10-Q 1 civb-10q_20180930.htm 10-Q

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: September 30, 2018

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36192

Civista Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Ohio |  | 34-1558688
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification No.)
100 East Water Street, Sandusky, Ohio |  | 44870
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code: (419) 625-4121

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer |  | ☐ |  |  | Accelerated filer |  | ☒
Non-accelerated filer |  | ☐ |  |  | Smaller reporting company |  | ☐
Emerging growth company |  | ☐ |  |  |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at November 3, 2018—15,401,530 shares

CIVIST A BANCS HARES, INC.

Index

PART I. |  | Financial Information |  |  |  |
Item 1. |  | Financial Statements: |  |  |  |
|  | Consolidated Balance Sheets (Unaudited) September 30, 2018 and December 31, 2017 |  |  | 2 |
|  | Consolidated Statements of Operations (Unaudited) Three and nine months ended September 30, 2018 and 2017 |  |  | 3 |
|  | Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2018 and 2017 |  |  | 4 |
|  | Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) Nine months ended September 30, 2018 |  |  | 5 |
|  | Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2018 and 2017 |  |  | 6 |
|  | Notes to Interim Consolidated Financial Statements (Unaudited) |  |  | 7-38 |
Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  |  | 39-50 |
Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk |  |  | 51-52 |
Item 4. |  | Controls and Procedures |  |  | 53 |
PART II. |  | Other Information |  |  |  |
Item 1. |  | Legal Proceedings |  |  | 54 |
Item 1A. |  | Risk Factors |  |  | 54 |
Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  |  | 54 |
Item 3. |  | Defaults upon Senior Securities |  |  | 54 |
Item 4. |  | Mine Safety Disclosures |  |  | 54 |
Item 5. |  | Other Information |  |  | 54 |
Item 6. |  | Exhibits |  |  | 55 |
Signatures |  |  |  |  | 56 |

Part I – Financ ial Information

ITEM 1. | Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

|  | September 30, 2018 |  |  | December 31, 2017 |
ASSETS |  |  |  |  |  |  |  |
Cash and due from financial institutions |  | $ | 64,754 |  |  | $ | 40,519 |
Securities available for sale |  |  | 316,966 |  |  |  | 230,230 |
Equity securities |  |  | 1,146 |  |  |  | 832 |
Loans held for sale |  |  | 4,025 |  |  |  | 2,197 |
Loans, net of allowance of $13,331 and $13,134 |  |  | 1,502,313 |  |  |  | 1,151,527 |
Other securities |  |  | 17,774 |  |  |  | 14,247 |
Premises and equipment, net |  |  | 22,518 |  |  |  | 17,611 |
Accrued interest receivable |  |  | 6,878 |  |  |  | 4,488 |
Goodwill |  |  | 76,316 |  |  |  | 27,095 |
Other intangible assets |  |  | 9,648 |  |  |  | 1,279 |
Bank owned life insurance |  |  | 42,750 |  |  |  | 25,125 |
Other assets |  |  | 20,447 |  |  |  | 10,707 |
Total assets |  | $ | 2,085,535 |  |  | $ | 1,525,857 |
LIABILITIES |  |  |  |  |  |  |  |
Deposits |  |  |  |  |  |  |  |
Noninterest-bearing |  | $ | 466,527 |  |  | $ | 361,964 |
Interest-bearing |  |  | 1,111,228 |  |  |  | 842,959 |
Total deposits |  |  | 1,577,755 |  |  |  | 1,204,923 |
Federal Home Loan Bank advances |  |  | 145,100 |  |  |  | 71,900 |
Securities sold under agreements to repurchase |  |  | 18,515 |  |  |  | 21,755 |
Subordinated debentures |  |  | 29,427 |  |  |  | 29,427 |
Accrued expenses and other liabilities |  |  | 25,350 |  |  |  | 13,391 |
Total liabilities |  |  | 1,796,147 |  |  |  | 1,341,396 |
SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Preferred shares, no par value, 200,000 shares authorized, Series B Preferred shares, $1,000 liquidation preference, 11,756 shares issued at September 30, 2018 and 18,760 shares issued at December 31, 2017, net of issuance costs |  |  | 10,878 |  |  |  | 17,358 |
Common shares, no par value, 20,000,000 shares authorized, 16,143,028 shares issued at September 30, 2018 and 10,946,439 shares issued at December 31, 2017 |  |  | 265,324 |  |  |  | 153,810 |
Retained earnings |  |  | 35,302 |  |  |  | 31,652 |
Treasury shares, 747,964 common shares at cost |  |  | (17,235 | ) |  |  | (17,235 | )
Accumulated other comprehensive loss |  |  | (4,881 | ) |  |  | (1,124 | )
Total shareholders’ equity |  |  | 289,388 |  |  |  | 184,461 |
Total liabilities and shareholders’ equity |  | $ | 2,085,535 |  |  | $ | 1,525,857 |

See notes to interim unaudited consolidated financial statements

Page 2

CIVISTA BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

|  | Three months ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Interest and dividend income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 15,833 |  |  | $ | 13,022 |  |  | $ | 43,615 |  |  | $ | 37,211 |
Taxable securities |  |  | 1,042 |  |  |  | 977 |  |  |  | 3,069 |  |  |  | 2,764 |
Tax-exempt securities |  |  | 908 |  |  |  | 812 |  |  |  | 2,672 |  |  |  | 2,307 |
Federal funds sold and other |  |  | 103 |  |  |  | 25 |  |  |  | 614 |  |  |  | 473 |
Total interest and dividend income |  |  | 17,886 |  |  |  | 14,836 |  |  |  | 49,970 |  |  |  | 42,755 |
Interest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 783 |  |  |  | 607 |  |  |  | 2,060 |  |  |  | 1,500 |
Federal Home Loan Bank advances |  |  | 925 |  |  |  | 276 |  |  |  | 1,560 |  |  |  | 534 |
Subordinated debentures |  |  | 349 |  |  |  | 268 |  |  |  | 975 |  |  |  | 766 |
Securities sold under agreements to repurchase and other |  |  | 5 |  |  |  | 5 |  |  |  | 13 |  |  |  | 16 |
Total interest expense |  |  | 2,062 |  |  |  | 1,156 |  |  |  | 4,608 |  |  |  | 2,816 |
Net interest income |  |  | 15,824 |  |  |  | 13,680 |  |  |  | 45,362 |  |  |  | 39,939 |
Provision for loan losses |  |  | 390 |  |  |  | — |  |  |  | 390 |  |  |  | — |
Net interest income after provision for loan losses |  |  | 15,434 |  |  |  | 13,680 |  |  |  | 44,972 |  |  |  | 39,939 |
Noninterest income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges |  |  | 1,219 |  |  |  | 1,177 |  |  |  | 3,712 |  |  |  | 3,609 |
Net loss on sale of securities |  |  | (392 | ) |  |  | (9 | ) |  |  | (386 | ) |  |  | (9 | )
Net gain on equity securities |  |  | 27 |  |  |  | — |  |  |  | 102 |  |  |  | — |
Net gain on sale of loans |  |  | 428 |  |  |  | 472 |  |  |  | 1,235 |  |  |  | 1,207 |
ATM/Interchange fees |  |  | 622 |  |  |  | 567 |  |  |  | 1,764 |  |  |  | 1,643 |
Wealth management fees |  |  | 873 |  |  |  | 787 |  |  |  | 2,561 |  |  |  | 2,233 |
Bank owned life insurance |  |  | 147 |  |  |  | 142 |  |  |  | 432 |  |  |  | 429 |
Tax refund processing fees |  |  | — |  |  |  | — |  |  |  | 2,750 |  |  |  | 2,750 |
Other |  |  | 364 |  |  |  | 329 |  |  |  | 1,123 |  |  |  | 842 |
Total noninterest income |  |  | 3,288 |  |  |  | 3,465 |  |  |  | 13,293 |  |  |  | 12,704 |
Noninterest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation expense |  |  | 12,054 |  |  |  | 7,389 |  |  |  | 26,812 |  |  |  | 21,313 |
Net occupancy expense |  |  | 751 |  |  |  | 690 |  |  |  | 2,375 |  |  |  | 2,002 |
Equipment expense |  |  | 371 |  |  |  | 350 |  |  |  | 1,069 |  |  |  | 1,097 |
Contracted data processing |  |  | 3,150 |  |  |  | 357 |  |  |  | 6,237 |  |  |  | 1,174 |
FDIC assessment |  |  | 121 |  |  |  | 115 |  |  |  | 388 |  |  |  | 414 |
State franchise tax |  |  | 351 |  |  |  | 255 |  |  |  | 1,031 |  |  |  | 767 |
Professional services |  |  | 2,198 |  |  |  | 534 |  |  |  | 4,233 |  |  |  | 1,718 |
Amortization of intangible assets |  |  | 26 |  |  |  | 158 |  |  |  | 85 |  |  |  | 483 |
ATM expense |  |  | 286 |  |  |  | 233 |  |  |  | 712 |  |  |  | 700 |
Marketing |  |  | 350 |  |  |  | 240 |  |  |  | 988 |  |  |  | 768 |
Other operating expenses |  |  | 2,498 |  |  |  | 1,846 |  |  |  | 6,358 |  |  |  | 5,781 |
Total noninterest expense |  |  | 22,156 |  |  |  | 12,167 |  |  |  | 50,288 |  |  |  | 36,217 |
Income (loss) before taxes |  |  | (3,434 | ) |  |  | 4,978 |  |  |  | 7,977 |  |  |  | 16,426 |
Income tax expense (benefit) |  |  | (1 | ) |  |  | 1,318 |  |  |  | 1,407 |  |  |  | 4,534 |
Net Income (loss) |  |  | (3,433 | ) |  |  | 3,660 |  |  |  | 6,570 |  |  |  | 11,892 |
Preferred stock dividends |  |  | 192 |  |  |  | 308 |  |  |  | 794 |  |  |  | 935 |
Net income (loss) available to common shareholders |  | $ | (3,625 | ) |  | $ | 3,352 |  |  | $ | 5,776 |  |  | $ | 10,957 |
Earnings (loss) per common share, basic |  | $ | (0.31 | ) |  | $ | 0.33 |  |  | $ | 0.54 |  |  | $ | 1.12 |
Earnings (loss) per common share, diluted |  | $ | (0.31 | ) |  | $ | 0.29 |  |  | $ | 0.51 |  |  | $ | 0.97 |

See notes to interim unaudited consolidated financial statements

Page 3

CIVISTA BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Net income (loss) |  | $ | (3,433 | ) |  | $ | 3,660 |  |  | $ | 6,570 |  |  | $ | 11,892 |
Other comprehensive income (loss), net of reclassification adjustment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on available for sale securities |  |  | (935 | ) |  |  | 86 |  |  |  | (4,833 | ) |  |  | 1,993 |
Tax effect |  |  | 197 |  |  |  | (29 | ) |  |  | 1,015 |  |  |  | (678 | )
Pension liability adjustment |  |  | 143 |  |  |  | 426 |  |  |  | 429 |  |  |  | 946 |
Tax effect |  |  | (30 | ) |  |  | (144 | ) |  |  | (90 | ) |  |  | (321 | )
Total other comprehensive income (loss) |  |  | (625 | ) |  |  | 339 |  |  |  | (3,479 | ) |  |  | 1,940 |
Comprehensive income (loss) |  | $ | (4,058 | ) |  | $ | 3,999 |  |  | $ | 3,091 |  |  | $ | 13,832 |

See notes to interim unaudited consolidated financial statements

Page 4

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

(In thousands, except share data)

|  | Preferred Shares |  |  | Common Shares |  |  |  |  |  |  |  |  |  |  | Accumulated Other |  |  | Total |
|  | Outstanding Shares |  |  | Amount |  |  | Outstanding Shares |  |  | Amount |  |  | Retained Earnings |  |  | Treasury Shares |  |  | Comprehensive Loss |  |  | Shareholders’ Equity |
Balance, December 31, 2017 |  |  | 18,760 |  |  | $ | 17,358 |  |  |  | 10,198,475 |  |  | $ | 153,810 |  |  | $ | 31,652 |  |  | $ | (17,235 | ) |  | $ | (1,124 | ) |  | $ | 184,461 |
Change in accounting principle for adoption of ASU 2016-01 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 278 |  |  |  | — |  |  |  | (278 | ) |  |  | — |
Net Income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,570 |  |  |  | — |  |  |  | — |  |  |  | 6,570 |
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,479 | ) |  |  | (3,479 | )
Conversion of Series B preferred shares to common shares |  |  | (7,004 | ) |  |  | (6,480 | ) |  |  | 895,578 |  |  |  | 6,480 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
UCB acquisition |  |  | — |  |  |  | — |  |  |  | 4,277,430 |  |  |  | 104,669 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 104,669 |
Stock-based compensation |  |  | — |  |  |  | — |  |  |  | 23,581 |  |  |  | 365 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 365 |
Common stock dividends ($0.23 per share) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2,404 | ) |  |  | — |  |  |  | — |  |  |  | (2,404 | )
Preferred stock dividend |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (794 | ) |  |  | — |  |  |  | — |  |  |  | (794 | )
Balance, September 30, 2018 |  |  | 11,756 |  |  | $ | 10,878 |  |  |  | 15,395,064 |  |  | $ | 265,324 |  |  | $ | 35,302 |  |  | $ | (17,235 | ) |  | $ | (4,881 | ) |  | $ | 289,388 |

See notes to interim unaudited consolidated financial statements

Page 5

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

|  | Nine Months Ended September 30, |
|  | 2018 |  |  | 2017 |
Net cash from operating activities |  | $ | 19,488 |  |  | $ | 11,821 |
Cash flows used for investing activities: |  |  |  |  |  |  |  |
Maturities and calls of securities, available-for-sale |  |  | 22,417 |  |  |  | 23,529 |
Purchases of securities, available-for-sale |  |  | (84,121 | ) |  |  | (57,005 | )
Sale of securities available for sale |  |  | 12,063 |  |  |  | 953 |
Purchases of other securities |  |  | — |  |  |  | (192 | )
Net loan originations |  |  | (52,807 | ) |  |  | (86,678 | )
Proceeds from sale of other real estate owned properties |  |  | 34 |  |  |  | 72 |
Proceeds from sale of premises and equipment |  |  | 238 |  |  |  | 139 |
Acquisition, net of cash acquired |  |  | 143,797 |  |  |  | — |
Premises and equipment purchases |  |  | (524 | ) |  |  | (755 | )
Net cash provided by (used for) investing activities |  |  | 41,097 |  |  |  | (119,937 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |
Repayment of long-term FHLB advances |  |  | (10,000 | ) |  |  | (2,500 | )
Net change in short-term FHLB advances |  |  | 83,200 |  |  |  | 10,750 |
Increase (decrease) in deposits |  |  | (103,112 | ) |  |  | 80,186 |
Decrease in securities sold under repurchase agreements |  |  | (3,240 | ) |  |  | (13,777 | )
Net proceeds from common stock issuance |  |  | — |  |  |  | 32,821 |
Cash payment for retirement of common stock |  |  | — |  |  |  | (4 | )
Common dividends paid |  |  | (2,404 | ) |  |  | (1,726 | )
Preferred dividends paid |  |  | (794 | ) |  |  | (935 | )
Net cash provided by (used for) financing activities |  |  | (36,350 | ) |  |  | 104,815 |
Increase (decrease) in cash and due from financial institutions |  |  | 24,235 |  |  |  | (3,301 | )
Cash and due from financial institutions at beginning of period |  |  | 40,519 |  |  |  | 36,695 |
Cash and due from financial institutions at end of period |  | $ | 64,754 |  |  | $ | 33,394 |
Cash paid during the period for: |  |  |  |  |  |  |  |
Interest |  | $ | 4,835 |  |  | $ | 2,753 |
Income taxes |  |  | 1,600 |  |  |  | 4,300 |
Supplemental cash flow information: |  |  |  |  |  |  |  |
Transfer of loans from portfolio to other real estate owned |  |  | — |  |  |  | 78 |
Transfer of premises to held-for-sale |  |  | — |  |  |  | 3 |
Transfer of loans held for sale to portfolio |  |  | 85 |  |  |  | 419 |
Conversion of preferred shares to common shares |  |  | 6,480 |  |  |  | 1,393 |
Securities purchased not settled |  |  | 12,707 |  |  |  | 1,609 |
Acquisition of UCB |  |  |  |  |  |  |  |
Consideration paid |  | $ | 117,344 |  |  |  |  |
Noncash assets acquired: |  |  |  |  |  |  |  |
Securities available for sale |  |  | 43,214 |  |  |  |  |
Equity securities |  |  | 212 |  |  |  |  |
Loans held for sale |  |  | 492 |  |  |  |  |
Loans receivable |  |  | 298,319 |  |  |  |  |
FHLB Stock |  |  | 3,527 |  |  |  |  |
Accrued interest receivable |  |  | 950 |  |  |  |  |
Premises and equipment, net |  |  | 5,291 |  |  |  |  |
Goodwill |  |  | 49,221 |  |  |  |  |
Core deposit intangible |  |  | 7,518 |  |  |  |  |
Bank owned life insurance |  |  | 17,193 |  |  |  |  |
Other assets |  |  | 10,896 |  |  |  |  |
Total non cash assets acquired |  |  | 436,833 |  |  |  |  |
Liabilities assumed: |  |  |  |  |  |  |  |
Deposits |  |  | 475,944 |  |  |  |  |
Other liabilities |  |  | 17 |  |  |  |  |
Total liabilities assumed |  |  | 475,961 |  |  |  |  |
Net noncash assets acquired |  |  | (39,128 | ) |  |  |  |
Cash acquired |  |  | 156,472 |  |  |  |  |

See notes to interim unaudited consolidated financial statements

Page 6

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(1) Consolidated Financial Statements

Nature of Operations and Principles of Consolidation: Civista Bancshares, Inc. (CBI) is an Ohio corporation and a registered financial holding company. The Consolidated Financial Statements include the accounts of CBI and its wholly-owned subsidiaries: Civista Bank (Civista), First Citizens Insurance Agency, Inc. (FCIA), Water Street Properties, Inc. (Water St.), FC Refund Solutions, Inc. (FCRS) and CIVB Risk Management, Inc. (CRMI). FCRS was formed to facilitate payment of individual state and federal income tax refunds. CRMI is a wholly-owned captive insurance company which allows the Company to insure against certain risks unique to its operations and its subsidiaries. The operations of CRMI are located in Wilmington, Delaware. First Citizens Capital LLC (FCC) is wholly-owned by Civista and holds inter-company debt. The operations of FCC are located in Wilmington, Delaware. First Citizens Investments, Inc. (FCI) is wholly-owned by Civista and holds and manages its securities portfolio. The operations of FCI are located in Wilmington, Delaware. FCIA was formed to allow the Company to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue was less than 1.0% of total revenue through September 30, 2018. Water Street Properties was formed to hold properties repossessed by CBI subsidiaries. Revenue from Water St. was less than 1.0% of total revenue through September 30, 2018. The above companies together are referred to as the “Company.” Intercompany balances and transactions are eliminated in consolidation. Management considers the Company to operate primarily in one reportable segment, banking.

