What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-09 · 262 added, 124 removed, 251 unchanged (61% of the section changed)

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

The following discussion focuses on the consolidated financial condition of the Company at March 31, 2024 compared to December 31, 2023, and the consolidated results of operations for the three- and nine-month periods ended March 31, 2024, compared to the same periods in 2023.

This discussion should be read in conjunction with the Consolidated Financial Statements and footnotes included in this Form 10-Q.

The following discussion focuses on the consolidated financial condition of the Company at June 30, 2024 compared to December 31, 2023, and the consolidated results of operations for the three- and six-month periods ended June 30, 2024, compared to the same periods in 2023.

This discussion should be read in conjunction with the unaudited consolidated financial statements and notes included in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

7 unchanged sentences

withdrawal from or renegotiation of trade agreements, trade wars, and other factors beyond our control, any of which may result in adverse impacts on our deposit levels and composition, the quality of investment securities available for purchase, demand for loans, the ability of our borrowers to repay their loans, and the value of the collateral securing loans made by Civista;

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

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

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

22 unchanged sentences

Financial Condition

Total assets of the Company at March 31, 2024 were $3,880,258 compared to $3,861,418 at December 31, 2023, an increase of $18,840, or 0.5%.

The increase in total assets was due to increases in other securities and bank stocks of $1,220, loans held for sale of $1,991, loans of $34,722 and swap assets of $2,201.

Increases in assets were partially offset by decreases in cash and cash equivalents of $9,871, accompanied by decreases in securities available for sale of $12,023 and office premises and equipment of $2,489.

Total liabilities at March 31, 2024 were $3,510,599 compared to $3,489,416 at December 31, 2023, an increase of $21,183, or 0.6%.

The increase in total liabilities was primarily attributable to an increase short term FHLB borrowings of $30,500 and swap liabilities of $2,201 partially offset by decreases in deposits of $4,333 and other borrowings of $1,754.

Total assets of the Company at June 30, 2024 were $4,011,914 compared to $3,861,418 at December 31, 2023, an increase of $150,496, or 3.9%.

The increase in total assets was due to increases in other securities, consisting of bank stocks and equity securities, of $7,549, loans held for sale of $3,644, net loans of $150,509 and swap assets of $2,064.

These increases were partially offset by decreases in cash and cash equivalents of $4,421, securities available for sale of $8,507, and premises and equipment of $4,627.

Total liabilities at June 30, 2024 were $3,638,106 compared to $3,489,416 at December 31, 2023, an increase of $148,690, or 4.3%.

The increase in total liabilities was primarily attributable to increases in short-term FHLB borrowings of $162,500 and swap liabilities of $2,064 partially offset by decreases in total deposits of $7,412 and other borrowings of $2,703.

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

Loans outstanding as of March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024

Loans outstanding as of June 30, 2024 and December 31, 2023 were as follows:

June 30, 2024

December 31, 2023

8 unchanged sentences

Allowance for credit losses

Included in Commercial & Agriculture loans above were $289 of PPP loans as of March 31, 2024 and $326 of PPP loans as of December 31, 2023.

Included in Commercial & Agriculture loans above were $251 of PPP loans as of June 30, 2024 and $326 of PPP loans as of December 31, 2023.

Loans held for sale increased $3,644, or 211.2%, since December 31, 2023.

The increase was due to increases in both the number of loans and average loan balances held for sale.

At March 31, 2024, 18 loans totaling $3,716 were held for sale as compared to 9 loans totaling $1,725 at December 31, 2023.

At June 30, 2024, 20 loans totaling $5,369 were held for sale as compared to 9 loans totaling $1,725 at December 31, 2023.

Net loans have increased $150,509, or 5.3%, since December 31, 2023.

The increase at March 31, 2024 can be attributed to increases in many categories, primarily Commercial Real Estate Non-Owner Occupied, Residential Real Estate, Construction, and Lease Financing Receivables offset by decreases in Commercial Real Estate – Owner Occupied, Commercial & Agriculture and Consumer and Other.

At March 31, 2024, the net loan to deposit ratio was 95.9% compared to 94.6% at December 31, 2023.

The increase at June 30, 2024 can be attributed to increases in many categories, primarily Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Commercial & Agriculture, and Real Estate Construction, offset by decreases in Commercial Real Estate – Owner Occupied, Lease Financing Receivables, and Consumer and Other.

At June 30, 2024, the net loan to deposit ratio was 99.9% compared to 94.6% at December 31, 2023.

The increase in the net loan to deposit ratio is primarily the result of an increase in loans.

During the first three months of 2024, provisions made to the allowances for credit losses and off-balance sheet credit exposures totaled $1,992, compared to a provision of $821 during the same period in 2023.

The increase in the reserves was principally related to loan growth during the quarter and downgrading of three credits.

During the first six months of 2024, provisions made to the allowances for credit losses and off-balance sheet credit exposures totaled $3,647, compared to a provision of $1,946 during the same period in 2023.

The increase in the provisions was principally related to loan growth during the quarters and increased reserves for a specific hospitality credit of $800 as well as a charge off on a specific credit of $500.

As time progresses, the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified.

