(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.

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 ~~May 6,~~November 7, 2019—~~15,624,113~~15,479,257 shares

	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
ASSETS
Cash and due from financial institutions	$	164,094		$	42,779		$	62,219		$	42,779
Securities available for sale		349,934			346,294			355,287			346,294
Equity securities		1,072			1,070			1,152			1,070
Loans held for sale		1,444			1,391			8,983			1,391
Loans, net of allowance of $13,822 and $13,679		1,559,371			1,548,262
Loans, net of allowance of $14,144 and $13,679								1,634,496			1,548,262
Other securities		20,280			21,021			20,280			21,021
Premises and equipment, net		21,772			22,021			22,201			22,021
Accrued interest receivable		7,304			6,723			7,501			6,723
Goodwill		76,851			76,851			76,851			76,851
Other intangible assets		9,104			9,352			8,610			9,352
Bank owned life insurance		44,239			43,037			44,745			43,037
Other assets		22,237			20,153			26,740			20,153
Total assets	$	2,277,702		$	2,138,954		$	2,269,065		$	2,138,954
LIABILITIES
Deposits
Noninterest-bearing	$	657,510		$	468,083		$	497,244		$	468,083
Interest-bearing		1,108,291			1,111,810			1,135,377			1,111,810
Total deposits		1,765,801			1,579,893			1,632,621			1,579,893
Federal Home Loan Bank advances		127,100			193,600
Short-term Federal Home Loan Bank advances								181,100			188,600
Securities sold under agreements to repurchase		21,970			22,199			15,088			22,199
Other borrowings								55,000			5,000
Subordinated debentures		29,427			29,427			29,427			29,427
Accrued expenses and other liabilities		21,347			14,937			26,566			14,937
Total liabilities		1,965,645			1,840,056			1,939,802			1,840,056
SHAREHOLDERS’ EQUITY
Preferred shares, no par value, 200,000 shares authorized, Series B Preferred shares, $1,000 liquidation preference, 10,120 shares issued at March 31, 2019 and 10,120 shares issued at December 31, 2018, net of issuance costs		9,364			9,364
Common shares, no par value, 20,000,000 shares authorized, 16,372,077 shares issued at March 31, 2019 and 16,351,463 shares issued at December 31, 2018		266,990			266,901
Preferred shares, no par value, 200,000 shares authorized, Series B Preferred shares, $1,000 liquidation preference, 9,898 shares issued at September 30, 2019 and 10,120 shares issued at December 31, 2018, net of issuance costs								9,158			9,364
Common shares, no par value, 20,000,000 shares authorized, 16,409,439 shares issued at September 30, 2019 and 16,351,463 shares issued at December 31, 2018								267,559			266,901
Retained earnings		49,421			41,320			62,023			41,320
Treasury shares, 747,964 common shares at cost		(17,235	)		(17,235	)
Treasury shares, 936,164 common shares at September 30, 2019 and 747,964 common shares at December 31, 2018, at cost								(21,144	)		(17,235	)
Accumulated other comprehensive income (loss)		3,517			(1,452	)		11,667			(1,452	)
Total shareholders’ equity		312,057			298,898			329,263			298,898
Total liabilities and shareholders’ equity	$	2,277,702		$	2,138,954		$	2,269,065		$	2,138,954

	Three months ended				Three months ended						Nine Months Ended
	March 31,				September 30,						September 30,
	2019		2018		2019			2018			2019		2018
Interest and dividend income
Loans, including fees	$	20,963	$	13,639	$	20,776		$	15,833		$	63,395	$	43,615
Taxable securities		1,748		986		1,712			1,042			5,155		3,069
Tax-exempt securities		1,351		878		1,449			908			4,208		2,672
Federal funds sold and other		522		421		86			103			775		614
Total interest and dividend income		24,584		15,924		24,023			17,886			73,533		49,970
Interest expense
Deposits		1,891		707		2,099			783			5,966		2,060
Federal Home Loan Bank advances		597		152		1,152			925			2,581		1,560
Subordinated debentures		372		288		350			349			1,094		975
Securities sold under agreements to repurchase and other		5		5		4			5			14		13
Total interest expense		2,865		1,152		3,605			2,062			9,655		4,608
Net interest income		21,719		14,772		20,418			15,824			63,878		45,362
Provision for loan losses		—		—		150			390			150		390
Net interest income after provision for loan losses		21,719		14,772		20,268			15,434			63,728		44,972
Noninterest income
Service charges		1,456		1,134		1,726			1,219			4,733		3,712
Net gain on sale of securities		4		—
Net gain (loss) on sale of securities						3			(392	)		17		(386	)
Net gain on equity securities		2		40		112			27			81		102
Net gain on sale of loans		331		333		815			428			1,701		1,235
ATM/Interchange fees		906		554		1,014			622			2,871		1,764
Wealth management fees		847		852		975			873			2,733		2,561
Bank owned life insurance		247		142		254			147			753		432
Tax refund processing fees		2,200		2,200		—			—			2,750		2,750
Other		291		361		530			364			1,177		1,123
Total noninterest income		6,284		5,616		5,429			3,288			16,816		13,293
Noninterest expense
Compensation expense		9,805		7,374		9,707			12,054			29,059		26,812
Net occupancy expense		1,040		761		902			751			2,906		2,375
Equipment expense		463		374		561			371			1,504		1,069
Contracted data processing		419		348		435			3,150			1,301		6,237
FDIC assessment		192		151		(1	)		121			297		388
State franchise tax		401		318		499			351			1,398		1,031
Professional services		694		552		756			2,198			2,151		4,233
Amortization of intangible assets		240		33		235			26			710		85
ATM expense		378		218
ATM/Interchange expense						514			286			1,437		712
Marketing		340		318		404			350			1,111		988
Other operating expenses		2,477		1,758		2,719			2,498			7,944		6,358
Total noninterest expense		16,449		12,205		16,731			22,156			49,818		50,288
Income before taxes		11,554		8,183
Income tax expense		1,885		1,194
Net Income		9,669		6,989
Income (loss) before taxes						8,966			(3,434	)		30,726		7,977
Income tax expense (benefit)						1,258			(1	)		4,688		1,407
Net Income (loss)						7,708			(3,433	)		26,038		6,570
Preferred stock dividends		164		303		162			192			490		794
Net income available to common shareholders	$	9,505	$	6,686
Earnings per common share, basic	$	0.61	$	0.65
Earnings per common share, diluted	$	0.57	$	0.55
Net income (loss) available to common shareholders					$	7,546		$	(3,625	)	$	25,548	$	5,776
Earnings (loss) per common share, basic					$	0.48		$	(0.31	)	$	1.64	$	0.54
Earnings (loss) per common share, diluted					$	0.46		$	(0.31	)	$	1.54	$	0.51

	Three Months Ended						Three Months Ended						Nine Months Ended
	March 31,						September 30,						September 30,
	2019			2018			2019			2018			2019			2018
Net income	$	9,669		$	6,989
Net income (loss)							$	7,708		$	(3,433	)	$	26,038		$	6,570
Other comprehensive income (loss), net of reclassification adjustment:
Unrealized holding gains (losses) on available for sale securities		6,142			(3,214	)		3,724			(935	)		16,164			(4,833	)
Tax effect		(1,289	)		675			(782	)		197			(3,393	)		1,015
Pension liability adjustment		147			143			147			143			441			429
Tax effect		(31	)		(30	)		(31	)		(30	)		(93	)		(90	)
Total other comprehensive income (loss)		4,969			(2,426	)		3,058			(625	)		13,119			(3,479	)
Comprehensive income	$	14,638		$	4,563
Comprehensive income (loss)							$	10,766		$	(4,058	)	$	39,157		$	3,091

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

	Preferred Shares						Common Shares										Accumulated Other			Total			Preferred Shares						Common Shares											Accumulated Other			Total
	Outstanding Shares			Amount			Outstanding Shares		Amount		Retained Earnings			Treasury Shares			Comprehensive Income (loss)			Shareholders’ Equity			Outstanding Shares			Amount			Outstanding Shares			Amount		Retained Earnings			Treasury Shares			Comprehensive Income			Shareholders’ Equity
Balance, December 31, 2018		10,120		$	9,364			15,603,499	$	266,901	$	41,320		$	(17,235	)	$	(1,452	)	$	298,898
Balance, June 30, 2019																								10,120		$	9,364			15,633,059		$	267,275	$	56,199		$	(17,235	)	$	8,609		$	324,212
Net Income		—			—			—		—		9,669			—			—			9,669			—			—			—			—		7,708			—			—			7,708
Other comprehensive income		—			—			—		—		—			—			4,969			4,969			—			—			—			—		—			—			3,058			3,058
Conversion of Series B preferred shares to common shares																								(222	)		(206	)		28,416			206		—			—			—			—
Stock-based compensation																								—			—			—			78		—			—			—			78
Common stock dividends ($0.11 per share)																								—			—			—			—		(1,722	)		—			—			(1,722	)
Preferred stock dividends ($16.25 per share)																								—			—			—			—		(162	)		—			—			(162	)
Purchase of treasury stock																								—			—			(188,200	)		—		—			(3,909	)		—			(3,909	)
Balance, September 30, 2019																								9,898		$	9,158			15,473,275		$	267,559	$	62,023		$	(21,144	)	$	11,667		$	329,263

																							Preferred Shares						Common Shares											Accumulated Other			Total
																							Outstanding Shares			Amount			Outstanding Shares			Amount		Retained Earnings			Treasury Shares			Comprehensive Loss			Shareholders’ Equity
Balance, June 30, 2018																								14,320		$	13,250			10,788,892		$	158,191	$	39,898		$	(17,235	)	$	(4,256	)	$	189,848
Net Loss																								—			—			—			—		(3,433	)		—			—			(3,433	)
Other comprehensive loss																								—			—			—			—		—			—			(625	)		(625	)
Conversion of Series B preferred shares to common shares																								(2,564	)		(2,372	)		327,875			2,372		—			—			—			—
UCB acquisition																								—			—			4,277,430			104,669		—			—			—			104,669
Stock-based compensation		—			—			20,614		89		—			—			—			89			—			—			867			92		—			—			—			92
Common stock dividends ($0.09 per share)		—			—			—		—		(1,404	)		—			—			(1,404	)		—			—			—			—		(971	)		—			—			(971	)
Preferred stock dividends ($16.25 per share)		—			—			—		—		(164	)		—			—			(164	)		—			—			—			—		(192	)		—			—			(192	)
Balance, March 31, 2019		10,120		$	9,364			15,624,113	$	266,990	$	49,421		$	(17,235	)	$	3,517		$	312,057

	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		—			—			—		—		6,989			—			—			6,989
Other comprehensive loss		—			—			—		—		—			—			(2,426	)		(2,426	)
Conversion of Series B preferred shares to common shares		(351	)		(324	)		44,799		324		—			—			—			—
Stock-based compensation		—			—			—		36		—			—			—			36
Common stock dividends ($0.07 per share)		—			—			—		—		(714	)		—			—			(714	)
Preferred stock dividends ($16.25 per share)		—			—			—		—		(303	)		—			—			(303	)
Balance, March 31, 2018		18,409		$	17,034			10,243,274	$	154,170	$	37,902		$	(17,235	)	$	(3,828	)	$	188,043
Balance, September 30, 2018																								11,756		$	10,878			15,395,064		$	265,324	$	35,302		$	(17,235	)	$	(4,881	)	$	289,388

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

	Preferred Shares						Common Shares											Accumulated Other			Total
	Outstanding Shares			Amount			Outstanding Shares			Amount		Retained Earnings			Treasury Shares			Comprehensive Income (loss)			Shareholders’ Equity
Balance, December 31, 2018		10,120		$	9,364			15,603,499		$	266,901	$	41,320		$	(17,235	)	$	(1,452	)	$	298,898
Net Income		—			—			—			—		26,038			—			—			26,038
Other comprehensive income		—			—			—			—		—			—			13,119			13,119
Conversion of Series B preferred shares to common shares		(222	)		(206	)		28,416			206		—			—			—			—
Stock-based compensation		—			—			29,560			452		—			—			—			452
Common stock dividends ($0.31 per share)		—			—			—			—		(4,845	)		—			—			(4,845	)
Preferred stock dividends ($48.75 per share)		—			—			—			—		(490	)		—			—			(490	)
Purchase of treasury stock		—			—			(188,200	)		—		—			(3,909	)		—			(3,909	)
Balance, September 30, 2019		9,898		$	9,158			15,473,275		$	267,559	$	62,023		$	(21,144	)	$	11,667		$	329,263

	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 dividends ($48.75 per share)		—			—			—			—		(794	)		—			—			(794	)
Balance, September 30, 2018		11,756		$	10,878			15,395,064		$	265,324	$	35,302		$	(17,235	)	$	(4,881	)	$	289,388