The Consolidated Financial Statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2018 and its results of operations and changes in cash flows for the periods ended September 30, 2018 and 2017 have been made. The accompanying Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended September 30, 2018 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Company described in the notes to the audited financial statements contained in the Company’s 2017 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.

The Company provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa, Richland, Montgomery and Cuyahoga, in the Indiana counties of Dearborn and Ripley and in the Kentucky county of Kenton. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Civista has two concentrations, one is to Lessors of Non-Residential Buildings and Dwellings totaling $385,149, or 25.3% of total loans, as of September 30, 2018 and the other is to Lessors of Residential Buildings and Dwellings totaling $155,690, or 10.2% of total loans, as of September 30, 2018. These segments of the portfolio are stable and have been conservatively underwritten, monitored and managed by experienced commercial bankers. However, the customers’ ability to repay their loans is dependent on the real estate market and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include Federal Funds sold and deposit accounts in other financial institutions that are in excess of federally insured limits.

(2) Significant Accounting Policies

Allowance for Loan Losses: The allowance for loan losses is regularly reviewed by management to determine that the amount is considered adequate to absorb probable losses in the loan portfolio. If not, an additional provision is made to increase the allowance. This evaluation includes specific loss estimates on certain individually reviewed impaired loans, the pooling of commercial credits risk graded as special mention and substandard that are not individually analyzed, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and current economic and industry conditions, among other items.

Those judgments and assumptions that are most critical to the application of this accounting policy are assessing the initial and on-going credit-worthiness of the borrower, the amount and timing of future cash flows of the borrower that are available for repayment of the loan, the sufficiency of underlying collateral, the enforceability of third-party guarantees, the frequency and subjectivity of loan reviews and risk ratings, emerging or changing trends that might not be fully captured in the historical loss experience, and charges against the allowance for actual losses that are greater than previously estimated. These judgments and assumptions are dependent upon or can be influenced by a variety of factors, including the breadth and depth of experience of lending officers, credit administration and the corporate loan review staff that periodically review the status of the loan, changing economic and industry conditions, changes in the financial condition of the borrower and changes in the value and availability of the underlying collateral and guarantees.

Page 7

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on availab le information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, impairment of goodwill, fair values of financial instruments, deferred taxes and pension obligations are particularly subject to change.

Income Taxes: Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Business Combinations: At the date of acquisition the Company records the assets and liabilities of acquired companies on the Consolidated Balance Sheet at their fair value. The results of operations for acquired companies are included in the Company’s Consolidated Statements of Operations beginning at the acquisition date. Expenses arising from acquisition activities are recorded in the Consolidated Statements of Operations during the period incurred.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Such reclassifications had no effect on net income or shareholders’ equity.

Derivative Instruments and Hedging Activities: The Company enters into interest rate swap agreements to facilitate the risk management strategies of a small number of commercial banking customers. All derivatives are accounted for in accordance with ASC-815, Derivatives and Hedging. The Company mitigates the risk of entering into these agreements by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes because the Company does not currently intend to execute a setoff with its counterparties. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of marketable securities, is posted by the counterparty with net liability positions in accordance with contract thresholds.

Change in Accounting Principal:

In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

The Company adopted ASU 2016-01 during the reporting period. The adoption resulted in the Company recognizing a one-time cumulative effect adjustment of $278 on January 1, 2018 between accumulated other comprehensive loss and retained earnings on the consolidated balance sheet for the fair value of the equity securities included in accumulated other comprehensive loss as of the beginning of the period. The adjustment had no impact on net income for any periods presented.

Page 8

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes in Note 13 to the financial statements. The December 31, 2017, fair value of each clas s of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the September 3 0, 2018 disclosure. The Company estimated the fair value based on guidance from ASC 820-10, Fai r Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sa le information on community bank loans and, thus, Level 3 fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values. The fair value of loans held for investment, excluding impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquid ity, credit and nonperformance risk of the loans. Loans are considered a Level 3 classification.

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers are required to present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components of net periodic benefit cost separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. The Company adopted ASU No. 2017-07 on January 1, 2018 and has retrospectively applied the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the consolidated statement of income. Adoption of ASU No. 2017-07 did not have a material impact on the Company’s Consolidated Financial Statements.

Effect of Newly Issued but Not Yet Effective Accounting Standards:

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard in this Update requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of ASU 2016-13 is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial statements.

Page 9

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In com puting the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure tha t would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount o f goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer, such as the Company, should adopt the amendments in this Update for its annual or any interim goodwill impairment tests i n fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, such as the Company, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options ), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, such as the Company, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

Page 10

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption o f the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), to clarify certain aspects of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives, or 825-10, Financial Instruments—Overall. (5) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. For public business entities, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01. This Update did not have a significant impact on the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases. In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an

Page 11

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and int erim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Thi s Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements.

(3) Securities

The amortized cost and fair market value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive loss were as follows:

September 30, 2018 |  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
U.S. Treasury securities and obligations of U.S. government agencies |  | $ | 29,069 |  |  | $ | 139 |  |  | $ | (233 | ) |  | $ | 28,975 |
Obligations of states and political subdivisions |  |  | 153,285 |  |  |  | 1,862 |  |  |  | (1,277 | ) |  |  | 153,870 |
Mortgage-backed securities in government sponsored entities |  |  | 135,764 |  |  |  | 316 |  |  |  | (1,959 | ) |  |  | 134,121 |
Total debt securities |  | $ | 318,118 |  |  | $ | 2,317 |  |  | $ | (3,469 | ) |  | $ | 316,966 |

December 31, 2017 |  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
U.S. Treasury securities and obligations of U.S. government agencies |  | $ | 30,450 |  |  | $ | 100 |  |  | $ | (192 | ) |  | $ | 30,358 |
Obligations of states and political subdivisions |  |  | 114,002 |  |  |  | 4,226 |  |  |  | (172 | ) |  |  | 118,056 |
Mortgage-backed securities in government sponsored entities |  |  | 82,098 |  |  |  | 408 |  |  |  | (690 | ) |  |  | 81,816 |
Total debt securities |  | $ | 226,550 |  |  | $ | 4,734 |  |  | $ | (1,054 | ) |  | $ | 230,230 |

The amortized cost and fair value of securities at September 30, 2018, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities are shown separately.

Available for sale |  | Amortized Cost |  |  | Fair Value |
Due in one year or less |  | $ | 15,294 |  |  | $ | 15,226 |
Due after one year through five years |  |  | 16,910 |  |  |  | 16,856 |
Due after five years through ten years |  |  | 30,844 |  |  |  | 31,729 |
Due after ten years |  |  | 119,306 |  |  |  | 119,034 |
Mortgage-backed securities |  |  | 135,764 |  |  |  | 134,121 |
Total securities available for sale |  | $ | 318,118 |  |  | $ | 316,966 |

Page 12

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Proceeds from sales of securities, gross realized gains and gross realized losses were as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Sale proceeds |  | $ | 12,063 |  |  | $ | 953 |  |  | $ | 12,063 |  |  | $ | 953 |
Gross realized gains |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Gross realized losses |  |  | 392 |  |  |  | — |  |  |  | 392 |  |  |  | — |
Gains (losses) from securities called or settled by the issuer |  |  | — |  |  |  | (9 | ) |  |  | 6 |  |  |  | (9 | )

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $124,687 and $122,862 as of September 30, 2018 and December 31, 2017, respectively.

Securities with unrealized losses at September 30, 2018 and December 31, 2017 not recognized in income are as follows:

September 30, 2018 |  | 12 Months or less |  |  | More than 12 months |  |  | Total |
Description of Securities |  | Fair Value |  |  | Unrealized Loss |  |  | Fair Value |  |  | Unrealized Loss |  |  | Fair Value |  |  | Unrealized Loss |
U.S. Treasury securities and obligations of U.S. government agencies |  | $ | 7,156 |  |  | $ | (107 | ) |  | $ | 13,774 |  |  | $ | (126 | ) |  | $ | 20,930 |  |  | $ | (233 | )
Obligations of states and political subdivisions |  |  | 58,768 |  |  |  | (967 | ) |  |  | 7,374 |  |  |  | (310 | ) |  |  | 66,142 |  |  |  | (1,277 | )
Mortgage-backed securities in gov’t sponsored entities |  |  | 59,325 |  |  |  | (714 | ) |  |  | 33,218 |  |  |  | (1,245 | ) |  |  | 92,543 |  |  |  | (1,959 | )
Total temporarily impaired |  | $ | 125,249 |  |  | $ | (1,788 | ) |  | $ | 54,366 |  |  | $ | (1,681 | ) |  | $ | 179,615 |  |  | $ | (3,469 | )

December 31, 2017 |  | 12 Months or less |  |  | More than 12 months |  |  | Total |
Description of Securities |  | Fair Value |  |  | Unrealized Loss |  |  | Fair Value |  |  | Unrealized Loss |  |  | Fair Value |  |  | Unrealized Loss |
U.S. Treasury securities and obligations of U.S. government agencies |  | $ | 20,449 |  |  | $ | (100 | ) |  | $ | 6,617 |  |  | $ | (92 | ) |  | $ | 27,066 |  |  | $ | (192 | )
Obligations of states and political subdivisions |  |  | 4,057 |  |  |  | (41 | ) |  |  | 7,309 |  |  |  | (131 | ) |  |  | 11,366 |  |  |  | (172 | )
Mortgage-backed securities in gov’t sponsored entities |  |  | 29,534 |  |  |  | (195 | ) |  |  | 22,199 |  |  |  | (495 | ) |  |  | 51,733 |  |  |  | (690 | )
Total temporarily impaired |  | $ | 54,040 |  |  | $ | (336 | ) |  | $ | 36,125 |  |  | $ | (718 | ) |  | $ | 90,165 |  |  | $ | (1,054 | )

At September 30, 2018, there were 185 securities in the portfolio with unrealized losses mainly due to higher market rates when compared to the time of purchase. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to market yields increasing. The fair value is expected to recover as the securities approach their maturity date or reset date. The Company does not intend to sell until recovery and does not believe selling will be required before recovery.

The following table presents the net gains and losses on equity investments recognized in earnings for the three and nine-months ended September 30, 2018, and the portion of unrealized gains and losses for the period that relates to equity investments held at September 30, 2018:

|  | Three months ended |  |  | Nine months ended |
|  | September 30, 2018 |  |  | September 30, 2018 |
Net gains recognized on equity securities during the period |  | $ | 27 |  |  | $ | 102 |
Less: Net gains (losses) realized on the sale of equity securities during the period |  |  | — |  |  |  | — |
Unrealized gains recognized in equity securities held at reporting date |  | $ | 27 |  |  | $ | 102 |

Page 13

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(4) Loans

Loan balances were as follows:

|  | September 30, 2018 |  |  | December 31, 2017 |
Commercial & Agriculture |  | $ | 169,686 |  |  | $ | 152,473 |
Commercial Real Estate- Owner Occupied |  |  | 203,087 |  |  |  | 164,099 |
Commercial Real Estate- Non-Owner Occupied |  |  | 499,240 |  |  |  | 425,623 |
Residential Real Estate |  |  | 459,021 |  |  |  | 268,735 |
Real Estate Construction |  |  | 126,288 |  |  |  | 97,531 |
Farm Real Estate |  |  | 38,038 |  |  |  | 39,461 |
Consumer and Other |  |  | 20,284 |  |  |  | 16,739 |
Total loans |  |  | 1,515,644 |  |  |  | 1,164,661 |
Allowance for loan losses |  |  | (13,331 | ) |  |  | (13,134 | )
Net loans |  | $ | 1,502,313 |  |  | $ | 1,151,527 |

Included in total loans above are deferred loan fees of $258 at September 30, 2018 and $223 at December 31, 2017.

(5) Allowance for Loan Losses

Management has an established methodology for determining the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan and lease losses, the Company has segmented certain loans in the portfolio by product type. Loss migration rates for each risk category are calculated and used as the basis for calculating loan loss allowance 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. The following economic factors are analyzed:

| • | Changes in lending policies and procedures

| • | Changes in experience and depth of lending and management staff

| • | Changes in quality of credit review system

| • | Changes in nature and volume of the loan portfolio

| • | Changes in past due, classified and nonaccrual loans and TDRs

| • | Changes in economic and business conditions

| • | Changes in competition or legal and regulatory requirements

| • | Changes in concentrations within the loan portfolio

| • | Changes in the underlying collateral for collateral dependent loans

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Company considers the allowance for loan losses of $13,331 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2018. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three and nine months ended September 30, 2018 and 2017.

Page 14

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Allowance for loan losses:

For the nine months ended September 30, 2018 |  | Beginning balance |  |  | Charge-offs |  |  | Recoveries |  |  | Provision |  |  | Ending Balance |
Commercial & Agriculture |  | $ | 1,562 |  |  | $ | (248 | ) |  | $ | 168 |  |  | $ | 149 |  |  | $ | 1,631 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 2,043 |  |  |  | (193 | ) |  |  | 148 |  |  |  | 45 |  |  |  | 2,043 |
Non-Owner Occupied |  |  | 5,307 |  |  |  | (121 | ) |  |  | 23 |  |  |  | 236 |  |  |  | 5,445 |
Residential Real Estate |  |  | 1,910 |  |  |  | (74 | ) |  |  | 181 |  |  |  | (218 | ) |  |  | 1,799 |
Real Estate Construction |  |  | 834 |  |  |  | — |  |  |  | — |  |  |  | 147 |  |  |  | 981 |
Farm Real Estate |  |  | 430 |  |  |  | — |  |  |  | 4 |  |  |  | (41 | ) |  |  | 393 |
Consumer and Other |  |  | 290 |  |  |  | (148 | ) |  |  | 67 |  |  |  | 106 |  |  |  | 315 |
Unallocated |  |  | 758 |  |  |  | — |  |  |  | — |  |  |  | (34 | ) |  |  | 724 |
Total |  | $ | 13,134 |  |  | $ | (784 | ) |  | $ | 591 |  |  | $ | 390 |  |  | $ | 13,331 |

For the nine months ended September 30, 2018, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of higher loan balances and higher loss rates. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of higher loan balances. This was represented as an increase in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of higher loan balances. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances. The result was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio.

Allowance for loan losses:

For the nine months ended September 30, 2017 |  | Beginning balance |  |  | Charge-offs |  |  | Recoveries |  |  | Provision |  |  | Ending Balance |
Commercial & Agriculture |  | $ | 2,018 |  |  | $ | (11 | ) |  | $ | 134 |  |  | $ | (530 | ) |  | $ | 1,611 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 2,171 |  |  |  | (301 | ) |  |  | 26 |  |  |  | 177 |  |  |  | 2,073 |
Non-Owner Occupied |  |  | 4,606 |  |  |  | (38 | ) |  |  | 42 |  |  |  | 663 |  |  |  | 5,273 |
Residential Real Estate |  |  | 3,089 |  |  |  | (312 | ) |  |  | 164 |  |  |  | (462 | ) |  |  | 2,479 |
Real Estate Construction |  |  | 420 |  |  |  | — |  |  |  | 32 |  |  |  | 215 |  |  |  | 667 |
Farm Real Estate |  |  | 442 |  |  |  | — |  |  |  | 2 |  |  |  | (20 | ) |  |  | 424 |
Consumer and Other |  |  | 314 |  |  |  | (135 | ) |  |  | 38 |  |  |  | 108 |  |  |  | 325 |
Unallocated |  |  | 245 |  |  |  | — |  |  |  | — |  |  |  | (151 | ) |  |  | 94 |
Total |  | $ | 13,305 |  |  | $ | (797 | ) |  | $ | 438 |  |  | $ | — |  |  | $ | 12,946 |

For the nine months ended September 30, 2017, the allowance for Commercial & Agriculture loans was reduced by a decrease in general reserves as a result of lower loss rates. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced by a decrease in general reserves and charge-offs. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to higher outstanding loan balances for this type of loan. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances. The result was represented as a decrease in the provision. The allowance for Consumer and Other loans increased due to an increase in general reserves required for this type as a result of higher loss rates. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio.

Page 15

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Allowance for loan losses:

For the three months ended September 30, 2018 |  | Beginning balance |  |  | Charge-offs |  |  | Recoveries |  |  | Provision |  |  | Ending Balance |
Commercial & Agriculture |  | $ | 1,630 |  |  | $ | — |  |  | $ | 64 |  |  | $ | (63 | ) |  | $ | 1,631 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 2,161 |  |  |  | — |  |  |  | 18 |  |  |  | (136 | ) |  |  | 2,043 |
Non-Owner Occupied |  |  | 5,135 |  |  |  | (76 | ) |  |  | 2 |  |  |  | 384 |  |  |  | 5,445 |
Residential Real Estate |  |  | 1,691 |  |  |  | (12 | ) |  |  | 88 |  |  |  | 32 |  |  |  | 1,799 |
Real Estate Construction |  |  | 861 |  |  |  | — |  |  |  | — |  |  |  | 120 |  |  |  | 981 |
Farm Real Estate |  |  | 410 |  |  |  | — |  |  |  | 1 |  |  |  | (18 | ) |  |  | 393 |
Consumer and Other |  |  | 300 |  |  |  | (45 | ) |  |  | 34 |  |  |  | 26 |  |  |  | 315 |
Unallocated |  |  | 679 |  |  |  | — |  |  |  | — |  |  |  | 45 |  |  |  | 724 |
Total |  | $ | 12,867 |  |  | $ | (133 | ) |  | $ | 207 |  |  | $ | 390 |  |  | $ | 13,331 |

For the three months ended September 30, 2018, the allowance for Commercial & Agriculture loans increased due to amounts recovered on previously charged off loans offset by a decrease in general reserves required for this type as a result of lower loss rates. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans decreased due to a decrease in general reserves required for this type as a result of lower loan balances and lower loss rates. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances and higher loss rates. The allowance for Residential Real Estate loans increased due to the net recoveries recorded during the quarter for this loan type. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of higher loan balances. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances. The result was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio.