Net charge-offs for the first three months of 2024 totaled $353, compared to net charge-offs of $128 in the first three months of 2023.

For the first three months of 2024, the Company charged off a total of 16 loans.

Four Commercial and Agriculture loan totaling $212, Four Lease Financing Receivables totaling $226, two Residential Real Estate loan totaling $13, one Commercial Real Estate Non-Owner Occupied loan for $174, and five Consumer and Other loans totaling $26 were charged off in the first three months of the year.

In addition, during the first three months of 2024, the Company had recoveries on previously charged-off Commercial & Agriculture loans of $152, Commercial Real Estate – Non-Owner Occupied loans of $5, Residential Real Estate loans of $119, Real Estate Construction loans of $4, Commercial Real Estate – Owner Occupied loans of $3 and Consumer and Other loans of $14.

Net charge-offs for the first six months of 2024 totaled $1,083, compared to net charge-offs of $36 for the first six months of 2023.

For the first six months of 2024, the Company charged off a total of 28 loans.

Ten Commercial & Agriculture loans totaling $1,024, Four Lease Financing Receivables totaling $226, three Residential Real Estate loan totaling $65, one Commercial Real Estate – Non-Owner Occupied loan for $174, and ten Consumer and Other loans totaling $49 were charged off in the first six months of the year.

In addition, during the first six months of 2024, the Company had recoveries on previously charged-off Commercial & Agriculture loans of $249, Commercial Real Estate – Non-Owner Occupied loans of $10, Residential Real Estate loans of $158, Real Estate Construction loans of $12, Commercial Real Estate – Owner Occupied loans of $4 and Consumer and Other loans of $21.

For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent.

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Loans, or portions thereof, are charged-off when deemed uncollectible.

The allowance for credit losses as a percent of total loans was 1.34% at March 31, 2024 and 1.30% at December 31, 2023.

The available-for-sale security portfolio decreased by $12,023, from $618,272 at December 31, 2023 to $606,249 at March 31, 2024.

The allowance for credit losses as a percent of total loans was 1.32% at June 30, 2024 and 1.30% at December 31, 2023.

The available-for-sale securities portfolio decreased by $8,507, from $618,272 at December 31, 2023 to $609,765 at June 30, 2024.

Management continually evaluates our securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which the Company is exposed.

These evaluations may cause the Company to change the level of funds it deploys into investment securities and change the composition of its investment securities portfolio.

As of March 31, 2024, the Company was in compliance with all pledging requirements.

Premises and equipment, net, decreased $2,489 from December 31, 2023 to March 31, 2024.

As of June 30, 2024, the Company was in compliance with all pledging requirements.

Premises and equipment, net, decreased $4,627 from December 31, 2023 to June 30, 2024.

The decrease is the result of depreciation of $4,553 and disposals of $501, partially offset by new purchases $424.

Bank owned life insurance (BOLI) increased $350 from December 31, 2023 to March 31, 2024.

The increase is the result of increases in the cash surrender value of the underlying insurance policies.

Swap assets increased $2,201 from December 31, 2023 to March 31, 2024.

Bank owned life insurance ("BOLI") increased $2,032 from December 31, 2023 to June 30, 2024.

The increase is the result of the purchase of a new insurance policy as well as increases in the cash surrender value of the underlying insurance policies.

Swap assets increased $2,064 from December 31, 2023 to June 30, 2024.

The increase is primarily the result of an increase in market value.

Total deposits as of March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024

Total deposits as of June 30, 2024 and December 31, 2023 were as follows:

June 30, 2024

December 31, 2023

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Total Deposits

The Company had approximately $446,955 and $499,429 of uninsured deposits as of March 31, 2024 and December 31, 2023, respectively.

The Company had approximately $443,985 and $499,429 of uninsured deposits as of June 30, 2024 and December 31, 2023, respectively.

Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limit of $250,000.

Total deposits at March 31, 2024 increased $4,333 from year-end 2023.

Total deposits at June 30, 2024 decreased $7,412 from year-end 2023.

Noninterest-bearing deposits decreased $80,496 from year-end 2023, while interest-bearing deposits, including savings and time deposits, increased $73,084 from December 31, 2023.

The decrease in noninterest-bearing deposits was primarily due to a $49,000 decrease in noninterest-bearing business accounts and a $24,800 decrease in noninterest-bearing accounts related to the former tax refund processing program.

The decrease in interest-bearing demand deposits was primarily due to a decrease of $11,600 in interest-bearing personal accounts, a $7,500 decrease in Jumbo NOW accounts, and a $5,200 decrease in interest-bearing business accounts, which were offset by a $13,600 increase in interest-bearing pubic fund accounts.

The decrease in interest-bearing demand deposits was primarily due to a decrease of $17,200 in interest-bearing personal accounts, a $8,500 decrease in Jumbo NOW accounts, a $5,800 decrease in interest-bearing business accounts, and a $4,700 decrease in interest-bearing public fund accounts.

The $77,244 increase in savings and money market accounts was primarily due to a $54,000 increase in brokered money market accounts and a $6,800 increase in business money market accounts, which increases were partially offset by a $14,200 decrease in statement savings and a $5,700 decrease in business savings accounts.

