1 - ----------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q --------------------------------------------- QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended December 31, 1993 Commission file no. 0-17180 THE CIVISTA CORPORATION - ----------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-1574988 - ---------------------------------- ----------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 100 CENTRAL PLAZA SOUTH, CANTON, OHIO 44702-1403 - ---------------------------------------- ----------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 456-7757 --------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No___. ___ The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 1, 1994 - ------------------------------------ ----------------------------------- Common Stock, without par value 3,492,304 shares 2 THE CIVISTA CORPORATION INDEX Page No. -------- Part I. Financial Information Item 1: Financial Statements Consolidated Statements of Condition December 31, 1993 and September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations Three-Months Ended December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows Three-Months Ended December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 8 Part II. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Computation of Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Review by Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2 3 PART I - FINANCIAL INFORMATION THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF CONDITION Unaudited -------------- December 31, September 30, Assets 1993 1993 ------ ---------------- ----------------- Cash including short-term cash investments of $8,238,721 and $6,537,815, respectively $ 24,003,454 19,189,901 Investment securities with market values of $145,592,000 and $154,378,000, respectively 143,119,959 151,134,497 Mortgage-backed securities with market values of $88,024,000 and $83,813,000, respectively 87,769,937 82,685,272 Mortgage loans, net 478,582,299 478,136,520 Mortgage loans, available for sale, with market value of $1,524,000 1,517,200 -- Other loans, net 23,599,063 23,821,520 ---------------- ---------------- Total mortgage-backed securities and loans receivable, net 591,468,499 584,643,312 ---------------- ---------------- Accrued interest receivable, net 4,399,066 5,063,846 Real estate acquired in settlement of loans, net 1,370,209 1,449,456 Real estate investment property, net 13,446,292 13,543,632 Federal Home Loan Bank stock 5,618,100 5,618,200 Office properties and equipment, net 6,332,355 6,284,520 Real estate development assets, net 8,930,473 9,385,979 Other assets 2,062,257 2,701,953 ---------------- ---------------- Total assets $ 800,750,664 799,015,296 ================ ================ Liabilities and Shareholders' Equity ------------------------------------ Customer deposits $ 691,354,938 684,068,900 Notes payable to Federal Home Loan Bank 3,323,310 14,327,037 Mortgage loans payable 9,106,514 9,133,871 Advance payments by borrowers for taxes and insurance 4,650,526 2,991,037 Other liabilities 7,536,418 5,533,314 ---------------- ---------------- Total liabilities 715,971,706 716,054,159 ---------------- ---------------- Shareholders' equity: Serial preferred stock, without par value; authorized and unissued 5,000,000 shares -- -- Common shares, without par value, 5,000,000 shares authorized; 3,500,552 and 3,493,352 shares issued, respectively 11,810,930 11,751,380 Retained earnings, substantially restricted 73,034,324 71,276,053 Treasury shares, 8,248 shares, at cost ( 66,296) ( 66,296) ---------------- ---------------- Total shareholders' equity 84,778,958 82,961,137 Commitments (note 2) ---------------- ---------------- Total liabilities and shareholders' equity $ 800,750,664 799,015,296 ================ ================ See accompanying notes to consolidated financial statements. 3 4 THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited ----------------------------------- Three-Months Ended December 31, ----------------------------------- 1993 1992 -------- -------- Interest on mortgage and other loans $ 10,543,178 11,433,621 Interest on mortgage-backed securities 1,269,830 1,705,712 Interest on investment securities 1,877,140 1,204,683 Other interest and dividend income 132,497 235,128 -------------- -------------- Total interest income 13,822,645 14,579,144 Interest on customer deposits 5,896,253 6,257,523 Interest on notes payable to Federal Home Loan Bank and other borrowings 274,751 244,947 -------------- -------------- Total interest expense 6,171,004 6,502,470 -------------- -------------- Net interest income 7,651,641 8,076,674 -------------- -------------- Provision for loan losses 57,989 241,478 -------------- -------------- Net interest income after provision for loan losses 7,593,652 7,835,196 -------------- -------------- Other income: Real estate operations 1,125,208 998,887 Real estate development sales 332,981 466,208 Data processing sales and service 1,091,186 1,457,091 Commissions on annuity and mutual fund sales 350,378 281,527 Investment security gains, net 15,625 625 Gains on sales of mortgage loans and mortgage-backed securities, net -- 419 Customer service fees 289,030 301,235 Other income 124,475 289,447 -------------- -------------- Total other