Civista Bancshares, Inc. (NASDAQ:CIVB) Q2 2023 Earnings Conference Call July 28, 2023 7:30 PM ET Company Participants Dennis Shaffer - President and Chief Executive Officer Charles Parcher - Senior Vice President and Chief Lending Officer Richard Dutton - Senior Vice President Chief Operating Officer Paul Stark - Senior Vice President Conference Call Participants Terry McEvoy - Stephens Nick Cucharale - Hovde Tim Switzer - KBW Manuel Navas - D.A. Davidson Daniel Cardenas - Janney Operator Good afternoon. Be ...

PART I. Financial Information [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited consolidated financial statements for Civista Bancshares, Inc. as of March 31, 2023, detailing financial position, operations, and CECL accounting standards Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :--- | :--- | :--- | | **Total Assets** | **3,584,558** | **3,537,830** | | Loans, net of allowance | 2,545,870 | 2,518,155 | | Securities available-for-sale | 627,707 | 615,402 | | **Total Liabilities** | **3,236,861** | **3,202,995** | | Total Deposits | 2,843,516 | 2,619,984 | | **Total Shareholders' Equity** | **347,697** | **334,835** | Consolidated Statement of Operations Highlights (Unaudited, Three Months Ended) | Account | March 31, 2023 ($ in thousands) | March 31, 2022 ($ in thousands) | | :--- | :--- | :--- | | Net Interest Income | 32,601 | 22,932 | | Provision for Credit Losses | 620 | 300 | | Noninterest Income | 11,068 | 7,643 | | Noninterest Expense | 27,633 | 20,258 | | **Net Income** | **12,888** | **8,466** | | **Earnings per share, diluted** | **$0.82** | **$0.57** | [Note 1: Consolidated Financial Statements](index=9&type=section&id=(1)%20Consolidated%20Financial%20Statements) Civista Bancshares, Inc. is a financial holding company primarily operating Civista Bank, offering diverse financial services across Ohio, Indiana, and Kentucky - The company's primary business is banking through its subsidiary Civista Bank, with operations concentrated in Ohio, Indiana, and Kentucky[252](index=252&type=chunk) - In October 2022, the company acquired Vision Financial Group, Inc. (VFG), expanding into the equipment leasing and financing business[252](index=252&type=chunk) [Note 2: Significant Accounting Policies](index=9&type=section&id=(2)%20Significant%20Accounting%20Policies) The company adopted the CECL standard on January 1, 2023, significantly changing credit loss estimation and impacting retained earnings - The company adopted the CECL accounting standard on January 1, 2023, using a modified retrospective method, requiring estimation of lifetime expected credit losses for financial assets[255](index=255&type=chunk)[281](index=281&type=chunk) Day 1 Impact of CECL Adoption on January 1, 2023 ($ in thousands) | Component | Dec 31, 2022 Balance | Adoption Impact | Jan 1, 2023 Balance | | :--- | :--- | :--- | :--- | | **Allowance for Credit Losses (Loans)** | **$28,511** | **$5,964** (incl. PCD reclass) | **$34,475** | | Reserve for Unfunded Commitments | $0 | $3,386 | $3,386 | | **Total Reserve for Credit Losses** | **$28,511** | **$9,350** | **$37,861** | | **Retained Earnings Impact (After-tax)** | - | **($6,069)** | - | - The CECL model utilizes a Discounted Cash Flow (DCF) method based on historical data, current conditions, and a one-year reasonable and supportable forecast, reverting to a long-term average[260](index=260&type=chunk)[261](index=261&type=chunk) [Note 3: Securities](index=14&type=section&id=(3)%20Securities) The AFS securities portfolio totaled **$627.7 million** at March 31, 2023, with **$58.6 million** in unrealized losses due to rising interest rates Available-for-Sale Securities Portfolio ($ in thousands) | Security Type | Amortized Cost (Mar 31, 2023) | Fair Value (Mar 31, 2023) | Fair Value (Dec 31, 2022) | | :--- | :--- | :--- | :--- | | U.S. Treasury & government agencies | $66,781 | $62,513 | $61,029 | | Obligations of states & political subdivisions | $356,250 | $330,638 | $317,248 | | Mortgage-backed securities | $261,324 | $234,556 | $237,125 | | **Total Debt Securities** | **$684,355** | **$627,707** | **$615,402** | - At March 31, 2023, the AFS portfolio had **$58.6 million** in gross unrealized losses, primarily attributed to the impact of rising interest rates, which the company does not consider credit-related[291](index=291&type=chunk)[299](index=299&type=chunk) - Securities with a carrying value of approximately **$238.7 million** were pledged to secure public deposits and other liabilities as of March 31, 2023[296](index=296&type=chunk) [Note 4: Loans](index=16&type=section&id=(4)%20Loans) Total loans increased to **$2.58 billion** at March 31, 2023, primarily driven by commercial real estate loans, with an ACL of **1.33%** of total loans Loan Portfolio Composition ($ in thousands) | Loan Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commercial & Agriculture | $271,160 | $278,595 | | Commercial Real Estate - Owner Occupied | $375,825 | $371,147 | | Commercial Real Estate - Non-Owner Occupied | $1,043,635 | $1,018,736 | | Residential Real Estate | $560,978 | $552,781 | | Real Estate Construction | $247,253 | $243,127 | | Lease Financing Receivable | $37,570 | $36,797 | | Other (Farm, Consumer) | $43,645 | $45,483 | | **Total Loans** | **$2,580,066** | **$2,546,666** | - Paycheck Protection Program (PPP) loan balances decreased to **$464 thousand** as of March 31, 2023, from **$566 thousand** at year-end 2022[301](index=301&type=chunk) [Note 5: Allowance for Credit Losses](index=17&type=section&id=(5)%20Allowance%20for%20Credit%20Losses) The ACL increased to **$34.2 million** at March 31, 2023, primarily due to CECL adoption and a **$620 thousand** provision, with net charge-offs of **$128 thousand** Changes in Allowance for Credit Losses (Q1 2023, $ in thousands) | Description | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2022) | $28,511 | | CECL Adoption Impact (Day 1) | $4,296 | | Adopting ASC 326 - PCD Loans | $897 | | Provision for Credit Losses | $620 | | Charge-offs | ($175) | | Recoveries | $47 | | **Ending Balance (Mar 31, 2023)** | **$34,196** | - The company defines five internal risk grades for loans: Pass, Special Mention, Substandard, Doubtful, and Loss[5](index=5&type=chunk) - Total nonaccrual loans were **$7.0 million** as of March 31, 2023, an increase from **$6.5 million** at December 31, 2022[22](index=22&type=chunk)[23](index=23&type=chunk) [Note 6: Accumulated Other Comprehensive Loss](index=30&type=section&id=(6)%20Accumulated%20Other%20Comprehensive%20Loss) AOCL improved to a loss of **$49.9 million** at March 31, 2023, driven by an **$8.1 million** positive change in AFS securities unrealized gains/losses Changes in Accumulated Other Comprehensive Loss (Q1 2023, $ in thousands) | Component | Beginning Balance (Dec 31, 2022) | Net Current-Period OCI | Ending Balance (Mar 31, 2023) | | :--- | :--- | :--- | :--- | | Unrealized Gains/Losses on AFS Securities | ($52,771) | $8,135 | ($44,636) | | Defined Benefit Pension Items | ($5,274) | $0 | ($5,274) | | **Total AOCL** | **($58,045)** | **$8,135** | **($49,910)** | [Note 7: Goodwill and Intangible Assets](index=31&type=section&id=(7)%20Goodwill%20and%20Intangible%20Assets) Goodwill decreased to **$125.1 million** due to fair value adjustments, while net amortized intangible assets were **$7.7 million** and MSRs increased to **$3.1 million** - Goodwill decreased