0001564590-17-022715.txt : 20171108 0001564590-17-022715.hdr.sgml : 20171108 20171108160146 ACCESSION NUMBER: 0001564590-17-022715 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 95 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171108 DATE AS OF CHANGE: 20171108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIVISTA BANCSHARES, INC. CENTRAL INDEX KEY: 0000944745 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341558688 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36192 FILM NUMBER: 171186519 BUSINESS ADDRESS: STREET 1: 100 EAST WATER ST STREET 2: P O BOX 5016 CITY: SANDUSKY STATE: OH ZIP: 44870 BUSINESS PHONE: 4196254121 MAIL ADDRESS: STREET 1: 100 EAST WATER ST STREET 2: P O BOX 5016 CITY: SANDUSKY STATE: OH ZIP: 44870 FORMER COMPANY: FORMER CONFORMED NAME: FIRST CITIZENS BANC CORP /OH DATE OF NAME CHANGE: 19950502 10-Q 1 civb-10q_20170930.htm 10-Q civb-10q_20170930.htm

 

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, 2017

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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

100 East Water Street, Sandusky, Ohio

 

44870

(Address of principal executive offices)

 

(Zip Code)

 

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

(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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large accelerated filer

 

 

 

Accelerated filer

 

Non-accelerated filer

 

(Do not check if a smaller reporting company)

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at November 3, 2017—10,170,935 shares

 

 

 


 

CIVISTA BANCSHARES, INC.

Index

 

PART I.

 

Financial Information

  

 

 

 

Item 1.

 

Financial Statements:

  

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) September 30, 2017 and December 31, 2016

  

 

2

 

 

 

Consolidated Statements of Operations (Unaudited) Three and nine months ended September 30, 2017 and 2016

  

 

3

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2017 and 2016

  

 

4

 

 

 

Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
Nine months ended September 30, 2017

  

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2017 and 2016

  

 

6

 

 

 

Notes to Interim Consolidated Financial Statements (Unaudited)

  

 

7-33

 

Item 2.

 

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

  

 

34-44

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

 

45-46

 

Item 4.

 

Controls and Procedures

  

 

47

 

 

 

 

PART II.

 

Other Information

  

 

 

 

Item 1.

 

Legal Proceedings

  

 

48

 

Item 1A.

 

Risk Factors

  

 

48

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

 

48

 

Item 3.

 

Defaults upon Senior Securities

  

 

48

 

Item 4.

 

Mine Safety Disclosures

  

 

48

 

Item 5.

 

Other Information

  

 

48

 

Item 6.

 

Exhibits

  

 

48

 

Signatures

 

 

  

 

49

 

 

 

 


 

Part I – Financial Information

ITEM 1.

Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

 

 

 

September 30,

2017

 

 

December 31,

2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from financial institutions

 

$

33,394

 

 

$

36,695

 

Securities available for sale

 

 

229,419

 

 

 

195,864

 

Loans held for sale

 

 

4,662

 

 

 

2,268

 

Loans, net of allowance of $12,946 and $13,305

 

 

1,129,046

 

 

 

1,042,201

 

Other securities

 

 

14,247

 

 

 

14,055

 

Premises and equipment, net

 

 

17,688

 

 

 

17,920

 

Accrued interest receivable

 

 

4,999

 

 

 

3,854

 

Goodwill

 

 

27,095

 

 

 

27,095

 

Other intangibles

 

 

1,360

 

 

 

1,784

 

Bank owned life insurance

 

 

24,981

 

 

 

24,552

 

Other assets

 

 

9,197

 

 

 

10,975

 

Total assets

 

$

1,496,088

 

 

$

1,377,263

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

357,539

 

 

$

345,588

 

Interest-bearing

 

 

843,750

 

 

 

775,515

 

Total deposits

 

 

1,201,289

 

 

 

1,121,103

 

Federal Home Loan Bank advances

 

 

56,750

 

 

 

48,500

 

Securities sold under agreements to repurchase

 

 

15,148

 

 

 

28,925

 

Subordinated debentures

 

 

29,427

 

 

 

29,427

 

Accrued expenses and other liabilities

 

 

11,493

 

 

 

11,692

 

Total liabilities

 

 