income 3,328,883 3,795,439 Other expenses: Compensation and related expenses 3,024,597 3,027,900 Office occupancy 728,648 789,478 Deposit insurance premiums 386,578 360,578 Ohio financial institution tax 306,630 259,757 Real estate operations 762,364 819,819 Cost of real estate development sales 323,135 419,880 Other expense 947,005 1,492,194 -------------- -------------- Total other expenses 6,478,957 7,169,606 -------------- -------------- Earnings before federal income taxes 4,443,578 4,461,029 Federal income taxes 1,463,000 1,523,000 -------------- -------------- Net earnings $ 2,980,578 2,938,029 ============== ============== Net earnings per share $ .82 .82 ========= ======== Cash dividends per share $ .35 .23 3/4 ========= ======== See accompanying notes to consolidated financial statements 4 5 THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE-MONTHS ENDED DECEMBER 31, Unaudited ------------------------------------------ Operating activities: 1993 1992 -------- -------- Net earnings $ 2,980,578 2,938,029 Adjustments to reconcile net earnings to net cash provided by operating activities: Decrease in accrued interest receivable 664,780 645,192 Provision for loan losses 57,989 241,478 Depreciation and amortization 411,971 337,314 Federal Home Loan Bank stock dividend ( 63,000) ( 64,100) Increase in federal income taxes 1,411,652 867,744 Investment security gains, net ( 15,625) ( 625) Increase (decrease) in deferred loan origination fees, net ( 98,913) 89,823 Amortization of deferred loan origination fees ( 443,299) ( 306,347) Gains on sales of real estate acquired in settlement of loans, net ( 8,237) ( 13,754) Investment securities available for sale: Purchases ( 6,000,000) ( 500,000) Proceeds from sales 6,015,625 500,625 Mortgage loans available for sale: Proceeds from sales -- 83,719 Originations ( 1,517,200) ( 83,300) Principal collected on mortgage-backed securities available for sale -- 4,932,699 Proceeds from sales of other loans 426,976 443,977 Other 1,259,383 178,698 --------------- -------------- Net cash provided by operating activities 5,082,680 10,291,172 --------------- -------------- Investing activities: Proceeds from maturities of investment securities 11,934,278 13,948,573 Purchases of investment securities ( 3,967,139) ( 18,734,892) Principal collected on mortgage loans 31,472,229 23,062,663 Principal collected on mortgage-backed securities 4,262,041 1,633,700 Principal collected on other loans 3,979,160 3,946,936 Mortgage loan originations ( 31,288,897) ( 35,986,175) Other loan originations ( 4,183,735) ( 3,854,326) Purchase of mortgage loans -- ( 156,715) Purchase of mortgage-backed securities ( 9,346,706) -- Purchase of office properties and equipment, net ( 247,873) ( 97,513) Proceeds from sales of real estate acquired in settlement of loans 87,484 297,927 Proceeds from sales of real estate investment property -- 339,529 Investment in real estate investment property ( 118,987) ( 208,012) Redemption of Federal Home Loan Bank stock 63,100 60,500 Sales of real estate development assets 332,981 466,208 Decrease (increase) in real estate development assets 1,251 ( 9,030) --------------- -------------- Net cash provided (used) by investing activities 2,979,187 ( 15,290,627) --------------- -------------- (Continued) 5 6 THE CIVISTA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE-MONTHS ENDED DECEMBER 31, Unaudited ---------------------------------------- 1993 1992 -------- -------- Financing activities: Net increase in customer transaction and savings accounts 12,195,804 20,960,276 Proceeds from sales of certificates of deposit 4,713,395 4,345,560 Payments for maturing certificates of deposit ( 9,623,161) ( 14,728,747) Principal payments on mortgage loans payable ( 27,357) ( 24,698) Cash dividends ( 1,222,307) ( 825,907) Stock options exercised 59,550 101,400 Borrowings from the Federal Home Loan Bank 13,600,000 -- Repayments to the Federal Home Loan Bank ( 24,603,727) ( 3,727) Net increase in advance payments by borrowers for taxes and insurance 1,659,489 1,572,278 --------------- -------------- Net cash provided (used) by financing activities ( 3,248,314) 11,396,435 --------------- -------------- Net increase in cash and cash equivalents 4,813,553 6,396,980 Cash and cash equivalents at beginning of period 19,189,901 36,682,364 --------------- -------------- Cash and cash equivalents at end of period $ 24,003,454 43,079,344 =============== ============== Supplemental disclosure of cash flow information Cash paid during the period for: Interest on customer deposits and borrowings $ 6,292,414 6,598,064 =============== ============== Federal income taxes $ 100,605 655,256 =============== ============== Supplemental schedule of non-cash investing and financing activities Real estate acquired in settlement of loans $ -- 155,032 =============== ============== See accompanying notes to consolidated financial statements. 