by **$617 thousand** to **$125.1 million** during Q1 2023 due to adjustments to estimated fair values of assets acquired and liabilities assumed from a past acquisition[53](index=53&type=chunk) Intangible Assets ($ in thousands) | Asset Type | Net Carrying Amount (Mar 31, 2023) | Net Carrying Amount (Dec 31, 2022) | | :--- | :--- | :--- | | Core deposit intangibles | $7,671 | $8,070 | | **Total amortized intangible assets** | **$7,671** | **$8,070** | - Mortgage servicing rights (MSRs) increased to **$3.1 million** at the end of Q1 2023, up from **$2.7 million** at year-end 2022, primarily due to new additions[57](index=57&type=chunk) [Note 8: Short-Term and Other Borrowings](index=33&type=section&id=(8)%20Short-Term%20and%20Other%20Borrowings) Short-term borrowings decreased to **$212.0 million** at March 31, 2023, with an increased average interest rate of **4.86%**, and repurchase agreements also declined Short-Term Borrowings Overview ($ in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Short-term Borrowings Outstanding | $212,000 | $393,700 | | Interest Rate on Balance | 4.86% | 4.24% | | Securities Sold Under Repurchase Agreements | $15,631 | $25,143 | [Note 9: Earnings per Common Share](index=34&type=section&id=(9)%20Earnings%20per%20Common%20Share) Basic and diluted EPS for Q1 2023 were **$0.82**, an increase from **$0.57** in Q1 2022, computed using the two-class method Earnings Per Share Calculation (Three Months Ended) | Item | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Net Income ($ in thousands) | $12,888 | $8,466 | | Net Income Available to Common Shareholders ($ in thousands) | $12,436 | $8,434 | | Weighted Average Shares Outstanding (Basic) | 15,179,210 | 14,853,287 | | **Basic EPS** | **$0.82** | **$0.57** | | **Diluted EPS** | **$0.82** | **$0.57** | [Note 10: Commitments, Contingencies and Off-Balance Sheet Risk](index=34&type=section&id=(10)%20Commitments,%20Contingencies%20and%20Off-Balance%20Sheet%20Risk) Off-balance sheet commitments increased to **$712.7 million** at March 31, 2023, primarily lines of credit and construction loans, subject to standard credit policies Off-Balance Sheet Commitments ($ in thousands) | Commitment Type | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Lines of credit and construction loans | $665,458 | $641,369 | | Overdraft protection | $45,528 | $45,192 | | Letters of credit | $1,668 | $1,590 | | **Total** | **$712,654** | **$688,151** | [Note 13: Fair Value Measurement](index=36&type=section&id=(13)%20Fair%20Value%20Measurement) The company uses a three-level fair value hierarchy, with most recurring measurements (AFS securities, swaps) as Level 2, and nonrecurring MSRs as Level 3 - Available-for-sale debt securities are valued using matrix pricing (Level 2 inputs)[83](index=83&type=chunk) - Mortgage servicing rights (MSRs) are classified as Level 3 and valued using a discounted cash flow model with significant unobservable inputs like prepayment rates and discount rates[86](index=86&type=chunk) Assets Measured at Fair Value on a Recurring Basis (Mar 31, 2023, $ in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | | Securities available-for-sale | $0 | $627,707 | $0 | | Equity securities | $0 | $2,122 | $0 | | Swap asset | $0 | $13,350 | $0 | [Note 14: Derivatives](index=39&type=section&id=(14)%20Derivatives) The company uses interest rate swaps with customers and offsetting bank counterparties, holding **$13.35 million** in derivative assets and liabilities with a **$211.1 million** gross notional amount - The company acts as an intermediary in interest rate swap transactions for its customers, entering into offsetting positions with bank counterparties[212](index=212&type=chunk) Derivative Positions (Fair Value, $ in thousands) | Position | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Swap Asset | $13,350 | $16,579 | | Swap Liability | $13,350 | $16,579 | | **Gross Notional Amount** | **$211,117** | **$212,570** | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial condition and results, highlighting asset growth, increased net income, and expanded net interest margin [Financial Condition](index=44&type=section&id=Financial%20Condition) Total assets increased by **1.3%** to **$3.58 billion** at March 31, 2023, driven by loan and securities growth, with shareholders' equity at **$347.7 million** - Total assets increased by **$46.7 million** (**1.3%**) to **$3.58 billion** in Q1 2023, primarily due to increases in loans (**+$27.7 million**) and securities (**+$12.3 million**)[106](index=106&type=chunk) Loan Portfolio Changes (Q1 2023, $ in thousands) | Loan Category | Change from Dec 31, 2022 | % Change | | :--- | :--- | :--- | | Commercial Real Estate—Non-Owner Occupied | $24,899 | 2.4% | | Residential Real Estate | $8,197 | 1.5% | | Commercial & Agriculture | ($7,435) | -2.7% | | **Total Net Loans** | **$27,715** | **1.1%** | Deposit Changes (Q1 2023, $ in thousands) | Deposit Type | Change from Dec 31, 2022 | % Change | | :--- | :--- | :--- | | Time deposits | $207,434 | 65.0% | | Noninterest-bearing demand | $42,634 | 4.8% | | Savings and money market | ($39,684) | -4.5% | | **Total Deposits** | **$223,532** | **8.5%** | - Shareholders' equity increased by **$12.9 million**, driven by net income of **$12.9 million** and an **$8.1 million** improvement in the fair value of AFS securities, offset by dividends and the CECL adoption impact[132](index=132&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) Q1 2023 net income rose to **$12.9 million** (**$0.82** diluted EPS), driven by a **42.2%** increase in net interest income and expanded net interest margin to **4.11%** - Net income increased by **$4.4 million** (**52.2%**) year-over-year for the first quarter[134](index=134&type=chunk) - Net interest income grew by **$9.7 million** (**42.2%**) YoY, driven by a **$541.5 million** increase in the average balance of loans and a rise in the loan yield to **5.79%** from **4.25%**[135](index=135&type=chunk)[136](index=136&type=chunk) - The fully tax-equivalent net interest margin was **4.11%** for Q1 2023, compared to **3.38%** for Q1 2022[135](index=135&type=chunk) - Noninterest income increased by **$3.4 million**, primarily due to **$2.0 million** in new lease revenue and residual income from the VFG acquisition[150](index=150&type=chunk) - Noninterest expense rose by **$7.4 million**, with compensation expense increasing by **$2.9 million** and equipment expense by **$2.3 million**, largely due to the acquisitions of Comunibanc Corp. and VFG[151](index=151&type=chunk)[158](index=158&type=chunk) [Capital Resources and Liquidity](index=53&type=section&id=Capital%20Resources%20and%20Liquidity) Capital ratios remained strong, with Total Risk-Based Capital at **14.7%** and CET1 at **9.7%**, supported by **$632.2 million** FHLB borrowing capacity and **$19.8 million** operating cash flow Regulatory Capital Ratios | Ratio | March 31, 2023 | Well Capitalized Minimum | | :--- | :--- | :--- | | Total Risk Based Capital | 14.7% | 10.0% | | Tier I Risk Based Capital | 10.8% | 8.0% | | CET1 Risk Based Capital | 9.7% | 6.5% | | Leverage Ratio | 8.6% | 5.0% | - As of March 31, 2023, the company had a remaining borrowing capacity of approximately **$632.2 million** with the FHLB[162](index=162&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details the company's primary interest-rate risk, using asset/liability