Civista Bancshares (CIVB) 10-Q 2016 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2016

OR

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

For the transition period from                    to                    

Commission File Number: 001-36192

Civista Bancshares, Inc.

(Exact name of registrant as specified in its charter)

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

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

(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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

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

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if smaller reporting company)	Smaller reporting company	¨

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

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 August 5, 2016 - 8,027,381 shares

CIVISTA BANCSHARES, INC.

Index

PART I.	Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (Unaudited) June 30, 2016 and December 31, 2015	3
	Consolidated Statements of Operations (Unaudited) Three and six months ended June 30, 2016 and 2015	4
	Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2016 and 2015	5
	Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) Six months ended June 30, 2016	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2016 and 2015	7-8
	Notes to Interim Consolidated Financial Statements (Unaudited)	9-52
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53-68
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	69-71
Item 4.	Controls and Procedures	72
PART II.	Other Information
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	73
Signatures		74

Part I – Financial Information

ITEM 1.Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

	June 30, 2016			December 31, 2015
ASSETS
Cash and due from financial institutions	$	41,772		$	35,561
Securities available for sale		200,643			196,249
Loans held for sale		5,167			2,698
Loans, net of allowance of $14,547 and $14,361		1,014,375			987,166
Other securities		13,734			13,452
Premises and equipment, net		16,711			16,944
Accrued interest receivable		3,798			3,902
Goodwill		27,095			27,095
Other intangibles		2,091			2,409
Bank owned life insurance		24,255			20,104
Other assets		10,270			9,461
Total assets	$	1,359,911		$	1,315,041
LIABILITIES
Deposits
Noninterest-bearing	$	353,386		$	300,615
Interest-bearing		761,621			751,418
Total deposits		1,115,007			1,052,033
Federal Home Loan Bank advances		47,300			71,200
Securities sold under agreements to repurchase		17,725			25,040
Subordinated debentures		29,427			29,427
Accrued expenses and other liabilities		14,249			12,168
Total liabilities		1,223,708			1,189,868
SHAREHOLDERS’ EQUITY
Preferred shares, no par value, 200,000 shares authorized, Series B Preferred stock, $1,000 liquidation preference, 23,911 shares issued at June 30, 2016 and 24,072 shares issued at December 31, 2015, net of issuance costs		22,124			22,273
Common shares, no par value, 20,000,000 shares authorized, 8,655,324 shares issued at June 30, 2016 and 8,591,542 shares issued at December 31, 2015		115,750			115,330
Retained earnings		13,640			5,300
Treasury shares, 747,964 common shares at cost		(17,235	)		(17,235	)
Accumulated other comprehensive income (loss)		1,924			(495	)
Total shareholders’ equity		136,203			125,173
Total liabilities and shareholders’ equity	$	1,359,911		$	1,315,041

See notes to interim unaudited consolidated financial statements

Page 3

CIVISTA BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

	Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015
Interest and dividend income
Loans, including fees	$	12,170		$	11,270	$	23,487		$	21,516
Taxable securities		821			796		1,622			1,629
Tax-exempt securities		661			640		1,315			1,264
Federal funds sold and other		87			34		367			94
Total interest income		13,739			12,740		26,791			24,503
Interest expense
Deposits		485			533		974			1,075
Federal Home Loan Bank advances		91			94		201			215
Subordinated debentures		218			193		430			373
Other		5			4		11			9
Total interest expense		799			824		1,616			1,672
Net interest income		12,940			11,916		25,175			22,831
Provision (credit) for loan losses		(1,300	)		400		(1,300	)		800
Net interest income after provision (credit) for loan losses		14,240			11,516		26,475			22,031
Noninterest income
Service charges		1,391			1,170		2,520			2,225
Net gain on sale of securities		6			—		1			—
Net gain on sale of loans		406			415		800			619
ATM fees		535			515		1,043			964
Trust fees		666			734		1,300			1,501
Bank owned life insurance		151			116		266			233
Tax refund processing fees		550			400		2,750			2,000
Other		370			302		655			511
Total noninterest income		4,075			3,652		9,335			8,053
Noninterest expense
Salaries, wages and benefits		6,354			5,809		12,678			11,708
Net occupancy expense		670			615		1,301			1,239
Equipment expense		368			365		664			728
Contracted data processing		395			545		750			993
FDIC assessment		179			225		431			462
State franchise tax		240			217		458			456
Professional services		517			663		1,019			1,119
Amortization of intangible assets		172			192		355			334
ATM expense		75			162		196			445
Marketing		275			308		561			544
Other operating expenses		1,805			1,832		3,544			3,509
Total noninterest expense		11,050			10,933		21,957			21,537
Income before taxes		7,265			4,235		13,853			8,547
Income tax expense		2,084			1,113		3,947			2,255
Net Income		5,181			3,122		9,906			6,292
Preferred stock dividends		391			391		782			795
Net income available to common shareholders	$	4,790		$	2,731	$	9,124		$	5,497
Earnings per common share, basic	$	0.61		$	0.35	$	1.16		$	0.70
Earnings per common share, diluted	$	0.47		$	0.29	$	0.91		$	0.58

See notes to interim unaudited consolidated financial statements

Page 4

CIVISTA BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Net income	$	5,181		$	3,122		$	9,906		$	6,292
Other comprehensive income (loss):
Unrealized holding gains (loss) on available for sale securities		1,593			(1,982	)		3,498			(1,096	)
Tax effect		(542	)		674			(1,189	)		373
Pension liability adjustment		83			70			166			140
Tax effect		(28	)		(24	)		(56	)		(48	)
Total other comprehensive income (loss)		1,106			(1,262	)		2,419			(631	)
Comprehensive income	$	6,287		$	1,860		$	12,325		$	5,661

See notes to interim unaudited consolidated financial statements

Page 5

CIVISTA BANCSHARES, INC.

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

(In thousands, except share data)

																	Accumulated
	Preferred Shares						Common Shares										Other			Total
	Outstanding						Outstanding				Retained			Treasury			Comprehensive			Shareholders’
	Shares			Amount			Shares		Amount		Earnings			Shares			Income (Loss)			Equity
Balance, December 31, 2015		24,072		$	22,273			7,843,578	$	115,330	$	5,300		$	(17,235	)	$	(495	)	$	125,173
Net Income		—			—			—		—		9,906			—			—			9,906
Other comprehensive income		—			—			—		—		—			—			2,419			2,419
Conversion of Series B preferred shares into common shares		(161	)		(149	)		20,569		149		—			—			—			—
Stock-based compensation		—			—			43,213		271		—			—			—			271
Common stock dividends ($0.10 per share)		—			—			—		—		(784	)		—			—			(784	)
Preferred stock dividend		—			—			—		—		(782	)		—			—			(782	)
Balance, June 30, 2016		23,911		$	22,124			7,907,360	$	115,750	$	13,640		$	(17,235	)	$	1,924		$	136,203

See notes to interim unaudited consolidated financial statements

Page 6

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six months ended June 30,
	2016			2015
Net cash from operating activities	$	7,866		$	13,323
Cash flows used for investing activities:
Maturities and calls of securities, available-for-sale		14,684			14,870
Purchases of securities, available-for-sale		(18,295	)		(16,194	)
Sale of securities available for sale		1,994			—
Redemption of Federal Reserve stock		—			138
Purchase of Federal Reserve stock		(282	)		(97	)
Purchase of bank owned life insurance		(3,885	)		—
Net loan originations		(23,919	)		(8,603	)
Loans purchased		(1,884	)		(2,975	)
Proceeds from sale of other real estate owned properties		106			179
Net cash from acquisition		—			926
Premises and equipment purchases		(367	)		(727	)
Net cash used for investing activities		(31,848	)		(12,483	)
Cash flows from financing activities:
Repayment of long-term FHLB advances		—			(5,000	)
Net change in short-term FHLB advances		(23,900	)		(4,900	)
Increase in deposits		62,974			20,019
Decrease in securities sold under repurchase agreements		(7,315	)		(4,153	)
Common dividends paid		(784	)		(777	)
Preferred dividends paid		(782	)		(795	)
Net cash provided by financing activities		30,193			4,394
Increase in cash and due from financial institutions		6,211			5,234
Cash and due from financial institutions at beginning of period		35,561			29,858
Cash and due from financial institutions at end of period	$	41,772		$	35,092

See notes to interim unaudited consolidated financial statements

Page 7

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)

(In thousands)

	Six months ended June 30,
	2016		2015
Cash paid during the period for:
Interest	$	1,615	$	1,662
Income taxes	$	2,550	$	350
Supplemental cash flow information:
Transfer of loans from portfolio to other real estate owned	$	73	$	76
Conversion of preferred shares to common shares	$	149	$	859
Acquisition of TCNB Financial Corp.
Noncash assets acquired:
Loans receivable			$	76,830
Other securities				716
Accrued interest receivable				194
Premises and equipment, net				1,739
Core deposit intangible				1,009
Other assets				1,265
Total non cash assets acquired				81,753
Liabilities assumed:
Deposits				86,869
Other liabilities				5
Total liabilities assumed				86,874
Net noncash liabilities acquired			$	5,121

See notes to interim unaudited consolidated financial statements

Page 8

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(1) Consolidated Financial Statements

Nature of Operations and Principles of Consolidation: Civista Bancshares, Inc. (CBI) is an Ohio corporation and a registered financial holding company. As of May 1, 2015, CBI changed its name from First Citizens Banc Corp to Civista Bancshares, Inc. The Consolidated Financial Statements include the accounts of CBI and its wholly-owned subsidiaries: Civista Bank (Civista), First Citizens Insurance Agency, Inc., Water Street Properties, Inc. (Water St.) and FC Refund Solutions, Inc. (FCRS). FCRS was formed to facilitate payment of individual state and federal income tax refunds. 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. The above companies together are referred to as the “Company.” Intercompany balances and transactions are eliminated in consolidation.

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 June 30, 2016 and its results of operations and changes in cash flows for the periods ended June 30, 2016 and 2015 have been made. The accompanying Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended June 30, 2016 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 2015 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. 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. The bank has two concentrations, one is to Lessors of Non-Residential Buildings and Dwellings totaling $239,029, or 23.3% of total loans, as of June 30, 2016 and the other is to Lessors of Residential Buildings and Dwellings totaling $129,834, or 12.7% of total loans, as of June 30, 2016. 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 deposit accounts in other financial institutions and Federal Funds sold that are in excess of federally insured limits. First Citizens Insurance Agency, Inc. 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 June 30, 2016. Revenue from Water St. was less than 1.0% of total revenue through June 30, 2016. Management considers the Company to operate primarily in one reportable segment, banking.

Page 9

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(2) Significant Accounting Policies

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 the acquired companies on the Consolidated Balance Sheet at their estimated 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.

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.

Effect of Newly Issued but Not Yet Effective Accounting Standards:

In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies

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Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. However, In August 2015, the FASB issued ASU 2015-14,Revenue from Contracts with Customers (Topic 606) to defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In January 2016, the FASB issued ASU 2016-01,Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-04,Liabilities– Extinguishments of Liabilities (Subtopic 405-20).The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-05,Derivatives and Hedging (Topic 815). The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-06,Derivatives and Hedging (Topic 815). The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments in this Update that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options

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Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-07,Investments–Equity Method and Joint Ventures (Topic 323). The Update affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-09,Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004),Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company’s financial statements.

Page 13

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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 the ASU 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. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

Page 14

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(3) Securities

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

June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	41,272	$	326	$	(20	)	$	41,578
Obligations of states and political subdivisions		87,990		7,240		(12	)		95,218
Mortgage-backed securities in government sponsored entities		62,016		1,244		(13	)		63,247
Total debt securities		191,278		8,810		(45	)		200,043
Equity securities in financial institutions		481		119		—			600
Total	$	191,759	$	8,929	$	(45	)	$	200,643

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	40,992	$	74	$	(129	)	$	40,937
Obligations of states and political subdivisions		87,255		4,959		(62	)		92,152
Mortgage-backed securities in government sponsored entities		62,135		681		(243	)		62,573
Total debt securities		190,382		5,714		(434	)		195,662
Equity securities in financial institutions		481		106		—			587
Total	$	190,863	$	5,820	$	(434	)	$	196,249

Page 15

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The amortized cost and fair value of securities at June 30, 2016, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities are shown separately.

Available for sale	Amortized Cost		Fair Value
Due in one year or less	$	9,728	$	9,744
Due after one year through five years		27,019		27,398
Due after five years through ten years		31,857		34,003
Due after ten years		60,658		65,651
Mortgage-backed securities		62,016		63,247
Equity securities		481		600
Total securities available for sale	$	191,759	$	200,643

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

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Sale proceeds	$	1,994	$	—	$	1,994	$	—
Gross realized gains		—		—		—		—
Gross realized losses		—		—		—		—
Gains from securities called or settled by the issuer		6		—		1		—

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $150,444 and $142,888 as of June 30, 2016 and December 31, 2015, respectively.

Page 16

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Securities with unrealized losses at June 30, 2016 and December 31, 2015 not recognized in income are as follows:

June 30, 2016	12 Months or less					More than 12 months					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	727	$	(1	)	$	979	$	(19	)	$	1,706	$	(20	)
Obligations of states and political subdivisions		—		—			531		(12	)		531		(12	)
Mortgage-backed securities in gov’t sponsored entities		—		—			1,882		(13	)		1,882		(13	)
Total temporarily impaired	$	727	$	(1	)	$	3,392	$	(44	)	$	4,119	$	(45	)

December 31, 2015	12 Months or less					More than 12 months					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	25,464	$	(112	)	$	1,132	$	(17	)	$	26,596	$	(129	)
Obligations of states and political subdivisions		2,932		(20	)		1,469		(42	)		4,401		(62	)
Mortgage-backed securities in gov’t sponsored entities		27,263		(172	)		5,041		(71	)		32,304		(243	)
Total temporarily impaired	$	55,659	$	(304	)	$	7,642	$	(130	)	$	63,301	$	(434	)

At June 30, 2016, there were nine securities in the portfolio with unrealized losses mainly due to higher market rates when compared to the time of purchase. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to market yields increasing across the municipal sector. 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.

Page 17

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(4) Loans

Loan balances were as follows:

	June 30, 2016			December 31, 2015
Commercial and agriculture	$	126,540		$	124,402
Commercial real estate- owner occupied		167,894			167,897
Commercial real estate- non-owner occupied		369,876			348,439
Residential real estate		245,941			236,338
Real estate construction		56,274			58,898
Farm Real Estate		43,289			46,993
Consumer and other		19,108			18,560
Total loans		1,028,922			1,001,527
Allowance for loan losses		(14,547	)		(14,361	)
Net loans	$	1,014,375		$	987,166

Included in total loans above are deferred loan fees of $101 at June 30, 2016 and $78 at December 31, 2015.

(5) Allowance for Loan Losses

Management has an established methodology to determine 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, except for the segment consisting of purchased automobile loans which is calculated over a two and one-half year period. The use of a three-year period for loss migration analysis is a change in methodology as of the third quarter of 2015. Previously, a two-year loss migration analysis had been used for the entire portfolio. With continued improvement and stability in economic conditions, regulatory guidance recommends a longer look-back period. In addition, Civista made significant changes to consumer and commercial lending policies in the first quarter of 2012. Combined, the stable economy and now seasoned policy changes indicate a three-year period is more reflective of future expectations. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. The following qualitative factors are analyzed:

• Changes in lending policies and procedures

• Changes in experience and depth of lending and management staff

• Changes in quality of Civista’s credit review system

Page 18

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

• Changes in nature and volume of the loan portfolio

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

• Changes in economic and business conditions

• Changes in competition or legal and regulatory requirements

• Changes in concentrations within the loan portfolio

• Changes in the underlying collateral for collateral dependent loans

Page 19

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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 $14,547 adequate to cover loan losses inherent in the loan portfolio, at June 30, 2016. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three and six months ended June 30, 2016 and 2015.

Allowance for loan losses:

For the six months ended June 30, 2016

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,478	$	(42	)	$	35	$	86		$	1,557
Commercial Real Estate:
Owner Occupied		2,467		(42	)		52		(84	)		2,393
Non-Owner Occupied		4,657		—			1,359		(1,047	)		4,969
Residential Real Estate		4,086		(225	)		361		(323	)		3,899
Real Estate Construction		371		—			2		(7	)		366
Farm Real Estate		538		—			—		(62	)		476
Consumer and Other		382		(47	)		33		(10	)		358
Unallocated		382		—			—		147			529
Total	$	14,361	$	(356	)	$	1,842	$	(1,300	)	$	14,547

For the six months ended June 30, 2016, the increase in allowance for Commercial & Agriculture loans was due to an increase in general reserves as a result of higher balances and higher loss rates in criticized loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced not only by a decrease in specific reserves required for this type, but also by decreases in past due, classified and non-accrual loans for this type. The result of these changes was represented as a decrease in the provision. The increase in allowance for Commercial Real Estate – Non-Owner Occupied loans was the result of an increase in general reserves required as a result of higher balances. Offsetting this was a payoff on a previously charged down loan was received resulting in a recovery of approximately $1,303. The net result was represented as a decrease in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances and a decrease in loss rates. The result of these changes 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.

Page 20

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Allowance for loan losses:

For the six months ended June 30, 2015

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,819	$	—		$	31	$	(455	)	$	1,395
Commercial Real Estate:
Owner Occupied		2,221		(198	)		159		2,891			5,073
Non-Owner Occupied		4,334		(64	)		90		(1,207	)		3,153
Residential Real Estate		3,747		(541	)		165		99			3,470
Real Estate Construction		428		—			3		3			434
Farm Real Estate		822		—			51		(289	)		584
Consumer and Other		200		(87	)		30		47			190
Unallocated		697		—			—		(289	)		408
Total	$	14,268	$	(890	)	$	529	$	800		$	14,707

For the six months ended June 30, 2015, the allowance for Commercial and Agriculture loans was reduced due to decreases in specific reserves for impaired loans. The decrease in specific reserves for impaired loans was the result of the anticipated resolution of an impaired loan. The Company does not expect to incur losses with this resolution. This decrease was offset by an increase in criticized loan balances. The result was represented as a decrease in the provision. The increase in the allowance for Commercial Real Estate - Owner Occupied loans was the result of an increase in loss migration rates for special mention loans, based on the migration of loans into the special mention category during the migration analysis period, and an increase in substandard rated loan balances. The allowance for Commercial Real Estate – Non – Owner Occupied loans was reduced due to a decrease in loss migration rates offset by an increase in criticized loan balances. The ending reserve balance for Residential Real Estate loans declined from the end of the previous year due to charge-offs of loans that had a specific reserve previously applied. While loan balances were up, loss rates continued to decrease resulting in the allowance being lower. While criticized loan balances increased, we saw improvement in loss migration rates and a decline in specific reserves for impaired loans during the period. As a result, management determined that it was appropriate to reduce unallocated reserves at June 30, 2015.

Page 21

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Allowance for loan losses:

For the three months ended June 30, 2016

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,446	$	(20	)	$	30	$	101		$	1,557
Commercial Real Estate:
Owner Occupied		2,372		(42	)		3		60			2,393
Non-Owner Occupied		4,711		—			1,319		(1,061	)		4,969
Residential Real Estate		4,114		(129	)		272		(358	)		3,899
Real Estate Construction		408		—			1		(43	)		366
Farm Real Estate		496		—			—		(20	)		476
Consumer and Other		358		(39	)		19		20			358
Unallocated		528		—			—		1			529
Total	$	14,433	$	(230	)	$	1,644	$	(1,300	)	$	14,547

For the three months ended June 30, 2016, the increase in allowance for Commercial & Agriculture loans was due to an increase in general reserves as a result of higher loss rates in criticized loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased as the result of an increase in general reserves required as a result of higher balances. Offsetting this was a payoff on a previously charged down loan that was received resulting in a recovery of approximately $1,303. The net result was represented as a decrease in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans was reduced by a decrease in general reserves required for this type as result of decreased loan balances, represented by 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, 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.

Page 22

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Allowance for loan losses:

For the three months ended June 30, 2015

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,795	$	—		$	12	$	(412	)	$	1,395
Commercial Real Estate:
Owner Occupied		1,808		—			157		3,108			5,073
Non-Owner Occupied		4,926		(55	)		76		(1,794	)		3,153
Residential Real Estate		3,666		(213	)		34		(17	)		3,470
Real Estate Construction		498		—			2		(66	)		434
Farm Real Estate		799		—			—		(215	)		584
Consumer and Other		190		(37	)		16		21			190
Unallocated		633		—			—		(225	)		408
Total	$	14,315	$	(305	)	$	297	$	400		$	14,707

For the three months ended June 30, 2015, the allowance for Commercial and Agriculture loans was reduced due to decreases in specific reserves for impaired loans. The decrease in specific reserves for impaired loans was the result of the anticipated resolution of an impaired loan. The Company does not expect to incur losses with this resolution. This decrease was offset by an increase in criticized loan balances. The result was represented as a decrease in the provision. The increase in the allowance for Commercial Real Estate - Owner Occupied loans was the result of an increase in loss migration rates for special mention loans, based on the migration of loans into the special mention category during the migration analysis period, and an increase in substandard rated loan balances. The allowance for Commercial Real Estate – Non – Owner Occupied loans was reduced due to a decrease in loss migration rates and offset by an increase in criticized loan balances. The ending reserve balance for Residential Real Estate loans declined due to charge-offs of loans that had a specific reserve previously applied and a decline in the loss rates applied. The ending reserve balance for Real Estate Construction loans declined from the end of the previous quarter due to a decline in balances. While loan balances were up during the quarter, loss migration rates continued to decrease resulting in the allowance being lower. While criticized loan balances increased, we saw improvement in loss migration rates and a decline in specific reserves for impaired loans. As a result, management determined that it was appropriate to reduce unallocated reserves at June 30, 2015.

Page 23

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of June 30, 2016 and December 31, 2015.

June 30, 2016	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	—	$	—	$	1,557	$	1,557
Commercial Real Estate:
Owner Occupied		—		4		2,389		2,393
Non-Owner Occupied		—		23		4,946		4,969
Residential Real Estate		105		162		3,632		3,899
Real Estate Construction		—		—		366		366
Farm Real Estate		—		—		476		476
Consumer and Other		—		—		358		358
Unallocated		—		—		529		529
Total	$	105	$	189	$	14,253	$	14,547
Outstanding loan balances:
Commercial & Agriculture	$	110	$	2,417	$	124,013	$	126,540
Commercial Real Estate:
Owner Occupied		—		1,609		166,285		167,894
Non-Owner Occupied		—		744		369,132		369,876
Residential Real Estate		190		1,891		243,860		245,941
Real Estate Construction		—		—		56,274		56,274
Farm Real Estate		—		1,398		41,891		43,289
Consumer and Other		—		2		19,106		19,108
Total	$	300	$	8,061	$	1,020,561	$	1,028,922

Page 24

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

December 31, 2015	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	—	$	23	$	1,455	$	1,478
Commercial Real Estate:
Owner Occupied		—		103		2,364		2,467
Non-Owner Occupied		—		—		4,657		4,657
Residential Real Estate		123		137		3,826		4,086
Real Estate Construction		—		—		371		371
Farm Real Estate		—		—		538		538
Consumer and Other		—		—		382		382
Unallocated		—		—		382		382
Total	$	123	$	263	$	13,975	$	14,361
Outstanding loan balances:
Commercial & Agriculture	$	132	$	873	$	123,397	$	124,402
Commercial Real Estate:
Owner Occupied		—		2,141		165,756		167,897
Non-Owner Occupied		—		1,742		346,697		348,439
Residential Real Estate		131		1,642		234,565		236,338
Real Estate Construction		—		—		58,898		58,898
Farm Real Estate		—		953		46,040		46,993
Consumer and Other		—		3		18,557		18,560
Total	$	263	$	7,354	$	993,910	$	1,001,527

The following tables present credit exposures by internally assigned grades for the periods ended June 30, 2016 and December 31, 2015. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

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

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

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

Page 25

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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

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

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

June 30, 2016	Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	119,406	$	3,332	$	3,802	$	—	$	126,540
Commercial Real Estate:
Owner Occupied		160,119		1,584		6,191		—		167,894
Non-Owner Occupied		363,558		4,305		2,013		—		369,876
Residential Real Estate		59,615		1,587		7,473		—		68,675
Real Estate Construction		50,656		340		27		—		51,023
Farm Real Estate		33,597		6,612		3,080		—		43,289
Consumer and Other		1,991		—		122		—		2,113
Total	$	788,942	$	17,760	$	22,708	$	—	$	829,410
December 31, 2015	Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	117,739	$	3,090	$	3,573	$	—	$	124,402
Commercial Real Estate:
Owner Occupied		156,622		5,571		5,704		—		167,897
Non-Owner Occupied		339,734		6,100		2,605		—		348,439
Residential Real Estate		62,147		1,671		7,435		—		71,253
Real Estate Construction		52,399		216		29		—		52,644
Farm Real Estate		39,787		4,024		3,182		—		46,993
Consumer and Other		1,987		3		111		—		2,101
Total	$	770,415	$	20,675	$	22,639	$	—	$	813,729

Page 26

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended June 30, 2016 and December 31, 2015 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 or if management thinks 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.

	Residential Real Estate		Real Estate Construction		Consumer and Other		Total
June 30, 2016
Performing	$	177,266	$	5,251	$	16,983	$	199,500
Nonperforming		—		—		12		12
Total	$	177,266	$	5,251	$	16,995	$	199,512
	Residential Real Estate		Real Estate Construction		Consumer and Other		Total
December 31, 2015
Performing	$	165,048	$	6,254	$	16,458	$	187,760
Nonperforming		37		—		1		38
Total	$	165,085	$	6,254	$	16,459	$	187,798

Page 27

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of June 30, 2016 and December 31, 2015.

June 30, 2016	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	$	111	$	905	$	233	$	1,249	$	125,181	$	110	$	126,540	$	—
Commercial Real Estate:
Owner Occupied		136		248		382		766		167,128		—		167,894		—
Non-Owner Occupied		218		—		339		557		369,319		—		369,876		—
Residential Real Estate		238		894		1,117		2,249		243,502		190		245,941		—
Real Estate Construction		—		—		—		—		56,274		—		56,274		—
Farm Real Estate		—		—		784		784		42,505		—		43,289		—
Consumer and Other		57		26		12		95		19,013		—		19,108		12
Total	$	760	$	2,073	$	2,867	$	5,700	$	1,022,922	$	300	$	1,028,922	$	12
December 31, 2015	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	$	9	$	32	$	37	$	78	$	124,192	$	132	$	124,402	$	—
Commercial Real Estate:
Owner Occupied		982		36		284		1,302		166,595		—		167,897		—
Non-Owner Occupied		269		330		123		722		347,717		—		348,439		—
Residential Real Estate		2,640		404		1,725		4,769		231,438		131		236,338		—
Real Estate Construction		8		—		—		8		58,890		—		58,898		—
Farm Real Estate		—		—		—		—		46,993		—		46,993		—
Consumer and Other		98		68		8		174		18,386		—		18,560		—
Total	$	4,006	$	870	$	2,177	$	7,053	$	994,211	$	263	$	1,001,527	$	—

Page 28

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents loans on nonaccrual status as of June 30, 2016 and December 31, 2015.

	2016		2015
Commercial & Agriculture	$	1,975	$	1,185
Commercial Real Estate:
Owner Occupied		1,380		1,645
Non-Owner Occupied		705		1,428
Residential Real Estate		3,751		3,911
Real Estate Construction		27		29
Farm Real Estate		789		961
Consumer and Other		110		100
Total	$	8,737	$	9,259

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. 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. Real Estate loans modified in a TDR were primarily comprised of interest rate reductions where monthly payments were 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 estimated 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 June 30, 2016, TDRs accounted for $237 of the allowance for loan losses. As of December 31, 2015, TDRs accounted for $286 of the allowance for loan losses.

Page 29

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Loan modifications that are considered TDRs completed during the periods ended June 30, 2016 and June 30, 2015 were as follows:

	For the Six-Month Period Ended June 30, 2016
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		4	$	529	$	529
Commercial Real Estate - Owner Occupied		—		—		—
Commercial Real Estate - Non-Owner Occupied		—		—		—
Residential Real Estate		2		308		308
Real Estate Construction		—		—		—
Farm Real Estate		2		614		614
Consumer and Other		—		—		—
Total Loan Modifications		8	$	1,451	$	1,451
	For the Six-Month Period Ended June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		1	$	6	$	6
Commercial Real Estate - Owner Occupied		—		—		—
Commercial Real Estate - Non-Owner Occupied		—		—		—
Residential Real Estate		3		374		374
Real Estate Construction		1		41		41
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		5	$	421	$	421

Page 30

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

	For the Three-Month Period Ended June 30, 2016
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		1	$	47	$	47
Commercial Real Estate - Owner Occupied		—		—		—
Commercial Real Estate - Non-Owner Occupied		—		—		—
Residential Real Estate		1		76		76
Real Estate Construction		—		—		—
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		2	$	123	$	123
	For the Three-Month Period Ended June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—	$	—
Commercial Real Estate - Owner Occupied		—		—		—
Commercial Real Estate - Non-Owner Occupied		—		—		—
Residential Real Estate		—		—		—
Real Estate Construction		—		—		—
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		—	$	—	$	—

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

During both the three- and six-month periods ended June 30, 2016 and June 30, 2015, there were no defaults on loans that were modified and considered TDRs during the respective twelve previous months.

Page 31

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Impaired Loans: Larger (greater than $350) Commercial & Agricultural and Commercial Real Estate loan relationships, all TDRs and Residential Real Estate and Consumer loans that are part of a larger relationship are tested for impairment on a quarterly basis. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan 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 tables include the recorded investment and unpaid principal balances for impaired loans with the related allowance amount, if applicable, as of June 30, 2016 and December 31, 2015.

	June 30, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial & Agriculture	$	2,417	$	2,966			$	851	$	1,034
Commercial Real Estate:
Owner Occupied		1,363		1,398				1,224		1,343
Non-Owner Occupied		683		687				1,742		1,826
Residential Real Estate		1,328		1,865				965		1,591
Farm Real Estate		1,398		1,398				953		1,026
Consumer and Other		2		2				3		3
Total		7,191		8,316				5,738		6,823
With an allowance recorded:
Commercial & Agriculture		—		—	$	—		22		23	$	23
Commercial Real Estate:
Owner Occupied		246		246		4		917		999		103
Non-Owner Occupied		61		61		23		—		—		—
Residential Real Estate		563		582		162		808		683		260
Farm Real Estate		—		—		—		—		—		—
Total		870		889		189		1,747		1,705		386
Total:
Commercial & Agriculture		2,417		2,966		—		873		1,057		23
Commercial Real Estate:
Owner Occupied		1,609		1,644		4		2,141		2,342		103
Non-Owner Occupied		744		748		23		1,742		1,826		—
Residential Real Estate		1,891		2,447		162		1,773		2,274		260
Farm Real Estate		1,398		1,398		—		953		1,026		—
Consumer and Other		2		2		—		3		3		—
Total	$	8,061	$	9,205	$	189	$	7,485	$	8,528	$	386

Page 32

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table includes the average recorded investment and interest income recognized for impaired loans.

For the six months ended:	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	1,937	$	80	$	1,943	$	37
Commercial Real Estate - Owner Occupied		1,800		50		3,300		97
Commercial Real Estate - Non-Owner Occupied		1,489		26		2,053		19
Residential Real Estate		1,799		60		2,752		66
Real Estate Construction		—		—		27		—
Farm Real Estate		1,250		31		566		28
Consumer and Other		3		—		5		—
Total	$	8,278	$	247	$	10,646	$	247
For the three months ended:	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	2,469	$	41	$	1,762	$	11
Commercial Real Estate - Owner Occupied		1,630		24		3,277		50
Commercial Real Estate - Non-Owner Occupied		1,363		13		1,992		10
Residential Real Estate		1,878		29		2,471		39
Real Estate Construction		—		—		40		—
Farm Real Estate		1,398		15		848		14
Consumer and Other		2		—		5		—
Total	$	8,740	$	122	$	10,395	$	124

Page 33

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Changes in the amortizable yield for purchased credit-impaired (PCI) loans were as follows, since acquisition:

	For the Six-Month Period Ended June 30, 2016			For the Six-Month Period Ended June 30, 2015
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	82		$	—
Acquisition of PCI loans		—			140
Accretion		(16	)		—
Balance at end of period	$	66		$	140
	For the Three-Month Period Ended June 30, 2016			For the Three-Month Period Ended June 30, 2015
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	74		$	140
Acquisition of PCI loans		—			—
Accretion		(8	)		—
Balance at end of period	$	66		$	140

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

	At June 30, 2016		At December 31, 2015
	Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30)		Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30)
	(In Thousands)
Outstanding balance	$	911	$	965
Carrying amount		300		263

There has been $105 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of June 30, 2016.

Page 34

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in other assets on the Consolidated Balance Sheet. As of June 30, 2016 and December 31, 2015, a total of $107 and $116, respectively of foreclosed assets were included with other assets. As of June 30, 2016, included within the foreclosed assets is $107 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of June 30, 2016, the Company had initiated formal foreclosure procedures on $586 of consumer residential mortgages.

(6) Other Comprehensive Income

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

	For the Six-Month Period Ended June 30, 2016								For the Six-Month Period Ended June 30, 2015
	Unrealized Gains and Losses on Available- for-Sale Securities		Defined Benefit Pension Items			Total			Unrealized Gains and Losses on Available- for-Sale Securities			Defined Benefit Pension Items			Total
Beginning balance	$	3,554	$	(4,049	)	$	(495	)	$	3,730		$	(3,777	)	$	(47	)
Other comprehensive income (loss) before reclassifications		2,308		—			2,308			(723	)		—			(723	)
Amounts reclassified from accumulated other comprehensive income (loss)		1		110			111			—			92			92
Net current-period other comprehensive income (loss)		2,309		110			2,419			(723	)		92			(631	)
Ending balance	$	5,863	$	(3,939	)	$	1,924		$	3,007		$	(3,685	)	$	(678	)

Amounts in parentheses indicate debits on the consolidated balance sheets.

Page 35

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)(a)
Details about Accumulated Other Comprehensive (Loss) Components	For the six months ended June 30, 2016			For the six months ended June 30, 2015			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(1	)	$	—		Net gain on securities available for sale
Tax effect		—			—		Income tax expense
		(1	)		—		Net of tax
Amortization of defined benefit pension items
Actuarial gains/(losses)		(166	) (b)		(140	) (b)	Salaries, wages and benefits
Tax effect		56			48		Income tax expense
		(110	)		(92	)	Net of tax
Total reclassifications for the period	$	(111	)	$	(92	)	Net of tax

^(a)  Amounts in parentheses indicate expenses and other amounts indicate income.

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

Page 36

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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

	For the Three-Month Period Ended June 30, 2016							For the Three-Month Period Ended June 30, 2015
	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	$	4,812	$	(3,994	)	$	818	$	4,315		$	(3,731	)	$	584
Other comprehensive income (loss) before reclassifications		1,047		—			1,047		(1,308	)		—			(1,308	)
Amounts reclassified from accumulated other comprehensive income (loss)		4		55			59		—			46			46
Net current-period other comprehensive income (loss)		1,051		55			1,106		(1,308	)		46			(1,262	)
Ending balance	$	5,863	$	(3,939	)	$	1,924	$	3,007		$	(3,685	)	$	(678	)

Amounts in parentheses indicate debits on the consolidated balance sheets.

Page 37

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)(a)
Details about Accumulated Other Comprehensive (Loss) Components	For the three months ended June 30, 2016			For the three months ended June 30, 2015			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(6	)	$	—		Net gain on securities available for sale
Tax effect		2			—		Income tax expense
		(4	)		—		Net of tax
Amortization of defined benefit pension items
Actuarial gains/(losses)		(83	) (b)		(70	) (b)	Salaries, wages and benefits
Tax effect		28			24		Income tax expense
		(55	)		(46	)	Net of tax
Total reclassifications for the period	$	(59	)	$	(46	)	Net of tax

^(a)  Amounts in parentheses indicate expenses and other amounts indicate income.

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

(7) Goodwill and Intangible Assets

The balance of goodwill was $27,095 at both June 30, 2016 and December 31, 2015. Management performs an annual evaluation of goodwill for impairment, 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 2015 and concluded that the Company’s goodwill was not impaired at December 31, 2015.

Page 38

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The change in the carrying amount of goodwill for the periods ended June 30, 2016 and 2015 is as follows:

	Six months ended June 30,
	2016		2015
Beginning of year	$	27,095	$	21,720
Acquired goodwill		—		5,121
Impairment		—		—
Other adjustments		—		—
End of period	$	27,095	$	26,841

Acquired intangible assets as of June 30, 2016 and June 30, 2015 were as follows:

	2016						2015
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets(1):
MSRs	$	819	$	195	$	624	$	692	$	124	$	568
Core deposit intangibles		7,274		5,807		1,467		7,697		5,498		2,199
Total amortized intangible assets	$	8,093	$	6,002	$	2,091	$	8,389	$	5,622	$	2,767

(1) Excludes fully amortized intangible assets

Aggregate amortization expense was $355 and $334 for June 30, 2016 and 2015, respectively.

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

	MSRs		Core deposit intangibles		Total
2016		17		344		361
2017		35		587		622
2018		35		111		146
2019		35		88		123
2020		35		71		106
Thereafter		467		266		733
	$	624	$	1,467	$	2,091

Page 39

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(8) Short-Term Borrowings

Short-term borrowings are included in Federal Home Loan Bank advances on the Consolidated Balance Sheets and are summarized as follows:

	At June 30, 2016					At December 31, 2015
	Federal Funds Purchased		Short-term Borrowings			Federal Funds Purchased			Short-term Borrowings
Outstanding balance	$	—	$	29,800		$	—		$	53,700
Maximum indebtedness		—		70,400			—			64,700
Average balance		—		10,860			69			26,880
Average rate paid		—		0.40	%		0.53	%		0.20	%
Interest rate on balance		—		0.42	%		—			0.35	%

Outstanding during the year represent 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 June 30, 2016 and December 31, 2015.

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 June 30, 2016 and December 31, 2015. All of the repurchase agreements are overnight agreements.

	June 30, 2016		December 31, 2015
Securities pledged for repurchase agreements:
U.S. Treasury securities	$	657	$	894
Obligations of U.S. government agencies		17,068		24,146
Total securities pledged	$	17,725	$	25,040
Gross amount of recognized liabilities for repurchase agreements	$	17,725	$	25,040
Amounts related to agreements not included in offsetting disclosures above	$	—	$	—

Page 40

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(9) Earnings per Common Share

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

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Basic
Net income	$	5,181	$	3,122	$	9,906	$	6,292
Preferred stock dividends		391		391		782		795
Net income available to common shareholders - basic	$	4,790	$	2,731	$	9,124	$	5,497
Weighted average common shares outstanding - basic		7,877,119		7,842,159		7,861,444		7,800,808
Basic earnings per common share	$	0.61	$	0.35	$	1.16	$	0.70
Diluted
Net income available to common shareholders - basic	$	4,790	$	2,731	$	9,124	$	5,497
Preferred stock dividends		391		391		782		795
Net income available to common shareholders - diluted	$	5,181	$	3,122	$	9,906	$	6,292
Weighted average common shares outstanding for basic earnings per common share basic		7,877,119		7,842,159		7,861,444		7,800,808
Add: Dilutive effects of convertible preferred shares		3,074,402		3,079,665		3,076,323		3,113,980
Average shares and dilutive potential common shares outstanding - diluted		10,951,521		10,921,824		10,937,767		10,914,788
Diluted earnings per common share	$	0.47	$	0.29	$	0.91	$	0.58

Page 41

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

For the three-month period ended June 30, 2016 there were 3,074,402 dilutive shares related to the Company’s convertible preferred stock. For the six-month period ended June 30, 2016 there were 3,076,324 dilutive shares related to the Company’s convertible preferred stock. For the three-month period ended June 30, 2015 there were 3,079,665 dilutive shares related to the Company’s convertible preferred stock. For the six-month period ended June 30, 2015 there were 3,113,980 dilutive shares related to the Company’s convertible preferred stock. Under the “if converted” method, all convertible preferred shares are assumed to be converted into common shares at the corresponding conversion rate. These additional shares are then added to the common shares outstanding to calculate diluted earnings per share.

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

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amounts of financial instruments with off-balance-sheet risk were as follows for June 30, 2016 and December 31, 2015:

	Contract Amount
	June 30, 2016				December 31, 2015
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitment to extend credit:
Lines of credit and construction loans	$	7,610	$	194,874	$	9,416	$	195,732
Overdraft protection		5		27,053		5		22,122
Letters of credit		600		320		200		750
	$	8,215	$	222,247	$	9,621	$	218,604

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 3.25% to 8.00% at June 30, 2016 and from 3.25% to 8.75% at December 31, 2015. 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 average reserve balance maintained in accordance with such requirements was $8,365 on June 30, 2016 and $2,448 on December 31, 2015.

Page 42

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(11) Pension Information

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

Net periodic pension benefit was as follows:

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Service cost	$	—		$	—		$	—		$	—
Interest cost		170			156			340			312
Expected return on plan assets		(274	)		(283	)		(548	)		(566	)
Other components		83			70			166			140
Net periodic pension benefit	$	(21	)	$	(57	)	$	(42	)	$	(114	)

The total amount of pension contributions expected to be paid by the Company in 2016 is $500, compared to $700 in 2015.

(12) Equity Incentive Plan

At the Company’s 2014 annual meeting, the shareholders adopted the Company’s 2014 Incentive Plan (“2014 Incentive Plan”). The 2014 Incentive Plan authorizes the Company to grant options, stock awards, stock units and other awards for up to 375,000 common shares of the Company. There were 314,138 shares available for future grants under this plan at June 30, 2016.

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

Senior officers were awarded an aggregate of 16,130 restricted common shares on March 11, 2016. The 2016 restricted shares vest over a three-year service period, with one third each vesting on January 2 of 2017, 2018 and 2019. On March 17, 2015, certain officers were awarded an aggregate of 16,983 restricted common shares, of which 5,657 shares vested on January 2, 2016.

Page 43

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

On January 15, 2016, certain of the Company’s lending officers were awarded an aggregate of 12,734 restricted common shares under the 2014 Incentive Plan. These restricted shares vest over a 5-year service period, with 20% each vesting on January 2 of 2017, 2018, 2019, 2020 and 2021.

On January 4, 2016, 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 2,730 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 2016 Annual Meeting.

Finally, on May 17, 2016, 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 12,285 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 2017 Annual Meeting.

No options had been granted under the 2014 Incentive Plan as of June 30, 2016 and 2015.

The Company classifies share-based compensation for employees with “Salaries, wages and benefits” in the consolidated statements of operations. Additionally, generally accepted accounting principles require the Company to report: (1) the expense associated with the grants as an adjustment to operating cash flows, and (2) any benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense as a financing cash flow.

The following is a summary of the status of the Company’s restricted shares and changes therein:

	Three months ended June 30, 2016					Six months ended June 30, 2016
	Number of Restricted Shares			Weighted Average Grant Date Fair Value		Number of Restricted Shares			Weighted Average Grant Date Fair Value
Nonvested at beginning of period		40,190		$	10.77		16,983		$	10.82
Granted		—			—		28,864			10.75
Vested		—			—		(5,657	)		10.82
Forfeited		(666	)		10.71		(666	)		10.71
Nonvested at June 30, 2016		39,524			10.77		39,524			10.77

During the six-month period ended June 30, 2016, the Company recorded $271 of share-based compensation expense for shares granted under the 2014 Incentive Plan. Additionally, during the three months ended June 30, 2016, the Company recorded $159 of share-based compensation expense for the shares granted under the 2014 Incentive Plan. At June 30, 2016, the expected future compensation expense relating to the 16,983 restricted shares awarded in 2015 is $56 over the remaining vesting period of 1.5 years. The expected future compensation expense relating to the 16,130 restricted shares awarded in 2016 to the officers and Civista directors is $90 over the remaining vesting period of 2.5 years. The

Page 44

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

expected future compensation expense relating to the 12,734 restricted common shares awarded to lending officers of the Company in 2016 is $128 over the remaining vesting period of 4.5 years. Finally, on May 13, 2016, an agreement was signed thereby ending the employment of a grantee of restricted shares. As a result, a total of 666 restricted shares granted, but unvested, were forfeited.

(13) Fair Value Measurement

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

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

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

Swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date and classified Level 2.

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

Page 45

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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

Assets measured at fair value are summarized below.

	Fair Value Measurements at June 30, 2016 Using:
	(Level 1)		(Level 2)		(Level 3)
Assets:
Assets measured at fair value on a recurring basis:
U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	41,578	$	—
Obligations of states and political subdivisions		—		95,218		—
Mortgage-backed securities in government sponsored entities		—		63,247		—
Equity securities in financial institutions		—		600		—
Swap asset		—		3,757		—
Liabilities:
Swap liability		—		3,757		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	391
Other real estate owned		—		—		73

Page 46

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

	Fair Value Measurements at December 31, 2015 Using:
	(Level 1)		(Level 2)		(Level 3)
Assets:
Assets measured at fair value on a recurring basis:
U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	40,937	$	—
Obligations of states and political subdivisions		—		92,152		—
Mortgage-backed securities in government sponsored entities		—		62,573		—
Equity securities in financial institutions		—		587		—
Swap asset		—		1,962		—
Liabilities:
Swap liability		—		1,962		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	759
Other real estate owned		—		—		109

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 June 30, 2016.

	Quantitative Information about Level 3 Fair Value Measurements
June 30, 2016	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired loans	$	391	Appraisal of collateral	Appraisal adjustments	10% - 30%	10%
				Liquidation expense	0% - 10%	10%
				Holding period	0 - 30 months	18 months
Other real estate owned	$	73	Appraisal of collateral	Appraisal adjustments	10% - 30%	10%
				Liquidation expense	0% - 10%	10%

Page 47

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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, 2015.

	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2015	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired loans	$	759	Appraisal of collateral	Appraisal adjustments	10% - 30%	10%
				Liquidation expense	0% - 10%	10%
				Holding period	0 - 30 months	17 months
Other real estate owned	$	109	Appraisal of collateral	Appraisal adjustments	10% - 30%	10%
				Liquidation expense	0% - 10%	10%

The carrying amount and fair values of financial instruments are as follows:

June 30, 2016	Carrying     Amount		Total     Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	41,772	$	41,772	$	41,772	$	—	$	—
Securities available for sale		200,643		200,643		—		200,643		—
Loans, held for sale		5,167		5,167		5,167		—		—
Loans, net of allowance for loan losses		1,014,375		1,011,073		—		—		1,011,073
Other securities		13,734		13,734		13,734		—		—
Bank owned life insurance		24,255		24,255		24,255		—		—
Accrued interest receivable		3,798		3,798		3,798		—		—
Swap asset		3,757		3,757		—		3,757		—
Financial Liabilities:
Nonmaturing deposits		917,274		917,274		917,274		—		—
Time deposits		197,733		198,256		—		—		198,256
Short-term FHLB advances		29,800		29,471		29,471		—		—
Long-term FHLB advances		17,500		17,657		—		—		17,657
Securities sold under agreement to repurchase		17,725		17,725		17,725		—		—
Subordinated debentures		29,427		28,964		—		—		28,964
Accrued interest payable		121		121		121		—		—
Swap liability		3,757		3,757		—		3,757		—

Page 48

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

December 31, 2015	Carrying     Amount		Total     Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	35,561	$	35,561	$	35,561	$	—	$	—
Securities available for sale		196,249		196,249		—		196,249		—
Loans, held for sale		2,698		2,698		2,698		—		—
Loans, net of allowance for loan losses		987,166		986,848		—		—		986,848
Other securities		13,452		13,452		13,452		—		—
Bank owned life insurance		20,104		20,104		20,104		—		—
Accrued interest receivable		3,902		3,902		3,902		—		—
Swap asset		1,962		1,962		—		1,962		—
Financial Liabilities:
Nonmaturing deposits		840,984		840,984		840,984		—		—
Time deposits		211,049		212,006		—		—		212,006
Short-term FHLB advances		53,700		52,906		52,906		—		—
Long-term FHLB advances		17,500		17,687		—		—		17,687
Securities sold under agreement to repurchase		25,040		25,040		25,040		—		—
Subordinated debentures		29,427		25,572		—		—		25,572
Accrued interest payable		120		120		120		—		—
Swap liability		1,962		1,962		—		1,962		—

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

Securities available for sale: The fair value of securities 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 specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For equity securities, management uses market information related to the value of similar institutions to determine the fair value (Level 2 inputs).

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

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

Page 49

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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

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

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

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

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

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

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

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

Fair value swap asset and liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date.

Page 50

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(14) Derivative Hedging Instruments

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

The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis point change in interest rates as of June 30, 2016.

	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency
Derivative Assets	$	44,996			5.16	%	$	26			Monthly
Derivative Liabilities		(44,996	)		-5.16	%		(26	)		Monthly
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, 2015.

	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency
Derivative Assets	$	35,534			5.31	%	$	20			Monthly
Derivative Liabilities		(35,534	)		-5.31	%		(20	)		Monthly
Net Exposure	$	—					$	—

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

Page 51

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

(15) Qualified Affordable Housing Project Investments

The Company invests in qualified affordable housing projects. At June 30, 2016 and December 31, 2015, the balance of the investment for qualified affordable housing projects was $2,501 and $2,177, 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 $1,716 and $2,195 at June 30, 2016 and December 31, 2015, respectively.

During the six months ended June 30, 2016 and 2015, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $154 and $139, respectively. During the quarters ended June 30, 2016 and 2015, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $77 and $70, respectively, which was included within pretax income on the consolidated statements of operations.

Additionally, during the six months ended June 30, 2016 and 2015, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $295 and $233, respectively. During the quarters ended June 30, 2016 and 2015, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $148 and $116, respectively. During the three and six months ended June 30, 2016 and 2015, the Company did not incur impairment losses related to its investment in qualified affordable housing projects.

Page 52

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion focuses on the consolidated financial condition of the Company at June 30, 2016 compared to December 31, 2015, and the consolidated results of operations for the three- and six-month periods ended June 30, 2016, compared to the same periods in 2015. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to such matters as the Company’s financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from results 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, 2015. 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.

Page 53

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Financial Condition

Total assets of the Company at June 30, 2016 were $1,359,911 compared to $1,315,041 at December 31, 2015, an increase of $44,870, or 3.4%. The increase in total assets was mainly attributable to an increase in cash and due from financial institutions, securities available for sale, loans held for sale, net loans and bank owned life insurance. Total liabilities at June 30, 2016 were $1,223,708 compared to $1,189,868 at December 31, 2015, an increase of $33,840, or 2.8%. The increase in total liabilities was mainly attributable to an increase in total deposits and accrued interest, taxes and other expenses offset by a decrease in FHLB overnight advances and securities sold under agreements to repurchase.

Cash and due from financial institutions have increased $6,211 or 17.5% since December 31, 2015, due primarily to temporary additional cash balances related to the tax refund processing program.

Loans outstanding as of June 30, 2016 and December 31, 2015 were as follows:

	June 30, 2016			December 31, 2015
Commercial & Agriculture	$	126,540		$	124,402
Commercial Real Estate - Owner Occupied		167,894			167,897
Commercial Real Estate - Non-Owner Occupied		369,876			348,439
Residential Real Estate		245,941			236,338
Real Estate Construction		56,274			58,898
Farm Real Estate		43,289			46,993
Consumer and Other		19,108			18,560
Total loans		1,028,922			1,001,527
Allowance for loan losses		(14,547	)		(14,361	)
Net loans	$	1,014,375		$	987,166

Net loans have increased $27,209 or 2.8% since December 31, 2015. The Commercial & Agriculture, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate and Consumer and Other loan portfolios increased $2,138, $21,437, $9,603 and $548, respectively, since December 31, 2015, while the Commercial Real Estate – Owner Occupied, Real Estate Construction and Farm Real Estate loan portfolios have decreased $3, $2,624 and $3,704, respectively, since December 31, 2015.

Loans held for sale have increased $2,469 or 91.5% since December 31, 2015, due to an increase in loans originated during the first six months of 2016. At June 30, 2016, the net loan to deposit ratio was 91.0% compared to 93.8% at December 31, 2015. The decrease in the net loan to deposit ratio is the result of an increase in deposits.

During the first six months of 2016, the Company received a payoff on a nonperforming loan. This particular loan had been analyzed previously and had been charged down based on a deterioration of real estate collateral values during the recent recession. As a result of the payoff of the loan, the Company recovered the charged down amount of approximately $1,303. The result of the transaction

Page 54

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

was a credit of $1,300 from the allowance for loan losses during the six months of operations in 2016, compared to an $800 provision for loan losses in the same period of 2015. Additionally, the allowance for loan losses was affected by a decrease in net charge-offs compared to a year ago. Net charge-offs have decreased to a net recovery of $1,486, compared to net charge-offs of $361 during the first six months of 2015. For the first six months of 2016, the Company charged off a total of thirty loans. Two Commercial and Agriculture loans totaling $7 net of recoveries and eight Consumer and Other loans totaling $14, net of recoveries were charged off in the first six months of the year. In addition, the Company had net recoveries of $10, $1,359, $136 and $2 on previously charged-off Commercial Real Estate – Owner Occupied loans, Commercial Real Estate – Non-Owner Occupied loans, Residential Real Estate loans and Real Estate Construction loans, respectively, in the first six months of 2016. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans have decreased by $522 since December 31, 2015, which was due to a decrease in loans on nonaccrual status of $522. 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, except for the segment consisting of purchased automobile loans which is calculated over a two-year period. The use of a three-year period for loss migration analysis reflected a change in methodology beginning in the third quarter of 2015. Previously, a two-year loss migration analysis had been used for the entire portfolio. With continued improvement and stability in economic conditions, regulatory guidance recommends a longer look-back period. In addition, Civista made significant changes to consumer and commercial lending policies in the first quarter of 2012. Combined, the stable economy and now seasoned policy changes indicate a three-year period is more reflective of future expectations. 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 Commercial and Commercial Real Estate loan, with a balance of $350 or larger, on an individual basis and designates a loan as impaired when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicate that underlying cash flows are not adequate to meet its debt service requirements. In addition, loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loan losses as a percent of total loans was 1.41% at June 30, 2016 and 1.43% at December 31, 2015.

The available for sale security portfolio increased by $4,394, from $196,249 at December 31, 2015 to $200,643 at June 30, 2016. 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 June 30, 2016, the Company was in compliance with all pledging requirements.

Page 55

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Premises and equipment, net, have decreased $233 from December 31, 2015 to June 30, 2016. The decrease is the result of new purchases of $202, offset by depreciation of $600. In addition, $165 was added to construction in progress.

Bank owned life insurance (BOLI) increased $4,151 from December 31, 2015 to June 30, 2016. In the first six months of 2016, the Company purchased an additional $3,885 of BOLI. The remaining difference is the result of increases in the cash surrender value of the underlying insurance policies.

Total deposits as of June 30, 2016 and December 31, 2015 are as follows:

	June 30, 2016		December 31, 2015
Noninterest-bearing demand	$	353,386	$	300,615
Interest-bearing demand		190,434		176,303
Savings and money market		373,454		364,066
Time deposits		197,733		211,049
Total Deposits	$	1,115,007	$	1,052,033

Total deposits at June 30, 2016 increased $62,974 from year-end 2015. Noninterest-bearing deposits increased $52,771 from year-end 2015, while interest-bearing deposits, including savings and time deposits, increased $10,203 from December 31, 2015. The increase in noninterest-bearing deposits was primarily due to an increase in commercial accounts related to the Company’s participation in a tax refund processing program, which added temporary noninterest-bearing deposits of $46,814. The interest-bearing deposit increase was mainly due to increases in interest-bearing demand and savings and money market accounts. The year-to-date average balance of total deposits increased $133,620 compared to the average balance of the same period in 2015 due to a large increase in temporary cash related to the tax refund processing program. The increase in average balance is due to increases of $136,952 in demand deposit accounts, $11,792 in money market savings, $2,394 in public fund money market savings and $9,320 in statement saving accounts, offset by decreases of $13,884 in time certificates, $6,447 in brokered deposits and $9,274 in interest-bearing public funds.

FHLB advances decreased $23,900 from December 31, 2015 to June 30, 2016. The decrease is due to a decrease in overnight funds of $23,900. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $7,315 from December 31, 2015 to June 30, 2016.

Accrued expenses and other liabilities increased $2,081 from December 31, 2015 to June 30, 2016. The increase is primarily the result of an increase in the market value of swap liabilities.

Shareholders’ equity at June 30, 2016 was $136,203, or 10.0% of total assets, compared to $125,173, or 9.5% of total assets, at December 31, 2015. The increase in shareholders’ equity was primarily due to net

Page 56

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

income of $9,906, a decrease in the Company’s pension liability, net of tax, of $110, an increase in the fair value of securities available for sale, net of tax, of $2,309 and offset by dividends on preferred stock and common stock of $784 and $782, respectively. Additionally, $271 was recognized as stock-based compensation in connection with the grant of restricted shares. Total outstanding common shares at June 30, 2016 were 7,907,360. Total outstanding common shares at December 31, 2015 were 7,843,578. The increase in common shares outstanding is the result of the conversion of 161 of the Company’s previously issued preferred shares into 20,569 common shares, the grant of 28,864 restricted common shares to certain officers under the Company’s 2014 Incentive Plan and the grant of 15,015 common shares were granted to directors of Civista. There were 666 previously granted restricted common shares forfeited during the six months ended June 30, 2016. In addition,

Results of Operations

Six Months Ended June 30, 2016 and 2015

The Company had net income of $9,906 for the six months ended June 30, 2016, an increase of $3,614 from net income of $6,292 for the same six months of 2015. Basic earnings per common share were $1.16 for the period ended June 30, 2016, compared to $0.70 for the same period in 2015. Diluted earnings per common share were $0.91 for the period ended June 30, 2016, compared to $0.58 for the same period in 2015. The primary reasons for the changes in net income are explained below.

Net interest income for the six months ended June 30, 2016 was $25,175, an increase of $2,344 from $22,831 in the same six months of 2015. Total interest income for the six months ended June 30, 2016 was $26,791, an increase of $2,288 from $24,503 in the same six months of 2015. Average earning assets increased 9.6% during the six months ended June 30, 2016 as compared to the same period in 2015. Average loans, non-taxable securities and interest-bearing deposits in other banks for the first six months of 2016 increased 5.1%, 7.0% and 86.8%, respectively, compared to the first six months of last year. The increases were partially offset by a decrease in taxable securities. Interest-bearing deposits in other banks increased due to our tax refund processing program. The timing of cash inflows and outflows leads to large, but temporary, increases in cash on deposit. Although the program was in place in both the first six months of 2015 and 2016, the volume of tax refunds processed, and therefore cash on deposit, increased dramatically. The yield on the loan portfolio increased 16 basis points for the first six months of 2016 compared to the first six months of last year. The yield on earning assets decreased 3 basis points for the first six months of 2016 compared to the first six months of last year. Total interest expense for the six months ended June 30, 2016 was $1,616, a decrease of $56 from $1,672 in the same six months of 2015. Interest expense on time deposits and FHLB borrowings decreased $121 and $14, respectively in the first six months of 2016 compared to the same period in 2015. Average time deposits for the first six months of 2016 decreased 10.0% compared to the first six months of 2015. The interest rate paid on time deposits during the first six months of 2016 decreased by 3 basis points as compared to the same period in 2015. The interest rate paid on FHLB borrowings during the first six months of 2016 decreased 2 basis points as compared to the same period in 2015. The Company’s net interest margin for the six months ended June 30, 2016 and 2015 was 3.81%.

Page 57

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the condensed average balance sheets for the six months ended June 30, 2016 and 2015. 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 34% 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.

	Six Months Ended June 30,
	2016								2015
	Average balance			Interest		Yield/ rate *			Average balance			Interest		Yield/ rate *
Assets:
Interest-earning assets:
Loans, including fees	$	1,008,203		$	23,487		4.69	%	$	959,474		$	21,516		4.53	%
Taxable securities		138,517			1,622		2.39	%		141,420			1,629		2.37	%
Tax-exempt securities		75,011			1,315		5.67	%		70,128			1,264		5.78	%
Interest-bearing deposits in other banks		149,046			367		0.50	%		79,794			94		0.24	%
Total interest-earning assets	$	1,370,777			26,791		4.05	%	$	1,250,816			24,503		4.08	%
Noninterest-earning assets:
Cash and due from financial institutions		76,208								46,515
Premises and equipment, net		16,801								15,537
Accrued interest receivable		4,327								4,225
Intangible assets		29,366								27,513
Other assets		9,876								9,877
Bank owned life insurance		22,506								19,737
Less allowance for loan losses		(14,562	)							(14,520	)
Total Assets	$	1,515,299							$	1,359,700
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	559,901		$	227		0.08	%	$	540,336		$	207		0.08	%
Time		205,949			747		0.73	%		228,846			868		0.76	%
FHLB		28,537			201		1.42	%		30,179			215		1.44	%
Subordinated debentures		29,427			430		2.94	%		29,427			373		2.56	%
Repurchase Agreements		22,122			11		0.10	%		18,745			9		0.10	%
Total interest-bearing liabilities	$	845,936			1,616		0.38	%	$	847,533			1,672		0.40	%
Noninterest-bearing deposits		516,738								379,786
Other liabilities		23,004								14,258
Shareholders’ Equity		129,621								118,123
Total Liabilities and Shareholders’ Equity	$	1,515,299							$	1,359,700
Net interest income and interest rate spread				$	25,175		3.67	%				$	22,831		3.68	%
Net interest margin							3.81	%							3.81	%

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

Page 58

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the six months ended June 30, 2016 and 2015. The table is presented on a fully tax-equivalent basis.

	Increase (decrease) due to:
	Volume(1)			Rate(1)			Net
	(Dollars in thousands)
Interest income:
Loans, including fees	$	1,117		$	854		$	1,971
Taxable securities		(34	)		27			(7	)
Tax-exempt securities		91			(40	)		51
Interest-bearing deposits in other banks		121			152			273
Total interest income	$	1,295		$	993		$	2,288
Interest expense:
Demand and savings	$	8		$	12		$	20
Time		(84	)		(37	)		(121	)
FHLB		(12	)		(2	)		(14	)
Subordinated debentures		—			57			57
Repurchase agreements		2			—			2
Total interest expense	$	(86	)	$	30		$	(56	)
Net interest income	$	1,381		$	963		$	2,344

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

The Company provides for loan losses through regular provisions to the allowance for loan losses. During the first six months of 2016, the Company received a payoff on a nonperforming loan. This particular loan had been analyzed previously and had been charged down based on a deterioration of real estate collateral values during the recent recession. As a result of the payoff of the loan, the Company recovered the charged down amount of approximately $1,303. The result of the transaction was a reversal of $1,300 from the allowance for loan losses during the six months of operations in 2016, compared to an $800 allowance for loan losses in the same period of 2015. The provision is also affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses. The decrease in provision for loan losses in the first six months of 2016 is related to the decrease in net charge-offs compared to a year ago.

Page 59

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Noninterest income for the six-month periods ended June 30, 2016 and 2015 are as follows:

	Six months ended June 30,
	2016		2015
Service charges	$	2,520	$	2,225
Net gain on sale of securities		1		—
Net gain on sale of loans		800		619
ATM fees		1,043		964
Trust fees		1,300		1,501
Bank owned life insurance		266		233
Tax refund processing fees		2,750		2,000
Other		655		511
Total noninterest income	$	9,335	$	8,053

Noninterest income for the six months ended June 30, 2016 was $9,335, an increase of $1,282 or 15.9% from $8,053 for the same period of 2015. The primary reasons for the increase follow.

Service charge fee income for the period ended June 30, 2016 was $2,520, up $295 or 13.3% over the same period of 2015. The increase is primarily due to service charge income received from the tax refund processing program, as well as service charge fees in our Dayton market since the acquisition of TCNB in March 2015.

Gain on sale of loans increased $181 during the first six months of 2016 compared to the same period of 2015. The increase is due to an increase in volume of loans sold during the first six months of 2016 as compared to the same period in 2015.

Trust fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that we manage and the fee rate charged to customers. Trust fee income decreased $201 or 13.4% during the first six months of 2016 compared to the same period in 2015. The decrease is related to a general decrease in brokerage transactions compared to the same period in 2015.

The Company processes state and federal income tax refund payments for customers of third-party income tax preparation vendors. The third-party vendors pay us a fee for processing the payments. Tax refund processing fees increased $750 or 37.5% during the first six months of 2016 compared to the same period in 2015. The increase is due to an increase in volume of returns processed. This fee income is seasonal in nature, the majority of which is received in the first quarter of the year.

Other income increased $144 during the first six months of 2016 compared to the same period of 2015. The increase is due to an increase in swap related income during the first six months of 2016 as compared to the same period in 2015.

Page 60

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Noninterest expense for the six-month periods ended June 30, 2016 and 2015 are as follows:

	Six months ended June 30,
	2016		2015
Salaries, Wages and benefits	$	12,678	$	11,708
Net occupancy expense		1,301		1,239
Equipment expense		664		728
Contracted data processing		750		993
FDIC assessment		431		462
State franchise tax		458		456
Professional services		1,019		1,119
Amortization of intangible assets		355		334
ATM expense		196		445
Marketing		561		544
Other		3,544		3,509
Total noninterest expense	$	21,957	$	21,537

Noninterest expense for the six months ended June 30, 2016 was $21,957, an increase of $420, from $21,537 reported for the same period of 2015. The primary reasons for the increase follow.

Salary and other employee costs were $12,678, up $970 or 8.3% as compared to the same period of 2015. These increases are mainly due to the addition of employees from the acquisition of TCNB, annual pay increases and incentive based costs, offset by a reduction in pension costs.

Contracted data processing costs were $750, down $243 or 24.5% compared to the same period in 2015. The year-over-year decrease was attributable to the increased core processing costs incurred in 2015 in connection with the acquisition of TCNB.

Professional services costs decreased $100, or 8.9% from the same period of 2015. The year-over-year decrease was attributable to the increased professional services costs incurred in 2015 in connection with the acquisition of TCNB.

ATM costs were $196, down $249 or 56.0% compared to the same period in 2015. The decrease is due to vendor credits that began in the second quarter of 2015.

Income tax expense for the six months ended June 30, 2016 totaled $3,947, up $1,692 compared to the same period in 2015. The effective tax rates for the six-month periods ended June 30, 2016 and June 30, 2015 were 28.5% and 26.4%, 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 as of June 30, 2016 is the result of an increase in taxable income as compared to the same period in 2015.

Page 61

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Three Months Ended June 30, 2016 and 2015

The Company had net income of $5,181 for the three months ended June 30, 2016, an increase of $2,059 from net income of $3,122 for the same three months of 2015. Basic earnings per common share were $0.61 for the quarter ended June 30, 2016, compared to $0.35 for the same period in 2015. Diluted earnings per common share were $0.47 for the quarter ended June 30, 2016, compared to $0.29 for the same period in 2015. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended June 30, 2016 was $12,940, an increase of $1,024 from $11,916 in the same three months of 2015. Total interest income for the three months ended June 30, 2016 was $13,739, an increase of $999 from $12,740 in the same three months of 2015. Average earning assets increased 4.4% during the quarter ended June 30, 2016 as compared to the same period in 2015. Average loans, non-taxable securities and interest-bearing deposits in other banks for the second quarter of 2016 increased 2.4%, 7.4% and 61.0%, respectively, compared to the second quarter of last year. The increases were partially offset by a decrease in taxable securities. Interest-bearing deposits in other banks increased due to our tax refund processing program. The timing of cash inflows and outflows leads to large, but temporary, increases in cash on deposit. Although the program was in place in both the second quarter of 2015 and 2016, the volume of tax refunds processed, and therefore cash on deposit, increased dramatically. The yield on the loan portfolio increased 26 basis points for the second quarter of 2016 compared to the second quarter of last year. The yield on earning assets increased 15 basis points for the second quarter of 2016 compared to the second quarter of last year. Total interest expense for the three months ended June 30, 2016 was $799, a decrease of $25 from $824 in the same three months of 2015. Interest expense on time deposits and FHLB borrowings decreased $53 and $3, respectively in the second quarter of 2016 compared to the same period in 2015. Average time deposits and FHLB borrowings for the second quarter of 2016 decreased 13.2% and 28.2%, respectively compared to the second quarter of 2015. The interest rate paid on time deposits during the second quarter of 2016 increased by 1 basis point as compared to the same period in 2015. The interest rate paid on FHLB borrowings during the second quarter of 2016 increased 51 basis points as compared to the same period in 2015. The Company’s net interest margin for the three months ended June 30, 2016 and 2015 was 4.13% and 3.96%, respectively.

Page 62

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

The following table presents the condensed average balance sheets for the three months ended June 30, 2016 and 2015. 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 34% 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 June 30,
	2016								2015
	Average balance			Interest		Yield/ rate *			Average balance			Interest		Yield/ rate *
Assets:
Interest-earning assets:
Loans, including fees	$	1,015,687		$	12,170		4.82	%	$	991,487		$	11,270		4.56	%
Taxable securities		139,238			821		2.41	%		140,943			796		2.31	%
Tax-exempt securities		75,821			661		5.66	%		70,610			640		5.74	%
Interest-bearing deposits in other banks		70,355			87		0.50	%		43,691			34		0.31	%
Total interest-earning assets	$	1,301,101			13,739		4.38	%	$	1,246,731			12,740		4.23	%
Noninterest-earning assets:
Cash and due from financial institutions		37,863								26,222
Premises and equipment, net		16,731								16,173
Accrued interest receivable		4,636								4,561
Intangible assets		29,286								29,164
Other assets		9,844								10,885
Bank owned life insurance		23,450								19,795
Less allowance for loan losses		(14,621	)							(14,593	)
Total Assets	$	1,408,290							$	1,338,938
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	563,561		$	114		0.08	%	$	555,144		$	109		0.08	%
Time		202,347			371		0.74	%		233,047			424		0.73	%
FHLB		18,636			91		1.96	%		25,958			94		1.45	%
Subordinated debentures		29,427			218		2.98	%		29,427			193		2.63	%
Repurchase Agreements		20,382			5		0.10	%		17,302			4		0.09	%
Total interest-bearing liabilities	$	834,353			799		0.39	%	$	860,878			824		0.38	%
Noninterest-bearing deposits		425,390								345,241
Other liabilities		16,280								13,607
Shareholders’ Equity		132,267								119,212
Total Liabilities and Shareholders’ Equity	$	1,408,290							$	1,338,938
Net interest income and interest rate spread				$	12,940		3.99	%				$	11,916		3.85	%
Net interest margin							4.13	%							3.96	%

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

Page 63

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended June 30, 2016 and 2015. The table is presented on a fully tax-equivalent basis.

	Increase (decrease) due to:
	Volume(1)			Rate(1)			Net
	(Dollars in thousands)
Interest income:
Loans, including fees	$	280		$	620		$	900
Taxable securities		(10	)		35			25
Tax-exempt securities		49			(28	)		21
Interest-bearing deposits in other banks		27			26			53
Total interest income	$	346		$	653		$	999
Interest expense:
Demand and savings	$	2		$	3		$	5
Time		(56	)		3			(53	)
FHLB		(31	)		28			(3	)
Subordinated debentures		—			25			25
Repurchase agreements		1			—			1
Total interest expense	$	(84	)	$	59		$	(25	)
Net interest income	$	430		$	594		$	1,024

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

The Company provides for loan losses through regular provisions to the allowance for loan losses. During the quarter ended June 30, 2016, the Company received a payoff on a nonperforming loan. This particular loan had been analyzed previously and had been charged down based on a deterioration of real estate collateral values during the recent recession. As a result of the payoff of the loan, the Company recovered the charged down amount of approximately $1,303. The result of the transaction was a credit of $1,300 to the allowance for loan losses during the second quarter of operations in 2016, compared to a $400 provision for loan losses in the same period of 2015. The provision is also affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses. The decrease in provision for loan losses in the quarter ended June 30, 2016 is related to the decrease in net charge-offs compared to a year ago.

Page 64

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Noninterest income for the three-month periods ended June 30, 2016 and 2015 are as follows:

	Three months ended June 30,
	2016		2015
Service charges	$	1,391	$	1,170
Net gain on sale of securities		6		—
Net gain on sale of loans		406		415
ATM fees		535		515
Trust fees		666		734
Bank owned life insurance		151		116
Tax refund processing fees		550		400
Other		370		302
Total noninterest income	$	4,075	$	3,652

Noninterest income for the three months ended June 30, 2016 was $4,075, an increase of $423 or 11.6% from $3,652 for the same period of 2015. The primary reasons for the increase follow.

Service charge fee income for the quarter ended June 30, 2016 was $1,391, up $221 or 18.9% over the same period of 2015. The increase is primarily due to service charge income received from the tax refund processing program.

BOLI increased $35 or 30.2 percent during the second quarter of 2016 compared to the same period in 2015. The increase is due to additional insurance purchases in the second quarter of 2016.

Trust fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that we manage and the fee rate charged to customers. Trust fee income decreased $68 or 9.3% during the second quarter of 2016 compared to the same period in 2015. The decrease is related to a general decrease in brokerage transactions compared to the same period in 2015.

The Company processes state and federal income tax refund payments for customers of third-party income tax preparation vendors. The third-party vendors pay us a fee for processing the payments. Tax refund processing fees increased $150 or 37.5% during the second quarter of 2016 compared to the same period in 2015. The increase is due to an increase in volume of returns processed. This fee income is seasonal in nature, the majority of which is received in the first quarter of the year.

Other income increased $68 during the second quarter of 2016 compared to the same period of 2015. The increase is due to an increase in swap related income during the second quarter of 2016 as compared to the same period in 2015.

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Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Noninterest expense for the three-month periods ended June 30, 2016 and 2015 are as follows:

	Three months ended June 30,
	2016		2015
Salaries, Wages and benefits	$	6,354	$	5,809
Net occupancy expense		670		615
Equipment expense		368		365
Contracted data processing		395		545
FDIC assessment		179		225
State franchise tax		240		217
Professional services		517		663
Amortization of intangible assets		172		192
ATM expense		75		162
Marketing		275		308
Other		1,805		1,832
Total noninterest expense	$	11,050	$	10,933

Noninterest expense for the three months ended June 30, 2016 was $11,050, an increase of $117, or 1.1%, from $10,933 reported for the same period of 2015. The primary reasons for the increase follow.

Salary and other employee costs were $6,354, up $545 or 9.4% as compared to the same period of 2015. These increases are mainly due to annual pay increases and incentive based costs, offset by a reduction in pension costs.

Contracted data processing costs were $395, down $150 or 27.5% compared to the same period in 2015. The quarter-over-quarter decrease was attributable to the increased core processing costs incurred in 2015 in connection with the acquisition of TCNB.

Professional services costs decreased $146, or 22.0% from the same period of 2015. The quarter-over-quarter decrease was attributable to the increased professional services costs incurred in 2015 in connection with the acquisition of TCNB.

ATM costs were $75, down $87 or 53.7% compared to the same period in 2015. The decrease is due to vendor credits that began in the second quarter of 2015.

Income tax expense for the three months ended June 30, 2016 totaled $2,084, up $971 compared to the same period in 2015. The effective tax rates for the three-month periods ended June 30, 2016 and June 30, 2015 were 28.7% and 26.3%, 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 as of June 30, 2016 is the result of an increase in taxable income as compared to the same period in 2015.

Page 66

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

Capital Resources

Shareholders’ equity totaled $136,203 at June 30, 2016 compared to $125,173 at December 31, 2015. The increase in shareholders’ equity resulted primarily from net income of $9,906, a $110 net decrease in the Company’s pension liability and an increase in the fair value of securities available for sale, net of tax, of $2,309, which was offset by dividends on preferred stock and common stock of $782 and $784, respectively.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of June 30, 2016 and December 31, 2015 as identified in the following table:

	Total Risk Based Capital			Tier I Risk Based Capital			CET1 Risk Based Capital			Leverage Ratio
Company Ratios - June 30, 2016		14.0	%		12.8	%		7.9	%		9.9	%
Company Ratios - December 31, 2015		14.0	%		12.7	%		7.6	%		10.0	%
For Capital Adequacy Purposes		8.0	%		6.0	%		4.5	%		4.0	%
To Be Well Capitalized Under Prompt Corrective Action Provisions		10.0	%		8.0	%		6.5	%		5.0	%

The Company paid a cash dividend of $0.05 per common share on February 1, 2016 and on May 1, 2016. In 2015, the Company paid a cash dividend of $0.05 per common share on February 1, 2015 and on May 1, 2015. The Company also paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $391 on March 15, 2016 and on June 15, 2016. In 2015, the Company paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $404 on March 15, 2015 and approximately $391 on June 16, 2015.

Liquidity

The Company maintains a conservative liquidity position. All securities are classified as available for sale. Securities, with maturities of one year or less, totaled $9,744, or 4.9% of the total security portfolio at June 30, 2016. The available for sale portfolio helps to provide the Company with the ability to meet its funding needs. The 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.

Cash from operations for the period ended June 30, 2016 was $7,866. This includes net income of $9,906 plus net adjustments of $(2,040) to reconcile net earnings to net cash provided by operations. Cash provided by operations is primarily from proceeds from sale of loans of $29,878. Cash used by operations is primarily from loans originated for sale of $31,547. Cash used by investing activities was $31,848 for the period ended June 30, 2016. Cash received from investing activities is primarily from maturing, called securities and sales of securities of $14,684 and $1,994, respectively. This increase in cash was offset by security purchases, additional bank owned life insurance, net loan originations and loan purchases of $18,295, $3,885, $23,919 and $1,884, respectively. Cash provided from financing

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Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

activities for the first six months of 2016 totaled $30,193. The increase of cash from financing activities is due to an increase in deposits of $62,974. Noninterest-bearing deposits increased $52,771 from year-end 2015, while interest-bearing deposits, including savings and time deposits, increased $10,203 during the first six months of 2016. Cash of $23,900 was used to repay overnight borrowings. In addition, securities sold under agreements to repurchase decreased $7,315, cash of $782 was used to pay preferred dividends and cash of $784 was used to pay common dividends. Cash and cash equivalents increased from $35,561 at December 31, 2015 to $41,772 at June 30, 2016.

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 June 30, 2016, Civista had total credit availability with the FHLB of $140,693, with standby letters of credit totaling $19,600 and a remaining borrowing capacity of approximately $73,793. In addition, Civista Bancshares, Inc. maintains a credit line totaling $7,500.

Page 68

Civista Bancshares, Inc.

Quantitative and Qualitative Disclosures About Market Risk

Form 10-Q

(Amounts in thousands, except share data)

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

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

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

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

The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Company, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve guidance and discusses the importance of these elements in the context of managing interest-rate risk. Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk.

Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

Page 69

Civista Bancshares, Inc.

Quantitative and Qualitative Disclosures About Market Risk

Form 10-Q

(Amounts in thousands, except share data)

Several techniques may be used by an institution to minimize interest-rate risk. One approach used by the Company is to periodically analyze its assets and liabilities and make future financing and investment decisions based on payment streams, interest rates, contractual maturities, and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Company’s primary asset/liability management technique is the measurement of the Company’s asset/liability gap, that is, the difference between the cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally differ in magnitude for assets and liabilities.

Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. The Company has not purchased derivative financial instruments in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Company’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Company seeks to have in place sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Company.

The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 2015 and March 31, 2016, 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 June 30, 2016 and December 31, 2015.

The Company had derivative financial instruments as of December 31, 2015 and June 30, 2016. 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.

Page 70

Civista Bancshares, Inc.

Quantitative and Qualitative Disclosures About Market Risk

Form 10-Q

(Amounts in thousands, except share data)

Net Portfolio Value
	June 30, 2016							December 31, 2015
Change in Rates	Dollar Amount		Dollar Change		Percent Change			Dollar Amount		Dollar Change		Percent Change
+200bp		215,269		36,227		20	%		188,643		25,222		15	%
+100bp		202,968		23,926		13	%		180,892		17,471		11	%
Base		179,042		—		—			163,421		—		—
-100bp		182,139		3,097		2	%		163,804		383		0	%

The change in net portfolio value from December 31, 2015 to June 30, 2016, can be attributed to two factors; the current rate environment and the relative changes to the fair value of assets and liabilities given hypothetical market rate shocks. The yield curve has flattened since the end of the year. Additionally, both the volume and mix of assets and funding sources has changed. Increases to the loan portfolio is the biggest change from the end of the year. Additional volume related to the tax refund processing program also contributed to the mix of assets being relatively heavier in cash compared to the end of the year. These changes lead the base to be higher. The change in asset mix related to loans outpaces that related to cash and tends to increase volatility somewhat. The funding volume and mix has shifted from borrowed money and CDs to deposits, which also slightly increases 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 decrease in the fair value of liabilities as well as an increase in the fair value of assets. Accordingly we would see an increase in the net portfolio value. However, a downward change in rates would lead to a small increase in the net portfolio value as the fair value of liabilities would decrease slightly while the fair value of assets would increase slightly.

Page 71

Civista Bancshares, Inc.

Controls and Procedures

Form 10-Q

(Amounts in thousands, except share data)

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive and our principal financial officers, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined inRule 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 June 30, 2016, were effective.

Changes in Internal Control over Financial Reporting

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

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Civista Bancshares, Inc.

Other Information

Form 10-Q

Part II - Other Information

Item 1.	Legal Proceedings
	There were no new material legal proceedings or material changes to existing legal proceedings during the current period.
Item 1A.	Risk Factors
	There were no material changes during the current period to the risk factors disclosed in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	None
Item 3.	Defaults Upon Senior Securities
	None
Item 4.	Mine Safety Disclosures
	Not applicable
Item 5.	Other Information
	None
Item 6.	Exhibits
	10.1	Second Amendment to Supplemental Nonqualified Executive Retirement Plan
	31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
	31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer.
	32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101	The following materials from Civista Bancshares Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015; (ii) Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2016 and 2015; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the six months ended June 30, 2016; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three and six months ended June 30, 2016 and 2015; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited)

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Civista Bancshares, Inc.

Signatures

Form 10-Q

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Civista Bancshares, Inc.
/s/ James O. Miller	August 9, 2016
James O. Miller	Date
President, Chief Executive Officer
/s/ Todd A. Michel	August 9, 2016
Todd A. Michel	Date
Senior Vice President, Controller

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Civista Bancshares, Inc.

Index to Exhibits

Form 10-Q

Exhibits

Exhibit	Description	Location
3.1(a)	Amended Articles of Incorporation, as amended, of the Company, as filed with the Ohio Secretary of State on December 4, 2015.	Filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 15, 2016 and incorporated herein by reference. (File No. 1-36192)
3.2	Amended and Restated Code of Regulations of the Company (adopted April 17, 2007)	Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 16, 2015 and incorporated herein by reference. (File No. 0-25980)
10.1	Second Amendment to Supplemental Nonqualified Executive Retirement Plan	Included herewith
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 June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of RegulationS-T: (i) Consolidated Balance Sheets (Unaudited) as of June 30, 2016 and December 31, 2015; (ii) Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2016 and 2015; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the six months ended June 30, 2016; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three and six months ended June 30, 2016 and 2015; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).	Included herewith

Page 75