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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-09 · 170 added, 170 removed, 343 unchanged (50% 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 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.

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

6 unchanged sentences

• current and future economic and financial market conditions, including the effects of inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, an increasing federal government budget deficit, the failure of the federal government to raise the federal debt ceiling and/or possible future U.S.

government shutdowns over budget disagreements, slowing gross domestic product, tariffs, a U.S.

government shutdowns over budget disagreements, uncertainties surrounding the November 2024 U.S.

Presidential election and potential changes in the U.S.

Senate and House of Representatives, slowing gross domestic product, tariffs, a U.S.

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

8 unchanged sentences

• risks inherent in pursuing strategic growth initiatives, including integration and other risks involved in past, pending and possible future acquisitions;

• uncertainty regarding the nature, timing, cost and effect of legislative or regulatory changes in the banking industry or otherwise affecting the Company, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection,

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry;

changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry;

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

9 unchanged sentences

Financial Condition

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.

Total assets of the Company at September 30, 2024 were $4,061,423 compared to $3,861,418 at December 31, 2023, an increase of $200,005, or 5.2%.

The increase in total assets was due to increases in net loans of $178,110, cash and cash equivalents of $14,256, securities available for sale of $8,516, loans held for sale of $6,574, .

These increases were partially offset by decreases in premises and equipment of $6,802 and swap assets of $4,285.

Total liabilities at September 30, 2024 were $3,666,985 compared to $3,489,416 at December 31, 2023, an increase of $177,569, or 5.1%.

The increase in total liabilities was primarily attributable to an increase in total deposits of $238,704, partially offset by a decrease in short-term FHLB advances of $50,953.

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

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

June 30, 2024

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

September 30, 2024

December 31, 2023

8 unchanged sentences

Allowance for credit losses

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.

Included in Commercial & Agriculture loans above were $214 of PPP loans as of September 30, 2024 and $326 of PPP loans as of December 31, 2023.

Loans held for sale increased $6,574, or 381.1%, since December 31, 2023.

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

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.

At September 30, 2024, thirty-five loans totaling $8,299 were held for sale as compared to nine loans totaling $1,725 at December 31, 2023.

Net loans have increased $178,110, or 6.3%, since 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 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 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.

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

At September 30, 2024, the net loan to deposit ratio was 93.1% compared to 94.6% at December 31, 2023.

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

During the first nine months of 2024, provisions made to the allowances for credit losses and off-balance sheet credit exposures totaled $4,668, compared to a provision of $2,706 during the same period in 2023.

The increase in the provision was principally related to loan growth during the first nine months of 2024.

On a quarterly basis, changes in economic conditions will require CECL model assumption inputs to change and management will determine if, any, further refinements will be necessary to the estimation process.

Net charge-offs for the first nine months of 2024 totaled $1,080, compared to net charge-offs of $535 for the first nine months of 2023.

For the first nine months of 2024, the Company charged off a total of 38 loans.

Twelve Commercial & Agriculture loans totaling $1,079, three Lease Financing Receivables totaling $186, four Residential Real Estate loan totaling $67, one Commercial Real Estate – Non-Owner Occupied loan for $174, and eighteen Consumer and Other loans totaling $74 were charged off in the first nine months of the year.

In addition, during the first nine months of 2024, the Company had recoveries on previously charged-off Commercial & Agriculture loans of $263, Commercial Real Estate – Non-Owner Occupied loans of $12, Residential Real Estate loans of $178, Real Estate Construction loans of $12, Leasing Finance Receivables of $1 and Consumer and Other loans of $34.

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

11 unchanged sentences

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

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.

The allowance for credit losses as a percent of total loans was 1.36% at September 30, 2024 and 1.30% at December 31, 2023.

The available-for-sale securities portfolio increased by $8,516, from $618,272 at December 31, 2023 to $626,788 at September 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 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 $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 June 30, 2024 and December 31, 2023 were as follows:

June 30, 2024

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

Premises and equipment, net, decreased $6,802 from December 31, 2023 to September 30, 2024.

The decrease was the result of depreciation of $6,895 and disposals of $501, partially offset by purchases of $594.

The decrease in depreciation was mainly attributable to leasing operations as operating leases mature.

