Civista Bancshares, Inc. Annual Report 2017

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FY2017 Annual Report · Civista Bancshares, Inc.

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FIVE YEAR CONDENSED CONSOLIDATED
FINANCIAL SUMMARY

Earnings

Net Income (000)

2017

2016

2015

2014

2013

$15,872

$17,217

$12,745

$9,528

$6,179

Preferred stock dividends (000)

($1,244)

($1,501)

($1,577)

$(1,873)

$(1,159)

Net Income available to

common shareholders (000)

$14,628

$15,716

$11,168

$7,655

$5,020

Per Common Share Earnings

Available to common shareholders

Basic

Diluted

Book Value

Dividends Paid

Balances

Assets (millions)

Deposits (millions)

Net Loans (millions)

$1.48

$1.28

$1.96

$1.57

$1.43

$1.17

$0.99

$0.85

$0.65

$0.64

$16.39

$14.22

$13.12

$12.04

$10.65

$0.25

$0.22

$0.20

$0.19

$0.15

$1,525.9

$1,377.3

$1,315.0

$1,213.2

$1,167.5

$1,204.9

$1,121.1

$1,052.0

$968.9

$942.5

$1,151.5

$1,042.2

$987.2

$900.6

$844.7

Shareholders’ Equity (millions)

$184.5

$137.6

$125.2

$115.9

$128.4

Performance Ratios

Return on Average Assets

Return on Average Equity

Equity Capital Ratio

1.04%

9.19%

1.19%

0.95%

12.90%

10.59%

12.09%

9.99%

9.52%

0.77%

8.34%

9.55%

0.53%

5.97%

11.00%

Net Loans to Deposit Ratio

95.57%

92.96%

93.84%

92.95%

89.63%

Loss Allowance to Total Loans

1.13%

1.26%

1.43%

1.56%

1.92%

OUR MISSION:
To be the community’s trusted financial advisor by developing generations of life-long relationships

built on trust, expertise and exceptional service for all the financial needs of our customers.

Dear Shareholders:

2017 was another successful year for the bank. We completed a number of projects including the opening
of a new loan production office in Westlake, Ohio, the completion of a $32.8 million capital offering, and
the hiring of a Chief Customer Experience Officer. These items will continue to help us grow the bank,
with a continued focus on the customer.

We also continue to explore product and banking enhancements that will attract new clientele and improve
the overall banking experience for our customers. We have invested in technology to improve not only
our efficiency but to meet the demands of our customers and the changing ways in which they bank with
us. We improved the convenience of our mobile banking app by rolling out products such as mobile
payments and Touch ID, and we introduced Civista FraudEYE and EMV chip cards which provide greater
security to the cards that we offer to our clients. We are also currently piloting Branch Anywhere, an
electronic tablet product that will allow us to open deposit accounts offsite.

Civista believes in investing in the communities that we serve. In 2017, our employees were involved in
hundreds of organizations volunteering their time at local churches, schools, sporting events and civic
organizations. Civista and its employees donated over $127,000 to 23 different United Way organizations
throughout the state of Ohio and was named a Pacesetter for the United Way campaign in Erie County.
Each year we hold a Volunteer Day – in 2017 Civista employees donated more than 400 hours of their time
working and helping out 20 organizations throughout our footprint.

We are proud of our accomplishments in 2017 and, while bottom-line results were slightly less than in
2016, we are very pleased with the operational results of the company.

Performance for 2017
Net income available to common shareholders was $14,628,000 compared to $15,716,000. This equates
to $1.28 diluted earnings per share for 2017 compared to $1.57 diluted earnings per share in 2016. There
are two items to keep in mind that complicate a year to year comparison. In 2016 we enjoyed a $919,000
recovery of interest income and a $1,300,000 loan loss recovery. In 2017 common shares outstanding
increased approximately 1,600,000 as a result of our $32.8 million capital offering in February. For a
different view of our 2017 performance, let’s examine the components of earnings.

Our loans at year end 2017 totaled $1,164,661,000, a 10.3% increase from $1,055,506,000 at year end 2016.
In 2017 our loans, plus approximately $245,309,000 in investment securities, generated $58,594,000 in
interest income. This compares to $53,567,000 for the year 2016. As result of all our efforts in solid loan
growth, this is an increase in interest income of 9.4%.

To fund our loan growth, we gather deposits which totaled $1,204,923,000 at year end 2017 compared to
$1,121,103,000 at year end 2016. This was an increase of $83,820,000 or 7.5%. While we enjoyed an
increase of $16,376,000 in noninterest bearing deposit growth, the greater growth was in interest bearing
deposits. The funding costs in 2017 were $4,092,000, compared to $3,308,000 in 2016, an increase of
23.7%.

The result was net interest income of $54,502,000 for 2017 compared to $50,259,000 for 2016. This
resultant net interest income translates into an interest margin of 4.01% for 2017 compared to 3.93% for
the year 2016. The median interest margin for companies our size in the Midwest was 3.37% at the end
of the third quarter (last available information). We are very pleased at the comparison of this peer rate of
3.37% to our year end 4.01%. The positive margin difference of 64 basis points multiplied times
approximately $1,400,000,000 in loans and investments is significant. The result supports our operating
philosophy of how we gather deposits and put those deposits to work in lending.

Noninterest income for 2017 totaled $16,334,000. This was a modest increase of $202,000 from the prior
year. Within that total, wealth management fees showed the largest revenue increase of $390,000 or
14.6%. At the end of the third quarter (last comparative information available) our noninterest income to
average assets at the bank was 1.11% compared to the State of Ohio average of 0.89%. While we are
pleased with our level of noninterest income, we believe there are continued revenue opportunities in our
markets through cash management services and wealth management services.

Noninterest expenses for 2017 were $48,604,000. Total noninterest expense increased $4,749,000 from
the total in 2016. The driving categories was compensation expense and professional services.
Compensation expense increases were made up of several items – first was the addition of lending and
lending support staff. The hiring of skilled lenders with existing relationships contributed nicely to our
loan growth for 2017. Other items included base increases in 2017, increases in health care costs, and
legacy pension expense.

The last component in the bottom-line calculation is provision for loan loss. For 2017 we did not expense
a provision. We perform an extensive exercise in examining the adequacy of our loss reserve. We believe
we are adequately reserved at year end with $13,134,000 in our reserve.

Our Common Stock Offering
Through the years we believe we have been very efficient in putting our capital to work through growth.
One measure of this is our tangible common equity to tangible assets. At year end 2012 this was
approximately 5%. Coming out of the recession the expectations of the marketplace was for a higher ratio
of tangible common equity. We made the conscious decision to bide our time on raising capital until it
would be more advantageous to our existing shareholders. By the end of 2016, the value of our stock
allowed for the consideration of an offering. Having laid the groundwork over a number of years and by
having performed to expectation, we were able to raise approximately $32,800,000. These capital dollars
will be utilized to support general growth in the company both organically and through acquisition. We
firmly believe there will be acquisition opportunities to examine. Of the 186 banks (at 9/30/17) in the State
of Ohio, 125 are under $300,000,000 in size. Cost of regulation, cost of technology, attraction of
management, and greater competition for customers should result in many in this group looking hard at
their futures.

Your Investment in Civista
One of our goals is solid disciplined growth in the company. Disciplined growth will lead to performance
and consistent performance will lead to shareholder reward. Shareholder reward can be measured in many
ways – be it in dividends, stock performance, and stock liquidity.

Shareholder dividends is a balance between immediate shareholder reward in the form of cash payment and
retention of earnings for growth. Striking a balance between the level of dividend versus retention for
growth, the earnings retained provide increased capital support for an increasing company size and lending
which, in turn, will increase net interest income and performance of the company.

Examining the value performance of your stock from December 2014 to December 2017, your stock has
had a price increase of 114.0% compared to the KBW NASDAQ bank index of 43.7%. For a shorter view
of this value – our stock closing price for the end of February 2016 was $9.80. In February 2017, around
the time of our common stock offering, this closing price had increased to $21.93. We believe this is the
markets’ reflection of our performance and disciplined execution of growth plans.

An additional benefit of market performance, which allowed a successful common stock offering, is
increased liquidity of our stock. In February 2016 we traded 164,800 shares of CIVB stock. This number
increased to 1,183,000 in February 2017. We believe this reflects the attractiveness of our stock in the
market and provides much greater liquidity to buy or sell the stock.

2018 and Beyond
We have positioned ourselves for the future. We have assembled a management team with broad
capabilities. We have assembled a lending and customer service team that can provide first class services
to our customers. We continue to serve our legacy markets in Erie, Huron, Crawford, Richland and
Champaign counties gathering deposits and generating consumer and commercial loans. We have
strategically located branches and loan production offices in robust markets to take full advantage of the
continuing economic recovery. We have a presence in Cleveland, Columbus, Dayton and Akron. As
noted previously, we believe there is continued opportunity for both organic growth and acquisition growth
in banking. There is a strong place for “hands on” personal service that Civista can provide its customers.

As always, please read your proxy and vote your shares in your company. We hope to see you at the
annual meeting.

Very truly yours,

James O. Miller
Chairman

Dennis G. Shaffer
CEO and President

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ANNUAL REPORT

CONTENTS

Five –Year Selected Consolidated Financial Data ................................................................................................

Common Shares and Shareholder Matters ............................................................................................................

General Development of Business ........................................................................................................................

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

Quantitative and Qualitative Disclosures about Market Risk ...............................................................................
Financial Statements

Management’s Report on Internal Control over Financial Reporting ...........................................................
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Statements ...
Report of Independent Registered Public Accounting Firm on Financial Statements ..................................
Consolidated Balance Sheets ........................................................................................................................
Consolidated Statements of Operations ........................................................................................................
Consolidated Comprehensive Income Statements ........................................................................................
Consolidated Statements of Changes in Shareholders’ Equity .....................................................................
Consolidated Statements of Cash Flow ........................................................................................................
Notes to Consolidated Financial Statements .................................................................................................

23
24
25
26
27
28
29
30
33

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Five-Year Selected Consolidated Financial Data
(Amounts in thousands, except per share data)

2017

Year ended December 31,
2015

2016

2014

2013

Statements of income:

Total interest and dividend income ................. $
Total interest expense ......................................
Net interest income ....................................
Provision (credit) for loan losses .....................

Net interest income after provision for
loan losses .............................................
Security gains/(losses) .....................................
Other noninterest income ................................
Total noninterest income ...........................
Total noninterest expense ..........................
Income before federal income taxes ................
Federal income tax expense ............................
Net income ................................................. $

Preferred share dividends and discount
accretion .....................................................

Net income available to common
shareholders .......................................... $

58,594 $
4,092
54,502
—

54,502
12
16,322
16,334
48,604
22,232
6,360
15,872 $

53,567 $
3,308
50,259
(1,300)

51,559
19
16,113
16,132
43,855
23,836
6,619
17,217 $

50,701 $
3,309
47,392
1,200

46,192
(18)
14,296
14,278
42,944
17,526
4,781
12,745 $

45,970 $
4,104
41,866
1,500

40,366
113
13,761
13,874
41,550
12,690
3,162
9,528 $

44,881
4,907
39,974
1,100

38,874
204
11,858
12,062
43,384
7,552
1,373
6,179

1,244

1,501

1,577

1,873

1,159

14,628 $

15,716 $

11,168 $

7,655 $

5,020

Per common share earnings:

Available to common shareholders (basic) .....
Available to common shareholders (diluted) ..
Dividends ........................................................
Book value ......................................................

1.48
1.28
0.25
16.39

1.96
1.57
0.22
14.22

1.43
1.17
0.20
13.12

0.99
0.85
0.19
12.04

0.65
0.64
0.15
10.65

Average common shares outstanding:

Basic ................................................................ 9,906,856 8,010,399 7,822,369 7,707,917 7,707,917
Diluted ............................................................. 12,352,616 10,950,961 10,918,335 10,904,848 7,821,780

Year-end balances:

900,589 $ 844,713
Loans, net ........................................................ $ 1,151,527 $ 1,042,201 $
Securities .........................................................
215,037
210,491
209,919
245,309
Total assets ...................................................... 1,525,857 1,377,263 1,315,041 1,213,191 1,167,546
942,475
Deposits ........................................................... 1,204,923 1,121,103 1,052,033
87,206
125,667
Borrowings ......................................................
128,376
125,173
Shareholders’ equity ........................................

968,918
116,240
115,909

987,166 $
209,701

106,852
137,616

123,082
184,461

Average balances:

858,532 $ 800,063
Loans, net ........................................................ $ 1,095,956 $ 1,011,683 $
216,848
214,123
213,496
234,249
Securities .........................................................
Total assets ...................................................... 1,526,387 1,441,717 1,336,645 1,234,406 1,172,819
965,370
Deposits ........................................................... 1,236,663 1,210,283 1,107,445 1,026,093
Borrowings ......................................................
89,496
83,058
103,563
114,266
Shareholders’ equity ........................................

966,786 $
211,436

95,132
120,350

79,391
133,445

101,880
172,763

See accompanying notes to consolidated financial statements

Five-Year Selected Ratios

Net interest margin ..................................................
Return on average total assets ..................................
Return on average shareholders’ equity ...................
Dividend payout ratio ..............................................
Average shareholders’ equity as a percent of
average total assets ..............................................
Net loan charge-offs (recoveries) as a percent of
average total loans ..............................................
Allowance for loan losses as a percent of loans at
year-end ..............................................................
Shareholders’ equity as a percent of total year-end
assets ...................................................................

Stockholder Return Performance

2017

4.01%
1.04
9.19
16.89

Year ended December 31,
2015

2014

2016

3.93%
1.19
12.90
11.22

3.96%
0.95
10.59
13.99

3.79 %
0.77
8.34
19.19

2013

3.79%
0.53
5.97
23.08

11.32

9.26

9.00

9.26

8.83

0.02

(0.02)

0.11

0.43

0.53

1.13

1.26

1.43

1.56

1.92

12.09

9.99

9.52

9.55

11.00

Set forth below is a line graph comparing the five-year cumulative return of the common shares of Civista Bancshares,
Inc. (ticker symbol CIVB), based on an initial investment of $100 on December 31, 2012 and assuming reinvestment
of dividends, with the cumulative return of the Standard & Poor’s 500 Index, the NASDAQ Bank Index and the SNL
Bank Index. The comparative indices were obtained from SNL Securities and NASDAQ.

CIVB

Standard & Poor's 500 Index

SNL Bank Index

NASDAQ Bank

600

500

400

300

200

100

0
0
1
=
e
u
l
a
V
e
v
i
t
a
l
e
R
2
1
0
2
/
1
3
/
2
1

0
2012

2013

2014

2015

2016

2017

Annual Report on Form 10-K

A copy of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission,
will be furnished, free of charge, to shareholders, upon written request to James E. McGookey, Secretary of
Civista Bancshares, Inc., 100 East Water Street, Sandusky, Ohio 44870.

See accompanying notes to consolidated financial statements

2016

Third Quarter
to

Common Shares and Shareholder Matters

The common shares of Civista Bancshares, Inc. (“CBI”) trade on The NASDAQ Capital Market under the symbol
“CIVB”. As of February 16, 2018, there were 10,209,021 common shares outstanding and held by approximately
1,137 shareholders of record (not including the number of persons or entities holding stock in nominee or street name
through various brokerage firms). Information below is the range of sales prices of our common shares for each quarter
for the last two years for trades occurring during normal trading hours as reported on The NASDAQ Capital Market.

2017

$ 18.59

First Quarter
to

Second Quarter
to

$ 23.75 $ 18.82

$ 22.41 $ 18.96

$ 22.73 $ 20.41

Fourth Quarter
to

$ 23.76

$ 9.75

First Quarter
to

Second Quarter
to

$ 13.29 $ 10.20

$ 13.10 $ 12.99

$ 15.16 $ 14.09

Fourth Quarter
to

$ 19.99

Dividends per share declared on common shares by CBI were as follows:

First quarter .................................................................. $
Second quarter .............................................................
Third quarter ................................................................
Fourth quarter ..............................................................
$

0.06 $
0.06
0.06
0.07
0.25 $

0.05
0.05
0.06
0.06
0.22

2017

2016

Information regarding potential restrictions on the payment of dividends can be found in the “Liquidity and Capital
Resources” section of the Management’s Discussion and Analysis and in Note 19 to the Consolidated Financial
Statements.

On February 24, 2017, CBI completed a public offering of 1,610,000 of its common shares at a price of $21.75 per
share. The offering resulted in gross proceeds of approximately $35.0 million and net proceeds of approximately $32.8
million.

On December 19, 2013, CBI completed a public offering of 1,000,000 depositary shares, each representing a 1/40th
ownership interest in a Noncumulative Redeemable Convertible Perpetual Preferred Share, Series B (the “Series B
Preferred Shares”), of CBI. The depositary shares trade on The NASDAQ Capital Market under the symbol “CIVBP.”
The terms of the Series B Preferred Shares provide for the payment of quarterly dividends on the Series B Preferred
Shares (and, therefore, the depositary shares) at the rate of 6.50% per annum of the liquidation preference of $1,000
per Series B Preferred Share (or $25.00 per depositary share). Dividends are noncumulative and are payable if, when
and as declared by the board of directors. However, no dividends may be declared or paid on the common shares of
CBI during any calendar quarter unless full dividends on the Series B Preferred Shares (and, therefore, the depositary
shares) have been declared for that quarter and all dividends previously declared on the Series B Preferred Shares
(and, therefore, the depositary shares) have been paid in full. As of February 16, 2018, a total of 747,083 depository
shares were outstanding.

General Development of Business
(Amounts in thousands)

CBI was organized under the laws of the State of Ohio on February 19, 1987 and is a registered financial holding
company under the Gramm-Leach-Bliley Financial Modernization Act of 1999, as amended. CBI and its subsidiaries
are sometimes referred to together as the Company. The Company’s office is located at 100 East Water Street,
Sandusky, Ohio. The Company had total consolidated assets of $1,525,857 at December 31, 2017.