Allowance for loan losses:

For the three months ended September 30, 2017 |  | Beginning balance |  |  | Charge-offs |  |  | Recoveries |  |  | Provision |  |  | Ending Balance |
Commercial & Agriculture |  | $ | 1,608 |  |  | $ | (10 | ) |  | $ | 51 |  |  | $ | (38 | ) |  | $ | 1,611 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 2,010 |  |  |  | (91 | ) |  |  | 8 |  |  |  | 146 |  |  |  | 2,073 |
Non-Owner Occupied |  |  | 4,739 |  |  |  | (38 | ) |  |  | 33 |  |  |  | 539 |  |  |  | 5,273 |
Residential Real Estate |  |  | 2,676 |  |  |  | (116 | ) |  |  | 77 |  |  |  | (158 | ) |  |  | 2,479 |
Real Estate Construction |  |  | 482 |  |  |  | — |  |  |  | 13 |  |  |  | 172 |  |  |  | 667 |
Farm Real Estate |  |  | 425 |  |  |  | — |  |  |  | 2 |  |  |  | (3 | ) |  |  | 424 |
Consumer and Other |  |  | 324 |  |  |  | (54 | ) |  |  | 24 |  |  |  | 31 |  |  |  | 325 |
Unallocated |  |  | 783 |  |  |  | — |  |  |  | — |  |  |  | (689 | ) |  |  | 94 |
Total |  | $ | 13,047 |  |  | $ | (309 | ) |  | $ | 208 |  |  | $ | — |  |  | $ | 12,946 |

For the three months ended September 30, 2017, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves as a result of higher loan balances, offset by net recoveries. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves as a result of higher outstanding loan balances and loss rates. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances and by higher loss rates. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to higher outstanding loan balances for this type of loan and recoveries. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio.

Page 16

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of September 3 0, 2018 and December 31, 2017.

September 30, 2018 |  | Loans acquired with credit deterioration |  |  | Loans individually evaluated for impairment |  |  | Loans collectively evaluated for impairment |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Agriculture |  | $ | — |  |  | $ | — |  |  | $ | 1,631 |  |  | $ | 1,631 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | — |  |  |  | 10 |  |  |  | 2,033 |  |  |  | 2,043 |
Non-Owner Occupied |  |  | — |  |  |  | — |  |  |  | 5,445 |  |  |  | 5,445 |
Residential Real Estate |  |  | 30 |  |  |  | 350 |  |  |  | 1,419 |  |  |  | 1,799 |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | 981 |  |  |  | 981 |
Farm Real Estate |  |  | — |  |  |  | 6 |  |  |  | 387 |  |  |  | 393 |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | 315 |  |  |  | 315 |
Unallocated |  |  | — |  |  |  | — |  |  |  | 724 |  |  |  | 724 |
Total |  | $ | 30 |  |  | $ | 366 |  |  | $ | 12,935 |  |  | $ | 13,331 |
Outstanding loan balances: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Agriculture |  | $ | 47 |  |  | $ | 390 |  |  | $ | 169,249 |  |  | $ | 169,686 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | — |  |  |  | 505 |  |  |  | 202,582 |  |  |  | 203,087 |
Non-Owner Occupied |  |  | — |  |  |  | 36 |  |  |  | 499,204 |  |  |  | 499,240 |
Residential Real Estate |  |  | 968 |  |  |  | 2,315 |  |  |  | 455,738 |  |  |  | 459,021 |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | 126,288 |  |  |  | 126,288 |
Farm Real Estate |  |  | — |  |  |  | 707 |  |  |  | 37,331 |  |  |  | 38,038 |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | 20,284 |  |  |  | 20,284 |
Total |  | $ | 1,015 |  |  | $ | 3,953 |  |  | $ | 1,510,676 |  |  | $ | 1,515,644 |

December 31, 2017 |  | Loans acquired with credit deterioration |  |  | Loans individually evaluated for impairment |  |  | Loans collectively evaluated for impairment |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Agriculture |  | $ | 82 |  |  | $ | 4 |  |  | $ | 1,476 |  |  | $ | 1,562 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | — |  |  |  | 6 |  |  |  | 2,037 |  |  |  | 2,043 |
Non-Owner Occupied |  |  | — |  |  |  | — |  |  |  | 5,307 |  |  |  | 5,307 |
Residential Real Estate |  |  | 44 |  |  |  | 109 |  |  |  | 1,757 |  |  |  | 1,910 |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | 834 |  |  |  | 834 |
Farm Real Estate |  |  | — |  |  |  | 6 |  |  |  | 424 |  |  |  | 430 |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | 290 |  |  |  | 290 |
Unallocated |  |  | — |  |  |  | — |  |  |  | 758 |  |  |  | 758 |
Total |  | $ | 126 |  |  | $ | 125 |  |  | $ | 12,883 |  |  | $ | 13,134 |
Outstanding loan balances: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Agriculture |  | $ | 87 |  |  | $ | 438 |  |  | $ | 151,948 |  |  | $ | 152,473 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | — |  |  |  | 1,010 |  |  |  | 163,089 |  |  |  | 164,099 |
Non-Owner Occupied |  |  | — |  |  |  | 44 |  |  |  | 425,579 |  |  |  | 425,623 |
Residential Real Estate |  |  | 128 |  |  |  | 1,360 |  |  |  | 267,247 |  |  |  | 268,735 |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | 97,531 |  |  |  | 97,531 |
Farm Real Estate |  |  | — |  |  |  | 608 |  |  |  | 38,853 |  |  |  | 39,461 |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | 16,739 |  |  |  | 16,739 |
Total |  | $ | 215 |  |  | $ | 3,460 |  |  | $ | 1,160,986 |  |  | $ | 1,164,661 |

Page 17

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present credit exposures by internally assigned grades as of September 3 0, 2018 and December 31, 2017. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

| • | Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

| • | Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

| • | Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Civista will sustain some loss if the deficiencies are not corrected.

| • | Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

| • | Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

Generally, Residential Real Estate, Real Estate Construction and Consumer and Other loans are not risk-graded, except when collateral is used for a business purpose.

September 30, 2018 |  | Pass |  |  | Special Mention |  |  | Substandard |  |  | Doubtful |  |  | Ending Balance |
Commercial & Agriculture |  | $ | 165,691 |  |  | $ | 1,999 |  |  | $ | 1,996 |  |  | $ | — |  |  | $ | 169,686 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 194,192 |  |  |  | 3,458 |  |  |  | 5,437 |  |  |  | — |  |  |  | 203,087 |
Non-Owner Occupied |  |  | 496,495 |  |  |  | 1,860 |  |  |  | 885 |  |  |  | — |  |  |  | 499,240 |
Residential Real Estate |  |  | 67,053 |  |  |  | 598 |  |  |  | 8,110 |  |  |  | — |  |  |  | 75,761 |
Real Estate Construction |  |  | 115,419 |  |  |  | 13 |  |  |  | 43 |  |  |  | — |  |  |  | 115,475 |
Farm Real Estate |  |  | 31,758 |  |  |  | 3,731 |  |  |  | 2,549 |  |  |  | — |  |  |  | 38,038 |
Consumer and Other |  |  | 1,254 |  |  |  | — |  |  |  | 29 |  |  |  | — |  |  |  | 1,283 |
Total |  | $ | 1,071,862 |  |  | $ | 11,659 |  |  | $ | 19,049 |  |  | $ | — |  |  | $ | 1,102,570 |

December 31, 2017 |  | Pass |  |  | Special Mention |  |  | Substandard |  |  | Doubtful |  |  | Ending Balance |
Commercial & Agriculture |  | $ | 140,842 |  |  | $ | 8,412 |  |  | $ | 3,219 |  |  | $ | — |  |  | $ | 152,473 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 155,756 |  |  |  | 1,166 |  |  |  | 7,177 |  |  |  | — |  |  |  | 164,099 |
Non-Owner Occupied |  |  | 422,363 |  |  |  | 2,321 |  |  |  | 939 |  |  |  | — |  |  |  | 425,623 |
Residential Real Estate |  |  | 62,628 |  |  |  | 1,997 |  |  |  | 5,873 |  |  |  | — |  |  |  | 70,498 |
Real Estate Construction |  |  | 91,545 |  |  |  | 15 |  |  |  | 27 |  |  |  | — |  |  |  | 91,587 |
Farm Real Estate |  |  | 25,228 |  |  |  | 11,236 |  |  |  | 2,997 |  |  |  | — |  |  |  | 39,461 |
Consumer and Other |  |  | 1,312 |  |  |  | — |  |  |  | 70 |  |  |  | — |  |  |  | 1,382 |
Total |  | $ | 899,674 |  |  | $ | 25,147 |  |  | $ | 20,302 |  |  | $ | — |  |  | $ | 945,123 |

Page 18

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended September 3 0, 2018 and December 31, 2017 that have not been assigned an internal risk grade. The types of loans presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by manag ement on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due or if management thinks that we may not collect all of our principal and interest. Nonperforming loans also include certain loans t hat have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mi tigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only b e returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

September 30, 2018 |  | Residential Real Estate |  |  | Real Estate Construction |  |  | Consumer and Other |  |  | Total |
Performing |  | $ | 383,260 |  |  | $ | 10,813 |  |  | $ | 18,986 |  |  | $ | 413,059 |
Nonperforming |  |  | — |  |  |  | — |  |  |  | 15 |  |  |  | 15 |
Total |  | $ | 383,260 |  |  | $ | 10,813 |  |  | $ | 19,001 |  |  | $ | 413,074 |

December 31, 2017 |  | Residential Real Estate |  |  | Real Estate Construction |  |  | Consumer and Other |  |  | Total |
Performing |  | $ | 198,237 |  |  | $ | 5,944 |  |  | $ | 15,341 |  |  | $ | 219,522 |
Nonperforming |  |  | — |  |  |  | — |  |  |  | 16 |  |  |  | 16 |
Total |  | $ | 198,237 |  |  | $ | 5,944 |  |  | $ | 15,357 |  |  | $ | 219,538 |

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of September 30, 2018 and December 31, 2017.

September 30, 2018 |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90 Days or Greater |  |  | Total Past Due |  |  | Current |  |  | Purchased Credit- Impaired Loans |  |  | Total Loans |  |  | Past Due 90 Days and Accruing |
Commercial & Agriculture |  | $ | 152 |  |  | $ | — |  |  | $ | 285 |  |  | $ | 437 |  |  | $ | 169,202 |  |  | $ | 47 |  |  | $ | 169,686 |  |  | $ | — |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 327 |  |  |  | 159 |  |  |  | 506 |  |  |  | 992 |  |  |  | 202,095 |  |  |  | — |  |  |  | 203,087 |  |  |  | — |
Non-Owner Occupied |  |  | 293 |  |  |  | — |  |  |  | 68 |  |  |  | 361 |  |  |  | 498,879 |  |  |  | — |  |  |  | 499,240 |  |  |  | — |
Residential Real Estate |  |  | 681 |  |  |  | 728 |  |  |  | 902 |  |  |  | 2,311 |  |  |  | 455,742 |  |  |  | 968 |  |  |  | 459,021 |  |  |  | — |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | 39 |  |  |  | 39 |  |  |  | 126,249 |  |  |  | — |  |  |  | 126,288 |  |  |  | — |
Farm Real Estate |  |  | 17 |  |  |  | 75 |  |  |  | 149 |  |  |  | 241 |  |  |  | 37,797 |  |  |  | — |  |  |  | 38,038 |  |  |  | — |
Consumer and Other |  |  | 101 |  |  |  | 30 |  |  |  | 15 |  |  |  | 146 |  |  |  | 20,138 |  |  |  | — |  |  |  | 20,284 |  |  |  | 15 |
Total |  | $ | 1,571 |  |  | $ | 992 |  |  | $ | 1,964 |  |  | $ | 4,527 |  |  | $ | 1,510,102 |  |  | $ | 1,015 |  |  | $ | 1,515,644 |  |  | $ | 15 |

December 31, 2017 |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90 Days or Greater |  |  | Total Past Due |  |  | Current |  |  | Purchased Credit- Impaired Loans |  |  | Total Loans |  |  | Past Due 90 Days and Accruing |
Commercial & Agriculture |  | $ | 575 |  |  | $ | 2 |  |  | $ | 685 |  |  | $ | 1,262 |  |  | $ | 151,124 |  |  | $ | 87 |  |  | $ | 152,473 |  |  | $ | — |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 897 |  |  |  | 104 |  |  |  | 484 |  |  |  | 1,485 |  |  |  | 162,614 |  |  |  | — |  |  |  | 164,099 |  |  |  | — |
Non-Owner Occupied |  |  | 133 |  |  |  | — |  |  |  | 470 |  |  |  | 603 |  |  |  | 425,020 |  |  |  | — |  |  |  | 425,623 |  |  |  | — |
Residential Real Estate |  |  | 1,613 |  |  |  | 229 |  |  |  | 785 |  |  |  | 2,627 |  |  |  | 265,980 |  |  |  | 128 |  |  |  | 268,735 |  |  |  | — |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | 27 |  |  |  | 27 |  |  |  | 97,504 |  |  |  | — |  |  |  | 97,531 |  |  |  | — |
Farm Real Estate |  |  | 27 |  |  |  | — |  |  |  | 186 |  |  |  | 213 |  |  |  | 39,248 |  |  |  | — |  |  |  | 39,461 |  |  |  | — |
Consumer and Other |  |  | 92 |  |  |  | 96 |  |  |  | 16 |  |  |  | 204 |  |  |  | 16,535 |  |  |  | — |  |  |  | 16,739 |  |  |  | 16 |
Total |  | $ | 3,337 |  |  | $ | 431 |  |  | $ | 2,653 |  |  | $ | 6,421 |  |  | $ | 1,158,025 |  |  | $ | 215 |  |  | $ | 1,164,661 |  |  | $ | 16 |

Page 19

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of September 3 0, 2018 and December 31, 2017.

|  | September 30, 2018 |  |  | December 31, 2017 |
Commercial & Agriculture |  | $ | 285 |  |  | $ | 887 |
Commercial Real Estate: |  |  |  |  |  |  |  |
Owner Occupied |  |  | 891 |  |  |  | 1,476 |
Non-Owner Occupied |  |  | 159 |  |  |  | 711 |
Residential Real Estate |  |  | 3,945 |  |  |  | 2,778 |
Real Estate Construction |  |  | 43 |  |  |  | 27 |
Farm Real Estate |  |  | 334 |  |  |  | 186 |
Consumer and Other |  |  | 27 |  |  |  | 67 |
Total |  | $ | 5,684 |  |  | $ | 6,132 |

Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. Payments received on nonaccrual loans are applied to the unpaid principal balance. A loan may be returned to accruing status only if one of three conditions are met: the loan is well-secured and none of the principal and interest has been past due for a minimum of 90 days; the loan is a TDR and has made a minimum of six months payments; or the principal and interest payments are reasonably assured and a sustained period of performance has occurred, generally six months.

Modifications: A modification of a loan constitutes a TDR when the Company for economic or legal reasons related to a borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve reducing the interest rate lower than the current market rate for new debt with similar risk. Residential Real Estate loans modified in a TDR primarily involve interest rate reductions where monthly payments are lowered to accommodate the borrowers’ financial needs.

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of September 30, 2018, TDRs accounted for $171 of the allowance for loan losses. As of December 31, 2017, TDRs accounted for $169 of the allowance for loan losses.

Loan modifications that are considered TDRs completed during the periods ended September 30, 2018 and September 30, 2017 were as follows:

|  | For the Nine-Month Period Ended |
|  | September 30, 2018 |
|  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |
Commercial & Agriculture |  |  | — |  |  | $ | — |  |  | $ | — |
Commercial Real Estate—Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Commercial Real Estate—Non-Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Residential Real Estate |  |  | 1 |  |  |  | 23 |  |  |  | 23 |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | — |
Farm Real Estate |  |  | 1 |  |  |  | 110 |  |  |  | 110 |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | — |
Total Loan Modifications |  |  | 2 |  |  | $ | 133 |  |  | $ | 133 |

Page 20

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

|  | For the Nine-Month Period Ended |
|  | September 30, 2017 |
|  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |
Commercial & Agriculture |  |  | — |  |  | $ | — |  |  | $ | — |
Commercial Real Estate—Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Commercial Real Estate—Non-Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Residential Real Estate |  |  | 1 |  |  |  | 13 |  |  |  | 13 |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | — |
Farm Real Estate |  |  | — |  |  |  | — |  |  |  | — |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | — |
Total Loan Modifications |  |  | 1 |  |  | $ | 13 |  |  | $ | 13 |

|  | For the three months ended |
|  | September 30, 2018 |
|  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |
Commercial & Agriculture |  |  | — |  |  | $ | — |  |  | $ | — |
Commercial Real Estate—Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Commercial Real Estate—Non-Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Residential Real Estate |  |  | 1 |  |  |  | 23 |  |  |  | 23 |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | — |
Farm Real Estate |  |  | 1 |  |  |  | 110 |  |  |  | 110 |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | — |
Total Loan Modifications |  |  | 2 |  |  | $ | 133 |  |  | $ | 133 |

|  | For the three months ended |
|  | September 30, 2017 |
|  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |
Commercial & Agriculture |  |  | — |  |  | $ | — |  |  | $ | — |
Commercial Real Estate—Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Commercial Real Estate—Non-Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |
Residential Real Estate |  |  | — |  |  |  | — |  |  |  | — |
Real Estate Construction |  |  | — |  |  |  | — |  |  |  | — |
Farm Real Estate |  |  | — |  |  |  | — |  |  |  | — |
Consumer and Other |  |  | — |  |  |  | — |  |  |  | — |
Total Loan Modifications |  |  | — |  |  | $ | — |  |  | $ | — |

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans.

During both the three- and nine-month periods ended September 30, 2018 and September 30, 2017, there were no defaults on loans that were modified and considered TDRs during the respective twelve previous months.