1,314,107

 

 

 

1,239,647

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred shares, no par value, 200,000 shares authorized, Series B Preferred shares,

   $1,000 liquidation preference, 18,975 shares issued at September 30, 2017 and 20,481 shares

   issued at December 31, 2016, net of issuance costs

 

 

17,557

 

 

 

18,950

 

Common shares, no par value, 20,000,000 shares authorized, 10,918,899 shares issued at

   September 30, 2017 and 9,091,473 shares issued at December 31, 2016

 

 

153,562

 

 

 

118,975

 

Retained earnings

 

 

28,494

 

 

 

19,263

 

Treasury shares, 747,964 common shares at cost

 

 

(17,235

)

 

 

(17,235

)

Accumulated other comprehensive loss

 

 

(397

)

 

 

(2,337

)

Total shareholders’ equity

 

 

181,981

 

 

 

137,616

 

Total liabilities and shareholders’ equity

 

$

1,496,088

 

 

$

1,377,263

 

 

See notes to interim unaudited consolidated financial statements

Page 2


 

CIVISTA BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

13,022

 

 

$

11,824

 

 

$

37,211

 

 

$

35,311

 

Taxable securities

 

 

977

 

 

 

872

 

 

 

2,764

 

 

 

2,494

 

Tax-exempt securities

 

 

812

 

 

 

664

 

 

 

2,307

 

 

 

1,979

 

Federal funds sold and other

 

 

25

 

 

 

10

 

 

 

473

 

 

 

376

 

Total interest income

 

 

14,836

 

 

 

13,370

 

 

 

42,755

 

 

 

40,160

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

607

 

 

 

506

 

 

 

1,500

 

 

 

1,480

 

Federal Home Loan Bank advances

 

 

276

 

 

 

111

 

 

 

534

 

 

 

312

 

Subordinated debentures

 

 

268

 

 

 

221

 

 

 

766

 

 

 

650

 

Other

 

 

5

 

 

 

6

 

 

 

16

 

 

 

17

 

Total interest expense

 

 

1,156

 

 

 

844

 

 

 

2,816

 

 

 

2,459

 

Net interest income

 

 

13,680

 

 

 

12,526

 

 

 

39,939

 

 

 

37,701

 

Provision (credit) for loan losses

 

 

 

 

 

 

 

 

 

 

 

(1,300

)

Net interest income after provision (credit) for loan losses

 

 

13,680

 

 

 

12,526

 

 

 

39,939

 

 

 

39,001

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

 

1,177

 

 

 

1,194

 

 

 

3,609

 

 

 

3,714

 

Net gain (loss) on sale of securities

 

 

(9

)

 

 

18

 

 

 

(9

)

 

 

20

 

Net gain on sale of loans

 

 

472

 

 

 

541

 

 

 

1,207

 

 

 

1,341

 

ATM fees

 

 

567

 

 

 

541

 

 

 

1,643

 

 

 

1,584

 

Wealth management fees

 

 

787

 

 

 

688

 

 

 

2,233

 

 

 

1,989

 

Bank owned life insurance

 

 

142

 

 

 

149

 

 

 

429

 

 

 

415

 

Tax refund processing fees

 

 

 

 

 

 

 

 

2,750

 

 

 

2,750

 

Other

 

 

329

 

 

 

522

 

 

 

842

 

 

 

1,176

 

Total noninterest income

 

 

3,465

 

 

 

3,653

 

 

 

12,704

 

 

 

12,989

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

7,389

 

 

 

6,375

 

 

 

21,684

 

 

 

19,053

 

Net occupancy expense

 

 

690

 

 

 

708

 

 

 

2,002

 

 

 

2,009

 

Equipment expense

 

 

350

 

 

 

494

 

 

 

1,097

 

 

 

1,158

 

Contracted data processing

 

 

357

 

 

 

397

 

 

 

1,174

 

 

 

1,147

 

FDIC assessment

 

 

115

 

 

 

166

 

 

 

414

 

 

 

597

 

State franchise tax

 

 

255

 

 

 

251

 

 

 

767

 

 

 

709

 

Professional services

 

 

534

 

 

 

431

 

 

 

1,718

 

 

 

1,450

 