CIVISTA BANK (“Civista”), owned by the Company since 1987, opened for business in 1884 as The Citizens
National Bank. In 1898, Civista was reorganized under Ohio banking law and was known as The Citizens Bank and

See accompanying notes to consolidated financial statements

Trust Company. In 1908, Civista surrendered its trust charter and began operation as The Citizens Banking Company.
The name Civista Bank was introduced during the first quarter of 2015 to solidify our dual Citizens/Champaign brand
and distinguish ourselves from the many other banks using the “Citizens” name in our existing and prospective
markets. Civista maintains its main office at 100 East Water Street, Sandusky, Ohio and operates branch banking
offices in the following Ohio communities: Sandusky (2), Norwalk (2), Berlin Heights, Huron, Port Clinton, Castalia,
New Washington, Shelby (2), Willard, Greenwich, Plymouth, Shiloh, Akron, Dublin, Plain City, Russells Point,
Urbana (2), West Liberty, Quincy and Dayton(3). Civista also operates loan production offices in Mayfield Heights
and Westlake, Ohio. Civista accounted for 99.6% of the Company’s consolidated assets at December 31, 2017.

FIRST CITIZENS INSURANCE AGENCY INC. (“FCIA”) was formed to allow the Company to participate in
commission revenue generated through its third party insurance agreement. Assets of FCIA were less than one percent
of the Company’s consolidated assets as of December 31, 2017.

WATER STREET PROPERTIES, INC. (“WSP”) was formed to hold properties repossessed by CBI subsidiaries.
WSP accounted for less than one percent of the Company’s consolidated assets as of December 31, 2017.

FC REFUND SOLUTIONS, INC. (“FCRS”) was formed during 2012 and remained inactive for the periods presented.

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.

FIRST CITIZENS CAPITAL LLC (“FCC”) is wholly-owned by Civista and holds inter-company debt that is
eliminated in consolidation. The operations of FCC are located in Wilmington, Delaware.

CIVB RISK MANAGEMENT, INC. (“CRMI”) is a wholly-owned captive insurance company formed in 2017 which
insures against certain risks unique to the operations of the Company and its subsidiaries and for which insurance may
not be currently available or economically feasible in today's insurance marketplace. Assets of CRMI were less than
one percent of the Company’s consolidated assets as of December 31, 2017.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—As of December 31,
2017 and December 31, 2016 and for the Years Ended December 31, 2017, 2016 and 2015
(Amounts in thousands, except per share data)

General

The following paragraphs more fully discuss the significant highlights, changes and trends as they relate to the
Company’s financial condition, results of operations, liquidity and capital resources as of December 31, 2017 and
2016, and during the three-year period ended December 31, 2017. This discussion should be read in conjunction with
the Consolidated Financial Statements and Notes to the Consolidated Financial Statements, which are included
elsewhere in this report.

Forward-Looking Statements

This report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), relating to such matters as financial condition, anticipated operating results, cash flows, business
line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates)
and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future
results or events. These statements are generally identified by the use of forward-looking words or phrases such as
“believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,”
“will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and
are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and
could cause our actual results, performance or achievements to differ materially from those expressed in or implied
by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from
those discussed in the forward-looking statements include, but are not limited to, changes in financial markets or

See accompanying notes to consolidated financial statements

national or local economic conditions; adverse changes 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 FDIC insurance premiums and assessments; changes in tax laws; accounting changes;
unexpected losses of key management; failure, interruptions or breach of security of our communications and
information systems; unforeseen litigation; increased competition in our market area; failures to manage growth and/or
effectively integrate acquisitions; future revenues of our tax refund program; and other risks identified from time-to-
time in the Company’s other public documents on file with the Securities and Exchange Commission.

The forward-looking statements included in this report are only made as of the date of this report, and we disclaim
any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except
as required by law.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements, and the
purpose of this section is to secure the use of the safe harbor provisions.

Financial Condition

At December 31, 2017, the Company’s total assets were $1,525,857, compared to $1,377,263 at December 31, 2016.
The increase in assets is primarily the result of growth in securities available for sale and the loan portfolio during
2017. Factors contributing to the change in assets are discussed in the following sections.

At $1,151,527, net loans increased from December 31, 2016 by 10.5%. Commercial & Agriculture, Commercial Real
Estate – Owner Occupied, Commercial Real Estate—Non-Owner Occupied, Residential Real Estate and Real Estate
Construction loans increased $17,011, $2,735, $29,692, $21,427 and $41,238, respectively, since December 31, 2016,
while Farm Real Estate and Consumer and other loans decreased $1,709 and $1,239, respectively, since December 31,
2016.

Securities available for sale increased by $35,198, or 18.0%, from $195,864 at December 31, 2016 to $231,062 at
December 31, 2017. U.S. Treasury securities and obligations of U.S. government agencies decreased $7,089, from
$37,446 at December 31, 2016 to $30,357 at December 31, 2017. Obligations of states and political subdivisions
available for sale increased by $23,058 from 2016 to 2017. Mortgage-backed securities increased by $19,175 to total
$81,817 at December 31, 2017. The Company continues to utilize letters of credit from the Federal Home Loan Bank
(FHLB) to replace maturing securities that were pledged for public entities. As of December 31, 2017, the Company
was in compliance with all pledging requirements.

Mortgage-backed securities totaled $81,817 at December 31, 2017 and none were considered unusual or “high risk”
securities as defined by regulatory authorities. Of this total, $77,538 consisted of pass-through securities issued by the
Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and
Government National Mortgage Association (“GNMA”), and $4,279 of these securities were collateralized by
mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA. The average interest rate of the
mortgage-backed portfolio at December 31, 2017 was 2.9%. The average maturity at December 31, 2017 was
approximately 5.3 years. The Company has not invested in any derivative securities.

Securities available for sale had a fair value at December 31, 2017 of $231,062. This fair value includes unrealized
gains of approximately $5,085 and unrealized losses of approximately $1,054. Net unrealized gains totaled $4,031 on
December 31, 2017 compared to net unrealized gains of $3,044 on December 31, 2016. The change in unrealized
gains is primarily due to changes in market interest rates. Note 3 to the Consolidated Financial Statements provides
additional information on unrealized gains and losses.

Premises and equipment, net of accumulated depreciation, decreased $309 from December 31, 2016 to December 31,
2017. The decrease is attributed to new purchases of $1,015, offset by disposals, net of gains of $72, depreciation of
$1,249, and the transfer of $3 of assets to premises and equipment held for sale.

Bank owned life insurance (BOLI) increased $573 from December 31, 2016 to December 31, 2017. The difference is
the result of increases in the cash surrender value of the underlying insurance policies.

See accompanying notes to consolidated financial statements

Year-end deposit balances totaled $1,204,923 in 2017 compared to $1,121,103 in 2016, an increase of $83,820, or
7.5%. Overall, the increase in deposits at December 31, 2017 compared to December 31, 2016 included increases in
noninterest bearing demand deposits of $16,376, or 4.7%, statement and passbook savings accounts of $51,047, or
13.3%, certificate of deposit accounts of $18,298, or 10.0%, offset in part by declines in interest bearing demand
accounts of $79, or 0.0% and individual retirement accounts of $1,822, or 7.3%. Average deposit balances for 2017
were $1,236,663 compared to $1,210,283 for 2016, an increase of 2.2%. Noninterest bearing deposits averaged
$450,648 for 2017, compared to $434,601 for 2016, increasing $16,047, or 3.7%. Savings, NOW, and MMDA
accounts averaged $585,218 for 2017 compared to $566,589 for 2016. Average certificates of deposit decreased
$8,296 to total an average balance of $200,797 for 2017.

Borrowings from the FHLB of Cincinnati were $71,900 at December 31, 2017. The detail of these borrowings can be
found in Note 10 and Note 11 to the Consolidated Financial Statements. The balance increased $23,400 from $48,500
at year-end 2016. The increase is due to an increase in overnight funds of $25,900. In addition, on January 11, 2017,
an FHLB advance in the amount of $2,500 matured. This advance had terms of one hundred and twenty months with
a fixed rate of 4.25%. The advance was not replaced.

Civista offers repurchase agreements in the form of sweep accounts to commercial checking account customers. These
repurchase agreements totaled $21,755 at December 31, 2017 compared to $28,925 at December 31, 2016. U.S.
Treasury securities and obligations of U.S. government agencies maintained under Civista’s control are pledged as
collateral for the repurchase agreements. The detail related to these repurchase agreements can be found in Note 12 to
the Consolidated Financial Statements.

Total shareholders’ equity increased $46,845, or 34.0%, during 2017 to $184,461. The increase in shareholders’ equity
resulted primarily from the completion of the Company’s public offering of its common shares on February 24, 2017,
which resulted in net proceeds of $32,821. Shareholders’ equity was also positively impacted by net income of
$15,872, a decrease in the Company’s pension liability, net of tax, of $800, an increase in the fair value of securities
available for sale, net of tax, of $612 and offset by dividends on preferred shares and common shares of $1,244 and
$2,438, respectively. Additionally, $426 was recognized as stock-based compensation in connection with the grant of
restricted common shares. For further explanation of these items, see Note 1, Note 15 and Note 16 to the Consolidated
Financial Statements. The Company paid $0.25 per common share in dividends in 2017 compared to $0.22 per
common share in dividends in 2016. Total outstanding common shares at December 31, 2017 were 10,198,475. Total
outstanding common shares at December 31, 2016 were 8,343,509. The increase in common shares outstanding is the
result of the Company’s public offering of 1,610,000 common shares completed on February 24, 2017, the conversion
of 1,721 of the Company’s previously issued preferred shares into 220,108 common shares, the grant of 17,898
restricted common shares to certain officers under the Company’s 2014 Incentive Plan, the grant of 7,171 common
shares to directors of the Company as a retainer for their service and the retirement of 211 common shares on
September 22, 2017. The ratio of total shareholders’ equity to total assets was 12.1% and 9.9%, at December 31, 2017
and 2016, respectively.

Results of Operations

The operating results of the Company are affected by general economic conditions, the monetary and fiscal policies
of federal agencies and the regulatory policies of agencies that regulate financial institutions. The Company’s cost of
funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities
are influenced by the demand for real estate loans and other types of loans, which in turn is affected by the interest
rates at which such loans are made, general economic conditions and the availability of funds for lending activities.

The Company’s net income primarily depends on its net interest income, which is the difference between the interest
income earned on interest-earning assets, such as loans and securities, and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income is dependent on the interest rate
environment and the volume and composition of interest-earning assets and interest-bearing liabilities. Net income is
also affected by provisions for loan losses, service charges, gains on the sale of assets, other non-interest income,
noninterest expense and income taxes.

See accompanying notes to consolidated financial statements

Comparison of Results of Operations for the Years Ended December 31, 2017 and December 31, 2016

Net Income

The Company’s net income for the year ended December 31, 2017 was $15,872, compared to $17,217 for the year
ended December 31, 2016. The change in net income was the result of the items discussed in the following sections.

Net Interest Income

Net interest income for 2017 was $54,502, an increase of $4,243, or 8.4%, from 2016. Average earning assets
increased 6.3% from 2016. Interest income increased $5,027, primarily due to increased loan volume. In addition,
interest expense on interest-bearing liabilities increased $784. The Company continually examines its rate structure to
ensure that its interest rates are competitive and reflective of the current rate environment in which it competes.

Total interest income increased $5,027, or 9.4%, from 2016. The increase was mainly a result of an increase in loan
volume. Average loans increased $83,161 from 2016 to 2017. The yield on the Company’s loan portfolio increased 2
basis points from 2016. The average balance of the securities portfolio for 2017 compared to 2016 increased $20,753.
Interest earned on the securities portfolio, including bank stocks, increased $913 from 2016 to 2017. Average balances
in interest-bearing deposits in other banks decreased in 2017 by $20,366. The decrease in average balance is mainly
due to a decrease in our tax refund processing balances in 2017. The timing of cash inflows and outflows leads to
large, but temporary, fluctuations in cash on deposit.

Total interest expense increased $784 for 2017 compared to 2016. The total average balance of interest-bearing
liabilities increased $32,822 while the average rate increased 7 basis point in 2017. Average interest-bearing deposits
increased $10,333 from 2016 to 2017. While average balances in interest-bearing deposits increased, the average
balance in time deposits declined $8,296 and the rate on time deposits increased approximately 14 basis points, which
caused interest expense on certificates of deposit to increase by $221. Interest expense on FHLB borrowings increased
$290 due to an increase in average balance of $26,019. The average balance in subordinated debentures did not change
from 2016 to 2017, but the rate on these securities increased 52 basis points, resulting in an increase in interest expense
of $151. Repurchase agreements decreased $3,533 in average balance from 2016 to 2017.

Refer to “Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential” and
“Changes in Interest Income and Interest Expense Resulting from Changes in Volume and Changes in Rate” on pages
14 through 16 for further analysis of the impact of changes in interest-bearing assets and liabilities on the Company’s
net interest income.

See accompanying notes to consolidated financial statements

Provision and Allowance for Loan Losses

The following table contains information relating to the provision for loan losses, activity in and analysis of the
allowance for loan losses as of and for each of the three years in the period ended December 31.

As of and for year
ended December 31,
2016

2017

2015
$ 1,107
Net loan charge-offs (recoveries) ....................................................................... $
1,200
Provision (credit) for loan losses charged to expense .........................................
Net loan charge-offs (recoveries) as a percent of average outstanding loans .....
0.11%
Allowance for loan losses ................................................................................... $ 13,134 $ 13,305 $ 14,361
Allowance for loan losses as a percent of year-end outstanding loans ...............
1.43%
Impaired loans, excluding purchase credit impaired loans (PCI) ....................... $ 3,460 $ 6,539 $ 7,354
Impaired loans as a percent of gross year-end loans (1) .....................................
0.73%
Nonaccrual and 90 days or more past due loans, excluding PCI ........................ $ 6,148 $ 6,952 $ 9,259
Nonaccrual and 90 days or more past due loans, excluding
PCI, as a percent of gross year-end loans (1) .................................................

171 $ (244)
— (1,300)

0.02 %

0.53 %

1.13 %

0.30 %

-0.02 %

0.66 %

1.26 %

0.62 %

0.92%

(1) Nonperforming loans and impaired loans are defined differently. Some loans may be included in both categories,
whereas other loans may only be included in one category. A loan is considered nonaccrual if it is maintained
on a cash basis because of deterioration in the borrower’s financial condition, where payment in full of principal
or interest is not expected and where the principal and interest have been in default for 90 days, unless the asset
is both well-secured and in process of collection. A loan is considered impaired when it is probable that all of
the interest and principal due will not be collected according to the terms of the original contractual agreement.

The Company’s policy is to maintain the allowance for loan losses at a level sufficient to provide for probable losses
incurred in the current portfolio. Management believes the analysis of the allowance for loan losses supported a reserve
of $13,134 at December 31, 2017.The Company provides for loan losses through regular provisions to the allowance
for loan losses. The amount of the provision is affected by loan charge-offs, recoveries and changes in specific and
general allocations required for the allowance for loan losses. A number of factors impact the provisions for loan
losses, such as the level of higher risk loans in the portfolio, changes in practices related to loans, changes in collateral
values and other factors. We continue to actively manage this process and have provided to maintain the reserve at a
level that assures adequate coverage ratios.

Provisions (credits) for loan losses totaled $0, ($1,300) and $1,200 in 2017, 2016 and 2015, respectively. No provision
for loan losses was provided during 2017. During 2016, the Company received a payoff on a nonperforming loan.
This particular loan had been analyzed previously and had been charged down based on a deterioration of real estate
collateral values during the recent recession. As a result of the payoff of the loan, the Company recovered the charged-
down amount of approximately $1,303. The result of the transaction was a reversal of $1,300 from the allowance for
loan losses during 2016.

Efforts are continually made to analyze each segment of the loan portfolio and quantify risk to assure that reserves are
appropriate for each segment and the overall portfolio. Management specifically evaluates loans that are impaired,
which includes restructured loans, to estimate potential loss. This analysis includes a review of the loss migration
calculation for all loan categories as well as fluctuations and trends in various risk factors that have occurred within
the portfolios’ economic life cycle. The analysis also includes assessment of qualitative factors such as credit trends,
unemployment trends, vacancy trends and loan growth. The composition and overall level of the loan portfolio and
charge-off activity are also factors used to determine the amount of the allowance for loan losses.

Management analyzes each impaired commercial and commercial real estate loan relationship with a balance of $350
or larger, on an individual basis and when it is in nonaccrual status or when an analysis of the borrower’s operating
results and financial condition indicates that underlying cash flows are not adequate to meet its debt service
requirements. Loans held for sale and leases are excluded from consideration as impaired. Loans are generally moved

See accompanying notes to consolidated financial statements

to nonaccrual status when 90 days or more past due. Impaired loans or portions thereof are charged-off when deemed
uncollectible.

Noninterest Income

Noninterest income increased $202, or 1.3%, to $16,334 for the year ended December 31, 2017, from $16,132 for the
comparable 2016 period. The increase was primarily due to increases in earnings on ATM fees of $210 and wealth
management fees of $390 which were partially offset by decreases in net gain on sale of other real estate owned of
$180 and other income of $156.

ATM fees increased primarily due to an increase in interchange income received during 2017. The wealth management
fee income increase is related to an increase in assets under management as well as market conditions. Assets under
management increased $48.8 million during 2017. Sales of other real estate owned resulted in recognized losses of
$28 on the sale of 6 properties in 2017 compared to gains of $152 on the sale of 9 properties in 2016. Other income
decreased primarily due to a decrease in swap related income.

Noninterest Expense

Noninterest expense increased $4,749, or 10.8%, to $48,604 for the year ended December 31, 2017, from $43,855 for
the comparable 2016 period. The increase was primarily due to increases in compensation expense of $3,930,
contracted data processing expense of $292, state franchise tax of $101, professional services expense of $405, ATM
expenses of $242 and other operating expense of $175 which were partially offset by decreases in FDIC assessments
of $109, amortization of intangible assets of $113 and marketing expense of $112.