Page 21

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Impaired Loans: Larger (greater than $350) Commercial & Agricultural and Commercial Real Estate loan relationships, all TDRs and Residential Real Estate and Consumer loans that are part of a larger relationship are tested for impairment on a quarterly basis. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreeme nt. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables, excluding PCI loans, with the associated allowance amount, if applicable, as of September 30, 2018 and December 31, 2017.

|  | September 30, 2018 |  |  | December 31, 2017 |
|  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Agriculture |  | $ | 390 |  |  | $ | 390 |  |  |  |  |  |  | $ | — |  |  | $ | — |  |  |  |  |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 198 |  |  |  | 198 |  |  |  |  |  |  |  | 693 |  |  |  | 913 |  |  |  |  |
Non-Owner Occupied |  |  | 36 |  |  |  | 39 |  |  |  |  |  |  |  | 44 |  |  |  | 48 |  |  |  |  |
Residential Real Estate |  |  | 1,220 |  |  |  | 1,292 |  |  |  |  |  |  |  | 977 |  |  |  | 1,049 |  |  |  |  |
Farm Real Estate |  |  | 257 |  |  |  | 257 |  |  |  |  |  |  |  | 148 |  |  |  | 148 |  |  |  |  |
Total |  |  | 2,101 |  |  |  | 2,176 |  |  |  |  |  |  |  | 1,862 |  |  |  | 2,158 |  |  |  |  |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Agriculture |  |  | — |  |  |  | — |  |  | $ | — |  |  |  | 438 |  |  |  | 438 |  |  | $ | 4 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 307 |  |  |  | 307 |  |  |  | 10 |  |  |  | 317 |  |  |  | 317 |  |  |  | 6 |
Residential Real Estate |  |  | 1,095 |  |  |  | 1,099 |  |  |  | 350 |  |  |  | 383 |  |  |  | 387 |  |  |  | 109 |
Farm Real Estate |  |  | 450 |  |  |  | 450 |  |  |  | 6 |  |  |  | 460 |  |  |  | 460 |  |  |  | 6 |
Total |  |  | 1,852 |  |  |  | 1,856 |  |  |  | 366 |  |  |  | 1,598 |  |  |  | 1,602 |  |  |  | 125 |
Total: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial & Agriculture |  |  | 390 |  |  |  | 390 |  |  |  | — |  |  |  | 438 |  |  |  | 438 |  |  |  | 4 |
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner Occupied |  |  | 505 |  |  |  | 505 |  |  |  | 10 |  |  |  | 1,010 |  |  |  | 1,230 |  |  |  | 6 |
Non-Owner Occupied |  |  | 36 |  |  |  | 39 |  |  |  | — |  |  |  | 44 |  |  |  | 48 |  |  |  | — |
Residential Real Estate |  |  | 2,315 |  |  |  | 2,391 |  |  |  | 350 |  |  |  | 1,360 |  |  |  | 1,436 |  |  |  | 109 |
Farm Real Estate |  |  | 707 |  |  |  | 707 |  |  |  | 6 |  |  |  | 608 |  |  |  | 608 |  |  |  | 6 |
Total |  | $ | 3,953 |  |  | $ | 4,032 |  |  | $ | 366 |  |  | $ | 3,460 |  |  | $ | 3,760 |  |  | $ | 125 |

The following table includes the average recorded investment and interest income recognized for impaired financing receivables for the three- and nine-month periods ended September 30, 2018 and 2017.

|  | September 30, 2018 |  |  | September 30, 2017 |
For the nine months ended |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
Commercial & Agriculture |  | $ | 704 |  |  | $ | 19 |  |  | $ | 1,609 |  |  | $ | 27 |
Commercial Real Estate—Owner Occupied |  |  | 641 |  |  |  | 26 |  |  |  | 1,632 |  |  |  | 66 |
Commercial Real Estate—Non-Owner Occupied |  |  | 41 |  |  |  | 4 |  |  |  | 280 |  |  |  | 5 |
Residential Real Estate |  |  | 1,580 |  |  |  | 51 |  |  |  | 1,554 |  |  |  | 56 |
Farm Real Estate |  |  | 721 |  |  |  | 22 |  |  |  | 614 |  |  |  | 21 |
Total |  | $ | 3,687 |  |  | $ | 122 |  |  | $ | 5,689 |  |  | $ | 175 |

Page 22

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

|  | September 30, 2018 |  |  | September 30, 2017 |
For the three months ended: |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
Commercial & Agriculture |  | $ | 675 |  |  | $ | 6 |  |  | $ | 1,366 |  |  | $ | 7 |
Commercial Real Estate—Owner Occupied |  |  | 511 |  |  |  | 9 |  |  |  | 1,377 |  |  |  | 18 |
Commercial Real Estate—Non-Owner Occupied |  |  | 38 |  |  |  | 1 |  |  |  | 202 |  |  |  | 2 |
Residential Real Estate |  |  | 1,811 |  |  |  | 17 |  |  |  | 1,437 |  |  |  | 17 |
Farm Real Estate |  |  | 742 |  |  |  | 7 |  |  |  | 614 |  |  |  | 8 |
Total |  | $ | 3,777 |  |  | $ | 40 |  |  | $ | 4,996 |  |  | $ | 52 |

Changes in the amortizable yield for PCI loans were as follows, since acquisition:

|  | For the Nine-Month Period Ended September 30, 2018 |  |  | For the Nine-Month Period Ended September 30, 2017 |
|  | (In Thousands) |  |  | (In Thousands) |
Balance at beginning of period |  | $ | 15 |  |  | $ | 49 |
Acquisition of PCI loans |  |  | 334 |  |  |  | — |
Accretion |  |  | (11 | ) |  |  | (27 | )
Balance at end of period |  | $ | 338 |  |  | $ | 22 |

|  | For the Three-Month Period Ended September 30, 2018 |  |  | For the Three-Month Period Ended September 30, 2017 |
|  | (In Thousands) |  |  | (In Thousands) |
Balance at beginning of period |  | $ | 6 |  |  | $ | 31 |
Acquisition of PCI loans |  |  | 334 |  |  |  | — |
Accretion |  |  | (2 | ) |  |  | (9 | )
Balance at end of period |  | $ | 338 |  |  | $ | 22 |

Loans acquired with credit deterioration of $878 and accounted for in accordance with ASC 310-30 were individually evaluated to estimate credit losses and a net recovery amount for each loan. The net cash flows for each loan were then discounted to present value using a risk-adjusted market rate. The table below presents the components of the purchase accounting adjustments.

|  | September 14, 2018 |
|  | (In Thousands) |
Contractually required payments |  | $ | 2,353 |
Non-accretable discount |  |  | (1,141 | )
Expected cash flows |  |  | 1,212 |
Accretable discount |  |  | (334 | )
Estimated fair value |  | $ | 878 |

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:

|  | At September 30, 2018 |  |  | At December 31, 2017 |
|  | Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) |  |  | Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) |
|  | (In Thousands) |
Outstanding balance |  | $ | 1,898 |  |  | $ | 775 |
Carrying amount |  |  | 1,015 |  |  |  | 215 |

There has been $30 and $126 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of September 30, 2018 and December 31, 2017, respectively.

Page 23

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2018 and December 31, 2017, a total of $0 and $16, respectively of foreclosed assets were included in other assets. As of September 30, 2018 and December 31, 2017, the Company had initiated formal foreclosure procedures on $286 and $239, respectively, of consumer residential mortgages.

(6) Other Comprehensive Income

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax.

|  | For the Nine-Month Period Ended |  |  | For the Nine-Month Period Ended |
|  | September 30, 2018(a) |  |  | September 30, 2017(a) |
|  | Unrealized Gains and Losses on Available-for- Sale Securities |  |  | Defined Benefit Pension Items |  |  | Total |  |  | Unrealized Gains and Losses on Available-for- Sale Securities |  |  | Defined Benefit Pension Items |  |  | Total |
Beginning balance |  | $ | 3,185 |  |  | $ | (4,309 | ) |  | $ | (1,124 | ) |  | $ | 2,008 |  |  | $ | (4,345 | ) |  | $ | (2,337 | )
Other comprehensive income before reclassifications |  |  | (4,123 | ) |  |  | — |  |  |  | (4,123 | ) |  |  | 1,309 |  |  |  | — |  |  |  | 1,309 |
Amounts reclassified from accumulated other comprehensive loss |  |  | 305 |  |  |  | 339 |  |  |  | 644 |  |  |  | 6 |  |  |  | 625 |  |  |  | 631 |
Net current-period other comprehensive income |  |  | (3,818 | ) |  |  | 339 |  |  |  | (3,479 | ) |  |  | 1,315 |  |  |  | 625 |  |  |  | 1,940 |
Reclassification of equity securities from accumulated other comprehensive loss |  |  | (278 | ) |  |  | — |  |  |  | (278 | ) |  |  | — |  |  |  | — |  |  |  | — |
Ending balance |  | $ | (911 | ) |  | $ | (3,970 | ) |  | $ | (4,881 | ) |  | $ | 3,323 |  |  | $ | (3,720 | ) |  | $ | (397 | )

(a) | Amounts in parentheses indicate debits on the consolidated balance sheets.

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss).

|  | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a) |  |  |
Details about Accumulated Other Comprehensive Loss Components |  | For the Nine months ended September 30, 2018 |  |  | For the Nine months ended September 30, 2017 |  |  | Affected Line Item in the Statement Where Net Income is Presented
Unrealized losses on available-for-sale securities |  | $ | (386 | ) |  | $ | (9 | ) |  | Net loss on securities available for sale
Tax effect |  |  | 81 |  |  |  | 3 |  |  | Income tax expense
|  |  | (305 | ) |  |  | (6 | ) |  | Net of tax
Amortization of defined benefit pension items |  |  |  |  |  |  |  |  |  |
Actuarial gains/(losses) (b) |  |  | (429 | ) |  |  | (946 | ) |  | Salaries, wages and benefits
Tax effect |  |  | 90 |  |  |  | 321 |  |  | Income tax expense
|  |  | (339 | ) |  |  | (625 | ) |  | Net of tax
Total reclassifications for the period |  | $ | (644 | ) |  | $ | (631 | ) |  | Net of tax

(a) | Amounts in parentheses indicate expenses/losses and other amounts indicate income/benefit.

(b) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Page 24

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax.

|  | For the Three-Month Period Ended |  |  | For the Three-Month Period Ended |
|  | September 30, 2018(a) |  |  | September 30, 2017(a) |
|  | Unrealized Gains and Losses on Available-for- Sale Securities |  |  | Defined Benefit Pension Items |  |  | Total |  |  | Unrealized Gains and Losses on Available-for- Sale Securities |  |  | Defined Benefit Pension Items |  |  | Total |
Beginning balance |  | $ | (173 | ) |  | $ | (4,083 | ) |  | $ | (4,256 | ) |  | $ | 3,266 |  |  | $ | (4,002 | ) |  | $ | (736 | )
Other comprehensive income before reclassifications |  |  | (1,048 | ) |  |  | — |  |  |  | (1,048 | ) |  |  | 51 |  |  |  | — |  |  |  | 51 |
Amounts reclassified from accumulated other comprehensive loss |  |  | 310 |  |  |  | 113 |  |  |  | 423 |  |  |  | 6 |  |  |  | 282 |  |  |  | 288 |
Net current-period other comprehensive income |  |  | (738 | ) |  |  | 113 |  |  |  | (625 | ) |  |  | 57 |  |  |  | 282 |  |  |  | 339 |
Ending balance |  | $ | (911 | ) |  | $ | (3,970 | ) |  | $ | (4,881 | ) |  | $ | 3,323 |  |  | $ | (3,720 | ) |  | $ | (397 | )

(a) | Amounts in parentheses indicate debits on the consolidated balance sheets.

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss).

|  | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a) |  |  |
Details about Accumulated Other Comprehensive Loss Components |  | For the Three months ended September 30, 2018 |  |  | For the Three months ended September 30, 2017 |  |  | Affected Line Item in the Statement Where Net Income is Presented
Unrealized losses on available-for-sale securities |  | $ | (392 | ) |  | $ | (9 | ) |  | Net loss on securities available for sale
Tax effect |  |  | 82 |  |  |  | 3 |  |  | Income tax expense
|  |  | (310 | ) |  |  | (6 | ) |  | Net of tax
Amortization of defined benefit pension items |  |  |  |  |  |  |  |  |  |
Actuarial gains/(losses) (b) |  |  | (143 | ) |  |  | (426 | ) |  | Other operating expenses
Tax effect |  |  | 30 |  |  |  | 144 |  |  | Income tax expense
|  |  | (113 | ) |  |  | (282 | ) |  | Net of tax
Total reclassifications for the period |  | $ | (423 | ) |  | $ | (288 | ) |  | Net of tax

(a) | Amounts in parentheses indicate expenses/losses and other amounts indicate income/benefit.

(b) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

(7) Goodwill and Intangible Assets

The carrying amount of goodwill has increased $49,221 since December 31, 2017 as a result of the UCB acquisition, discussed in Note 17. The balance of goodwill was $76,316 at September 30, 2018 and $27,095 at December 31, 2017. Goodwill is not amortized, however, management performs an evaluation of goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Management last performed an evaluation of the Company’s goodwill during the fourth quarter of 2017 and concluded that the Company’s goodwill was not impaired at December 31, 2017.

Page 25

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The increase in the gross carrying amount of core deposit intangibles relates to the UCB acquisition. Acquired intangible assets, other than goodwill, as of Se ptember 3 0, 2018 and December 31, 2017 were as follows:

|  | 2018 |  |  | 2017 |
|  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Net Carrying Amount |  |  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Net Carrying Amount |
Amortized intangible assets(1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MSRs |  | $ | 2,065 |  |  | $ | 386 |  |  | $ | 1,679 |  |  | $ | 1,065 |  |  | $ | 322 |  |  | $ | 743 |
Core deposit intangibles |  |  | 14,792 |  |  |  | 6,823 |  |  |  | 7,969 |  |  |  | 7,274 |  |  |  | 6,738 |  |  |  | 536 |
Total amortized intangible assets |  | $ | 16,857 |  |  | $ | 7,209 |  |  | $ | 9,648 |  |  | $ | 8,339 |  |  | $ | 7,060 |  |  | $ | 1,279 |

(1) | Excludes fully amortized intangible assets

Aggregate core deposit intangible amortization expense was $26, $158, $85 and $483 for the three and nine-months ended September 30, 2018 and 2017, respectively.

Aggregate mortgage servicing rights amortization was $22, $23, $65 and $51 for the three and nine-months ended September 30, 2018 and 2017, respectively.

Estimated amortization expense for each of the next five years and thereafter is as follows:

|  | MSRs |  |  | Core deposit intangibles |  |  | Total |
2018 |  | $ | 22 |  |  | $ | 281 |  |  | $ | 303 |
2019 |  |  | 88 |  |  |  | 945 |  |  |  | 1,033 |
2020 |  |  | 88 |  |  |  | 914 |  |  |  | 1,002 |
2021 |  |  | 87 |  |  |  | 891 |  |  |  | 978 |
2022 |  |  | 87 |  |  |  | 868 |  |  |  | 955 |
Thereafter |  |  | 1,307 |  |  |  | 4,070 |  |  |  | 5,377 |
|  | $ | 1,679 |  |  | $ | 7,969 |  |  | $ | 9,648 |

(8) Short-Term Borrowings

Short-term borrowings, which consist of federal funds purchased and other short-term borrowings are included in Federal Home Loan Bank advances on the Consolidated Balance Sheets and are summarized as follows:

|  | At September 30, 2018 |  |  | At December 31, 2017 |
|  | Federal Funds Purchased |  |  | Short-term Borrowings |  |  | Federal Funds Purchased |  |  | Short-term Borrowings |
Outstanding balance |  | $ | — |  |  | $ | 140,100 |  |  | $ | — |  |  | $ | 56,900 |
Maximum indebtedness |  |  | — |  |  |  | 225,300 |  |  |  | 20,000 |  |  |  | 115,050 |
Average balance |  |  | — |  |  |  | 101,010 |  |  |  | 119 |  |  |  | 38,825 |
Average rate paid |  |  | — |  |  |  | 1.94 | % |  |  | 1.68 | % |  |  | 1.12 | %
Interest rate on balance |  |  | — |  |  |  | 2.21 | % |  |  | — |  |  |  | 1.42 | %

Average balance during the period represents daily averages. Average rate paid represents interest expense divided by the related average balances.

These borrowing transactions can range from overnight to six months in maturity. The average maturity was one day at September 30, 2018 and December 31, 2017.

Securities sold under agreements to repurchase are used to facilitate the needs of our customers as well as to facilitate our short-term funding needs. Securities sold under repurchase agreements are carried at the amount of cash received in association with the agreement. We continuously monitor the collateral levels and may be required, from time to time, to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

Page 26

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents detail regarding the securities pledged as collateral under repurchase agreements as of September 3 0, 2018 and December 31, 2017. All of the repurchase agreements are overnight agreements.

|  | September 30, 2018 |  |  | December 31, 2017 |
Securities pledged for repurchase agreements: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 862 |  |  | $ | 874 |
Obligations of U.S. government agencies |  |  | 17,653 |  |  |  | 20,881 |
Total securities pledged |  | $ | 18,515 |  |  | $ | 21,755 |
Gross amount of recognized liabilities for repurchase agreements |  | $ | 18,515 |  |  | $ | 21,755 |
Amounts related to agreements not included in offsetting disclosures above |  | $ | — |  |  | $ | — |

(9) Earnings per Common Share

Basic earnings per common share are computed as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect, if any, of additional potential common shares issuable under the Company’s equity incentive plan, computed using the treasury stock method, and the impact of the Company’s convertible preferred stock using the “if converted” method.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Basic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) |  | $ | (3,433 | ) |  | $ | 3,660 |  |  | $ | 6,570 |  |  | $ | 11,892 |
Preferred stock dividends |  |  | 192 |  |  |  | 308 |  |  |  | 794 |  |  |  | 935 |
Net income (loss) available to common shareholders—basic |  | $ | (3,625 | ) |  | $ | 3,352 |  |  | $ | 5,776 |  |  | $ | 10,957 |
Weighted average common shares outstanding—basic |  |  | 11,627,093 |  |  |  | 10,170,734 |  |  |  | 10,775,577 |  |  |  | 9,815,118 |
Basic earnings (loss) per common share |  | $ | (0.31 | ) |  | $ | 0.33 |  |  | $ | 0.54 |  |  | $ | 1.12 |
Diluted |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) available to common shareholders—basic |  | $ | (3,625 | ) |  | $ | 3,352 |  |  | $ | 5,776 |  |  | $ | 10,957 |
Preferred stock dividends |  |  | 192 |  |  |  | 308 |  |  |  | 794 |  |  |  | 935 |
Net income (loss) available to common shareholders—diluted |  | $ | (3,433 | ) |  | $ | 3,660 |  |  | $ | 6,570 |  |  | $ | 11,892 |
Weighted average common shares outstanding for basic earnings per common share |  |  | 11,627,093 |  |  |  | 10,170,734 |  |  |  | 10,775,577 |  |  |  | 9,815,118 |
Add: Dilutive effects of convertible preferred shares |  |  | 1,643,980 |  |  |  | 2,426,565 |  |  |  | 2,054,825 |  |  |  | 2,455,008 |
Average shares and dilutive potential common shares outstanding—diluted |  |  | 13,271,073 |  |  |  | 12,597,299 |  |  |  | 12,830,402 |  |  |  | 12,270,126 |
Diluted earnings (loss) per common share |  | $ | (0.31 | ) |  | $ | 0.29 |  |  | $ | 0.51 |  |  | $ | 0.97 |

For the three- and nine-month period ended September 30, 2018 there were 1,643,980 and 2,054,825 dilutive shares related to the Company’s convertible preferred stock. For the three- and nine-month period ended September 30, 2017 there were 2,426,565 and 2,455,008 dilutive shares related to the Company’s convertible preferred stock. Under the “if converted” method, all convertible preferred shares are assumed to be converted into common shares at the corresponding conversion rate. These additional shares are then added to the common shares outstanding to calculate diluted earnings per share.