Amortization of intangible assets

 

 

158

 

 

 

172

 

 

 

483

 

 

 

527

 

ATM expense

 

 

233

 

 

 

183

 

 

 

700

 

 

 

379

 

Marketing

 

 

240

 

 

 

249

 

 

 

768

 

 

 

810

 

Other operating expenses

 

 

1,846

 

 

 

1,769

 

 

 

5,410

 

 

 

5,314

 

Total noninterest expense

 

 

12,167

 

 

 

11,195

 

 

 

36,217

 

 

 

33,153

 

Income before taxes

 

 

4,978

 

 

 

4,984

 

 

 

16,426

 

 

 

18,837

 

Income tax expense

 

 

1,318

 

 

 

1,304

 

 

 

4,534

 

 

 

5,251

 

Net Income

 

 

3,660

 

 

 

3,680

 

 

 

11,892

 

 

 

13,586

 

Preferred stock dividends

 

 

308

 

 

 

374

 

 

 

935

 

 

 

1,156

 

Net income available to common shareholders

 

$

3,352

 

 

$

3,306

 

 

$

10,957

 

 

$

12,430

 

Earnings per common share, basic

 

$

0.33

 

 

$

0.41

 

 

$

1.12

 

 

$

1.57

 

Earnings per common share, diluted

 

$

0.29

 

 

$

0.34

 

 

$

0.97

 

 

$

1.24

 

 

See notes to interim unaudited consolidated financial statements

Page 3


 

CIVISTA BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

3,660

 

 

$

3,680

 

 

$

11,892

 

 

$

13,586

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on available for sale securities

 

 

86

 

 

 

(1,225

)

 

 

1,993

 

 

 

2,273

 

Tax effect

 

 

(29

)

 

 

417

 

 

 

(678

)

 

 

(772

)

Pension liability adjustment

 

 

426

 

 

 

83

 

 

 

946

 

 

 

249

 

Tax effect

 

 

(144

)

 

 

(28

)

 

 

(321

)

 

 

(84

)

Total other comprehensive income (loss)

 

 

339

 

 

 

(753

)

 

 

1,940

 

 

 

1,666

 

Comprehensive income

 

$

3,999

 

 

$

2,927

 

 

$

13,832

 

 

$

15,252

 

 

See notes to interim unaudited consolidated financial statements

Page 4


 

CIVISTA BANCSHARES, INC.

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

(In thousands, except share data)

 

 

 

Preferred Shares

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

 

Outstanding

Shares

 

 

Amount

 

 

Outstanding

Shares

 

 

Amount

 

 

Retained

Earnings

 

 

Treasury

Shares

 

 

Comprehensive

Loss

 

 

Shareholders’

Equity

 

Balance, December 31, 2016

 

 

20,481

 

 

$

18,950

 

 

 

8,343,509

 

 

$

118,975

 

 

$

19,263

 

 

$

(17,235

)

 

$

(2,337

)

 

$

137,616

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,892

 

 

 

 

 

 

 

 

 

11,892

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,940

 

 

 

1,940

 

Conversion of Series B preferred shares

   to common shares

 

 

(1,506

)

 

 

(1,393

)

 

 

192,568

 

 

 

1,393

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issuance, net of costs

 

 

 

 

 

 

 

 

1,610,000

 

 

 

32,821

 

 

 

 

 

 

 

 

 

 

 

 

32,821

 

Stock-based compensation

 

 

 

 

 

 

 

 

25,069

 

 

 

377

 

 

 

 

 

 

 

 

 

 

 

 

377

 

Common stock dividends

   ($0.18 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,726

)

 

 

 

 

 

 

 

 

(1,726

)

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(935

)

 

 

 

 

 

 

 

 

(935

)

Retirement of common stock

 

 

 

 

 

 

 

 

 

 

(211

)

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

Balance, September 30, 2017

 

 

18,975

 

 

$

17,557

 

 

 

10,170,935

 

 

$

153,562

 

 

$

28,494

 

 

$

(17,235

)

 

$

(397

)

 

$

181,981

 

 

See notes to interim unaudited consolidated financial statements

Page 5


 

 

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

Net cash from operating activities

 

$

11,821

 

 

$

11,318

 