Compensation expense increased mainly due to payroll and payroll related expenses resulting from an increase in full
time equivalent (FTE) employees and annual pay increases. FTE employees increased 13, to 347 FTE, as compared
to the same period of 2016. In addition, incentive based costs and employee insurance costs increased. Pension costs
increased due to a pension curtailment incurred upon the retirement of some senior executives. Contracted data
processing increased due to costs incurred to convert to new platform processing software for the wealth management
department. State franchise tax increased due to an increase in the Company’s equity capital. Professional services
expense increased due to recruitment activities, facilities management and professional services to analyze workflow
systems. ATM expense increased due to the expiration of vendor credits in 2016 and ATM card related expenses.
Other operating expense increased due to general increases in components of other operating expenses. The decrease
in FDIC assessments is the result of a new lower assessment rate schedule that became effective in 2016.
Amortization of intangible assets decreased as a result of scheduled amortization of intangible assets associated with
mergers. A general decrease in marketing costs occurred in 2017.

Income Tax Expense

Federal income tax expense was $6,360 in 2017 compared to $6,619 in 2016. Federal income tax expense as a
percentage of pre-tax income was 28.6% in 2017 compared to 27.8% in 2016. A lower federal effective tax rate than
the statutory rate of 35% in 2017 and 2016 is primarily due to tax-exempt interest income from state and municipal
investments, municipal loans, income from BOLI and low income housing credits. Federal income tax expense
decreased in 2017 primarily due to a decrease in pre-tax income. The increase in the effective tax rate in 2017 was
result of a $511 charge to income tax expense as a result of changes in the federal corporate income tax rate from the
Tax Cuts and Jobs Act.

Comparison of Results of Operations for the Years Ended December 31, 2016 and December 31, 2015

Net Income

The Company’s net income for the year ended December 31, 2016 was $17,217, compared to $12,745 for the year
ended December 31, 2015. The change in net income was the result of the items discussed in the following sections.

See accompanying notes to consolidated financial statements

Net Interest Income

Net interest income for 2016 was $50,259, an increase of $2,867, or 6.0%, from 2015. Average earning assets
increased 6.8% from 2015. Although market rates in 2016 remained at record lows, interest income increased $2,866,
primarily due to increased loan volume. In addition, interest expense on interest-bearing liabilities decreased $1. The
Company continually examines its rate structure to ensure that its interest rates are competitive and reflective of the
current rate environment in which it competes.

Total interest income for 2016 increased $2,866, or 5.7%, from 2015. The increase was mainly a result of an increase
in loan volume. Average loans increased $44,433, while the yield on the Company’s loan portfolio increased 3 basis
points from 2015 to 2016. The average balance of the securities portfolio for 2016 compared to 2015 increased $2,060.
Interest earned on the security portfolio, including bank stocks, increased $170 from 2015 to 2016. Average balances
in interest-bearing deposits in other banks increased in 2016 by $37,578 due to additional interest-earning cash on
deposit related to the tax refund processing program in 2016.

Total interest expense decreased $1 for 2016 compared to 2015. The total average balance of interest-bearing liabilities
decreased $7,144 while the average rate increased 1 basis point in 2016. Average interest-bearing deposits increased
$8,597 from 2015 to 2016. While average balances in interest-bearing deposits increased, the average balance in time
deposits declined $14,006 and the rate on time deposits declined approximately 2 basis points, which caused interest
expense on deposits to decrease by $91. Interest expense on FHLB borrowings decreased $37 for 2016 due to a decline
in average balance of $17,470. The average balance in subordinated debentures did not change from 2015 to 2016,
but the rate on these securities increased 42 basis points, resulting in an increase in interest expense of $124.
Repurchase agreements increased $1,681 in average balance from 2015 to 2016.

See accompanying notes to consolidated financial statements

Provision and Allowance for Loan Losses

As of and for year
ended December 31,
2015
2016

1,107
Net loan charge-offs ............................................................................................ $
1,200
Provision for loan losses charged to expense ......................................................
Net loan charge-offs as a percent of average outstanding loans .........................
0.11%
Allowance for loan losses ................................................................................... $ 13,305 $ 14,361
1.43%
Allowance for loan losses as a percent of year-end outstanding loans ...............
7,354
Impaired loans, excluding PCI loans .................................................................. $
0.73%
Impaired loans as a percent of gross year-end loans (1) .....................................
9,259
Nonaccrual and 90 days or more past due loans, excluding PCI ......................... $
Nonaccrual and 90 days or more past due loans, excluding
PCI, as a percent of gross year-end loans (1) .................................................

1.26 %
6,539 $
0.62 %
6,952 $

(244)
(1,300)

-0.02 %

0.66 %

0.92%

The Company’s policy is to maintain the allowance for loan losses at a level sufficient to provide for probable losses
incurred in the current portfolio. Management believes the analysis of the allowance for loan losses supported a reserve
of $13,305 at December 31, 2016. The Company provides for loan losses through regular provisions to the allowance
for loan losses. The amount of the provision is affected by loan charge-offs, recoveries and changes in specific and
general allocations required for the allowance for loan losses. A number of factors impact the provisions for loan
losses, such as the level of higher risk loans in the portfolio, changes in practices related to loans, changes in collateral
values and other factors. We continue to actively manage this process and have provided to maintain the reserve at a
level that assures adequate coverage ratios.

Provisions (credits) for loan losses totaled ($1,300), $1,200 and $1,500 in 2016, 2015 and 2014, respectively. The
Company’s provision for loan losses decreased $2,500 during 2016. During 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 2016, compared to a $1,200 provision to allowance for loan losses
in 2015. The decrease in provision for loan losses in 2016 is related to the decrease in net charge-offs compared to a
year ago.

See accompanying notes to consolidated financial statements

Noninterest Income

Noninterest income increased $1,854, or 13.0%, to $16,132 for the year ended December 31, 2016, from $14,278 for
the comparable 2015 period. The increase was primarily due to increases in earnings on service charges of $124, gain
on sale of loans of $644, tax refund processing fees of $750 and other income of $303 which were partially offset by
decreases in wealth management fees of $145 and net gain on sale of other real estate owned of $47.

Service charges increased in 2016 primarily due to income received related to the Company’s tax refund processing
program. Tax refund processing fees increased in 2016 as a result of an increase in the volume of returns processed.
Gain on sale of loans increased in 2016 due to an increase in volume of loans sold, as well as an increase in the
premium earned. Volume was $69,475, up $19,838 or 40.0% as compared to the same period in 2015, due largely to
favorable market conditions. In addition, the premium on loans sold increased 6 basis points as compared to the same
period in 2015. Other income increased in 2016 primarily due to an increase in swap related income. The decrease in
wealth management fee income is related to a general decrease in brokerage transactions. Sales of other real estate
owned resulted in recognized gains of $152 on the sale of 9 properties in 2016 compared to gains of $199 on the sale
of 17 properties in 2015.

Noninterest Expense

Noninterest expense increased $911, or 2.1%, to $43,855 for the year ended December 31, 2016, from $42,944 for the
comparable 2015 period. The increase was primarily due to increases in compensation expense of $1,693, occupancy
expense of $284 and equipment expense of $138 which were partially offset by decreases in contracted data processing
expense of $275, FDIC assessments of $253, professional services expense of $566 and marketing expense of $110.

Compensation expense increased in 2016 mainly due to annual pay increases, incentive based costs and higher
employee insurance costs, offset by a reduction in pension costs. Occupancy and equipment expenses increased in
2016 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 in 2016 due to facility and technology
improvement projects. Rent and real estate tax expense increased as a result of the Company’s acquisition of TCNB
in 2015. The decrease in contracted data processing costs in 2016 was attributable to the increased core processing
costs incurred in 2015 in connection with the acquisition of TCNB. The decrease in FDIC assessments in 2016 resulted
from a new lower assessment rate schedule that became effective in 2016. The year-over-year decrease in professional
services expense 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. A general decrease in marketing costs occurred in 2016.

Income Tax Expense

Federal income tax expense was $6,619 in 2016 compared to $4,781 in 2015. Federal income tax expense as a
percentage of pre-tax income was 27.8% in 2016 compared to 27.3% in 2015. A lower federal effective tax rate than
the statutory rate of 35% in 2016 and 34% in 2015 is primarily due to tax-exempt interest income from state and
municipal investments, municipal loans, income from BOLI and low income housing credits. Federal income tax
expense increased in 2016 primarily due to an increase in pre-tax income, which also led to the increase in the effective
tax rate in 2016.

See accompanying notes to consolidated financial statements

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See accompanying notes to consolidated financial statements

Distribution of Assets, Liabilities and Shareholders’ Equity;
Interest Rates and Interest Differential

The following table sets forth, for the years ended December 31, 2017, 2016 and 2015, the distribution of assets,
including interest amounts and average rates of major categories of interest-earning assets and interest-bearing
liabilities (Amounts in thousands):

Assets
Interest-earning assets:

Loans (1)(2)(3)(5) ............
Taxable securities (4) .......
Non-taxable
securities (4)(5) ...........
Interest-bearing
deposits in other
banks ...........................

Total interest-
earning assets ........

Noninterest-earning assets:
Cash and due from
financial institutions ....
Premises and
equipment, net .............
Accrued interest
receivable ....................
Intangible assets ...............
Other assets ......................
Bank owned life
insurance .....................
Less allowance for loan
losses ...........................
Total ...........................

2017

2016

2015

Average
balance

Interest

Yield/
rate

Average
balance

Interest

Yield/
rate

Average
balance

Interest

Yield/
rate

$ 1,109,069 $51,198 4.62% $1,025,908 $47,186 4.60% $ 981,475 $ 44,784 4.57%
137,179 3,319 2.47% 139,762 3,232 2.31%
144,685 3,745 2.62%

89,564 3,153 5.50%

76,317 2,666 5.61%

71,674 2,583 5.70%

61,859

498 0.81%

82,225

396 0.48%

44,647

102 0.23%

1,405,177 58,594 4.30% 1,321,629 53,567 4.18% 1,237,558 50,701 4.23%

45,801

18,027

4,697
28,605
12,374

24,819

49,888

17,101

4,432
29,213
10,230

23,449

34,616

16,081

4,476
28,568
10,181

19,854

(13,113 )
$ 1,526,387

(14,225)
$1,441,717

(14,689 )
$ 1,336,645

(1) For purposes of these computations, the daily average loan amounts outstanding are net of unearned income

and include loans held for sale.

(2)

Included in loan interest income are loan fees of $421 in 2017, $537 in 2016 and $542 in 2015.

(3) Non-accrual loans are included in loan totals and do not have a material impact on the analysis presented.

(4) Average balance is computed using the carrying value of securities. The average yield has been computed

using the historical amortized cost average balance for available-for-sale securities.

(5) Yield/Rate is calculated using the tax-equivalent adjustment of 35% for 2017 and 2016 and 34% for 2015.

See accompanying notes to consolidated financial statements

Distribution of Assets, Liabilities and Shareholders’ Equity;
Interest Rates and Interest Differential (Continued)

The following table sets forth, for the years ended December 31, 2017, 2016 and 2015, the distribution of liabilities
and shareholders’ equity, including interest amounts and average rates of major categories of interest-earning assets
and interest-bearing liabilities (Amounts in thousands):

Liabilities and
Shareholders’ Equity
Interest-bearing liabilities:

Savings and
interest-bearing
demand accounts .............
Certificates of deposit ..........
Federal Home Loan Bank
advances ..........................
Securities sold under
repurchase agreements ....
Federal funds purchased ......
Subordinated debentures ......
Total interest-bearing
liabilities ....................

Noninterest-bearing
liabilities:

Demand deposits .................
Other liabilities ....................

Shareholders’ equity ..................
Total ...............................

Net interest income and
interest rate spread (1) ..........
Net interest margin (2) ..............

2017

2016

2015

Average
balance

Interest

Yield/
rate

Average
balance

Interest

Yield/
rate

Average
balance

Interest

Yield/
rate

$ 585,218 $
200,797 1,747 0.87%

595 0.10% $ 566,589 $

422 0.08%
470 0.08% $ 543,986 $
209,093 1,526 0.73% 223,099 1,665 0.75%

54,100

695 1.28%

28,081

405 1.44%

45,551

442 0.97%

18,234
119

18 0.10%
2 1.68%
29,427 1,035 3.52%

21,767
116
29,427

22 0.10%
1 0.86%
884 3.00%

20,086

20 0.10%
68 — 0.00%
760 2.58%

29,427

887,895 4,092 0.46%

855,073 3,308 0.39% 862,217 3,309 0.38%

450,648
15,081
465,729
172,763
$ 1,526,387

434,601
18,598
453,199
133,445
$1,441,717

340,360
13,718
354,078
120,350
$ 1,336,645

$54,502 3.84%
4.01%

$50,259 3.79%
3.93%

$ 47,392 3.84%
3.96%

(1)

Interest rate spread is calculated by subtracting the rate on average interest-bearing liabilities from the yield on
average interest-earning assets.

(2) Net interest margin is calculated by dividing tax-equivalent adjusted net interest income by average interest-

earning assets.

See accompanying notes to consolidated financial statements

Changes in Interest Income and Interest Expense
Resulting from Changes in Volume and Changes in Rate

The following table sets forth, for the periods indicated, a summary of the changes in interest income and interest
expense resulting from changes in volume and changes in rate (Amounts in thousands):

Increase (decrease) due to:

Volume (1) Rate (1)

Net

2017 compared to 2016
Interest income:
Loans .......................................................................... $
Taxable securities .......................................................
Nontaxable securities .................................................
Interest-bearing deposits in other banks .....................
Total interest income .................................................. $
Interest expense:
Savings and interest-bearing demand accounts .......... $
Certificates of deposit ................................................
Federal Home Loan Bank advances ...........................
Securities sold under repurchase agreements .............
Federal funds purchased .............................................
Subordinated debentures ............................................
Total interest expense ................................................. $
Net interest income .................................................... $

2016 compared to 2015
Interest income:
Loans .......................................................................... $
Taxable securities .......................................................
Nontaxable securities .................................................
Interest-bearing deposits in other banks .....................
Total interest income .................................................. $
Interest expense:
Savings and interest-bearing demand accounts .......... $
Certificates of deposit ................................................
Federal Home Loan Bank advances ...........................
Securities sold under repurchase agreements .............
Federal funds purchased .............................................
Subordinated debentures ............................................
Total interest expense ................................................. $
Net interest income .................................................... $

3,838 $
215
541
(116)
4,478 $

16 $
(63)
339
(3)
—
—
289 $
4,189 $

2,041 $
(62)
173
127
2,279 $

18 $
(103)
(206)
2
1
—
(288) $
2,567 $

174 $
211
(54 )
218
549 $

109 $
284
(49 )
(1 )
1
151
495 $
54 $

361 $
149
(90 )
167
587 $

30 $
(36 )
169
—
—
124
287 $
300 $

4,012
426
487
102
5,027

125
221
290
(4 )
1
151
784
4,243

2,402
87
83
294
2,866

48
(139 )
(37 )
2
1
124
(1 )
2,867

(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.

See accompanying notes to consolidated financial statements

Liquidity and Capital Resources

Civista maintains a conservative liquidity position. All securities are classified as available for sale. At December 31,
2017, securities with maturities of one year or less totaled $8,765, or 3.8% of the total security portfolio. The available
for sale portfolio helps to provide Civista with the ability to meet its funding needs. The Consolidated Statements of
Cash Flows contained in the Consolidated Financial Statements detail the Company’s cash flows from operating
activities resulting from net earnings.

Net cash provided by operating activities for 2017, 2016 and 2015 was $20,819, $17,709 and $15,073, respectively.
The primary additions to cash from operating activities are from changes in amortization of intangible assets,
amortization of securities net of accretion, the provision for loan losses, depreciation and proceeds from sale of loans.
In addition, in 2017 additions to cash from operating activities include other, net. The Company had a security that
was purchased but not settled at December 31, 2017. The primary use of cash from operating activities is from loans
originated for sale. Net cash used for investing activities was $146,180, $63,575 and $11,904 in 2017, 2016 and 2015,
respectively, principally reflecting our loan and investment security activities. Deposit, borrowing and net proceeds
from issuances of common shares have comprised most of our financing activities, which resulted in net cash provided
of $129,185, $47,000 and $2,534 for 2017, 2016 and 2015 respectively.

Future loan demand of Civista can 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. As of December 31,
2017, Civista had total credit availability with the FHLB of $366,122 of which $91,500 was outstanding.

On a separate entity basis, CBI’s primary source of funds is dividends paid by its subsidiaries, primarily by Civista.
Generally, subject to applicable minimum capital requirements, Civista may declare a dividend without the approval
of the Federal Reserve Bank of Cleveland and the State of Ohio Department of Commerce, Division of Financial
Institutions, provided the total dividends in a calendar year do not exceed the total of its profits for that year combined
with its retained profits for the two preceding years. At December 31, 2017, Civista was able to pay dividends to CBI
without obtaining regulatory approval. During 2017, Civista did not pay any dividends to CBI.

In addition to the restrictions placed on dividends by banking regulations, CBI is subject to restrictions on the payment
of dividends as a result of CBI’s issuance of 1,000,000 depositary shares, each representing a 1/40th ownership interest
in a Series B Preferred Share, of CBI on December 19, 2013. Under the terms of the Series B Preferred Shares, no
dividends may be declared or paid on the common shares of CBI during any calendar quarter unless full dividends on
the Series B Preferred Shares (and, therefore, the depositary shares) have been declared for that quarter and all
dividends previously declared on the Series B Preferred Shares (and, therefore, the depositary shares) have been paid
in full.

