CIVISTA BANCSHARES, INC. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction The following discussion focuses on the consolidated financial condition of the Company at September 30, 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. Forward-Looking Statements This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to such matters as the Company’s financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from those discussed in the forward-looking statements include, but are not limited to: • 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, 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; • 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; • changes in interest rates resulting from national and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the Federal Reserve System, which may adversely affect interest rates, interest margins, loan demand and interest rate sensitivity; • operational risks, reputational risks, legal and compliance risks, and other risks related to potential fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, or failures, disruptions or breaches in security of our systems, including those resulting from computer viruses or cyber-attacks; • our ability to secure sensitive or confidential client information against unauthorized disclosure or access through computer systems and telecommunication networks, including those of our third-party vendors and other service providers, which may prove inadequate; • a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber-attacks; • competitive pressures and factors among financial services organizations could increase significantly, including product and pricing pressures, changes to third-party relationships and our ability to recruit and retain qualified management and banking personnel; • unexpected losses of services of our key management personnel, or the inability to recruit and retain qualified personnel in the future; • 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 Page 37 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) 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; • the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (FASB), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect our reported financial condition or results of operations; • litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or inquiries; • continued availability of earnings and dividends from Civista and excess capital sufficient for us to service our debt and pay dividends to our shareholders in compliance with applicable legal and regulatory requirements; • our ability to raise additional capital in the future if and when needed and/or on terms acceptable to us; • our ability to conform and comply with regulatory requirements and increasing scrutiny and evolving expectations from customers, regulatory authorities, shareholders, investors and other stakeholders with regard to our environmental, social and governance (ESG) policies and practices, which could affect our reputation and business and operating results; • our ability to anticipate and successfully keep pace with technological changes affecting the financial services industry; and • other risks identified from time-to-time in the Company’s other public documents on file with the SEC, including those risks identified in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law. Financial Condition 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. Page 38 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Loans outstanding as of September 30, 2024 and December 31, 2023 were as follows: September 30, 2024 December 31, 2023 $ Change % Change Commercial & Agriculture $ 304,639 $ 304,793 $ (154 ) -0.1 % Commercial Real Estate—Owner Occupied 375,751 377,321 (1,570 ) -0.4 % Commercial Real Estate—Non-Owner Occupied 1,205,453 1,161,894 43,559 3.7 % Residential Real Estate 751,825 659,841 91,984 13.9 % Real Estate Construction 318,063 260,409 57,654 22.1 % Farm Real Estate 24,122 24,771 (649 ) -2.6 % Lease Financing Receivables 49,453 54,642 (5,189 ) -9.5 % Consumer and Other 14,640 18,057 (3,417 ) -18.9 % Total loans 3,043,946 2,861,728 182,218 6.4 % Allowance for credit losses (41,268 ) (37,160 ) (4,108 ) 11.1 % Net loans $ 3,002,678 $ 2,824,568 $ 178,110 6.3 % 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 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 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. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance. Management specifically evaluates loans that do not share common risk characteristics for estimates of loss. To evaluate the adequacy of the allowance for credit losses to cover probable losses in the loan portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. Page 39 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Management analyzes each individually evaluated Commercial & Agriculture and Commercial Real Estate loan relationship with a balance of $350 or larger, on an individual basis and designates a loan as individually evaluated when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Loans, or portions thereof, are charged-off when deemed uncollectible. 