Cash flows used for investing activities:

 

 

 

 

 

 

 

 

Maturities and calls of securities, available-for-sale

 

 

23,529

 

 

 

23,264

 

Purchases of securities, available-for-sale

 

 

(57,005

)

 

 

(31,130

)

Sale of securities available for sale

 

 

953

 

 

 

4,379

 

Purchases of other securities

 

 

(192

)

 

 

(474

)

Purchase of bank owned life insurance

 

 

 

 

 

(3,885

)

Net loan originations

 

 

(86,678

)

 

 

(43,285

)

Loans purchased, installment

 

 

 

 

 

(1,643

)

Proceeds from sale of other real estate owned properties

 

 

72

 

 

 

238

 

Proceeds from sale of premises and equipment

 

 

139

 

 

 

 

Premises and equipment purchases

 

 

(755

)

 

 

(1,292

)

Net cash used for investing activities

 

 

(119,937

)

 

 

(53,828

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of long-term FHLB advances

 

 

(2,500

)

 

 

 

Net change in short-term FHLB advances

 

 

10,750

 

 

 

(36,200

)

Increase in deposits

 

 

80,186

 

 

 

82,120

 

Decrease in securities sold under repurchase agreements

 

 

(13,777

)

 

 

(3,327

)

Net proceeds from common stock issuance

 

 

32,821

 

 

 

 

Cash payment for retirement of common stock

 

 

(4

)

 

 

 

Common dividends paid

 

 

(1,726

)

 

 

(1,259

)

Preferred dividends paid

 

 

(935

)

 

 

(1,156

)

Net cash provided by financing activities

 

 

104,815

 

 

 

40,178

 

Decrease in cash and due from financial institutions

 

 

(3,301

)

 

 

(2,332

)

Cash and due from financial institutions at beginning of period

 

 

36,695

 

 

 

35,561

 

Cash and due from financial institutions at end of period

 

$

33,394

 

 

$

33,229

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

2,753

 

 

$

2,442

 

Income taxes

 

 

4,300

 

 

 

4,700

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Transfer of loans from portfolio to other real estate owned

 

 

78

 

 

 

73

 

Transfer of premises to held-for-sale

 

 

3

 

 

 

 

Transfer of loans held for sale to portfolio

 

 

419

 

 

 

 

Conversion of preferred shares to common shares

 

 

1,393

 

 

 

2,497

 

Securities purchased not settled

 

 

1,609

 

 

 

 

Securities sold not settled

 

 

 

 

 

2,386

 

 

See notes to interim unaudited consolidated financial statements

 

 

 

Page 6


 

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(1) Consolidated Financial Statements

Nature of Operations and Principles of Consolidation : Civista Bancshares, Inc. (CBI) is an Ohio corporation and a registered financial holding company. The Consolidated Financial Statements include the accounts of CBI and its wholly-owned 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. 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, 2017. Water Street Properties was formed to hold properties repossessed by CBI subsidiaries.  Revenue from Water St. was less than 1.0% of total revenue through September 30, 2017. Management considers the Company to operate primarily in one reportable segment, banking.

The Consolidated Financial Statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2017 and its results of operations and changes in cash flows for the periods ended September 30, 2017 and 2016 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 periods ended September 30, 2017 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 2016 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. The bank has two concentrations, one is to Lessors of Non-Residential Buildings and Dwellings totaling $284,218, or 24.8% of total loans, as of September 30, 2017 and the other is to Lessors of Residential Buildings and Dwellings totaling $155,616, or 13.6% of total loans, as of September 30, 2017. 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 Federal Funds sold and deposit accounts in other financial institutions that are in excess of federally insured limits.

(2) Significant Accounting Policies

 

Allowance for Loan Losses:  The allowance for loan losses is regularly reviewed by management to determine that the amount is considered adequate to absorb probable losses in the loan portfolio.  If not, an additional provision is made to increase the allowance.  This evaluation includes specific loss estimates on certain individually reviewed impaired loans, the pooling of commercial credits risk graded as special mention and substandard that are not individually analyzed, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and current economic and industry conditions, among other items.