Page 27

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(10) Commitments, Contingencies and Off-Balance Sheet Risk

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amounts of financial instruments with off-balance-sheet risk were as follows for September 30, 2018 and December 31, 2017:

|  | Contract Amount |
|  | September 30, 2018 |  |  | December 31, 2017 |
|  | Fixed Rate |  |  | Variable Rate |  |  | Fixed Rate |  |  | Variable Rate |
Commitment to extend credit: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Lines of credit and construction loans |  | $ | 10,068 |  |  | $ | 327,453 |  |  | $ | 4,982 |  |  | $ | 286,925 |
Overdraft protection |  |  | 2 |  |  |  | 37,614 |  |  |  | 7 |  |  |  | 33,353 |
Letters of credit |  |  | 624 |  |  |  | 2,396 |  |  |  | 624 |  |  |  | 2,637 |
|  | $ | 10,694 |  |  | $ | 367,463 |  |  | $ | 5,613 |  |  | $ | 322,915 |

Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from 2.88% to 8.00% at September 30, 2018 and from 2.88% to 10.25% at December 31, 2017. Maturities extend up to 30 years.

Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The reserve balance maintained in accordance with such requirements was $3,283 on September 30, 2018 and $4,112 on December 31, 2017.

(11) Pension Information

The Company sponsors a pension plan which is a noncontributory defined benefit retirement plan. Annual payments, subject to the maximum amount deductible for federal income tax purposes, are made to a pension trust fund. In 2006, the Company amended the pension plan to provide that no employee could be added as a participant to the pension plan after December 31, 2006. In 2014, the Company amended the pension plan again to provide that no additional benefits would accrue beyond April 30, 2014.

Net periodic pension benefit was as follows:

|  | Three months ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Service cost |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Interest cost |  |  | 125 |  |  |  | 171 |  |  |  | 375 |  |  |  | 509 |
Expected return on plan assets |  |  | (273 | ) |  |  | (283 | ) |  |  | (819 | ) |  |  | (844 | )
Other components |  |  | 143 |  |  |  | 426 |  |  |  | 429 |  |  |  | 946 |
Net periodic pension benefit |  | $ | (5 | ) |  | $ | 314 |  |  | $ | (15 | ) |  | $ | 611 |

The Company does not expect to make any contribution to its pension plan in 2018. The Company contributed $2,000 in 2017.

(12) Equity Incentive Plan

At the Company’s 2014 annual meeting, the shareholders adopted the Company’s 2014 Incentive Plan (“2014 Incentive Plan”). The 2014 Incentive Plan authorizes the Company to grant options, stock awards, stock units and other awards for up to 375,000 common shares of the Company. There were 268,628 shares available for future grants under this plan at September 30, 2018.

During each of the last three years, the Board of Directors has awarded restricted common shares to senior officers of the Company. The restricted shares vest ratably over a three-year period following the grant date. The product of the number of restricted shares granted and the grant date market price of the Company’s common shares determines the fair value of restricted shares under the Company’s 2014 Incentive Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award.

Page 28

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

O n May 16, 2017, directors of the Company’s banking subsidiary, C ivista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 6,804 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the per iod up to the 2018 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $144.

On September 11, 2017, a newly appointed director of the Company’s banking subsidiary, Civista, was paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 367 common shares was issued as payment of her retainer for her service on the Civista Board of Directors covering the period up to the 2018 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $8.

On May 17, 2018, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 6,204 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2019 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $144.

Finally, on September 25, 2018, newly appointed directors of the Company’s banking subsidiary, Civista, were paid a retainer on the form of non-restricted common shares of the Company. The aggregate of 867 common shares were issued for their service on the Civista Board of Directors covering the period up to the 2019 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $21.

No options had been granted under the 2014 Incentive Plan as of September 30, 2018 and 2017.

The Company classifies share-based compensation for employees with “Compensation expense” in the Consolidated Statements of Operations.

The following is a summary of the status of the Company’s restricted shares and changes therein for the three- and nine-month periods ended September 30, 2018:

|  | Three months ended |  |  | Nine Months Ended |
|  | September 30, 2018 |  |  | September 30, 2018 |
|  | Number of Restricted Shares |  |  | Weighted Average Grant Date Fair Value |  |  | Number of Restricted Shares |  |  | Weighted Average Grant Date Fair Value |
Nonvested at beginning of period |  |  | 40,692 |  |  | $ | 19.11 |  |  |  | 42,138 |  |  | $ | 15.60 |
Granted |  |  | — |  |  |  | — |  |  |  | 16,510 |  |  |  | 22.51 |
Vested |  |  | — |  |  |  | — |  |  |  | (17,956 | ) |  |  | 14.01 |
Forfeited |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Nonvested at end of period |  |  | 40,692 |  |  | $ | 19.11 |  |  |  | 40,692 |  |  | $ | 19.11 |

The following is a summary of the status of the Company’s awarded restricted shares as of September 30, 2018:

At September 30, 2018 |
Date of Award |  | Shares |  |  | Remaining Expense |  |  | Remaining Vesting Period (Years) |
January 15, 2016 |  |  | 6,160 |  |  | $ | 48 |  |  |  | 2.25 |
March 11, 2016 |  |  | 5,256 |  |  |  | 8 |  |  |  | 0.25 |
March 20, 2017 |  |  | 7,814 |  |  |  | 67 |  |  |  | 1.25 |
March 20, 2017 |  |  | 4,952 |  |  |  | 85 |  |  |  | 3.25 |
April 10, 2018 |  |  | 8,294 |  |  |  | 125 |  |  |  | 2.25 |
April 10, 2018 |  |  | 8,216 |  |  |  | 153 |  |  |  | 4.25 |
|  |  | 40,692 |  |  | $ | 486 |  |  |  | 2.33 |

During the three months ended September 30, 2018, the Company recorded $71 of share-based compensation expense and $21 of director retainer fees for shares granted under the 2014 Incentive Plan. During the nine months ended September 30, 2018, the Company recorded $200 of share-based compensation expense and $165 of director retainer fees for shares granted under the 2014 Incentive Plan. At September 30, 2018, the total compensation cost related to unvested awards not yet recognized is $486, which is expected to be recognized over the weighted average remaining life of the grants of 2.33 years.

Page 29

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(13) Fair Value Measurement

The Company uses a fair value hierarchy to measure fair value. This hierarchy describes three levels of inputs that may be used to measure fair value. Level 1: Quoted prices for identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; Level 3: Significant unobservable inputs that reflect the Company’s own view about the assumptions that market participants would use in pricing an asset.

Debt securities: The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Equity securities: The Company’s equity securities are not actively traded in an open market. The fair values of these equity securities available for sale is determined by using market data inputs for similar securities that are observable (Level 2 inputs).

The fair value of the swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date and classified Level 2. The changes in fair value of these assets/liabilities had no impact on net income or comprehensive income.

Impaired loans: The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included as a Level 3 measurement.

Other real estate owned: OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table below. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. Management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the properties are categorized in the below table as Level 3 measurements since these adjustments are considered to be unobservable inputs. Income and expenses from operations are included in other operating expenses. Further declines in the fair value of the collateral subsequent to foreclosure are included in net gain on sale of other real estate owned.

Assets and liabilities measured at fair value are summarized in the table below.

|  | Fair Value Measurements at September 30, 2018 Using: |
Assets: |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ | — |  |  | $ | 28,975 |  |  | $ | — |
Obligations of states and political subdivisions |  |  | — |  |  |  | 153,870 |  |  |  | — |
Mortgage-backed securities in government sponsored entities |  |  | — |  |  |  | 134,121 |  |  |  | — |
Total securities available for sale |  |  | — |  |  |  | 316,966 |  |  |  | — |
Equity securities in financial institutions |  |  | — |  |  |  | 1,146 |  |  |  | — |
Swap asset |  |  | — |  |  |  | 2,059 |  |  |  | — |
Liabilities measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Swap liability |  |  | — |  |  |  | 2,059 |  |  |  | — |
Assets measured at fair value on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | — |  |  | $ | — |  |  | $ | 2,685 |

Page 30

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

|  | Fair Value Measurements at December 31, 2017 Using: |
Assets: |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. Government agencies |  | $ | — |  |  | $ | 30,358 |  |  | $ | — |
Obligations of states and political subdivisions |  |  | — |  |  |  | 118,056 |  |  |  | — |
Mortgage-backed securities in government sponsored entities |  |  | — |  |  |  | 81,816 |  |  |  | — |
Total securities available for sale |  |  | — |  |  |  | 230,230 |  |  |  | — |
Equity securities in financial institutions |  |  | — |  |  |  | 832 |  |  |  | — |
Swap asset |  |  | — |  |  |  | 1,560 |  |  |  | — |
Liabilities measured at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Swap liability |  |  | — |  |  |  | 1,560 |  |  |  | — |
Assets measured at fair value on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | — |  |  | $ | — |  |  | $ | 1,040 |
Other real estate owned |  |  | — |  |  |  | — |  |  |  | 16 |

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2018.

|  | Quantitative Information about Level 3 Fair Value Measurements |
September 30, 2018 |  | Fair Value |  |  | Valuation Technique |  | Unobservable Input |  | Range |  | Weighted Average |
Impaired loans |  | $ | 2,685 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | 10% - 100% |  | 26% |
|  |  |  |  |  |  |  | Liquidation expense |  | 0% - 10% |  | 9% |
|  |  |  |  |  |  |  | Holding period |  | 0 - 30 months |  | 20 months |

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2017.

|  | Quantitative Information about Level 3 Fair Value Measurements |
December 31, 2017 |  | Fair Value |  |  | Valuation Technique |  | Unobservable Input |  | Range |  | Weighted Average |
Impaired loans |  | $ | 1,040 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | 0% - 30% |  | 16% |
|  |  |  |  |  |  |  | Liquidation expense |  | 0% - 10% |  | 8% |
|  |  |  |  |  |  |  | Holding period |  | 0 - 30 months |  | 20 months |
Other real estate owned |  | $ | 16 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | 10% - 30% |  | 10% |
|  |  |  |  |  |  |  | Liquidation expense |  | 0% - 10% |  | 10% |

The methods of determining the fair value of assets and liabilities presented in the note are consistent with our methodologies disclosed in the Company’s 2017 Form 10-K, except for the valuation of loans held for investment which was impacted by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the fair value of loans held for investment, excluding impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk of the loans. Loans are considered a Level 3 classification.

Page 31

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at September 3 0, 2018 are as follows:

September 30, 2018 |  | Carrying Amount |  |  | Total Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from financial institutions |  | $ | 64,754 |  |  | $ | 64,754 |  |  | $ | 64,754 |  |  | $ | — |  |  | $ | — |
Other securities |  |  | 17,774 |  |  |  | 17,774 |  |  |  | 17,774 |  |  |  | — |  |  |  | — |
Loans, held for sale |  |  | 4,025 |  |  |  | 4,025 |  |  |  | 4,025 |  |  |  | — |  |  |  | — |
Loans, net of allowance |  |  | 1,502,313 |  |  |  | 1,495,951 |  |  |  | — |  |  |  | — |  |  |  | 1,495,951 |
Bank owned life insurance |  |  | 42,750 |  |  |  | 42,750 |  |  |  | 42,750 |  |  |  | — |  |  |  | — |
Accrued interest receivable |  |  | 6,878 |  |  |  | 6,878 |  |  |  | 6,878 |  |  |  | — |  |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonmaturing deposits |  |  | 1,300,365 |  |  |  | 1,300,365 |  |  |  | 1,300,365 |  |  |  | — |  |  |  | — |
Time deposits |  |  | 277,390 |  |  |  | 278,680 |  |  |  | — |  |  |  | — |  |  |  | 278,680 |
Short-term FHLB advances |  |  | 140,100 |  |  |  | 140,100 |  |  |  | 140,100 |  |  |  | — |  |  |  | — |
Long-term FHLB advances |  |  | 5,000 |  |  |  | 4,985 |  |  |  | — |  |  |  | — |  |  |  | 4,985 |
Securities sold under agreement to repurchase |  |  | 18,515 |  |  |  | 18,515 |  |  |  | 18,515 |  |  |  | — |  |  |  | — |
Subordinated debentures |  |  | 29,427 |  |  |  | 32,016 |  |  |  | — |  |  |  | — |  |  |  | 32,016 |
Accrued interest payable |  |  | 184 |  |  |  | 184 |  |  |  | 184 |  |  |  | — |  |  |  | — |

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at December 31, 2017 are as follows:

December 31, 2017 |  | Carrying Amount |  |  | Total Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from financial institutions |  | $ | 40,519 |  |  | $ | 40,519 |  |  | $ | 40,519 |  |  | $ | — |  |  | $ | — |
Loans, held for sale |  |  | 2,197 |  |  |  | 2,197 |  |  |  | 2,197 |  |  |  | — |  |  |  | — |
Loans, net of allowance |  |  | 1,151,527 |  |  |  | 1,146,969 |  |  |  | — |  |  |  | — |  |  |  | 1,146,969 |
Other securities |  |  | 14,247 |  |  |  | 14,247 |  |  |  | 14,247 |  |  |  | — |  |  |  | — |
Bank owned life insurance |  |  | 25,125 |  |  |  | 25,125 |  |  |  | 25,125 |  |  |  | — |  |  |  | — |
Accrued interest receivable |  |  | 4,488 |  |  |  | 4,488 |  |  |  | 4,488 |  |  |  | — |  |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nonmaturing deposits |  |  | 981,021 |  |  |  | 981,021 |  |  |  | 981,021 |  |  |  | — |  |  |  | — |
Time deposits |  |  | 223,902 |  |  |  | 223,626 |  |  |  | — |  |  |  | — |  |  |  | 223,626 |
Short-term FHLB advances |  |  | 56,900 |  |  |  | 56,900 |  |  |  | 56,900 |  |  |  | — |  |  |  | — |
Long-term FHLB advances |  |  | 15,000 |  |  |  | 14,964 |  |  |  | — |  |  |  | — |  |  |  | 14,964 |
Securities sold under agreement to repurchase |  |  | 21,755 |  |  |  | 21,755 |  |  |  | 21,755 |  |  |  | — |  |  |  | — |
Subordinated debentures |  |  | 29,427 |  |  |  | 31,052 |  |  |  | — |  |  |  | — |  |  |  | 31,052 |
Accrued interest payable |  |  | 410 |  |  |  | 410 |  |  |  | 410 |  |  |  | — |  |  |  | — |

Cash and due from financial institutions: The carrying amounts for cash and due from financial institutions approximate fair value because they have original maturities of less than 90 days and do not present unanticipated credit concerns.

Other securities: The carrying value of regulatory stock approximates fair value based on applicable redemption provisions.

Loans, held-for-sale: Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment to an investor. Because the holding period of such loans is typically short, the carrying value generally approximates the fair value at the time the commitment is received. All loans in the held-for-sale account conform to Fannie Mae underwriting guidelines, with specific intent of the loan being purchased by an investor at the predetermined rate structure.

Page 32

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Loans, net of allowance: Fair values for loans, other than impaired, are estimated for portfolios of loans with similar financial characteristics. The fair value of performing loans has been estimated by disc ounting expected future cash flows of the underlying portfolios. The discount rates used in these calculations are generally derived from the treasury yield curve and are calculated by discounting scheduled cash flows through the estimated maturity using e stimated market discount rates that reflect the credit and interest rate inherent in the loan. The estimated maturity is based on the Company’s historical experience with repayments for each loan classification. Changes in these significant unobservable in puts used in discounted cash flow analysis, such as the discount rate or prepayment speeds, could lead to changes in the underlying fair value.

Bank owned life insurance: The carrying value of bank owned life insurance approximates the fair value based on applicable redemption provisions.

Accrued interest receivable and payable and securities sold under agreements to repurchase: The carrying amounts for accrued interest receivable, accrued interest payable and securities sold under agreements to repurchase approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns.

Deposits: The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand.

The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the market rates currently offered for deposits of similar remaining maturities.

The deposits’ fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Federal Home Loan Bank (“FHLB”) advances: Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

Subordinated debentures: The fair value of subordinated debentures is based on the discounted value of contractual cash flows of the underlying debt agreements. The discount rate is estimated using the current rate for the borrowing from the FHLB with the most similar terms.

(14) Derivative Hedging Instruments

To accommodate customer need and to support the Company’s asset/liability positioning, on occasion we enter into interest rate swaps with a customer and a bank counterparty. The Company enters into a floating rate loan and a fixed rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed rate swap with a bank counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a bank counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customer to effectively convert variable rate loans to fixed rate loans. Since the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations.

The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis point change in interest rates as of September 30, 2018.

|  | Notional Amount |  |  | Weighted Average Rate Received/(Paid) |  |  | Impact of a 1 basis point change in interest rates |  |  | Repricing Frequency
Derivative Assets |  | $ | 95,211 |  |  |  | 5.29 | % |  | $ | 55 |  |  | Monthly
Derivative Liabilities |  |  | (95,211 | ) |  |  | -5.29 | % |  |  | (55 | ) |  | Monthly
Net Exposure |  | $ | — |  |  |  |  |  |  | $ | — |  |  |

Page 33

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis point change in interest rates as of December 31, 2017.

|  | Notional Amount |  |  | Weighted Average Rate Received/(Paid) |  |  | Impact of a 1 basis point change in interest rates |  |  | Repricing Frequency
Derivative Assets |  | $ | 66,227 |  |  |  | 5.08 | % |  | $ | 36 |  |  | Monthly
Derivative Liabilities |  |  | (66,227 | ) |  |  | -5.08 | % |  |  | (36 | ) |  | Monthly
Net Exposure |  | $ | — |  |  |  |  |  |  | $ | — |  |  |

The Company monitors and controls all derivative products with a comprehensive Board of Director approved commercial loan swap policy. All hedge transactions must be approved in advance by the Lenders Loan Committee or the Directors Loan Committee of the Board of Directors.

(15) Qualified Affordable Housing Project Investments

The Company invests in certain qualified affordable housing projects. At September 30, 2018 and December 31, 2017, the balance of the investment for qualified affordable housing projects was $4,197 and $3,204, respectively. These balances are reflected in the other assets line on the Consolidated Balance Sheet. The unfunded commitments related to the investments in qualified affordable housing projects totaled $3,129 and $4,510 at September 30, 2018 and December 31, 2017, respectively.

During the nine months ended September 30, 2018 and 2017, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $388 and $247, respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $633 and $414, respectively. During the three months ended September 30, 2018 and 2017, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $130 and $82, respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $207 and $138, respectively. During the three and nine months ended September 30, 2018 and 2017, the Company did not incur impairment losses related to its investment in qualified affordable housing projects.

(16) Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 2 Significant Accounting Policies, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges

Service charges consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

ATM/Interchange Fees

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Page 34

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Wealth Management Fees

Wealth management fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received in the following month through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.

Tax Refund Processing Fees

The Company facilitates the payment of federal and state income tax refunds in partnership with a third-party vendor. Refund Transfers (“RTs”) are fee-based products whereby a tax refund is issued to the taxpayer after the Company has received the refund from the federal or state government. As part of this agreement the Company earns fee income, the majority of which is received in the first quarter of the year. The Company’s fee income revenue is recognized based on the estimated percent of business completed by each date.

Other

Other noninterest income consists of other recurring revenue streams such as check order fees, wire transfer fees, safety deposit box rental fees, item processing fees and other miscellaneous revenue streams. Check order income mainly represents fees charged to customers for checks. Wire transfer fees represent revenue from processing wire transfers. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Item processing fee income represents fees charged to other financial institutions for processing their transactions. Payment is typically received in the following month.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three- and nine-months ended September 30, 2018 and 2017.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Noninterest Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
In-scope of Topic 606: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges |  | $ | 1,219 |  |  | $ | 1,177 |  |  | $ | 3,712 |  |  | $ | 3,609 |
ATM/Interchange fees |  |  | 622 |  |  |  | 567 |  |  |  | 1,764 |  |  |  | 1,643 |
Wealth management fees |  |  | 873 |  |  |  | 787 |  |  |  | 2,561 |  |  |  | 2,233 |
Tax refund processing fees |  |  | — |  |  |  | — |  |  |  | 2,750 |  |  |  | 2,750 |
Other |  |  | 203 |  |  |  | 192 |  |  |  | 650 |  |  |  | 560 |
Noninterest Income (in-scope of Topic 606) |  |  | 2,917 |  |  |  | 2,723 |  |  |  | 11,437 |  |  |  | 10,795 |
Noninterest Income (out-of-scope of Topic 606) |  |  | 371 |  |  |  | 742 |  |  |  | 1,856 |  |  |  | 1,909 |
Total Noninterest Income |  | $ | 3,288 |  |  | $ | 3,465 |  |  | $ | 13,293 |  |  | $ | 12,704 |

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2018 and December 31, 2017, the Company did not have any significant contract balances.

Page 35

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

(17) Merger

On September 14, 2018, CBI completed the acquisition by merger of United Community Bancorp (“UCB”) in a stock and cash transaction for aggregate consideration of approximately $117,344. As a result of the acquisition, the Company issued 4,277,430 common shares and paid approximately $12,675 in cash to the former shareholders of UCB. The Company and UCB had first announced that they had entered into an agreement to merge in March of 2018. Immediately following the merger, UCB’s banking subsidiary, United Community Bank, was merged into CBI’s banking subsidiary, Civista Bank.

The assets and liabilities of UCB were recorded on CBI’s Balance Sheet at their preliminary estimated fair values as of September 14, 2018, the acquisition date, and UCB’s results of operations have been included in CBI’s Consolidated Statements of Income since that date. Due to the timing of the acquisition relative to the end of the reporting period, the fair values for certain assets and liabilities acquired from UCB on September 14, 2018 represent preliminary estimates. Based on a preliminary purchase price allocation, CBI recorded $49,221 in goodwill and $7,518 in core deposit intangibles, representing the principal change in goodwill and intangibles from December 31, 2017.

At the time of the merger, UCB had total assets of $538,875, including $298,319 in loans, and $481,832 in deposits. The transaction was recorded as a purchase and, accordingly, the operating results of UCB have been included in the Company’s Consolidated Financial Statements since the close of business on September 14, 2018.

Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. The identifiable intangible assets consist of core deposit intangible which is being amortized over the estimated useful life. The gross carrying amount of the core deposit intangible at September 30, 2018 was $7,518.

As of September 30, 2018, the current year and estimated future amortization expense for the core deposit intangible is as follows:

|  | Core deposit intangibles |
2018 |  | $ | 255 |
2019 |  |  | 857 |
2020 |  |  | 842 |
2021 |  |  | 823 |
2022 |  |  | 800 |
Thereafter |  |  | 3,941 |
|  | $ | 7,518 |

The following table presents financial information for the former UCB included in the Consolidated Statements of Income from the date of acquisition through September 30, 2018.

|  | Actual From Acquisition Date Through September 30, 2018 |
|  | (in thousands) |
Net interest income after provision for loan losses |  | $ | 432 |
Noninterest income |  |  | 7 |
Net income |  |  | 298 |

Page 36

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents pro forma information for the nine- and three-month periods ended September 30, 201 8 and 201 7 as if the acquisition of U CB had occurred on January 1, 201 7. This table has been prepared for comparative purposes only and is not indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results.

|  | Pro Formas |  | Pro Formas |
|  | Nine months ended September 30, |  | Three months ended September 30, |
|  | 2018 |  |  | 2017 |  | 2018 |  |  | 2017 |
Net interest income after provision for loan losses |  | $ | 54,340 |  |  | $ | 50,809 |  | $ | 17,236 |  |  | $ | 17,378 |
Noninterest income |  |  | 13,493 |  |  |  | 16,015 |  |  | 1,158 |  |  |  | 4,565 |
Net income |  |  | 5,895 |  |  |  | 14,679 |  |  | (5,708 | ) |  |  | 4,522 |
Pro forma earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.47 |  |  | $ | 1.40 |  | $ | (0.51 | ) |  | $ | 0.41 |
Diluted |  | $ | 0.46 |  |  | $ | 1.20 |  | $ | (0.51 | ) |  | $ | 0.36 |

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for UCB. Core deposit intangibles will be amortized over periods of between ten years using an accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition. Merger and acquisition integration costs and amortization of fair value adjustments net of the related income tax effects are included in the amounts below.

Consideration paid |  |  |  |  |  | $ | 117,344 |
Net assets acquired: |  |  |  |  |  |  |  |
Cash and due from financial institutions |  | $ | 156,472 |  |  |  |  |
Securities available for sale |  |  | 43,214 |  |  |  |  |
Equity securities |  |  | 212 |  |  |  |  |
Loans held for sale |  |  | 492 |  |  |  |  |
Loans, net |  |  | 298,319 |  |  |  |  |
Other securities |  |  | 3,527 |  |  |  |  |
Premises and equipment |  |  | 5,291 |  |  |  |  |
Accrued interest receivable |  |  | 950 |  |  |  |  |
Core deposit intangible |  |  | 7,518 |  |  |  |  |
Bank owned life insurance |  |  | 17,193 |  |  |  |  |
Other assets |  |  | 10,896 |  |  |  |  |
Noninterest-bearing deposits |  |  | (226,795 | ) |  |  |  |
Interest-bearing deposits |  |  | (249,149 | ) |  |  |  |
Other liabilities |  |  | (17 | ) |  |  |  |
|  |  |  |  |  |  | 68,123 |
Goodwill resulting from UCB merger |  |  |  |  |  | $ | 49,221 |

The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgment in accounting for the acquisition. The following is a description of the methods used to determine fair value of significant assets and liabilities at the acquisition date:

Page 37

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Cash: The Company acquired $1 56.5 million in cash, which management deemed to reflect fair value based on the short term nature of the asset.

Loans: The Company acquired $298.3 million in loans receivable with and without evidence of credit quality deterioration. The loans consisted of commercial loans, commercial real estate loans, and residential mortgage loans which included home equity secured lines of credit, real estate construction and consumer and other loans. The fair value of the performing loan portfolio includes separate adjustments to reflect a credit risk and marketability component and a yield component reflecting the differential between portfolio and market yields. Additionally, certain loans were valued based on their observable sales price. Loans acquired with credit deterioration of $1,210 were individually evaluated to estimate credit losses and a net recovery amount for each loan. The net cash flows for each loan was then discounted to present value using a risk-adjusted market rate.

Deposits: The Company acquired $475.9 million in deposits. Savings and transaction accounts are variable, have no stated maturity and can be withdrawn on short notice with no penalty. Therefore, the fair value of such deposits is considered equal to the carrying value. The fair value of CD’s consists of comparing the contractual cost of the CD’s to the market rates with corresponding maturities. The valuation adjustment reflects the present value of the difference between the cash flows attributable to the CD’s based on contractual and market rates. The core deposit intangible is determined by the present value difference of the net cost of the core deposit versus the same amount for an alternative funding source.

This acquisition provided the Company with the strategic opportunity to expand into new markets that, while similar to existing markets, are projected to be more vibrant in population growth and business opportunity growth. Additionally, the acquisition will provide exposure to suburbs of larger urban areas without the commitment of operating inside large metropolitan areas dominated by regional and national financial organizations. The acquisition also creates synergies on the operational side of the Company by allowing noninterest expenses to be spread over a larger operating base.

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)

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, 2018 compared to December 31, 2017, and the consolidated results of operations for the three- and nine-month period ended September 30, 2018, compared to the same period in 2017. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this 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, changes in financial markets or national or local economic conditions; sustained weakness or deterioration in the real estate market; volatility and direction of market interest rates; credit risks of lending activities; changes in the allowance for loan losses; legislation or regulatory changes or actions; increases in Federal Deposit Insurance Corporation (“FDIC”) insurance premiums and assessments; changes in tax laws; failure of or breach in our information and data processing systems; unforeseen litigation; 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, 2017, as supplemented by the risks identified in “Item 1A. Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018. 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, 2018 were $2,085,385 compared to $1,525,857 at December 31, 2017, an increase of $559,528, or 36.7%. The increase in total assets was due to the Company’s acquisition by merger of United Community Bancorp (“UCB”) effective September 14, 2018 and increases in securities available for sale, loans held for sale, loans and other assets. Total liabilities at September 30, 2018 were $1,796,147 compared to $1,341,396 at December 31, 2017, an increase of $454,751, or 33.9%. The increase in total liabilities was mainly attributable to an increase in total deposits, FHLB advances and accrued expenses and other liabilities.

Loans outstanding as of September 30, 2018 and December 31, 2017 were as follows:

|  | September 30, 2018 |  |  | December 31, 2017 |
Commercial & Agriculture |  | $ | 169,686 |  |  | $ | 152,473 |
Commercial Real Estate—Owner Occupied |  |  | 203,087 |  |  |  | 164,099 |
Commercial Real Estate—Non-Owner Occupied |  |  | 499,240 |  |  |  | 425,623 |
Residential Real Estate |  |  | 459,021 |  |  |  | 268,735 |
Real Estate Construction |  |  | 126,288 |  |  |  | 97,531 |
Farm Real Estate |  |  | 38,038 |  |  |  | 39,461 |
Consumer and Other |  |  | 20,284 |  |  |  | 16,739 |
Total loans |  |  | 1,515,644 |  |  |  | 1,164,661 |
Allowance for loan losses |  |  | (13,331 | ) |  |  | (13,134 | )
Net loans |  | $ | 1,502,313 |  |  | $ | 1,151,527 |

Net loans have increased $350,786 or 30.5% since December 31, 2017. The Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction and Consumer and Other loan portfolios increased $17,213, $38,988, $73,617, $190,286, $28,757 and $3,545, respectively since December 31, 2017, while the Farm Real Estate loan portfolio decreased $1,423 since December 31, 2017. Loans acquired as part of the UCB acquisition for Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction, Farm Real Estate and Consumer and Other loan portfolios totaled $14,362, $36,945, $52,460, $176,204, $11,360, $1,813 and $5,175, respectively. At September 30, 2018, the net loan to deposit ratio was 95.2% compared to 95.6% at December 31, 2017.

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)

Loans held for sale have increased $1,828 or 83.2% since December 31, 2017, due to originations and sales volumes during the first nine months of 2018. In addition, $492 in loans held for sale were acquired in the UCB acquisition.

During the first nine months of 2018, $390 was placed into the allowance for loan losses from earnings, compared to no provision in 2017. Net charge-offs for the first nine months of 2018 totaled $193, compared to net charge offs of $359 in the first nine months of 2017. For the first nine months of 2018, the Company charged off a total of 40 loans. Twelve Real Estate Mortgage loans totaling $74, eight Commercial and Agriculture loans totaling $248, one Commercial Real Estate – Owner Occupied loans totaling $193, two Commercial Real Estate – Non-Owner Occupied loans totaling $121 and seventeen Consumer and Other loans totaling $148 were charged off in the first nine months of the year. In addition, during the first nine months of 2018, the Company had recoveries on previously charged-off Commercial and Agriculture loans of $168, Commercial Real Estate – Owner Occupied loans of $148, Commercial Real Estate – Non-Owner Occupied loans of $23, Real Estate Mortgage loans of $181, Farm Real Estate loans of $4 and Consumer and Other loans of $67. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans decreased by $449 since December 31, 2017, which was due to a decrease in loans on nonaccrual status of $448 and a decrease in loans past due 90 days and accruing of $1. 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 are impaired for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the 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.

Management analyzes each impaired Commercial and Commercial Real Estate loan relationship with a balance of $350 or larger, on an individual basis and designates a loan as impaired when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicate that underlying cash flows are not adequate to meet its debt service requirements. In addition, loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loan losses as a percent of total loans was 0.88% at September 30, 2018 and 1.13% at December 31, 2017.

The available for sale security portfolio increased by $86,736, from $230,230 at December 31, 2017 to $316,966 at September 30, 2018. Securities acquired as part of the acquisition of UCB totaled $43,214, and excess cash from the acquisition was also used to purchase additional securities. 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, 2018, the Company was in compliance with all pledging requirements.

Premises and equipment, net, have increased $4,907 from December 31, 2017 to September 30, 2018. The increase is the result of new purchases of $524, offset by depreciation of $908. In addition, the Company sold certain premises and equipment held for sale during the first nine months ended September 30, 2018. Proceeds from the sale totaled $238, resulting in a gain on the sale of $33. Premises and equipment, net acquired from the merger with UCB totaled $5,291.

Goodwill increased by $49,221, from $27,095 at December 31, 2017 to $76,316 at September 30, 2018. The increase is due to the goodwill created from the merger with UCB. Other intangible assets increased $8,369 from year-end 2017. The increase includes $7,518 of core deposit intangibles and $894 of mortgage servicing rights from the merger with UCB.

Bank owned life insurance (BOLI) increased $17,625 from December 31, 2017 to September 30, 2018. BOLI acquired from the merger with UCB totaled $17,193. The remaining difference is the result of increases in the cash surrender value of the underlying insurance policies.

Other assets increased $9,740 from December 31, 2017 to September 30, 2018. The increase is the result of increases in the market value of swap assets, additional investments in low income housing and the change in deferred tax assets. In addition, other assets were acquired in the merger with UCB.

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)

Total deposits as of September 3 0, 2018 and December 31, 2017 are as follows:

|  | September 30, 2018 |  |  | December 31, 2017 |
Noninterest-bearing demand |  | $ | 466,527 |  |  | $ | 361,964 |
Interest-bearing demand |  |  | 261,248 |  |  |  | 183,680 |
Savings and money market |  |  | 582,172 |  |  |  | 435,377 |
Time deposits |  |  | 267,808 |  |  |  | 223,902 |
Total Deposits |  | $ | 1,577,755 |  |  | $ | 1,204,923 |

Total deposits at September 30, 2018 increased $372,832 from year-end 2017. Noninterest-bearing deposits increased $104,563 from year-end 2017, while interest-bearing deposits, including savings and time deposits, increased $268,269 from December 31, 2017. The increase in noninterest-bearing deposits was primarily due to the acquisition of UCB, which added noninterest-bearing deposits of $112,787. The interest-bearing deposit increase was mainly due to the acquisition of UCB, which contributed interest-bearing deposits totaling $363,157. The year-to-date average balance of total deposits increased $14,934 compared to the average balance of the same period in 2017 due to increases in savings and money market accounts and interest-bearing demand accounts, offset by decreases in demand deposit accounts and time deposits accounts.

FHLB advances increased $73,200 from December 31, 2017 to September 30, 2018. The increase is due to an increase in overnight funds of $83,200. In addition, on February 15, 2018, an FHLB advance in the amount of $10,000 matured. This advance had terms of forty-two months with a fixed rate of 1.5%. The advance was not replaced. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $3,240 from December 31, 2017 to September 30, 2018.

Accrued expenses and other liabilities increased $11,959 from December 31, 2017 to September 30, 2018. The increase is primarily the result of security purchases that will settle in October.

Shareholders’ equity at September 30, 2018 was $289,388, or 13.9% of total assets, compared to $184,461, or 12.1% of total assets, at December 31, 2017. The primary reason for the increase was the issuance of common shares as part of the consideration in the acquisition of UCB, which added $104,669 to shareholders’ equity. In addition, the increase in shareholders’ equity included net income of $6,570, a decrease in the Company’s pension liability, net of tax, of $339, a decrease in the fair value of securities available for sale, net of tax, of $3,818 and offset by dividends on preferred shares and common shares of $794 and $2,404, respectively. Total outstanding common shares at September 30, 2018 were 15,395,064. Total outstanding common shares at December 31, 2017 were 10,198,475. Common shares outstanding increased as the result of the conversion of 7,004 shares of the Company’s previously issued preferred shares into 895,578 common shares and the grant of 16,510 restricted common shares to certain officers under the Company’s 2014 Incentive Plan, the issuance of 7,071 common shares to Civista directors as a retainer payment for service on the Civista Board of Directors, and the issuance of 4,277,430 common shares to former shareholders of UCB in connection with the acquisition of UCB effective September 14, 2018.

Results of Operations

Nine Months Ended September 30, 2018 and 2017

The Company had net income of $6,570 for the nine months ended September 30, 2018, a decrease of $5,322 from net income of $11,892 for the same nine months of 2017. Basic earnings per common share were $0.54 for the period ended September 30, 2018, compared to $1.12 for the same period in 2017. Diluted earnings per common share were $0.51 for the period ended September 30, 2018, compared to $0.97 for the same period in 2017. The primary reasons for the changes in net income are acquisition and integration expenses related to the merger with UCB. Acquisition and integration expenses totaled $11,952 for the nine months ended September 30, 2018. Changes in net income are explained below.

Net interest income for the nine months ended September 30, 2018 was $45,362, an increase of $5,423 from $39,939 in the same nine months of 2017. Total interest income for the nine months ended September 30, 2018 was $49,970, an increase of $7,215 from $42,755 in the same nine months of 2017. Average earning assets increased 6.1% during the nine months ended September 30, 2018 as compared to the same period in 2017. Average loans and non-taxable securities for the first nine months of 2018 increased 8.6% and 19.4%, respectively, compared to the first nine months of last year. The increases were offset by a decrease in interest-bearing deposits in other banks, which was mainly due to our tax refund processing program. The timing of cash inflows and outflows leads to large, but temporary, fluctuations in cash on deposit. The yield on the loan portfolio increased 36 basis points for the first nine months of 2018 compared to the first nine months of last year. The yield on earning assets increased 35 basis points for the first nine months of 2018 compared to the first nine months of last year. Total interest expense for the nine

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)

months ended September 30, 201 8 was $4,608, an increase of $1,792 from $2,816 in the same nine months of 2017. Average time deposits for the first nine months of 2018 decreased 10.0%, while average demand and savings accounts increased 7.9% com pared to the first nine months of 2017. Interest expense on demand and savings accounts, time deposits, FHLB borrowings and trust preferred securities increased $406, $154, $1,026 and $209, respectively, in the first nine months of 2018 compared to the sa me period in 2017. The interest rate paid on FHLB borrowings during the first nine months of 2018 increased 68 basis points as compared to the same period in 2017, while the average balance increased 89.2%. The interest rate paid on trust preferred secur ities during the first nine months of 2018 increased 95 basis points as compared to the same period in 2017. The Company’s net interest margin for the nine months ended September 30, 2018 was 4.14% compared to 3.93% for the period ended September 30, 201 7.

The following table presents the condensed average balance sheets for the nine months ended September 30, 2018 and 2017. 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 in 2018 and a 35% tax rate for tax-exempt interest income in 2017. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

|  | Nine Months Ended September 30, |
|  | 2018 |  |  | 2017 |
Assets: |  | Average balance |  |  | Interest |  |  | Yield/ rate* |  |  | Average balance |  |  | Interest |  |  | Yield/ rate* |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 1,188,093 |  |  | $ | 43,615 |  |  |  | 4.91 | % |  | $ | 1,094,401 |  |  | $ | 37,211 |  |  |  | 4.55 | %
Taxable securities |  |  | 144,036 |  |  |  | 3,069 |  |  |  | 2.83 | % |  |  | 144,379 |  |  |  | 2,764 |  |  |  | 2.59 | %
Tax-exempt securities |  |  | 103,540 |  |  |  | 2,672 |  |  |  | 4.42 | % |  |  | 86,713 |  |  |  | 2,307 |  |  |  | 5.65 | %
Interest-bearing deposits in other banks |  |  | 53,566 |  |  |  | 614 |  |  |  | 1.53 | % |  |  | 78,576 |  |  |  | 473 |  |  |  | 0.80 | %
Total interest-earning assets |  | $ | 1,489,235 |  |  | $ | 49,970 |  |  |  | 4.55 | % |  | $ | 1,404,069 |  |  | $ | 42,755 |  |  |  | 4.20 | %
Noninterest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from financial institutions |  |  | 49,330 |  |  |  |  |  |  |  |  |  |  |  | 53,487 |  |  |  |  |  |  |  |  |
Premises and equipment, net |  |  | 17,836 |  |  |  |  |  |  |  |  |  |  |  | 18,084 |  |  |  |  |  |  |  |  |
Accrued interest receivable |  |  | 4,947 |  |  |  |  |  |  |  |  |  |  |  | 4,446 |  |  |  |  |  |  |  |  |
Intangible assets |  |  | 31,918 |  |  |  |  |  |  |  |  |  |  |  | 28,682 |  |  |  |  |  |  |  |  |
Other assets |  |  | 14,539 |  |  |  |  |  |  |  |  |  |  |  | 10,164 |  |  |  |  |  |  |  |  |
Bank owned life insurance |  |  | 26,327 |  |  |  |  |  |  |  |  |  |  |  | 24,747 |  |  |  |  |  |  |  |  |
Less allowance for loan losses |  |  | (13,127 | ) |  |  |  |  |  |  |  |  |  |  | (13,156 | ) |  |  |  |  |  |  |  |
Total Assets |  | $ | 1,621,005 |  |  |  |  |  |  |  |  |  |  | $ | 1,530,523 |  |  |  |  |  |  |  |  |
Liabilities and Shareholders Equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand and savings |  | $ | 628,610 |  |  | $ | 819 |  |  |  | 0.17 | % |  | $ | 582,716 |  |  | $ | 413 |  |  |  | 0.09 | %
Time |  |  | 163,660 |  |  |  | 1,241 |  |  |  | 1.01 | % |  |  | 181,931 |  |  |  | 1,087 |  |  |  | 0.80 | %
FHLB |  |  | 108,239 |  |  |  | 1,560 |  |  |  | 1.93 | % |  |  | 57,195 |  |  |  | 534 |  |  |  | 1.25 | %
Federal funds purchased |  |  | — |  |  |  | — |  |  |  | 0.00 | % |  |  | 156 |  |  |  | 2 |  |  |  | 1.71 | %
Subordinated debentures |  |  | 29,427 |  |  |  | 975 |  |  |  | 4.43 | % |  |  | 29,427 |  |  |  | 766 |  |  |  | 3.48 | %
Repurchase Agreements |  |  | 17,871 |  |  |  | 13 |  |  |  | 0.10 | % |  |  | 18,597 |  |  |  | 14 |  |  |  | 0.10 | %
Total interest-bearing liabilities |  | $ | 947,807 |  |  | $ | 4,608 |  |  |  | 0.65 | % |  | $ | 870,022 |  |  | $ | 2,816 |  |  |  | 0.43 | %
Noninterest-bearing deposits |  |  | 465,448 |  |  |  |  |  |  |  |  |  |  |  | 478,137 |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 14,889 |  |  |  |  |  |  |  |  |  |  |  | 12,881 |  |  |  |  |  |  |  |  |
Shareholders’ Equity |  |  | 192,861 |  |  |  |  |  |  |  |  |  |  |  | 169,483 |  |  |  |  |  |  |  |  |
Total Liabilities and Shareholders’ Equity |  | $ | 1,621,005 |  |  |  |  |  |  |  |  |  |  | $ | 1,530,523 |  |  |  |  |  |  |  |  |
Net interest income and interest rate spread |  |  |  |  |  | $ | 45,362 |  |  |  | 3.90 | % |  |  |  |  |  | $ | 39,939 |  |  |  | 3.77 | %
Net interest margin |  |  |  |  |  |  |  |  |  |  | 4.14 | % |  |  |  |  |  |  |  |  |  |  | 3.93 | %

*—All yields and costs are presented on an annualized basis

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 nine months ended September 30, 201 8 and 201 7. The table is presented on a fully tax-equivalent basis.

|  | Increase (decrease) due to: |
|  | Volume (1) |  |  | Rate (1) |  |  | Net |
|  | (Dollars in thousands) |
Interest income: |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 3,317 |  |  | $ | 3,087 |  |  | $ | 6,404 |
Taxable securities |  |  | 44 |  |  |  | 261 |  |  |  | 305 |
Tax-exempt securities |  |  | 482 |  |  |  | (117 | ) |  |  | 365 |
Interest-bearing deposits in other banks |  |  | (186 | ) |  |  | 327 |  |  |  | 141 |
Total interest income |  | $ | 3,657 |  |  | $ | 3,558 |  |  | $ | 7,215 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |
Demand and savings |  | $ | 35 |  |  | $ | 371 |  |  | $ | 406 |
Time |  |  | (117 | ) |  |  | 271 |  |  |  | 154 |
FHLB |  |  | 638 |  |  |  | 388 |  |  |  | 1,026 |
Federal funds purchased |  |  | (2 | ) |  |  | — |  |  |  | (2 | )
Subordinated debentures |  |  | — |  |  |  | 209 |  |  |  | 209 |
Repurchase agreements |  |  | (1 | ) |  |  | — |  |  |  | (1 | )
Total interest expense |  | $ | 553 |  |  | $ | 1,239 |  |  | $ | 1,792 |
Net interest income |  | $ | 3,104 |  |  | $ | 2,319 |  |  | $ | 5,423 |

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

The Company provides for loan losses through regular provisions to the allowance for loan losses. Provisions for loan losses totaled $390 for the nine months ended September 30, 2018. No provision for loan losses was recorded during the nine months ended September 30, 2017.

Noninterest income for the nine-month periods ended September 30, 2018 and 2017 are as follows:

|  | Nine months ended September 30, |
|  | 2018 |  |  | 2017 |
Service charges |  | $ | 3,712 |  |  | $ | 3,609 |
Net loss on sale of securities |  |  | (386 | ) |  |  | (9 | )
Net gain on equity securities |  |  | 102 |  |  |  | — |
Net gain on sale of loans |  |  | 1,235 |  |  |  | 1,207 |
ATM/Interchange fees |  |  | 1,764 |  |  |  | 1,643 |
Wealth management fees |  |  | 2,561 |  |  |  | 2,233 |
Bank owned life insurance |  |  | 432 |  |  |  | 429 |
Tax refund processing fees |  |  | 2,750 |  |  |  | 2,750 |
Other |  |  | 1,123 |  |  |  | 842 |
Total noninterest income |  | $ | 13,293 |  |  | $ | 12,704 |

Noninterest income for the nine months ended September 30, 2018 was $13,293, an increase of $589 or 4.6% from $12,704 for the same period of 2017. The primary reasons for the increase follow.

Service charge fee income for the period ended September 30, 2018 was $3,712, up $103 or 2.9% over the same period of 2017. The increase is primarily due to a change in the business account earnings credits, along with an increase in overdraft charges.

Net loss on the sale of securities increased $377 during the first nine months of 2018 compared to the same period of 2017. Management, from time to time, will reposition the investment portfolio to match liquidity needs of the Company

Gain on sale of loans increased $28 during the first nine months of 2018 compared to the same period of 2017. The volume of loans sold during the first nine months of 2018 was $57,854, up $4,763 or 9.0% as compared to the same period in 2017.

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)

Wealth management fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that we manage and the fee rate charged to customers. Wealth management fee income increased $328 or 14.7% during the first nine months of 2018 compared to the same period in 2017. The increase is mainly related to increases in assets under management and market conditions compared to the same period in 2017.

The Company processes state and federal income tax refund payments for customers of third-party income tax preparation vendors. The third-party vendors pay us a fee for processing the payments. Tax refund processing fees were $2,750 during the first nine months of 2018 and 2017. This fee income is seasonal in nature, the majority of which is received in the first quarter of the year.

Other income increased $281 during the first nine months of 2018 compared to the same period of 2017. The increase is mainly due to increases in swap related income and deluxe income during the first nine months of 2018 as compared to the same period in 2017.

Noninterest expense for the nine-month periods ended September 30, 2018 and 2017 are as follows:

|  | Nine months ended September 30, |
|  | 2018 |  |  | 2017 |
Compensation expense |  | $ | 26,812 |  |  | $ | 21,313 |
Net occupancy expense |  |  | 2,375 |  |  |  | 2,002 |
Equipment expense |  |  | 1,069 |  |  |  | 1,097 |
Contracted data processing |  |  | 6,237 |  |  |  | 1,174 |
FDIC assessment |  |  | 388 |  |  |  | 414 |
State franchise tax |  |  | 1,031 |  |  |  | 767 |
Professional services |  |  | 4,233 |  |  |  | 1,718 |
Amortization of intangible assets |  |  | 85 |  |  |  | 483 |
ATM expense |  |  | 712 |  |  |  | 700 |
Marketing |  |  | 988 |  |  |  | 768 |
Other |  |  | 6,358 |  |  |  | 5,781 |
Total noninterest expense |  | $ | 50,288 |  |  | $ | 36,217 |

Noninterest expense for the nine months ended September 30, 2018 was $50,288, an increase of $14,071, from $36,217 reported for the same period of 2017. The primary reasons for the increase follow.

Compensation expenses were $26,812, up $5,499 or 25.8% as compared to the same period of 2017. The increase is mainly due to merger related expenses of $4,239 paid in the acquisition of UCB during the first nine months of 2018. The remaining increases are due to an increase in payroll and payroll related expenses due to annual pay increases, commission based costs and employee insurance costs, as compared to the same period of 2017.

Net occupancy expense increased $373, or 18.6% from the same period of 2017. The year-over-year increase was attributable to an increase in miscellaneous building repairs and increased janitorial services. In addition, ground maintenance increased due to the extended cold weather in our region during the first part of the year.

Contracted data processing expenses increased $5,063, or 431.3% from the same period of 2017. The increase is due to $5,255 of UCB merger expenses related to the conversion of UCB’s core system data to the Company’s core system during the third quarter of 2018.

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)

State franchise taxes were $1,031, up $264 or 3 4.4% compared to the same period in 2017. The year-over-year increase was attributable to an increase in equity capital. The Ohio Financial Institutions tax is based on equity capital.

Professional services costs increased $2,515, or 146.4% from the same period of 2017. The increase is due to $2,318 of legal and consulting expenses related to the merger with UCB. The remaining year-over-year increase was attributable to increased examination fees, increased facilities management costs, increased professional services costs to analyze workflow systems and recommend process improvements.

Amortization expense decreased $398, or 82.4% from the same period of 2017, as a result of scheduled amortization of intangible assets associated with mergers.

Marketing costs were $988, up $220 or 28.6% compared to the same period in 2017. The increase is due to a general increase in marketing expenses and higher promotional points and benefits paid in the first nine months of 2018 compared to the same period of 2017.

Other expenses were $6,358, up $577 or 10.0% compared to the same period in 2017. The increase is due to increases in director fees, travel and lodging, software maintenance and stationery and supplies expenses in the first nine months of 2018 compared to the same period of 2017.

Income tax expense for the nine months ended September 30, 2018 totaled $1,407, down $3,127 compared to the same period in 2017. The effective tax rates for the nine-month periods ended September 30, 2018 and September 30, 2017 were 17.6% and 27.6%, respectively. The Tax Cuts and Jobs Act, enacted on December 22, 2017, lowered the federal corporate income tax rate from 35% to 21% effective January 1, 2018. 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 and bank owned life insurance income.

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)

Three Months Ended September 3 0, 2018 and 2017

The Company had a net loss of $3,433 for the three months ended September 30, 2018, a decrease of $7,093 from net income of $3,660 for the same three months of 2017. Basic earnings (loss) per common share were $(0.31) for the quarter ended September 30, 2018, compared to $0.33 for the same period in 2017. Diluted earnings (loss) per common share were $(0.31) for the quarter ended September 30, 2018, compared to $0.29 for the same period in 2017. The primary reasons for the changes in net income are acquisition and integration expenses related to the merger with UCB. Acquisition and integration expenses totaled $8,801 for the three months ended September 30, 2018. Changes in net income are explained below.

Net interest income for the three months ended September 30, 2018 was $15,824, an increase of $2,144 from $13,680 in the same three months of 2017. Total interest income for the three months ended September 30, 2018 was $17,886, an increase of $3,050 from $14,836 in the same three months of 2017. Average earning assets increased 11.4% during the quarter ended September 30, 2018 as compared to the same period in 2017. Average loans, tax-exempt securities and interest-bearing deposits in other banks for the third quarter of 2018 increased 12.0%, 15.3% and 114.2%, respectively, compared to the third quarter of last year. The increases were offset by decreases in taxable securities. The yield on the loan portfolio increased 40 basis points for the third quarter of 2018 compared to the third quarter of last year. The yield on earning assets increased 27 basis points for the third quarter of 2018 compared to the third quarter of last year. Total interest expense for the three months ended September 30, 2018 was $2,062, an increase of $906 from $1,156 in the same three months of 2017. Interest expense on demand and savings accounts increased $157 during the third quarter of 2018 compared to the same period in 2017. Average demand and savings accounts increased 10.0% while time deposits decreased 16.0% for the third quarter of 2018 compared to the same period in 2017. Interest expense on FHLB borrowings and trust preferred securities increased $649 and $81, respectively, in the third quarter of 2018 compared to the same period in 2017. The interest rate paid on FHLB borrowings during the third quarter of 2018 increased 76 basis points as compared to the same period in 2017, while the average balance increased 109.8%. The interest rate paid on trust preferred securities during the third quarter of 2018 increased 110 basis points as compared to the same period in 2017. The Company’s net interest margin for the three months ended September 30, 2018 and 2017 was 4.15% and 4.08%, respectively.