The Company manages its liquidity and capital through quarterly Asset/Liability Management Committee (ALCO)
meetings. The ALCO discusses issues like those in the above paragraphs as well as others that may affect the future
liquidity and capital position of the Company. The ALCO also examines interest rate risk and the effect that changes
in rates will have on the Company. For more information about interest rate risk, please refer to the “Quantitative and
Qualitative Disclosures about Market Risk” section.

Capital Adequacy

Shareholders’ equity totaled $184,461 at December 31, 2017 compared to $137,616 at December 31, 2016. The
increase in shareholders’ equity resulted primarily from the completion of the Company’s public offering of its
common shares on February 24, 2017, which resulted in net proceeds of $32,821. Shareholders’ equity was also
positively impacted by net income of $15,872, which was offset by dividends on preferred shares and common shares
of $1,244 and $2,438, respectively.

See accompanying notes to consolidated financial statements

During the first quarter of 2015, the Company adopted the new BASEL III regulatory capital framework as approved
by the federal banking agencies. In addition to the existing regulatory capital rules, the final BASEL III rules also
require the Company to now maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) Capital to
risk-weighted assets (as these terms are defined in the BASEL III rules). Under the BASEL III rules, the Company
elected to opt-out of including accumulated other comprehensive income in regulatory capital. All of the Company’s
capital ratios exceeded the regulatory minimum guidelines as of December 31, 2017 and 2016 as identified in the
following table:

Company Ratios—December 31, 2017 ....................
Company Ratios—December 31, 2016 ....................
For Capital Adequacy Purposes ...............................
To Be Well Capitalized Under Prompt Corrective
Action Provisions ................................................

Total Risk
Based
Capital

Tier I Risk
Based
Capital

CET1 Risk
Based
Capital

Leverage
Ratio

16.6%
14.2%
8.0%

15.5%
13.0%
6.0%

11.6 %
8.6 %
4.5 %

12.7%
10.6%
4.0%

10.0%

8.0%

6.5 %

5.0%

Common equity for the CET1 risk-based capital ratio includes common stock (plus related surplus) and retained
earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain
regulatory deductions.

Tier 1 capital includes common equity as defined for the CET1 risk-based capital ratio, plus certain non-cumulative
preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that
have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the
form of additional Tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated
debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less applicable
deductions.

The deductions from CET1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-
servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking
organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above
certain levels). The deductions phase in from 2015 through 2019.

Under applicable regulatory guidelines, capital is compared to the relative risk related to the balance sheet. To derive
the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance
sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Some of
the risk weightings were changed effective January 1, 2015.

The new regulatory capital rules and regulations also place restrictions on the payment of capital distributions,
including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a
capital conservation buffer of greater than 2.5 percent composed of CET1 capital above its minimum risk-based capital
requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was
less than 2.5 percent at the beginning of the quarter. The capital conservation buffer phases in starting on January 1,
2016, at 0.625%. The implementation of Basel III is not expected to have a material impact on CBI’s or Civista’
capital ratios.

See accompanying notes to consolidated financial statements

Effects of Inflation

The Company’s balance sheet is typical of financial institutions and reflects a net positive monetary position whereby
monetary assets exceed monetary liabilities. Monetary assets and liabilities are those which can be converted to a fixed
number of dollars and include cash assets, securities, loans, money market instruments, deposits and borrowed funds.

During periods of inflation, a net positive monetary position may result in an overall decline in purchasing power of
an entity. No clear evidence exists of a relationship between the purchasing power of an entity’s net positive monetary
position and its future earnings. Moreover, the Company’s ability to preserve the purchasing power of its net positive
monetary position will be partly influenced by the effectiveness of its asset/liability management program. As part of
the asset/liability management process, management reviews and monitors information and projections on inflation
as published by the Federal Reserve Board and other sources. This information speaks to inflation as determined by
its impact on consumer prices and also the correlation of inflation and interest rates. This information is but one
component in an asset/liability management process designed to limit the impact of inflation on the Company.
Management does not believe that the effect of inflation on its nonmonetary assets (primarily bank premises and
equipment) is material as such assets are not held for resale and significant disposals are not anticipated.

Fair Value of Financial Instruments

The Company has disclosed the fair value of its financial instruments at December 31, 2017 and 2016 in Note 17 to
the Consolidated Financial Statements. The fair value of loans at December 31, 2017 was 99.6% of the carrying value
compared to 100.5% at December 31, 2016. The fair value of deposits at December 31, 2017 was 100.0% of the
carrying value compared to 100.1% at December 31, 2016.

Contractual Obligations

The following table represents significant fixed and determinable contractual obligations of the Company as of
December 31, 2017.

One year
or less

One to
three years

Three to
five years

Over five
years

Total

Contractual Obligations
Deposits without a stated maturity .......................... $ 981,021 $
Certificates of deposit and IRAs .............................. 161,656
FHLB advances, securities sold under
agreements to repurchase and U.S. Treasury
interest-bearing demand note ..............................
Subordinated debentures (1) ....................................
Operating leases .......................................................

88,655
—
571

— $
57,385

— $
4,584

— $ 981,021
277 223,902

5,000
—
705

—
—
— 29,427
—
127

93,655
29,427
1,403

(1) The subordinated debentures consist of $2,000, $2,500, $5,000, $7,500, and $12,500 debentures.

The Company has retail repurchase agreements with clients within its local market areas. These borrowings are
collateralized with securities owned by the Company. See Note 12 to the Consolidated Financial Statements for further
detail. The Company also has a cash management advance line of credit and outstanding letters of credit with the
FHLB. For further discussion, refer to Note 10 and Note 11 to the Consolidated Financial Statements.

See accompanying notes to consolidated financial statements

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 Corporation, adopted a Joint Agency Policy Statement on interest-rate risk, effective June 26, 1996. The
policy statement provides guidance to examiners and bankers on sound practices for managing interest-rate risk, which
will form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions.
The policy statement also outlines fundamental elements of sound management that have been identified in prior
Federal Reserve guidance and discusses the importance of these elements in the context of managing interest-rate risk.
Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a
comprehensive risk-management process that effectively identifies, measures, and controls interest-rate risk. Financial
institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest
an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time.
Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot
adapt to interest-rate changes. For example, assume that an institution’s assets carry intermediate- or long-term fixed
rates and that those assets were funded with short-term liabilities. If market interest rates rise by the time the short-
term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be
sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could
decrease on existing assets because the institution will have either lower net interest income or, possibly, net interest
expense. Similar risks exist when assets are subject to contractual interest-rate ceilings, or rate sensitive assets are
funded by longer-term, fixed-rate liabilities in a decreasing-rate environment.

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

If, alternatively, more liabilities than assets will reprice, the institution is in a liability sensitive position. Accordingly,
net interest income would decline when rates rose and increase when rates fell. Also, these examples assume that
interest rate changes for assets and liabilities are of the same magnitude, whereas actual interest rate changes generally
differ in magnitude for assets and liabilities.

See accompanying notes to consolidated financial statements

Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities
and matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or
securities. 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 refund its obligations at
new, lower rates. The Company does not have significant derivative financial instruments and does not intend to
purchase a significant amount of such instruments in the near future. 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. Also, FHLB advances and wholesale borrowings may be used as
important sources of liquidity for the Company.

The following table provides information about the Company’s financial instruments that are sensitive to changes in
interest rates as of December 31, 2017 and 2016, based on certain prepayment and account decay assumptions that
management believes are reasonable. The Company had derivative financial instruments as of December 31, 2017
and 2016. The changes in fair value of the assets and liabilities of the underlying contracts offset each other. For more
information about derivative financial instruments see Note 24 to the Consolidated Financial Statements. Expected
maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which
the deposits would be outstanding. The Company’s borrowings were tabulated by contractual maturity dates and
without regard to any conversion or repricing dates.

Net Portfolio Value

December 31, 2017
Change in
Dollar
Rates
Change
+200bp ............................................................. $270,928 $ 33,923
+100bp ............................................................. 261,071 24,066
Base ................................................................. 237,005
—
-100bp .............................................................. 223,526 (13,479)

Dollar
Amount

Percent
Change

Dollar
Amount

December 31, 2016
Dollar
Change
14% $229,366 $ 31,559
10% 219,008 21,201
—
—
-6% 186,624 (11,183 )

197,807

Percent
Change
16%
11%
—
-6%

The change in net portfolio value from December 31, 2016 to December 31, 2017, can be attributed to two factors.
While the yield curve has flattened from the end of the year, both the volume and mix of assets and funding sources
has changed. The volume of loans, and to a lesser extent securities, have increased. The funding volume and mix has
shifted toward deposits. The changes in the mix of assets, combined with the changes to liabilities has led to a small
decrease in volatility. The increased volume of loans and securities led to the increase in the base. 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 faster
decrease in the fair value of liabilities, compared to assets. Accordingly we would see an increase in the net portfolio
value. However, a downward change in rates would lead to a decrease in the net portfolio value as the fair value of
liabilities would increase more quickly than the fair value of assets.

Critical Accounting Policies

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

See accompanying notes to consolidated financial statements

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

Note 1 and Note 5 to the Consolidated Financial Statements provide additional information regarding Allowance for
Loan Losses.

Goodwill: The Company performs an evaluation of goodwill for impairment on an annual basis, or more frequently
if events or changes in circumstances indicate that the asset might be impaired. Management performed an evaluation
of the Company’s goodwill during the fourth quarter of 2017. In performing its evaluation, management obtained
several commonly used financial ratios from pending and completed purchase transactions for banks based in the
Midwest. Management used these ratios to determine an implied fair value for the Company. The implied fair value
exceeded the carrying value including goodwill. Therefore management concluded that goodwill was not impaired
and made no adjustment in 2017.

Income Taxes: We determine our liabilities for income taxes based on current tax regulation. In estimating income
taxes payable or receivable, we assess the relative merits and risks of the appropriate tax treatment considering
statutory, judicial, and regulatory guidance in the context of each tax position. Accordingly, previously estimated
liabilities are regularly reevaluated and adjusted through the provision for income taxes. Changes in the estimate of
income taxes payable or receivable occur periodically due to changes in tax rates, interpretations of tax law, the status
of examinations being conducted by various taxing authorities, and newly enacted statutory, judicial and regulatory
guidance that impact the relative merits and risks of each tax position. These changes, when they occur, may affect
the provision for income taxes as well as current and deferred income taxes, and may be significant to our statements
of income and condition. The Tax Cut and Jobs Act, enacted on December 22, 2017, lowered the federal corporate
income tax rate from 35% to 21% effective January 1, 2018.

Management’s determination of the realization of net deferred tax assets is based upon management’s judgment of
various future events and uncertainties, including the timing and amount of future income, as well as the
implementation of various tax planning strategies to maximize realization of the deferred tax assets. A valuation
allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

Other-Than-Temporary Impairment of Investment Securities: The Company performs a quarterly valuation to
determine if a decline in the value of an investment security is other than temporary. Although the term “other than
temporary” is not intended to indicate that the decline is permanent, it does indicate that the prospects for a near-term
recovery of value are not necessarily favorable, or that there is lack of evidence to support fair values equal to or
greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary,
the value of the security is reduced and a corresponding charge to earnings is recognized. Management utilizes criteria
such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine
whether the loss in value is other than temporary.

Pension Benefits: Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These
assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and
other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized
over future periods and, therefore, generally affect recognized expense and the recorded obligation of future periods.
While management believes that the assumptions used are appropriate, differences in actual experience or changes in
assumptions may affect the Company’s pension obligations and future expense. Our pension benefits are described
further in Note 15 of the “Notes to Consolidated Financial Statements.”

See accompanying notes to consolidated financial statements

Management’s Report on Internal Control over Financial Reporting

We, as management of Civista Bancshares, Inc., are responsible for establishing and maintaining effective internal
control over financial reporting that is designed to produce reliable financial statements in conformity with United
States generally accepted accounting principles. The system of internal control over financial reporting as it relates to
the financial statements is evaluated for effectiveness by management and tested for reliability through a program of
internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control,
no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or
overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in
conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control
will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Company’s system of internal control over financial reporting as of December 31, 2017, in
relation to criteria for effective internal control over financial reporting as described in “2013 Internal Control –
Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, management concludes that, as of December 31, 2017, its system of internal control over financial
reporting is effective and meets the criteria of the “2013 Internal Control – Integrated Framework”. S.R. Snodgrass,
P.C., independent registered public accounting firm, has issued an audit report on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2017.

Management is responsible for compliance with the federal and state laws and regulations concerning dividend
restrictions and federal laws and regulations concerning loans to insiders designated by the FDIC as safety and
soundness laws and regulations. Management has assessed compliance by the Company with the designated laws and
regulations relating to safety and soundness. Based on the assessment, management believes that the Company
complied, in all significant respects, with the designated laws and regulations related to safety and soundness for the
year ended December 31, 2017.

Dennis G. Shaffer
President and Chief Executive Officer

Todd A. Michel
Senior Vice President, Controller

Sandusky, Ohio
March 6, 2018

See accompanying notes to consolidated financial statements

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

To the Shareholders and the Board of Directors of Civista Bancshares, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Civista Bancshares, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheet of the Company as of December 31, 2017 and 2016, and the related consolidated
statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2017, of the Company and our report dated March 6, 2018, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting in the accompanying Report on Management’s Assessment of
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Cranberry Township, Pennsylvania
March 6, 2018

See accompanying notes to consolidated financial statements

Report of Independent Registered Public Accounting Firm on Financial Statements

To the Shareholders and the Board of Directors of Civista Bancshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Civista Bancshares, Inc. and subsidiaries (the
“Company”) as of December 31, 2017 and 2016; the related consolidated statements of operations, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31,
2017; and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2017, conformity with accounting principles generally accepted in the United States of
America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013, and our report dated March 6, 2018, expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2009.

Cranberry Township, Pennsylvania
March 6, 2018

See accompanying notes to consolidated financial statements

CIVISTA BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
(Amounts in thousands, except share data)

ASSETS
Cash and due from financial institutions ........................................................... $
Securities available for sale ...............................................................................
Loans held for sale .............................................................................................
Loans, net of allowance of $13,134 and $13,305 ..............................................
Other securities ..................................................................................................
Premises and equipment, net .............................................................................
Accrued interest receivable ................................................................................
Goodwill ............................................................................................................
Other intangible assets .......................................................................................
Bank owned life insurance.................................................................................
Other assets ........................................................................................................

Total assets ........................................................................................ $

LIABILITIES
Deposits

Noninterest-bearing ...................................................................................... $
Interest-bearing ............................................................................................
Total deposits ..........................................................................................
Federal Home Loan Bank advances ..................................................................
Securities sold under agreements to repurchase ................................................
Subordinated debentures ....................................................................................
Accrued expenses and other liabilities ...............................................................
Total liabilities ........................................................................................

SHAREHOLDERS’ EQUITY
Preferred shares, no par value, 200,000 shares authorized Series
B Preferred shares, $1,000 liquidation preference, 18,760 shares issued
at December 31, 2017 and 20,481 shares issued at December 31, 2016,
net of issuance costs ......................................................................................
Common shares, no par value, 20,000,000 shares authorized, 10,946,439
shares issued at December 31, 2017 and 9,091,473 shares issued at
December 31, 2016 .......................................................................................
Accumulated earnings .......................................................................................
Treasury stock, 747,964 common shares at cost ................................................
Accumulated other comprehensive loss ............................................................
Total shareholders’ equity ......................................................................

Total liabilities and shareholders’ equity........................................... $

2017

2016

40,519 $
231,062
2,197
1,151,527
14,247
17,611
4,488
27,095
1,279
25,125
10,707
1,525,857 $

361,964 $
842,959
1,204,923
71,900
21,755
29,427
13,391
1,341,396

36,695
195,864
2,268
1,042,201
14,055
17,920
3,854
27,095
1,784
24,552
10,975
1,377,263

345,588
775,515
1,121,103
48,500
28,925
29,427
11,692
1,239,647

17,358

18,950

153,810
31,652
(17,235 )
(1,124 )
184,461
1,525,857 $

118,975
19,263
(17,235)
(2,337)
137,616
1,377,263

See accompanying notes to consolidated financial statements

CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

2017

2016

2015

Interest and dividend income

Loans, including fees .................................................................................. $
Taxable securities .......................................................................................
Tax-exempt securities .................................................................................
Federal funds sold and other .......................................................................
Total interest and dividend income .......................................................

51,198 $
3,745
3,153
498
58,594

Interest expense

Deposits ......................................................................................................
Federal Home Loan Bank advances ............................................................
Subordinated debentures .............................................................................
Securities sold under agreements to repurchase and other ..........................
Total interest expense ...........................................................................
Net interest income ...............................................................................
Provision (credit) for loan losses .......................................................................
Net interest income after provision (credit) for loan losses ..................

Noninterest income

Service charges ...........................................................................................
Net gain (loss) on sale of securities .............................................................
Net gain on sale of loans .............................................................................
ATM fees ....................................................................................................
Wealth management fees ............................................................................
Bank owned life insurance ..........................................................................
Tax refund processing fees .........................................................................
Computer center item processing fees ........................................................
Net gain (loss) on sale of other real estate owned .......................................
Other ...........................................................................................................
Total noninterest income ......................................................................

Noninterest expense

Compensation expense ...............................................................................
Net occupancy expense ...............................................................................
Equipment expense .....................................................................................
Contracted data processing .........................................................................
FDIC Assessment .......................................................................................
State franchise tax .......................................................................................
Professional services ...................................................................................
Amortization of intangible assets ................................................................
ATM expense .............................................................................................
Marketing expense ......................................................................................
Repossession expense .................................................................................
Other operating expenses ............................................................................
Total noninterest expense .....................................................................
Income before income taxes ..............................................................................
Income taxes .....................................................................................................
Net income ...........................................................................................
Preferred share dividends ..................................................................................
Net income available to common shareholders ................................................. $

Earnings per common share, basic .................................................................... $

Earnings per common share, diluted ................................................................. $

2,342
695
1,035
20
4,092
54,502
—
54,502

4,777
12
1,745
2,304
3,068
573
2,750
246
(28)
887
16,334

29,253
2,689
1,564
1,838
502
1,024
2,300
586
847
817
279
6,905
48,604
22,232
6,360
15,872
1,244
14,628 $

1.48 $

1.28 $

47,186 $
3,319
2,666
396
53,567

1,996
405
884
23
3,308
50,259
(1,300 )
51,559

4,832
19
1,750
2,094
2,678
563
2,750
251
152
1,043
16,132

25,323
2,700
1,641
1,546
611
923
1,895
699
605
929
253
6,730
43,855
23,836
6,619
17,217
1,501
15,716 $

1.96 $

1.57 $

44,784
3,232
2,583
102
50,701

2,087
442
760
20
3,309
47,392
1,200
46,192

4,708
(18)
1,106
1,986
2,823
467
2,000
267
199
740
14,278

23,630
2,416
1,503
1,821
864
847
2,461
711
674
1,039
508
6,470
42,944
17,526
4,781
12,745
1,577
11,168

1.43

1.17

See accompanying notes to consolidated financial statements

CIVISTA BANCSHARES, INC.
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
Years ended December 31, 2017, 2016 and 2015
(Amounts in thousands)

Net income ....................................................................................... $
Other comprehensive income (loss):

Unrealized holding gains (loss) on available for sale
securities ................................................................................
Tax effect ...................................................................................
Pension liability adjustment .......................................................
Tax effect ...................................................................................
Total other comprehensive income (loss) ........................................
Comprehensive income ................................................................... $

2017

2016

2015

15,872 $

17,217 $

12,745

987
(375)
1,129
(329)
1,412
17,284 $

(2,342 )
796
(448 )
152
(1,842 )
15,375 $

(267)
91
(412)
140
(448)
12,297

See accompanying notes to consolidated financial statements

CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

Preferred Shares
Shares Amount

Common Shares
Shares

Accumulated
(Deficit)
Amount Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total
Shareholders’
Equity

Balance, December 31,
2014 ............................. 25,000 $ 23,132 7,707,917 $114,365 $

Net income ..............................
Other comprehensive loss .......
Conversion of Series B
preferred shares to
common shares...................
Stock-based compensation ......
Cash dividends ($0.20 per
share) ..................................
Preferred share dividends ........
Balance, December 31,
2015 ............................. 24,072 $ 22,273 7,843,578 $115,330 $

118,678
16,983

859
106

(928 )

(859)

Net income ..............................
Other comprehensive loss .......
Conversion of Series B
preferred shares to
common shares................... (3,591 ) (3,323)
Stock-based compensation ......
Cash dividends ($0.22 per
share) ..................................
Preferred share dividends ........
Balance, December 31,
2016 ............................. 20,481 $ 18,950 8,343,509 $118,975 $

459,192
40,739

3,322
323

Net income ..............................
Other comprehensive
income ................................
Reclassification of certain
income tax effects from
accumulated other
comprehensive loss ............
Conversion of Series B
preferred shares to
common shares................... (1,721 ) (1,592)
Common share issuance,
net of costs .........................
Stock-based compensation ......
Cash dividends ($0.25 per
share) ..................................
Preferred share dividends ........
Retirement of common share ..
Balance, December 31,
2017 ............................. 18,760 $ 17,358 10,198,475 $153,810 $

1,610,000 32,821
426

220,108

25,069

1,592

(211)

(4)

(4,306) $(17,235) $
12,745

(47 ) $

(448 )

115,909
12,745
(448)

(1,562)
(1,577)

5,300 $(17,235) $

(495 ) $

17,217

(1,842 )

(1,753)
(1,501)

19,263 $(17,235) $
15,872

(2,337 ) $

—
106

(1,562)
(1,577)

125,173
17,217
(1,842)

(1)
323

(1,753)
(1,501)

137,616
15,872

1,412

199

(199 )

(2,438)
(1,244)

—

32,821
426

(2,438)
(1,244)
(4)

31,652 $(17,235) $

(1,124 ) $

184,461

See accompanying notes to consolidated financial statements

CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2017, 2016 and 2015
(Amounts in thousands)

Cash flows from operating activities:

Net income ................................................................................. $
Adjustments to reconcile net income to net cash from
operating activities

Security amortization, net .....................................................
Depreciation ..........................................................................
Amortization of intangible assets..........................................
Amortization (Accretion) of net deferred loan fees ..............
Net (gain) loss on sale of securities ......................................
Provision (credit) for loan losses ..........................................
Loans originated for sale .......................................................
Proceeds from sale of loans ..................................................
Net gain on sale of loans .......................................................
Net loss on sale of manufactured home loans .......................
Net (gain) loss on sale of other real estate owned .................
Gain on sale of fixed assets ...................................................
Increase in cash surrender value of bank owned life
insurance
Share-based compensation ....................................................
Change in

Accrued interest payable .................................................
Accrued interest receivable .............................................
Deferred taxes .................................................................
Other, net .........................................................................
Net cash from operating activities ........................................

Cash flows used for investing activities:

Securities available for sale

2017

2016

2015

15,872 $

17,217 $

12,745

1,263
1,249

586
317
(12)
—
(76,493)
78,309
(1,745)
—
28
(67)

1,383
1,257
699
(172 )
(19 )
(1,300 )
(67,295 )
69,475
(1,750 )
—
(152 )
(1 )

1,410
1,193
711
(155)
18
1,200
(48,745)
49,637
(1,180)
74
(199)
—

(573)
426

(563 )
323

(467)
106

229
(634)
946
1,118
20,819

61
48
170
(1,672 )
17,709

Maturities, prepayments and calls .........................................
Sales ......................................................................................
Purchases ..............................................................................
Redemption of other securities ...................................................
Purchases of other securities ......................................................
Net cash from acquisition ...........................................................
Purchases of bank owned life insurance .....................................
Net loan originations ..................................................................
Loans purchased, installment .....................................................
Proceeds from sale of manufactured homes ...............................
Proceeds from sale of OREO properties ....................................
Premises and equipment purchases ............................................
Proceeds from sale of premises and equipment .........................
Net cash used for investing activities ....................................

34,379
953
(70,794)
—
(192)
—
—
(109,737)
—
—
87
(1,015)
139
(146,180)

34,089
4,349
(41,759 )
—
(603 )
—
(3,885 )
(52,022 )
(1,643 )
—
333
(2,437 )
3
(63,575 )

See accompanying notes to consolidated financial statements

(11)
144
(410)
(998)
15,073

29,733
—
(29,772)
138
(288)
926
—
(10,225)
(4,774)
3,492
865
(1,999)
—
(11,904)

CIVISTA BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2017, 2016 and 2015
(Amounts in thousands)

2017

2016

2015

Cash flows from financing activities:

Increase (decrease) in deposits ...................................................
Net change in short-term FHLB advances .................................
Repayment of long-term FHLB advances ..................................
Net proceeds from issuance of common shares .........................
Net change in securities sold under repurchase agreements .......
Cash payment for repurchase of common shares .......................
Cash paid on fractional shares on conversion of preferred
shares .....................................................................................
Cash dividends paid ...................................................................
Net cash from financing activities ........................................
Increase in cash and due from financial institutions ........................
Cash and due from financial institutions at beginning of year .........
Cash and due from financial institutions at end of year ................... $
Supplemental disclosures of cash flow information:

Interest paid ................................................................................ $
Income taxes paid .......................................................................
Transfer of loans from portfolio to other real estate owned .......
Transfer of premises to held-for-sale .........................................
Conversion of preferred shares to common shares .....................
Securities purchased not settled .................................................
Acquisition of TCNB Financial Corp.

Noncash assets acquired:

Loans receivable ..............................................................
Other securities ................................................................
Accrued interest receivable .............................................
Premises and equipment, net ...........................................
Core deposit intangible ....................................................
Other assets .....................................................................
Total non cash assets acquired ...................................

Liabilities assumed:

Deposits ...........................................................................
Other liabilities ................................................................
Total liabilities assumed ............................................
Net noncash liabilities acquired.......................................

83,820
25,900
(2,500)
32,821
(7,170)
(4)

—
(3,682)
129,185
3,824
36,695
40,519 $

3,863 $
5,950
94
3
1,592
1,291

69,070
(22,700 )
—
—
3,885
—

(1 )
(3,254 )
47,000
1,134
35,561
36,695 $

3,247 $
5,900
102
202
3,322
—

(3,754)
11,000
(5,000)
—
3,427
—

—
(3,139)
2,534
5,703
29,858
35,561

3,320
3,650
222
—
859
—

76,444
716
194
1,738
1,009
472
80,573

86,869
5
86,874
6,301

See accompanying notes to consolidated financial statements

This page left blank intentionally.

See accompanying notes to consolidated financial statements

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the accounting policies adopted by Civista Bancshares, Inc., which have a significant
effect on the Consolidated Financial Statements.

Nature of Operations and Principles of Consolidation: The Consolidated Financial Statements include the accounts of
Civista Bancshares, Inc. (“CBI”) and its wholly-owned subsidiaries: Civista Bank (“Civista”), First Citizens Insurance
Agency, Inc. (“FCIA”), Water Street Properties, Inc. (“WSP”), FC Refund Solutions, Inc. (“FCRS”) and CIVB Risk
Management, Inc. (“CRMI”). First Citizens Capital LLC (“FCC”) is wholly-owned by Civista and holds inter-
company debt. First Citizens Investments, Inc. (“FCI”) is wholly-owned by Civista and holds and manages its
securities portfolio. The operations of FCI and FCC are located in Wilmington, Delaware. The above companies
together are sometimes referred to as the “Company”. Intercompany balances and transactions are eliminated in
consolidation.

The Company provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign,
Cuyahoga, Franklin, Logan, Summit, Huron, Ottawa, Madison, Montgomery and Richland. 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. There are no significant concentrations of loans to any one
industry or customer. However, our customers’ ability to repay their loans is dependent on the real estate and general
economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk
include deposit accounts in other financial institutions.

FCIA was formed to allow the Company to participate in commission revenue generated through its third party
insurance agreement. Insurance commission revenue was less than 1.0% of total revenue for the years ended
December 31, 2017, 2016 and 2015. WSP was formed to hold repossessed assets of CBI’s subsidiaries. WSP revenue
was less than 1% of total revenue for the years ended December 31, 2017, 2016 and 2015. FCRS was formed in 2012
and remained inactive for the periods presented. CRMI was formed in 2017 to provide property and casualty
insurance coverage to CBI and its’ subsidiaries for which insurance may not be currently available or economically
feasible in the insurance marketplace. CRMI revenue was less than 1% of total revenue for the year ended December
31, 2017.

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 the financial statements and the disclosures provided, and
future results could differ. The allowance for loan losses, determination of goodwill impairment, fair values of
financial instruments, valuation of deferred tax assets, pension obligations and other-than-temporary-impairment of
securities are considered material estimates that are particularly susceptible to significant change in the near term.

Cash Flows: Cash and cash equivalents include cash on hand and demand deposits with financial institutions with
original maturities of less than 90 days. Net cash flows are reported for customer loan and deposit transactions, interest
bearing deposits in other financial institutions, federal funds purchased, short-term borrowings and repurchase
agreements.

Securities: Debt securities are classified as available-for-sale when they might be sold before maturity. Equity
securities with readily determinable fair values are also classified as available for sale. Securities available for sale are
carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are
amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where
prepayments are anticipated. Gains and losses on sales are based on the amortized cost of the security sold using the
specific identification method.

U.S. generally accepted accounting principles (“GAAP”) guidance specifies that if (a) a company does not have the
intent to sell a debt security prior to recovery and (b) it is more-likely-than-not that it will not have to sell the debt
security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit
loss. When an entity does not intend to sell the security, and it is more-likely-than-not the entity will not have to sell
the security before recovery of its cost basis, it will recognize the credit component of other-than-temporary
impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-
maturity debt securities, the amount of other-than-temporary impairment recorded in other comprehensive income for
the non-credit portion of a previous other-than-temporary impairment should be amortized prospectively over the
remaining life of the security on the basis of the timing of future estimated cash flows of the security.

For available-for-sale debt securities that management has no intent to sell and believes that it more-likely-than-not
will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in
earnings, while the non-credit loss is recognized in accumulated other comprehensive income. The credit loss
component recognized in earnings is identified as the amount of principal cash flows not expected to be received over
the remaining term of the security as projected based on cash flow projections.

Other securities which include FHLB stock, Federal Reserve Bank (“FRB”) stock, Federal Agricultural Mortgage
Corporation stock, Bankers’ Bancshares Inc. (“BB”) stock, and Norwalk Community Development Corp (“NCDC”)
stock are carried at cost.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market and loans that
management no longer intends to hold for the foreseeable future, are carried at the lower of aggregate cost or fair
value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a
valuation allowance and charged to earnings.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff
are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination
costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless
the credit is well-secured and in process of collection. Interest income on consumer loans is discontinued when
management determines future collection is unlikely. In all cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful.

All interest accrued, but not received, for loans placed on nonaccrual, is reversed against interest income. Interest
received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Purchased Loans: The Company purchases individual loans and groups of loans. Purchased loans that show evidence
of credit deterioration since origination are recorded at the amount paid (or allocated fair value in a purchase business
combination), such that there is no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses
are recognized by an increase in the allowance for loan losses.

Purchased loans are accounted for individually or aggregated into pools of loans based on common risk characteristics
(e.g., credit score, loan type, and date of origination). The Company estimates the amount and timing of expected cash
flows for each purchased loan or pool, and the expected cash flows in excess of amount paid is recorded as interest
income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s, or pool’s, contractual
principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash
flows is less than the carrying amount, a loss is recorded. If the present value of expected future cash flows is greater
than the carrying amount, the excess is recognized as part of future interest income.

Allowance for Loan Losses: The allowance for loan losses (allowance) is calculated with the objective of maintaining
a reserve sufficient to absorb inherent loan losses in the loan portfolio. Management establishes the allowance for loan
losses based upon its evaluation of the pertinent factors underlying the types and quality of loans in the portfolio. In
determining the allowance and the related provision for loan losses, the Company considers three principal elements:
(i) specific impairment reserve allocations (valuation allowances) based upon probable losses identified during the
review of impaired loans in the Commercial loan portfolio, (ii) allocations established for adversely-rated loans in the
Commercial loan portfolio and nonaccrual Real Estate Residential, Consumer installment and Home Equity loans,
(iii) allocations on all other loans based principally on the use of a three-year period for loss migration analysis. These
allocations are adjusted for consideration of general economic and business conditions, credit quality and delinquency
trends, collateral values, and recent loss experience for these similar pools of loans. The Company analyzes its loan
portfolio each quarter to determine the appropriateness of its allowance for loan losses.

All commercial, commercial real estate and farm real estate loans are monitored on a regular basis with a detailed loan
review completed for all loan relationships greater than $750. All commercial, commercial real estate and farm real
estate loans that are 90 days past due or in nonaccrual status, are analyzed to determine if they are “impaired”, which
means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement.
All loans that are delinquent 90 days are classified as substandard and placed on nonaccrual status unless they are
well-secured and in the process of collection. The remaining loans are evaluated and segmented with loans with similar
risk characteristics. The Company allocates reserves based on risk categories and portfolio segments described below,
which conform to the Company’s asset classification policy. In reviewing risk within Civista’s loan portfolio,
management has identified specific segments to categorize loan portfolio risk: (i) Commercial & Agriculture loans;
(ii) Commercial Real Estate – Owner Occupied loans; (iii) Commercial Real Estate – Non-Owner Occupied loans;
(iv) Residential Real Estate loans; (v) Real Estate Construction loans; (vi) Farm Real Estate loans; and (vii) Consumer
and Other loans. Additional information related to economic factors can be found in Note 5.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loan Charge-off Policies: All unsecured open- and closed-ended retail loans that become past due 90 days from the
contractual due date are charged off in full. In lieu of charging off the entire loan balance, loans with non-real estate
collateral may be written down to the net realizable value of the collateral, if repossession of collateral is assured and
in process. For open- and closed-ended loans secured by residential real estate, a current assessment of fair value is
made no later than 180 days past due. Any outstanding loan balance in excess of the net realizable value of the property
is charged off. All other loans are generally charged down to the net realizable value when Civista recognizes the loan
is permanently impaired, which is generally after the loan is 90 days past due.

Troubled Debt Restructurings: In certain situations based on economic or legal reasons related to a borrower’s
financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower
that would not otherwise be considered. The related loan is classified as a troubled debt restructuring (TDR).
Management strives to identify borrowers in financial difficulty early and work with them to modify to more
affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions,
principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid
foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a
reduction of either interest or principal, management measures any impairment on the restructuring as noted above for
impaired loans. In addition to the allowance for the pooled portfolios, management has developed a separate reserve
for loans that are identified as impaired through a TDR. These loans are excluded from pooled loss forecasts and a
separate reserve is provided under the accounting guidance for loan impairment. Consumer loans whose terms have
been modified in a TDR are also individually analyzed for estimated impairment.

Other Real Estate: Other real estate acquired through or instead of loan foreclosure is initially recorded at fair value
less costs to sell when acquired, establishing a new cost basis and any deficiency in the value is charged off through
the allowance. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.
Operating costs after acquisition are expensed.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using both accelerated and straight-line methods over the estimated useful life
of the asset, ranging from three to seven years for furniture and equipment and seven to fifty years for buildings and
improvements.

Federal Home Loan Bank Stock: Civista is a member of the FHLB of Cincinnati and as such, is required to maintain
a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The
stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily
determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment by
management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing
temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria
such as the following: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock
amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required
by law or regulation and the level of such payments in relation to the operating performance (c) the impact of
legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. With
consideration given to these factors, management concluded that the stock was not impaired at December 31, 2017 or
2016.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Federal Reserve Bank Stock: Civista is a member of the Federal Reserve System. FRB stock is carried at cost,
classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.

Bank Owned Life Insurance (BOLI) : Civista has purchased BOLI policies on certain key executives. BOLI is
recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash
surrender value adjusted for other charges or other amounts due that are probable at settlement.

Goodwill and Other Intangible Assets: Goodwill results from prior business acquisitions and represents the excess of
the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets.
Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period
identified.

Other intangible assets consist of core deposit intangibles arising from whole bank and branch acquisitions. These
intangible assets are measured at fair value and then amortized on an accelerated method over their estimated useful
lives, which range from five to twelve years.

Servicing Rights: Servicing rights are recognized as assets for the allocated value of retained servicing rights on loans
sold. Servicing rights are initially recorded at fair value at the date of transfer. The valuation technique uses the present
value of estimated future cash flows using current market discount rates. Servicing rights are amortized in proportion
to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the
rights, using groupings of the underlying loans as to interest rates and then, secondarily, prepayment characteristics.
Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon
discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation
allowance to the extent that fair value is less than the capitalized asset for the grouping.

Long-term Assets: Premises and equipment and other intangible assets, and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows.
If impaired, the assets are recorded at fair value.

Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various
customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing
needs. The face amount for these items represents the exposure to loss, before considering customer collateral or
ability to repay.

Income Taxes: 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.

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be
recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon
examination by the appropriate taxing authority that would have full knowledge of all relevant information.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit
that is greater than 50% likely of being realized upon ultimate settlement. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period
in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not
recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold
is no longer met. The Company recognizes interest and/or penalties related to income tax matters in income tax
expense.

Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to
employees, based on the fair value of these awards at the grant date. A Black-Scholes model is utilized to estimate the
fair value of stock options, while the market price of the Company’s common shares at the date of the grant is used
for restricted shares.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards
with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the
entire award.

Retirement Plans: Pension expense is the net of service and interest cost, expected return on plan assets and
amortization of gains and losses not immediately recognized. Employee 401(k) and profit sharing plan expense is the
amount of matching contributions. Deferred compensation allocates the benefits over the years of service.

Earnings per Common Share: Basic earnings per share are 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 of additional potential common shares issuable related to convertible preferred shares.
Treasury shares are not deemed outstanding for earnings per share calculations.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded
status of the pension plan.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business,
are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe that any such loss contingencies currently exist that will have a material
effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank is required to meet regulatory reserve
and clearing requirements. These balances do not earn interest.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid
by Civista to CBI or by CBI to shareholders. Additional information related to dividend restrictions can be found in
Note 19.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in Note 17. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly
affect these estimates.

Operating Segments: While the Company’s chief decision makers monitor the revenue streams of the Company’s
various products and services, operations are managed and financial performance is evaluated on a Company-wide
basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all
of the Company’s financial service operations are considered by management to be aggregated in one reportable
operating segment.

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

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.

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

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. Because the guidance
does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the
new standard, or any of the amendments, to result in a material change from our current accounting for revenue
because the majority of the Company’s financial instruments are not within the scope of Topic 606. However, we do
expect that the standard will result in new disclosure requirements, which are currently being evaluated.

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. ASU 2016-01 will be effective for us on
January 1, 2018 and will not have a significant impact on our financial statements.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. The Company is currently assessing the practical expedients it may elect at adoption, but
does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company’s
preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less
than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at
adoption.

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

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a
Business “ASU 2017-01”, which provides a more robust framework to use in determining when a set of assets and
activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair
value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar
identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further
evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after
December 15, 2017, including interim periods within those periods. All other entities should apply the amendments
to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after
December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date.
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 January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment . To simplify the
subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing
the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the
impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the
procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business
combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business
entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update
for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public
business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim
goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-
profit entities that are adopting the amendments in this Update should do so for their annual or any interim

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

goodwill impairment tests in fiscal years beginning after December 15, 2021. The Company is currently evaluating
the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-
20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a
premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments
do not require an accounting change for securities held at a discount; the discount continues to be amortized to
maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for
fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15,
2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments
in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim
period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-
effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period
of adoption, an entity should provide disclosures about a change in accounting principle. The Company is currently
evaluating the impact the adoption of the standard will have on the Company’s financial position or results of
operations.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718) , which affects any
entity that changes the terms or conditions of a share-based payment award. This Update amends the definition of
modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment
awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The
amendments in this Update are effective for all entities for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period,
for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all
other entities for reporting periods for which financial statements have not yet been made available for issuance. The
amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The
Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position
or results of operations.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity
(Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the
classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features.
When determining whether certain financial instruments should be classified as liabilities or equity instruments, a
down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an
entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be
accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding
equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in
accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated
as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments
with embedded conversion options that have down- round features are now subject to the specialized guidance for
contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options ),
including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite
deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards
Codification, to a scope exception. Those amendments do not have an accounting effect.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are
effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after
December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early
adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. The amendments in Part I of this Update should be applied either retrospectively to outstanding
financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial
position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this
paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior
reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-
10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have
an accounting effect. The Company is currently evaluating the impact the adoption of the standard will have on the
Company’s financial position or results of operations.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to
improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk
management activities in its financial statements. In addition, the amendments in this Update make certain targeted
improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted
accounting principles. For public business entities, the amendments in this Update are effective for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after
December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment
hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating
the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding
adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the
amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. The
Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position
or results of operations.

In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with
Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to
the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and
Observer Comments. The SEC Observer said that the SEC staff would not object if entities that are considered public
business entities only because their financial statements or financial information is required to be included in another
entity’s SEC filing use the effective dates for private companies when they adopt ASC 606, Revenue from Contracts
with Customers, and ASC 842, Leases. The Update also supersedes certain SEC paragraphs in the Codification related
to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or ASC 842. This
Update is not expected to have a significant impact on the Company’s financial statements.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical
expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for
as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate
new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an
entity should evaluate all existing or expired land easements in connection with the adoption of the new lease
requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02. The
Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position
or results of operations.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic
220). On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for
Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts
and Jobs Act), which requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax
laws. The amendments in this Update allow a reclassification from accumulated other comprehensive income to
retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments in this Update
are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. Early adoption of the amendments in this Update is permitted. The amendments in this Update should be
applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change
in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company has elected
to early adopt this standard as of December 31, 2017, which resulted in a one-time cumulative effect adjustment of
$199 between retained earnings and accumulated other comprehensive income on the Consolidated Balance
Sheet. The adjustment had no impact on net income or any prior periods presented.

NOTE 2 - MERGER

On March 6, 2015, CBI completed the acquisition by merger of TCNB Financial Corp. (“TCNB”) in an all-cash
transaction for aggregate consideration of $17,226, or $23.50 per share of TCNB stock. The Company and TCNB had
first announced that they had entered into an agreement to merge in September of 2014. Immediately following the
merger, TCNB’s banking subsidiary, The Citizens National Bank of Southwestern Ohio, was merged into CBI’s
banking subsidiary, Civista Bank.

At the time of the merger, TCNB had total assets of $97,479, including $76,771 in loans, and $86,708 in deposits. The
transaction was recorded as a purchase and, accordingly, the operating results of TCNB have been included in the
Company’s Consolidated Financial Statements since the close of business on March 6, 2015. The aggregate of the
purchase price over the fair value of the net assets acquired of approximately $5,375 was recorded as goodwill and
will be evaluated for impairment on an annual basis.

Merger-related costs were $391 as of December 31, 2015. These costs were primarily included in salaries, wages and
benefits, contracted data processing and professional services on the Consolidated Statements of Operations.

The following table presents financial information for the former TCNB included in the Consolidated Statements of
Operations from the date of acquisition through December 31, 2015.

Actual From
Acquisition Date
Through December 31,
2015
(in thousands)

Net interest income after provision for
loan losses ..................................................... $
Noninterest income ............................................
Net income ........................................................

3,155
138
1,282

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 2 – MERGER (Continued)

The following table presents unaudited pro forma information for the periods ended December 31, 2017, 2016 and
2015 as if the acquisition of TCNB had occurred on January 1, 2015. This table has been prepared for comparative
purposes only and is not indicative of the actual results that would have been attained had the acquisition occurred as
of the beginning of the periods presented, nor is it indicative of future results.

Pro Formas (unaudited) Twelve months
ended December 31,
2016

2015

2017

Net interest income after provision for
loan losses ............................................................. $
Noninterest income ....................................................
Net income .................................................................
Pro forma earnings per share:

54,456 $
16,334
15,769

51,389 $ 46,852
14,699
16,132
11,931
16,949

Basic ..................................................................... $
Diluted .................................................................. $

1.47 $
1.28 $

1.93 $
1.55 $

1.32
1.09

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of
acquisition for TCNB. Core deposit intangibles will be amortized over periods of between five and ten years using an
accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment.

Total purchase price ..................................................................... $
Net assets acquired:

At March 6, 2015
17,226

Cash and short-term investments ............................................
Loans, net ...............................................................................
Other securities .......................................................................
Premises and equipment .........................................................
Accrued interest receivable ....................................................
Core deposit intangible ...........................................................
Other assets ............................................................................
Noninterest-bearing deposits ..................................................
Interest-bearing deposits .........................................................
Other liabilities .......................................................................

Goodwill ...................................................................................... $

18,152
76,444
716
1,738
194
1,009
472
(18,263 )
(68,606 )
(5 )
11,851
5,375

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

Cash and short-term investments: The Company acquired $18.2 million in cash and short-term investments, which
management deemed to reflect fair value based on the short term nature of the asset.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 2 – MERGER (Continued)

Loans: The Company acquired $76.4 million in loans receivable with and without evidence of credit quality
deterioration. The loans consisted of Commercial loans, Commercial Real Estate loans, and Residential Real Estate
loans including home equity secured lines of credit, as well as Real Estate Construction, Farm Real Estate loans and

Consumer and other loans. The fair value of the performing loan portfolio includes separate adjustments to reflect a
credit risk and marketability component and a yield component reflecting the differential between portfolio and market
yields. Additionally, certain loans were valued based on their observable sales price. Loans acquired with credit
deterioration of $831 were individually evaluated to estimate credit losses and a net recovery amount for each loan.
The net cash flows for each loan were then discounted to present value using a risk-adjusted market rate.

Deposits: The Company acquired $86.9 million in deposits. Savings and transaction accounts are variable, have no
stated maturity and can be withdrawn on short notice with no penalty. Therefore, the fair value of such deposits is
considered equal to the carrying value. The fair value of CD’s is determined by comparing the contractual cost of the
CD’s to the market rates with corresponding maturities. The valuation adjustment reflects the present value of the
difference between the cash flows attributable to the CD’s based on contractual and market rates. The core deposit
intangible is determined by the present value difference of the net cost of the core deposit versus the same amount for
an alternative funding source.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 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 loss were as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

2017
U.S. Treasury securities and obligations of
U.S.government agencies ..................................... $
30,450 $
Obligations of states and political subdivisions ........ 114,002
Mortgage-back securities in government
sponsored entities .................................................

82,098
Total debt securities ............................................. 226,550
481
Total ..................................................................... $ 227,031 $

Equity securities in financial institutions ..................

100 $
4,226

(192 ) $ 30,357
(172 ) 118,056

408
4,734
351
5,085 $

(690 ) 81,817
(1,054 ) 230,230
832
(1,054 ) $ 231,062

—

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

2016
U.S. Treasury securities and obligations of
U.S.government agencies ..................................... $
Obligations of states and political subdivisions ........
Mortgage-back securities in government
sponsored entities .................................................

37,406 $
92,177

117 $
3,395

(77 ) $ 37,446
(574 ) 94,998

62,756
Total debt securities ............................................. 192,339
481
Total ..................................................................... $ 192,820 $

Equity securities in financial institutions ..................

483
3,995
297
4,292 $

(597 ) 62,642
(1,248 ) 195,086
778
(1,248 ) $ 195,864

—

The amortized cost and fair value of securities at year end 2017 by contractual maturity were as follows. Securities
not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Available for sale

Amortized
Cost

8,787 $
27,662
30,167
77,836

Fair Value
8,765
27,691
31,622
80,335

Due in one year or less ................................................. $
Due from one to five years ..........................................
Due from five to ten years ...........................................
Due after ten years .......................................................
Mortgage-backed securities in government
sponsored entities ....................................................
Equity securities in financial institutions .....................

81,817
832
Total ....................................................................... $ 227,031 $ 231,062

82,098
481

2017

2016

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 3 – SECURITIES (Continued)

Securities with a carrying value of $122,862 and $139,179 were pledged as of December 31, 2017 and 2016,
respectively, to secure public deposits, other deposits and liabilities as required or permitted by law.

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

Sale proceeds ............................................................. $
Gross realized gains ...................................................
Gross realized losses ..................................................
Gains (losses) from securities called or settled by
the issuer ...............................................................

2017

2016

2015

953 $
—
—

4,349 $
18
—

—
—
—

(18 )

Debt securities with unrealized losses at year end 2017 and 2016 not recognized in income are as follows:

12 Months or less
Fair
Value

Unrealized
Loss

More than 12 months

Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Description of Securities
U.S. Treasury securities and obligations of
U.S. government agencies........................... $ 20,449 $
Obligations of states and political
subdivisions ................................................
Mortgage-backed securities in gov’t
sponsored entities ........................................
Total temporarily impaired .............................. $ 54,040 $

29,534

4,057

(100) $ 6,617 $

(92 ) $ 27,066 $

(192)

(41)

7,309

(131 ) 11,366

(172)

(195)
(336) $ 36,125 $

22,199

(495 ) 51,733
(690)
(718 ) $ 90,165 $ (1,054)

12 Months or less
Fair
Value

Unrealized
Loss

More than 12 months

Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Description of Securities
U.S. Treasury securities and obligations of
U.S. government agencies........................... $ 13,271 $
Obligations of states and political
subdivisions ................................................
Mortgage-backed securities in gov’t
sponsored entities ........................................
Total temporarily impaired .............................. $ 65,891 $ (1,185) $ 4,261 $

893 $

35,453

17,167

(61) $

2,849

(558)

(566)

519

(16 ) $ 14,164 $

(77)

(16 ) 17,686

(574)

(597)
(31 ) 38,302
(63 ) $ 70,152 $ (1,248)

The Company periodically evaluates securities for other-than-temporary impairment. An unrealized loss exists when
the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are
determined to be temporary in nature are recorded, net of tax, in accumulated other comprehensive loss on the
Consolidated Balance Sheet.

The Company has assessed each available-for-sale security position for credit impairment. Factors considered in
determining whether a loss is temporary include:

•

The length of time and the extent to which fair value has been below cost;
The severity of impairment;
The cause of the impairment and the financial condition and near-term prospects of the issuer;

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 3 – SECURITIES (Continued)

•

If the Company intends to sell the investment;

If it’s more-likely-than-not the Company will be required to sell the investment before recovering its
amortized cost basis; and

If the Company does not expect to recover the investment’s entire amortized cost basis (even if the
Company does not intend to sell the investment).

The Company’s review for impairment generally entails:

•

Identification and evaluation of investments that have indications of impairment;

Analysis of individual investments that have fair values less than amortized cost, including consideration
of length of time each investment has been in unrealized loss position and the expected recovery period;

Evaluation of factors or triggers that could cause individual investments to qualify as having other-than-
temporary impairment; and
Documentation of these analyses, as required by policy.

At December 31, 2017, the Company owned 78 securities that were considered temporarily impaired. The unrealized
losses on these securities have not been recognized into income because the issuers’ bonds 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 changes in market interest rates. The Company also considers sector specific credit rating changes in
its analysis. 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.

NOTE 4 - LOANS
Loans at year-end were as follows:

2017

2016

Commercial and Agriculture ....................................... $ 152,473 $ 135,462
161,364
Commercial Real Estate - owner occupied ..................
395,931
Commercial Real Estate - non-owner occupied ...........
247,308
Residential Real Estate ................................................
56,293
Real Estate Construction ..............................................
41,170
Farm Real Estate ..........................................................
17,978
Consumer and Other ....................................................
Total Loans ............................................................. 1,164,661 1,055,506
Allowance for loan losses ............................................
(13,305 )
Net loans ...................................................................... $1,151,527 $1,042,201

164,099
425,623
268,735
97,531
39,461
16,739

(13,134)

Included in total loans above are deferred loan fees of $223 at December 31, 2017 and deferred loan costs of $94 at
December 31, 2016.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 4 – LOANS (Continued)

Loans to principal officers, directors, and their affiliates at year-end 2017 and 2016 were as follows:

Balance - Beginning of year ........................................ $
New loans and advances ..............................................
Repayments .................................................................
Effect of changes to related parties ..............................
Balance - End of year .................................................. $

2017
14,389 $
2,344
(1,256)
(1,475)
14,002 $

2016
15,147
850
(1,575 )
(33 )
14,389

NOTE 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 losses, the
Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools:
Commercial and Agriculture loans, Commercial Real Estate – Owner Occupied loans, Commercial Real Estate – Non-
owner Occupied loans, Residential Real Estate loans, Real Estate Construction loans, Farm Real Estate loans and
Consumer and Other loans. Loss migration rates for each risk category are calculated and used as the basis for
calculating loan loss allowance allocations. Loss migration rates are calculated over a three-year period for all portfolio
segments. Management also considers certain economic factors for trends that management uses to account for the
qualitative and environmental changes in risk, which affects the level of the reserve. The following economic factors
are analyzed:

(cid:120)(cid:3)

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 the nature and volume of the loan portfolio

Changes in past due, classified and nonaccrual loans and TDRs

Changes in economic and business conditions

Changes in competition or legal and regulatory requirements

Changes in concentrations within the loan portfolio

Changes in the underlying collateral for collateral dependent loans

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the consolidated
balance sheet date. The Company considers the allowance for loan losses of $13,134 adequate to cover loan losses
inherent in the loan portfolio, at December 31, 2017. The following tables present, by portfolio segment, the changes
in the allowance for loan losses, the ending allocation of the allowance for loan losses and the loan balances
outstanding for the years ended December 31, 2017, 2016 and 2015. The changes can be impacted by overall loan
volume, adversely graded loans, historical charge-offs and economic factors.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

Allowance for loan losses:

December 31, 2017
Commercial & Agriculture ...................................... $
Commercial Real Estate:

Beginning
balance

Charge-offs Recoveries
(11) $

372 $

2,018 $

Provision
(Credit)

Ending
Balance

2,171
Owner Occupied .................................................
4,606
Non-Owner Occupied ........................................
3,089
Residential Real Estate ............................................
420
Real Estate Construction .........................................
442
Farm Real Estate ......................................................
314
Consumer and Other ................................................
Unallocated ..............................................................
245
Total ......................................................................... $ 13,305 $

(328)
(38)
(400)
—
—
(165)
—
(942) $

69
46
194
44
3
43
—
771 $

(817 ) $

1,562

131
693
(973 )
370
(15 )
98
513

2,043
5,307
1,910
834
430
290
758
— $ 13,134

For the year ended December 31, 2017, the allowance for Commercial & Agriculture loans was reduced by a decrease
in general reserves as a result of lower loss rates. The result was represented as a decrease in the provision. The
allowance for Commercial Real Estate – Owner Occupied loans was reduced by a decrease in general reserves and
charge-offs. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in
general reserves required for this type as a result of higher loan balances. The allowance for Residential Real Estate
loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates,
represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to higher
outstanding loan balances for this type of loan. The allowance for Farm Real Estate loans was reduced by a decrease
in general reserves required for this type as a result of lower outstanding loan balances. The result was represented as
a decrease in the provision. 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.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

Allowance for loan losses:

December 31, 2016
Commercial & Agriculture ...................................... $
Commercial Real Estate:

Beginning
balance

Charge-offs Recoveries

Provision
(Credit)

Ending
Balance

1,478 $

(880) $

105 $

1,315 $

2,018

2,467
Owner Occupied .................................................
4,657
Non-Owner Occupied ........................................
4,086
Residential Real Estate ............................................
371
Real Estate Construction .........................................
538
Farm Real Estate ......................................................
382
Consumer and Other ................................................
Unallocated ..............................................................
382
Total ......................................................................... $ 14,361 $

(228)
(23)
(455)
(115)
—
(125)
—
(1,826) $

56
1,372
479
12
—
46
—
2,070 $

(124 )
(1,400 )
(1,021 )
152
(96 )
11
(137 )

2,171
4,606
3,089
420
442
314
245
(1,300 ) $ 13,305

For the year ended December 31, 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 a decrease in general reserves
due to decreases in classified, non-accrual loans and lower loss rates 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.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

Allowance for loan losses:

December 31, 2015
Commercial & Agriculture ...................................... $
Commercial Real Estate:

Beginning
balance

Charge-offs Recoveries

Provision
(Credit)

Ending
Balance

1,819 $

(190) $

182 $

(333 ) $

1,478

2,221
Owner Occupied .................................................
4,334
Non-Owner Occupied ........................................
3,747
Residential Real Estate ............................................
428
Real Estate Construction .........................................
822
Farm Real Estate ......................................................
200
Consumer and Other ................................................
Unallocated ..............................................................
697
Total ......................................................................... $ 14,268 $

(523)
(81)
(1,135)
—
—
(120)
—
(2,049) $

187
115
331
5
76
46
—
942 $

2,467
582
4,657
289
4,086
1,143
371
(62 )
538
(360 )
382
256
(315 )
382
1,200 $ 14,361

For the year ended December 31, 2015, the allowance for Commercial and Agriculture loans was reduced due to
decreases in specific reserves for impaired loans of $625. The decrease in specific reserves for impaired loans was
primarily the result of the resolution of an impaired loan. The Company did not incur losses with this resolution. 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
lookback 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 lookback
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 allowance for Real Estate Construction loans decreased as a result of decreasing loan
balances. The allowance for Farm Real Estate loans decreased as a result of decreasing loan balances and loss rates
offset by an increase in classified loans. The increase in the allowance for Consumer and other loans increased due to
an increase in loss rates, which is attributable to the change in the look-back period. Unallocated reserves declined
due to a change in the Company’s lookback period. As described above, 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 resulted in a decline in the unallocated balance with
corresponding increase in allocated balances within the reserve calculation. While loan balances were up, loss rates
continued to trend downward, exclusive of the change in methodology, resulting in a lower allowance balance. While
criticized loans increased slightly, we saw significant improvement in nonperforming loan balances resulting in a
decline in specific reserves for impaired loans. As of December 31, 2015, management felt that the unallocated amount
was appropriate and within the relevant range for the allowance that was reflective of the risk in the portfolio.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan
balances as of December 31, 2017 and December 31, 2016.

Loans acquired
with credit
deterioration

Loans
individually
evaluated for
impairment

Loans
collectively
evaluated for
impairment

Total

82 $

4 $

1,476 $

1,562

—
—
44
—
—
—
—
126 $

6
—
109
—
6
—
—
125 $

2,037
5,307
1,757
834
424
290
758
12,883 $

2,043
5,307
1,910
834
430
290
758
13,134

87 $

438 $ 151,948 $ 152,473

—
—
128
—
—
—
215 $

1,010
44
1,360
—
608
—

163,089 164,099
425,579 425,623
267,247 268,735
97,531
97,531
38,853
39,461
16,739
16,739
3,460 $1,160,986 $ 1,164,661

December 31, 2017
Allowance for loan losses:
Commercial & Agriculture ....................................... $
Commercial Real Estate:

Owner Occupied .................................................
Non-Owner Occupied .........................................
Residential Real Estate .............................................
Real Estate Construction ..........................................
Farm Real Estate ......................................................
Consumer and Other .................................................
Unallocated ..............................................................

Total .............................................................. $

Outstanding loan balances:
Commercial & Agriculture ....................................... $
Commercial Real Estate:

Total .............................................................. $

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

December 31, 2016
Allowance for loan losses:
Commercial & Agriculture ....................................... $
Commercial Real Estate:

Total .............................................................. $

Outstanding loan balances:
Commercial & Agriculture ...................................... $
Commercial Real Estate:

Owner Occupied ................................................
Non-Owner Occupied ........................................
Residential Real Estate ............................................
Real Estate Construction .........................................
Farm Real Estate .....................................................
Consumer and Other ................................................

Total ............................................................. $

Loans acquired
with credit
deterioration

Loans
individually
evaluated for
impairment

Loans
collectively
evaluated for
impairment

Total

86 $

82 $

1,850 $

2,018

—
—
89
—
—
—
—
175 $

4
—
102
—
—
—
—
188 $

2,167
4,606
2,898
420
442
314
245
12,942 $

2,171
4,606
3,089
420
442
314
245
13,305

88 $

1,983 $ 133,391 $ 135,462

—
—
168
—
—
—
256 $

1,896
359
1,686
—
614
1

159,468 161,364
395,572 395,931
245,454 247,308
56,293
56,293
41,170
40,556
17,978
17,977
6,539 $1,048,711 $ 1,055,506

The following tables represent credit exposures by internally assigned risk ratings for the periods ended December 31,
2017 and 2016. The remaining loans in the Residential Real Estate, Real Estate Construction and Consumer and Other
loan categories that are not assigned a risk grade are presented in a separate table below. 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 rating system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

(cid:120)(cid:3)

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

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

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

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

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)
(cid:3)

(cid:120)(cid:3)

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

Unrated – 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.

December 31, 2017
Commercial & Agriculture ...................................... $ 140,842 $
Commercial Real Estate:

Pass

Special
Mention Substandard Doubtful

Ending
Balance

8,412 $

3,219 $

— $ 152,473

Owner Occupied ................................................. 155,756
Non-Owner Occupied ........................................ 422,363
62,628
91,545
25,228
1,312

1,166
2,321
1,997
15
11,236
—
Total .............................................................. $ 899,674 $ 25,147 $

Residential Real Estate ............................................
Real Estate Construction .........................................
Farm Real Estate ......................................................
Consumer and Other ................................................

7,177
939
5,873
27
2,997
70
20,302 $

— 164,099
— 425,623
70,498
—
91,587
—
39,461
—
—
1,382
— $ 945,123

December 31, 2016
Commercial & Agriculture ...................................... $ 127,867 $
Commercial Real Estate:

Pass

Special
Mention Substandard Doubtful

Ending
Balance

4,300 $

3,295 $

— $ 135,462

Owner Occupied ................................................. 151,659
Non-Owner Occupied ........................................ 393,592
59,015
50,678
31,814
2,135

4,016
1,676
1,661
16
5,673
—
Total .............................................................. $ 816,760 $ 17,342 $

5,689
663
6,911
27
3,683
109
20,377 $

— 161,364
— 395,931
67,587
—
50,721
—
41,170
—
—
2,244
— $ 854,479

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

The following tables present performing and nonperforming loans based solely on payment activity for the years ended
December 31, 2017 and December 31, 2016 that have not been assigned an internal risk grade. The types of loans
presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by
management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they
become 90 days past due or if management thinks that we may not collect all of our principal and interest.
Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs)
where economic concessions have been granted to borrowers who have experienced or are expected to experience
financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could
include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due
to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned
to performing status after considering the borrower’s sustained repayment performance for a reasonable period,
generally six months.

December 31, 2017
Performing ................................................................. $ 198,237 $
—
Nonperforming ..........................................................
Total ..................................................................... $ 198,237 $

5,944 $
—
5,944 $

15,341 $ 219,522
16
15,357 $ 219,538

Residential
Real Estate

Real Estate
Construction

Consumer
and Other

Total

December 31, 2016
Performing ................................................................. $ 179,721 $
—
Nonperforming ..........................................................
Total ..................................................................... $ 179,721 $

5,572 $
—
5,572 $

15,725 $ 201,018
9
15,734 $ 201,027

Residential
Real Estate

Real Estate
Construction

Consumer
and Other

Total

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of
December 31, 2017 and 2016.

December 31, 2017
Commercial & Agriculture .... $ 575 $
Commercial Real Estate:

30-59
Days
Past Due

60-89
Days
Past Due

90 Days
or Greater

Total
Past
Due

Current

2 $

685 $ 1,262 $ 151,124 $

Purchased
Credit-
Impaired
Loans

Past Due
90 Days
and
Accruing
87 $ 152,473 $ —

Total Loans

Owner Occupied ...............
Non-Owner Occupied ......

897
104
133 —
Residential Real Estate .......... 1,613
229
Real Estate Construction ....... — —
27 —
Farm Real Estate ....................
96
92
Consumer and Other ..............

162,614
425,020
265,980
97,504
39,248
16,535
Total ............................ $ 3,337 $ 431 $ 2,653 $ 6,421 $1,158,025 $

484 1,485
603
470
785 2,627
27
27
213
186
204
16

— 164,099
— 425,623
128 268,735
97,531
—
39,461
—
16,739
—
215 $ 1,164,661 $

—
—
—
—
—
16
16

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

December 31, 2016
Commercial & Agriculture .... $ 156 $
Commercial Real Estate:

30-59
Days
Past Due

60-89
Days
Past Due

90 Days
or Greater

Total
Past
Due

Current

20 $

152 $

328 $ 135,046 $

Purchased
Credit-
Impaired
Loans

Past Due
90 Days
and
Accruing
88 $ 135,462 $ —

Total Loans

Owner Occupied ...............
Non-Owner Occupied ......

722
553
147 —
Residential Real Estate .......... 1,812
507
Real Estate Construction ....... — —
93 —
Farm Real Estate ....................
31
Consumer and Other ..............

159,809
395,468
243,772
56,266
41,077
17,701
Total ............................ $ 3,145 $ 1,111 $ 1,855 $ 6,111 $1,049,139 $

280 1,555
463
316
1,049 3,368
27
93
277

27
—
31

215

— 161,364
— 395,931
168 247,308
56,293
—
41,170
—
—
17,978
256 $ 1,055,506 $

—
—
—
—
—
9
9

The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of
December 31, 2017 and 2016.

Commercial & Agriculture .......................................... $
Commercial Real Estate:

Owner Occupied .....................................................
Non-Owner Occupied.............................................
Residential Real Estate ................................................
Real Estate Construction ..............................................
Farm Real Estate ..........................................................
Consumer and Other ....................................................
Total .................................................................. $

2017

2016

887 $

1,622

1,476
711
2,778
27
186
67
6,132 $

1,461
464
3,266
27
2
101
6,943

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; or the principal and interest
payments are reasonably assured and a sustained period of performance has occurred, generally six months. The gross
interest income that would have been recorded on nonaccrual loans in 2017, 2016 and 2015 if the loans had been
current in accordance with their original terms and had been outstanding throughout the period or since origination, if
held for part of the period, was $712, $701 and $1,761, respectively. The amount of interest income on such loans
recognized on a cash basis was $139 in 2017, $1,138 in 2016 and $766 in 2015.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

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

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already
been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect
of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified
in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective
interest rate or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent.
Management exercises significant judgment in developing these estimates. TDRs accounted for $169 of the allowance
for loan losses as of December 31, 2017, $278 as of December 31, 2016 and $286 as of December 31, 2015.

Loan modifications that are considered TDRs completed during the twelve month periods ended December 31, 2017,
2016 and 2015 were as follows:

For the Twelve Month Period Ended
December 31, 2017
Pre-
Modification
Outstanding
Recorded
Investment

Number
of
Contracts

Post-
Modification
Outstanding
Recorded
Investment
—

— $

—
—
13
—
—
—
13 $

—
—
13
—
—
—
13

Commercial & Agriculture ........................................
Commercial Real Estate:

Owner Occupied ...................................................
Non-Owner Occupied ...........................................
Residential Real Estate ...............................................
Real Estate Construction ............................................
Farm Real Estate ........................................................
Consumer and Other ..................................................
Total Loan Modifications ................................

— $

—
—
1
—
—
—
1 $

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

For the Twelve Month Period Ended
December 31, 2016
Pre-
Modification
Outstanding
Recorded
Investment

Number
of
Contracts

Post-
Modification
Outstanding
Recorded
Investment
529

529 $

Commercial & Agriculture ........................................
Commercial Real Estate:

4 $

—
—
2
—
3
—
9 $

—
—
308
—
700
—
1,537 $

—
—
308
—
700
—
1,537

For the Twelve Month Period Ended
December 31, 2015
Pre-
Modification
Outstanding
Recorded
Investment

Number
of
Contracts

Post-
Modification
Outstanding
Recorded
Investment
—

— $

Commercial & Agriculture ........................................
Commercial Real Estate:

— $

—
—
—
1
—
—
1 $

—
—
—
41
—
—
41 $

—
—
—
41
—
—
41

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 originations loans,
so modified loans present a higher risk of loss than do new origination loans. During the periods ended December 31,
2017 and 2016, there were no defaults on loans that were modified and considered TDRs during the previous twelve
months. During the twelve month period ended December 31, 2015, there was one default, totaling $107, on loans
which were modified and considered TDRs during the previous twelve months.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired Loans: Larger (greater than $350) commercial loan, commercial real estate loan and farm real estate loan
relationships, all TDRs and residential real estate and consumer loans that are part of a larger relationship are tested
for impairment. 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, deferff
red loan fees or costs and unamortized
premium or discount), impam irment 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 financing
receivables, excluding PCI loans, with the associated allowance amount, if applicable, as of December 31, 2017 and
2016.

December 31, 2017
Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance

Recorded
Investment

December 31, 2016
Unpaid
Principal
Balance

Related
Allowance

With no related allowance recorded:

Commercial & Agriculture.................... $
Commercial Real Estate:

Owner Occupied ..............................
Non-Owner Occupied ......................
Residential Real Estate..........................
Farm Real Estate ...................................
Consumer and Other..............................
Total ...........................................

With an allowance recorded:

Commercial & Agriculture....................
Commercial Real Estate:

Total:

Commercial & Agriculture....................
Commercial Real Estate:

Owner Occupied ..............................
Non-Owner Occupied ......................
Residential Real Estate ...............................
Farm Real Estate.........................................
Consumer and Other ...................................

Total ........................................... $

1,230

$ 1,751

693
44
977
148

1,862

913
48
1,049
148

2,158

1,658
359
1,259
614
1
5,121

1,803
386
1,590
614
1
6,145

438

753

1,303

317

383
460
1,598

317

387
460
1,602

109
6
125

238

427

1,418

238

431

1,972

438

1,983

3,054

1,010
44
1,360
608

3,460

1,230
48
1,436
608

$ 3,760

109
6

125

1,896
359
1,686
614
1
6,539

2,041
386
2,021
614
1
$ 8,117

102

188

102

188

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

The following tables include the average recorded investment and interest income recognized for impaired financing
receivables as of, and for the years ended, December 31, 2017, 2016 and 2015.

For the year ended:

December 31, 2017

December 31, 2016

Commercial & Agriculture ........................................ $
Commercial Real Estate:

Owner Occupied ..................................................
Non-Owner Occupied ..........................................
Residential Real Estate ..............................................
Real Estate Construction ...........................................
Farm Real Estate .......................................................
Consumer and Other ..................................................
Total ............................................................... $

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

1,375 $

34 $

2,036 $

Interest
Income
Recognized
40

1,507
233
1,515
—
613
—
5,243 $

75
6
73
—
28
—
216 $

1,847
1,039
1,787
—
1,006
2
7,717 $

862
83
175
1
95
—
1,256

For the year ended:

December 31, 2015

Commercial & Agriculture .......................................... $
Commercial Real Estate:

Average
Recorded
Investment

1,519 $

Interest
Income
Recognized
54

2,738
1,946
2,544
16
653
4
9,420 $

139
32
103
—
56
—
384

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 December 31, 2017 and 2016, a total of $16 and $37,
respectively of foreclosed assets were included with other assets. As of December 31, 2017, included within the
foreclosed assets is $16 of consumer residential mortgages that were foreclosed on or received via a deed in lieu
transaction prior to the period end. As of December 31, 2017 and 2016, the Company had initiated formal foreclosure
procedures on $239 and $710, respectively of consumer residential mortgages.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 5 - ALLOWANCE FOR LOAN LOSSES (Continued)

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

At December 31,
2017
(In Thousands)

Balance at beginning of period ........................... $
Acquisition of PCI loans .....................................
Accretion ............................................................
Balance at end of period ..................................... $

At December 31,
2016
(In Thousands)
80
—
(31 )
49

49 $
—
(34)
15 $

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

At December 31, 2017 At December 31, 2016

Acquired Loans with
Specific Evidence of
Deterioration of Credit
Quality (ASC 310-30)

Outstanding balance ............................ $
Carrying amount .................................