modeling to assess Net Portfolio Value sensitivity to hypothetical rate changes - The company's primary market risk exposure is interest-rate risk, which it manages through asset/liability management techniques, including analyzing its asset/liability gap[165](index=165&type=chunk)[170](index=170&type=chunk) Interest Rate Sensitivity Analysis (Change in Net Portfolio Value) | Change in Rates | Dollar Change (Mar 31, 2023) | Percent Change (Mar 31, 2023) | | :--- | :--- | :--- | | +200bp | $20,539 | 4% | | +100bp | $14,021 | 2% | | Base | $0 | — | | -100bp | ($11,941) | (2)% | | -200bp | ($36,621) | (6)% | [Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2023[179](index=179&type=chunk) - No material changes to internal control over financial reporting occurred during the first quarter of 2023[180](index=180&type=chunk) PART II. Other Information [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to ordinary course legal proceedings, which management believes will not materially affect its financial position, operations, or liquidity - Management does not expect any pending or threatened legal proceedings to have a material adverse effect on the company[185](index=185&type=chunk) [Risk Factors](index=57&type=page&id=Item%201A.%20Risk%20Factors) Updates risk factors, adding a new risk concerning recent U.S. bank failures and their potential impact on customer confidence, funding, and regulatory costs - A new risk factor has been added concerning the potential impact of recent and future bank failures on customer confidence, funding, liquidity, and regulatory costs for the banking industry[187](index=187&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2023, the company repurchased **5,620** common shares at **$21.52** per share, primarily for tax payments on restricted stock vesting Share Repurchases (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2023 | 5,620 | $21.52 | | Feb 1 - Feb 28, 2023 | 0 | $0 | | Mar 1 - Mar 31, 2023 | 0 | $0 | | **Total** | **5,620** | **$21.52** | [Exhibits](index=58&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including CEO and Principal Accounting Officer certifications and Inline XBRL financial statements - Exhibits include CEO and Principal Accounting Officer certifications (Rule 13a-14(a) and Section 1350) and Inline XBRL data[192](index=192&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)

Civista Bancshares, Inc. (NASDAQ:CIVB) Q1 2023 Results Conference Call April 28, 2023 1:00 PM ET Company Participants Dennis Shaffer - President and CEO Rich Dutton - SVP and COO Chuck Parcher - SVP and Chief Lending Officer Paul Stark - SVP Conference Call Participants Terry McEvoy - Stephens Tim Switzer - KBW Manuel Navas - D.A. Davidson Ben Gerlinger - Hovde Group Dan Cardenas - Janney Montgomery Scott Operator Good day, and welcome to the Civista Bancshares First Quarter 2023 Earnings Conference Call. [ ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) Civista Bancshares is a financial holding company focused on community banking, expanding through acquisitions in 2022 and emphasizing relationship banking and operational efficiency - Civista Bancshares, Inc. is a registered financial holding company with total consolidated assets of **$3.54 billion** as of December 31, 2022[154](index=154&type=chunk) - In 2022, the company completed two key acquisitions: - **Comunibanc Corp.:** Acquired on July 1, 2022, for approximately **$46.1 million** in a stock and cash transaction, adding seven new offices and expanding presence in northwest Ohio[160](index=160&type=chunk)[161](index=161&type=chunk) - **Vision Financial Group, Inc. (VFG):** Acquired on October 3, 2022, for approximately **$46.5 million**, now a wholly-owned subsidiary of Civista Bank providing equipment leasing and financing[163](index=163&type=chunk) Loan Portfolio Composition (2020-2022) | Loan Category | 2022 % of Total | 2021 % of Total | 2020 % of Total | | :--- | :--- | :--- | :--- | | Commercial real estate | 55% | 56% | 48% | | Residential real estate | 22% | 22% | 22% | | Commercial and agriculture | 11% | 12% | 20% | - The company's business strategy is centered on expanding community relationships, growing core deposits, leveraging its mortgage banking infrastructure, improving operational efficiency, and maintaining robust capital and liquidity levels[169](index=169&type=chunk)[171](index=171&type=chunk) - As a financial holding company, CBI is subject to extensive supervision and regulation by agencies including the Federal Reserve Board, the FDIC, and the State of Ohio Division of Financial Institutions (ODFI)[196](index=196&type=chunk)[197](index=197&type=chunk) [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant economic, real estate, interest rate, operational, regulatory, and acquisition integration risks that could materially impact its financial performance - **Economic and Political Risks:** Success is dependent on local and national economic conditions, where factors like inflation, recession, interest rate changes, and fiscal policy can adversely affect deposit levels, loan quality, and collateral values[277](index=277&type=chunk)[278](index=278&type=chunk) - **Real Estate Market Risk:** A significant portion of the loan portfolio is comprised of residential (**21.7%**) and commercial (**54.6%**) real estate loans as of December 31, 2022, making the company vulnerable to a deterioration in real estate values that could increase delinquencies and non-performing assets[280](index=280&type=chunk)[281](index=281&type=chunk) - **Interest Rate Risk:** Net interest income is sensitive to changes in interest rates, where a rapid rise in rates on deposits faster than on loans, or vice versa, could adversely affect earnings[283](index=283&type=chunk)[284](index=284&type=chunk) - **LIBOR Transition Risk:** The company has approximately **$274.0 million** in exposure to LIBOR as of December 31, 2022, and the transition to alternative reference rates like SOFR could impact income, expenses, and the value of financial contracts[291](index=291&type=chunk)[294](index=294&type=chunk) - **Operational and Cybersecurity Risks:** The company is exposed to operational risks from system failures, fraud, and human error, with unauthorized disclosure of client information or security breaches potentially harming the business, and reliance on third-party vendors introducing additional risk[300](index=300&type=chunk)[306](index=306&type=chunk)[322](index=322&type=chunk) - **Credit and Competition Risks:** The allowance for loan losses may be insufficient to absorb future losses, especially with the upcoming transition to the CECL model, and the company faces strong competition in its market areas for both loans and deposits[327](index=327&type=chunk)[325](index=325&type=chunk) - **Acquisition Risk:** The successful integration of the 2022 acquisitions of Comunibanc Corp. and VFG is subject to inherent uncertainties, including retaining customers and key employees and achieving projected operating efficiencies[347](index=347&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section details common stock information, including shareholder count, dividend restrictions, and share repurchase activities under a **$13.5 million** program - As of February 21, 2023, there were approximately **1,767** shareholders of record for the company's common shares[391](index=391&type=chunk) Common Share Repurchases (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Value Remaining in Program ($) | | :--- | :--- | :--- | :--- | | Oct 1 - Oct 31, 2022 | 7,205 | $21.40 | $6,055,711 | | Nov 1 - Nov 30, 2022 | — | — | — | | Dec 1 - Dec 31, 2022 | — | — | — | | **Total Q4** | **7,205** | **$21.40** | **$6,055,711** | - On May 4, 2022, the company announced a new share repurchase program authorizing up to **$13.5 million** of its common shares through May 9, 2023, with **$7.44 million** repurchased under this program as of December 31, 2022[393](index=393&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition and results for 2022, highlighting asset growth to **$3.54 billion** driven by acquisitions, a slight net income decrease, and strong capital ratios [Financial Condition](index=35&type=section&id=Financial%20Condition) Total assets grew to **$3.54 billion** in 2022, driven by acquisitions and a **27.7%** increase in net loans, while shareholders' equity decreased due to unrealized losses on securities Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 (in thousands $) | Dec 31, 2021 (in thousands $) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $3,537,830 | $3,012,905 | 17.4% | | Net Loans | $2,518,155 | $1,971,238 | 27.7% | | Total Deposits | $2,619,984 | $2,416,701 | 8.4% | | Total Shareholders' Equity | $334,835 | $355,212 | (5.7%) | - The increase in net loans was broad-based, with significant contributions from the Comunibanc and VFG acquisitions, and Commercial Real Estate (Owner and Non-Owner Occupied) and Residential Real Estate being the largest growth segments[405](index=405&type=chunk) - Securities available for sale increased by **9.9%** to **$615.4 million**, but the portfolio shifted from a net unrealized gain of **$18.6 million** in 2021 to a net unrealized loss of **$66.9 million** in 2022, primarily due to rising market interest rates[416](index=416&type=chunk)[419](index=419&type=chunk) - Goodwill increased by **$48.8 million** to **$125.7 million** due to the goodwill created from the acquisitions of Comunibanc Corp. (**$26.2 million**) and VFG (**$22.6 million**)[424](index=424&type=chunk)[104](index=104&type=chunk)[119](index=119&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Net income for 2022 was **$39.4 million**, a slight decrease from 2021, as **15.5%** growth in net interest income was offset by a **16.5%** increase in noninterest expenses Income Statement Highlights (in thousands) | Account | 2022 (in thousands $) | 2021 (in thousands $) | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $110,204 | $95,425 | 15.5% | | Provision for Loan Losses | $1,752 | $830 | 111.1% | | Noninterest Income | $29,076 | $31,452 | (7.6%) | | Noninterest Expense | $90,493 | $77,666 | 16.5% | | **Net Income** | **$39,427** | **$40,546** | **(2.8%)** | - The increase in net interest income was driven by a **$172.2 million** (**8.5%**) increase in the average balance of loans and a rise in the loan yield to **4.69%** from **4.42%** in 2021[447](index=447&type=chunk) - The provision for loan losses increased by **$0.9 million** in 2022 primarily to support strong organic loan growth and to cover lease production from the newly acquired VFG subsidiary[452](index=452&type=chunk) - Noninterest expense increased by **$12.8 million**, with notable increases in compensation (**$6.4 million**), professional services (**$2.7 million**, including **$1.7 million** in acquisition costs), and equipment expense (**$3.2 million**)[457](index=457&type=chunk)[458](index=458&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a conservative liquidity position with **$374.7 million** FHLB borrowing capacity and strong capital ratios exceeding 'well-capitalized' thresholds - Primary sources of liquidity include cash flows from operations, deposit growth, and FHLB advances; at year-end 2022, the company had total FHLB credit availability of **$829.5 million**, with **$454.8 million** outstanding[472](index=472&type=chunk) - On a parent company basis, the primary source of funds is dividends from Civista Bank, with approximately **$55.5 million** payable to the parent company at year-end 2022 without prior regulatory approval[472](index=472&type=chunk) Regulatory Capital Ratios (Consolidated) as of Dec 31, 2022 | Ratio | Company Ratio (%) | Well-Capitalized Minimum (%) | | :--- | :--- | :--- | | Total Risk Based Capital | 14.5% | 10.0% | | Tier I Risk Based Capital | 10.8% | 8.0% | | CET1 Risk Based Capital | 9.7% | 6.5% | | Leverage Ratio | 8.9% | 5.0% | [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest-rate risk, managed by ALCO, with NPV sensitivity analysis showing a **3%** increase for a **+200bp** rate change and a **5%** decrease for a **-200bp** change - The company's primary market risk exposure is interest-rate risk, managed through active board and senior management oversight and a comprehensive risk-management process[479](index=479&type=chunk) Net Portfolio Value Sensitivity Analysis (as of Dec 31, 2022) | Change in Rates | Dollar Amount (in thousands $) | Dollar Change (in thousands $) | Percent Change (%) | | :--- | :--- | :--- | :--- | | +200bp | $571,328 | $14,733 | 3% | | +100bp | $566,596 | $10,001 | 2% | | Base | $556,595 | — | — | | -100bp | $548,575 | ($8,020) | (1%) | | -200bp | $526,702 | ($29,893) | (5%) | - The change in net portfolio value sensitivity from 2021 to 2022 is attributed to the rise and inversion of the yield curve, as well as shifts in the volume and mix of assets (less cash, more loans) and funding sources[483](index=483&type=chunk) [Financial Statements and Supplementary Financial Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Financial%20Data) This section presents consolidated financial statements, management's report on internal controls, and the independent auditor's unqualified opinions for 2022, 2021, and 2020 [Management's Report on Internal Control over Financial Reporting](index=55&type=section&id=Management's%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) Management concluded its internal control over financial reporting was effective as of December 31, 2022, excluding recent acquisitions representing **10.17%** of consolidated assets - Management concluded that as of December 31, 2022, its system of internal control over financial reporting is effective, based on the criteria in the "2013 Internal Control – Integrated Framework" by COSO[9](index=9&type=chunk) - The scope of the assessment excluded the acquisitions of Comunibanc Corp. (acquired July 1, 2022) and Vision Financial Group (acquired October 3, 2022), as permitted by SEC guidance[8](index=8&type=chunk) [Report of Independent Registered Public Accounting Firm](index=56&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) FORVIS, LLP issued unqualified opinions on the 2022 and 2021 financial statements and 2022 internal controls, identifying Allowance for Loan Losses and Mergers and Acquisitions as critical audit matters - The auditor expressed an unqualified opinion on the consolidated financial statements as of December 31, 2022 and 2021, and on the effectiveness of internal control over financial reporting as of December 31, 2022[13](index=13&type=chunk)[24](index=24&type=chunk) - Critical Audit Matters (CAMs) were identified for the current period audit: - **Allowance for Loan Losses:** Auditing this estimate involved significant judgment regarding