New leases in 2024 are primarily finance leases which are recorded in loans on the balance sheet.

Bank owned life insurance ("BOLI") increased $1,577 from December 31, 2023 to September 30, 2024.

The increase was 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 decreased $4,285 from December 31, 2023 to September 30, 2024.

The decrease was primarily the result of a decline in market value.

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

September 30, 2024

December 31, 2023

4 unchanged sentences

Total Deposits

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

The Company had approximately $497,852 and $499,429 of uninsured deposits as of September 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.

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

Total deposits at September 30, 2024 increased $238,704 from year-end 2023.

Noninterest-bearing deposits decreased $85,383 from year-end 2023, while interest-bearing deposits, including savings and time deposits, increased $324,087 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 noninterest-bearing deposits was primarily due to a $32,000 decrease in noninterest-bearing business accounts as customers migrated to interest-bearing accounts, and a $36,800 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 $14,600 in interest-bearing personal accounts, a $7,500 decrease in Jumbo NOW accounts, a $3,700 decrease in interest-bearing business accounts, and a $966 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.

Jumbo time certificates and retail time certificates increased $37,500 and $17,200, respectively;

partially offset by a $19,300 decrease in brokered time deposits from year-end 2023.

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 $162,500 from December 31, 2023 to June 30, 2024.

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

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

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

The $248,704 increase in savings and money market accounts was primarily due to a $115,000 increase in brokered money market accounts, $87,500 in a new Trust money market account and a $61,000 increase in business money market accounts, which increases were;

partially offset by a $18,400 decrease in statement savings and a $5,100 decrease in business savings accounts.

Total increase in time deposits of $104,500 is due to increase of $22,700 in jumbo deposits, and $45,400 in all other certificate categories.

The year-to-date average balance of total deposits increased $222,092, compared to the average balance for the same period in 2023, mainly due to a $429,848 increase in the average balance of time deposits, somewhat offset by a $239,146 decrease in noninterest-bearing deposits.

Short-term FHLB advances decreased $50,953 from December 31, 2023 to September 30, 2024.

The decrease was due to paying down borrowings.

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

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.

Swap liabilities decreased $4,285 from December 31, 2023 to September 30, 2024.

The decrease was the result of a decrease in fair value of swap liabilities.

Accrued expenses and other liabilities decreased $1,687 from December 31, 2023 to September 30, 2024.

The decrease was primarily due to a decrease in unfunded commitments related to the investments in qualified affordable housing projects of $1,500.

Shareholders’ equity at September 30, 2024 was $394,438, or 9.7% 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 $21,790 and an increase in the fair value of securities, net of tax, of $7,619, partially offset by dividends on common shares of $7,544.

Total outstanding common shares at September 30, 2024 were 15,736,528 which increased from 15,695,424 common shares outstanding at December 31, 2023.

Common shares outstanding increased due to the grant of 51,578 restricted common shares to certain officers under the Company’s 2014 Incentive Plan, offset by 8,956 common shares surrendered by officers to the Company to pay taxes upon vesting of restricted shares and 1,518 restricted common shares forfeited.

Results of Operations

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.

Three Months Ended September 30, 2024 and 2023

The Company had net income of $8,366 for the three months ended September 30, 2024, a decrease of $2,021 from net income of $10,387 for the same three months of 2023.

Basic and diluted earnings per common share were $0.53 for the quarter ended September 30, 2024, compared to $0.66 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 June 30, 2024 was $27,751, a decrease of $3,588 from $31,339 for the same three months of 2023.

Net interest income for the three months ended September 30, 2024 was $29,233, a decrease of $2,271 from $31,504 for the same three months of 2023.

This decrease was a result of an increase of $9,226 in interest expense, partially offset by an increase of $6,955 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.

Interest-earning assets averaged $3,705,866 during the three months ended September 30, 2024, an increase of $325,697 from $3,380,169 for the same period of 2023.

The Company’s average interest-bearing liabilities increased from $2,315,118 during the three months ended September 30, 2023 to $2,898,978 during the three months ended September 30, 2024.

The Company’s fully tax equivalent net interest margin for the three months ended September 30, 2024 and 2023 was 3.16% and 3.63%, respectively.