	Three Months Ended March 31,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net cash from operating activities	$	12,905		$	6,613		$	22,522		$	19,488
Cash flows used for investing activities:
Maturities and calls of securities, available-for-sale		12,396			3,563			37,688			22,417
Purchases of securities, available-for-sale		(27,749	)		(10,898	)		(48,178	)		(84,121	)
Sale of securities available for sale		17,570			—			16,829			12,063
Redemption of other securities		741			—			741			—
Purchase of bank owned life insurance		(955	)		—			(955	)		—
Net loan repayments (originations)		(10,988	)		10,743
Net loan originations								(86,351	)		(52,807	)
Proceeds from sale of other real estate owned properties		—			6			—			34
Proceeds from sale of premises and equipment		—			1			—			238
Acquisition, net of cash acquired								—			143,797
Premises and equipment purchases		(216	)		(105	)		(1,729	)		(524	)
Net cash provided by (used for) investing activities		(9,201	)		3,310
Net cash (used for) provided by investing activities								(81,955	)		41,097
Cash flows from financing activities:
Repayment of long-term FHLB advances		—			(10,000	)		—			(10,000	)
Proceeds from long-term FHLB advances								50,000			—
Net change in short-term FHLB advances		(66,500	)		(1,900	)		(7,500	)		83,200
Increase in deposits		185,908			85,748
Increase (decrease) in deposits								52,728			(103,112	)
Decrease in securities sold under repurchase agreements		(229	)		(4,303	)		(7,111	)		(3,240	)
Purchase of treasury shares								(3,909	)		—
Common dividends paid		(1,404	)		(714	)		(4,845	)		(2,404	)
Preferred dividends paid		(164	)		(303	)		(490	)		(794	)
Net cash provided by financing activities		117,611			68,528
Net cash provided by (used for) financing activities								78,873			(36,350	)
Increase in cash and due from financial institutions		121,315			78,451			19,440			24,235
Cash and due from financial institutions at beginning of period		42,779			40,519			42,779			40,519
Cash and due from financial institutions at end of period	$	164,094		$	118,970		$	62,219		$	64,754
Cash paid during the period for:
Interest	$	2,834		$	1,462		$	9,614		$	4,835
Income taxes								3,700			1,600
Supplemental cash flow information:
Transfer of premises to held-for-sale								76			—
Transfer of loans held for sale to portfolio		—			85			—			85
Conversion of preferred shares to common shares		—			324			206			6,480
Securities purchased not settled		1,061			1,264			—			12,707
Increase in right-of-use asset on leases		(2,201	)		—			(2,367	)		—
Increase in lease liability		2,201			—			2,367			—
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

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. The operations of FCRS were discontinued June 30, 2019. The discontinued operations of FCRS will not affect the Company’s participation in the tax refund processing program. CRMI is a wholly-owned captive insurance company which allows the Company to insure against certain risks unique to the operations of CBI 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 ~~March 31,~~September 30, 2019. 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 ~~March 31,~~September 30, 2019. 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 ~~March 31,~~September 30, 2019 and its results of operations and changes in cash flows for the periods ended ~~March 31,~~September 30, 2019 and 2018 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~~periods ended ~~March 31,~~September 30, 2019 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 2018 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 ~~$410,192,~~$427,503, or ~~26.0%~~25.8% of total loans, as of ~~March 31,~~September 30, 2019, and the other is to Lessors of Residential Buildings and Dwellings totaling ~~$164,613,~~$166,199, or ~~10.5%~~10.0% of total loans, as of ~~March 31,~~September 30, 2019. 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.

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.

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 available 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.

In March 2017, the Financial Accounting Standards Board ~~('FASB'~~(“FASB”) issued Accounting Standards Update ~~('ASU'~~(“ASU”) 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). These amendments 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. We adopted ASU 2017-08, effective January 1, 2019, which did not have a material impact on the Company’s Consolidated Financial Statements.

Effective January 1, 2019, the Company adopted FASB ASU 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition, which we elected. As a result of the adoption of ASC 842 on January 1, 2019, we recorded both operating lease right-of-use ~~('ROU'~~(“ROU”) assets of $2,210 and lease liabilities of $2,210. The adoption of ASC 842 had an immaterial impact on our Condensed Consolidated Statement of Earnings and Condensed Consolidated Statement of Cash Flows for the ~~three-month~~nine month period ended ~~March 31,~~September 30, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which allowed us to carry forward the historical lease classification. There was no cumulative effect adjustment to the opening balance of retained earnings required.

Additional information and disclosures required by this new standard are contained in Note 17, 'Leases'.

~~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. The amendments also clarify existing disclosure requirements for equity-classified instruments. 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. We adopted ASU 2017-11, effective January 1, 2019, which did not have a material impact on the Company’s Consolidated Financial Statements.

~~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. We adopted ASU 2017-12, effective January 1, 2019, which did not have a material impact on the Company’s Consolidated 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). We adopted ASU 2018-07, effective January 1, 2019, which did not have a material impact on the Company’s financial statements.

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. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. Management is in the process of evaluating the impact adoption of ~~this update~~ASU 2016-13 will have on the Company’s Consolidated Financial Statements. This process has engaged multiple ~~area’s~~areas of the ~~bank~~Company in evaluating loss estimation methods and application of these methods to specific segments of the loan portfolio. Management has been actively monitoring FASB developments and evaluating the use of different methods allowed. Due to continuing development of our methodology, additional time is required to quantify the affect this ASU will have on the Company’s Consolidated Financial Statements. Management plans on running parallel calculations during the year and finalizing a method or methods of adoption in time for the effective date.

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 computing 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 that 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 of 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 in fiscal years beginning after December 15, 2019. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. 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 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.

In October, 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810), which made improvements in 1)(1) applying the variable interest entity (VIE) guidance to private companies under common control and 2)(2) considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. Under the amendments in this Update, a private company may elect not to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities. In addition, indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. For entities other than private companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. ~~The amendments in this Update are effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.~~ This Update is not expected to have a significant impact on the Company’s financial statements.

In November, 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), which made the following targeted improvements to generally accepted accounting principles (GAAP) for collaborative ~~arrangements~~arrangements: (1) clarified that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (2) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and (3) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For public business entities, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of the Topic 326 amendments on the Company’s Consolidated Financial Statements. The amendments to Topic 825 are effective for interim and annual reporting periods beginning after December 15, 2019. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. This Update is not expected to have a material impact on the Company’s financial statements.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial statements.

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

March 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	22,098	$	147	$	(76	)	$	22,169	$	21,534	$	216	$	(13	)	$	21,737
Obligations of states and political subdivisions		175,863		7,543		(81	)		183,325		179,954		14,314		(13	)		194,255
Mortgage-backed securities in government sponsored entities		142,860		2,199		(619	)		144,440		134,664		4,739		(108	)		139,295
Total debt securities	$	340,821	$	9,889	$	(776	)	$	349,934	$	336,152	$	19,269	$	(134	)	$	355,287

The amortized cost and fair value of securities at ~~March 31,~~September 30, 2019, 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		Amortized Cost		Fair Value
Due in one year or less	$	10,927	$	10,877	$	10,142	$	10,134
Due after one year through five years		16,275		16,469		16,274		16,558
Due after five years through ten years		24,424		25,631		21,766		23,229
Due after ten years		146,335		152,517		153,306		166,071
Mortgage-backed securities		142,860		144,440		134,664		139,295
Total securities available for sale	$	340,821	$	349,934	$	336,152	$	355,287

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

	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
	2019		2018		2019		2018		2019		2018
Sale proceeds	$	17,570	$	—	$	—	$	12,063	$	16,829	$	12,063
Gross realized gains		47		—		—		—		47		—
Gross realized losses		43		—		—		392		43		392
Gains from securities called or settled by the issuer						3		6		13		6

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately ~~$134,315~~$143,361 and $114,145 as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

Securities with unrealized losses at ~~March 31,~~September 30, 2019 and December 31, 2018 not recognized in income are as follows:

March 31, 2019	12 Months or less				More than 12 months					Total
September 30, 2019															12 Months or less					More than 12 months					Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	—	$	—	$	11,486	$	(76	)	$	11,486	$	(76	)	$	—	$	—		$	3,430	$	(13	)	$	3,430	$	(13	)
Obligations of states and political subdivisions		—		—		5,907		(81	)		5,907		(81	)		957		(12	)		1,005		(1	)		1,962		(13	)
Mortgage-backed securities in gov’t sponsored entities		—		—		37,584		(619	)		37,584		(619	)		4,866		(33	)		12,884		(75	)		17,750		(108	)
Total temporarily impaired	$	—	$	—	$	54,977	$	(776	)	$	54,977	$	(776	)	$	5,823	$	(45	)	$	17,319	$	(89	)	$	23,142	$	(134	)

At ~~March 31,~~September 30, 2019, there were ~~fifty-nine~~a total of 33 securities in the portfolio with unrealized losses mainly due to higher current 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-months~~three and nine months ended ~~March 31,~~September 30, 2019 and 2018, and the portion of unrealized gains and losses for the period that relates to equity investments held at ~~March 31,~~September 30, 2019 and 2018:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018
Net gains recognized on equity securities during the period	$	2	$	40	$	112	$	27	$	81	$	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	$	2	$	40	$	112	$	27	$	81	$	102

	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Commercial & Agriculture	$	179,200		$	177,101		$	196,833		$	177,101
Commercial Real Estate- Owner Occupied		217,030			210,121			226,501			210,121
Commercial Real Estate- Non-Owner Occupied		539,420			523,598			558,804			523,598
Residential Real Estate		461,340			457,850			465,455			457,850
Real Estate Construction		123,905			135,195			149,018			135,195
Farm Real Estate		35,645			38,513			36,286			38,513
Consumer and Other		16,653			19,563			15,743			19,563
Total loans		1,573,193			1,561,941			1,648,640			1,561,941
Allowance for loan losses		(13,822	)		(13,679	)		(14,144	)		(13,679	)
Net loans	$	1,559,371		$	1,548,262		$	1,634,496		$	1,548,262

Included in total loans above are net deferred loan fees of ~~$267~~$356 and $389 at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

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 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 ~~$13,822~~$14,144 adequate to cover loan losses inherent in the loan portfolio, at ~~March 31,~~September 30, 2019. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018.

March 31, 2019	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
For the three months ended September 30, 2019													Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,747	$	—		$	1	$	86		$	1,834	$	1,828	$	—		$	61	$	43		$	1,932
Commercial Real Estate:
Owner Occupied		1,962		(60	)		223		(146	)		1,979		2,009		—			43		85			2,137
Non-Owner Occupied		5,803		—			14		172			5,989		5,867		—			55		226			6,148
Residential Real Estate		1,531		(98	)		124		(123	)		1,434		1,698		(20	)		67		(136	)		1,609
Real Estate Construction		1,046		(24	)		—		(51	)		971		1,135		—			1		47			1,183
Farm Real Estate		397		—			1		(32	)		366		365		—			1		1			367
Consumer and Other		284		(57	)		19		5			251		201		(16	)		16		52			253
Unallocated		909		—			—		89			998		683		—			—		(168	)		515
Total	$	13,679	$	(239	)	$	382	$	—		$	13,822	$	13,786	$	(36	)	$	244	$	150		$	14,144

For the three months ended ~~March 31,~~September 30, 2019, 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. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances. 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 an increase in loan balances. This was represented as an increase in the provision. The allowance for Residential Real Estate loans decreased due to 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 an increase in loan balances. The allowance for Consumer and Other loans increased due to an increase in loss rates. The result was represented as an increase 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 at September 30, 2019.

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.

For the nine months ended September 30, 2019, 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, offset by a decrease in the loss rates. The result was represented as an increase in the provision. The allowance for Commercial Real Estate –Owner Occupied loans increased due to an increase in general reserves required as a result of higher loan balances and higher loss rates, offset by net recoveries on previously charged off amounts, resulting in a decrease 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, offset by ~~lower~~a decrease in the loss ~~rates and recoveries on previously charged off amounts.~~rates. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves required for this type as a result of an increase in loan balances and loss rates, represented by an increase 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 classified loan balances and the reserve required for this type of loan. The result was represented as a decrease in the provision. The allowance for Consumer and Other loans decreased due to a decrease in the general reserves required for the type as a result of a decrease in loan balances and loss rates. 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 at September 30, 2019.

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, ~~and recoveries on previously charged off amounts,~~ represented by a decrease in the provision. The allowance for Real Estate Construction loans ~~decreased~~increased due to ~~a decrease~~an increase in general reserves required as a result of ~~lower~~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 at March 31, 2019.~~

For the three months ended March 31, 2018, the allowance for Commercial & Agriculture loans was reduced by a decrease in general reserves as a result of lower outstanding balances and 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 outstanding loan balances and loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans decreased due to lower outstanding loan balances for this type of loan. The result was represented as a decrease in the provision. 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 decreased due to a decrease in general reserves required for this type as a result of lower loss rates, lower outstanding balances and net charge-offs. The result was represented as a decrease in the provision.

The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of ~~March 31,~~September 30, 2019 and December 31, 2018.