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The year-to-date average balance of total deposits increased $419,694, compared to the average balance for the same period in 2023, mainly due to a $485,621 increase in the average balance of time deposits.

Short-term FHLB advances increased $30,500 from December 31, 2023 to March 31, 2024.

Short-term FHLB advances increased $162,500 from December 31, 2023 to June 30, 2024.

The increase was due to funding needs to support loan growth.

Swap liabilities increased $2,201 from December 31, 2023 to March 31, 2024.

Swap liabilities increased $2,064 from December 31, 2023 to June 30, 2024.

The increase was the result of an increase in fair value of swap liabilities.

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(Amounts in thousands, except share data)

Accrued expenses and other liabilities decreased $6,574 from December 31, 2023 to March 31, 2024.

The decrease is primarily the decrease in accrued interest for Brokered CD’s by $3,620 and decrease in accrued commissions & incentives of $1,846.

Shareholders’ equity at March 31, 2024 was $369,659, or 9.5% of total assets, compared to $372,002, or 9.6% of total assets, at December 31, 2023.

The decrease was the result of a decrease in the fair value of securities available-for-sale, net of tax, of $6,227.

Net income of $6,360, partially offset by dividends on common shares of $2,510 and the purchase of treasury shares of $152

Total outstanding common shares at March 31, 2024 were 15,727,013, which increased from 15,695,424 common shares outstanding at December 31, 2023.

Accrued expenses and other liabilities decreased $5,291 from December 31, 2023 to June 30, 2024.

The decrease was primarily due to a decrease in accrued commissions and incentives of $1,265, a decrease in unfunded commitments related to the investments in qualified affordable housing projects of $981, a decrease in CLF investor remittance liability of $1,331, and a decrease in miscellaneous accrued expenses of $941, partially offset by an increase in accrued interest for Brokered CD’s of $662.

Shareholders’ equity at June 30, 2024 was $373,808, or 9.3% of total assets, compared to $372,002, or 9.6% of total assets, at December 31, 2023.

The increase was as a result of net income of $13,424, partially offset by dividends on common shares of $5,026, decrease in the fair value of securities available-for-sale, net of tax, of $6,803, and the purchase of treasury shares of $152.

Total outstanding common shares at June 30, 2024 were 15,737,222, which increased from 15,695,424 common shares outstanding at December 31, 2023.

Common shares outstanding increased due to the grant of 40,952 restricted common shares to certain officers under the Company’s 2014 Incentive Plan, offset by 8,262 common shares surrendered by officers to the Company to pay taxes upon vesting of restricted shares and 1,101 restricted common shares forfeited.

Results of Operations

Three Months Ended March 31, 2024 and 2023

The Company had net income of $6,360 for the three months ended March 31, 2024, a decrease of $6,528 from net income of $12,888 for the same three months of 2023.

Basic earnings per common share were $0.41 for the quarter ended March 31, 2024, compared to $0.82 for the same period in 2023.

Diluted earnings per common share were $0.41 for the quarter ended March 31, 2024, compared to $0.82 for the same period in 2023.

Three Months Ended June 30, 2024 and 2023

The Company had net income of $7,064 for the three months ended June 30, 2024, a decrease of $2,970 from net income of $10,034 for the same three months of 2023.

Basic and diluted earnings per common share were $0.45 for the quarter ended June 30, 2024, compared to $0.64 for the same period in 2023.

The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended March 31, 2024 was $28,372, a decrease of $4,229 from $32,601 for the same three months of 2023.

This decrease of an increase of $12,818 in interest expense, partially offset by an increase of $7,203 in total interest income.

Interest-earning assets averaged $3,552,552 during the three months ended March 31, 2024, an increase of $239,267 from $3,313,285 for the same period of 2023.

The Company’s average interest-bearing liabilities increased from $2,308,975 during the three months ended March 31, 2023 to $2,720,586 during the three months ended March 31, 2024.

The Company’s fully tax equivalent net interest margin for the three months ended March 31, 2024 and 2023 was 3.22% and 3.99%, respectively.

Total interest and dividend income was $50,128 for the three months ended March 31, 2024, an increase of $7,203 from $42,925 of total interest and dividend income for the same period in 2023.

The increase in interest and dividend income is attributable to an $6,701 increase in interest and fees on loans, a $100 increase in interest income on taxable securities and a $113 increase in tax-exempt securities.

The $8,086 increase in interest and fees on loans is attributable to average balances as well as loan yield.

The average balance of loans increased by $230,130, or 8.0%, to $2,880,031 for the three months ended March 31, 2024 as compared to $2,649,901 for the same period in 2023.

The loan yield increased to 6.20% for the three months ended March 31, 2024, from 5.78% for the same period in 2023.

Civista Bancshares, Inc.

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

(Amounts in thousands, except share data)

Interest on taxable securities increased $100 to $2,934 for the three months ended March 31, 2024, compared to $2,834 for the same period in 2023.

The average balance of taxable securities decreased $24,036 to $350,815 for the three months ended March 31, 2024, as compared to $374,851 for the same period in 2023.

Net interest income for the three months ended June 30, 2024 was $27,751, a decrease of $3,588 from $31,339 for the same three months of 2023.