Total interest and dividend income was $52,741 for the three months ended September 30, 2024, an increase of $6,955 from $45,786 for the same period in 2023.

The increase in interest and dividend income is attributable to a $7,166 increase in interest and fees on loans, a $259 increase in interest income on taxable securities and a $33 increase in interest income on tax-exempt securities.

The $7,166 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 $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.

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 average balance of loans increased by $352,205 or 13.1%, to $3,031,884 for the three months ended September 30, 2024, as compared to $2,679,679 for the same period in 2023.

The loan yield increased to 6.15% for the three months ended September 30, 2024, from 5.87% for the same period in 2023.

Interest on taxable securities increased $259 to $3,258 for the three months ended September 30, 2024, compared to $2,999 for the same period in 2023.

The average balance of taxable securities increased $4,430 to $363,584 for the three months ended September 30, 2024, as compared to $359,154 for the same period in 2023.

The yield on taxable securities increased 29 basis points to 3.24% for the three months ended September 30, 2024, compared to 2.95% for the same period in 2023.

Interest on tax-exempt securities increased $33 to $2,369 for the three months ended September 30, 2024, compared to $2,336 for the same period in 2023.

The average balance of tax-exempt securities increased $5,206 to $291,254 for the three months ended September 30, 2024, as compared to $286,048 for the same period in 2023.

The yield on tax-exempt securities increased 6 basis points to 3.83% for the three months ended September 30, 2024, compared to 3.77% for the same period in 2023.

Total interest expense increased $9,226, or 64.6%, to $23,508 for the three months ended September 30, 2024, compared with $14,282 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

For the three months ended September 30, 2024, the average balance of interest-bearing liabilities increased $583,860 to $2,898,978, as compared to $2,315,118 for the same period in 2023.

Interest incurred on deposits increased by $7,342 to $16,926 for the three months ended September 30, 2024, compared to $9,584 for the same period in 2023.

The average balance of interest-bearing deposits increased by $439,205 to $2,405,219 for the three months ended September 30, 2024, as compared to the same period in 2023, accompanied by an increase in the rate paid on time deposits from 4.64% in 2023 to 5.37% in

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

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.

Interest expense incurred on short-term FHLB advances increased because of the average balances increasing $154,475 for the three months ended September 30, 2024, as compared to the same period in 2023.

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

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

2 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Interest-earning assets:

26 unchanged sentences

Net interest margin (2)

(1) Net interest spread represents the difference between the yield on average interest-earning assets and the cost of interest-bearing liabilities.

(2) Net interest margin represents net interest income divided by average interest-earning assets.

* Average yields are presented on a tax equivalent basis.

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.

The tax equivalent effect associated with loans and investments, included in the yields above, was $630 and $621 for the periods ended September 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 June 30, 2024 and 2023.

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

Increase (decrease) due to:

17 unchanged sentences

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,

During the three months ended September 30, 2024 the Company recorded a provision for credit losses of $1,346, an increase of $716, from $630 during the three months ended September 30, 2023.

The increase in the provisions was mainly related to the loan growth during the quarter.

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

Three Months Ended September 30,

Service charges

5 unchanged sentences

Bank owned life insurance

Tax refund processing fees

Total noninterest income

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

Total noninterest income for the three months ended September 30, 2024 was $9,686, an increase of $1,561, or 19.2%, from $8,125 for the same period of 2023.

Service charges decreased $258 as the Company 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 $515 due to an increase in income from leasing operations.

Net gain (loss) on equity securities increased as a result of market value increases.

Bank owned life insurance increased $451 due to a death benefit paid in the third quarter of 2024.

Net gain on sale of loans increased

Civista Bancshares, Inc.

1 unchanged sentence

(Amounts in thousands, except share data)

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,

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

During the three months ended September 30, 2024, 150 loans were sold, totaling $37,905.

During the three months ended September 30, 2023, 101 loans were sold, totaling $16,300.

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

Three Months Ended September 30,

Compensation expense

Net occupancy expense

Equipment expense

Contracted data processing

FDIC assessment

State franchise tax

Taxes and assessments

Professional services

Amortization of intangible assets

Equipment expense

ATM/Interchange expense

Communications

Insurance expense

Software maintenance expense

Total noninterest expense

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.