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 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 $ Change % Change Noninterest-bearing demand $ 686,316 $ 771,699 $ (85,383 ) -11.1 % Interest-bearing demand 420,333 449,449 (29,116 ) -6.5 % Savings and money market 1,111,771 863,067 248,704 28.8 % Time deposits 1,005,312 900,813 104,499 11.6 % Total Deposits $ 3,223,732 $ 2,985,028 $ 238,704 8.0 % 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 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 $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 $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. Page 40 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) 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 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 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 $3,705,866 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 $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 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 Page 41 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) 2024. 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. 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. Three Months Ended September 30, 2024 2023 Assets: Average balance Interest Yield/ rate* Average balance Interest Yield/ rate* Interest-earning assets: Loans, including fees** $ 3,031,884 $ 46,898 6.15 % $ 2,742,739 $ 40,547 5.87 % Taxable securities 363,584 3,258 3.24 % 359,154 2,999 2.95 % Tax-exempt securities 291,254 2,999 3.83 % 286,048 2,957 3.77 % Interest-bearing deposits in other banks 19,144 216 4.47 % 55,288 719 5.16 % Total interest-earning assets $ 3,705,866 $ 53,371 5.64 % $ 3,443,229 $ 47,222 5.33 % Noninterest-earning assets: Cash and due from financial institutions 36,868 22,542 Premises and equipment, net 51,342 50,999 Accrued interest receivable 13,802 11,673 Intangible assets 134,083 128,215 Bank owned life insurance 63,190 53,879 Other assets 57,856 64,008 Less allowance for loan losses (40,068 ) (34,283 ) Total Assets $ 4,022,939 $ 3,740,262 Liabilities and Shareholders Equity: Interest-bearing liabilities: Demand and savings $ 1,452,850 $ 4,074 1.12 % $ 1,333,903 $ 2,189 0.65 % Time 953,369 12,852 5.37 % 632,111 7,395 4.64 % Short-term FHLB advances 388,022 5,328 5.46 % 233,547 3,246 5.51 % Long-term FHLB advances 1,697 10 2.34 % 2,644 15 2.25 % Other borrowings — — 0.00 % 71,086 1,013 5.66 % Subordinated debentures 104,040 1,244 4.75 % 103,894 1,239 4.73 % Repurchase Agreements — — 0.00 % 993 - 0.00 % Total interest-bearing liabilities $ 2,899,978 $ 23,508 3.23 % $ 2,378,178 $ 15,097 2.52 % Noninterest-bearing deposits 687,364 980,835 Other liabilities 55,205 33,040 Shareholders’ Equity 381,392 348,209 Total Liabilities and Shareholders’ Equity $ 4,023,939 $ 3,740,262 Net interest income and interest rate spread (1) $ 29,863 2.41 % $ 32,125 2.81 % Net interest margin (2) 3.16 % 3.63 % (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 $630 and $621 for the periods ended September 30, 2024 and 2023, respectively. ** Average balance includes nonaccrual loans. Page 42 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended September 30, 2024 and 2023. Increase (decrease) due to: Volume (1) Rate (1) Net (Dollars in thousands) Interest income: Loans, including fees $ 4,412 $ 1,939 $ 6,351 Taxable securities 90 169 259 Tax-exempt securities 66 (24 ) 42 Interest-bearing deposits in other banks (418 ) (85 ) (503 ) Total interest income $ 4,150 $ 1,999 $ 6,149 Interest expense: Demand and savings $ 211 $ 1,674 $ 1,885 Time 4,199 1,259 5,458 Short-term FHLB advances 2,122 (40 ) 2,082 Long-term FHLB advances (6 ) 1 (5 ) Other borrowings (1,013 ) — (1,013 ) Subordinated debentures 2 2 4 Repurchase agreements — — — Total interest expense $ 5,515 $ 2,896 $ 8,411 Net interest income $ (1,365 ) $ (897 ) $ (2,262 ) (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 credit losses. 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, 2024 2023 $ Change % Change Service charges $ 1,595 $ 1,853 $ (258 ) -13.9 % Net gain (loss) on equity securities 223 69 154 223.2 % Net gain on sale of loans and leases 1,427 787 640 81.3 % ATM/Interchange fees 1,402 1,424 (22 ) -1.5 % Wealth management fees 1,443 1,197 246 20.6 % Lease revenue and residual income 2,428 1,913 515 26.9 % Bank owned life insurance 717 266 451 169.5 % Swap fees 43 21 22 104.8 % Other 408 595 (187 ) -31.4 % Total noninterest income $ 9,686 $ 8,125 $ 1,561 19.2 % 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 Page 43 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) 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, 2024 2023 $ Change % Change Compensation expense $ 15,726 $ 14,054 $ 1,672 11.9 % Net occupancy expense 1,293 $ 1,368 (75 ) -5.5 % Contracted data processing 636 $ 651 (15 ) -2.3 % Taxes and assessments 1,040 $ 1,028 12 1.2 % Professional services 1,134 $ 1,010 124 12.3 % Equipment expense 2,345 $ 2,687 (342 ) -12.7 % ATM/Interchange expense 616 $ 619 (3 ) -0.5 % Marketing 716 $ 497 219 44.1 % Sponsorships 39 $ 381 (342 ) -89.8 % Communications 354 $ 384 (30 ) -7.8 % Insurance expense 634 $ 635 (1 ) -0.2 % Software maintenance expense 1,203 $ 1,052 151 14.4 % Other 2,245 $ 2,256 (11 ) -0.5 % Total noninterest expense $ 27,981 $ 26,622 $ 1,359 5.1 % 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 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. 