This decrease was a result of an increase of $9,572 in interest expense, partially offset by an increase of $5,984 in total interest income.

Interest-earning assets averaged $3,619,809 during the three months ended June 30, 2024, an increase of $264,841 from $3,354,968 for the same period of 2023.

The Company’s average interest-bearing liabilities increased from $2,384,793 during the three months ended June 30, 2023 to $2,813,034 during the three months ended June 30, 2024.

The Company’s fully tax equivalent net interest margin for the three months ended June 30, 2024 and 2023 was 3.09% and 3.75%, respectively.

Total interest and dividend income was $50,593 for the three months ended June 30, 2024, an increase of $5,984 from $44,609 of total interest and dividend income for the same period in 2023.

The increase in interest and dividend income is attributable to a $5,694 increase in interest and fees on loans, an $86 increase in interest income on taxable securities and a $53 increase in interest income on tax-exempt securities.

The $5,694 increase in interest and fees on loans is attributable to increases in both average balances and loan yield.

The average balance of loans increased by $274,861, or 10.2%, to $2,964,377 for the three months ended June 30, 2024, as compared to $2,689,516 for the same period in 2023.

The loan yield increased to 6.10% for the three months ended June 30, 2024, from 5.85% for the same period in 2023.

Interest on taxable securities increased $86 to $3,070 for the three months ended June 30, 2024, compared to $2,984 for the same period in 2023.

The average balance of taxable securities decreased $18,505 to $351,497 for the three months ended June 30, 2024, as compared to $370,002 for the same period in 2023.

The yield on taxable securities increased 18 basis points to 3.11% for 2024, compared to 2.93% for 2023.

Interest on tax-exempt securities increased $113 to $2,375 for the three months ended March 31, 2024, compared to $2,262 for the same period in 2023.

The average balance of tax-exempt securities increased $14,252 to $295,388 for the three months ended March 31, 2024, as compared to $281,136 for the same period in 2023.

Interest on tax-exempt securities increased $53 to $2,372 for the three months ended June 30, 2024, compared to $2,319 for the same period in 2023.

The average balance of tax-exempt securities decreased $385 to $288,128 for the three months ended June 30, 2024, as compared to $288,513 for the same period in 2023.

The yield on tax-exempt securities increased 8 basis points to 3.87% for 2024, compared to 3.79% for 2023.

Interest expense increased $11,432, or 110.7%, to $21,756 for the three months ended March 31, 2024, compared with $10,324 for the same period in 2023.

The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, accompanied by increases in rates.

For the three months ended March 31, 2024, the average balance of interest-bearing liabilities increased $411,611 to $2,720,586, as compared to $2,308,975 for the same period in 2023.

Interest incurred on deposits increased by 12,755 to $15,987 for the three months ended March 31, 2024, compared to $3,232 for the same period in 2023.

The average balance of interest-bearing deposits increased by $593,197 to $2,272,702 for the three months ended March 31, 2024, as compared to the same period in 2023, accompanied by an increase in the rate paid on time deposits from 2.82% in 2023 to 5.33% in 2024.

Interest expense incurred on short-term FHLB advances increased as a result of higher average rates on short-term FHLB advances of 5.51% for the three months ended March 31, 2024, as compared to 4.64% to the same period in 2023.

Interest expense incurred on subordinated debentures increased $72, to $1,241 for the three months ended March 31, 2024, compared to $1,169 for the same period in 2023.

The rate paid on subordinated debentures increased from 4.57% in 2023 to 4.79% in 2024.

Total interest expense increased $9,572, or 72.1%, to $22,842 for the three months ended June 30, 2024, compared with $13,270 for the same period in 2023.

The change in interest expense can be attributed to increases in rates, accompanied by an increase in the average balance of interest-bearing liabilities.

For the three months ended June 30, 2024, the average balance of interest-bearing liabilities increased $428,241 to $2,813,034, as compared to $2,384,793 for the same period in 2023.

Interest incurred on deposits increased by $7,971 to $15,505 for the three months ended June 30, 2024, compared to $7,534 for the same period in 2023.

The average balance of interest-bearing deposits increased by $353,379 to $2,266,334 for the three months ended June 30, 2024, as compared to the same period in 2023, accompanied by an increase in the rate paid on time deposits from 4.38% in 2023 to 5.40% in 2024.

Interest expense incurred on short-term FHLB advances increased as a result of higher average rates on short-term FHLB advances of 5.55% for the three months ended June 30, 2024, as compared to 5.15% to the same period in 2023.

Interest expense incurred on subordinated debentures increased by $49 to $1,247 for the three months ended June 30, 2024, compared to $1,198 for the same period in 2023.

The rate paid on

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

The following table presents the condensed average balance sheets for the three months ended March 31, 2024 and 2023.

subordinated debentures increased from 4.62% in the three months ended June 30, 2023 to 4.83% during the three months ended June 30, 2024.

The following table presents the condensed average balance sheets for the three months ended June 30, 2024 and 2023.

The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans.

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The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

Three Months Ended March 31,

Three Months Ended June 30,

Interest-earning assets:

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*—Average yields are presented on a tax equivalent basis.