March 31, 2019	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
September 30, 2019									Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	—	$	53	$	1,781	$	1,834	$	—	$	—	$	1,932	$	1,932
Commercial Real Estate:
Owner Occupied		—		10		1,969		1,979		—		6		2,131		2,137
Non-Owner Occupied		—		—		5,989		5,989		—		—		6,148		6,148
Residential Real Estate		—		124		1,310		1,434		—		98		1,511		1,609
Real Estate Construction		—		—		971		971		—		—		1,183		1,183
Farm Real Estate		—		7		359		366		—		—		367		367
Consumer and Other		—		—		251		251		—		—		253		253
Unallocated		—		—		998		998		—		—		515		515
Total	$	—	$	194	$	13,628	$	13,822	$	—	$	104	$	14,040	$	14,144
Outstanding loan balances:
Commercial & Agriculture	$	35	$	367	$	178,798	$	179,200	$	—	$	367	$	196,466	$	196,833
Commercial Real Estate:
Owner Occupied		—		472		216,558		217,030		—		436		226,065		226,501
Non-Owner Occupied		—		382		539,038		539,420		—		376		558,428		558,804
Residential Real Estate		823		1,148		459,369		461,340		539		1,039		463,877		465,455
Real Estate Construction		—		—		123,905		123,905		—		—		149,018		149,018
Farm Real Estate		—		692		34,953		35,645		—		681		35,605		36,286
Consumer and Other		—		—		16,653		16,653		—		—		15,743		15,743
Total	$	858	$	3,061	$	1,569,274	$	1,573,193	$	539	$	2,899	$	1,645,202	$	1,648,640

December 31, 2018	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	—	$	—	$	1,747	$	1,747
Commercial Real Estate:
Owner Occupied		—		12		1,950		1,962
Non-Owner Occupied		—		—		5,803		5,803
Residential Real Estate		8		122		1,401		1,531
Real Estate Construction		—		—		1,046		1,046
Farm Real Estate		—		7		390		397
Consumer and Other		—		—		284		284
Unallocated		—		—		909		909
Total	$	8	$	141	$	13,530	$	13,679
Outstanding loan balances:
Commercial & Agriculture	$	41	$	367	$	176,693	$	177,101
Commercial Real Estate:
Owner Occupied		—		484		209,637		210,121
Non-Owner Occupied		—		31		523,567		523,598
Residential Real Estate		883		1,279		455,688		457,850
Real Estate Construction		—		—		135,195		135,195
Farm Real Estate		—		696		37,817		38,513
Consumer and Other		—		—		19,563		19,563
Total	$	924	$	2,857	$	1,558,160	$	1,561,941

The following tables present credit exposures by internally assigned risk grades as of ~~March 31,~~September 30, 2019 and December 31, 2018. 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.

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. Only those loans that have been risk rated are included below.

March 31, 2019	Pass		Special Mention		Substandard		Doubtful		Ending Balance
September 30, 2019											Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	174,339	$	2,978	$	1,883	$	—	$	179,200	$	193,224	$	738	$	2,871	$	—	$	196,833
Commercial Real Estate:
Owner Occupied		208,242		3,532		5,256		—		217,030		217,643		3,759		5,099		—		226,501
Non-Owner Occupied		536,178		2,384		858		—		539,420		555,893		2,258		653		—		558,804
Residential Real Estate		73,163		490		6,143		—		79,796		71,298		651		6,278		—		78,227
Real Estate Construction		115,899		12		12		—		115,923		138,221		—		10		—		138,231
Farm Real Estate		31,218		1,955		2,472		—		35,645		32,920		579		2,787		—		36,286
Consumer and Other		776		—		24		—		800		897		—		20		—		917
Total	$	1,139,815	$	11,351	$	16,648	$	—	$	1,167,814	$	1,210,096	$	7,985	$	17,718	$	—	$	1,235,799

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended ~~March 31,~~September 30, 2019 and December 31, 2018 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 management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due orand if management ~~thinks~~determines that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that 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 mitigation 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 be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

March 31, 2019	Residential Real Estate		Real Estate Construction		Consumer and Other		Total
September 30, 2019									Residential Real Estate		Real Estate Construction		Consumer and Other		Total
Performing	$	381,544	$	7,982	$	15,843	$	405,369	$	387,228	$	10,787	$	14,792	$	412,807
Nonperforming		—		—		10		10		—		—		34		34
Total	$	381,544	$	7,982	$	15,853	$	405,379	$	387,228	$	10,787	$	14,826	$	412,841

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of ~~March 31,~~September 30, 2019 and December 31, 2018.

March 31, 2019	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
September 30, 2019																	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	$	80	$	13	$	107	$	200	$	178,965	$	35	$	179,200	$	—	$	531	$	56	$	99	$	686	$	196,147	$	—	$	196,833	$	—
Commercial Real Estate:
Owner Occupied		862		336		534		1,732		215,298		—		217,030		—		206		—		774		980		225,521		—		226,501		—
Non-Owner Occupied		72		—		159		231		539,189		—		539,420		—		248		—		9		257		558,547		—		558,804		—
Residential Real Estate		3,031		201		758		3,990		456,527		823		461,340		—		367		234		1,307		1,908		463,008		539		465,455		—
Real Estate Construction		11		—		—		11		123,894		—		123,905		—		84		—		—		84		148,934		—		149,018		—
Farm Real Estate		—		70		152		222		35,423		—		35,645		—		122		—		9		131		36,155		—		36,286		—
Consumer and Other		118		42		25		185		16,468		—		16,653		10		76		6		34		116		15,627		—		15,743		17
Total	$	4,174	$	662	$	1,735	$	6,571	$	1,565,764	$	858	$	1,573,193	$	10	$	1,634	$	296	$	2,232	$	4,162	$	1,643,939	$	539	$	1,648,640	$	17

December 31, 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		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	$	225	$	—	$	92	$	317	$	176,743	$	41	$	177,101	$	—	$	225	$	—	$	92	$	317	$	176,743	$	41	$	177,101	$	—
Commercial Real Estate:
Owner Occupied		547		413		564		1,524		208,597		—		210,121		—		547		413		564		1,524		208,597		—		210,121		—
Non-Owner Occupied		288		290		372		950		522,648		—		523,598		—		288		290		372		950		522,648		—		523,598		—
Residential Real Estate		7,118		677		806		8,601		448,366		883		457,850		—		7,118		677		806		8,601		448,366		883		457,850		—
Real Estate Construction		—		12		27		39		135,156		—		135,195		—		—		12		27		39		135,156		—		135,195		—
Farm Real Estate		33		—		158		191		38,322		—		38,513		—		33		—		158		191		38,322		—		38,513		—
Consumer and Other		117		57		9		183		19,380		—		19,563		—		117		57		9		183		19,380		—		19,563		—
Total	$	8,328	$	1,449	$	2,028	$	11,805	$	1,549,212	$	924	$	1,561,941	$	—	$	8,328	$	1,449	$	2,028	$	11,805	$	1,549,212	$	924	$	1,561,941	$	—

The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of ~~March 31,~~September 30, 2019 and December 31, 2018.

	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Commercial & Agriculture	$	333	$	270	$	238	$	270
Commercial Real Estate:
Owner Occupied		917		942		1,090		942
Non-Owner Occupied		160		374		9		374
Residential Real Estate		3,240		3,886		3,958		3,886
Real Estate Construction		12		41		10		41
Farm Real Estate		329		338		299		338
Consumer and Other		21		18		17		18
Total	$	5,012	$	5,869	$	5,621	$	5,869

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 ~~March 31,~~September 30, 2019, TDRs accounted for ~~$194~~$104 of the allowance for loan losses. As of December 31, 2018, TDRs accounted for $143 of the allowance for loan losses.

Loan modifications that are considered TDRs completed during the periods ended ~~March 31,~~September 30, 2019 and ~~March 31,~~September 30, 2018 were as follows:

	For the three months ended						For the Three-Month Period Ended
	March 31, 2018						September 30, 2018
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		3	$	591	$	591		—	$	—	$	—
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		3	$	591	$	591		2	$	133	$	133

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-month~~three- and nine-month periods ended ~~March 31,~~September 30, 2019 and ~~March 31,~~September 30, 2018, there were no defaults on loans that were modified and considered TDRs during the respective previous twelve months.

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 agreement. 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 loans, excluding PCI loans, with the associated allowance amount, if applicable, as of ~~March 31,~~September 30, 2019 and December 31, 2018.

	March 31, 2019						December 31, 2018						September 30, 2019						December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial & Agriculture	$	168	$	168			$	367	$	367			$	367	$	367			$	367	$	367
Commercial Real Estate:
Owner Occupied		187		187				193		193				175		175				193		193
Non-Owner Occupied		382		382				31		34				376		376				31		34
Residential Real Estate		892		964				1,017		1,089				794		866				1,017		1,089
Farm Real Estate		252		252				256		256				681		681				256		256
Total		1,881		1,953				1,864		1,939				2,393		2,465				1,864		1,939
With an allowance recorded:
Commercial & Agriculture		199		199	$	53		—		—	$	—
Commercial Real Estate:
Owner Occupied		285		285		10		291		291		12		261		261	$	6		291		291	$	12
Residential Real Estate		256		260		124		262		265		122		245		249		98		262		265		122
Farm Real Estate		440		440		7		440		440		7		—		—		—		440		440		7
Total		1,180		1,184		194		993		996		141		506		510		104		993		996		141
Total:
Commercial & Agriculture		367		367		53		367		367		—		367		367		—		367		367		—
Commercial Real Estate:
Owner Occupied		472		472		10		484		484		12		436		436		6		484		484		12
Non-Owner Occupied		382		382		—		31		34		—		376		376		—		31		34		—
Residential Real Estate		1,148		1,224		124		1,279		1,354		122		1,039		1,115		98		1,279		1,354		122
Farm Real Estate		692		692		7		696		696		7		681		681		—		696		696		7
Total	$	3,061	$	3,137	$	194	$	2,857	$	2,935	$	141	$	2,899	$	2,975	$	104	$	2,857	$	2,935	$	141

The following table includes the average recorded investment and interest income recognized for impaired financing receivables for the ~~three-month~~three-and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018.

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

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

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

	At March 31, 2019		At December 31, 2018		At September 30, 2019		At December 31, 2018
	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)		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)				(In Thousands)
Outstanding balance	$	1,693	$	1,805	$	1,283	$	1,805
Carrying amount		858		924		539		924

There ~~has been~~was $0 and $8 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

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 ~~March 31,~~September 30, 2019 and December 31, 2018, respectively, there were no foreclosed assets included in other ~~assets totaled $0.~~assets. As of ~~March 31,~~September 30, 2019 and December 31, 2018, the Company had initiated formal foreclosure procedures on ~~$365~~$479 and $311, respectively, of consumer residential mortgages.

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

March 31, 2019(a)

March 31, 2018(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

$
2,347

$
(3,799
)

$
(1,452
)

$
3,185

$
(4,309
)

$
(1,124
)
Other comprehensive income before
   reclassifications

4,850

—

4,850

(2,539
)

—

(2,539
)
Amounts reclassified from accumulated other
   comprehensive loss

3

116

119

—

113

113

Net current-period other comprehensive income

4,853

116

4,969

(2,539
)

113

(2,426
)
Reclassification of equity securities from
   accumulated other comprehensive loss

—

—

—

(278
)

—

(278
)
Ending balance

$
7,200

$
(3,683
)

$
3,517

$
368

$
(4,196
)

$
(3,828
)

	For the Three-Month Period Ended								For the Three-Month Period Ended
	September 30, 2019(a)								September 30, 2018(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	$	12,176		$	(3,567	)	$	8,609	$	(173	)	$	(4,083	)	$	(4,256	)
Other comprehensive income (loss) before reclassifications		2,944			—			2,944		(1,048	)		—			(1,048	)
Amounts reclassified from accumulated other comprehensive income (loss)		(2	)		116			114		310			113			423
Net current-period other comprehensive income (loss)		2,942			116			3,058		(738	)		113			(625	)
Ending balance	$	15,118		$	(3,451	)	$	11,667	$	(911	)	$	(3,970	)	$	(4,881	)

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

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

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)							Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a)
Details about Accumulated Other Comprehensive Loss Components	For the Three months ended March 31, 2019			For the Three months ended March 31, 2018			Affected Line Item in the Statement Where Net Income is Presented
Details about Accumulated Other Comprehensive Income (Loss) Components								For the Nine months ended September 30, 2019			For the Nine months ended September 30, 2018			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains on available-for-sale securities	$	(4	)	$	—		Net gain on securities available for sale	$	17		$	(386	)	Net gain (loss) on sale of securities
Tax effect		1			—		Income tax expense		(4	)		81		Income tax expense
		(3	)		—		Net of tax		13			(305	)	Net of tax
Amortization of defined benefit pension items
Actuarial gains/(losses) (b)		(147	)		(143	)	Other operating expenses		(441	)		(429	)	Other operating expenses
Tax effect		31			30		Income tax expense		93			90		Income tax expense
		(116	)		(113	)	Net of tax		(348	)		(339	)	Net of tax
Total reclassifications for the period	$	(119	)	$	(113	)	Net of tax	$	(335	)	$	(644	)	Net of tax

There ~~has been~~was no change in the carrying amount of goodwill of $76,851 for the periods ended ~~March 31,~~September 30, 2019 and December 31, 2018. Goodwill is not amortized ~~however,~~and, instead, 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 2018 and concluded that the Company’s goodwill was not impaired at December 31, 2018.