economic conditions, impaired loan allowances, and loan grades - **Mergers and Acquisitions:** Auditing the fair value of acquired assets and assumed liabilities from the two 2022 acquisitions involved a high degree of subjectivity[15](index=15&type=chunk)[16](index=16&type=chunk)[19](index=19&type=chunk) [Consolidated Financial Statements](index=62&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of **$3.54 billion** in 2022, with net income of **$39.4 million** (**$2.60** diluted EPS), reflecting impacts from 2022 acquisitions Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 (in thousands $) | Dec 31, 2021 (in thousands $) | | :--- | :--- | :--- | | Total Assets | $3,537,830 | $3,012,905 | | Loans, net | $2,518,155 | $1,971,238 | | Total Deposits | $2,619,984 | $2,416,701 | | Total Liabilities | $3,202,995 | $2,657,693 | Consolidated Statement of Operations Data (in thousands) | Account | 2022 (in thousands $) | 2021 (in thousands $) | 2020 (in thousands $) | | :--- | :--- | :--- | :--- | | Net Interest Income | $110,204 | $95,425 | $89,727 | | Provision for Loan Losses | $1,752 | $830 | $10,112 | | Noninterest Income | $29,076 | $31,452 | $28,182 | | Noninterest Expense | $90,493 | $77,666 | $70,665 | | **Net Income** | **$39,427** | **$40,546** | **$32,192** | | **Diluted EPS** | **$2.60** | **$2.63** | **$2.00** | Consolidated Statement of Cash Flows Data (in thousands) | Activity | 2022 (in thousands $) | 2021 (in thousands $) | 2020 (in thousands $) | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $25,183 | $40,761 | $32,654 | | Net Cash used for Investing Activities | ($410,364) | ($130,496) | ($340,982) | | Net Cash from Financing Activities | $164,303 | $216,925 | $398,802 | | **Net Change in Cash** | **($220,878)** | **$127,190** | **$90,474** | [Notes to Consolidated Financial Statements](index=68&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies, 2022 acquisitions, loan portfolios, allowance for loan losses, goodwill, capital requirements, and retirement plans, crucial for understanding financial performance - **Note 1:** The company will adopt the new CECL accounting standard (ASU 2016-13) in the first quarter of 2023, estimating an increase of approximately **$3.3 million** in allowance for credit losses and **$3.4 million** for unfunded commitments upon adoption[95](index=95&type=chunk) - **Note 2:** Details the acquisitions of Comunibanc Corp. and Vision Financial Group (VFG), where the Comunibanc acquisition resulted in **$26.2 million** of goodwill and **$4.4 million** of core deposit intangibles, and the VFG acquisition resulted in **$22.6 million** of goodwill[104](index=104&type=chunk)[119](index=119&type=chunk) - **Note 5:** The allowance for loan losses was **$28.5 million** at year-end 2022, or **1.12%** of total loans, compared to **$26.6 million**, or **1.33%** of total loans, at year-end 2021, with the provision for loan losses in 2022 being **$1.8 million**[541](index=541&type=chunk)[542](index=542&type=chunk) - **Note 15:** The company sponsors a frozen defined benefit pension plan, which had a funded status of **$811 thousand** at year-end 2022, an improvement from a deficit of **$264 thousand** at year-end 2021[658](index=658&type=chunk)[662](index=662&type=chunk) - **Note 19:** Both the consolidated company and Civista Bank met all capital adequacy requirements and were categorized as 'well capitalized' under regulatory frameworks as of December 31, 2022[715](index=715&type=chunk)[717](index=717&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=127&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no disagreements with its independent accountants regarding accounting principles, financial disclosure, or auditing scope - The Company has had no disagreements with its independent accountants on matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure[495](index=495&type=chunk) [Controls and Procedures](index=127&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting - Based on an evaluation, the Chief Executive Officer and Principal Accounting Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[496](index=496&type=chunk) - No changes occurred in the company's internal control over financial reporting during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, these controls[499](index=499&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=128&type=section&id=Item%2010.%20Directors,%20Executive%20Officers,%20and%20Corporate%20Governance) Information on directors, executive officers, corporate governance, and board committees is incorporated by reference from the 2023 Proxy Statement - Information regarding directors, executive officers, the audit committee, code of ethics, and nominating procedures is incorporated by reference from the 2023 Proxy Statement[504](index=504&type=chunk) [Executive Compensation](index=128&type=section&id=Item%2011.%20Executive%20Compensation) Details on director and executive compensation are incorporated by reference from the company's 2023 Proxy Statement - Details on director and executive compensation are incorporated by reference from the 2023 Proxy Statement[506](index=506&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=128&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on beneficial ownership is incorporated from the 2023 Proxy Statement, with **154,123** common shares available for future issuance under equity compensation plans - Information on security ownership is incorporated by reference from the 2023 Proxy Statement[507](index=507&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Shares to be Issued Upon Exercise | Weighted-Average Exercise Price ($) | Shares Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Shareholders | — | — | 154,123 | | Not Approved by Shareholders | — | — | — | | **Total** | **—** | **—** | **154,123** | [Certain Relationships and Related Transactions, and Director Independence](index=128&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information on director independence and related party transactions is incorporated by reference from the 2023 Proxy Statement - Information regarding director independence and transactions with related persons is incorporated by reference from the 2023 Proxy Statement[509](index=509&type=chunk) [Principal Accountant Fees and Services](index=128&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's 2023 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement[510](index=510&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=129&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the annual report, with all financial statement schedules omitted as not applicable - This section lists all financial statements, schedules, and exhibits filed as part of the annual report, with all financial statement schedules omitted as they were not applicable[752](index=752&type=chunk)[759](index=759&type=chunk)

Civista Bancshares, Inc. (NASDAQ:CIVB) Q4 2022 Earnings Conference Call February 7, 2023 1:00 PM ET Company Participants Dennis Shaffer - President, CEO & Vice Chairman Paul Stark - SVP Richard Dutton - SVP & COO Charles Parcher - SVP Conference Call Participants Terence McEvoy - Stephens Inc. Manuel Navas - D.A. Davidson & Co. Timothy Switzer - KBW Daniel Cardenas - Janney Montgomery Scott Operator Good day, and welcome to the Civista Bancshares year-end 2022 Earnings Conference Call. [Operator Instruction ...