The tax equivalent effect associated with loans and investments, included in the yields above, was $632 and $601 for the periods ended March 31, 2024 and 2023, respectively.

The tax equivalent effect associated with loans and investments, included in the yields above, was $631 and $617 for the periods ended June 30, 2024 and 2023, respectively.

**—Average balance includes nonaccrual loans.

3 unchanged sentences

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense.

The following table provides an analysis of the changes in interest income and expense between the three months ended March 31, 2024 and 2023.

The following table provides an analysis of the changes in interest income and expense between the three months ended June 30, 2024 and 2023.

Increase (decrease) due to:

11 unchanged sentences

Other borrowings

Federal funds purchased

Subordinated debentures

3 unchanged sentences

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

The Company provides for loan losses through regular provisions to the allowance for loan losses.

During the first quarter of 2024 we recorded a provision for credit losses of $2,042, an increase of $1,422, from $620 during the three months ended March 31, 2023.

The increase in the reserves was related to a downgrade in three credits as well as loan growth during the quarter .

Noninterest income for the three-month periods ended March 31, 2024 and 2023 was as follows:

Three months ended March 31,

The Company provides for loan losses through regular provisions to the allowance for credit losses.

During the second quarter of 2024 the Company recorded a provision for credit losses of $1,800, an increase of $939, from $861 during the three months ended June 30, 2023.

The increase in the provisions was related to a charge off of $500 associated with customer fraud as well as loan growth during the quarter.

Noninterest income for the three-month periods ended June 30, 2024 and 2023 was as follows:

Three Months Ended June 30,

Service charges

Net gain on sale of securities

Net gain (loss) on equity securities

6 unchanged sentences

Total noninterest income

Noninterest income for the three months ended March 31, 2024 was $8,504, a decrease of $2,564, or 23.2%, from $11,068 for the same period of 2023.

The decrease was primarily due to the elimination of $1,900 in tax refund processing income, as we have exited this line of business.

Service charges decreased due to the decrease in overdraft fees of $375.

Other income decreased as result of a $1,500 nonrecurring fee which was collected in 2023 associated with the renewal of the Civista's contract with MasterCard.

Total noninterest income for the three months ended June 30, 2024 was $10,543, an increase of $1,394, or 15.2%, from $9,149 for the same period of 2023.

Service charges decreased $343 as the Company has eliminated its representment fee and reduced overdraft charges, the effect of which was partially offset by an increase in other service fees.

Lease revenue and residual income increased $1.3 million due to an increase in income from leasing operations.

Tax refund processing fee income was zero as the Company has now exited this line of business.

Net gain (loss) on equity securities decreased as a result of market value decreases.

Net gain on sale of loans increased primarily as a result of an increase

Net gain on sale of loans

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

in average loan balance.

During the three-months ended March 31, 2024, 53 loans were sold, totaling $11,438.

During the three-months ended March 31, 2023, 63 loans were sold, totaling $9,739.

Noninterest expense for the three-month periods ended March 31, 2024 and 2023 was as follows:

Three months ended March 31,

increased primarily as a result of an increase in volume of loans sold.

During the three months ended June 30, 2024, 126 loans were sold, totaling $25,565.

During the three months ended June 30, 2023, 103 loans were sold, totaling $16,200.

Noninterest expense for the three month periods ended June 30, 2024 and 2023 was as follows:

Three Months Ended June 30,

Compensation expense

9 unchanged sentences

Total noninterest expense

Noninterest expense for the three months ended March 31, 2024 was $27,689, an increase of $257, or 0.9%, from $27,432 reported for the same period of 2023.

The primary reasons for the increase were increases in compensation expense, net occupancy, contracted data processing expense, FDIC assessment, ATM/Interchange expense, and software maintenance expense, offset by decreases in equipment expense, state franchise tax, professional services, amortization expense, marketing, and other operating expenses.

The increase in compensation expense was due to increased salaries, payroll taxes and employee insurance.

The average full time equivalent (FTE) employees were 539 at March 31, 2024, an increase of seven FTEs over the same period of 2023.

Equipment expenses decreased due to a decrease in equipment depreciation.

The quarter-over-quarter increase in FDIC assessments was attributable to higher average consolidated assets and average tangible equity.

The decrease in state franchise tax expense was attributable to lower estimated tax payments during the first quarter of 2024 as compared to the same period in 2023.

Professional services decreased $400 due to advisory fees for the renegotiation of Civista's MasterCard contract which was paid in 2023.

The increase in software maintenance expense is primarily due of our digital banking platform.

Income tax expense for the three months ended March 31, 2024 totaled $835, down $1,694 compared to the same period in 2023.

The effective tax rates for the three-month periods ended March 31, 2024 and 2023 were 11.8% and 16.4%, respectively.

Total noninterest expense for the three months ended June 30, 2024 was $28,555, an increase of $906, or 3.3%, from $27,649 reported for the same period of 2023.

The increase in total noninterest expense was primarily due to increases in compensation expense, software maintenance expense, and other operating expenses, partially offset by decreases in net occupancy expense, equipment expense, state franchise tax, and marketing.

The increase in compensation expense was due to annual merit increases, employee insurance, and other payroll related expenses.