6 7 THE CIVISTA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 (1) The CIVISTA Corporation is a unitary savings and loan holding company whose principal asset is the common stock of its wholly owned subsidiary, Citizens Savings Bank of Canton. In addition, CIVISTA owns all of the common stock of The CASNET Group, Inc., Crest Investments, Inc. and Citizens Investment Corporation; two apartment complexes and short-term investments. As discussed in the Annual Report to Shareholders, Citizens Savings Bank of Canton paid a non-cash dividend to CIVISTA of 100% of the stock of its wholly owned subsidiary, Citizens Savings Corporation on January 1, 1994. (2) Outstanding commitments to fund mortgage loans aggregated $12,619,000 and $11,308,000 at December 31, 1993 and September 30, 1993, respectively. At December 31, 1993, CIVISTA had commitments to purchase $4,460,000 of mortgage-backed securities. CIVISTA also had commitments to fund consumer home equity and credit card lines of credit of $31,730,000 and $30,820,000 at December 31, 1993 and September 30, 1993, respectively. CIVISTA expects a significant portion of these lines of credit to remain undrawn. At December 31, 1993, CIVISTA had commitments to sell mortgage loans totalling $1,517,200. (3) Management believes that the interim consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the December 31, 1993 statement of condition and the results of operations for the three-months ended December 31, 1993 and 1992. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION At December 31, 1993, mortgage loans totaled $478.6 million which was only slightly greater than the amount outstanding at September 30, 1993. During the first quarter of fiscal 1994, principal collections and loan payoffs continued at record levels. Principal collections and loan payoffs on mortgage loans held for investment increased $8.4 million compared to the first quarter of fiscal 1993. The refinancing activity has continued to affect the adjustable rate loan portion of the portfolio. Since September 30, 1993, adjustable rate loans have declined approximately $6 million to $114 million. At December 31, 1993, fixed rate loans amounted to 77% of total mortgage loans. At December 31, 1993, 37% of the mortgage loan portfolio consisted of loans with original terms of fifteen years or less. The shorter maturities of these loans are advantageous to CIVISTA since they materially reduce the average life of the mortgage loan portfolio. These shorter maturity loans better match CIVISTA's customer deposit liabilities and provide a higher level of amortization than thirty-year loans. Mortgage-backed securities grew $5.1 million during the quarter as a result of the purchase of $9.3 million of mortgage-backed securities with ten-year maturities. During the first quarter of fiscal 1994, principal collections and loan payoffs on mortgage-backed securities held for investment increased $2.6 million compared to the first quarter of fiscal 1993. Customer deposits increased $7.3 million during the three-month period as a result of interest credits of $6.0 million and net cash inflows of $1.3 million. Due to the current lower interest rates, funds from certificates of deposit continue to be transferred, at maturity, to passbooks or transaction accounts. After consideration of interest credited on customer deposits, passbook savings and transaction accounts have increased $12.7 million since September 30, 1993. During the same period, certificates of deposit have decreased $4.9 million. At December 31, 1993, passbook savings and transaction accounts aggregated $447.7 million or 65% of total customer deposits and certificates of deposit aggregated $243.7 million or 35% of total customer deposits. At December 31, 1993, cash, short-term cash investments and investment securities totaled $167,123,413 or 20.9% of total assets. At September 30, 1993, these liquid assets represented 21.3% of total assets. CIVISTA has been maintaining a higher than normal portfolio of liquid assets as a hedge against higher interest rates. If interest rates begin to rise, the yields on liquid assets will adjust quickly and help offset increased interest on customer deposits. In spite of this practice, liquidity was higher than planned due to cash flows in excess of loan demand. The other loan balance has decreased mainly due to the sale of approximately $427,000 of college loans. Real estate development assets consist primarily of two on-going developments. These projects are a tract of 54 residential lots known as Enclave Mountain Estates in La Quinta, California and a development of 37 residential homes in Indio, California. As of December 31, 1993, sales have been closed on sixteen of the lots and sales contracts have been signed on all of the residential homes of which thirty-four have closed. During the quarter, CIVISTA used $13.6 million of short-term advances from the Federal Home Loan Bank for short-term cash management purposes. At December 31, 1993, $3 million of these advances remained outstanding. Advance payments by borrowers increased due to seasonal real estate tax payments. 