PART I. Financial Information [Item 1. Financial Statements](index=4&type=section&id=Item%201%2E%20Financial%20Statements) Unaudited consolidated financial statements show total assets increased to $3.24 billion, Q3 net income rose, while nine-month net income and shareholders' equity declined due to comprehensive loss [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $3.24 billion driven by loan growth, while shareholders' equity decreased to $302.6 million due to unrealized securities losses | Financial Metric | September 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$3,241,719** | **$3,012,905** | | Cash and cash equivalents | $40,914 | $264,239 | | Loans, net | $2,300,841 | $1,971,238 | | Goodwill | $101,652 | $76,851 | | **Total Liabilities** | **$2,939,117** | **$2,657,693** | | Total deposits | $2,708,253 | $2,416,701 | | **Total Shareholders' Equity** | **$302,602** | **$355,212** | | Accumulated other comprehensive income (loss) | ($69,818) | $8,820 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Q3 2022 net income increased to $11.1 million due to higher net interest income, but nine-month net income decreased to $27.3 million due to lower noninterest income | Metric (in thousands, except EPS) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Interest Income | $30,439 | $24,433 | | Provision for loan losses | $300 | $0 | | Noninterest Income | $5,734 | $6,426 | | Noninterest Expense | $22,555 | $19,251 | | **Net Income** | **$11,112** | **$9,642** | | **Earnings per share, diluted** | **$0.72** | **$0.64** | | Metric (in thousands, except EPS) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Interest Income | $77,639 | $72,102 | | Provision for loan losses | $1,000 | $830 | | Noninterest Income | $19,012 | $24,641 | | Noninterest Expense | $63,192 | $60,702 | | **Net Income** | **$27,279** | **$29,564** | | **Earnings per share, diluted** | **$1.82** | **$1.90** | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a comprehensive loss for Q3 2022 and the nine-month period, primarily due to unrealized losses on available-for-sale securities - A comprehensive loss of **$12.5 million** was recorded for Q3 2022, driven by **$23.6 million** in other comprehensive loss, mainly from unrealized losses on securities[14](index=14&type=chunk) - For the nine months ended September 30, 2022, the comprehensive loss was **$51.4 million**, compared to a comprehensive income of **$24.2 million** in the same period of 2021, highlighting the impact of rising interest rates on the securities portfolio[14](index=14&type=chunk) [Consolidated Statement of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity declined to $302.6 million by September 30, 2022, primarily due to a $78.6 million other comprehensive loss and common stock repurchases | Change in Shareholders' Equity (Nine Months Ended Sep 30, 2022) | Amount (in thousands) | | :--- | :--- | | Balance, December 31, 2021 | $355,212 | | Net Income | $27,279 | | Other comprehensive loss | ($78,638) | | Stock issued for acquisition | $21,122 | | Common stock dividends | ($6,291) | | Purchase of common stock | ($16,734) | | **Balance, September 30, 2022** | **$302,602** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased by $223.3 million for the first nine months of 2022, driven by significant outflows from investing and financing activities | Cash Flow Activity (Nine Months Ended Sep 30) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $27,421 | $34,295 | | Net cash used for investing activities | ($207,756) | ($83,948) | | Net cash provided (used) by financing activities | ($42,990) | $163,296 | | **Increase (decrease) in cash and cash equivalents** | **($223,325)** | **$113,643** | [Notes to Interim Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Interim%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the Comunibanc Corp. acquisition, significant unrealized securities losses, loan portfolio growth, and the subsequent acquisition of Vision Financial Group - **Securities:** The available-for-sale securities portfolio had gross unrealized losses of **$81.5 million** as of September 30, 2022, a significant increase from **$2.1 million** at year-end 2021, primarily due to higher market interest rates[45](index=45&type=chunk)[49](index=49&type=chunk) - **Allowance for Loan Losses:** The allowance for loan losses stood at **$27.8 million**, or **1.19%** of total loans, compared to **1.33%** at year-end 2021. A provision of **$1.0 million** was recorded for the nine-month period to support loan growth[60](index=60&type=chunk)[69](index=69&type=chunk)[222](index=222&type=chunk) - **Merger:** On July 1, 2022, the company acquired Comunibanc Corp. for approximately **$46.1 million**, adding **$315.1 million** in assets and resulting in **$24.8 million** of goodwill[184](index=184&type=chunk)[186](index=186&type=chunk) - **Subsequent Events:** On October 3, 2022, after the quarter ended, the company acquired Vision Financial Group, Inc. (VFG), an equipment leasing and financing company[203](index=203&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses total asset growth to $3.2 billion driven by acquisitions and loan growth, Q3 net income increase, nine-month net income decline, and strong capital despite equity reduction [Financial Condition](index=43&type=section&id=Financial%20Condition) Total assets grew to $3.24 billion due to acquisitions and loan growth, deposits increased, while shareholders' equity decreased due to unrealized securities losses | Loan Category (in thousands) | September 30, 2022 | December 31, 2021 | % Change | | :--- | :--- | :--- | :--- | | Commercial & Agriculture | $227,387 | $246,502 | -7.8% | | Commercial Real Estate | $1,320,637 | $1,124,762 | 17.4% | | Residential Real Estate | $531,164 | $430,060 | 23.5% | | Real Estate Construction | $202,793 | $157,127 | 29.1% | | **Total loans** | **$2,328,614** | **$1,997,879** | **16.6%** | - The allowance for loan losses as a percentage of total loans was **1.19%** at September 30, 2022, down from **1.33%** at December 31, 2021[222](index=222&type=chunk) - Total deposits increased by **12.1%** to **$2.71 billion**, with noninterest-bearing deposits growing by **19.7%**[229](index=229&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) Q3 2022 net income increased to $11.1 million due to higher net interest income and expanded net interest margin, while nine-month net income decreased due to lower noninterest income - **Q3 2022 vs Q3 2021:** Net interest margin expanded to **4.03%** from **3.62%** YoY, driving a **$6.0 million** increase in net interest income. Noninterest expense increased **17.2%**, partly due to acquisition costs[238](index=238&type=chunk)[254](index=254&type=chunk) - **Nine Months 2022 vs 2021:** Noninterest income decreased by **$5.6 million** (**22.8%**), mainly from a **$4.4 million** drop in gain on sale of loans and a **$1.8 million** drop in gain on sale of securities[271](index=271&type=chunk)[273](index=273&type=chunk) [Capital Resources and Liquidity](index=56&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintains strong capital ratios well above regulatory minimums and robust liquidity, supported by available-for-sale securities and significant FHLB borrowing capacity | Capital Ratio | September 30, 2022 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Total Risk Based Capital | 15.6% | 10.0% | | Tier I Risk Based Capital | 11.6% | 8.0% | | CET1 Risk Based