~~Acquired intangible assets, other than goodwill, as of March 31, 2019 and December 31, 2018 were as follows:~~

~~Aggregate core deposit intangible amortization expense was $240 and $33 for the three-months ended March 31, 2019 and 2018, respectively.~~

~~Aggregate mortgage servicing rights amortization was $39 and $16 for the three-months ended March 31, 2019 and 2018, respectively.~~

Acquired intangible assets, other than goodwill, as of September 30, 2019 and December 31, 2018 were as follows:

Aggregate core deposit intangible amortization expense was $235, $26, $710 and $85 for the three and nine months ended September 30, 2019 and 2018, respectively.

Aggregate mortgage servicing rights amortization was $81, $22, $176 and $65 for the three and nine months ended September 30, 2019 and 2018, respectively.

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

	MSRs		Core deposit intangibles		Total		MSRs		Core deposit intangibles		Total
2019	$	66	$	705	$	771	$	22	$	235	$	257
2020		88		913		1,001		87		913		1,000
2021		87		891		978		87		891		978
2022		88		868		956		87		868		955
2023		86		841		927		86		841		927
Thereafter		1,241		3,230		4,471		1,263		3,230		4,493
	$	1,656	$	7,448	$	9,104	$	1,632	$	6,978	$	8,610

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 March 31, 2019					At December 31, 2018						At September 30, 2019					At December 31, 2018
	Federal Funds Purchased		Short-term Borrowings			Federal Funds Purchased			Short-term Borrowings			Federal Funds Purchased		Short-term Borrowings			Federal Funds Purchased			Short-term Borrowings
Outstanding balance	$	—	$	122,100		$	—		$	188,600		$	—	$	181,100		$	—		$	188,600
Maximum indebtedness		—		192,700			20,000			225,300			—		192,700			20,000			225,300
Average balance		—		92,267			116			113,520			—		117,229			116			113,520
Average rate paid		—		2.51	%		2.58	%		2.07	%		—		2.44	%		2.58	%		2.07	%
Interest rate on balance		—		2.51	%		—			2.45	%		—		2.11	%		—			2.45	%

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 ~~March 31,~~September 30, 2019 and December 31, 2018.

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.

The following table presents detail regarding the securities pledged as collateral under repurchase agreements as of ~~March 31,~~September 30, 2019 and December 31, 2018. All of the repurchase agreements are overnight agreements.

	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Securities pledged for repurchase agreements:
U.S. Treasury securities	$	858	$	861	$	655	$	861
Obligations of U.S. government agencies		21,112		21,338		14,433		21,338
Total securities pledged	$	21,970	$	22,199	$	15,088	$	22,199
Gross amount of recognized liabilities for repurchase agreements	$	21,970	$	22,199	$	15,088	$	22,199
Amounts related to agreements not included in offsetting disclosures above	$	—	$	—	$	—	$	—

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 shares using the “if converted” method.

Three Months Ended

March 31,

2019

2018

Basic

Net income

$
9,669

$
6,989

Preferred stock dividends

164

303

Net income available to common shareholders—basic

$
9,505

$
6,686

Weighted average common shares outstanding—basic

15,607,655

10,213,264

Basic earnings per common share

$
0.61

$
0.65

Diluted

Net income available to common shareholders—basic

$
9,505

$
6,686

Preferred stock dividends

164

303

Net income available to common shareholders—diluted

$
9,669

$
6,989

Weighted average common shares outstanding for basic
earnings per common share

15,607,655

10,213,264

Add: Dilutive effects of convertible preferred shares

1,294,175

2,384,130

Average shares and dilutive potential common shares
outstanding—diluted

16,901,830

12,597,394

Diluted earnings per common share

$
0.57

$
0.55

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019		2018			2019		2018
Basic
Net income (loss)	$	7,708	$	(3,433	)	$	26,038	$	6,570
Preferred stock dividends		162		192			490		794
Net income (loss) available to common shareholders—basic	$	7,546	$	(3,625	)	$	25,548	$	5,776
Weighted average common shares outstanding—basic		15,577,371		11,627,093			15,604,410		10,775,577
Basic earnings (loss) per common share	$	0.48	$	(0.31	)	$	1.64	$	0.54
Diluted
Net income (loss) available to common shareholders—basic	$	7,546	$	(3,625	)	$	25,548	$	5,776
Preferred stock dividends		162		192			490		794
Net income (loss) available to common shareholders—diluted	$	7,708	$	(3,433	)	$	26,038	$	6,570
Weighted average common shares outstanding for basic earnings per common share		15,577,371		11,627,093			15,604,410		10,775,577
Add: Dilutive effects of convertible preferred shares		1,272,516		1,643,980			1,286,876		2,054,825
Average shares and dilutive potential common shares outstanding—diluted		16,849,887		13,271,073			16,891,286		12,830,402
Diluted earnings (loss) per common share	$	0.46	$	(0.31	)	$	1.54	$	0.51

For the ~~quarters~~three-month periods ended ~~March 31,~~September 30, 2019 and ~~March 31,~~September 30, 2018, there were ~~1,294,175~~1,272,516 and ~~2,384,130,~~1,643,980, respectively, of average dilutive shares related to the Company’s convertible preferred shares. For the nine-month periods ended September 30, 2019 and September 30, 2018, there were 1,286,876 and 2,054,825, respectively, of average dilutive shares related to the Company’s convertible preferred shares. 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.

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 ~~March 31,~~September 30, 2019 and December 31, 2018:

	Contract Amount								Contract Amount
	March 31, 2019				December 31, 2018				September 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitment to extend credit:
Lines of credit and construction loans	$	14,051	$	360,954	$	14,984	$	359,220	$	18,447	$	376,469	$	14,984	$	359,220
Overdraft protection		4		47,276		3		37,201		4		46,976		3		37,201
Letters of credit		624		921		624		850		624		776		624		850
	$	14,679	$	409,151	$	15,611	$	397,271	$	19,075	$	424,221	$	15,611	$	397,271

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 4.50% to 8.00% at September 30, 2019 and from 2.88% to 8.50% at ~~March 31, 2019 and~~ December 31, ~~2018, respectively.~~2018. 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 ~~$87,310~~$7,121 on ~~March 31,~~September 30, 2019 and $8,891 on December 31, 2018. Such amounts are included within cash and due from financial institutions on the Consolidated Balance Sheet.

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.

	Three months ended						Three months ended						Nine Months Ended
	March 31,						September 30,						September 30,
	2019			2018			2019			2018			2019			2018
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost		128			125			128			125			384			375
Expected return on plan assets		(256	)		(273	)		(256	)		(273	)		(768	)		(819	)
Other components		147			143			147			143			441			429
Net periodic pension cost (benefit)	$	19		$	(5	)
Net periodic pension benefit (cost)							$	19		$	(5	)	$	57		$	(15	)

The Company does not expect to make any contribution to its pension plan in 2019. The Company made no contribution to its pension plan in 2018.

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 ~~248,736~~240,001 shares available for future grants under this plan at ~~March 31,~~September 30, 2019.

No options had been granted under the 2014 Incentive Plan as of ~~March 31,~~September 30, 2019 and 2018.

Each year, 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 awarded 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.

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.

On September 25, 2018, newly appointed 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 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.

Finally, on May 21, 2019, directors of the Company’s banking subsidiary, Civista, ~~Bancshares, Inc.~~

~~Notes~~were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 8,946 common shares were issued to ~~Interim Consolidated Financial Statements (Unaudited)~~

~~(Amounts~~Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2020 Annual Meeting. This issuance was expensed in ~~thousands, except share data)~~

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

The following is a summary of the Company’s outstanding restricted shares and changes therein for the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2019:

	Three months ended					Three months ended				Nine Months Ended
	March 31, 2019					September 30, 2019				September 30, 2019
	Number of Restricted Shares			Weighted Average Grant Date Fair Value		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		39,970		$	19.10		44,027	$	20.48		39,970		$	19.10
Granted		21,106			20.65		—		—		21,106			20.65
Vested		(16,557	)		17.31		—		—		(16,557	)		17.31
Forfeited		(492	)		22.41		—		—		(492	)		22.41
Nonvested at end of period		44,027		$	20.48		44,027	$	20.48		44,027		$	20.48

The following is a summary of the status of the Company’s outstanding restricted shares as of ~~March 31,~~September 30, 2019:

At March 31, 2019
At September 30, 2019							At September 30, 2019
Date of Award	Shares		Remaining Expense		Remaining Vesting Period (Years)			Shares		Remaining Expense		Remaining Vesting Period (Years)
January 15, 2016		4,108	$	37		1.75			4,108	$	26		1.25	��
March 20, 2017		3,725		37		0.75			3,725		12		0.25
March 20, 2017		3,581		67		2.75			3,581		55		2.25
April 10, 2018		5,282		86		1.75			5,282		60		1.25
April 10, 2018		6,225		117		3.75			6,225		101		3.25
March 14, 2019		10,188		198		2.75			10,188		153		2.25
March 14, 2019		10,918		203		4.75			10,918		170		4.25
		44,027	$	745		3.00			44,027	$	577		2.50

During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company recorded ~~$89~~$256 of share-based compensation expense and $196 of director retainer fees for shares granted under the 2014 Incentive Plan. At ~~March 31,~~September 30, 2019, the total compensation cost related to unvested awards not yet recognized is ~~$745,~~$577, which is expected to be recognized over the weighted average remaining life of the grants of ~~3.00~~2.50 years.

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 has two types of equity securities, one is not actively traded in an open market, while the other is listed on an exchange and is less frequently traded. The fair value of the equity security available for sale not actively traded in an open market is determined by using market data inputs for similar securities that are observable (Level 2 inputs). The fair value of the other equity security is determined from third-party pricing services or a computerized pricing model and classified Level 2.

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 based on similar transactions 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 ageof 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. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table below as it is not currently being carried at its fair value. The fair values in the table below exclude estimated selling costs of $13 as of September 30, 2019.

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

	Fair Value Measurements at March 31, 2019 Using:						Fair Value Measurements at September 30, 2019 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)		(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	$	—	$	22,169	$	—	$	—	$	21,737	$	—
Obligations of states and political subdivisions		—		183,325		—		—		194,255		—
Mortgage-backed securities in government sponsored entities		—		144,440		—		—		139,295		—
Total securities available for sale		—		349,934		—		—		355,287		—
Equity securities		—		1,072		—		—		1,152		—
Swap asset		—		4,910		—		—		11,556		—
Liabilities measured at fair value on a recurring basis:
Swap liability		—		4,910		—		—		11,556		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	2,150	$	—	$	—	$	30

	Fair Value Measurements at December 31, 2018 Using:						Fair Value Measurements at December 31, 2018 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)		(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	$	—	$	30,685	$	—	$	—	$	30,685	$	—
Obligations of states and political subdivisions		—		172,071		—		—		172,071		—
Mortgage-backed securities in government sponsored entities		—		143,538		—		—		143,538		—
Total securities available for sale		—		346,294		—		—		346,294		—
Equity securities		—		1,070		—		—		1,070		—
Swap asset		—		2,837		—		—		2,837		—
Liabilities measured at fair value on a recurring basis:
Swap liability		—		2,837		—		—		2,837		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	1,803	$	—	$	—	$	1,803

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 ~~March 31,~~September 30, 2019.

Quantitative Information about Level 3 Fair Value Measurements

March 31, 2019

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

September 30, 2019

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

Impaired loans

2,150

Appraisal of collateral

Appraisal adjustments

10% - 30%

23%

Appraisal of collateral

Appraisal adjustments

10% - 30%

26%

Liquidation expense

0% - 10%

Holding period

0 - 30 months

21 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, 2018.

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at ~~March 31,~~September 30, 2019 are as follows:

March 31, 2019	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
September 30, 2019											Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	164,094	$	164,094	$	164,094	$	—	$	—	$	62,219	$	62,219	$	62,219	$	—	$	—
Other securities		20,280		20,280		20,280		—		—		20,280		20,280		20,280		—		—
Loans, held for sale		1,444		1,444		1,444		—		—		8,983		9,163		9,163		—		—
Loans, net of allowance		1,559,371		1,517,557		—		—		1,517,557		1,634,496		1,647,787		—		—		1,647,787
Bank owned life insurance		44,239		44,239		44,239		—		—		44,745		44,745		44,745		—		—
Accrued interest receivable		7,304		7,304		7,304		—		—		7,501		7,501		7,501		—		—
Financial Liabilities:
Nonmaturing deposits		1,492,469		1,492,469		1,492,469		—		—		1,365,695		1,365,695		1,365,695		—		—
Time deposits		273,332		273,514		—		—		273,514		266,926		267,745		—		—		267,745
Short-term FHLB advances		122,100		122,100		122,100		—		—		181,100		181,100		181,100		—		—
Long-term FHLB advances		5,000		5,001		—		—		5,001		55,000		58,364		—		—		58,364
Securities sold under agreement to repurchase		21,970		21,970		21,970		—		—		15,088		15,088		15,088		—		—
Subordinated debentures		29,427		35,150		—		—		35,150		29,427		36,415		—		—		36,415
Accrued interest payable		261		261		261		—		—		271		271		271		—		—

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at December 31, 2018 are as follows:

December 31, 2018	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	42,779	$	42,779	$	42,779	$	—	$	—
Other securities		21,021		21,021		21,021		—		—
Loans, held for sale		1,391		1,391		1,391		—		—
Loans, net of allowance		1,548,262		1,517,278		—		—		1,517,278
Bank owned life insurance		43,037		43,037		43,037		—		—
Accrued interest receivable		6,723		6,723		6,723		—		—
Financial Liabilities:
Nonmaturing deposits		1,312,207		1,312,207		1,312,207		—		—
Time deposits		267,686		267,943		—		—		267,943
Short-term FHLB advances		188,600		188,600		188,600		—		—
Long-term FHLB advances		5,000		4,983		—		—		4,983
Securities sold under agreement to repurchase		22,199		22,199		22,199		—		—
Subordinated debentures		29,427		34,620		—		—		34,620
Accrued interest payable		230		230		230		—		—

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 interest rate swaps are free-standing derivatives and are recorded at fair value. 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. None of the Company’s derivatives are designated as hedging instruments.

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 ~~March 31,~~September 30, 2019.

	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency	Classification on the Consolidated Balance Sheet	Notional Amount			Fair Value			Weighted Average Rate Received/(Paid)
Derivative Assets	$	125,151			5.19	%	$	76		Monthly	Other Assets	$	140,477		$	11,556			5.12	%
Derivative Liabilities		(125,151	)		-5.19	%		(76	)	Monthly	Accrued expenses and other liabilities		(140,477	)		(11,556	)		-5.12	%
Net Exposure	$	—					$	—				$	—		$	—

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, 2018.

	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency	Classification on the Consolidated Balance Sheet	Notional Amount			Fair Value			Weighted Average Rate Received/(Paid)
Derivative Assets	$	120,131			5.19	%	$	72		Monthly	Other Assets	$	120,131		$	2,837			5.19	%
Derivative Liabilities		(120,131	)		-5.19	%		(72	)	Monthly	Accrued expenses and other liabilities		(120,131	)		(2,837	)		-5.19	%
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. The Company classifies changes in fair value of derivatives with “Other” in the Consolidated Statements of Operation.

The Company invests in certain qualified affordable housing projects. At ~~March 31,~~September 30, 2019 and December 31, 2018, the balance of the investment for qualified affordable housing projects was ~~$4,585~~$4,669 and $4,276, 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 ~~$4,524~~$4,173 and $4,922 at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

During the three months ended ~~March 31,~~September 30, 2019 and 2018, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $133 and ~~$129,~~$130, respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of ~~$276~~$275 and ~~$219,~~$207, respectively. During the nine months ended September 30, 2019 and 2018, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $399 and $388, respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $827 and $633, respectively. During the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, the Company did not incur impairment losses related to its investment in qualified affordable housing projects.

The Company accounts for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers. Revenue associated with financial instruments, including revenue from loans and securities are outside the scope of the new standard and accounted for under other existing GAAP. 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. Noninterest revenue streams in-scope of ASC 606 are discussed below.

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.

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.

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.

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 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, 2019 and 2018.

~~The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three-months ended March 31, 2019 and 2018.~~

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 ~~March 31,~~September 30, 2019 and December 31, 2018, the Company did not have any significant contract balances.

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.

We have operating leases for several branch locations and office space. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. We also lease certain office equipment under operating leases. Many of our leases include both lease (e.g., minimum rent payments) and non-lease components (e.g., common-area or other maintenance costs). The Company accounts for each component separately based on the standalone price of each component. In addition, we have several operating leases with lease ~~term~~terms of less than one year and therefore, we have elected the practical expedient to exclude these short-term leases from our ROU assets and lease liabilities.

Most leases include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion. The majority of renewals to extend the lease terms are included in our ROU assets and lease liabilities as they are reasonably certain of exercise.

As most of our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate, commensurate with the lease terms based on the information available at the lease commencement date in determining the present value of the lease payments.

The balance sheet information related to our operating leases were as follows as of September 30, 2019:

~~The balance sheet information related to our operating leases were as follows as of March 31, 2019:~~

The cost components of our operating leases were as follows for the period ended ~~March 31,~~September 30, 2019:

	Three Months Ended			Three Months Ended			Nine Months Ended
	March 31,			September 30,			September 30,
	2019			2019			2019
Lease cost
Operating lease cost	$	95		$	104		$	299
Short-term lease cost		71			71			214
Sublease income		(17	)		(13	)		(40	)
Total lease cost	$	149		$	162		$	473

Maturities of our lease liabilities for all operating leases ~~are~~for each of the next five years and thereafter is as ~~follows as of March 31, 2019:~~follows:

	Three Months Ended
	March 31,
	2019
2019	$	285	$	105
2020		370		408
2021		357		394
2022		296		334
2023		288		327
Thereafter		812		1,105
Total lease payments	$	2,408	$	2,673
Less: Imputed Interest		275		306
Present value of lease liabilities	$	2,133	$	2,367

The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of ~~March 31,~~September 30, 2019:

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

The following discussion focuses on the consolidated financial condition of the Company at ~~March 31,~~September 30, 2019 compared to December 31, 2018, and the consolidated results of operations for the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2019, compared to the same ~~period~~periods in 2018. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.

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, 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.

Total assets of the Company at ~~March 31,~~September 30, 2019 were ~~$2,277,702~~$2,269,065 compared to $2,138,954 at December 31, 2018, an increase of ~~$138,748,~~$130,111, or ~~6.5%~~6.1%. The increase in total assets was due to increases in cash and due from financial institutions, securities available for sale and loans of ~~$121,315,~~$19,440, $8,993 and $86,234, accompanied by other increases in ~~securities available~~loans held for sale, ~~loans,~~ bank owned life insurance and other assets. Total liabilities at ~~March 31,~~September 30, 2019 were ~~$1,965,645~~$1,939,802 compared to $1,840,056 at December 31, 2018, an increase of ~~$125,589,~~$99,746, or ~~6.8%~~5.4%. The increase in total liabilities was ~~mainly~~primarily attributable to an increase in total deposits, mainly due to ~~our participation~~increases in ~~the tax refund processing program~~noninterest-bearing demand and interest-bearing demand accounts of $29,161 and $23,567, respectively, accrued expenses and other liabilities and other borrowings, partially offset by ~~a decrease~~decreases in short-term FHLB advances ~~of $66,500.~~and securities sold under agreements to repurchase.

Loans outstanding as of ~~March 31,~~September 30, 2019 and December 31, 2018 were as follows:

	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018			$ Change			% Change
Commercial & Agriculture	$	179,200		$	177,101		$	196,833		$	177,101		$	19,732			11.1	%
Commercial Real Estate—Owner Occupied		217,030			210,121			226,501			210,121			16,380			7.8	%
Commercial Real Estate—Non-Owner Occupied		539,420			523,598			558,804			523,598			35,206			6.7	%
Residential Real Estate		461,340			457,850			465,455			457,850			7,605			1.7	%
Real Estate Construction		123,905			135,195			149,018			135,195			13,823			10.2	%
Farm Real Estate		35,645			38,513			36,286			38,513			(2,227	)		-5.8	%
Consumer and Other		16,653			19,563			15,743			19,563			(3,820	)		-19.5	%
Total loans		1,573,193			1,561,941			1,648,640			1,561,941			86,699			5.6	%
Allowance for loan losses		(13,822	)		(13,679	)		(14,144	)		(13,679	)		(465	)		3.4	%
Net loans	$	1,559,371		$	1,548,262		$	1,634,496		$	1,548,262		$	86,234			5.6	%

Net loans have increased $11,109 or 0.7% since December 31, 2018. The Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied and Residential Real Estate loan portfolios increased $2,099, $6,909, $15,822 and $3,490, respectively since December 31, 2018, while the Real Estate Construction, Farm Real Estate and Consumer and Other loan portfolios decreased $11,290, $2,868 and $2,910, respectively since December 31, 2018. At March 31, 2019, the net loan to deposit ratio was 88.3% compared to 98.0% at December 31, 2018.

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

Net loans have increased $86,234 or 5.6% since December 31, 2018. The Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate and Real Estate Construction loan portfolios increased $19,732, $16,380, $35,206, $7,605 and $13,823, respectively, since December 31, 2018, while the Farm Real Estate and Consumer and Other loan portfolios decreased $2,227 and $3,820, respectively, since December 31, 2018. At September 30, 2019, the net loan to deposit ratio was 100.1% compared to 98.0% at December 31, 2018.

During the first ~~three~~nine months of 2019, ~~and 2018, there were no~~ provisions made to the allowance for loan losses from ~~earnings.~~earnings totaled $150, compared to a provision of $390 during the same period in 2018. Net recoveries for the first ~~three~~nine months of 2019 totaled ~~$143,~~$315, compared to net charge offs of ~~$320~~$193 in the first ~~three~~nine months of 2018. For the first ~~three~~nine months of 2019, the Company charged off a total of 1330 loans. ~~Five~~Two Commercial & Agriculture loans totaling $27, eleven Real Estate Mortgage loans totaling ~~$98,~~$223, one Commercial Real Estate – Owner Occupied loan totaling $60, one Real Estate Construction loan totaling $24 and ~~six~~fifteen Consumer and Other loans totaling ~~$57~~$97 were charged off in the first ~~three~~nine months of the year. In addition, during the first ~~three~~nine months of 2019, the Company had recoveries on previously charged-off Commercial and Agriculture loans of ~~$1,~~$65, Commercial Real Estate – Owner Occupied loans of ~~$223,~~$282, Commercial Real Estate – Non-Owner Occupied loans of ~~$14,~~$99, Real Estate Mortgage loans of ~~$124,~~$229, Real Estate Construction loans of $1, Farm Real Estate loans of $1$3 and Consumer and Other loans of ~~$19.~~$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 ~~$847~~$231 since December 31, 2018, which was due to a decrease in loans on nonaccrual status of ~~$857, partially offset by~~$248 and an increase in loans past due 90 days and accruing of ~~$10.~~$17. 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~~indicates that underlying cash flows are not adequate to meet its debt service requirements. Loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. 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%~~0.86% at ~~March 31,~~September 30, 2019 and 0.88% December 31, ~~2018, respectively.~~2018.

The available for sale security portfolio increased by ~~$3,640,~~$8,993, from $346,294 at December 31, 2018 to ~~$349,934~~$355,287 at ~~March 31,~~September 30, 2019. 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 ~~March 31,~~September 30, 2019, the Company was in compliance with all pledging requirements.

Premises and equipment, net, ~~decreased $249~~increased $180 from December 31, 2018 to ~~March 31,~~September 30, 2019. The ~~decrease~~increase is the result of new purchases of ~~$216,~~$1,729, offset by depreciation of ~~$465.~~$1,473. Additionally, $76 of premises and equipment was transferred to available for sale.

Bank owned life insurance (BOLI) increased ~~$1,202~~$1,708 from December 31, 2018 to ~~March 31,~~September 30, 2019. The Company purchased additional policies totaling $955 during the ~~period ended March 31,~~first quarter of 2019. The remaining difference is the result of increases in the cash surrender value of the underlying insurance policies.

Other assets increased ~~$2,084~~$6,587 from December 31, 2018 to ~~March 31,~~September 30, 2019. The increase is the result of increases in the ~~market~~fair value of swap assets and right-of-use (ROU) assets of $8,719 and $2,367, offset by a decrease in net deferred tax assets. We adopted ASU 2016-02, effective January 1, 2019, which requires the recognition of lease assets for those leases classified as operating leases. At ~~March 31,~~September 30, 2019, the ROU assets totaled ~~$2,133.~~

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

Total deposits at ~~March 31,~~September 30, 2019 increased ~~$185,908~~$52,728 from year-end 2018. Noninterest-bearing deposits increased ~~$189,427~~$29,161 from year-end 2018, while interest-bearing deposits, including savings and time deposits, ~~decreased $3,519~~increased $23,567 from December 31, 2018. The increase in noninterest-bearing deposits was primarily due to increases in ~~cash balances related~~business and public fund demand deposit accounts of $28,999 and $10,178, respectively. The increase in interest-bearing deposits was primarily due to ~~the Company’s participation~~an increase in ~~a tax refund processing program, which added noninterest-bearing deposits~~public fund interest-bearing accounts of ~~$187,134. This increase is temporary as transactions are processed~~$30,824, offset by decreases in statement savings accounts and ~~is expected to return to levels more consistent with December 31, 2018 over the next two quarters.~~ public fund money market accounts of $6,797 and $5,178, respectively. The year-to-date average balance of total deposits increased ~~$426,689~~$441,619 compared to the average balance for the same period in 2018 mainly due to the United Community Bancorp (“UCB”) acquisition in the third quarter of 2018.

Short-term FHLB advances decreased ~~$66,500~~$7,500 from December 31, 2018 to ~~March 31,~~September 30, 2019. The decrease is due to a decrease in overnight ~~funds~~borrowings. Other borrowings increased $50,000 from December 31, 2018 to September 30, 2019. On May 23, 2019, the Company advanced $50,000 from the FHLB. The advance has terms of ~~$66,500.~~one hundred twenty months, puttable after sixty-months with a fixed rate of 2.05%. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased ~~$229~~$7,111 from December 31, 2018 to ~~March 31,~~September 30, 2019.

Accrued expenses and other liabilities increased ~~$6,410~~$11,629 from December 31, 2018 to ~~March 31,~~September 30, 2019. The increase is primarily the result of increases in lease liabilities of ~~$2,133,~~$2,367 and swap liabilities of ~~$2,073 and a clearing account related to the tax refund processing program of $2,037.~~$8,719.

Shareholders’ equity at ~~March 31,~~September 30, 2019 was ~~$312,057,~~$329,263, or ~~13.7%~~14.5% of total assets, compared to $298,898, or 14.0% of total assets, at December 31, 2018. The increase was the result of net income of ~~$9,669,~~$26,038, a decrease in the Company’s pension liability, net of tax, of ~~$116,~~$348, and an increase in the fair value of securities available for sale, net of tax, of ~~$4,853 and~~$12,771, partially offset by dividends on preferred shares and common shares of ~~$164~~$490 and ~~$1,404,~~$4,845, respectively.

Total outstanding common shares at ~~March 31,~~September 30, 2019 were ~~15,624,113,~~15,473,275, which ~~increased~~decreased from 15,603,499 common shares outstanding at December 31, 2018. Common shares outstanding ~~increased~~decreased as a result of 188,200 common shares being repurchased by the Company at an average repurchase price of $20.77. The Company is authorized to repurchase up to 470,000 shares of the Company’s common shares until December 18, 2019 pursuant to a stock repurchase program announced on December 20, 2018. The decrease in common shares outstanding was offset by the grant of 21,106 restricted common shares to certain officers under the Company’s 2014 Incentive ~~Plan.~~Plan, the grant of 8,946 common shares to Civista directors as a retainer payment for service on the Civista Board of Directors and the conversion of 222 shares of the Company’s previously issued preferred shares into 28,416 common shares.

The Company had a net income of ~~$9,669~~$7,708 for the three months ended ~~March 31,~~September 30, 2019, an increase of ~~$2,680~~$11,141 from a net ~~income~~loss of ~~$6,989~~$3,433 for the same three months of 2018. Basic earnings (loss) per common share were ~~$0.61~~$0.48 for the quarter ended ~~March 31,~~September 30, 2019, compared to ~~$0.65~~$(0.31) for the same period in 2018. Diluted earnings (loss) per common share were ~~$0.57~~$0.46 for the quarter ended ~~March 31,~~September 30, 2019, compared to ~~$0.55~~$(0.31) for the same period in 2018. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended March 31, 2019 was $21,719, an increase of $6,947 from $14,772 in the same three months of 2018. This increase is the result of an increase of $8,660 in total interest income with only an increase of $1,713 in interest expense. Interest-earning assets averaged $2,017,523 during the three months ended March 31, 2019, an increase of $514,580 from $1,502,943 for the same period of 2018. The Company’s average interest-bearing liabilities increased from $891,071 in 2018 to $1,275,064 in 2019, largely due to the UCB acquisition in the third quarter of 2018. The Company’s fully tax equivalent net interest margin for the three months ended March 31, 2019 and 2018 was 4.45% and 4.05%, respectively.

Total interest income increased $8,660 to $24,584 for the period ended March 31, 2019 which is attributable to an increase of $7,324 in interest and fees on loans. This change was the result of an increase in the average balance of loans, accompanied by a higher yield on the portfolio. The average balance of loans increased by $416,767 or 36.3% to $1,564,208 for the period ended March 31, 2019 as compared to $1,147,441 for the period ended March 31, 2018. The loan yield increased to 5.44% for 2019, from 4.82% in 2018. The net increase in interest and fees earned on loans attributable to the UCB acquisition was $3,504 for the period ended March 31, 2019.

Interest on taxable securities increased $762 to $1,748 for the period ended March 31, 2019, compared to $986 for the same period in 2018. The average balance of taxable securities increased $66,601 to $207,600 for the period ended March 31, 2019 as compared to $140,999 for the period ended March 31, 2018. The yield on taxable securities increased 60 basis points to 3.43% for 2019, compared to 2.83% for 2018. Interest on tax-exempt securities increased $473 to $1,351 for the period ended March 31, 2019, compared to $878 for the same period in 2018. The average balance of tax-exempt securities increased $56,141 to $157,619 for the period ended March 31, 2019 as compared to $101,478 for the period ended March 31, 2018. The yield on tax-exempt securities decreased 4 basis points to 4.49% for 2019, compared to 4.53% for 2018.

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

Net interest income for the three months ended September 30, 2019 was $20,418, an increase of $4,594 from $15,824 in the same three months of 2018. This increase is the result of an increase of $6,137 in total interest income with only an increase of $1,543 in interest expense. Interest-earning assets averaged $2,021,780 during the three months ended September 30, 2019, an increase of $487,741 from $1,534,039 for the same period of 2018. The Company’s average interest-bearing liabilities increased from $1,044,937 during the three months ended September 30, 2018 to $1,385,867 during the three months ended September 30, 2019, largely due to the UCB acquisition in the third quarter of 2018. The Company’s fully tax equivalent net interest margin for the three months ended September 30, 2019 and 2018 was 4.12% and 4.15%, respectively.

Total interest income was $24,023 for the three months ended September 30, 2019, an increase of $6,137 from $17,886 of total interest income for the same period in 2018. The increase in interest income is attributable to an increase of $4,943 in interest and fees on loans, which resulted from an increase in the average balance of loans, accompanied by a higher yield on the portfolio. The average balance of loans increased by $369,330 or 29.4% to $1,626,010 for the three months ended September 30, 2019 as compared to $1,256,680 for the same period in 2018. The loan yield increased to 5.07% for 2019, from 5.00% in 2018. The net increase in interest and fees earned on loans attributable to the UCB acquisition was $3,379 for the three months ended September 30, 2019.

Interest on taxable securities increased $670 to $1,712 for the three months ended September 30, 2019, compared to $1,042 for the same period in 2018. The average balance of taxable securities increased $53,373 to $198,994 for the three months ended September 30, 2019 as compared to $145,621 for the same period in 2018. The yield on taxable securities increased 69 basis points to 3.50% for 2019, compared to 2.81% for 2018. Interest on tax-exempt securities increased $541 to $1,449 for the three months ended September 30, 2019, compared to $908 for the same period in 2018. The average balance of tax-exempt securities increased $73,320 to $180,531 for the three months ended September 30, 2019 as compared to $107,211 for the same period in 2018. The yield on tax-exempt securities increased 4 basis points to 4.33% for 2019, compared to 4.29% for 2018.

Interest expense increased ~~$1,713~~$1,543 or ~~148.7%~~74.8% to ~~$2,865~~$3,605 for the ~~period~~three months ended ~~March 31,~~September 30, 2019, compared with ~~$1,152~~$2,062 for the same period in 2018. The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities and rate. For the ~~period~~three months ended ~~March 31,~~September 30, 2019, the average balance of interest-bearing liabilities increased ~~$383,993~~$340,930 to ~~$1,275,064~~$1,385,867, as compared to ~~$891,071~~$1,044,937 for the same period ~~ended March 31,~~in 2018. Interest incurred on deposits increased by ~~$1,184~~$1,316 to ~~$1,891~~$2,099 for the ~~period~~three months ended ~~March 31,~~September 30, 2019, compared to ~~$707~~$783 for the same period in 2018. The change in deposit expense was due to an increase in the average balance of interest-bearing deposits of ~~$322,569~~$322,859 for the ~~period~~three months ended ~~March 31,~~September 30, 2019 as compared to the same period in 2018. In addition, the rate paid on demand and savings accounts increased ~~from0.17%~~from 0.19% in 2018 to ~~0.34%~~0.33% in 2019 and the rate paid on time deposits increased from ~~0.98%~~1.13% to ~~1.77%~~2.03% in 2019. Interest expense incurred on FHLB advances and subordinated debentures increased ~~120.2%~~17.9% from 2018. The increase was due to a ~~$57,625~~$21,904 increase in average balance from 2018 and a 5217 basis point increase in rate from 2018. The UCB acquisition resulted in a net increase of interest expense of ~~$792~~$762 for the ~~period~~three months ended ~~March 31,~~September 30, 2019.

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

The following table presents the condensed average balance sheets for the three months ended ~~March 31,~~September 30, 2019 and 2018. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

	Three Months Ended March 31,																Three Months Ended September 30,
	2019								2018								2019								2018
Assets:	Average balance			Interest		Yield/rate*			Average balance			Interest		Yield/rate*			Average balance			Interest		Yield/ rate*			Average balance			Interest		Yield/ rate*
Interest-earning assets:
Loans, including fees	$	1,564,208		$	20,963		5.44	%	$	1,147,441		$	13,639		4.82	%	$	1,626,010		$	20,776		5.07	%	$	1,256,680		$	15,833		5.00	%
Taxable securities		207,600			1,748		3.43	%		140,999			986		2.83	%		198,994			1,712		3.50	%		145,621			1,042		2.81	%
Tax-exempt securities		157,619			1,351		4.49	%		101,478			878		4.53	%		180,531			1,449		4.33	%		107,211			908		4.29	%
Interest-bearing deposits in other banks		88,096			522		2.40	%		113,025			421		1.51	%		16,245			86		2.10	%		24,527			103		1.67	%
Total interest-earning assets	$	2,017,523		$	24,584		5.02	%	$	1,502,943		$	15,924		4.37	%	$	2,021,780		$	24,023		4.83	%	$	1,534,039		$	17,886		4.69	%
Noninterest-earning assets:
Cash and due from financial institutions		92,782								90,358								29,745								22,399
Premises and equipment, net		21,924								17,529								21,790								18,219
Accrued interest receivable		6,534								4,445								6,926								5,120
Intangible assets		86,116								28,368								85,617								38,920
Other assets		20,053								11,243								25,432								16,929
Bank owned life insurance		43,643								25,175								44,579								28,452
Less allowance for loan losses		(13,885	)							(13,141	)							(13,920	)							(13,303	)
Total Assets	$	2,274,690							$	1,666,920							$	2,221,949							$	1,650,775
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	855,666		$	708		0.34	%	$	616,213		$	252		0.17	%	$	871,673		$	730		0.33	%	$	653,537		$	317		0.19	%
Time		270,507			1,183		1.77	%		187,391			455		0.98	%		267,959			1,369		2.03	%		163,236			466		1.13	%
FHLB advance		97,267			597		2.49	%		39,642			152		1.56	%
FHLB																		201,977			1,152		2.26	%		180,073			925		2.04	%
Subordinated debentures		29,427			372		5.13	%		29,427			288		3.97	%		29,427			350		4.72	%		29,427			349		4.71	%
Repurchase Agreements		22,197			5		0.09	%		18,398			5		0.11	%		14,831			4		0.11	%		18,664			5		0.11	%
Total interest-bearing liabilities	$	1,275,064		$	2,865		0.91	%	$	891,071		$	1,152		0.52	%	$	1,385,867		$	3,605		1.03	%	$	1,044,937		$	2,062		0.78	%
Noninterest-bearing deposits		680,929								576,809								482,895								385,646
Other liabilities		17,041								14,608								27,084								14,591
Shareholders’ Equity		301,656								184,432								326,103								205,601
Total Liabilities and Shareholders’ Equity	$	2,274,690							$	1,666,920							$	2,221,949							$	1,650,775
Net interest income and interest rate spread				$	21,719		4.11	%				$	14,772		3.85	%				$	20,418		3.80	%				$	15,824		3.91	%
Net interest margin							4.45	%							4.05	%							4.12	%							4.15	%

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

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended ~~March 31,~~September 30, 2019 and 2018.

The Company provides for loan losses through regular provisions to the allowance for loan losses. Provisions for loan losses totaled $150 during the quarter ended September 30, 2019. Provisions for loan losses totaled $390 for the quarter ended September 30, 2018.

Noninterest income for the three-month periods ended September 30, 2019 and 2018 are as follows:

Noninterest income for the three months ended September 30, 2019 was $5,429, an increase of $2,141 or 65.1% from $3,288 for the same period of 2018. The increase was primarily due to increases in service charge fee income, ATM/Interchange fees and bank owned life insurance income is primarily attributable to the Company’s acquisition of UCB during the third quarter of 2018. Net gain on sale of securities increased as a result of management’s decision to reposition the investment portfolio in 2018, which resulted in losses on the sales. Net gain on equity securities increased as a result of market value increases. Net gain on sale of loans increased primarily as a result of an increase in volume of loans sold and the average loan balance of loans sold. Wealth management fees increased primarily as a result of an increase in brokerage fees. Other income increased as a result of an increase in swap fee income.

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

Noninterest expense for the three-month periods ended September 30, 2019 and 2018 are as follows:

Noninterest expense for the three months ended September 30, 2019 was $16,731, a decrease of $5,425, or 24.5%, from $22,156 reported for the same period of 2018. The primary reasons for the decrease were decreases in compensation expense, contracted data processing and professional services. The decrease in compensation expense, contracted data processing expenses and professional services costs is due to expenses paid during the third quarter of 2018 related to the acquisition of UCB. The decrease in compensation expense was offset by increases mainly due to being a larger company as a result of the acquisition of UCB. The quarter-to-date average full time equivalent (FTE) employees were 455.9 at September 30, 2019, an increase of 94.7 FTEs over 2018, which increased payroll and payroll related expenses due to annual pay increases and increases in commission based costs and employee insurance costs. The increases in net occupancy expense, equipment expense, amortization expense, ATM/Interchange expense, marketing expense and other operating expenses are primarily due to being a larger company as a result of the acquisition of UCB. The quarter-over-quarter increase in state franchise taxes was attributable to an increase in equity capital, which is the basis of the Ohio Financial Institutions tax. The decrease in FDIC assessment is due to a small bank assessment credit applied to the Company’s third quarter 2019 assessment.

Income tax expense for the three months ended September 30, 2019 totaled $1,258, up $1,259 compared to the same period in 2018. The effective tax rates for the three-month periods ended September 30, 2019 and 2018 were 14.0% and 0.0%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income. The increase in the effective tax rate is due to higher taxable income for the three months ended September 30, 2019, as compared to the same period in 2018.

The Company had net income of $26,038 for the nine months ended September 30, 2019, an increase of $19,468 from net income of $6,570 for the same nine months of 2018. Basic earnings per common share were $1.64 for the period ended September 30, 2019, compared to $0.54 for the same period in 2018. Diluted earnings per common share were $1.54 for the period ended September 30, 2019, compared to $0.51 for the same period in 2018. The primary reasons for the changes in net income are explained below.

Net interest income for the nine months ended September 30, 2019 was $63,878, an increase of $18,516 from $45,362 in the same nine months of 2018. This increase is the result of an increase of $23,563 in total interest income with only an increase of $5,047 in interest expense. Interest-earning assets averaged $2,008,731 during the nine months ended September 30, 2019, an increase of $519,496 from $1,489,235 for the same period of 2018. The Company’s average interest-bearing liabilities increased from $947,807 in 2018 to $1,326,084 in 2019, largely due to the UCB acquisition in the third quarter of 2018. The Company’s fully tax equivalent net interest margin for the nine months ended September 30, 2019 and 2018 was 4.35% and 4.14%, respectively.

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

Total interest income increased $23,563 to $73,533 for the period ended September 30, 2019, which is attributable to an increase of $19,780 in interest and fees on loans. This change was the result of an increase in the average balance of loans, accompanied by a higher yield on the portfolio. The average balance of loans increased by $403,384 or 34.0% to $1,591,477 for the period ended September 30, 2019, as compared to $1,188,093 for the period ended September 30, 2018. The loan yield increased to 5.33% for 2019, from 4.91% in 2018. The net increase in interest and fees earned on loans attributable to the UCB acquisition was $10,564 for the period ended September 30, 2019.

Interest on taxable securities increased $2,086 to $5,155 for the period ended September 30, 2019, compared to $3,069 for the same period in 2018. The average balance of taxable securities increased $59,129 to $203,165 for the period ended September 30, 2019 as compared to $144,036 for the period ended September 30, 2018. The yield on taxable securities increased 61 basis points to 3.44% for 2019, compared to 2.83% for 2018. Interest on tax-exempt securities increased $1,536 to $4,208 for the period ended September 30, 2019, compared to $2,672 for the same period in 2018. The average balance of tax-exempt securities increased $66,262 to $169,802 for the period ended September 30, 2019 as compared to $103,540 for the period ended September 30, 2018. The yield on tax-exempt securities decreased 2 basis points to 4.40% for 2019, compared to 4.42% for 2018.

Interest expense increased $5,047 or 109.5% to $9,655 for the period ended September 30, 2019, compared with $4,608 for the same period in 2018. The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities and rate. For the period ended September 30, 2019, the average balance of interest-bearing liabilities increased $378,277 to $1,326,084, as compared to $947,807 for the period ended September 30, 2018. Interest incurred on deposits increased by $3,906 to $5,966 for the period ended September 30, 2019, compared to $2,060 for the same period in 2018. The change in deposit expense was due to an increase in the average balance of interest-bearing deposits of $339,702 for the period ended September 30, 2019 as compared to the same period in 2018. In addition, the rate paid on demand and savings accounts increased from 0.17% in 2018 to 0.33% in 2019 and the rate paid on time deposits increased from 1.01% to 1.89% in 2019. Interest expense incurred on FHLB advances and subordinated debentures increased 45.0% from 2018. The increase was due to a $37,983 increase in average balance from 2018 and a 34 basis point increase in rate from 2018. The UCB acquisition resulted in a net increase of interest expense of $2,394 for the period ended September 30, 2019.

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

The following table presents the condensed average balance sheets for the nine months ended September 30, 2019 and 2018. The ~~table~~daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

	Nine Months Ended September 30,
	2019								2018
Assets:	Average balance			Interest		Yield/ rate*			Average balance			Interest		Yield/ rate*
Interest-earning assets:
Loans, including fees	$	1,591,477		$	63,395		5.33	%	$	1,188,093		$	43,615		4.91	%
Taxable securities		203,165			5,155		3.44	%		144,036			3,069		2.83	%
Tax-exempt securities		169,802			4,208		4.40	%		103,540			2,672		4.42	%
Interest-bearing deposits in other banks		44,287			775		2.34	%		53,566			614		1.53	%
Total interest-earning assets	$	2,008,731		$	73,533		5.00	%	$	1,489,235		$	49,970		4.55	%
Noninterest-earning assets:
Cash and due from financial institutions		53,517								49,330
Premises and equipment, net		21,844								17,836
Accrued interest receivable		6,929								4,947
Intangible assets		85,863								31,918
Other assets		22,607								14,539
Bank owned life insurance		44,186								26,327
Less allowance for loan losses		(13,896	)							(13,127	)
Total Assets	$	2,229,781							$	1,621,005
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	862,098		$	2,159		0.33	%	$	628,610		$	819		0.17	%
Time		269,874			3,807		1.89	%		163,660			1,241		1.01	%
FHLB advance		146,222			2,581		2.36	%		108,239			1,560		1.93	%
Subordinated debentures		29,427			1,094		4.97	%		29,427			975		4.43	%
Repurchase Agreements		18,463			14		0.10	%		17,871			13		0.10	%
Total interest-bearing liabilities	$	1,326,084		$	9,655		0.97	%	$	947,807		$	4,608		0.65	%
Noninterest-bearing deposits		567,365								465,448
Other liabilities		21,843								14,889
Shareholders’ Equity		314,489								192,861
Total Liabilities and Shareholders’ Equity	$	2,229,781							$	1,621,005
Net interest income and interest rate spread				$	63,878		4.03	%				$	45,362		3.90	%
Net interest margin							4.35	%							4.14	%

*—All yields and costs are presented on ~~a fully tax-equivalent basis.~~an annualized basis

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

	Increase (decrease) due to:								Increase (decrease) due to:
	Volume (1)			Rate (1)			Net		Volume (1)			Rate (1)			Net
	(Dollars in thousands)								(Dollars in thousands)
Interest income:
Loans, including fees	$	5,421		$	1,903		$	7,324	$	15,816		$	3,964		$	19,780
Taxable securities		524			238			762		1,334			752			2,086
Tax-exempt securities		480			(7	)		473		1,548			(12	)		1,536
Interest-bearing deposits in other banks		(108	)		209			101		(120	)		281			161
Total interest income	$	6,317		$	2,343		$	8,660	$	18,578		$	4,985		$	23,563
Interest expense:
Demand and savings	$	126		$	330		$	456	$	385		$	955		$	1,340
Time		259			469			728		1,103			1,463			2,566
FHLB advance		315			130			445		622			399			1,021
Subordinated debentures		—			84			84		—			119			119
Repurchase agreements		1			(1	)		—		—			1			1
Total interest expense	$	701		$	1,012		$	1,713	$	2,110		$	2,937		$	5,047
Net interest income	$	5,616		$	1,331		$	6,947	$	16,468		$	2,048		$	18,516

The Company provides for loan losses through regular provisions to the allowance for loan losses. During the ~~quarters~~nine months ended ~~March 31,~~September 30, 2019, ~~and March 31, 2018, no provision~~provisions for loan losses ~~was provided. Management’s analysis of the provision~~totaled $150. Provisions for loan losses totaled $390 for the ~~quarters~~nine months ended ~~March 31, 2019 and March31, 2018, indicated that no provision was required.~~September 30, 2018.

Noninterest income for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 are as follows:

	Three months ended March 31,				Nine months ended September 30,
	2019		2018		2019		2018			$ Change			% Change
Service charges	$	1,456	$	1,134	$	4,733	$	3,712		$	1,021			27.5	%
Net loss on sale of securities		4		—
Net gain (loss) on sale of securities						17		(386	)		403			-104.4	%
Net gain on equity securities		2		40		81		102			(21	)		-20.6	%
Net gain on sale of loans		331		333		1,701		1,235			466			37.7	%
ATM/Interchange fees		906		554		2,871		1,764			1,107			62.8	%
Wealth management fees		847		852		2,733		2,561			172			6.7	%
Bank owned life insurance		247		142		753		432			321			74.3	%
Tax refund processing fees		2,200		2,200		2,750		2,750			—			0.0	%
Other		291		361		1,177		1,123			54			4.8	%
Total noninterest income	$	6,284	$	5,616	$	16,816	$	13,293		$	3,523			26.5	%

Noninterest income for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~$6,284,~~$16,816, an increase of ~~$668~~$3,523 or ~~11.9%~~26.5% from ~~$5,616~~$13,293 for the same period of 2018. The increase was ~~primary~~primarily due to ~~increases in service charge fees of $322, ATM/Interchange fees of $352 and bank owned life insurance of $105 which was offset by a decrease in other income of $70.~~

~~The~~ increases in service charge fee income, ATM/Interchange fees and bank owned life insurance income is primarily attributable to the Company’s acquisition of UCB during the third quarter of 2018. ~~Other income decreased~~Net gain on sale of loans increased primarily as a result of ~~lower swap fee income.~~an increase in the volume of loans sold and the average loan balance of loans sold. Net gain on sale of securities increased as a result of management’s decision to reposition the investment portfolio in 2018, which resulted in losses on the sales. Net gain on equity securities decreased as a result of market value adjustments.

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

~~Additionally, the~~The Company processes state and federal income tax refund payments for customers of third-party income tax preparation vendors for which we receive a fee for processing the refund payments. Tax refund processing fees were ~~$2,200~~$2,750 during the period ended ~~March 31,~~September 30, 2019 and 2018. This fee income is seasonal in nature, the majority of which is earned in the first quarter of the year.

Noninterest expense for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 are as follows:

	Three months ended March 31,				Nine months ended September 30,
	2019		2018		2019		2018		$ Change			% Change
Compensation expense	$	9,805	$	7,374	$	29,059	$	26,812	$	2,247			8.4	%
Net occupancy expense		1,040		761		2,906		2,375		531			22.4	%
Equipment expense		463		374		1,504		1,069		435			40.7	%
Contracted data processing		419		348		1,301		6,237		(4,936	)		-79.1	%
FDIC assessment		192		151		297		388		(91	)		-23.5	%
State franchise tax		401		318		1,398		1,031		367			35.6	%
Professional services		694		552		2,151		4,233		(2,082	)		-49.2	%
Amortization of intangible assets		240		33		710		85		625			735.3	%
ATM expense		378		218
ATM/Interchange expense						1,437		712		725			101.8	%
Marketing		340		318		1,111		988		123			12.4	%
Other operating expenses		2,477		1,758		7,944		6,358		1,586			24.9	%
Total noninterest expense	$	16,449	$	12,205	$	49,818	$	50,288	$	(470	)		-0.9	%

Noninterest expense for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~$16,449, an increase~~$49,818, a decrease of ~~$4,244,~~$470, or ~~34.8%~~0.9%, from ~~$12,205~~$50,288 reported for the same period of 2018. The primary reasons for the increase were increases in compensation ~~expenses of $2,431, net occupancy~~ expense of $279, equipment expense of $89, contracted data processing expenses of $71, FDIC assessments of $41, state franchise taxes of $83, professional services costs of $142, amortization expense of $207, ATM expense of $160 and other operating expenses of $719.