Those judgments and assumptions that are most critical to the application of this accounting policy are assessing the initial and on-going credit-worthiness of the borrower, the amount and timing of future cash flows of the borrower that are available for repayment of the loan, the sufficiency of underlying collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and risk ratings, emerging or changing trends that might not be fully captured in the historical loss experience, and charges against the allowance for actual losses that are greater than previously estimated. These judgments and assumptions are dependent upon or can be influenced by a variety of factors, including the breadth and depth of experience of lending officers, credit administration and the corporate loan review staff that periodically review the status of the loan, changing economic and industry conditions, changes in the financial condition of the borrower and changes in the value and availability of the underlying collateral and guarantees.  

Pension Benefits:  Pension costs and liabilities are dependent on assumptions used in calculating such amounts.  These assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors.  In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense

Page 7


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

and the recorded obligation of future periods.  While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense.

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 the acquired companies on the Consolidated Balance Sheet at their fair value. The results of operations for acquired companies are included in the Company’s Consolidated Statements of Operations beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Operations during the period incurred.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Such reclassifications had no effect on net income or shareholders’ equity.

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.

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. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company’s financial instruments are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

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

Page 8


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

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 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. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

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 ASU 2016-13 is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be 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. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment . To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. 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 March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715) . The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other

Page 9


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

components of net benefit cost must be disclosed.  The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. For all other entities (including all nonprofit organizations “NPOs”), it is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. This guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost. 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 March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. 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 May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718) , which affects any entity that changes the terms or conditions of a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. 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 July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options ), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, 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. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. 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 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles.  For public business entities, the amendments in this Update are effective for fiscal

Page 10


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any period after issuance.  For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively.  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 September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.  The SEC Observer said that the SEC staff would not object if entities that are considered public business entities only because their financial statements or financial information is required to be included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606, Revenue from Contracts with Customers, and ASC 842, Leases. The Update also supersedes certain SEC paragraphs in the Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or ASC 842.  This Update is not expected to have a significant impact on the Company’s financial statements.

(3) Securities

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

 

September 30, 2017

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

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

   agencies

 

$

30,972

 

 

$

178

 

 

$

(87

)

 

$

31,063

 

Obligations of states and political subdivisions

 

 

109,443

 

 

 

4,397

 

 

 

(225

)

 

 

113,615

 

Mortgage-backed securities in government sponsored entities

 

 

83,486

 

 

 

793

 

 

 

(356

)

 

 

83,923

 

Total debt securities

 

 

223,901

 

 

 

5,368

 

 

 

(668

)

 

 

228,601

 

Equity securities in financial institutions

 

 

481

 

 

 

337

 

 

 

 

 

 

818

 

Total

 

$

224,382

 

 

$

5,705

 

 

$

(668

)

 

$

229,419

 

 

December 31, 2016

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

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

   agencies

 

$

37,406

 

 

$

117

 

 

$

(77

)

 

$

37,446

 

Obligations of states and political subdivisions

 

 

92,177

 

 

 

3,395

 

 

 

(574

)

 

 

94,998

 

Mortgage-backed securities in government sponsored entities

 

 

62,756

 

 

 

483

 

 

 

(597

)

 

 

62,642

 

Total debt securities

 

 

192,339

 

 

 

3,995

 

 

 

(1,248

)

 

 

195,086

 

Equity securities in financial institutions

 

 

481

 

 

 

297

 

 

 

 

 

 

778

 

Total

 

$

192,820

 

 

$

4,292

 

 

$

(1,248

)

 

$

195,864

 

 

The amortized cost and fair value of securities at September 30, 2017, 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

 

$

5,099

 

 

$

5,108

 

Due after one year through five years

 

 

30,106

 

 

 

30,180

 

Due after five years through ten years

 

 

33,441

 

 

 

35,104

 

Due after ten years

 

 

71,769

 

 

 

74,286

 

Mortgage-backed securities

 

 

83,486

 

 

 

83,923

 

Equity securities

 

 

481

 

 

 

818

 

Total securities available for sale

 

$

224,382

 

 

$

229,419

 

 

Page 11


Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

 

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,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Sale proceeds

 

$

953

 

 

$

2,385

 

 

$

953

 

 

$

4,379

 

Gross realized gains

 

 

 

 

 

18