Capital | 10.5% | 6.5% | | Leverage Ratio | 9.3% | 5.0% | - The company maintains strong liquidity sources, including a remaining FHLB borrowing capacity of approximately **$580.8 million**[282](index=282&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest-rate risk, managed through asset/liability analysis, with net portfolio value sensitive to interest rate changes | Change in Rates | Net Portfolio Value Change (Sep 30, 2022) | | :--- | :--- | | +200bp | +5% | | +100bp | +3% | | Base | — | | -100bp | -2% | | -200bp | -5% | [Controls and Procedures](index=59&type=section&id=Item%204%2E%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls over financial reporting - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2022[299](index=299&type=chunk) PART II. Other Information [Legal Proceedings](index=60&type=section&id=Item%201%2E%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, none of which are anticipated to have a material adverse effect on financial condition or operations [Risk Factors](index=60&type=section&id=Item%201A%2E%20Risk%20Factors) No material changes to risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 [Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2022, the company repurchased 286,611 common shares at an average price of $21.33 per share as part of its share repurchase program | Period (2022) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July | 91,245 | $21.40 | | August | 57,182 | $21.71 | | September | 138,184 | $21.13 | | **Total Q3** | **286,611** | **$21.33** |

Civista Bancshares, Inc. (NASDAQ:CIVB) Q3 2022 Results Conference Call October 27, 2022 1:00 PM ET Company Participants Dennis Shaffer - President and CEO Chuck Parcher - SVP and Chief Lending Officer Rich Dutton - SVP and COO Conference Call Participants Terry McEvoy - Stephens Tim Switzer - KBW Paul Stark - Chief Credit Officer Nick Cucharale - Piper Sandler Manuel Navas - D.A. Davidson Terry McEvoy - Stephens Operator Good day, and welcome to the Civista Bancshares' Third Quarter 2022 Earnings Call. [Ope ...

[PART I. Financial Information](index=4&type=section&id=PART%20I.%2E%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Civista Bancshares, Inc.'s unaudited consolidated financial statements for Q2 and H1 2022, covering Balance Sheets, Operations, Comprehensive Income, Equity, and Cash Flows [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets slightly increased to **$3.04 billion** by June 30, 2022, driven by net loan growth, while shareholders' equity decreased to **$302.1 million** due to comprehensive loss Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$3,039,099** | **$3,012,905** | | Cash and cash equivalents | $233,281 | $264,239 | | Securities available-for-sale | $530,817 | $559,874 | | Loans, net | $2,036,786 | $1,971,238 | | Goodwill | $76,851 | $76,851 | | **Total Liabilities** | **$2,737,037** | **$2,657,693** | | Total deposits | $2,455,502 | $2,416,701 | | **Total Shareholders' Equity** | **$302,062** | **$355,212** | | Accumulated other comprehensive income (loss) | ($46,242) | $8,820 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Net income declined in Q2 2022 to **$7.7 million** and H1 2022 to **$16.2 million**, primarily due to reduced noninterest income Quarterly Performance Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Interest Income | $24,268 | $23,841 | | Provision for loan losses | $400 | $0 | | Noninterest Income | $5,635 | $9,025 | | Noninterest Expense | $20,379 | $22,264 | | **Net Income** | **$7,701** | **$9,164** | | **Diluted EPS** | **$0.53** | **$0.59** | Six-Month Performance Summary (in thousands, except per share data) | Metric | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Net Interest Income | $47,200 | $47,669 | | Provision for loan losses | $700 | $830 | | Noninterest Income | $13,278 | $18,215 | | Noninterest Expense | $40,637 | $41,451 | | **Net Income** | **$16,167** | **$19,922** | | **Diluted EPS** | **$1.10** | **$1.27** | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company experienced a significant comprehensive loss of **$17.9 million** in Q2 2022 and **$38.9 million** in H1 2022, driven by unrealized losses on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $7,701 | $9,164 | $16,167 | $19,922 | | Other comprehensive income (loss) | ($25,553) | $2,124 | ($55,062) | ($2,926) | | **Comprehensive income (loss)** | **($17,852)** | **$11,288** | **($38,895)** | **$16,996** | [Consolidated Statement of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity decreased from **$355.2 million** to **$302.1 million** by June 30, 2022, primarily due to a **$55.1 million** other comprehensive loss and share repurchases Shareholders' Equity Reconciliation - H1 2022 (in thousands) | Item | Amount | | :--- | :--- | | **Balance, December 31, 2021** | **$355,212** | | Net Income | $16,167 | | Other comprehensive loss | ($55,062) | | Common stock dividends | ($4,133) | | Purchase of common stock | ($10,621) | | Stock-based compensation | $499 | | **Balance, June 30, 2022** | **$302,062** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased by **$31.0 million** in H1 2022, with **$47.6 million** from operations, **$94.6 million** used in investing, and **$16.0 million** provided by financing activities Cash Flow Summary - H1 2022 vs H1 2021 (in thousands) | Cash Flow Category | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $47,628 | $19,996 | | Net cash used for investing activities | ($94,617) | ($58,661) | | Net cash provided by financing activities | $16,031 | $144,449 | | **Increase (decrease) in cash** | **($30,958)** | **$105,784** | [Notes to Interim Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Interim%20Consolidated%20Financial%20Statements) The notes detail accounting policies, securities and loan portfolios, CECL adoption, and a significant subsequent merger with Comunibanc Corp. for approximately **$46.1 million** - The company operates as a financial holding company primarily through its subsidiary, Civista Bank, providing services in various counties across Ohio, Indiana, and Kentucky. Its main products are deposit accounts and residential, commercial, and installment loans[27](index=27&type=chunk)[29](index=29&type=chunk) - The company is preparing for the adoption of ASU 2016-13 (CECL), which will change the impairment model for financial assets to a lifetime expected credit loss model, effective for fiscal years beginning after December 15, 2022. The full impact is still being evaluated[35](index=35&type=chunk) - On July 1, 2022, subsequent to the reporting period, the company completed its merger with Comunibanc Corp. The total transaction value was approximately **$46.1 million**, consisting of **$25.0 million** in cash and approximately 985,000 shares of CBI common stock[187](index=187&type=chunk)[188](index=188&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Q2 and H1 2022 financial condition and operations, noting loan growth, reduced noninterest income, stable net interest margin, and declining equity [Financial Condition](index=41&type=section&id=Financial%20Condition) Total assets grew **0.9%** to **$3.04 billion** in H1 2022, driven by a **3.3%** increase in net loans, while shareholders' equity fell to **$302.1 million** due to securities fair value decrease Loan Portfolio Changes (H1 2022 vs Year-End 2021, in thousands) | Loan Category | June 30, 2022 | Dec 31, 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Commercial & Agriculture | $226,540 | $246,502 | ($19,962) | -8.1% | | Commercial Real Estate—Non-Owner Occupied | $876,695 | $829,310 | $47,385 | 5.7% | | Residential Real Estate | $452,628 | $430,060 | $22,568 | 5.2% | | Real Estate Construction | $170,633 | $157,127 | $13,506 | 8.6% | | **Total loans** | **$2,064,221** | **$1,997,879** | **$66,342** | **3.3%** | - The decrease in Commercial & Agriculture loans included a reduction of **$39.5 million** in Paycheck Protection Program (PPP) loans, from **$43.2 million** at year-end 2021 to **$3.7 million** at June 30, 2022[198](index=198&type=chunk) - Total deposits increased by **$38.8 million**, with noninterest-bearing deposits growing by **$53.6 million**, partially due to a temporary **$39.5 million** increase from the tax refund processing program. Time deposits decreased by **$24.7 million**[210](index=210&type=chunk) - Shareholders' equity decreased from **$355.2 million** to **$302.1 million**. The main drivers were a **$55.2 million** decrease in the fair value of securities (AOCI), **$10.6 million** in share repurchases, and **$4.1 million** in dividends, partially offset by **$16.2 million** in net income[214](index=214&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Net income for Q2 2022 was **$7.7 million**, down **15.9%**, and H1 2022 was **$16.2 million**, down **18.8%**, due to reduced noninterest income - Q2 2022 net interest income increased slightly to **$24.3 million** from **$23.8 million** in Q2 2021. The net interest margin (FTE) compressed slightly to **3.43%** from **3.53%**[217](index=217&type=chunk) - Q2 2022 noninterest income fell **37.6%** to **$5.6 million**, driven by a **$1.6 million** decrease in gain on sale of loans and a **$1.8 million** decrease in gain on sale of securities compared to Q2 2021[230](index=230&type=chunk)[232](index=232&type=chunk) - Q2 2022 noninterest expense decreased **8.5%** to **$20.4 million**, largely because Q2 2021 included a significant prepayment fee on an FHLB advance[234](index=234&type=chunk) - For H1 2022, net income decreased by **$3.8 million** to **$16.2 million**. The primary driver was a **$4.9 million** (**27.1%**) decrease in noninterest income, mainly from a **$3.5 million** drop in gain on sale of loans and a **$1.8 million** drop in gain on sale of securities[237](index=237&type=chunk)[251](index=251&type=chunk)[253](index=253&type=chunk) [Capital Resources](index=53&type=section&id=Capital%20Resources) The company's capital ratios remain well above regulatory minimums as of June 30, 2022, despite declines from year-end 2021 reflecting decreased shareholders' equity Capital Ratios vs. Regulatory Requirements | Ratio | June 30, 2022 | Dec 31, 2021 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Total Risk Based Capital | 18.2% | 19.2% | 10.0% | | Tier I Risk Based Capital | 13.6% | 14.3% | 8.0% | | CET1 Risk Based Capital | 12.3% | 12.9% | 6.5% | | Leverage Ratio | 9.9% | 10.2% | 5.0% | - The decrease in shareholders' equity during H1 2022 was primarily due to a **$55.2 million** after-tax decrease in the fair value of securities available-for-sale, **$10.6 million** in share repurchases, and dividend payments, which were partially offset by net income[258](index=258&type=chunk) [Liquidity](index=53&type=section&id=Liquidity) The company maintains a conservative liquidity position with **$31.0 million** decrease in cash for H1 2022 and significant available credit, including **$629 million** FHLB borrowing capacity - Net cash from operating activities was **$47.6 million** in H1 2022, while investing activities used **$94.6 million** (mainly for loans) and financing activities provided **$16.0 million** (mainly from deposits)[261](index=261&type=chunk) - As of June 30, 2022, the company had total FHLB credit availability of **$725.4 million** with a remaining borrowing capacity of approximately **$629.1 million**[262](index=262&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest-rate risk, managed through asset/liability modeling, with NPV sensitive to rate changes - The company's primary technique for managing interest rate risk is analyzing its asset/liability gap, which is the difference between interest-sensitive assets and liabilities repricing in a given period[270](index=270&type=chunk) Net Portfolio Value (NPV) Sensitivity Analysis (June 30, 2022) | Change in Rates | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +200bp | $22,159 | 5% | | +100bp | $19,220 | 4% | | Base | $0 | — | | -100bp | ($24,847) | (5)% | | -200bp | ($13,119) | (3)% | [Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the principal executive and financial officers concluded that the company's disclosure controls and procedures were effective[279](index=279&type=chunk) - There were no changes in internal control over financial reporting during the second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, these controls[280](index=280&type=chunk) [PART II. Other Information](index=57&type=section&id=PART%20II.%20Other%20Information) [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings, but management does not expect a material adverse effect on financial position, results, or liquidity - Management does not expect any pending or threatened legal proceedings to have a material adverse effect on the company's consolidated financial condition or operations[283](index=283&type=chunk) [Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 were reported - No material changes to the risk factors disclosed in the 2021 Form 10-K were reported for the current period[284](index=284&type=chunk) [Share Repurchases](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q2 2022, the company repurchased 255,960 common shares at **$22.81** average price, and authorized a new **$13.5 million** repurchase program Share Repurchases in Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 200,608 | $23.23 | | May 2022 | 0 | $0.00 | | June 2022 | 55,352 | $21.29 | | **Total Q2** | **255,960** | **$22.81** | - On May 4, 2022, the company announced a new share repurchase program authorizing up to **$13.5 million** of its common shares through May 9, 2023. As of June 30, 2022, **$12.3 million** remained available under this program[285](index=285&type=chunk) [Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the merger agreement with Comunibanc Corp., CEO/CFO certifications, and XBRL interactive data files - Key exhibits filed include the Agreement and Plan of Merger with Comunibanc Corp., CEO/CFO certifications (Rule 13a-14(a) and Section 1350), and Inline XBRL data[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk)

Civista Bancshares, Inc. (NASDAQ:CIVB) Q2 2022 Earnings Conference Call July 28, 2022 1:00 PM ET Company Participants Dennis Shaffer - President and Chief Executive Officer Rich Dutton - Senior Vice President and Chief Operating Officer Chuck Parcher - Senior Vice President and Chief Lending Officer Paul Stark - Chief Credit Officer Conference Call Participants Terry McEvoy - Stephens Tim Switzer - KBW Nick Cucharale - Piper Sandler Operator Before we begin, I would like to remind you that this conference c ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended - March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | |----------------------------------------------------------------------------------------------------|--------------------------------------------------------|------------------- ...