~~The increase in compensation expense is~~ mainly due to being a larger company as a result of the acquisition of UCB. Year-to-date average FTE employees were 440.8 at September 30, 2019, an increase of 90.4 FTE’s over 2018. In addition, the increase can be attributed to payroll and payroll related expenses due to annual pay increases and increases in commission based costs, stock-based compensation and employee insurance ~~cost increases.~~costs. The increases were offset by a decrease related to expenses paid during the third quarter of 2018 related to the acquisition of UCB. The increases in net occupancy expense, equipment expense, ~~contracted data processing expenses, FDIC assessments,~~ amortization expense, ~~ATM~~ATM/Interchange expense, marketing expense and other operating expenses are primarily due to being a larger company as a result of the acquisition of UCB. The ~~quarter-over-quarter~~year-over-year increase in state franchise taxes was attributable to an increase in equity capital, which is the basis of the Ohio Financial Institutions tax. The ~~increase~~decrease in contracted data processing expenses and professional services costs is due to ~~increases in shareholder expense, investment advisory services and consulting expenses.~~expenses paid during the third quarter of 2018 related to the acquisition of UCB. FDIC assessment decreased due to small bank assessment credits applied to the Company’s third quarter assessment.

Income tax expense for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 totaled ~~$1,885,~~$4,688, up ~~$691~~$3,281 compared to the same period in 2018. The effective tax rates for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 were ~~16.3%~~15.3% and ~~14.6%~~17.6%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income.

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

Shareholders’ equity totaled ~~$312,057~~$329,263 at ~~March 31,~~September 30, 2019 compared to $298,898 at December 31, 2018. The increase in shareholders’ equity included net income of ~~$9,669,~~$26,038, a ~~$116~~$348 net decrease in the Company’s pension liability and an increase in the fair value of securities available for sale, net of tax, of ~~$4,853,~~$12,771, which was partially offset by dividends on preferred stock and common stock of ~~$164~~$490 and ~~$1,404,~~$4,845, respectively. In addition, the Company repurchased common shares during the period, which totaled $3,909.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of ~~March 31,~~September 30, 2019 and December 31, 2018 as identified in the following table:

	Total Risk Based Capital			Tier I Risk Based Capital			CET1 Risk Based Capital			Leverage Ratio			Total Risk Based Capital			Tier I Risk Based Capital			CET1 Risk Based Capital			Leverage Ratio
Company Ratios—March 31, 2019		16.5	%		15.6	%		13.3	%		11.6	%
Company Ratios—September 30, 2019														16.3	%		15.5	%		13.2	%		12.4	%
Company Ratios—December 31, 2018		16.1	%		15.3	%		12.9	%		12.2	%		16.1	%		15.3	%		12.9	%		12.2	%
For Capital Adequacy Purposes		8.0	%		6.0	%		4.5	%		4.0	%		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	%		10.0	%		8.0	%		6.5	%		5.0	%

The Company paid a cash dividend of $0.09 per common share on February 1, 2019. In 2018, the Company paid a cash dividend of $0.07 per common share on February 1, 2018. The Company also paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $164 on March 15, 2019. In 2018, the Company paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $303 on March 15, 2018.

The Company maintains a conservative liquidity position. All securities are classified as available for sale. Securities, with maturities of one year or less, totaled ~~$10,877,~~$10,134, or ~~3.1%~~2.9% of the total security portfolio at ~~March 31,~~September 30, 2019. 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 ~~$12,905~~$22,522 and ~~$6,613~~$19,488 for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, 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)~~used for investing activities was ~~($9,201) and $3,310~~$81,955 for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and net cash provided by investing activities was $41,097 for the nine months ended September 30, 2018, ~~respectively,~~ principally reflecting our loan and investment security activities. Additionally, in 2018 cash was provided from the acquisition of UCB. Cash provided by and used for deposits and borrowings comprised most of our financing activities, which resulted in net cash provided by of ~~$117,611 and $68,528~~$78,873 for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and ~~2018, respectively.~~used for of $36,350 for the nine months ended September 30, 2018.

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 ~~March 31,~~September 30, 2019, Civista had total credit availability with the FHLB of ~~$552,662~~$554,702 with standby letters of credit totaling ~~$20,100~~$20,000 and a remaining borrowing capacity of approximately ~~$405,462.~~$298,602. In addition, Civista Bancshares, Inc. maintains a credit line totaling $10,000.

The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure.

Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Company’s safety and soundness.

Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality.

The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, 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 to hedge interest rate risk in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor

so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Company’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Company seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Company.

The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 2018 and ~~March 31,~~September 30, 2019, 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 ~~March 31,~~September 30, 2019 and December 31, 2018.

The Company had derivative financial instruments as of December 31, 2018 and ~~March 31,~~September 30, 2019. 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	Net Portfolio Value																	Net Portfolio Value
		March 31, 2019								December 31, 2018									September 30, 2019							December 31, 2018
Change in Rates		Dollar Amount		Dollar Change			Percent Change			Dollar Amount		Dollar Change			Percent Change				Dollar Amount		Dollar Change		Percent Change			Dollar Amount		Dollar Change			Percent Change
+200bp			462,458		43,915			10	%		417,572		29,451			8	%			430,376		47,325		12	%		417,572		29,451			8	%
+100bp			447,282		28,739			7	%		409,514		21,393			6	%			414,241		31,190		8	%		409,514		21,393			6	%
Base			418,543		—			—			388,121		—			—				383,051		—		—			388,121		—			—
-100bp			391,450		(28,739	)		-6	%		366,486		(21,393	)		-6	%			385,638		2,587		1	%		366,486		(21,393	)		-6	%
-200bp																				417,018		33,967		9	%		372,090		(16,031	)		-4	%

The change in net portfolio value from December 31, 2018 to ~~March 31,~~September 30, 2019, can be attributed to a couple of factors. While the yield curve has fallen from the end of the year, both the volume and mix of assets and funding sources has changed. The volume of loans has increased, but the mix has shifted toward cash. Similarly, the volume of deposits has increased, while the mix has shifted away from deposits toward borrowed ~~money toward deposits.~~money. The ~~balance change~~mix shifts from the end of the year led to ~~an increase~~a small decrease in the base net portfolio value. Assets have shifted toward ~~less~~more volatile components while liabilities have shifted toward ~~more~~less volatile components. Combined, this led to a small increase 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 larger decrease in the market value of liabilities. Accordingly, we see ~~a small~~an increase in the net portfolio value. However, a 100 and 200 basis point downward change in rates would lead to ~~a decrease~~an increase in the net portfolio value as the market value of ~~liabilities~~assets would increase more quickly than the market value of ~~assets.~~liabilities.

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 ~~March 31,~~September 30, 2019, were effective.

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.

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, 2018.

~~None~~During the third quarter of 2019, the Company purchased common shares as follows:

On December 20, 2018, the Company announced the implementation of a common share repurchase program which authorized the Company to buy up to 470,000 shares of its outstanding common shares. The expiration date of the common share repurchase program is December 18, 2019.

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.

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)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common	CIVB	NASDAQ Capital Market
Preferred	CIVBP	NASDAQ Capital Market

~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common~~	~~CIVB~~	~~NASDAQ Capital Market~~
~~Preferred~~	~~CIVBP~~	~~NASDAQ Capital Market~~

PART I.	Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (Unaudited) ~~March 31,~~September 30, 2019 and December 31, 2018	2
	Consolidated Statements of Operations (Unaudited) Three and nine months ended ~~March 31,~~September 30, 2019 and 2018	3
	Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended ~~March 31,~~September 30, 2019 and 2018	4
	Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) Three and nine months ended ~~March 31,~~September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) ~~Three~~Nine months ended ~~March 31,~~September 30, 2019 and 2018	67
	Notes to Interim Consolidated Financial Statements (Unaudited)	~~7-32~~8-36
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~33-40~~37-48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~41-42~~49-50
Item 4.	Controls and Procedures	4351

PART II.	Other Information
Item 1.	Legal Proceedings	4452
Item 1A.	Risk Factors	4452
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4452
Item 3.	Defaults upon Senior Securities	4452
Item 4.	Mine Safety Disclosures	4452
Item 5.	Other Information	4452
Item 6.	Exhibits	4553
Signatures		4654

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

	For the Nine-Month Period Ended
	September 30, 2019
	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		1		382		382
Residential Real Estate		—		—		—
Real Estate Construction		—		—		—
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		1	$	382	$	382

	For the Three-Month Period Ended March 31, 2019			For the Three-Month Period Ended March 31, 2018
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	336		$	15
Acquisition of PCI loans		—			—
Accretion		(10	)		(7	)
Balance at end of period	$	326		$	8

	September 30, 2019				September 30, 2018
For the nine months ended	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	367	$	24	$	704	$	19
Commercial Real Estate—Owner Occupied		463		25		641		26
Commercial Real Estate—Non-Owner Occupied		292		15		41		4
Residential Real Estate		1,148		45		1,580		51
Farm Real Estate		687		22		721		22
Total	$	2,957	$	131	$	3,687	$	122

	For the Three-Month Period Ended September 30, 2019			For the Three-Month Period Ended September 30, 2018
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	259		$	6
Acquisition of PCI loans		—			334
Accretion		(3	)		(2	)
Balance at end of period	$	256		$	338

	For the Nine-Month Period Ended September 30, 2019			For the Nine-Month Period Ended September 30, 2018
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	336		$	15
Acquisition of PCI loans		—			334
Accretion		(80	)		(11	)
Balance at end of period	$	256		$	338

	For the Three-Month Period Ended								For the Three-Month Period Ended
	March 31, 2019(a)								March 31, 2018(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	$	2,347	$	(3,799	)	$	(1,452	)	$	3,185		$	(4,309	)	$	(1,124	)
Other comprehensive income before reclassifications		4,850		—			4,850			(2,539	)		—			(2,539	)
Amounts reclassified from accumulated other comprehensive loss		3		116			119			—			113			113
Net current-period other comprehensive income		4,853		116			4,969			(2,539	)		113			(2,426	)
Reclassification of equity securities from accumulated other comprehensive loss		—		—			—			(278	)		—			(278	)
Ending balance	$	7,200	$	(3,683	)	$	3,517		$	368		$	(4,196	)	$	(3,828	)

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a)
Details about Accumulated Other Comprehensive Income (Loss) Components	For the Three months ended September 30, 2019			For the Three months ended September 30, 2018			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains on available-for-sale securities	$	3		$	(392	)	Net gain (loss) on sale of securities
Tax effect		(1	)		82		Income tax expense
		2			(310	)	Net of tax
Amortization of defined benefit pension items
Actuarial gains/(losses) (b)		(147	)		(143	)	Other operating expenses
Tax effect		31			30		Income tax expense
		(116	)		(113	)	Net of tax
Total reclassifications for the period	$	(114	)	$	(423	)	Net of tax

	2019						2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets(1):
MSRs	$	2,141	$	485	$	1,656	$	2,110	$	446	$	1,664
Core deposit intangibles		14,792		7,344		7,448		14,792		7,104		7,688
Total amortized intangible assets	$	16,933	$	7,829	$	9,104	$	16,902	$	7,550	$	9,352

	Classification on the Consolidated Balance Sheet	September 30, 2019
Assets:
Operating lease	Other assets	$	2,367
Liabilities:
Operating lease	Accrued expenses and other liabilities	$	2,367

	Classification on the Consolidated Balance Sheet	March 31, 2019
Assets:
Operating lease	Other assets	$	2,133
Total lease assets		$	2,133
Liabilities:
Operating lease	Accrued expenses and other liabilities	$	2,133
Total lease liabilities		$	2,133

	~~Three Months Ended~~
	~~March 31,~~
	~~2019~~
Weighted-average remaining lease term-operating leases (years)		~~6.30~~6.15
Weighted-average discount rate-operating leases		~~3.17~~3.11	%

	March 31, 2019		December 31, 2018
Noninterest-bearing demand	$	657,510	$	468,083
Interest-bearing demand		284,369		261,996
Savings and money market		550,591		582,128
Time deposits		273,331		267,686
Total Deposits	$	1,765,801	$	1,579,893

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (Units) that May Yet Be Purchased Under the Plans or Programs
July 1, 2019 - July 31, 2019		—		—		—		470,000
August 1, 2019 - August 31, 2019		128,200	$	20.97		128,200		341,800
September 1, 2019 - September 30, 2019		60,000	$	20.34		60,000		281,800
Total		188,200	$	20.77		188,200		281,800

Exhibit	Description	Location

3.1	Second Amended and Restated Articles of Incorporation of Civista Bancshares, Inc., as filed with the Ohio Secretary of State on November 15, 2018.	Filed as Exhibit 3.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K, filed on November 16, 2018 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 ~~March 31,~~September 30, 2019, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of ~~March 31,~~September 30, 2019 and December 31, 2018; (ii) Consolidated Statements of Income (Unaudited) for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).	Included herewith


/s/ Dennis G. Shaffer		~~May 10,~~November 12, 2019
Dennis G. Shaffer		Date
President, Chief Executive Officer


/s/ Todd A. Michel		~~May 10,~~November 12, 2019
Todd A. Michel		Date
Senior Vice President, Controller