The average full time equivalent (FTE) employees were 538 at June 30, 2024, an increase of six FTEs over the same period of 2023.

The decreases in net occupancy expense and equipment expense was primarily due to a decrease in equipment depreciation from leasing operations as operating leases mature.

The increase in software maintenance expense was primarily due to an increase in software maintenance contracts, including investments in digital banking.

Income tax expense for the three months ended June 30, 2024 totaled $1,020, down $660 compared to the same period in 2023.

The effective tax rates for the three-month period ended June 30, 2024 and 2023 were 12.6% and 14.3%, respectively.

The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits, tax-deductible captive insurance premiums and bank owned life insurance income.

Six Months Ended June 30, 2024 and 2023

The Company had net income of $13,424 for the six months ended June 30, 2024, a decrease of $9,498 from net income of $22,922 for the same six months of 2023.

Basic and diluted earnings per common share were $0.85 for the six-month period ended June 30, 2024, compared to $1.45 for the same period in 2023.

The primary reasons for the changes in net income are explained below.

Net interest income for the six months ended June 30, 2024 was $56,123, a decrease of $7,817, from $63,940 for the same six months of 2023.

This decrease was a result of an increase of $21,004 in total interest expense, partially offset by an increase in total interest and dividend income of $13,187.

Interest-earning assets averaged $3,586,180 during the six months ended June 30, 2024, an increase of $251,926 from $3,334,254 for the same period of 2023.

The Company’s average interest-bearing liabilities increased to $2,766,811 for the first six months of 2024 from $2,347,117 for the same period in 2023.

The Company’s fully tax equivalent net interest margin for the six months ended June 30, 2024 and 2023 was 3.16% and 3.87%, respectively.

Total interest and dividend income increased $13,187 to $100,721 for the period ended June 30, 2024.

This change was the result of an increase in the average balance of loans, accompanied by a higher yield on the portfolio.

The average balance of loans increased by $252,374, or 9.5%, to $2,922,204 for the six-month period ended June 30, 2024, as compared to $2,669,830 for the six-month period ended June 30, 2023.

The loan yield increased to 6.15% for 2024, from 5.82% in 2023.

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

Interest on taxable securities increased $186 to $6,004 for the six-month period ended June 30, 2024, compared to $5,818 for the same period in 2023.

The average balance of taxable securities decreased $21,257 to $351,156 for the six-month period ended June 30, 2024, as compared to $372,413 for the six-month period ended June 30, 2023.

The yield on taxable securities increased 21 basis points to 3.06% for 2024, compared to 2.85% for 2023.

Interest on tax-exempt securities increased $166 to $4,747 for the six-month period ended June 30, 2024, compared to $4,581 for the same period in 2023.

The average balance of tax-exempt securities increased $6,913 to $291,758 for the six-month period ended June 30, 2024, as compared to $284,845 for the six-month period ended June 30, 2023.

The yield on tax-exempt securities increased 6 basis points to 3.86% for 2024, compared to 3.80% for 2023.

Interest on interest-bearing deposits in other banks increased $441 to $540 for the period ended June 30, 2024, compared to $99 for the same period in 2023.

The average balance of interest-bearing deposits in other banks increased $13,896 to $21,062 for the six-month period ended June 30, 2024, as compared to $7,166 for the six-month period ended June 30, 2023.

The yield on interest-bearing deposits in other banks increased 236 basis points to 5.15% for 2024, compared to 2.79% for 2023.

Total interest expense increased $21,004, or 89.0%, to $44,598 for the six-month period ended June 30, 2024, compared to $23,594 for the same period in 2023.

The change in interest expense can be attributed to an increase in rate and an increase in the average balance of interest-bearing liabilities.

For the six-month period ended June 30, 2024, the average balance of interest-bearing liabilities increased $419,694 to $2,766,811, compared to $2,347,117 for the six-month period ended June 30, 2023.

Interest incurred on deposits increased $20,725 to $31,491 for the six-month period ended June 30, 2024, compared to $10,766 for the same period in 2023.

The average balance of interest-bearing deposits increased by $472,680 for the six-month period ended June 30, 2024, as compared to the same period in 2023, and the rate paid on demand and savings accounts increased from 0.39% in 2023 to 1.04% in 2024.

The rate paid on time deposits increased from 3.82% in 2023 to 5.38% in 2024.

The average balance on long-term FHLB balances decreased $1,121 as a result of prepayment, while the rate paid increased 6 basis points.

In addition, for the six-month period ended June 30, 2024, the average balance of short-term FHLB balances increased $77,727 to $384,679 from $306,952 compared to the same period in 2023.

The rate paid on subordinated debentures increased 21 basis points for the six-month period ended June 30, 2024, as compared to the same period in 2023.

The following table presents the condensed average balance sheets for the six months ended June 30, 2024 and 2023.

The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans.

The average balance of securities is computed using the carrying value of securities.

Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income.

The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

Civista Bancshares, Inc.