Total noninterest expense for the three months ended September 30, 2024 was $27,981, an increase of $1,359, or 5.1%, from $26,622 reported for the same period of 2023.

The increase in total noninterest expense was primarily due to an increase in compensation expense, partially offset by a decrease in equipment expense.

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 average full time equivalent (FTE) employees were 526 at September 30, 2024, an increase of two FTEs over the same period of 2023.

The decrease in equipment expense was primarily related to a decrease in equipment depreciation from leasing operations as operating leases mature.

Income tax expense for the three months ended September 30, 2024 totaled $1,551, down $309 compared to the same period in 2023.

The effective tax rates for the three-month period ended September 30, 2024 and 2023 were 15.6% and 15.2%, 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.

Nine Months Ended September 30, 2024 and 2023

The Company had net income of $21,790 for the nine months ended September 30, 2024, a decrease of $11,519 from net income of $33,309 for the same nine months of 2023.

Basic and diluted earnings per common share were $1.39 for the nine-month period ended September 30, 2024, compared to $2.12 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.

Net interest income for the nine months ended September 30, 2024 was $85,356, a decrease of $10,088 from $95,444 for the same nine months of 2023.

This decrease was a result of an increase of $30,230 in total interest expense, partially offset by an increase in total interest and dividend income of $20,142.

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.

Interest-earning assets averaged $3,626,368 during the nine months ended September 30, 2024, an increase of $342,158 from $3,284,210 for the same period of 2023.

The Company’s average interest-bearing liabilities increased to $2,811,188 for the first nine months of 2024 from $2,270,844 for the same period in 2023.

The Company’s fully tax equivalent net interest margin for the nine months ended September 30, 2024 and 2023 was 3.16% and 3.77%, respectively.

Total interest and dividend income increased $20,142 to $153,462 for the nine-month period ended September 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 average balance of loans increased by $351,399, or 13.5%, to $2,959,031 for the nine-month period ended September 30, 2024, as compared to $2,607,632 for the nine-month period ended September 30, 2023.

The loan yield increased to 6.15% for 2024, from 5.81% in 2023.

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(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.

Interest on taxable securities increased $445 to $9,262 for the nine-month period ended September 30, 2024, compared to $8,817 for the same period in 2023.

The average balance of taxable securities decreased $12,617 to $355,329 for the nine-month period ended September 30, 2024, as compared to $367,946 for the nine-month period ended September 30, 2023.

The yield on taxable securities increased 23 basis points to 3.12% for 2024, compared to 2.89% 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.

Interest on tax-exempt securities increased $199 to $7,116 for the nine-month period ended September 30, 2024, compared to $6,917 for the same period in 2023.

The average balance of tax-exempt securities increased $6,339 to $291,589 for the nine-month period ended September 30, 2024, as compared to $285,250 for the nine-month period ended September 30, 2023.

The yield on tax-exempt securities increased 6 basis points to 3.85% for 2024, compared to 3.79% 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.

Interest on interest-bearing deposits in other banks decreased $64 to $754 for the nine-month period ended September 30, 2024, compared to $818 for the same period in 2023.

The average balance of interest-bearing deposits in other banks decreased $2,963 to $20,419 for the nine-month period ended September 30, 2024, as compared to $23,382 for the nine-month period ended September 30, 2023.

The yield on interest-bearing deposits in other banks increased 26 basis points to 4.93% for 2024, compared to 4.67% 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.

Total interest expense increased $30,230, or 79.8%, to $68,106 for the nine-month period ended September 30, 2024, compared to $37,876 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.

For the nine-month period ended September 30, 2024, the average balance of interest-bearing liabilities increased $540,344 to $2,811,188, compared to $2,270,844 for the nine-month period ended September 30, 2023.

Interest incurred on deposits increased $28,068 to $48,418 for the nine-month period ended September 30, 2024, compared to $20,350 for the same period in 2023.

The average balance of interest-bearing deposits increased by $461,238 for the nine-month period ended September 30, 2024, as compared to the same period in 2023, and the rate paid on demand and savings accounts increased from 0.47% in 2023 to 1.07% in 2024.

The rate paid on time deposits increased from 4.17% in 2023 to 5.37% 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.