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 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 $3,626,368 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 $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. Page 44 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) 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 $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 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 $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 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. 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. 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. Page 45 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Nine Months Ended September 30, 2024 2023 Assets: Average balance Interest Yield/ rate* Average balance Interest Yield/ rate* Interest-earning assets: Loans, including fees** $ 2,959,031 $ 136,328 6.15 % 2,706,442 117,583 5.81 % Taxable securities 355,329 9,262 3.12 % 367,946 8,817 2.89 % Tax-exempt securities 291,589 9,008 3.85 % 285,250 8,756 3.79 % Interest-bearing deposits in other banks 20,419 756 4.93 % 23,382 818 4.67 % Total interest-earning assets $ 3,626,368 $ 155,354 5.61 % $ 3,383,020 $ 135,974 5.27 % Noninterest-earning assets: Cash and due from financial institutions 34,807 33,918 Premises and equipment, net 53,318 58,338 Accrued interest receivable 13,254 11,176 Intangible assets 134,474 133,154 Bank owned life insurance 62,176 53,796 Other assets 61,225 61,669 Less allowance for loan losses (38,876 ) (33,138 ) Total Assets $ 3,946,746 $ 3,701,933 Liabilities and Shareholders Equity: Interest-bearing liabilities: Demand and savings $ 1,392,082 $ 11,113 1.07 % $ 1,360,692 $ 4,818 0.47 % Time 927,306 37,305 5.37 % 497,458 15,532 4.17 % Short-term FHLB advance 385,801 15,921 5.51 % 282,214 10,617 5.03 % Long-term FHLB advance 2,000 35 2.34 % 3,062 51 2.23 % Other borrowings — — 0.00 % 110,763 4,063 4.90 % Subordinated debentures 103,999 3,732 4.79 % 103,854 3,606 4.67 % Repurchase Agreements — — — 11,611 4 0.05 % Total interest-bearing liabilities $ 2,811,188 $ 68,106 3.24 % $ 2,369,654 $ 38,691 2.18 % Noninterest-bearing deposits 702,696 941,842 Other liabilities 60,282 44,739 Shareholders’ Equity 372,580 345,698 Total Liabilities and Shareholders’ Equity $ 3,946,746 $ 3,701,933 Net interest income and interest rate spread (1) $ 87,248 2.37 % $ 97,283 3.09 % Net interest margin (2) 3.16 % 3.77 % (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 $1.9 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 nine months ended September 30, 2024 and 2023. The table is presented on a fully tax-equivalent basis. Page 46 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Increase (decrease) due to: Volume (1) Rate (1) Net (Dollars in thousands) Interest income: Loans, including fees $ 11,376 $ 7,369 $ 18,745 Taxable securities (176 ) 621 445 Tax-exempt securities 120 132 252 Interest-bearing deposits in other banks (108 ) 46 (62 ) Total interest income $ 11,212 $ 8,168 $ 19,380 Interest expense: Demand and savings $ 114 $ 6,181 $ 6,295 Time 16,324 5,449 21,773 Short-term FHLB advance 4,196 1,108 5,304 Long-term FHLB advance (18 ) 2 (16 ) Other borrowings (4,063 ) — (4,063 ) Subordinated debentures 5 121 126 Repurchase agreements (4 ) — (4 ) Total interest expense $ 16,554 $ 12,861 $ 29,415 Net interest income $ (5,342 ) $ (4,693 ) $ (10,035 ) (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 credit losses. Upon adoption of CECL on January 1, 2023, the Company recorded an increase in the allowance for credit losses of $4,296. 