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)

The following table presents the condensed average balance sheets for the three months ended September 30, 2018 and 2017. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The averag e 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 in 2018 and a 35% tax rate for tax-exempt interest income in 201 7. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

|  | Three Months Ended September 30, |
|  | 2018 |  |  | 2017 |
Assets: |  | Average balance |  |  | Interest |  |  | Yield/rate* |  |  | Average balance |  |  | Interest |  |  | Yield/rate* |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 1,256,680 |  |  | $ | 15,833 |  |  |  | 5.00 | % |  | $ | 1,122,131 |  |  | $ | 13,022 |  |  |  | 4.60 | %
Taxable securities |  |  | 145,621 |  |  |  | 1,042 |  |  |  | 2.81 | % |  |  | 150,534 |  |  |  | 977 |  |  |  | 2.61 | %
Tax-exempt securities |  |  | 107,211 |  |  |  | 908 |  |  |  | 4.29 | % |  |  | 93,022 |  |  |  | 812 |  |  |  | 5.53 | %
Interest-bearing deposits in other banks |  |  | 24,527 |  |  |  | 103 |  |  |  | 1.67 | % |  |  | 11,450 |  |  |  | 25 |  |  |  | 0.87 | %
Total interest-earning assets |  | $ | 1,534,039 |  |  | $ | 17,886 |  |  |  | 4.69 | % |  | $ | 1,377,137 |  |  | $ | 14,836 |  |  |  | 4.42 | %
Noninterest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from financial institutions |  |  | 22,399 |  |  |  |  |  |  |  |  |  |  |  | 24,652 |  |  |  |  |  |  |  |  |
Premises and equipment, net |  |  | 18,219 |  |  |  |  |  |  |  |  |  |  |  | 18,000 |  |  |  |  |  |  |  |  |
Accrued interest receivable |  |  | 5,120 |  |  |  |  |  |  |  |  |  |  |  | 4,460 |  |  |  |  |  |  |  |  |
Intangible assets |  |  | 38,920 |  |  |  |  |  |  |  |  |  |  |  | 28,541 |  |  |  |  |  |  |  |  |
Other assets |  |  | 16,929 |  |  |  |  |  |  |  |  |  |  |  | 10,352 |  |  |  |  |  |  |  |  |
Bank owned life insurance |  |  | 28,452 |  |  |  |  |  |  |  |  |  |  |  | 24,889 |  |  |  |  |  |  |  |  |
Less allowance for loan losses |  |  | (13,303 | ) |  |  |  |  |  |  |  |  |  |  | (12,988 | ) |  |  |  |  |  |  |  |
Total Assets |  | $ | 1,650,775 |  |  |  |  |  |  |  |  |  |  | $ | 1,475,043 |  |  |  |  |  |  |  |  |
Liabilities and Shareholders Equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand and savings |  | $ | 653,537 |  |  | $ | 317 |  |  |  | 0.19 | % |  | $ | 594,088 |  |  | $ | 160 |  |  |  | 0.11 | %
Time |  |  | 163,236 |  |  |  | 466 |  |  |  | 1.13 | % |  |  | 194,364 |  |  |  | 447 |  |  |  | 0.91 | %
FHLB advance |  |  | 180,073 |  |  |  | 925 |  |  |  | 2.04 | % |  |  | 85,840 |  |  |  | 276 |  |  |  | 1.28 | %
Federal funds purchased |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 462 |  |  |  | 2 |  |  |  | 1.72 | %
Subordinated debentures |  |  | 29,427 |  |  |  | 349 |  |  |  | 4.71 | % |  |  | 29,427 |  |  |  | 268 |  |  |  | 3.61 | %
Repurchase Agreements |  |  | 18,664 |  |  |  | 5 |  |  |  | 0.11 | % |  |  | 14,328 |  |  |  | 3 |  |  |  | 0.08 | %
Total interest-bearing liabilities |  | $ | 1,044,937 |  |  | $ | 2,062 |  |  |  | 0.78 | % |  | $ | 918,509 |  |  | $ | 1,156 |  |  |  | 0.50 | %
Noninterest-bearing deposits |  |  | 385,646 |  |  |  |  |  |  |  |  |  |  |  | 363,783 |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 14,591 |  |  |  |  |  |  |  |  |  |  |  | 12,826 |  |  |  |  |  |  |  |  |
Shareholders’ Equity |  |  | 205,601 |  |  |  |  |  |  |  |  |  |  |  | 179,925 |  |  |  |  |  |  |  |  |
Total Liabilities and Shareholders’ Equity |  | $ | 1,650,775 |  |  |  |  |  |  |  |  |  |  | $ | 1,475,043 |  |  |  |  |  |  |  |  |
Net interest income and interest rate spread |  |  |  |  |  | $ | 15,824 |  |  |  | 3.91 | % |  |  |  |  |  | $ | 13,680 |  |  |  | 3.92 | %
Net interest margin |  |  |  |  |  |  |  |  |  |  | 4.15 | % |  |  |  |  |  |  |  |  |  |  | 4.08 | %

*—All yields and costs are presented on an annualized basis

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)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and inter est expense. The following table provides an analysis of the changes in interest income and expense between the three months ended September 3 0, 2018 and 2017. The table is presented on a fully tax-equivalent basis.

|  | Increase (decrease) due to: |
|  | Volume (1) |  |  | Rate (1) |  |  | Net |
|  | (Dollars in thousands) |
Interest income: |  |  |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 1,639 |  |  | $ | 1,172 |  |  | $ | 2,811 |
Taxable securities |  |  | (11 | ) |  |  | 76 |  |  |  | 65 |
Tax-exempt securities |  |  | 144 |  |  |  | (48 | ) |  |  | 96 |
Interest-bearing deposits in other banks |  |  | 43 |  |  |  | 35 |  |  |  | 78 |
Total interest income |  | $ | 1,815 |  |  | $ | 1,235 |  |  | $ | 3,050 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |
Demand and savings |  | $ | 17 |  |  | $ | 140 |  |  | $ | 157 |
Time |  |  | (78 | ) |  |  | 97 |  |  |  | 19 |
FHLB advance |  |  | 420 |  |  |  | 229 |  |  |  | 649 |
Federal funds purchased |  |  | (2 | ) |  |  | — |  |  |  | (2 | )
Subordinated debentures |  |  | — |  |  |  | 81 |  |  |  | 81 |
Repurchase agreements |  |  | 1 |  |  |  | 1 |  |  |  | 2 |
Total interest expense |  | $ | 358 |  |  | $ | 548 |  |  | $ | 906 |
Net interest income |  | $ | 1,457 |  |  | $ | 687 |  |  | $ | 2,144 |

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

The Company provides for loan losses through regular provisions to the allowance for loan losses. Provisions for loan losses totaled $390 for the quarter ended September 30, 2018. No provision for loan losses was recorded during the quarter ended September 30, 2017.

Noninterest income for the three-month periods ended September 30, 2018 and 2017 are as follows:

|  | Three months ended September 30, |
|  | 2018 |  |  | 2017 |
Service charges |  | $ | 1,219 |  |  | $ | 1,177 |
Net loss on sale of securities |  |  | (392 | ) |  |  | (9 | )
Net gain on equity securities |  |  | 27 |  |  |  | — |
Net gain on sale of loans |  |  | 428 |  |  |  | 472 |
ATM/Interchange fees |  |  | 622 |  |  |  | 567 |
Wealth management fees |  |  | 873 |  |  |  | 787 |
Bank owned life insurance |  |  | 147 |  |  |  | 142 |
Tax refund processing fees |  |  | — |  |  |  | — |
Other |  |  | 364 |  |  |  | 329 |
Total noninterest income |  | $ | 3,288 |  |  | $ | 3,465 |

Noninterest income for the three months ended September 30, 2018 was $3,288, a decrease of $177 or 5.1% from $3,465 for the same period of 2017. The primary reasons for the increase follow.

Net loss on the sale of securities increased $383 during the third quarter of 2018 compared to the same period of 2017. Management, from time to time, will reposition the investment portfolio to match liquidity needs of the Company.

Gain on sale of loans decreased $44 during the third quarter of 2018 compared to the same period of 2017. The volume of loans sold during the first nine months of 2018 was $20,261, down $1,264 or 5.9% as compared to the same period in 2017.

ATM/Interchange fees increased $55 during the first nine months of 2018 compared to the same period of 2017. The increase is due to higher interchange fee income during the third quarter of 2018 as compared to the same period in 2017.

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)

Wealth management fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based u pon the market value of the assets that we manage and the fee rate charged to customers. Wealth management fee income increased $86 or 1 0.9% during the third quarter of 2018 compared to the same period in 2017. The increase is mainly related to increases i n assets under management and market conditions compared to the same period in 2017.

Other income increased $35 during the third quarter of 2018 compared to the same period of 2017. The increase is mainly due to increases in deluxe income during the third quarter of 2018 as compared to the same period in 2017.

Noninterest expense for the three-month periods ended September 30, 2018 and 2017 are as follows:

|  | Three months ended September 30, |
|  | 2018 |  |  | 2017 |
Compensation expense |  | $ | 12,054 |  |  | $ | 7,389 |
Net occupancy expense |  |  | 751 |  |  |  | 690 |
Equipment expense |  |  | 371 |  |  |  | 350 |
Contracted data processing |  |  | 3,150 |  |  |  | 357 |
FDIC assessment |  |  | 121 |  |  |  | 115 |
State franchise tax |  |  | 351 |  |  |  | 255 |
Professional services |  |  | 2,198 |  |  |  | 534 |
Amortization of intangible assets |  |  | 26 |  |  |  | 158 |
ATM expense |  |  | 286 |  |  |  | 233 |
Marketing |  |  | 350 |  |  |  | 240 |
Other operating expenses |  |  | 2,498 |  |  |  | 1,846 |
Total noninterest expense |  | $ | 22,156 |  |  | $ | 12,167 |

Noninterest expense for the three months ended September 30, 2018 was $22,156, an increase of $9,989, or 82.1%, from $12,167 reported for the same period of 2017. The primary reasons for the increase follow.

Compensation expenses were $12,054, up $4,665 or 63.1% as compared to the same period of 2017. The increase is mainly due to merger related expenses of $4,239 paid in the acquisition of UCB during the third quarter of 2018. The remaining increases are due to an increase in payroll and payroll related expenses due to annual pay increases, commission based costs, stock-based compensation and employee insurance costs increased, as compared to the same period of 2017.

Contracted data processing expenses were $3,150, up $2,793 or 782.4% compared to the same period on 2017. The increase is due to $2,833 of UCB merger expenses related to the conversion of UCB’s core system data to the Company’s core system during the third quarter of 2018.

State franchise taxes were $351, up $96 or 37.6% compared to the same period in 2017. The quarter-over-quarter increase was attributable to an increase in equity capital. The Ohio Financial Institutions tax is based on equity capital.

Professional services costs increased $1,664, or 311.6% from the same period of 2017. The increase is due to $1,618 of legal and consulting expenses related to the merger with UCB.

Amortization expense decreased $132, or 83.5% from the same period of 2017, as a result of scheduled amortization of intangible assets associated with mergers.

ATM costs were $286, up $53 or 22.7% compared to the same period in 2017. The increase is primarily due to merger-related card stock costs during the third quarter of 2018.

Marketing costs were $350, up $110 or 45.8% compared to the same period in 2017. The increase is due to a general increase in marketing expenses and higher promotional points and benefits paid in the third quarter of 2018 compared to the same period of 2017.

Other operating expenses were $2,498, up $652 or 35.3% compared to the same period in 2017. The increase is due to increases in director fees, travel and lodging, software maintenance and stationery and supplies expenses in the third quarter of 2018 compared to the same period of 2017.

Page 49

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Incom e tax expense (benefit) for the three months ended September 3 0, 2018 totaled ($1), down $1,319 compared to the same period in 2017. The effective tax rates for the three-month periods ended September 3 0, 2018 and 2017 were 0.0% and 2 6.5%, respectively. The Tax Cuts and Jobs Act, enacted on December 22, 2017, lowered the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the perm anent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income.

Capital Resources

Shareholders’ equity totaled $289,238 at September 30, 2018 compared to $184,461 at December 31, 2017. The primary reason for the increase was the issuance of common shares as part of the consideration in the acquisition of UCB, which added $104,669 to shareholders’ equity. In addition, the increase in shareholders’ equity included net income of $6,570, a $339 net decrease in the Company’s pension liability and a decrease in the fair value of securities available for sale, net of tax, of $3,818, which was offset by dividends on preferred stock and common stock of $794 and $2,404, respectively.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of September 30, 2018 and December 31, 2017 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, 2018 |  |  | 16.3 | % |  |  | 15.4 | % |  |  | 12.9 | % |  |  | 15.4 | %
Company Ratios—December 31, 2017 |  |  | 16.6 | % |  |  | 15.5 | % |  |  | 11.6 | % |  |  | 12.7 | %
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 | %

The Company paid a cash dividend of $0.07 per common share on February 1, 2018 and on May 1, 2018 and paid a cash dividend of $0.09 per common share on August 1, 2018. In 2017, the Company paid a cash dividend of $0.06 per common share on February 1, 2017, on May 1, 2017 and on August 1, 2017. The Company also paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $303 on March 15, 2018, approximately $299 on June 15, 2018 and approximately $192 on September 15, 2018. In 2017, the Company paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $319 on March 15, 2017 and approximately $308 on June 15, 2017 and on September 15, 2017.

Liquidity

The Company maintains a conservative liquidity position. All securities are classified as available for sale. Securities, with maturities of one year or less, totaled $15,226, or 4.8% of the total security portfolio at September 30, 2018. The available for sale 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 $19,488 and $11,821 for the nine months ended September 30, 2018 and 2017, respectively. These amounts differ from net income due to a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash provided by (used for) investing activities was $41,097 and ($119,937) for the nine months ended September 30, 2018 and 2017, respectively, principally reflecting our loan and investment security activities. Cash provided by and used for deposits, borrowings and net proceeds from our common equity offering comprised most of our financing activities, which resulted in net cash provided by (used for) of ($36,350) and $104,815 for the nine months ended September 30, 2018 and 2017, 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 $42,500. As of September 30, 2018, Civista had total credit availability with the FHLB of $395,520 with standby letters of credit totaling $20,000 and a remaining borrowing capacity of approximately $230,420. In addition, Civista Bancshares, Inc. maintains a credit line totaling $10,000.

Page 50

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 Company, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve guidance and discusses the importance of these elements in the context of managing interest-rate risk. Specifically, 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.

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 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.

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Civista Bancshares, Inc.

Quantitative and Qualitative Disclosures About Market Risk

Form 10-Q

(Amounts in thousands, except share data)

The following table provides information about the Company’s financi al instruments that were sensitive to changes in interest rates as of December 31, 2017 and September 3 0, 2018, 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 an interest rate decrease of 100 basis points at September 3 0, 2018 and December 31, 2017.

The Company had derivative financial instruments as of December 31, 2017 and September 30, 2018. The changes in fair value of the assets and liabilities of the underlying contracts offset each other. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Company’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates.

Net Portfolio Value |
|  | September 30, 2018 |  |  | December 31, 2017 |
Change in Rates |  | Dollar Amount |  |  | Dollar Change |  |  | Percent Change |  |  | Dollar Amount |  |  | Dollar Change |  |  | Percent Change |
+200bp |  |  | 409,491 |  |  |  | 32,199 |  |  |  | 9 | % |  |  | 270,928 |  |  |  | 33,923 |  |  |  | 14 | %
+100bp |  |  | 400,663 |  |  |  | 23,371 |  |  |  | 6 | % |  |  | 261,071 |  |  |  | 24,066 |  |  |  | 10 | %
Base |  |  | 377,292 |  |  |  | — |  |  |  | — |  |  |  | 237,005 |  |  |  | — |  |  |  | — |
-100bp |  |  | 351,327 |  |  |  | (25,965 | ) |  |  | -7 | % |  |  | 223,526 |  |  |  | (13,479 | ) |  |  | -6 | %

The change in net portfolio value from December 31, 2017 to September 30, 2018, can be attributed to two factors. While the yield curve has risen and flattened slightly from the end of the year, both the volume and mix of assets and funding sources has changed. The volume of loans has increased mostly due to the merger, but the mix has shifted toward cash, securities and other assets. Similarly, the volume of liabilities has increased due to the merger, while the mix has shifted away from deposits and CDs toward borrowed money. The balance change from the end of the year led to an increase in the base net portfolio value. Both the assets and liabilities have shifted toward less volatile components. Combined, this led to a small decrease in volatility. 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 both the 100 and 200 basis point movements would lead to a similar decreases in the market value of assets and liabilities. Accordingly, we see a small increase in the net portfolio value, although the increase is smaller relative to the end of 2017. However, a downward change in rates would lead to a decrease in the net portfolio value as the market value of liabilities would increase more quickly than the market value of assets.

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Civista Bancshares, Inc.

Controls and Procedures

Form 10-Q

(Amounts in thousands, except share data)

ITEM 4. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive and our principal financial officers, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive and our principal financial officers concluded that our disclosure controls and procedures as of September 30, 2018, were effective.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Civista Bancshares, Inc.

Other Information

Form 10-Q

Part II—Other Information

Item 1. | Legal Proceedings

None

Item 1A. | Risk Factors

There were no material changes during the current period to the risk factors disclosed 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, 2017, as supplemented by the risk factors disclosed in “Item 1A. Risk Factors” of Part II of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018.

Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. | Defaults Upon Senior Securities

None

Item 4. | Mine Safety Disclosures

Not applicable

Item 5. | Other Information

None

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Civista Bancshares, Inc.

Other Information

Form 10-Q

Item 6. | E xhibits

Exhibit |  | Description |  | Location
2.1 |  | Agreement and Plan of Merger, dated March 11, 2018 by and between Civista Bancshares, Inc., Civista Bank, United Community Bancorp and United Community Bank. |  | Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on March 12, 2018 and incorporated herein by reference. (File No. 001-36192)
3.1 |  | Amended and Restated Articles of Incorporation of Civista Bancshares, Inc., as filed with the Ohio Secretary of State on December 4, 2015. |  | Filed as Exhibit 3.1 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed on November 8, 2017 and incorporated herein by reference. (File No. 001-36192)
3.2 |  | Amended and Restated Code of Regulations of Civista Bancshares, Inc. (adopted April 15, 2008) |  | Filed as Exhibit 3.2 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed on November 8, 2017 and incorporated herein by reference. (File No. 001-36192)
31.1 |  | Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer. |  | Included herewith
31.2 |  | Rule 13a-14(a)/15-d-14(a) Certification of Principal Accounting Officer. |  | Included herewith
32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | Included herewith
32.2 |  | Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | Included herewith
101 |  | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of September 30, 2018 and December 31, 2017; (ii) Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2018 and 2017; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2018 and 2017; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2018; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the nine months ended September 30, 2018 and 2017; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited). |  | Included herewith

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Civista Bancshares, Inc.

Signatures

Form 10-Q

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.

Civista Bancshares, Inc.

/s/ Dennis G. Shaffer |  | November 9, 2018
Dennis G. Shaffer |  | Date
President, Chief Executive Officer |  |

/s/ Todd A. Michel |  | November 9, 2018
Todd A. Michel |  | Date
Senior Vice President, Controller |  |

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