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

(Amounts in thousands, except share data)

Six Months Ended June 30,

Interest-earning assets:

Loans, including fees**

Taxable securities

Tax-exempt securities

Interest-bearing deposits in other banks

Total interest-earning assets

Noninterest-earning assets:

Cash and due from financial institutions

Premises and equipment, net

Accrued interest receivable

Intangible assets

Bank owned life insurance

Less allowance for loan losses

Liabilities and Shareholders Equity:

Interest-bearing liabilities:

Demand and savings

Short-term FHLB advance

Long-term FHLB advance

Other borrowings

Subordinated debentures

Repurchase Agreements

Total interest-bearing liabilities

Noninterest-bearing deposits

Other liabilities

Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

Net interest income and interest rate spread

Net interest margin

*—Average yields are presented on a tax equivalent basis.

The tax equivalent effect associated with loans and investments, included in the yields above, was $1.3 million and $1.2 million for the periods ended June 30, 2024 and 2023, respectively.

**—Average balance includes nonaccrual loans.

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 six months ended June 30, 2024 and 2023.

The table is presented on a fully tax-equivalent basis.

Civista Bancshares, Inc.

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

(Amounts in thousands, except share data)

Increase (decrease) due to:

(Dollars in thousands)

Interest income:

Loans, including fees

Taxable securities

Tax-exempt securities

Interest-bearing deposits in other banks

Total interest income

Interest expense:

Demand and savings

Short-term FHLB advance

Long-term FHLB advance

Other borrowings

Subordinated debentures

Repurchase agreements

Total interest expense

Net interest income

The Company provides for loan losses through regular provisions to the allowance for credit losses.

Upon adoption of CECL on January 1, 2023, the Company recorded an increase in the allowance for credit losses of $5,193.

During the six months ended June 30, 2024, the Company recorded a provision for credit losses of $3,842, an increase of $2,361, from $1,481 during the six months ended June 30, 2023.

The increase in the provision was principally related to loan growth during the year.

As time progresses, the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified.

The components of noninterest income for the six-month periods ended June 30, 2024 and 2023 were as follows:

Six Months Ended June 30,

Service charges

Net gain (loss) on equity securities

Net gain on sale of loans and leases

ATM/Interchange fees

Wealth management fees

Lease revenue and residual income

Bank owned life insurance

Tax refund processing fees

Total noninterest income

Civista Bancshares, Inc.

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

(Amounts in thousands, except share data)

Total noninterest income for the six months ended June 30, 2024 was $19,047, a decrease of $1,170, or 5.8%, from $20,217 for the same period of 2023.

Tax refund processing fee income decreased to $0 from $2,375 for the six months ended June 30, 2023, as the Company exited its relationship with a third-party processor that was in the tax refund processing business.

Service charges decreased $676, as the Company has eliminated its representment fee and reduced overdraft charges.

The net gain/(loss) on equity securities decrease was the result of a market valuation adjustment.

Net gain on sale of loans increased primarily as a result of an increase in volume of loans sold.

During the six months ended June 30, 2024, 224 loans were sold, totaling $45,750.

During the six months ended June 30, 2023, 166 loans were sold, totaling $25,939.

The components of noninterest expense for the six-month periods endedJune 30, 2024 and 2023 are as follows:

Six Months Ended June 30,

Compensation expense

Net occupancy expense

Equipment expense

Contracted data processing

FDIC assessment

State franchise tax

Professional services

Amortization of intangible assets

ATM/Interchange expense

Software maintenance expense

Other operating expenses

Total noninterest expense

Total noninterest expense for the six months ended June 30, 2024 was $56,244, an increase of $1,163, or 2.1%, from $55,081 for the same period of 2023.

The increase was primarily attributable to increases in compensation expense, software maintenance expense, and other operating expense partially offset by decreases in equipment expense, state franchise tax, marketing, and professional services.

The increase in compensation expense was primarily due to annual merit increases, employee insurance and other payroll related expenses.

The year-to-date average full time equivalent (“FTE”) employees were 538 on June 30, 2024, an increase of six FTEs over the same period in 2023.

The decreases in occupancy expense and equipment expense for the six months ended June 30, 2024 was primarily due to a decrease in equipment depreciation from leasing operations as operating leases mature.

Professional services for the six months ended June 30, 2024 decreased primarily due to advisory fees in 2023 for the Company’s MasterCard contract.

The increase in software maintenance expense for the six months ended June 30, 2024 was due to an increase in software maintenance contracts, including on new software related to digital banking investments.

Income tax expense for the six months ended June 30, 2024 totaled $1,855, down $2,353 compared to the same period in 2023.

The effective tax rate for the six months ended June 30, 2024 decreased 3.4% to 12.1% from 15.5% for the same period in 2023.

The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low-income housing tax credits, tax-deductible captive insurance premiums and bank owned life insurance income.

Capital Resources

Shareholders’ equity totaled $369,659 at March 31, 2024, compared to $372,002 at December 31, 2023.

Shareholders’ equity decreased during the first three months of 2024 as a result of a decrease in the fair value of securities available-for-sale, net of tax, of $12,023, dividends on common shares of $2,510, partially offset by net income of $6,528.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of March 31, 2024 and December 31, 2023 as identified in the following table:

Company Ratios—March 31, 2024

Shareholders’ equity totaled $373,808 at June 30, 2024, compared to $372,002 at December 31, 2023.