For the nine-month period ended September 30, 2024, the average balance of short-term FHLB balances increased $103,587 to $385,801 from $282,214 compared to the same period in 2023.

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

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

5 unchanged sentences

(Amounts in thousands, except share data)

Six Months Ended June 30,

Nine Months Ended September 30,

Interest-earning assets:

26 unchanged sentences

Net interest margin (2)

(1) Net interest spread represents the difference between the yield on average interest-earning assets and the cost of interest-bearing liabilities.

(2) Net interest margin represents net interest income divided by average interest-earning assets.

* 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.

The tax equivalent effect associated with loans and investments, included in the yields above, was $1.9 million and $1.8 million for the periods ended September 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 following table provides an analysis of the changes in interest income and expense between the nine months ended September 30, 2024 and 2023.

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

22 unchanged sentences

Upon adoption of CECL on January 1, 2023, the Company recorded an increase in the allowance for credit losses of $4,296.

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.

During the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $5,188, an increase of $3,077, from $2,111 during the nine months ended September 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,

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

Nine Months Ended September 30,

Service charges

10 unchanged sentences

(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.

Total noninterest income for the nine months ended September 30, 2024 was $28,733, an increase of $391, or 1.4%, from $28,342 for the same period of 2023.

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

Service charges decreased $934, as the Company eliminated its representment fee and reduced overdraft charges.

The net gain (loss) on equity securities increase was the result of market valuation adjustments.

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,

During the nine months ended September 30, 2024, 374 loans were sold, totaling $83,656.

During the nine months ended September 30, 2023, 267 loans were sold, totaling $42,533.

The components of noninterest expense for the nine-month periods ended September 30, 2024 and 2023 are as follows:

Nine Months Ended September 30,

Compensation expense

Net occupancy expense

Equipment expense

Contracted data processing

FDIC assessment

State franchise tax

Taxes and assessments

Professional services

Amortization of intangible assets

Equipment expense

ATM/Interchange expense

Communications

Insurance 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.

Total noninterest expense for the nine months ended September 30, 2024 was $84,225, an increase of $2,522, or 3.1%, from $81,703 for the same period of 2023.

The increase was primarily attributable to increases in compensation expense and software maintenance expense partially offset by decreases in equipment expense 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 year-to-date average full time equivalent (“FTE”) employees were 534 on September 30, 2024, an increase of three FTEs over the same period in 2023.

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

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

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

Income tax expense for the nine months ended September 30, 2024 totaled $3,406, down $2,662 compared to the same period in 2023.

The effective tax rate for the nine months ended September 30, 2024 decreased 1.9% to 13.5% from 15.4% for the same period in 2023.

Capital Resources

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.

Shareholders’ equity totaled $394,438 at September 30, 2024, compared to $372,002 at December 31, 2023.

Shareholders’ equity increased during the first nine months of 2024 as a result of net income of $21,790 and an increase in the fair value of securities available-for-sale, net of tax, of $7,619, partially offset by dividends on common shares of $7,544.

Civista Bancshares, Inc.

1 unchanged sentence

(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

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

Company Ratios—September 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 $6,364, or 1.04% of the total security portfolio, at June 30, 2024.

Securities, with maturities of one year or less, totaled $5,975, or 0.89% of the total security portfolio, at September 30, 2024.

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

1 unchanged sentence

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 $12,720 and $39,124 for the six months ended June 30, 2024 and 2023, respectively.

Net cash provided by operating activities was $25,625 and $60,593 for the nine months ended September 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 $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.

Net cash used by investing activities was $187,078 and $216,826 for the nine months ended September 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 $175,709 and $163,188 for the nine months ended September 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 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.

As of September 30, 2024, Civista had total credit availability with the FHLB of $829,545 with standby letters of credit totaling $128,400 and a remaining borrowing capacity of approximately $412,499.

In addition, CBI maintains a credit line with a third party lender totaling $10,000.

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

No borrowings were outstanding by CBI under this credit line as of September 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 June 30, 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 June 30, 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 September 30, 2024, based on certain prepayment and account decay assumptions that management believes are reasonable.

Net Portfolio Value

June 30, 2024

September 30, 2024

December 31, 2023

Change in Rates

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

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

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

10 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