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 nine-month periods ended September 30, 2024 and 2023 were as follows: Nine Months Ended September 30, 2024 2023 $ Change % Change Service charges $ 4,523 $ 5,457 $ (934 ) -17.1 % Net gain (loss) on equity securities 156 (169 ) 325 192.3 % Net gain on sale of loans and leases 3,179 2,033 1,146 56.4 % ATM/Interchange fees 4,201 4,227 (26 ) -0.6 % Wealth management fees 4,055 3,570 485 13.6 % Lease revenue and residual income 7,630 6,160 1,470 23.9 % Bank owned life insurance 1,434 830 604 72.8 % Tax refund processing fees — 2,375 (2,375 ) -100.0 % Swap fees 165 198 (33 ) -16.7 % Other 3,390 3,661 (271 ) -7.4 % Total noninterest income $ 28,733 $ 28,342 $ 391 1.4 % Page 47 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) 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 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, 2024 2023 $ Change % Change Compensation expense $ 46,922 $ 44,137 $ 2,785 6.3 % Net occupancy expense 3,959 4,096 (137 ) -3.3 % Contracted data processing 1,740 1,730 10 0.6 % Taxes and assessments 3,036 2,985 51 1.7 % Professional services 3,532 3,804 (272 ) -7.2 % Equipment expense 7,313 8,213 (900 ) -11.0 % ATM/Interchange expense 1,873 1,814 59 3.3 % Marketing 1,640 1,542 98 6.4 % Sponsorships 1,300 1,102 198 18.0 % Communications 1,069 1,283 (214 ) -16.7 % Insurance expense 1,902 1,853 49 2.6 % Software maintenance expense 3,568 2,989 579 19.4 % Other 6,371 6,155 216 3.5 % Total noninterest expense $ 84,225 $ 81,703 $ 2,522 3.1 % 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 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. 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 $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. Page 48 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) 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: Total Risk Based Capital Tier I Risk Based Capital CET1 Risk Based Capital Leverage Ratio Company Ratios—September 30, 2024 13.8 % 10.3 % 9.4 % 8.5 % Company Ratios—December 31, 2023 14.4 % 10.7 % 9.7 % 8.8 % For Capital Adequacy Purposes 8.0 % 6.0 % 4.5 % 4.0 % To Be Well Capitalized Under Prompt Corrective Action Provisions 10.0 % 8.0 % 6.5 % 5.0 % Liquidity The Company maintains a conservative liquidity position. All securities, with the exception of equity securities, are classified as available-for-sale. 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. 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 $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 $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. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $50,000. 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 September 30, 2024. Page 49 Civista Bancshares, Inc. Quantitative and Qualitative Disclosures About Market Risk Form 10-Q (Amounts in thousands, except share data) ITEM 3. Quantitative and Qualitat ive Disclosures About Market Risk The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Company’s safety and soundness. Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality. The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, issue policy statements and guidance on sound practices for managing interest-rate risk, which form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The guidance also outlines fundamental elements of sound management and discusses the importance of these elements in the context of managing interest-rate risk. The guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment. Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Company is to periodically analyze its assets and liabilities and make future financing and investment decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Company’s primary asset/liability management technique is the measurement of the Company’s asset/liability gap, that is, the difference between the cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities. Page 50 Civista Bancshares, Inc. Quantitative and Qualitative Disclosures About Market Risk Form 10-Q (Amounts in thousands, except share data) Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. The Company has not purchased derivative financial instruments to hedge interest rate risk in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Company’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Company seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. 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 September 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 September 30, 2024 and December 31, 2023. Net Portfolio Value September 30, 2024 December 31, 2023 Change in Rates Dollar Amount Dollar Change Percent Change Dollar Amount Dollar Change Percent Change +400bp 627,206 29,933 5 % 592,847 (14,886 ) (2 )% +300bp 622,004 24,731 4 % 598,468 (9,265 ) (2 )% +200bp 616,357 19,084 3 % 603,656 (4,077 ) (1 )% +100bp 610,316 13,043 2 % 608,399 666 0 % Base 597,273 — 0 % 607,733 — 0 % -100bp 587,885 (9,388 ) (2 )% 605,047 (2,686 ) (0 )% -200bp 565,196 (32,077 ) (5 )% 591,305 (16,428 ) (3 )% -300bp 607,770 10,497 2 % 583,229 (24,504 ) (4 )% -400bp 693,623 96,350 16 % 653,870 46,137 8 % 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. 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. The change in the rates up scenarios for the 100, 200, 300 and 400 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, 200, 300 and 400 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. Page 51 Civista Bancshares, Inc. Controls and Procedures Form 10-Q (Amounts in thousands, except share data)