Shareholders’ equity increased during the first six months of 2024 as a result of net income of $13,424, partially offset by dividends on common shares of $5,026, decrease in the fair value of securities available-for-sale, net of tax, of $6,803, and the purchase of treasury shares of $152.

Civista Bancshares, Inc.

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

(Amounts in thousands, except share data)

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of June 30, 2024 and December 31, 2023 as identified in the following table:

Company Ratios—June 30, 2024

Company Ratios—December 31, 2023

4 unchanged sentences

All securities, with the exception of equity securities, are classified as available-for-sale.

Securities, with maturities of one year or less, totaled $5,246, or 0.87% of the total security portfolio at March 31, 2024.

The available-for-sale portfolio helps to provide the Company with the ability to meet its funding needs.

Securities, with maturities of one year or less, totaled $6,364, or 1.04% of the total security portfolio, at June 30, 2024.

The available-for-sale securities portfolio helps to provide the Company with the ability to meet its funding needs.

The Condensed Consolidated Statements of Cash Flows (Unaudited) contained in the Consolidated Financial Statements detail the Company’s cash flows from operating activities resulting from net earnings.

As reported in the Condensed Consolidated Statements of Cash Flows (Unaudited), our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows.

Net cash provided by operating activities was $254 and $19,794 for the three months ended March 31, 2024 and 2023, respectively.

Net cash provided by operating activities was $12,720 and $39,124 for the six months ended June 30, 2024 and 2023, respectively.

The primary additions to cash from operating activities are from proceeds from the sale of loans.

The primary use of cash from operating activities is from loans originated for sale.

Net cash used by investing activities was $33,674 and $38,635 for the three months ended March 31, 2024 and 2023, respectively, principally reflecting our loan and investment security activities.

Cash provided by and used for deposits and purchase of treasury shares comprised most of our financing activities, which resulted in net cash provided by of $23,324 and $28,203 for the three months ended March 31, 2024 and 2023, respectively.

Net cash used by investing activities was $164,022 and $85,510 for the six months ended June 30, 2024 and 2023, respectively, principally reflecting our loan and investment security activities.

Cash provided by and used for deposits and purchase of treasury shares comprised most of our financing activities, which resulted in net cash provided by of $146,656 and $44,379 for the six months ended June 30, 2024 and 2023, respectively.

Future loan demand of Civista may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available-for-sale.

1 unchanged sentence

Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $50,000.

As of March 31, 2024, Civista had total credit availability with the FHLB of $840,582 with standby letters of credit totaling $24,400 and a remaining borrowing capacity of approximately $445,471.

As of June 30, 2024, Civista had total credit availability with the FHLB of $860,762 with standby letters of credit totaling $73,400 and a remaining borrowing capacity of approximately $285,021.

In addition, CBI maintains a credit line with a third party lender totaling $15,000.

No borrowings were outstanding by CBI under this credit line as of March 31, 2024.

No borrowings were outstanding by CBI under this credit line as of June 30, 2024.

Civista Bancshares, Inc.

48 unchanged sentences

FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Company.

The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 2023 and March 31, 2024, based on certain prepayment and account decay assumptions that management believes are reasonable.

The table shows the changes in the Company’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and interest rate decreases of 100 basis points and 200 basis points at March 31, 2024 and December 31, 2023.

The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 2023 and June 30, 2024, based on certain prepayment and account decay assumptions that management believes are reasonable.

Net Portfolio Value

March 31, 2024

June 30, 2024

December 31, 2023

Change in Rates

The change in net portfolio value from December 31, 2023 to March 31, 2024, can be attributed to a couple of factors.

The yield remains inverted and is lower than at the end of the year.

Additionally, both the volume and mix of assets and funding sources has changed.

The volume of loans has increased, and the asset mix remains centered on loans.

The volume of other borrowings has increased and non-maturing deposits have decreased.

The volume and mix shifts from the end of the year contributed to a decrease in the base net portfolio value.

The change in net portfolio value from December 31, 2023 to June 30, 2024, can be attributed to a couple of factors.

The yield remains inverted but has shifted upward since the end of the year.

Additionally, the volume of assets and funding sources has changed, but the asset mix remains centered on loans.

The volume of loans and certificates of deposit has increased, while the volume of other borrowings and non-maturing deposits has decreased.

The volume shifts from the end of the year contributed to a decrease in the base net portfolio value.

Beyond the change in the base level of net portfolio value, projected movements in rates, up or down, would also lead to changes in market values.

A 200 basis point change in the rates up scenario would lead to a slightly larger decrease in the market value of liabilities than assets.

Accordingly, we see an increase in the net portfolio value.

A 200 basis points change in the rates down scenario would lead to a larger increase in the market value of liabilities than in assets, leading to a decrease in the net portfolio value.

The change in the rates up scenarios for the 100 and 200 basis point movements would lead to a slightly larger decrease in the market value of liabilities than assets.

Accordingly, the Company sees an increase in the net portfolio value.

The change in the rates down scenarios for the 100 and 200 basis point movements would lead to a larger increase in the market value of liabilities than in assets, leading to a decrease in the net portfolio value.

Civista Bancshares, Inc.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis