Civista Bancshares (CIVB) 10-Q 2016 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: September 30, 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  ☒    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  ☒    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	☒
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  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at November 4, 2016 - 8,239,247 shares

CIVISTA BANCSHARES, INC.

Index

PART I.	Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (Unaudited) September  30, 2016 and December 31, 2015	3
	Consolidated Statements of Operations (Unaudited) Three and nine months ended September 30, 2016 and 2015	4
	Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2016 and 2015	5
	Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) Nine months ended September 30, 2016	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2016 and 2015	7-8
	Notes to Interim Consolidated Financial Statements (Unaudited)	9-51
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52-67
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68-70
Item 4.	Controls and Procedures	71
PART II.	Other Information
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	72
Signatures		73

Part I – Financial Information

ITEM 1. Financial Statements

CIVISTA BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

	September 30, 2016			December 31, 2015
ASSETS
Cash and due from financial institutions	$	33,229		$	35,561
Securities available for sale		200,967			196,249
Loans held for sale		2,827			2,698
Loans, net of allowance of $13,451 and $14,361		1,033,516			987,166
Other securities		13,926			13,452
Premises and equipment, net		17,340			16,944
Accrued interest receivable		4,547			3,902
Goodwill		27,095			27,095
Other intangibles		1,943			2,409
Bank owned life insurance		24,404			20,104
Other assets		12,486			9,461
Total assets	$	1,372,280		$	1,315,041
LIABILITIES
Deposits
Noninterest-bearing	$	341,653		$	300,615
Interest-bearing		792,500			751,418
Total deposits		1,134,153			1,052,033
Federal Home Loan Bank advances		35,000			71,200
Securities sold under agreements to repurchase		21,713			25,040
Subordinated debentures		29,427			29,427
Accrued expenses and other liabilities		13,678			12,168
Total liabilities		1,233,971			1,189,868
SHAREHOLDERS’ EQUITY
Preferred shares, no par value, 200,000 shares authorized, Series B Preferred stock, $1,000 liquidation preference, 21,374 shares issued at September 30, 2016 and 24,072 shares issued at December 31, 2015, net of issuance costs		19,776			22,273
Common shares, no par value, 20,000,000 shares authorized, 8,978,899 shares issued at September 30, 2016 and 8,591,542 shares issued at December 31, 2015		118,126			115,330
Retained earnings		16,471			5,300
Treasury shares, 747,964 common shares at cost		(17,235	)		(17,235	)
Accumulated other comprehensive income (loss)		1,171			(495	)
Total shareholders’ equity		138,309			125,173
Total liabilities and shareholders’ equity	$	1,372,280		$	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					Nine months ended
	September 30,					September 30,
	2016		2015			2016			2015
Interest and dividend income
Loans, including fees	$	11,824	$	11,755		$	35,311		$	33,271
Taxable securities		872		810			2,494			2,439
Tax-exempt securities		664		653			1,979			1,917
Federal funds sold and other		10		5			376			98
Total interest income		13,370		13,223			40,160			37,725
Interest expense
Deposits		506		513			1,480			1,588
Federal Home Loan Bank advances		111		111			312			326
Subordinated debentures		221		192			650			565
Other		6		5			17			15
Total interest expense		844		821			2,459			2,494
Net interest income		12,526		12,402			37,701			35,231
Provision (credit) for loan losses		—		400			(1,300	)		1,200
Net interest income after provision (credit) for loan losses		12,526		12,002			39,001			34,031
Noninterest income
Service charges		1,194		1,262			3,714			3,487
Net gain on sale of securities		18		(5	)		20			(5	)
Net gain on sale of loans		541		269			1,341			888
ATM fees		541		520			1,584			1,484
Wealth management fees		688		659			1,989			2,159
Bank owned life insurance		149		116			415			350
Tax refund processing fees		—		—			2,750			2,000
Other		522		255			1,176			769
Total noninterest income		3,653		3,076			12,989			11,132
Noninterest expense
Salaries, wages and benefits		6,375		6,025			19,053			17,732
Net occupancy expense		708		595			2,009			1,833
Equipment expense		494		303			1,158			1,030
Contracted data processing		397		399			1,147			1,392
FDIC assessment		166		192			597			654
State franchise tax		251		205			709			661
Professional services		431		597			1,450			1,716
Amortization of intangible assets		172		189			527			522
ATM expense		183		119			379			563
Marketing		249		298			810			842
Other operating expenses		1,769		1,744			5,314			5,258
Total noninterest expense		11,195		10,666			33,153			32,203
Income before taxes		4,984		4,412			18,837			12,960
Income tax expense		1,304		1,159			5,251			3,414
Net Income		3,680		3,253			13,586			9,546
Preferred stock dividends		374		391			1,156			1,186
Net income available to common shareholders	$	3,306	$	2,862		$	12,430		$	8,360
Earnings per common share, basic	$	0.41	$	0.36		$	1.57		$	1.07
Earnings per common share, diluted	$	0.34	$	0.30		$	1.24		$	0.87

See notes to interim unaudited consolidated financial statements

Page 4

CIVISTA BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
Net income	$	3,680		$	3,253		$	13,586		$	9,546
Other comprehensive income (loss):
Unrealized holding gains (loss) on available for sale securities		(1,225	)		1,183			2,273			87
Tax effect		417			(403	)		(772	)		(30	)
Pension liability adjustment		83			70			249			210
Tax effect		(28	)		(24	)		(84	)		(72	)
Total other comprehensive income (loss)		(753	)		826			1,666			195
Comprehensive income	$	2,927		$	4,079		$	15,252		$	9,741

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		—			—			—		—		13,586			—			—			13,586
Other comprehensive income		—			—			—		—		—			—			1,666			1,666
Conversion of Series B preferred shares into common shares		(2,698	)		(2,497	)		345,060		2,497		—			—			—			—
Stock-based compensation		—			—			42,297		299		—			—			—			299
Common stock dividends ($0.16 per share)		—			—			—		—		(1,259	)		—			—			(1,259	)
Preferred stock dividend		—			—			—		—		(1,156	)		—			—			(1,156	)
Balance, September 30, 2016		21,374		$	19,776			8,230,935	$	118,126	$	16,471		$	(17,235	)	$	1,171		$	138,309

See notes to interim unaudited consolidated financial statements

Page 6

CIVISTA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine months ended
	September 30,
	2016			2015
Net cash from operating activities	$	11,318		$	14,375
Cash flows used for investing activities:
Maturities and calls of securities, available-for-sale		23,264			20,538
Purchases of securities, available-for-sale		(31,130	)		(22,250	)
Sale of securities available for sale		4,379			—
Redemption of Federal Reserve stock		—			138
Purchase of Federal Reserve stock		(474	)		(160	)
Purchase of bank owned life insurance		(3,885	)		—
Net loan originations		(43,285	)		(9,426	)
Loans purchased		(1,643	)		(3,826	)
Proceeds from sale of other real estate owned properties		238			289
Net cash from acquisition		—			926
Premises and equipment purchases		(1,292	)		(933	)
Net cash used for investing activities		(53,828	)		(14,704	)
Cash flows from financing activities:
Repayment of long-term FHLB advances		—			(5,000	)
Net change in short-term FHLB advances		(36,200	)		12,000
Increase in deposits		82,120			172
Decrease in securities sold under repurchase agreements		(3,327	)		(726	)
Common dividends paid		(1,259	)		(1,170	)
Preferred dividends paid		(1,156	)		(1,186	)
Net cash provided by financing activities		40,178			4,090
Increase (decrease) in cash and due from financial institutions		(2,332	)		3,761
Cash and due from financial institutions at beginning of period		35,561			29,858
Cash and due from financial institutions at end of period	$	33,229		$	33,619

See notes to interim unaudited consolidated financial statements

Page 7

CIVISTA BANCSHARES, INC.

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

(In thousands)

	Nine months ended
	September 30,
	2016		2015
Cash paid during the period for:
Interest	$	2,442	$	2,468
Income taxes	$	4,700	$	2,250
Supplemental cash flow information:
Transfer of loans from portfolio to other real estate owned	$	73	$	174
Conversion of preferred shares to common shares	$	2,497	$	859
Acquisition of TCNB Financial Corp.
Noncash assets acquired:
Loans receivable			$	76,444
Other securities				716
Accrued interest receivable				194
Premises and equipment, net				1,738
Core deposit intangible				1,009
Other assets				472
Total non cash assets acquired				80,573
Liabilities assumed:
Deposits				86,869
Other liabilities				5
Total liabilities assumed				86,874
Net noncash liabilities acquired			$	6,301

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 September 30, 2016 and its results of operations and changes in cash flows for the periods ended September 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 September 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. Civista has two loan concentrations of greater than 10% of total loans: one is to Lessors of Non-Residential Buildings and Dwellings totaling $239,878, or 22.9% of total loans, as of September 30, 2016 and the other is to Lessors of Residential Buildings and Dwellings totaling $136,094, or 13.0% of total loans, as of September 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 September 30, 2016. Revenue from Water St. was less than 1.0% of total revenue through September 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 an acquired company on the Consolidated Balance Sheet at its 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.

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Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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 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

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Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The standard in this Update requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, 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 2016-05,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 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.

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Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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 in this Update 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.

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

Page 13

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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.

In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

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

September 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	37,811	$	256	$	(18	)	$	38,049
Obligations of states and political subdivisions		89,967		6,299		(39	)		96,227
Mortgage-backed securities in government sponsored entities		65,049		957		(29	)		65,977
Total debt securities		192,827		7,512		(86	)		200,253
Equity securities in financial institutions		481		233		—			714
Total	$	193,308	$	7,745	$	(86	)	$	200,967

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 September 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	$	8,697	$	8,710
Due after one year through five years		27,208		27,523
Due after five years through ten years		28,533		30,440
Due after ten years		63,340		67,603
Mortgage-backed securities		65,049		65,977
Equity securities		481		714
Total securities available for sale	$	193,308	$	200,967

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

	Three months ended					Nine months ended
	September 30,					September 30,
	2016		2015			2016		2015
Sale proceeds	$	2,385	$	—		$	4,379	$	—
Gross realized gains		18		—			18		—
Gross realized losses		—		—			—		—
Gains (losses) from securities called or settled by the issuer		—		(5	)		2		(5	)

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $156,087 and $142,888 as of September 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 September 30, 2016 and December 31, 2015 not recognized in income were as follows:

September 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	$	2,998	$	(2	)	$	944	$	(16	)	$	3,942	$	(18	)
Obligations of states and political subdivisions		3,101		(26	)		526		(13	)		3,627		(39	)
Mortgage-backed securities in gov’t sponsored entities		8,511		(16	)		1,240		(13	)		9,751		(29	)
Total temporarily impaired	$	14,610	$	(44	)	$	2,710	$	(42	)	$	17,320	$	(86	)
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 September 30, 2016, there were nineteen securities in the portfolio with unrealized losses mainly due to higher market rates when compared to the time of purchase. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to market yields increasing. The fair value is expected to recover as the securities approach their maturity date or reset date. The Company does not intend to sell until recovery and does not believe selling will be required before recovery.

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:

	September 30, 2016			December 31, 2015
Commercial & Agriculture	$	129,700		$	124,402
Commercial Real Estate- Owner Occupied		167,564			167,897
Commercial Real Estate- Non-Owner Occupied		385,863			348,439
Residential Real Estate		247,174			236,338
Real Estate Construction		56,919			58,898
Farm Real Estate		41,862			46,993
Consumer and Other		17,885			18,560
Total Loans		1,046,967			1,001,527
Allowance for Loan Losses		(13,451	)		(14,361	)
Net Loans	$	1,033,516		$	987,166

Included in total loans above are deferred loan fees of $117 at September 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. 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 credit review system

• Changes in nature and volume of the loan portfolio

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

• Changes in economic and business conditions

• Changes in competition or legal and regulatory requirements

• Changes in concentrations within the loan portfolio

• Changes in the underlying collateral for collateral dependent loans

Page 18

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 $13,451 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2016. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three and nine months ended September 30, 2016 and 2015.

Allowance for loan losses:

For the nine months ended September 30, 2016

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,478	$	(870	)	$	79	$	1,023		$	1,710
Commercial Real Estate:
Owner Occupied		2,467		(166	)		53		(44	)		2,310
Non-Owner Occupied		4,657		(23	)		1,365		(1,456	)		4,543
Residential Real Estate		4,086		(280	)		384		(735	)		3,455
Real Estate Construction		371		(115	)		8		160			424
Farm Real Estate		538		—			—		(108	)		430
Consumer and Other		382		(85	)		40		—			337
Unallocated		382		—			—		(140	)		242
Total	$	14,361	$	(1,539	)	$	1,929	$	(1,300	)	$	13,451

For the nine months ended September 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 decrease in allowance for Commercial Real Estate – Non-Owner Occupied loans was the result of a decrease in general reserves required as a result of lower loss rates and improvement in past due, classified and non-accrual loans for this type. In addition, 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 Real Estate Construction loans increased due to an increase in loss rates for this type of loan, which was represented as an increase 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 19

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Allowance for loan losses:

For the nine months ended September 30, 2015

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,819	$	(187	)	$	158	$	(412	)	$	1,378
Commercial Real Estate:
Owner Occupied		2,221		(362	)		162		661			2,682
Non-Owner Occupied		4,334		(81	)		105		581			4,939
Residential Real Estate		3,747		(779	)		289		965			4,222
Real Estate Construction		428		—			4		(4	)		428
Farm Real Estate		822		—			60		(224	)		658
Consumer and Other		200		(115	)		38		251			374
Unallocated		697		—			—		(618	)		79
Total	$	14,268	$	(1,524	)	$	816	$	1,200		$	14,760

For the nine months ended September 30, 2015, the allowance for Commercial & Agriculture loans was reduced due to decreases in specific reserves for impaired loans of $625. The decrease in specific reserves for impaired loans was the result of the resolution of an impaired loan. The Company did not incur losses with this resolution. In addition, criticized Commercial & Agriculture loan balances have decreased. 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, which is attributable to the change in the look-back period to a three-year period. The increase in the allowance for Commercial Real Estate – Non–Owner Occupied loans was the result of an increase in loss migration rates, which is attributable to the change in the look-back period to a three-year period. The ending reserve balance for Residential Real Estate loans increased from the end of the previous year due to an increase in loss migration rates, which is attributable to the change in the look-back period to a three-year period. The increase in the allowance for Consumer and Other loans increased due to an increase in loss migration rates. Unallocated reserves declined due to a change in the Company’s look-back period. The Company changed from a two-year look-back period to a three-year look-back period when calculating all but one segment’s loss migration rates during the third quarter of 2015. The change in methodology resulted in a decline in the unallocated balance with a corresponding increase in allocated balances within the reserve calculation. While loan balances are up, loss rates continue to trend downward, exclusive of the change in methodology, resulting in a lower allowance balance. While criticized loans in total have increased slightly, we have seen significant improvement in nonperforming loan balances resulting in a decline in specific reserves for impaired loans. 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 three months ended September 30, 2016

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,557	$	(828	)	$	44	$	937		$	1,710
Commercial Real Estate:
Owner Occupied		2,393		(124	)		1		40			2,310
Non-Owner Occupied		4,969		(23	)		6		(409	)		4,543
Residential Real Estate		3,899		(55	)		23		(412	)		3,455
Real Estate Construction		366		(115	)		6		167			424
Farm Real Estate		476		—			—		(46	)		430
Consumer and Other		358		(38	)		7		10			337
Unallocated		529		—			—		(287	)		242
Total	$	14,547	$	(1,183	)	$	87	$	—		$	13,451

For the three months ended September 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 and an increase in loan balances. The result was represented as an increase in the provision. The decrease in allowance for Commercial Real Estate – Non-Owner Occupied loans was the result of a decrease in general reserves required as a result of lower loss rates and improvement in past due, classified and non-accrual loans for this type. 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 increased due to an increase in loss rates for this type of loan, which was represented as an increase 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 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 September 30, 2015

	Beginning balance		Charge- offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,395	$	(187	)	$	127	$	43		$	1,378
Commercial Real Estate:
Owner Occupied		5,073		(164	)		3		(2,230	)		2,682
Non-Owner Occupied		3,153		(17	)		15		1,788			4,939
Residential Real Estate		3,470		(238	)		124		866			4,222
Real Estate Construction		434		—			1		(7	)		428
Farm Real Estate		584		—			9		65			658
Consumer and Other		190		(28	)		8		204			374
Unallocated		408		—			—		(329	)		79
Total	$	14,707	$	(634	)	$	287	$	400		$	14,760

For the three months ended September 30, 2015, the decrease in the allowance for Commercial Real Estate – Owner Occupied was the result of a significant change in the Special Mention loss migration rate that had been adversely effected by a specific loss on one relationship that occurred in 2014. The effect of this loss as of this quarter end migrated to the Substandard pool and has less of an impact to the reserve. The ending reserve balance for Residential Real Estate loans increased due an increase in criticized loan balances and an increase in loss migration rates. The increase in the allowance for Consumer and other loans increased due to an increase in loss rates. Unallocated reserves declined due to a change in the Company’s lookback period. The Company changed from a two-year lookback period to a three-year lookback period when calculating all but one segment’s loss migration rates during the third quarter of 2015. The change in methodology is reflected in a decline in the unallocated balance with corresponding increase in allocated balances within the reserve calculation. While loan balances are up, loss rates continue to trend downward, exclusive of the change in methodology, resulting in a lower allowance balance. While criticized loans have increased slightly, we have seen significant improvement in nonperforming loan balances resulting in a decline in specific reserves for impaired loans. 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)

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

September 30, 2016	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	—	$	—	$	1,710	$	1,710
Commercial Real Estate:
Owner Occupied		—		4		2,306		2,310
Non-Owner Occupied		—		—		4,543		4,543
Residential Real Estate		97		113		3,245		3,455
Real Estate Construction		—		—		424		424
Farm Real Estate		—		—		430		430
Consumer and Other		—		—		337		337
Unallocated		—		—		242		242
Total	$	97	$	117	$	13,237	$	13,451
Outstanding loan balances:
Commercial & Agriculture	$	89	$	2,386	$	127,225	$	129,700
Commercial Real Estate:
Owner Occupied		—		1,939		165,625		167,564
Non-Owner Occupied		—		369		385,494		385,863
Residential Real Estate		177		1,854		245,143		247,174
Real Estate Construction		—		—		56,919		56,919
Farm Real Estate		—		665		41,197		41,862
Consumer and Other		—		1		17,884		17,885
Total	$	266	$	7,214	$	1,039,487	$	1,046,967

Page 23

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 September 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 24

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 and Other loans are not risk-graded, except when collateral is used for a business purpose.

September 30, 2016	Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	121,273	$	4,569	$	3,858	$	—	$	129,700
Commercial Real Estate:
Owner Occupied		159,392		1,849		6,323		—		167,564
Non-Owner Occupied		380,064		4,054		1,745		—		385,863
Residential Real Estate		58,290		1,698		7,539		—		67,527
Real Estate Construction		50,391		17		27		—		50,435
Farm Real Estate		32,430		7,088		2,344		—		41,862
Consumer and Other		1,586		—		95		—		1,681
Total	$	803,426	$	19,275	$	21,931	$	—	$	844,632
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 25

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended September 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 related to a borrower that is experiencing financial difficulties, and such concessions may include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. 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
September 30, 2016
Performing	$	179,647	$	6,484	$	16,171	$	202,302
Nonperforming		—		—		33		33
Total	$	179,647	$	6,484	$	16,204	$	202,335

	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 26

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 September 30, 2016 and December 31, 2015.

September 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	$	57	$	169	$	213	$	439	$	129,172	$	89	$	129,700	$	—
Commercial Real Estate:
Owner Occupied		642		59		303		1,004		166,560		—		167,564		—
Non-Owner Occupied		—		14		316		330		385,533		—		385,863		—
Residential Real Estate		230		384		1,299		1,913		245,084		177		247,174		—
Real Estate Construction		—		—		27		27		56,892		—		56,919		—
Farm Real Estate		21		—		—		21		41,841		—		41,862		—
Consumer and Other		157		37		33		227		17,658		—		17,885		33
Total	$	1,107	$	663	$	2,191	$	3,961	$	1,042,740	$	266	$	1,046,967	$	33
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 27

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of September 30, 2016 and December 31, 2015.

	2016		2015
Commercial & Agriculture	$	2,008	$	1,185
Commercial Real Estate:
Owner Occupied		1,618		1,645
Non-Owner Occupied		459		1,428
Residential Real Estate		3,887		3,911
Real Estate Construction		27		29
Farm Real Estate		54		961
Consumer and Other		84		100
Total	$	8,137	$	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 the borrower has made a minimum of six months payments under the modified terms; 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 fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of September 30, 2016, TDRs accounted for $214 of the allowance for loan losses. As of December 31, 2015, TDRs accounted for $286 of the allowance for loan losses.

Page 28

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 September 30, 2016 and September 30, 2015 were as follows:

	For the Nine-Month Period Ended September 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		3		700		700
Consumer and Other		—		—		—
Total Loan Modifications		9	$	1,537	$	1,537
	For the Nine-Month Period Ended September 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		1		41		41
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		1	$	41	$	41

Page 29

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 September 30, 2016
	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		1		86		86
Consumer and Other		—		—		—
Total Loan Modifications		1	$	86	$	86
	For the Three-Month Period Ended September 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 nine-month periods ended September 30, 2016 and September 30, 2015, there were no defaults on loans that were modified and considered TDRs during the respective twelve previous months.

Page 30

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, excluding PCI loans, with the related allowance amount, if applicable, as of September 30, 2016 and December 31, 2015.

	September 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	$	2,386	$	3,457			$	851	$	1,034
Commercial Real Estate:
Owner Occupied		1,697		1,842				1,224		1,343
Non-Owner Occupied		369		396				1,742		1,826
Residential Real Estate		1,376		1,912				965		1,591
Farm Real Estate		665		665				953		1,026
Consumer and Other		1		1				3		3
Total		6,494		8,273				5,738		6,823
With an allowance recorded:
Commercial & Agriculture		—		—	$	—		22		23	$	23
Commercial Real Estate:
Owner Occupied		242		242		4		917		999		103
Non-Owner Occupied		—		—		—		—		—		—
Residential Real Estate		478		497		113		808		683		260
Farm Real Estate		—		—		—		—		—		—
Total		720		739		117		1,747		1,705		386
Total:
Commercial & Agriculture		2,386		3,457		—		873		1,057		23
Commercial Real Estate:
Owner Occupied		1,939		2,084		4		2,141		2,342		103
Non-Owner Occupied		369		396		—		1,742		1,826		—
Residential Real Estate		1,854		2,409		113		1,773		2,274		260
Farm Real Estate		665		665		—		953		1,026		—
Consumer and Other		1		1		—		3		3		—
Total	$	7,214	$	9,012	$	117	$	7,485	$	8,528	$	386

Page 31

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

The following tables include the average recorded investment and interest income recognized for impaired loans.

For the nine months ended:	September 30, 2016				September 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	1,453	$	147	$	1,680	$	41
Commercial Real Estate - Owner Occupied		1,954		101		2,887		120
Commercial Real Estate - Non-Owner Occupied		1,519		62		1,997		31
Residential Real Estate		1,699		89		2,640		78
Real Estate Construction		473		6		20		—
Farm Real Estate		1,123		33		620		42
Consumer and Other		2		—		5		—
Total	$	8,223	$	438	$	9,849	$	312

For the three months ended:	September 30, 2016				September 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	2,401	$	67	$	1,058	$	4
Commercial Real Estate - Owner Occupied		1,774		51		2,447		23
Commercial Real Estate - Non-Owner Occupied		556		36		1,870		12
Residential Real Estate		1,873		29		2,450		12
Real Estate Construction		—		6		20		—
Farm Real Estate		1,032		2		816		14
Consumer and Other		2		—		4		—
Total	$	7,638	$	191	$	8,665	$	65

Page 32

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 PCI loans were as follows, since acquisition:

	For the Nine-Month			For the Nine-Month
	Period Ended			Period Ended
	September 30, 2016			September 30, 2015
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	82		$	—
Acquisition of PCI loans		—			140
Accretion		(24	)		—
Balance at end of period	$	58		$	140
	For the Three-Month			For the Three-Month
	Period Ended			Period Ended
	September 30, 2016			September 30, 2015
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	66		$	140
Acquisition of PCI loans		—			—
Accretion		(8	)		—
Balance at end of period	$	58		$	140

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

	At September 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	$	868	$	965
Carrying amount		266		263

There has been $97 and $123 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of September 30, 2016 and December 31, 2015, respectively.

Page 33

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2016 and December 31, 2015, a total of $62 and $116, respectively, of foreclosed assets were included in other assets. As of September 30, 2016, included within the foreclosed assets is $62 of residential property acquired upon foreclosure of consumer residential mortgages or received via a deed in lieu transaction prior to the period end. As of September 30, 2016, the Company had initiated formal foreclosure procedures on $721 of consumer residential mortgages.

(6) Other Comprehensive Income

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

	For the Nine-Month Period Ended									For the Nine-Month Period Ended
	September 30, 2016									September 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		1,514			—			1,514			57		—			57
Amounts reclassified from accumulated other comprehensive income (loss)		(13	)		165			152			—		138			138
Net current-period other comprehensive income (loss)		1,501			165			1,666			57		138			195
Ending balance	$	5,055		$	(3,884	)	$	1,171		$	3,787	$	(3,639	)	$	148

Amounts in parentheses indicate debits on the consolidated balance sheets.

Page 34

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 nine months ended September 30, 2016			For the nine months ended September 30, 2015			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	20		$	—		Net gain (losses) on securities available for sale
Tax effect		(7	)		—		Income tax expense
		13			—		Net of tax
Amortization of defined benefit pension items
Actuarial gains/(losses)		(249	)(b)		(210	)(b)	Salaries, wages and benefits
Tax effect		84			72		Income tax expense
		(165	)		(138	)	Net of tax
Total reclassifications for the period	$	(152	)	$	(138	)	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 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 changes in each component of accumulated other comprehensive income (loss), net of tax.

	For the Three-Month Period Ended									For the Three-Month Period Ended
	September 30, 2016									September 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	$	5,863		$	(3,939	)	$	1,924		$	3,007	$	(3,685	)	$	(678	)
Other comprehensive income (loss) before reclassifications		(796	)		—			(796	)		780		—			780
Amounts reclassified from accumulated other comprehensive income (loss)		(12	)		55			43			—		46			46
Net current-period other comprehensive income (loss)		(808	)		55			(753	)		780		46			826
Ending balance	$	5,055		$	(3,884	)	$	1,171		$	3,787	$	(3,639	)	$	148

Amounts in parentheses indicate debits on the consolidated balance sheets.

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 amounts reclassified out of each component of accumulated other comprehensive income (loss).

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a)
Details about Accumulated Other Comprehensive (Loss) Components	For the three months ended September 30, 2016			For the three months ended September 30, 2015			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	18		$	—		Net gain (losses) on securities available for sale
Tax effect		(6	)		—		Income tax expense
		12			—		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	$	(43	)	$	(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 September 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 37

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 September 30, 2016 and 2015 is as follows:

	Nine months ended September 30,
	2016		2015
Beginning of year	$	27,095	$	21,720
Acquired goodwill		—		5,375
Impairment		—		—
Other adjustments		—		—
End of period	$	27,095	$	27,095

Acquired intangible assets as of September 30, 2016 and September 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	$	873	$	225	$	648	$	722	$	144	$	578
Core deposit intangibles		7,274		5,979		1,295		7,274		5,264		2,010
Total amortized intangible assets	$	8,147	$	6,204	$	1,943	$	7,996	$	5,408	$	2,588

(1) Excludes fully amortized intangible assets

Aggregate core deposit intangible amortization expense was $527 and $522 for September 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	$	9	$	172	$	181
2017		36		587		623
2018		36		111		147
2019		36		88		124
2020		36		71		107
Thereafter		495		266		761
	$	648	$	1,295	$	1,943

Page 38

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 September 30, 2016						At December 31, 2015
	Federal						Federal
	Funds			Short-term			Funds			Short-term
	Purchased			Borrowings			Purchased			Borrowings
Outstanding balance	$	—		$	17,500		$	—		$	53,700
Maximum indebtedness		20,000			70,400			—			64,700
Average balance		157			13,290			69			26,880
Average rate paid		0.79	%		0.42	%		0.53	%		0.20	%
Interest rate on balance		—			0.40	%		—			0.35	%

Average balance 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 September 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 September 30, 2016 and December 31, 2015. All of the repurchase agreements are overnight agreements.

	September 30, 2016		December 31, 2015
Securities pledged for repurchase agreements:
U.S. Treasury securities	$	840	$	894
Obligations of U.S. government agencies		20,873		24,146
Total securities pledged	$	21,713	$	25,040
Gross amount of recognized liabilities for repurchase agreements	$	21,713	$	25,040
Amounts related to agreements not included in offsetting disclosures above	$	—	$	—

Page 39

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 Company’s equity incentive plan, computed using the treasury stock method, and the impact of the Company’s convertible preferred stock using the “if converted” method.

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Basic
Net income	$	3,680	$	3,253	$	13,586	$	9,546
Preferred stock dividends		374		391		1,156		1,186
Net income available to common shareholders - basic	$	3,306	$	2,862	$	12,430	$	8,360
Weighted average common shares outstanding - basic		8,042,303		7,843,578		7,922,170		7,815,222
Basic earnings per common share	$	0.41	$	0.36	$	1.57	$	1.07
Diluted
Net income available to common shareholders - basic	$	3,306	$	2,862	$	12,430	$	8,360
Preferred stock dividends		374		391		1,156		1,186
Net income available to common shareholders - diluted	$	3,680	$	3,253	$	13,586	$	9,546
Weighted average common shares outstanding for basic earnings per common share basic		8,042,303		7,843,578		7,922,170		7,815,222
Add: Dilutive effects of convertible preferred shares		2,922,609		3,078,245		3,024,712		3,101,937
Average shares and dilutive potential common shares outstanding - diluted		10,964,912		10,921,823		10,946,882		10,917,159
Diluted earnings per common share	$	0.34	$	0.30	$	1.24	$	0.87

Page 40

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 September 30, 2016 there were 2,922,609 dilutive shares related to the Company’s convertible preferred stock. For the nine-month period ended September 30, 2016 there were 3,024,712 dilutive shares related to the Company’s convertible preferred stock. For the three-month period ended September 30, 2015 there were 3,078,245 dilutive shares related to the Company’s convertible preferred stock. For the nine-month period ended September 30, 2015 there were 3,101,937 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 September 30, 2016 and December 31, 2015:

	Contract Amount
	September 30, 2016				December 31, 2015
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitment to extend credit:
Lines of credit and construction loans	$	8,661	$	193,696	$	9,416	$	195,732
Overdraft protection		5		28,964		5		22,122
Letters of credit		600		351		200		750
	$	9,266	$	223,011	$	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 8.50% at September 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 $2,767 on September 30, 2016 and $2,448 on December 31, 2015.

Page 41

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 September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Service cost	$	—		$	—		$	—		$	—
Interest cost		170			156			509			468
Expected return on plan assets		(274	)		(283	)		(521	)		(848	)
Other components		83			70			249			210
Net periodic pension benefit	$	(21	)	$	(57	)	$	237		$	(170	)

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 315,720 shares available for future grants under this plan at September 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.

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 42

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

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. This issuance was expensed in its entirety when the shares were issued in the amount of $32.

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 March 11, 2016, senior officers were awarded an aggregate of 16,130 restricted common shares, which vest over a three-year service period, with one third each vesting on January 2 of 2017, 2018 and 2019.

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. This issuance was expensed in its entirety when the shares were issued in the amount of $130.

No options had been granted under the 2014 Incentive Plan as of September 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 September 30, 2016					Nine months ended September 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		39,524		$	10.77		16,983		$	10.82
Granted		—			—		28,864			10.75
Vested		—			—		(5,657	)		10.82
Forfeited		(916	)		10.91		(1,582	)		10.83
Nonvested at September 30, 2016		38,608			10.77		38,608			10.77

During the nine-month period ended September 30, 2016, the Company recorded $299 of share-based compensation expense for shares granted under the 2014 Incentive Plan. Additionally, during the three

Page 43

Civista Bancshares, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Form 10-Q

(Amounts in thousands, except share data)

months ended September 30, 2016, the Company recorded $28 of share-based compensation expense for the shares granted under the 2014 Incentive Plan. At September 30, 2016, the expected future compensation expense relating to the 16,983 restricted shares awarded in 2015 is $46 over the remaining vesting period of 1.25 years. The expected future compensation expense relating to the 16,130 restricted shares awarded in 2016 to the officers and Civista directors is $78 over the remaining vesting period of 2.25 years. The expected future compensation expense relating to the 12,734 restricted common shares awarded to lending officers of the Company in 2016 is $119 over the remaining vesting period of 4.25 years. 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. Finally, on September 19, 2016, a lending officer and restricted share grantee left the company. As a result, a total of 916 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 44

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 September 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	$	—	$	38,049	$	—
Obligations of states and political subdivisions		—		96,227		—
Mortgage-backed securities in government sponsored entities		—		65,977		—
Equity securities in financial institutions		—		714		—
Swap asset		—		3,705		—
Liabilities:
Swap liability		—		3,705		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	319
Other real estate owned		—		—		62

Page 45

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 September 30, 2016.

	Quantitative Information about Level 3 Fair Value Measurements
September 30, 2016	Fair Value		Valuation Technique		Unobservable Input	Range	Weighted Average
Impaired loans	$	319		Appraisal of collateral	Appraisal adjustments	10% - 30%	10%
					Liquidation expense	0% - 10%	10%
					Holding period	0 - 30 months	18 months
Other real estate owned	$	62		Appraisal of collateral	Appraisal adjustments	10% - 30%	10%
					Liquidation expense	0% - 10%	10%

Page 46

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:

September 30, 2016	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	33,229	$	33,229	$	33,229	$	—	$	—
Securities available for sale		200,967		200,967		—		200,967		—
Loans, held for sale		2,827		2,827		2,827		—		—
Loans, net of allowance for loan losses		1,033,516		1,037,955		—		—		1,037,955
Other securities		13,926		13,926		13,926		—		—
Bank owned life insurance		24,404		24,404		24,404		—		—
Accrued interest receivable		4,547		4,547		4,547		—		—
Swap asset		3,705		3,705		—		3,705		—
Financial Liabilities:
Nonmaturing deposits		915,360		915,360		915,360		—		—
Time deposits		218,793		219,345		—		—		219,345
Short-term FHLB advances		17,500		17,394		17,394		—		—
Long-term FHLB advances		17,500		17,710		—		—		17,710
Securities sold under agreement to repurchase		21,713		21,713		21,713		—		—
Subordinated debentures		29,427		30,367		—		—		30,367
Accrued interest payable		137		137		137		—		—
Swap liability		3,705		3,705		—		3,705		—

Page 47

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 48

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 49

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 September 30, 2016.

	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency
Derivative Assets	$	53,373			5.07	%	$	33			Monthly
Derivative Liabilities		(53,373	)		-5.07	%		(33	)		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 50

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 September 30, 2016 and December 31, 2015, the balance of the investment for qualified affordable housing projects was $2,477 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 $2,663 and $2,195 at September 30, 2016 and December 31, 2015, respectively.

During the nine months ended September 30, 2016 and 2015, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $231 and $208, respectively, which was included within pretax income on the consolidated statements of operations. During the quarters ended September 30, 2016 and 2015, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $77 and $69, respectively, which was included within pretax income on the consolidated statements of operations.

Additionally, during the nine months ended September 30, 2016 and 2015, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $442 and $350, respectively. During the quarters ended September 30, 2016 and 2015, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $147 and $117, respectively. During the three and nine months ended September 30, 2016 and 2015, the Company did not incur impairment losses related to its investment in qualified affordable housing projects.

Page 51

Civista Bancshares, Inc.

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

Form 10-Q

(Amounts in thousands, except share data)

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

Introduction

The following discussion focuses on the consolidated financial condition of the Company at September 30, 2016 compared to December 31, 2015, and the consolidated results of operations for the three- and nine-month periods ended September 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 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)

Financial Condition

Total assets of the Company at September 30, 2016 were $1,372,280 compared to $1,315,041 at December 31, 2015, an increase of $57,239, or 4.4%. The increase in total assets was mainly attributable to an increase in securities available for sale, net loans, bank owned life insurance and other assets. Total liabilities at September 30, 2016 were $1,233,971 compared to $1,189,868 at December 31, 2015, an increase of $44,103, or 3.7%. The increase in total liabilities was mainly attributable to an increase in total deposits and accrued expenses and other expenses offset by a decrease in FHLB overnight advances and securities sold under agreements to repurchase.

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

	September 30, 2016			December 31, 2015
Commercial & Agriculture	$	129,700		$	124,402
Commercial Real Estate - Owner Occupied		167,564			167,897
Commercial Real Estate - Non-Owner Occupied		385,863			348,439
Residential Real Estate		247,174			236,338
Real Estate Construction		56,919			58,898
Farm Real Estate		41,862			46,993
Consumer and Other		17,885			18,560
Total loans		1,046,967			1,001,527
Allowance for loan losses		(13,451	)		(14,361	)
Net loans	$	1,033,516		$	987,166

Net loans have increased $46,350 or 4.7% since December 31, 2015. The Commercial & Agriculture, Commercial Real Estate – Non-Owner Occupied and Residential Real Estate loan portfolios increased $5,298, $37,424 and $10,836, respectively, since December 31, 2015, while the Commercial Real Estate – Owner Occupied, Real Estate Construction, Farm Real Estate and Consumer and Other loan portfolios have decreased $333, $1,979, $5,131 and $675, respectively, since December 31, 2015.

During the first nine 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. This loan payoff resulted in a credit of $1,300 to the allowance for loan losses during the nine months of operations in 2016, compared to a $1,200 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 $390, compared to net charge-offs of $708 during the first nine months of 2015. For the first nine months of 2016, the Company charged off a total of forty-five loans. Four Commercial and Agriculture loans totaling $791, net of recoveries, five Commercial Real Estate – Owner Occupied loans totaling $113, net of recoveries, one Real Estate Construction loan totaling $107, net of recoveries and twelve Consumer and Other loans totaling $45, net of recoveries were charged off in the

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)

first nine months of the year. The Company also charged off twenty-two Residential Real Estate loans and one Commercial Real Estate – Non-Owner Occupied loan in the first nine months of the year. In addition, the Company had net recoveries of $1,342 and $104 on previously charged-off, Commercial Real Estate – Non-Owner Occupied loans and Residential Real Estate loans, respectively, in the first nine 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 $1,089 since December 31, 2015, which was due to a decrease in loans on nonaccrual status of $1,122 offset by an increase in loans past due 90 days but still accruing of $33. 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 relationship, with a balance of $350 or larger, on an individual basis and designates a loan as impaired when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicate that underlying cash flows are not adequate to meet its debt service requirements. In addition, loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loan losses as a percent of total loans was 1.28% at September 30, 2016 and 1.43% at December 31, 2015.

The available for sale security portfolio increased by $4,718, from $196,249 at December 31, 2015 to $200,967 at September 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 September 30, 2016, the Company was in compliance with all pledging requirements.

Premises and equipment, net, have increased $396 from December 31, 2015 to September 30, 2016. The increase is the result of new purchases of $236, offset by depreciation of $896. In addition, $1,056 was added to construction in progress.

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)

Bank owned life insurance (BOLI) increased $4,300 from December 31, 2015 to September 30, 2016. In the first nine 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.

Other assets increased $3,025 from December 31, 2015 to September 30, 2016. The increase is due to the sale of securities during September that will settle in October, additional swap asset activity and an increase in the market value of swap assets.

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

	September 30, 2016		December 31, 2015
Noninterest-bearing demand	$	341,653	$	300,615
Interest-bearing demand		192,866		176,303
Savings and money market		380,841		364,066
Time deposits		218,793		211,049
Total Deposits	$	1,134,153	$	1,052,033

Total deposits at September 30, 2016 increased $82,120 from year-end 2015. Noninterest-bearing deposits increased $41,038 from year-end 2015, while interest-bearing deposits, including savings and time deposits, increased $41,082 from December 31, 2015. The increase in noninterest-bearing deposits was primarily due to increases in business deposits, public fund deposits and cash balances remaining related to the Company’s participation in a tax refund processing program. The interest-bearing deposit increase was mainly due to increases in interest-bearing demand and savings and money market accounts and brokered time deposits. The year-to-date average balance of total deposits increased $107,734 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 $107,049 in demand deposit accounts, $11,186 in money market savings, $2,178 in public fund money market savings and $8,139 in statement saving accounts, offset by decreases of $15,375 in time certificates and $6,558 in interest-bearing public funds.

FHLB advances decreased $36,200 from December 31, 2015 to September 30, 2016. The decrease is due to a decrease in overnight funds of $36,200. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $3,327 from December 31, 2015 to September 30, 2016.

Accrued expenses and other liabilities increased $1,510 from December 31, 2015 to September 30, 2016. The increase is primarily the result of increased swap liability activity and an increase in the market value of swap liabilities.

Shareholders’ equity at September 30, 2016 was $138,309, or 10.1% 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 income of $13,586, a decrease in the Company’s pension liability, net of tax, of $165, an increase in the fair value of securities available for sale, net of tax, of $1,501 and offset by dividends on preferred stock and common stock of $1,156 and $1,259, respectively. Additionally, $299 was recognized as stock-based

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)

compensation in connection with the grant of restricted shares. Total outstanding common shares at September 30, 2016 were 8,230,935. 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 2,698 of the Company’s previously issued preferred shares into 345,060 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 to directors of Civista. There were 1,582 previously granted restricted common shares forfeited during the nine months ended September 30, 2016.

Results of Operations

Nine Months Ended September 30, 2016 and 2015

The Company had net income of $13,586 for the nine months ended September 30, 2016, an increase of $4,040 from net income of $9,546 for the same nine months of 2015. Basic earnings per common share were $1.57 for the period ended September 30, 2016, compared to $1.07 for the same period in 2015. Diluted earnings per common share were $1.24 for the period ended September 30, 2016, compared to $0.87 for the same period in 2015. The primary reasons for the changes in net income are explained below.

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)

The following table presents the condensed average balance sheets for the nine months ended September 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.

	Nine Months Ended September 30,
	2016								2015
	Average					Yield/			Average					Yield/
	balance			Interest		rate *			balance			Interest		rate *
Assets:
Interest-earning assets:
Loans, including fees	$	1,019,793		$	35,311		4.63	%	$	976,290		$	33,271		4.56	%
Taxable securities		138,374			2,494		2.45	%		140,311			2,439		2.36	%
Tax-exempt securities		75,806			1,979		5.64	%		70,779			1,917		5.73	%
Interest-bearing deposits in other banks		103,336			376		0.49	%		56,499			98		0.23	%
Total interest-earning assets	$	1,337,309			40,160		4.14	%	$	1,243,879			37,725		4.18	%
Noninterest-earning assets:
Cash and due from financial institutions		58,864								38,735
Premises and equipment, net		16,860								15,807
Accrued interest receivable		4,262								4,261
Intangible assets		29,289								28,214
Other assets		9,986								10,282
Bank owned life insurance		23,111								19,795
Less allowance for loan losses		(14,516	)							(14,676	)
Total Assets	$	1,465,165							$	1,346,297
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	564,743		$	345		0.08	%	$	544,569		$	315		0.08	%
Time		206,620			1,135		0.73	%		226,109			1,273		0.75	%
FHLB		30,933			312		1.35	%		40,922			326		1.07	%
Federal funds purchased		155			1		0.86	%		92			—		0.00	%
Subordinated debentures		29,427			650		2.95	%		29,427			565		2.57	%
Repurchase Agreements		21,015			16		0.10	%		19,183			15		0.10	%
Total interest-bearing liabilities	$	852,893			2,459		0.39	%	$	860,302			2,494		0.39	%
Noninterest-bearing deposits		460,051								353,002
Other liabilities		20,211								13,881
Shareholders’ Equity		132,010								119,112
Total Liabilities and Shareholders’ Equity	$	1,465,165							$	1,346,297
Net interest income and interest rate spread				$	37,701		3.75	%				$	35,231		3.79	%
Net interest margin							3.89	%							3.91	%

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

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)

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the nine months ended September 30, 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	$	1,500		$	540		$	2,040
Taxable securities		(35	)		90			55
Tax-exempt securities		140			(78	)		62
Interest-bearing deposits in other banks		120			158			278
Total interest income	$	1,725		$	710		$	2,435
Interest expense:
Demand and savings	$	12		$	18		$	30
Time		(108	)		(30	)		(138	)
FHLB		(90	)		76			(14	)
Federal funds purchased		1			—			1
Subordinated debentures		—			85			85
Repurchase agreements		1			—			1
Total interest expense	$	(184	)	$	149		$	(35	)
Net interest income	$	1,909		$	561		$	2,470

(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.

Net interest income for the nine months ended September 30, 2016 was $37,701, an increase of $2,470 from $35,231 in the same nine months of 2015. Total interest income for the nine months ended September 30, 2016 was $40,160, an increase of $2,435 from $37,725 in the same nine months of 2015. Average earning assets increased 7.5% during the nine months ended September 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 nine months of 2016 increased 4.5%, 7.1% and 82.9%, respectively, compared to the first nine 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 nine 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 7 basis points for the first nine months of 2016 compared to the first nine months of last year. The yield on earning assets decreased 4 basis points for the first nine months of 2016 compared to the first nine months of last year. Total interest expense for the nine months ended

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)

September 30, 2016 was $2,459, a decrease of $35 from $2,494 in the same nine months of 2015. Interest expense on time deposits and FHLB borrowings decreased $138 and $14, respectively, in the first nine months of 2016 compared to the same period in 2015. Average time deposits for the first nine months of 2016 decreased 8.6% compared to the first nine months of 2015. The interest rate paid on time deposits during the first nine months of 2016 decreased by 2 basis points as compared to the same period in 2015. The Company’s net interest margin for the nine months ended September 30, 2016 and 2015 was 3.89% and 3.91%, respectively.

The Company provides for loan losses through regular provisions to the allowance for loan losses. During the first nine 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. This loan payoff resulted in a reversal of $1,300 from the allowance for loan losses during the nine months of operations in 2016, compared to a $1,200 provision to 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 nine months of 2016 is related to the decrease in net charge-offs compared to a year ago.

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

	Nine months ended September 30,
	2016		2015
Service charges	$	3,714	$	3,487
Net gain on sale of securities		20		(5	)
Net gain on sale of loans		1,341		888
ATM fees		1,584		1,484
Wealth Management fees		1,989		2,159
Bank owned life insurance		415		350
Tax refund processing fees		2,750		2,000
Other		1,176		769
Total noninterest income	$	12,989	$	11,132

Noninterest income for the nine months ended September 30, 2016 was $12,989, an increase of $1,857 or 16.7% from $11,132 for the same period of 2015. The primary reasons for the increase follow.

Service charge fee income for the period ended September 30, 2016 was $3,714, up $227 or 6.5% over the same period of 2015. The increase is primarily due to service charge income received from the Company’s tax refund processing program.

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)

Gain on sale of loans increased $453 during the first nine months of 2016 compared to the same period of 2015. The volume of loans sold during the first nine months of 2016 was $52,572, up $12,728 or 31.9% as compared to the same period in 2015. In addition, the premium on loans sold increased 20 basis points during the first nine months of 2016 as compared to the same period in 2015.

Wealth management fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that we manage and the fee rate charged to customers. Wealth management fee income decreased $170 or 7.9% during the first nine 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 nine months of 2016 compared to the same period in 2015, as a result of an increase in the 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 $407 during the first nine months of 2016 compared to the same period of 2015. The increase is mainly due to an increase in swap related income during the first nine months of 2016 as compared to the same period in 2015.

Noninterest expenses for the nine-month periods ended September 30, 2016 and 2015 were as follows:

	Nine months ended September 30,
	2016		2015
Salaries, Wages and benefits	$	19,053	$	17,732
Net occupancy expense		2,009		1,833
Equipment expense		1,158		1,030
Contracted data processing		1,147		1,392
FDIC assessment		597		654
State franchise tax		709		661
Professional services		1,450		1,716
Amortization of intangible assets		527		522
ATM expense		379		563
Marketing		810		842
Other		5,314		5,258
Total noninterest expense	$	33,153	$	32,203

Total noninterest expense for the nine months ended September 30, 2016 was $33,153, an increase of $950, from $32,203 reported for the same period of 2015. The primary reasons for the increase follow.

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)

Salary and other employee costs were $19,053, up $1,321 or 7.4% 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, incentive based costs and higher employee insurance costs, offset by a reduction in pension costs.

Net occupancy and equipment costs were $3,167, up $304 or 10.6% compared to the same period in 2015. The increase is due to increases in building and equipment repair and maintenance, rent expense and real estate tax expense. Building and equipment repair and maintenance expenses increased due to facility and technology improvement projects. Rent and real estate tax expense increased as a result of the Company’s acquisition of TCNB.

Contracted data processing costs were $1,147, down $245 or 17.6% 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 $266, or 15.5% 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, increased recruiting expenses and increased legal expenses related to the Company’s filing of a Form S-3 shelf registration statement with the SEC and matters related to the Special Meeting of Shareholders held on November 4, 2015 for the purpose of voting to eliminate preemptive rights and cumulative voting in the election of directors.

ATM costs were $379, down $184 or 32.7% 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 nine months ended September 30, 2016 totaled $5,251, up $1,837 compared to the same period in 2015. The effective tax rates for the nine-month periods ended September 30, 2016 and September 30, 2015 were 27.9% 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 September 30, 2016 is the result of an increase in taxable income as compared to the same period in 2015.

Three Months Ended September 30, 2016 and 2015

The Company had net income of $3,680 for the three months ended September 30, 2016, an increase of $427 from net income of $3,253 for the same three months of 2015. Basic earnings per common share were $0.41 for the quarter ended September 30, 2016, compared to $0.36 for the same period in 2015. Diluted earnings per common share were $0.34 for the quarter ended September 30, 2016, compared to $0.30 for the same period in 2015. The primary reasons for the changes in net income are explained below.

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)

The following table presents the condensed average balance sheets for the three months ended September 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 September 30,
	2016								2015
	Average					Yield/			Average					Yield/
	balance			Interest		rate *			balance			Interest		rate *
Assets:
Interest-earning assets:
Loans, including fees	$	1,042,721		$	11,824		4.51	%	$	1,009,372		$	11,755		4.62	%
Taxable securities		138,092			872		2.56	%		138,129			810		2.36	%
Tax-exempt securities		77,378			664		5.56	%		72,080			653		5.65	%
Interest-bearing deposits in other banks		12,878			10		0.31	%		10,668			5		0.19	%
Total interest-earning assets	$	1,271,069			13,370		4.32	%	$	1,230,249			13,223		4.39	%
Noninterest-earning assets:
Cash and due from financial institutions		24,591								23,793
Premises and equipment, net		16,975								16,338
Accrued interest receivable		4,134								4,330
Intangible assets		29,136								29,589
Other assets		10,196								10,574
Bank owned life insurance		24,308								19,910
Less allowance for loan losses		(14,424	)							(14,983	)
Total Assets	$	1,365,985							$	1,319,800
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	574,322		$	118		0.08	%	$	552,899		$	108		0.08	%
Time		207,947			388		0.74	%		220,726			405		0.73	%
FHLB		35,673			111		1.24	%		62,057			111		0.71	%
Federal funds purchased		462			1		0.86	%		272			—		0.00	%
Subordinated debentures		29,427			221		2.99	%		29,427			192		2.59	%
Repurchase Agreements		18,827			5		0.11	%		20,044			5		0.10	%
Total interest-bearing liabilities	$	866,658			844		0.39	%	$	885,425			821		0.37	%
Noninterest-bearing deposits		347,912								300,305
Other liabilities		14,678								13,013
Shareholders’ Equity		136,737								121,057
Total Liabilities and Shareholders’ Equity	$	1,365,985							$	1,319,800
Net interest income and interest rate spread				$	12,526		3.93	%				$	12,402		4.02	%
Net interest margin							4.06	%							4.13	%

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

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)

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 September 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	$	383		$	(314	)	$	69
Taxable securities		—			62			62
Tax-exempt securities		49			(38	)		11
Interest-bearing deposits in other banks		1			4			5
Total interest income	$	433		$	(286	)	$	147
Interest expense:
Demand and savings	$	4		$	6		$	10
Time		(24	)		7			(17	)
FHLB		(60	)		60			—
Federal funds purchased		1			—			1
Subordinated debentures		—			29			29
Repurchase agreements		—			—			—
Total interest expense	$	(79	)	$	102		$	23
Net interest income	$	512		$	(388	)	$	124

(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.

