Other

     200         (115     38         251        374   

Unallocated

     697         —          —           (618     79   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 14,268       $ (1,524   $ 816       $ 1,200      $ 14,760   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

For the nine months ended September 30, 2015, the allowance for Commercial & Agriculture loans was reduced due to decreases in specific reserves for impaired loans of $625. The decrease in specific reserves for impaired loans was the result of the resolution of an impaired loan. The Company did not incur losses with this resolution. In addition, criticized Commercial & Agriculture loan balances have decreased. The result was represented as a decrease in the provision. The increase in the allowance for Commercial Real Estate - Owner Occupied loans was the result of an increase in loss migration rates, which is attributable to the change in the look-back period to a three-year period. The increase in the allowance for Commercial Real Estate – Non–Owner Occupied loans was the result of an increase in loss migration rates, which is attributable to the change in the look-back period to a three-year period. The ending reserve balance for Residential Real Estate loans increased from the end of the previous year due to an increase in loss migration rates, which is attributable to the change in the look-back period to a three-year period. The increase in the allowance for Consumer and Other loans increased due to an increase in loss migration rates. Unallocated reserves declined due to a change in the Company’s look-back period. The Company changed from a two-year look-back period to a three-year look-back period when calculating all but one segment’s loss migration rates during the third quarter of 2015. The change in methodology resulted in a decline in the unallocated balance with a corresponding increase in allocated balances within the reserve calculation. While loan balances are up, loss rates continue to trend downward, exclusive of the change in methodology, resulting in a lower allowance balance. While criticized loans in total have increased slightly, we have seen significant improvement in nonperforming loan balances resulting in a decline in specific reserves for impaired loans. 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.

 

Page 20


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Allowance for loan losses:

For the three months ended September 30, 2016

 

     Beginning
balance
     Charge-
offs
    Recoveries      Provision     Ending
Balance
 

Commercial & Agriculture

   $ 1,557       $ (828   $ 44       $ 937      $ 1,710   

Commercial Real Estate:

            

Owner Occupied

     2,393         (124     1         40        2,310   

Non-Owner Occupied

     4,969         (23     6         (409     4,543   

Residential Real Estate

     3,899         (55     23         (412     3,455   

Real Estate Construction

     366         (115     6         167        424   

Farm Real Estate

     476         —          —           (46     430   

Consumer and Other

     358         (38     7         10        337   

Unallocated

     529         —          —           (287     242   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 14,547       $ (1,183   $ 87       $ —        $ 13,451   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

For the three months ended September 30, 2016, the increase in allowance for Commercial & Agriculture loans was due to an increase in general reserves as a result of higher loss rates and an increase in loan balances. The result was represented as an increase in the provision. The decrease in allowance for Commercial Real Estate – Non-Owner Occupied loans was the result of a decrease in general reserves required as a result of lower loss rates and improvement in past due, classified and non-accrual loans for this type. The net result was represented as a decrease in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in loss rates for this type of loan, which was represented as an increase in the provision. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances, 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.

 

Page 21


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Allowance for loan losses:

For the three months ended September 30, 2015

 

     Beginning
balance
     Charge-
offs
    Recoveries      Provision     Ending
Balance
 

Commercial & Agriculture

   $ 1,395       $ (187   $ 127       $ 43      $ 1,378   

Commercial Real Estate:

            

Owner Occupied

     5,073         (164     3         (2,230     2,682   

Non-Owner Occupied

     3,153         (17     15         1,788        4,939   

Residential Real Estate

     3,470         (238     124         866        4,222   

Real Estate Construction

     434         —          1         (7     428   

Farm Real Estate

     584         —          9         65        658   

Consumer and Other

     190         (28     8         204        374   

Unallocated

     408         —          —           (329     79   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 14,707       $ (634   $ 287       $ 400      $ 14,760   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

For the three months ended September 30, 2015, the decrease in the allowance for Commercial Real Estate – Owner Occupied was the result of a significant change in the Special Mention loss migration rate that had been adversely effected by a specific loss on one relationship that occurred in 2014. The effect of this loss as of this quarter end migrated to the Substandard pool and has less of an impact to the reserve. The ending reserve balance for Residential Real Estate loans increased due an increase in criticized loan balances and an increase in loss migration rates. The increase in the allowance for Consumer and other loans increased due to an increase in loss rates. Unallocated reserves declined due to a change in the Company’s lookback period. The Company changed from a two-year lookback period to a three-year lookback period when calculating all but one segment’s loss migration rates during the third quarter of 2015. The change in methodology is reflected in a decline in the unallocated balance with corresponding increase in allocated balances within the reserve calculation. While loan balances are up, loss rates continue to trend downward, exclusive of the change in methodology, resulting in a lower allowance balance. While criticized loans have increased slightly, we have seen significant improvement in nonperforming loan balances resulting in a decline in specific reserves for impaired loans. 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.

 

Page 22


Table of Contents

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 loan losses and related loan balances as of September 30, 2016 and December 31, 2015.

 

September 30, 2016    Loans acquired
with credit
deterioration
     Loans
individually
evaluated for
impairment
     Loans
collectively
evaluated for
impairment
     Total  

Allowance for loan losses:

           

Commercial & Agriculture

   $ —         $ —         $ 1,710       $ 1,710   

Commercial Real Estate:

           

Owner Occupied

     —           4         2,306         2,310   

Non-Owner Occupied

     —           —           4,543         4,543   

Residential Real Estate

     97         113         3,245         3,455   

Real Estate Construction

     —           —           424         424   

Farm Real Estate

     —           —           430         430   

Consumer and Other

     —           —           337         337   

Unallocated

     —           —           242         242   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 97       $ 117       $ 13,237       $ 13,451   
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding loan balances:

           

Commercial & Agriculture

   $ 89       $ 2,386       $ 127,225       $ 129,700   

Commercial Real Estate:

           

Owner Occupied

     —           1,939         165,625         167,564   

Non-Owner Occupied

     —           369         385,494         385,863   

Residential Real Estate

     177         1,854         245,143         247,174   

Real Estate Construction

     —           —           56,919         56,919   

Farm Real Estate

     —           665         41,197         41,862   

Consumer and Other

     —           1         17,884         17,885   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 266       $ 7,214       $ 1,039,487       $ 1,046,967   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 23


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

December 31, 2015    Loans
acquired with
credit
deterioration
     Loans
individually
evaluated for
impairment
     Loans
collectively
evaluated for
impairment
     Total  

Allowance for loan losses:

           

Commercial & Agriculture

   $ —         $ 23       $ 1,455       $ 1,478   

Commercial Real Estate:

           

Owner Occupied

     —           103         2,364         2,467   

Non-Owner Occupied

     —           —           4,657         4,657   

Residential Real Estate

     123         137         3,826         4,086   

Real Estate Construction

     —           —           371         371   

Farm Real Estate

     —           —           538         538   

Consumer and Other

     —           —           382         382   

Unallocated

     —           —           382         382   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 123       $ 263       $ 13,975       $ 14,361   
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding loan balances:

           

Commercial & Agriculture

   $ 132       $ 873       $ 123,397       $ 124,402   

Commercial Real Estate:

           

Owner Occupied

     —           2,141         165,756         167,897   

Non-Owner Occupied

     —           1,742         346,697         348,439   

Residential Real Estate

     131         1,642         234,565         236,338   

Real Estate Construction

     —           —           58,898         58,898   

Farm Real Estate

     —           953         46,040         46,993   

Consumer and Other

     —           3         18,557         18,560   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 263       $ 7,354       $ 993,910       $ 1,001,527   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present credit exposures by internally assigned grades for the periods ended September 30, 2016 and December 31, 2015. 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 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.

 

Page 24


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

    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.

 

September 30, 2016

   Pass      Special
Mention
     Substandard      Doubtful      Ending
Balance
 

Commercial & Agriculture

   $ 121,273       $ 4,569       $ 3,858       $ —         $ 129,700   

Commercial Real Estate:

              

Owner Occupied

     159,392         1,849         6,323         —           167,564   

Non-Owner Occupied

     380,064         4,054         1,745         —           385,863   

Residential Real Estate

     58,290         1,698         7,539         —           67,527   

Real Estate Construction

     50,391         17         27         —           50,435   

Farm Real Estate

     32,430         7,088         2,344         —           41,862   

Consumer and Other

     1,586         —           95         —           1,681   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 803,426       $ 19,275       $ 21,931       $ —         $ 844,632   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2015

   Pass      Special
Mention
     Substandard      Doubtful      Ending
Balance
 

Commercial & Agriculture

   $ 117,739       $ 3,090       $ 3,573       $ —         $ 124,402   

Commercial Real Estate:

              

Owner Occupied

     156,622         5,571         5,704         —           167,897   

Non-Owner Occupied

     339,734         6,100         2,605         —           348,439   

Residential Real Estate

     62,147         1,671         7,435         —           71,253   

Real Estate Construction

     52,399         216         29         —           52,644   

Farm Real Estate

     39,787         4,024         3,182         —           46,993   

Consumer and Other

     1,987         3         111         —           2,101   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 770,415       $ 20,675       $ 22,639       $ —         $ 813,729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 25


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended September 30, 2016 and December 31, 2015 that have not been assigned an internal risk grade. The types of loans presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due or if management thinks that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities related to a borrower that is experiencing financial difficulties, and such concessions may include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. 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.

 

     Residential
Real Estate
     Real Estate
Construction
     Consumer
and Other
     Total  

September 30, 2016

           

Performing

   $ 179,647       $ 6,484       $ 16,171       $ 202,302   

Nonperforming

     —           —           33         33   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 179,647       $ 6,484       $ 16,204       $ 202,335   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Residential
Real Estate
     Real Estate
Construction
     Consumer
and Other
     Total  

December 31, 2015

           

Performing

   $ 165,048       $ 6,254       $ 16,458       $ 187,760   

Nonperforming

     37         —           1         38   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 165,085       $ 6,254       $ 16,459       $ 187,798   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 26


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of September 30, 2016 and December 31, 2015.

 

September 30, 2016

   30-59
Days
Past Due
     60-89
Days
Past Due
     90 Days
or Greater
     Total Past
Due
     Current      Purchased
Credit-
Impaired
Loans
     Total Loans      Past Due
90 Days
and
Accruing
 

Commercial & Agriculture

   $ 57       $ 169       $ 213       $ 439       $ 129,172       $ 89       $ 129,700       $ —     

Commercial Real Estate:

                       

Owner Occupied

     642         59         303         1,004         166,560         —           167,564         —     

Non-Owner Occupied

     —           14         316         330         385,533         —           385,863         —     

Residential Real Estate

     230         384         1,299         1,913         245,084         177         247,174         —     

Real Estate Construction

     —           —           27         27         56,892         —           56,919         —     

Farm Real Estate

     21         —           —           21         41,841         —           41,862         —     

Consumer and Other

     157         37         33         227         17,658         —           17,885         33   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,107       $ 663       $ 2,191       $ 3,961       $ 1,042,740       $ 266       $ 1,046,967       $ 33   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2015

   30-59
Days
Past Due
     60-89
Days
Past Due
     90 Days
or Greater
     Total Past
Due
     Current      Purchased
Credit-
Impaired
Loans
     Total Loans      Past Due
90 Days
and
Accruing
 

Commercial & Agriculture

   $ 9       $ 32       $ 37       $ 78       $ 124,192       $ 132       $ 124,402       $ —     

Commercial Real Estate:

                       

Owner Occupied

     982         36         284         1,302         166,595         —           167,897         —     

Non-Owner Occupied

     269         330         123         722         347,717         —           348,439         —     

Residential Real Estate

     2,640         404         1,725         4,769         231,438         131         236,338         —     

Real Estate Construction

     8         —           —           8         58,890         —           58,898         —     

Farm Real Estate

     —           —           —           —           46,993         —           46,993         —     

Consumer and Other

     98         68         8         174         18,386         —           18,560         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,006       $ 870       $ 2,177       $ 7,053       $ 994,211       $ 263       $ 1,001,527       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 27


Table of Contents

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, excluding purchased credit-impaired (PCI) loans, as of September 30, 2016 and December 31, 2015.

 

     2016      2015  

Commercial & Agriculture

   $ 2,008       $ 1,185   

Commercial Real Estate:

     

Owner Occupied

     1,618         1,645   

Non-Owner Occupied

     459         1,428   

Residential Real Estate

     3,887         3,911   

Real Estate Construction

     27         29   

Farm Real Estate

     54         961   

Consumer and Other

     84         100   
  

 

 

    

 

 

 

Total

   $ 8,137       $ 9,259   
  

 

 

    

 

 

 

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. A loan may be returned to accruing status only if one of three conditions are met: the loan is well-secured and none of the principal and interest has been past due for a minimum of 90 days; the loan is a TDR and the borrower has made a minimum of six months payments under the modified terms; 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. Real Estate loans modified in a TDR were primarily comprised of interest rate reductions where monthly payments were lowered to accommodate the borrowers’ financial needs.

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the 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 September 30, 2016, TDRs accounted for $214 of the allowance for loan losses. As of December 31, 2015, TDRs accounted for $286 of the allowance for loan losses.

 

Page 28


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Loan modifications that are considered TDRs completed during the periods ended September 30, 2016 and September 30, 2015 were as follows:

 

     For the Nine-Month Period Ended
September 30, 2016
 
     Number
of
Contracts
     Pre-Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 

Commercial & Agriculture

     4       $ 529       $ 529   

Commercial Real Estate - Owner Occupied

     —           —           —     

Commercial Real Estate - Non-Owner Occupied

     —           —           —     

Residential Real Estate

     2         308         308   

Real Estate Construction

     —           —           —     

Farm Real Estate

     3         700         700   

Consumer and Other

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total Loan Modifications

     9       $ 1,537       $ 1,537   
  

 

 

    

 

 

    

 

 

 
     For the Nine-Month Period Ended
September 30, 2015
 
     Number
of
Contracts
     Pre-Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 

Commercial & Agriculture

     —         $ —         $ —     

Commercial Real Estate - Owner Occupied

     —           —           —     

Commercial Real Estate - Non-Owner Occupied

     —           —           —     

Residential Real Estate

     —           —           —     

Real Estate Construction

     1         41         41   

Farm Real Estate

     —           —           —     

Consumer and Other

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total Loan Modifications

     1       $ 41       $ 41   
  

 

 

    

 

 

    

 

 

 

 

Page 29


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

     For the Three-Month Period Ended
September 30, 2016
 
     Number
of
Contracts
     Pre-Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 

Commercial & Agriculture

     —         $ —         $ —     

Commercial Real Estate - Owner Occupied

     —           —           —     

Commercial Real Estate - Non-Owner Occupied

     —           —           —     

Residential Real Estate

     —           —           —     

Real Estate Construction

     —           —           —     

Farm Real Estate

     1         86         86   

Consumer and Other

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total Loan Modifications

     1       $ 86       $ 86   
  

 

 

    

 

 

    

 

 

 
     For the Three-Month Period Ended
September 30, 2015
 
     Number
of
Contracts
     Pre-Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 

Commercial & Agriculture

     —         $ —         $ —     

Commercial Real Estate - Owner Occupied

     —           —           —     

Commercial Real Estate - Non-Owner Occupied

     —           —           —     

Residential Real Estate

     —           —           —     

Real Estate Construction

     —           —           —     

Farm Real Estate

     —           —           —     

Consumer and Other

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total Loan Modifications

     —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

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 both the three- and nine-month periods ended September 30, 2016 and September 30, 2015, there were no defaults on loans that were modified and considered TDRs during the respective twelve previous months.

 

Page 30


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Impaired Loans: Larger (greater than $350) Commercial & Agricultural and Commercial Real Estate loan relationships, all TDRs 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 following tables include the recorded investment and unpaid principal balances for impaired loans, excluding PCI loans, with the related allowance amount, if applicable, as of September 30, 2016 and December 31, 2015.

 

     September 30, 2016      December 31, 2015  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

With no related allowance recorded:

  

              

Commercial & Agriculture

   $ 2,386       $ 3,457          $ 851       $ 1,034      

Commercial Real Estate:

                 

Owner Occupied

     1,697         1,842            1,224         1,343      

Non-Owner Occupied

     369         396            1,742         1,826      

Residential Real Estate

     1,376         1,912            965         1,591      

Farm Real Estate

     665         665            953         1,026      

Consumer and Other

     1         1            3         3      
  

 

 

    

 

 

       

 

 

    

 

 

    

Total

     6,494         8,273            5,738         6,823      

With an allowance recorded:

                 

Commercial & Agriculture

     —           —         $ —           22         23       $ 23   

Commercial Real Estate:

                 

Owner Occupied

     242         242         4         917         999         103   

Non-Owner Occupied

     —           —           —           —           —           —     

Residential Real Estate

     478         497         113         808         683         260   

Farm Real Estate

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     720         739         117         1,747         1,705         386   

Total:

                 

Commercial & Agriculture

     2,386         3,457         —           873         1,057         23   

Commercial Real Estate:

                 

Owner Occupied

     1,939         2,084         4         2,141         2,342         103   

Non-Owner Occupied

     369         396         —           1,742         1,826         —     

Residential Real Estate

     1,854         2,409         113         1,773         2,274         260   

Farm Real Estate

     665         665         —           953         1,026         —     

Consumer and Other

     1         1         —           3         3         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,214       $ 9,012       $ 117       $ 7,485       $ 8,528       $ 386   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 31


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

The following tables include the average recorded investment and interest income recognized for impaired loans.

 

For the nine months ended:    September 30, 2016      September 30, 2015  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Commercial & Agriculture

   $ 1,453       $ 147       $ 1,680       $ 41   

Commercial Real Estate - Owner Occupied

     1,954         101         2,887         120   

Commercial Real Estate - Non-Owner Occupied

     1,519         62         1,997         31   

Residential Real Estate

     1,699         89         2,640         78   

Real Estate Construction

     473         6         20         —     

Farm Real Estate

     1,123         33         620         42   

Consumer and Other

     2         —           5         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,223       $ 438       $ 9,849       $ 312   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

For the three months ended:    September 30, 2016      September 30, 2015  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Commercial & Agriculture

   $ 2,401       $ 67       $ 1,058       $ 4   

Commercial Real Estate - Owner Occupied

     1,774         51         2,447         23   

Commercial Real Estate - Non-Owner Occupied

     556         36         1,870         12   

Residential Real Estate

     1,873         29         2,450         12   

Real Estate Construction

     —           6         20         —     

Farm Real Estate

     1,032         2         816         14   

Consumer and Other

     2         —           4         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,638       $ 191       $ 8,665       $ 65   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 32


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Changes in the amortizable yield for PCI loans were as follows, since acquisition:

 

                         
     For the Nine-Month      For the Nine-Month  
     Period Ended      Period Ended  
     September 30, 2016      September 30, 2015  
     (In Thousands)      (In Thousands)  

Balance at beginning of period

   $ 82       $ —     

Acquisition of PCI loans

     —           140   

Accretion

     (24      —     
  

 

 

    

 

 

 

Balance at end of period

   $ 58       $ 140   
  

 

 

    

 

 

 
     For the Three-Month      For the Three-Month  
     Period Ended      Period Ended  
     September 30, 2016      September 30, 2015  
     (In Thousands)      (In Thousands)  

Balance at beginning of period

   $ 66       $ 140   

Acquisition of PCI loans

     —           —     

Accretion

     (8      —     
  

 

 

    

 

 

 

Balance at end of period

   $ 58       $ 140   
  

 

 

    

 

 

 

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:

 

     At September 30, 2016      At December 31, 2015  
     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

   $ 868       $ 965   

Carrying amount

     266         263   

There has been $97 and $123 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of September 30, 2016 and December 31, 2015, respectively.

 

Page 33


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

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 September 30, 2016 and December 31, 2015, a total of $62 and $116, respectively, of foreclosed assets were included in other assets. As of September 30, 2016, included within the foreclosed assets is $62 of residential property acquired upon foreclosure of consumer residential mortgages or received via a deed in lieu transaction prior to the period end. As of September 30, 2016, the Company had initiated formal foreclosure procedures on $721 of consumer residential mortgages.

(6) Other Comprehensive Income

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax.

 

     For the Nine-Month Period Ended     For the Nine-Month Period Ended  
     September 30, 2016     September 30, 2015  
     Unrealized
Gains and
Losses on
Available-for-
Sale
Securities
    Defined
Benefit
Pension
Items
    Total     Unrealized
Gains and
Losses on
Available-for-
Sale
Securities
     Defined
Benefit
Pension
Items
    Total  

Beginning balance

   $ 3,554      $ (4,049   $ (495   $ 3,730       $ (3,777   $ (47
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

     1,514        —          1,514        57         —          57   

Amounts reclassified from accumulated other comprehensive income (loss)

     (13     165        152        —           138        138   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     1,501        165        1,666        57         138        195   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending balance

   $ 5,055      $ (3,884   $ 1,171      $ 3,787       $ (3,639   $ 148   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Amounts in parentheses indicate debits on the consolidated balance sheets.

 

Page 34


Table of Contents

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 income (loss).

 

    Amount Reclassified from
Accumulated Other Comprehensive
Income (Loss) (a)
     

Details about Accumulated Other Comprehensive
(Loss) Components

  For the nine
months ended
September 30,
2016
    For the nine
months ended
September 30,
2015
   

Affected Line Item in the
Statement Where Net Income is

Presented

Unrealized gains and losses on available-for-sale securities

  $ 20      $ —       

Net gain (losses) on securities available for sale

Tax effect

    (7     —        Income tax expense
 

 

 

   

 

 

   
    13        —       

Net of tax

 

 

 

   

 

 

   

Amortization of defined benefit pension items

     

Actuarial gains/(losses)

    (249 )(b)      (210 )(b)   

Salaries, wages and benefits

Tax effect

    84        72     

Income tax expense

 

 

 

   

 

 

   
    (165     (138  

Net of tax

 

 

 

   

 

 

   

Total reclassifications for the period

  $ (152   $ (138  

Net of tax

 

 

 

   

 

 

   

 

(a)  Amounts in parentheses indicate expenses and other amounts indicate income.
(b)  These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

 

Page 35


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax.

 

     For the Three-Month Period Ended     For the Three-Month Period Ended  
     September 30, 2016     September 30, 2015  
     Unrealized
Gains and
Losses on
Available-for-
Sale
Securities
    Defined
Benefit
Pension
Items
    Total     Unrealized
Gains and
Losses on
Available-for-
Sale
Securities
     Defined
Benefit
Pension
Items
    Total  

Beginning balance

   $ 5,863      $ (3,939   $ 1,924      $ 3,007       $ (3,685   $ (678
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

     (796     —          (796     780         —          780   

Amounts reclassified from accumulated other comprehensive income (loss)

     (12     55        43        —           46        46   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (808     55        (753     780         46        826   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending balance

   $ 5,055      $ (3,884   $ 1,171      $ 3,787       $ (3,639   $ 148   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Amounts in parentheses indicate debits on the consolidated balance sheets.

 

Page 36


Table of Contents

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 income (loss).

 

    Amount Reclassified from
Accumulated Other Comprehensive
Income (Loss) (a)
     

Details about Accumulated Other Comprehensive
(Loss) Components

  For the three
months ended
September 30,
2016
    For the three
months ended
September 30,
2015
   

Affected Line Item in the
Statement Where Net Income is

Presented

Unrealized gains and losses on available-for-sale securities

  $ 18      $ —       

Net gain (losses) on securities available for sale

Tax effect

    (6     —       

Income tax expense

 

 

 

   

 

 

   
    12        —       

Net of tax

 

 

 

   

 

 

   

Amortization of defined benefit pension items

     

Actuarial gains/(losses)

    (83 )(b)      (70 )(b)   

Salaries, wages and benefits

Tax effect

    28        24     

Income tax expense

 

 

 

   

 

 

   
    (55     (46  

Net of tax

 

 

 

   

 

 

   

Total reclassifications for the period

  $ (43   $ (46  

Net of tax

 

 

 

   

 

 

   

 

(a)  Amounts in parentheses indicate expenses and other amounts indicate income.
(b)  These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

(7) Goodwill and Intangible Assets

The balance of goodwill was $27,095 at both September 30, 2016 and December 31, 2015. Management performs an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Management last performed an evaluation of the Company’s goodwill during the fourth quarter of 2015 and concluded that the Company’s goodwill was not impaired at December 31, 2015.

 

Page 37


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

The change in the carrying amount of goodwill for the periods ended September 30, 2016 and 2015 is as follows:

 

     Nine months ended
September 30,
 
     2016      2015  

Beginning of year

   $ 27,095       $ 21,720   

Acquired goodwill

     —           5,375   

Impairment

     —           —     

Other adjustments

     —           —     
  

 

 

    

 

 

 

End of period

   $ 27,095       $ 27,095   
  

 

 

    

 

 

 

Acquired intangible assets as of September 30, 2016 and September 30, 2015 were as follows:

 

     2016      2015  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
 
                   
                   

Amortized intangible assets(1):

                 

MSRs

   $ 873       $ 225       $ 648       $ 722       $ 144       $ 578   

Core deposit intangibles

     7,274         5,979         1,295         7,274         5,264         2,010   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total amortized intangible assets

   $ 8,147       $ 6,204       $ 1,943       $ 7,996       $ 5,408       $ 2,588   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Excludes fully amortized intangible assets

Aggregate core deposit intangible amortization expense was $527 and $522 for September 30, 2016 and 2015, respectively.

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

 

     MSRs      Core deposit
intangibles
     Total  
          

2016

   $ 9       $ 172       $ 181   

2017

     36         587         623   

2018

     36         111         147   

2019

     36         88         124   

2020

     36         71         107   

Thereafter

     495         266         761   
  

 

 

    

 

 

    

 

 

 
   $ 648       $ 1,295       $ 1,943   
  

 

 

    

 

 

    

 

 

 

 

Page 38


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

(8) Short-Term Borrowings

Short-term borrowings are included in Federal Home Loan Bank advances on the Consolidated Balance Sheets and are summarized as follows:

 

     At September 30, 2016     At December 31, 2015  
     Federal           Federal        
     Funds     Short-term     Funds     Short-term  
     Purchased     Borrowings     Purchased     Borrowings  

Outstanding balance

   $ —        $ 17,500      $ —        $ 53,700   

Maximum indebtedness

     20,000        70,400        —          64,700   

Average balance

     157        13,290        69        26,880   

Average rate paid

     0.79     0.42     0.53     0.20

Interest rate on balance

     —          0.40     —          0.35

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

These borrowing transactions can range from overnight to six months in maturity. The average maturity was one day at September 30, 2016 and December 31, 2015.

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 September 30, 2016 and December 31, 2015. All of the repurchase agreements are overnight agreements.

 

     September 30, 2016      December 31, 2015  

Securities pledged for repurchase agreements:

     

U.S. Treasury securities

   $ 840       $ 894   

Obligations of U.S. government agencies

     20,873         24,146   
  

 

 

    

 

 

 

Total securities pledged

   $ 21,713       $ 25,040   
  

 

 

    

 

 

 

Gross amount of recognized liabilities for repurchase agreements

   $ 21,713       $ 25,040   
  

 

 

    

 

 

 

Amounts related to agreements not included in offsetting disclosures above

   $ —         $ —     
  

 

 

    

 

 

 

 

Page 39


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

(9) Earnings per Common Share

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. 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, and the impact of the Company’s convertible preferred stock using the “if converted” method.

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
       
     2016      2015      2016      2015  

Basic

           

Net income

   $ 3,680       $ 3,253       $ 13,586       $ 9,546   

Preferred stock dividends

     374         391         1,156         1,186   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders - basic

   $ 3,306       $ 2,862       $ 12,430       $ 8,360   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding - basic

     8,042,303         7,843,578         7,922,170         7,815,222   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 0.41       $ 0.36       $ 1.57       $ 1.07   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

           

Net income available to common shareholders - basic

   $ 3,306       $ 2,862       $ 12,430       $ 8,360   

Preferred stock dividends

     374         391         1,156         1,186   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders - diluted

   $ 3,680       $ 3,253       $ 13,586       $ 9,546   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding for basic earnings per common share basic

     8,042,303         7,843,578         7,922,170         7,815,222   

Add: Dilutive effects of convertible preferred shares

     2,922,609         3,078,245         3,024,712         3,101,937   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average shares and dilutive potential common shares outstanding - diluted

     10,964,912         10,921,823         10,946,882         10,917,159   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.34       $ 0.30       $ 1.24       $ 0.87   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 40


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

For the three-month period ended September 30, 2016 there were 2,922,609 dilutive shares related to the Company’s convertible preferred stock. For the nine-month period ended September 30, 2016 there were 3,024,712 dilutive shares related to the Company’s convertible preferred stock. For the three-month period ended September 30, 2015 there were 3,078,245 dilutive shares related to the Company’s convertible preferred stock. For the nine-month period ended September 30, 2015 there were 3,101,937 dilutive shares related to the Company’s convertible preferred stock. Under the “if converted” method, all convertible preferred shares are assumed to be converted into common shares at the corresponding conversion rate. These additional shares are then added to the common shares outstanding to calculate diluted earnings per share.

(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 for September 30, 2016 and December 31, 2015:

 

     Contract Amount  
     September 30, 2016      December 31, 2015  
     Fixed
Rate
     Variable
Rate
     Fixed
Rate
     Variable
Rate
 
           

Commitment to extend credit:

           

Lines of credit and construction loans

   $ 8,661       $ 193,696       $ 9,416       $ 195,732   

Overdraft protection

     5         28,964         5         22,122   

Letters of credit

     600         351         200         750   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,266       $ 223,011       $ 9,621       $ 218,604   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 3.25% to 8.50% at September 30, 2016 and from 3.25% to 8.75% at December 31, 2015. Maturities extend up to 30 years.

Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements was $2,767 on September 30, 2016 and $2,448 on December 31, 2015.

 

Page 41


Table of Contents

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 benefit was as follows:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2016      2015      2016      2015  

Service cost

   $ —         $ —         $ —         $ —     

Interest cost

     170         156         509         468   

Expected return on plan assets

     (274      (283      (521      (848

Other components

     83         70         249         210   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension benefit

   $ (21    $ (57    $ 237       $ (170
  

 

 

    

 

 

    

 

 

    

 

 

 

The total amount of pension contributions expected to be paid by the Company in 2016 is $500, compared to $700 in 2015.

(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 315,720 shares available for future grants under this plan at September 30, 2016.

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

On March 17, 2015, certain officers were awarded an aggregate of 16,983 restricted common shares, of which 5,657 shares vested on January 2, 2016.

 

Page 42


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

On January 4, 2016, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 2,730 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2016 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $32.

On January 15, 2016, certain of the Company’s lending officers were awarded an aggregate of 12,734 restricted common shares under the 2014 Incentive Plan. These restricted shares vest over a 5-year service period, with 20% each vesting on January 2 of 2017, 2018, 2019, 2020 and 2021.

On March 11, 2016, senior officers were awarded an aggregate of 16,130 restricted common shares, which vest over a three-year service period, with one third each vesting on January 2 of 2017, 2018 and 2019.

Finally, on May 17, 2016, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 12,285 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2017 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $130.

No options had been granted under the 2014 Incentive Plan as of September 30, 2016 and 2015.

The Company classifies share-based compensation for employees with “Salaries, wages and benefits” in the consolidated statements of operations. Additionally, generally accepted accounting principles require the Company to report: (1) the expense associated with the grants as an adjustment to operating cash flows, and (2) any benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense as a financing cash flow.

The following is a summary of the status of the Company’s restricted shares and changes therein:

 

     Three months ended
September 30, 2016
     Nine months ended
September 30, 2016
 
     
     Number of
Restricted
Shares
     Weighted
Average
Grant Date
Fair Value
     Number of
Restricted
Shares
     Weighted
Average
Grant Date
Fair Value
 
           
           
           

Nonvested at beginning of period

     39,524       $ 10.77         16,983       $ 10.82   

Granted

     —           —           28,864         10.75   

Vested

     —           —           (5,657      10.82   

Forfeited

     (916      10.91         (1,582      10.83   
  

 

 

       

 

 

    

Nonvested at September 30, 2016

     38,608         10.77         38,608         10.77   
  

 

 

       

 

 

    

During the nine-month period ended September 30, 2016, the Company recorded $299 of share-based compensation expense for shares granted under the 2014 Incentive Plan. Additionally, during the three

 

Page 43


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

months ended September 30, 2016, the Company recorded $28 of share-based compensation expense for the shares granted under the 2014 Incentive Plan. At September 30, 2016, the expected future compensation expense relating to the 16,983 restricted shares awarded in 2015 is $46 over the remaining vesting period of 1.25 years. The expected future compensation expense relating to the 16,130 restricted shares awarded in 2016 to the officers and Civista directors is $78 over the remaining vesting period of 2.25 years. The expected future compensation expense relating to the 12,734 restricted common shares awarded to lending officers of the Company in 2016 is $119 over the remaining vesting period of 4.25 years. On May 13, 2016, an agreement was signed thereby ending the employment of a grantee of restricted shares. As a result, a total of 666 restricted shares granted, but unvested, were forfeited. Finally, on September 19, 2016, a lending officer and restricted share grantee left the company. As a result, a total of 916 restricted shares granted, but unvested, were forfeited.

(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; 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 values of these equity securities available for sale is determined by using market data inputs for similar securities that are observable (Level 2 inputs).

Swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date and classified Level 2.

Impaired loans: The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level 3 measurement.

 

Page 44


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Other real estate owned: OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table below. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. Management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the properties are categorized in the below table as Level 3 measurements since these adjustments are considered to be unobservable inputs. Income and expenses from operations are included in other operating expenses. Further declines in the fair value of the collateral subsequent to foreclosure are included in net gain on sale of other real estate owned.

Assets measured at fair value are summarized below.

 

     Fair Value Measurements at September 30, 2016 Using:  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

        

Assets measured at fair value on a recurring basis:

        

U.S. Treasury securities and obligations of U.S. Government agencies

   $ —         $ 38,049       $ —     

Obligations of states and political subdivisions

     —           96,227         —     

Mortgage-backed securities in government sponsored entities

     —           65,977         —     

Equity securities in financial institutions

     —           714         —     

Swap asset

     —           3,705         —     

Liabilities:

        

Swap liability

     —           3,705         —     

Assets measured at fair value on a nonrecurring basis:

        

Impaired loans

   $ —         $ —         $ 319   

Other real estate owned

     —           —           62   

 

Page 45


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

     Fair Value Measurements at December 31, 2015 Using:  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

        

Assets measured at fair value on a recurring basis:

        

U.S. Treasury securities and obligations of U.S. Government agencies

   $ —         $ 40,937       $ —     

Obligations of states and political subdivisions

     —           92,152         —     

Mortgage-backed securities in government sponsored entities

     —           62,573         —     

Equity securities in financial institutions

     —           587         —     

Swap asset

     —           1,962         —     

Liabilities:

        

Swap liability

     —           1,962         —     

Assets measured at fair value on a nonrecurring basis:

        

Impaired loans

   $ —         $ —         $ 759   

Other real estate owned

     —           —           109   

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2016.

 

     Quantitative Information about Level 3 Fair Value Measurements
September 30, 2016    Fair Value      Valuation Technique      Unobservable Input    Range   Weighted
Average

Impaired loans

   $ 319         Appraisal of collateral       Appraisal adjustments    10% - 30%   10%
        

 

Liquidation expense

   0% - 10%   10%
        

 

Holding period

   0 - 30 months   18 months

Other real estate owned

   $ 62         Appraisal of collateral       Appraisal adjustments    10% - 30%   10%
         Liquidation expense    0% - 10%   10%

 

Page 46


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2015.

 

     Quantitative Information about Level 3 Fair Value Measurements
December 31, 2015    Fair Value      Valuation Technique      Unobservable Input    Range    Weighted
Average

Impaired loans

   $ 759         Appraisal of collateral       Appraisal adjustments    10% - 30%    10%
        

 

Liquidation expense

   0% - 10%    10%
        

 

Holding period

   0 -30 months    17 months

Other real estate owned

   $ 109         Appraisal of collateral       Appraisal adjustments    10% - 30%    10%
         Liquidation expense    0% - 10%    10%

The carrying amount and fair values of financial instruments are as follows:

 

September 30, 2016    Carrying
Amount
     Total
Fair Value
     Level 1      Level 2      Level 3  

Financial Assets:

              

Cash and due from financial institutions

   $ 33,229       $ 33,229       $ 33,229       $ —         $ —     

Securities available for sale

     200,967         200,967         —           200,967         —     

Loans, held for sale

     2,827         2,827         2,827         —           —     

Loans, net of allowance for loan losses

     1,033,516         1,037,955         —           —           1,037,955   

Other securities

     13,926         13,926         13,926         —           —     

Bank owned life insurance

     24,404         24,404         24,404         —           —     

Accrued interest receivable

     4,547         4,547         4,547         —           —     

Swap asset

     3,705         3,705         —           3,705         —     

Financial Liabilities:

              

Nonmaturing deposits

     915,360         915,360         915,360         —           —     

Time deposits

     218,793         219,345         —           —           219,345   

Short-term FHLB advances

     17,500         17,394         17,394         —           —     

Long-term FHLB advances

     17,500         17,710         —           —           17,710   

Securities sold under agreement to repurchase

     21,713         21,713         21,713         —           —     

Subordinated debentures

     29,427         30,367         —           —           30,367   

Accrued interest payable

     137         137         137         —           —     

Swap liability

     3,705         3,705         —           3,705         —     

 

Page 47


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

December 31, 2015    Carrying
Amount
     Total
Fair Value
     Level 1      Level 2      Level 3  

Financial Assets:

              

Cash and due from financial institutions

   $ 35,561       $ 35,561       $ 35,561       $ —         $ —     

Securities available for sale

     196,249         196,249         —           196,249         —     

Loans, held for sale

     2,698         2,698         2,698         —           —     

Loans, net of allowance for loan losses

     987,166         986,848         —           —           986,848   

Other securities

     13,452         13,452         13,452         —           —     

Bank owned life insurance

     20,104         20,104         20,104         —           —     

Accrued interest receivable

     3,902         3,902         3,902         —           —     

Swap asset

     1,962         1,962         —           1,962         —     

Financial Liabilities:

              

Nonmaturing deposits

     840,984         840,984         840,984         —           —     

Time deposits

     211,049         212,006         —           —           212,006   

Short-term FHLB advances

     53,700         52,906         52,906         —           —     

Long-term FHLB advances

     17,500         17,687         —           —           17,687   

Securities sold under agreement to repurchase

     25,040         25,040         25,040         —           —     

Subordinated debentures

     29,427         25,572         —           —           25,572   

Accrued interest payable

     120         120         120         —           —     

Swap liability

     1,962         1,962         —           1,962         —     

Cash and due from financial institutions: The carrying amounts for cash and due from financial institutions approximate fair value because they have original maturities of less than 90 days and do not present unanticipated credit concerns.

Securities available for sale: The fair value of securities 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 specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For equity securities, management uses market information related to the value of similar institutions to determine the fair value (Level 2 inputs).

Other securities: The carrying value of regulatory stock approximates fair value based on applicable redemption provisions.

Loans, held-for-sale: Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment to an investor. Because the holding period of such loans is typically short, the carrying value generally approximates the fair value at the time the commitment is received. All loans in the held-for-sale account conform to Fannie Mae underwriting guidelines, with specific intent of the loan being purchased by an investor at the predetermined rate structure.

 

Page 48


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

Loans, net of allowance for loan losses: Fair values for loans, other than impaired, are estimated for portfolios of loans with similar financial characteristics. The fair value of performing loans has been estimated by discounting expected future cash flows of the underlying portfolios. The discount rates used in these calculations are generally derived from the treasury yield curve and are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate inherent in the loan. The estimated maturity is based on the Company’s historical experience with repayments for each loan classification. Changes in these significant unobservable inputs used in discounted cash flow analysis, such as the discount rate or prepayment speeds, could lead to changes in the underlying fair value.

Bank owned life insurance: The carrying value of bank owned life insurance approximates the fair value based on applicable redemption provisions.

Accrued interest receivable and payable and securities sold under agreements to repurchase: The carrying amounts for accrued interest receivable, accrued interest payable and securities sold under agreements to repurchase approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns.

Deposits: The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand.

The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the current market rates currently offered for deposits of similar remaining maturities.

The deposits’ fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Federal Home Loan Bank (“FHLB”) advances: Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

Subordinated debentures: The fair value of subordinated debentures is based on the discounted value of contractual cash flows of the underlying debt agreements. The discount rate is estimated using the current rate for the borrowing from the FHLB with the most similar terms.

Fair value swap asset and liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date.

 

Page 49


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

(14) Derivative Hedging Instruments

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 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.

The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis point change in interest rates as of September 30, 2016.

 

     Notional
Amount
     Weighted
Average Rate
Received/(Paid)
    Impact of a
1 basis point change
in interest rates
     Repricing
Frequency
 

Derivative Assets

   $ 53,373         5.07   $ 33         Monthly   

Derivative Liabilities

     (53,373      -5.07     (33      Monthly   
  

 

 

      

 

 

    

Net Exposure

   $ —           $ —        
  

 

 

      

 

 

    

The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis point change in interest rates as of December 31, 2015.

 

     Notional
Amount
     Weighted
Average Rate
Received/(Paid)
    Impact of a
1 basis point change
in interest rates
     Repricing
Frequency
 

Derivative Assets

   $ 35,534         5.31   $ 20         Monthly   

Derivative Liabilities

     (35,534      -5.31     (20      Monthly   
  

 

 

      

 

 

    

Net Exposure

   $ —           $ —        
  

 

 

      

 

 

    

The Company monitors and controls all derivative products with a comprehensive Board of Director approved commercial loan swap policy. All hedge transactions must be approved in advance by the Lenders Loan Committee or the Directors Loan Committee of the Board of Directors.

 

Page 50


Table of Contents

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

 

(15) Qualified Affordable Housing Project Investments

The Company invests in qualified affordable housing projects. At September 30, 2016 and December 31, 2015, the balance of the investment for qualified affordable housing projects was $2,477 and $2,177, 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 $2,663 and $2,195 at September 30, 2016 and December 31, 2015, respectively.

During the nine months ended September 30, 2016 and 2015, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $231 and $208, respectively, which was included within pretax income on the consolidated statements of operations. During the quarters ended September 30, 2016 and 2015, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $77 and $69, respectively, which was included within pretax income on the consolidated statements of operations.

Additionally, during the nine months ended September 30, 2016 and 2015, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $442 and $350, respectively. During the quarters ended September 30, 2016 and 2015, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $147 and $117, respectively. During the three and nine months ended September 30, 2016 and 2015, the Company did not incur impairment losses related to its investment in qualified affordable housing projects.

 

Page 51


Table of Contents

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 September 30, 2016 compared to December 31, 2015, and the consolidated results of operations for the three- and nine-month periods ended September 30, 2016, compared to the same periods in 2015. 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 results discussed in the forward-looking statements include, but are not limited to, changes in financial markets or national or local economic conditions; sustained weakness or deterioration in the real estate market; volatility and direction of market interest rates; credit risks of lending activities; changes in the allowance for loan losses; legislation or regulatory changes or actions; increases in Federal Deposit Insurance Corporation (“FDIC”) insurance premiums and assessments; changes in tax laws; failure of or breach in our information and data processing systems; unforeseen litigation; 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, 2015. 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.

 

Page 52


Table of Contents

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

 

 

Financial Condition

Total assets of the Company at September 30, 2016 were $1,372,280 compared to $1,315,041 at December 31, 2015, an increase of $57,239, or 4.4%. The increase in total assets was mainly attributable to an increase in securities available for sale, net loans, bank owned life insurance and other assets. Total liabilities at September 30, 2016 were $1,233,971 compared to $1,189,868 at December 31, 2015, an increase of $44,103, or 3.7%. The increase in total liabilities was mainly attributable to an increase in total deposits and accrued expenses and other expenses offset by a decrease in FHLB overnight advances and securities sold under agreements to repurchase.

Loans outstanding as of September 30, 2016 and December 31, 2015 were as follows:

 

     September 30,
2016
     December 31,
2015
 

Commercial & Agriculture

   $ 129,700       $ 124,402   

Commercial Real Estate - Owner Occupied

     167,564         167,897   

Commercial Real Estate - Non-Owner Occupied

     385,863         348,439   

Residential Real Estate

     247,174         236,338   

Real Estate Construction

     56,919         58,898   

Farm Real Estate

     41,862         46,993   

Consumer and Other

     17,885         18,560   
  

 

 

    

 

 

 

Total loans

     1,046,967         1,001,527   

Allowance for loan losses

     (13,451      (14,361
  

 

 

    

 

 

 

Net loans

   $ 1,033,516       $ 987,166   
  

 

 

    

 

 

 

Net loans have increased $46,350 or 4.7% since December 31, 2015. The Commercial & Agriculture, Commercial Real Estate – Non-Owner Occupied and Residential Real Estate loan portfolios increased $5,298, $37,424 and $10,836, respectively, since December 31, 2015, while the Commercial Real Estate – Owner Occupied, Real Estate Construction, Farm Real Estate and Consumer and Other loan portfolios have decreased $333, $1,979, $5,131 and $675, respectively, since December 31, 2015.

During the first nine months of 2016, the Company received a payoff on a nonperforming loan. This particular loan had been analyzed previously and had been charged down based on a deterioration of real estate collateral values during the recent recession. As a result of the payoff of the loan, the Company recovered the charged down amount of approximately $1,303. This loan payoff resulted in a credit of $1,300 to the allowance for loan losses during the nine months of operations in 2016, compared to a $1,200 provision for loan losses in the same period of 2015. Additionally, the allowance for loan losses was affected by a decrease in net charge-offs compared to a year ago. Net charge-offs have decreased to a net recovery of $390, compared to net charge-offs of $708 during the first nine months of 2015. For the first nine months of 2016, the Company charged off a total of forty-five loans. Four Commercial and Agriculture loans totaling $791, net of recoveries, five Commercial Real Estate – Owner Occupied loans totaling $113, net of recoveries, one Real Estate Construction loan totaling $107, net of recoveries and twelve Consumer and Other loans totaling $45, net of recoveries were charged off in the

 

Page 53


Table of Contents

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

 

 

first nine months of the year. The Company also charged off twenty-two Residential Real Estate loans and one Commercial Real Estate – Non-Owner Occupied loan in the first nine months of the year. In addition, the Company had net recoveries of $1,342 and $104 on previously charged-off, Commercial Real Estate – Non-Owner Occupied loans and Residential Real Estate loans, respectively, in the first nine months of 2016. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans have decreased by $1,089 since December 31, 2015, which was due to a decrease in loans on nonaccrual status of $1,122 offset by an increase in loans past due 90 days but still accruing of $33. 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, except for the segment consisting of purchased automobile loans which is calculated over a two-year period. The use of a three-year period for loss migration analysis reflected a change in methodology beginning in the third quarter of 2015. Previously, a two-year loss migration analysis had been used for the entire portfolio. With continued improvement and stability in economic conditions, regulatory guidance recommends a longer look-back period. In addition, Civista made significant changes to consumer and commercial lending policies in the first quarter of 2012. Combined, the stable economy and now seasoned policy changes indicate a three-year period is more reflective of future expectations. 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.

Management analyzes each Commercial and Commercial Real Estate loan relationship, with a balance of $350 or larger, on an individual basis and designates a loan as impaired when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicate that underlying cash flows are not adequate to meet its debt service requirements. In addition, 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 loan losses as a percent of total loans was 1.28% at September 30, 2016 and 1.43% at December 31, 2015.

The available for sale security portfolio increased by $4,718, from $196,249 at December 31, 2015 to $200,967 at September 30, 2016. 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 September 30, 2016, the Company was in compliance with all pledging requirements.

Premises and equipment, net, have increased $396 from December 31, 2015 to September 30, 2016. The increase is the result of new purchases of $236, offset by depreciation of $896. In addition, $1,056 was added to construction in progress.

 

Page 54


Table of Contents

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

 

 

Bank owned life insurance (BOLI) increased $4,300 from December 31, 2015 to September 30, 2016. In the first nine months of 2016, the Company purchased an additional $3,885 of BOLI. The remaining difference is the result of increases in the cash surrender value of the underlying insurance policies.

Other assets increased $3,025 from December 31, 2015 to September 30, 2016. The increase is due to the sale of securities during September that will settle in October, additional swap asset activity and an increase in the market value of swap assets.

Total deposits as of September 30, 2016 and December 31, 2015 are as follows:

 

     September 30,
2016
     December 31,
2015
 

Noninterest-bearing demand

   $ 341,653       $ 300,615   

Interest-bearing demand

     192,866         176,303   

Savings and money market

     380,841         364,066   

Time deposits

     218,793         211,049   
  

 

 

    

 

 

 

Total Deposits

   $ 1,134,153       $ 1,052,033   
  

 

 

    

 

 

 

Total deposits at September 30, 2016 increased $82,120 from year-end 2015. Noninterest-bearing deposits increased $41,038 from year-end 2015, while interest-bearing deposits, including savings and time deposits, increased $41,082 from December 31, 2015. The increase in noninterest-bearing deposits was primarily due to increases in business deposits, public fund deposits and cash balances remaining related to the Company’s participation in a tax refund processing program. The interest-bearing deposit increase was mainly due to increases in interest-bearing demand and savings and money market accounts and brokered time deposits. The year-to-date average balance of total deposits increased $107,734 compared to the average balance of the same period in 2015 due to a large increase in temporary cash related to the tax refund processing program. The increase in average balance is due to increases of $107,049 in demand deposit accounts, $11,186 in money market savings, $2,178 in public fund money market savings and $8,139 in statement saving accounts, offset by decreases of $15,375 in time certificates and $6,558 in interest-bearing public funds.

FHLB advances decreased $36,200 from December 31, 2015 to September 30, 2016. The decrease is due to a decrease in overnight funds of $36,200. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $3,327 from December 31, 2015 to September 30, 2016.

Accrued expenses and other liabilities increased $1,510 from December 31, 2015 to September 30, 2016. The increase is primarily the result of increased swap liability activity and an increase in the market value of swap liabilities.

Shareholders’ equity at September 30, 2016 was $138,309, or 10.1% of total assets, compared to $125,173, or 9.5% of total assets, at December 31, 2015. The increase in shareholders’ equity was primarily due to net income of $13,586, a decrease in the Company’s pension liability, net of tax, of $165, an increase in the fair value of securities available for sale, net of tax, of $1,501 and offset by dividends on preferred stock and common stock of $1,156 and $1,259, respectively. Additionally, $299 was recognized as stock-based

 

Page 55


Table of Contents

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

 

 

compensation in connection with the grant of restricted shares. Total outstanding common shares at September 30, 2016 were 8,230,935. Total outstanding common shares at December 31, 2015 were 7,843,578. The increase in common shares outstanding is the result of the conversion of 2,698 of the Company’s previously issued preferred shares into 345,060 common shares, the grant of 28,864 restricted common shares to certain officers under the Company’s 2014 Incentive Plan and the grant of 15,015 common shares to directors of Civista. There were 1,582 previously granted restricted common shares forfeited during the nine months ended September 30, 2016.

Results of Operations

Nine Months Ended September 30, 2016 and 2015

The Company had net income of $13,586 for the nine months ended September 30, 2016, an increase of $4,040 from net income of $9,546 for the same nine months of 2015. Basic earnings per common share were $1.57 for the period ended September 30, 2016, compared to $1.07 for the same period in 2015. Diluted earnings per common share were $1.24 for the period ended September 30, 2016, compared to $0.87 for the same period in 2015. The primary reasons for the changes in net income are explained below.

 

Page 56


Table of Contents

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 nine months ended September 30, 2016 and 2015. 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 34% 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.

 

     Nine Months Ended September 30,  
     2016     2015  
     Average            Yield/     Average            Yield/  
     balance     Interest      rate *     balance     Interest      rate *  

Assets:

              

Interest-earning assets:

              

Loans, including fees

   $ 1,019,793      $ 35,311         4.63   $ 976,290      $ 33,271         4.56

Taxable securities

     138,374        2,494         2.45     140,311        2,439         2.36

Tax-exempt securities

     75,806        1,979         5.64     70,779        1,917         5.73

Interest-bearing deposits in other banks

     103,336        376         0.49     56,499        98         0.23
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

   $ 1,337,309        40,160         4.14   $ 1,243,879        37,725         4.18
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest-earning assets:

              

Cash and due from financial institutions

     58,864             38,735        

Premises and equipment, net

     16,860             15,807        

Accrued interest receivable

     4,262             4,261        

Intangible assets

     29,289             28,214        

Other assets

     9,986             10,282        

Bank owned life insurance

     23,111             19,795        

Less allowance for loan losses

     (14,516          (14,676     
  

 

 

        

 

 

      

Total Assets

   $ 1,465,165           $ 1,346,297        
  

 

 

        

 

 

      

Liabilities and Shareholders Equity:

              

Interest-bearing liabilities:

              

Demand and savings

   $ 564,743      $ 345         0.08   $ 544,569      $ 315         0.08

Time

     206,620        1,135         0.73     226,109        1,273         0.75

FHLB

     30,933        312         1.35     40,922        326         1.07

Federal funds purchased

     155        1         0.86     92        —           0.00

Subordinated debentures

     29,427        650         2.95     29,427        565         2.57

Repurchase Agreements

     21,015        16         0.10     19,183        15         0.10
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

   $ 852,893        2,459         0.39   $ 860,302        2,494         0.39
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest-bearing deposits

     460,051             353,002        

Other liabilities

     20,211             13,881        

Shareholders’ Equity

     132,010             119,112        
  

 

 

        

 

 

      

Total Liabilities and Shareholders’ Equity

   $ 1,465,165           $ 1,346,297        
  

 

 

        

 

 

      

Net interest income and interest rate spread

     $ 37,701         3.75     $ 35,231         3.79

Net interest margin

          3.89          3.91

* - All yields and costs are presented on an annualized basis

 

Page 57


Table of Contents

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 nine months ended September 30, 2016 and 2015. The table is presented on a fully tax-equivalent basis.

 

     Increase (decrease) due to:  
     Volume(1)      Rate(1)      Net  
     (Dollars in thousands)  

Interest income:

        

Loans, including fees

   $ 1,500       $ 540       $ 2,040   

Taxable securities

     (35      90         55   

Tax-exempt securities

     140         (78      62   

Interest-bearing deposits in other banks

     120         158         278   
  

 

 

    

 

 

    

 

 

 

Total interest income

   $ 1,725       $ 710       $ 2,435   
  

 

 

    

 

 

    

 

 

 

Interest expense:

        

Demand and savings

   $ 12       $ 18       $ 30   

Time

     (108      (30      (138

FHLB

     (90      76         (14

Federal funds purchased

     1         —           1   

Subordinated debentures

     —           85         85   

Repurchase agreements

     1         —           1   
  

 

 

    

 

 

    

 

 

 

Total interest expense

   $ (184    $ 149       $ (35
  

 

 

    

 

 

    

 

 

 

Net interest income

   $ 1,909       $ 561       $ 2,470   
 &