8 9 Other liabilities increased principally as the result of the accrual of $1.5 million of federal income tax during the quarter. CIVISTA has a very strong capital position. At December 31, 1993, shareholders' equity was $84,778,958 which represented 10.6% of assets and 11.8% of liabilities. Citizens Savings Bank had shareholder's equity totalling 8.1% of its assets and 8.9% of its liabilities at December 31, 1993. Citizens Savings Bank's compliance with the capital requirements in effect at December 31, 1993 is as follows (000's omitted): Tier 1 Tier 1 Total Tangible Leverage Leverage Risk-Based Risk-Based Capital Capital Capital Capital Capital --------- --------- --------- --------- --------- Capital determined under generally accepted accounting principles $ 62,865 62,865 62,865 62,865 62,865 Adjustments: Investments in and advances to certain subsidiaries required to be deducted ( 1,039) ( 1,039) ( 1,039) ( 1,039) ( 1,039) Assets required to be deducted -- -- -- -- ( 202) General valuation reserves -- -- -- -- 2,798 ---------- ---------- ---------- --------- --------- Regulatory capital 61,826 61,826 61,826 61,826 64,422 Minimum capital requirement 11,556 23,113 38,521 20,698 27,597 ---------- ---------- ---------- --------- --------- Excess regulatory capital $ 50,270 38,713 23,305 41,128 36,825 ========== ========== ========== ========= ========= Adjusted or risk-weighted assets applicable to calculation $ 770,418 770,418 770,418 344,966 344,966 ========== ========== ========== ========= ========= Capital ratio 8.02% 8.02% 8.02% 17.92% 18.67% ========== ========== ========== ========= ========= Required minimum regulatory capital 1.50% 3.00% 8.00% ========== ========== ========= Ratio required to meet the well capitalized definition 5.00% 6.00% 10.00% ========== ========= ========= If the fully phased-in capital requirements which Citizens Savings Bank is required to meet on July 1, 1996 had been in effect at December 31, 1993, Citizens Savings Bank would have been in compliance. RESULTS OF OPERATIONS The following is a discussion of the significant factors which produced the differences in operating results for the period of this report as compared with the same period one year ago. 9 10 THREE-MONTHS ENDED DECEMBER 31, 1993 Interest on loans decreased approximately $890,000 from the same period one year ago. This decrease is directly related to the decrease in mortgage loan yield from 8.7% for the quarter ended December 31, 1992 to 7.9% for the quarter ended December 31, 1993. Average balances on mortgage loans decreased approximately $442,000 from the same quarter last year. Interest on mortgage-backed securities decreased from the same period one year ago. Average balances on mortgage-backed securities decreased approximately $5.2 million from the same quarter last year. In addition, there was a decrease in yield from 7.8% for the quarter ended December 31, 1992 to 6.2% for the quarter ended December 31, 1993. Interest on investment securities increased as a result of significantly higher average investments. The average outstanding balance on investment securities increased from $88.4 million for the quarter ended December 31, 1992 to $142.9 million for the quarter ended December 31, 1993, while yields decreased for the same periods from 5.5% to 5.3%. Other interest and dividend income decreased as a result of lower average investments and lower yields on the short-term cash investments. The average investments in Federal Home Loan Bank overnight deposits and other short-term investments decreased by approximately $13.9 million. Interest expense on customer accounts decreased approximately $361,000. The first quarter of fiscal 1994 reflects the decline in interest rates and the continued shift of maturing certificates of deposit into passbooks or transaction accounts. For the quarter ended December 31, 1993, interest expense on customer accounts averaged 3.4%. This is a decrease from the 3.8% average interest rate paid on customer accounts for the quarter ended December 31, 1992. The impact of the decrease in average interest rates from 3.8% to 3.4% was partially offset by the increase in average total customer balances from $665.0 million to $687.1 million for the three-month periods ended December 31, 1992 and 1993. During the quarter ended December 31, 1993, CIVISTA closed sales on three of the Park Madison homes. This compared with two Park Madison closings during the quarter ended December 31, 1992. CIVISTA also closed sales on one of the Enclave Mountain Estate lots during the quarter ended December 31, 1992. Data processing sales and service income decreased approximately $366,000. This decrease resulted from a $428,000 decline in revenue from traditional savings and loan customers. This decrease was offset by a net increase of approximately $90,000 in microfiche sales and the sales and installation of interactive voice response systems. Other expense declined as a result of reduced expenses on foreclosed real estate, real estate development assets and a variety of individually insignificant reductions in other expense accounts. 10 11 PART II - OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Computation of Earnings Per Share 15.1 Review by Independent Auditors (b) Reports on Form 8-K Not applicable. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE CIVISTA CORPORATION Date February 11, 1994 /s/Jack R. Gravo ----------------------------- -------------------------------- Jack R. Gravo, President (Chief Financial and Accounting Officer) /s/David A. Sarver -------------------------------- David A. Sarver, Treasurer 11 12 EXHIBIT INDEX PAPER (P) EXHIBIT OR ELECTRONIC (E) ------- ----------------- 11.1 Computation of Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . E 15.1 Review by Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E 12