Net interest income for the three months ended September 30, 2016 was $12,526, an increase of $124 from $12,402 in the same three months of 2015. Total interest income for the three months ended September 30, 2016 was $13,370, an increase of $147 from $13,223 in the same three months of 2015. Average earning assets increased 3.3% during the quarter ended September 30, 2016 as compared to the same period in 2015. Average loans, non-taxable securities and interest-bearing deposits in other banks for the third quarter of 2016 increased 3.3%, 7.4% and 20.7%, respectively, compared to the third 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 third quarter of 2015 and 2016, the volume of tax refunds processed, and therefore cash on deposit, increased dramatically. The yield on the loan portfolio decreased 11 basis points for the third quarter of 2016 compared to the third quarter of last year. The yield on earning assets decreased 7 basis points for the third quarter of 2016 compared to the third quarter of last year. Total interest expense for the three months ended September 30, 2016 was $844, an increase of $23 from $821 in the

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)

same three months of 2015. Interest expense on time deposits decreased $17 in the third quarter of 2016 compared to the same period in 2015. Average time deposits for the third quarter of 2016 decreased 5.8% compared to the third quarter of 2015. The interest rate paid on time deposits during the third quarter of 2016 increased by 1 basis point as compared to the same period in 2015. Interest expense on trust preferred securities increased $29 in the third quarter of 2016 compared to the third quarter of 2015. The interest rate paid on trust preferred securities during the third quarter of 2016 increased 40 basis points as compared to the same period in 2015. The Company’s net interest margin for the three months ended September 30, 2016 and 2015 was 4.06% and 4.13%, respectively.

Provision for loan losses totaled $0 for the three months ended September 30, 2016, compared to $400 for the same period in 2015.

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

	Three months ended September 30,
	2016		2015
Service charges	$	1,194	$	1,262
Net gain on sale of securities		18		(5	)
Net gain on sale of loans		541		269
ATM fees		541		520
Wealth Management fees		688		659
Bank owned life insurance		149		116
Other		522		255
Total noninterest income	$	3,653	$	3,076

Noninterest income for the three months ended September 30, 2016 was $3,653, an increase of $577 or 18.8% from $3,076 for the same period of 2015. The primary reasons for the increase follow.

Gain on the sale of loans increased $272 or 101.1% during the third quarter of 2016 compared to the same period of 2015. The volume of loans sold during the third quarter of 2016 was $22,694, up $7,439 or 48.8% as compared to the same period in 2015. In addition, the premium on loans sold increased during the third quarter of 2016 as compared to the same period in 2015.

BOLI increased $33 or 28.4% during the third quarter of 2016 compared to the same period in 2015. The increase is due to additional insurance purchases in the second quarter of 2016.

Other income increased $267 during the third quarter of 2016 compared to the same period of 2015. The increase is due to an increase in swap related income during the third quarter of 2016 as compared to the same period in 2015.

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 expenses for the three-month periods ended September 30, 2016 and 2015 were as follows:

	Three months ended September 30,
	2016		2015
Salaries, Wages and benefits	$	6,375	$	6,025
Net occupancy expense		708		595
Equipment expense		494		303
Contracted data processing		397		399
FDIC assessment		166		192
State franchise tax		251		205
Professional services		431		597
Amortization of intangible assets		172		189
ATM expense		183		119
Marketing		249		298
Other		1,769		1,744
Total noninterest expense	$	11,195	$	10,666

Total noninterest expense for the three months ended September 30, 2016 was $11,195, an increase of $529, or 5.0%, from $10,666 reported for the same period of 2015. The primary reasons for the increase follow.

Salary and other employee costs were $6,375, up $350 or 5.8% as compared to the same period of 2015. These increases are mainly due to annual pay increases and higher employee insurance costs.

Net occupancy and equipment costs were $1,202, up $304 or 33.9% compared to the same period in 2015. The increase is due to increases in building and equipment repair and maintenance. Building and equipment repair and maintenance expenses increased due to facility and technology improvement projects funded during the third quarter of 2016.

Professional services costs decreased $166, or 27.8% from the same period of 2015. The quarter-over-quarter decrease was mainly attributable to the increased professional services costs incurred in 2015 in connection with legal expenses related to the Company’s filing of aForm S-3 shelf registration statement with the SEC and matters related to the Special Meeting of Shareholders held on November 4, 2015 for the purpose of voting to eliminate preemptive rights and cumulative voting in the election of directors.

ATM costs were $183, up $64 or 53.8% compared to the same period in 2015. The increase is due to the expiration of vendor credits that began in the second quarter of 2015.

Income tax expense for the three months ended September 30, 2016 totaled $1,304, up $145 compared to the same period in 2015. The effective tax rates for the three-month periods ended September 30, 2016 and September 30, 2015 were 26.2% 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.

Page 65

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 $138,309 at September 30, 2016 compared to $125,173 at December 31, 2015. The increase in shareholders’ equity resulted primarily from net income of $13,586, a $165 net decrease in the Company’s pension liability and an increase in the fair value of securities available for sale, net of tax, of $1,501, which was offset by dividends on preferred stock and common stock of $1,156 and $1,259, respectively.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of September 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 - September 30, 2016		14.1	%		12.8	%		8.3	%		10.4	%
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 and paid a cash dividend of $0.06 per common share on August 1, 2016. In 2015, the Company paid a cash dividend of $0.05 per common share on February 1, May 1 and August 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 June 15, 2016 and approximately $374 on September 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 each on June 16, 2015 and September 15, 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 $8,710, or 4.3% of the total security portfolio at September 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.

As reported in the Condensed Consolidated Statements of Cash Flows, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $11,318 and $14,375 for the nine months ended September 30, 2016 and 2015, respectively. These amounts differ from net income due to a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash used for investing activities was $53,828 and $14,704 for the nine months ended September 30, 2016 and 2015, respectively, principally

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)

reflecting our loan and investment security activities. Deposit and borrowing cash flows have comprised most of our financing activities, which resulted in net cash provided by of $40,178 and $4,090 for the nine months ended September 30, 2016 and 2015, respectively.

Future loan demand of Civista may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $42,500. As of September 30, 2016, Civista had total credit availability with the FHLB of $144,239, with standby letters of credit totaling $19,600 and a remaining borrowing capacity of approximately $89,639. In addition, CBI maintains a credit line totaling $7,500.

Page 67

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 68

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 September 30, 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 September 30, 2016 and December 31, 2015.

The Company had derivative financial instruments as of December 31, 2015 and September 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 69

Civista Bancshares, Inc.

Quantitative and Qualitative Disclosures About Market Risk

Form 10-Q

(Amounts in thousands, except share data)

Net Portfolio Value
	September 30, 2016							December 31, 2015
Change in Rates	Dollar Amount		Dollar Change		Percent Change			Dollar Amount		Dollar Change		Percent Change
+200bp		210,536		35,311		20	%		188,643		25,222		15	%
+100bp		197,697		22,472		13	%		180,892		17,471		11	%
Base		175,225		—		—			163,421		—		—
-100bp		181,941		6,716		4	%		163,804		383		0	%

The change in net portfolio value from December 31, 2015 to September 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. The growth in loans, and to a lesser extent, securities, compared to the end of the year, contributed to the base being higher. The change in asset mix related to loans tends to increase volatility. 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 70

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 onForm 10-Q. Based upon that evaluation, our principal executive and our principal financial officers concluded that our disclosure controls and procedures as of September 30, 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.

Page 71

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

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 September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015; (ii) Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2016; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three and nine months ended September 30, 2016 and 2015; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited)

Page 72

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

Page 73

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 onForm 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 onForm 10-K for the year ended December 31, 2008, filed on March 16, 2015 and incorporated herein by reference. (File No. 0-25980)
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 onForm 10-Q for the quarterly period ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of September 30, 2016 and December 31, 2015; (ii) Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015; (iv) Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2016; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the three and nine months ended September 30, 2016 and 2015; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited).	Included herewith

Page 74