(In Thousands)

775 $
215

850
256

There has been $126 and $175 in allowance for loan losses recorded for acquired loans with or without specific
evidence of deterioration in credit quality as of December 31, 2017 and 2016, respectively.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 6 - OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, as
of December 31, 2017, 2016 and 2015.

For the Year Ended
December 31, 2017

For the Year Ended
December 31, 2016

For the Year Ended
December 31, 2015

Unrealized
Gains and
Losses on
Available
for Sale
Securities
Total
$ 2,008 $ (4,345) $(2,337) $ 3,554 $(4,049) $ (495) $ 3,730 $ (3,777) $ (47)

Unrealized
Gains and
Losses on
Available
for Sale
Securities

Defined
Benefit
Pension
Items

Total

Beginning balance

620

553 1,173

(1,533)

(511) (2,044)

(188 )

(449) (637)

(8 )

247

239

(13)

215

202

177 189

612

800 1,412

(1,546)

(296) (1,842)

(176 )

(272) (448)

Other comprehensive
income (loss) before
reclassifications ..............
Amounts reclassified from
accumulated other
comprehensive loss ........

Net current-period other
comprehensive income
(loss) .................................
Reclassification of certain
income tax effects from
accumulated other
comprehensive loss .............

— — —
(199)
Ending balance ...................... $ 3,185 $ (4,309) $(1,124) $ 2,008 $(4,345) $(2,337) $ 3,554 $ (4,049) $(495)

— — —

565

(764)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive
loss as of December 31, 2017, 2016 and 2015.

Details about Accumulated Other
Comprehensive Loss
Components
Unrealized gains (losses) on available-for-sale
securities
$
Tax effect ............................................................

Amortization of defined benefit pension items

Actuarial losses .............................................
Tax effect ............................................................

Total reclassifications for the period .................. $

Amount Reclassified from
Accumulated Other
Comprehensive Loss (a)
For the year ended December 31,

2017

2016

2015

12 $
(4)
8

19 $
(6)
13

(18)
6
(12)

Affected Line Item in the
Statement Where Net Income is
Presented
Net gain (loss) on sale of
securities
Income taxes

(380)(b)
133
(247)
(239) $

(326)(b)
111
(215)
(202) $

(270)(b) Salaries, wages and benefits

Income taxes

93
(177)
(189)

(a) Amounts in parentheses indicate expenses and other amounts indicate income.
(b) These accumulated other comprehensive income (loss) components are included in the computation of net

periodic pension cost.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 7 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

Land and improvements............................................... $
Buildings and improvements .......................................
Furniture and equipment ..............................................
Total .......................................................................
Accumulated depreciation ...........................................
Premises and equipment, net ............................. $

2017

5,022 $
21,221
17,004
43,247
(25,636)
17,611 $

2016

5,094
20,266
16,070
41,430
(23,510 )
17,920

Depreciation expense was $1,249, $1,257 and $1,193 for 2017, 2016 and 2015, respectively.

Rent expense was $580, $540 and $506 for 2017, 2016 and 2015, respectively. Rent commitments under non-
cancelable operating leases at December 31, 2017 were as follows, before considering renewal options that generally
are present.

2018 .......................................................................... $
2019 ..........................................................................
2020 ..........................................................................
2021 ..........................................................................
2022 ..........................................................................
Total .......................................................................... $

571
479
226
91
36
1,403

The rent commitments listed above are primarily for the leasing of seven financial services branches.

NOTE 8 - GOODWILL AND INTANGIBLE ASSETS

There has been no change in the carrying amount of goodwill of $27,095 for the years ended December 31, 2017 and
December 31, 2016.

Management performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Management performed an evaluation of the
Company’s goodwill during the fourth quarter of 2017. Based on this test, management concluded that the Company’s
goodwill was not impaired at December 31, 2017.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 8 - GOODWILL AND INTANGIBLE ASSETS (Continued)

Acquired intangible assets were as follows as of year end.

2017

2016

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Amortized intangible assets(1):

MSRs .......................................................... $ 1,065 $
7,274
Core deposit intangibles .............................
Total amortized intangible assets ..................... $ 8,339 $

912 $
743 $
322 $
7,274
536
6,738
7,060 $ 1,279 $ 8,186 $

662
250 $
1,122
6,152
6,402 $ 1,784

(1) Excludes fully amortized intangible assets

Aggregate core deposit intangible amortization expense was $586, $699 and $711 for 2017, 2016 and 2015,
respectively.

Aggregate mortgage servicing rights amortization was $72, $74 and $29 for 2017, 2016 and 2015, respectively.

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

MSRs

Core deposit
intangibles

Total

2018 ........................................................................... $
2019 ...........................................................................
2020 ...........................................................................
2021 ...........................................................................
2022 ...........................................................................
Thereafter ...................................................................
$

41 $
41
41
41
41
538
743 $

111 $
88
71
68
68
130
536 $

152
129
112
109
109
668
1,279

NOTE 9 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as of December 31, 2017 and 2016 were as follows:

Demand ........................................................................ $ 183,680 $ 183,759
Statement and Passbook Savings .................................
384,330
Certificates of Deposit:

435,377

2017

2016

$250 and over .........................................................
Other .......................................................................
Individual Retirement Accounts ..................................

13,640
168,723
25,063
Total .................................................................. $ 842,959 $ 775,515

8,206
192,455
23,241

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 9 - INTEREST-BEARING DEPOSITS (Continued)

Scheduled maturities of certificates of deposit, including IRA’s at December 31, 2017 were as follows:

2018 ................................................................................ $
2019 ................................................................................
2020 ................................................................................
2021 ................................................................................
2022 ................................................................................
Thereafter .......................................................................
Total .......................................................................... $

161,656
41,926
15,459
3,382
1,202
277
223,902

Deposits from the Company’s principal officers, directors, and their affiliates at year-end 2017 and 2016 were $9,633
and $9,209, respectively.

As of December 31, 2017, CDs and IRAs totaling $9,141 met or exceeded the FDIC’s insurance limit of $250,000.

NOTE 10 - SHORT-TERM BORROWINGS

Short-term borrowings, which consist of federal funds purchased and other short-term borrowings are summarized as
follows:

Outstanding balance at year end .............................. $
Maximum indebtedness during the year ..................
Average balance during the year .............................
Average rate paid during the year ...........................
Interest rate on year end balance .............................

— $ 56,900 $
20,000 115,050
38,825
1.12%
1.42%

119
1.68%
—

At December 31, 2017
Federal
Funds
Purchased

Short-term
Borrowings

Purchased

At December 31, 2016
Federal
Funds

Short-term
Borrowings
— $ 31,000
20,000 70,400
116 10,483
0.42%
0.86 %
0.64%
—

Outstanding balance at year end ................................. $
Maximum indebtedness during the year .....................
Average balance during the year .................................
Average rate paid during the year ...............................
Interest rate on year end balance .................................

At December 31, 2015
Federal
Funds
Purchased

Short-term
Borrowings
53,700
64,700
26,880
0.20 %
0.35 %

— $
—
69
0.53%
—

Average balance during the year represent daily averages. Average interest rates represent 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 December 31, 2017, 2016 and 2015.

NOTE 11 - FEDERAL HOME LOAN BANK ADVANCES

Long term advances from the FHLB were $15,000 at December 31, 2017 and $17,500 at December 31, 2016.
Outstanding balances have maturity dates ranging from February 2018 to October 2019 and fixed rates ranging from
1.50% to 2.10%. The average rate on outstanding advances was 1.70% at December 31, 2017.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 11 - FEDERAL HOME LOAN BANK ADVANCES (Continued)

Scheduled principal reductions of FHLB advances outstanding at December 31, 2017 were as follows:

10,000
5,000
15,000

In addition to the borrowings, the Company had outstanding letters of credit with the FHLB totaling $19,600 at year-
end 2017 and 2016, respectively used for pledging to secure public funds. FHLB borrowings and the letters of credit
were collateralized by FHLB stock and by $137,250 and $102,150 of residential mortgage loans under a blanket lien
arrangement at year-end 2017 and 2016, respectively.

The Company had a FHLB maximum borrowing capacity of $366,122 as of December 31, 2017, with remaining
borrowing capacity of approximately $274,622. The borrowing arrangement with the FHLB is subject to annual
renewal. The maximum borrowing capacity is recalculated at least quarterly.

NOTE 12 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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
December 31, 2017 and 2016. All of the repurchase agreements are overnight agreements.

December
31, 2017

December
31, 2016

Securities pledged for repurchase agreements:

U.S. Treasury securities .......................................... $
Obligations of U.S. government agencies ..............
Total securities pledged ............................................... $
Gross amount of recognized liabilities for
repurchase agreements ............................................ $
Amounts related to agreements not included in
offsetting disclosures above .................................... $

874 $
20,881
21,755 $

1,761
27,164
28,925

21,755 $

28,925

— $

—

Information concerning securities sold under agreements to repurchase was as follows:

2017

2016

2015

Outstanding balance at year end ............................... $ 21,755 $ 28,925 $ 25,040
21,767 20,086
Average balance during the year ...............................
Average interest rate during the year ........................
0.10 %
Maximum month-end balance during the year .......... $ 23,889 $ 28,925 $ 25,040
0.10 %
Weighted average interest rate at year end ................

18,234
0.10%

0.10%

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 13 - SUBORDINATED DEBENTURES

Trusts formed by the Company issued floating rate trust preferred securities, in the amounts of $5,000 and $7,500,
through special purpose entities as part of pooled offerings of such securities. The Company issued subordinated
debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of
the trusts. The Company may redeem the subordinated debentures, in whole but not in part, at face value. In April
2007, the Company elected to redeem and refinance the $5,000 floating rate subordinated debenture. The refinancing
was done at face value and resulted in a 2.00% reduction in the floating rate. The new subordinated debenture has a
30-year maturity and is redeemable, in whole or in part, anytime without penalty. The replacement subordinated
debenture does not have any deferred issuance cost associated with it. The interest rate at December 31, 2017 on the
$7,500 debenture was 4.48% and the $5,000 debenture was 2.92%.

Additionally, the Company formed an additional trust that issued $12,500 of 6.05% fixed rate trust preferred securities
for five years, then becoming floating rate trust preferred securities, through a special purpose entity as part of a pooled
offering of such securities. The Company issued subordinated debentures to the trusts in exchange for the proceeds of
the offerings, which debentures represent the sole assets of the trusts. The Company may redeem the subordinated
debentures at face value without penalty. The current rate on the $12,500 subordinated debenture is 3.58%.

Finally, the Company acquired two additional trust preferred securities as part of its acquisition of Futura Banc Corp
(Futura) in December 2007. Futura TPF Trust I and Futura TPF Trust II were formed in June of 2005 in the amounts
of $2,500 and $1,927, respectively. Futura had issued subordinated debentures to the trusts in exchange for ownership
of all of the common security of the trusts and the proceeds of the preferred securities sold by the trusts. The Company
may redeem the subordinated debentures, in whole or in part, in a principal amount with integral multiples of $1,000,
at 100% of the principal amount, plus accrued and unpaid interest. The subordinated debentures mature on June 15,
2035. The subordinated debentures are also redeemable in whole or in part from time to time, upon the occurrence of
specific events defined within the trust indenture. The current rate on the $2,500 subordinated debenture is variable at
2.98%. In June 2010, the rate on the $1,927 subordinated debenture switched from a fixed rate to a floating rate. The
current rate on the $1,927 subordinated debenture is 2.98%.

NOTE 14 - INCOME TAXES
Income taxes were as follows for the years ended December 31:

Current ....................................................................... $
Deferred .....................................................................
Change in corporate tax rate ......................................

Income taxes ......................................................... $

5,414 $
435
511
6,360 $

6,449 $
170
—
6,619 $

5,191
(410 )
—
4,781

2017

2016

2015

Effective tax rates differ from the statutory federal income tax rate of 35% in 2017 and 2016 and 34% in 2015 due to
the following:

Income taxes computed at the statutory federal tax
rate ......................................................................... $
Add (subtract) tax effect of:

Nontaxable interest income, net of
nondeductible interest expense ........................
Low income housing tax credit.............................
Cash surrender value of BOLI..............................
Change in corporate tax rate .................................
Other .....................................................................

Income tax expense ......................................... $

2017

2016

2015

7,781 $

8,343 $

5,959

(1,107)
(686)
(201)
511
62
6,360 $

(946 )
(435 )
(197 )
—
(146 )
6,619 $

(900 )
(303 )
(159 )
—
184
4,781

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 14 - INCOME TAXES (Continued)

The Tax Cut and Jobs Act, enacted on December 22, 2017, lowered the federal corporate income tax rate from 35%
to 21% effective January 1, 2018. As a result, the carrying value of net deferred tax assets was reduced, which
increased income tax expense by $511.

Year-end deferred tax assets and liabilities were due to the following:

Deferred tax assets

Allowance for loan losses ....................................... $
Deferred compensation ...........................................
Intangible assets .....................................................
Pension costs ..........................................................
Other .......................................................................
Deferred tax asset ..............................................
Deferred tax liabilities .................................................
Tax depreciation in excess of book depreciation ....
Discount accretion on securities .............................
Purchase accounting adjustments ...........................
FHLB stock dividends ............................................
Unrealized gain on securities available for sale .....
Pension costs ..........................................................
Prepaids ..................................................................
Other .......................................................................
Deferred tax liability .........................................
Net deferred tax asset .................................. $

2017

2016

2,848 $
1,213
95
—
141
4,297

(275)
(43)
(536)
(1,053)
(847)
(293)
(320)
(166)
(3,533)
764 $

4,640
1,762
187
277
102
6,968

(97 )
(58 )
(1,091 )
(1,705 )
(1,035 )
—
—
(256 )
(4,242 )
2,726

No valuation allowance was established at December 31, 2017 and 2016, due to the Company’s ability to carryback
to taxes paid in previous years and certain tax strategies, coupled with the anticipated future income as evidenced by
the Company’s earning potential.

The Company and its subsidiaries are subject to U.S. federal income tax. The Company is subject to tax in Ohio based
upon its net worth.

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company’s
federal tax returns for taxable years through 2012 have been closed for purposes of examination by the Internal
Revenue Service.

NOTE 15 - RETIREMENT PLANS

The Company sponsors a savings and retirement 401(k) plan, which covers all employees who meet certain eligibility
requirements and who choose to participate in the plan. The matching contribution to the 401(k) plan was $805, $734
and $667 in 2017, 2016 and 2015, respectively. The Company’s matching contribution is 100% of an employee’s first
three percent contributed and 50% of the next two percent contributed.

The Company also sponsors a pension plan which is a noncontributory defined benefit retirement plan for all
employees who have attained the age of 20 1 (cid:187) 2, completed six months of service and work 1,000 or more hours per
year. 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 April 2014, the Company amended the pension plan again
to provide that no additional benefits would accrue beyond April 30, 2014.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 15 - RETIREMENT PLANS (Continued)

In October 2015, the Company, on behalf of it and its subsidiaries, entered into Pension Shortfall Agreements (the
“Shortfall Agreements”) with ten employees of the Bank. When the Company ceased accruals to its defined benefit
pension plan on April 30, 2014, the circumstances of some participants with limited periods until their anticipated
retirement dates would not permit them to use other available alternatives to make up for the shortfall in their expected
pension. The Company calculated the total amount of the shortfall for each of the referenced individuals after
considering its contributions to other retirement benefits. Pension shortfall expense was $18 in 2017, $201 in 2016
and $364 in 2015. Included in pension shortfall expense was interest expense, totaling $18, $11 and $10 in 2017, 2016
and 2015, respectively, which was also recorded in and credited to the accounts of the ten individuals covered by this
plan.

Information about the pension plan is as follows:

Change in benefit obligation:

Beginning benefit obligation .................................. $
Service cost ............................................................
Interest cost ............................................................
Curtailment gain .....................................................
Settlement loss........................................................
Actuarial (gain)/loss ...............................................
Benefits paid ...........................................................
Ending benefit obligation .......................................

Change in plan assets, at fair value:

Beginning plan assets .............................................
Actual return ...........................................................
Employer contribution............................................
Benefits paid ...........................................................
Administrative expenses.........................................
Ending plan assets ..................................................
Funded status at end of year ........................................ $

2017

2016

16,964 $
—
679
—
46
986
(759)
17,916

16,150
1,947
2,000
(759)
(32)
19,306
1,390 $

16,328
—
689
—
51
669
(773 )
16,964

15,647
802
500
(773 )
(26 )
16,150
(814 )

Amounts recognized in accumulated other comprehensive loss at December 31, consist of unrecognized actuarial loss
of $4,070, net of $2,191 tax in 2017 and $4,345, net of $2,238 tax in 2016.

The accumulated benefit obligation for the defined benefit pension plan was $17,916 at December 31, 2017 and
$16,964 at December 31, 2016.

The components of net periodic pension expense were as follows:

Service cost ................................................................ $
Interest cost ................................................................
Expected return on plan assets ...................................
Net amortization and deferral .....................................

Net periodic pension cost (benefit)....................... $

— $

679
(1,178)
380
(119) $

— $
689
(1,090 )
326
(75 ) $

—
604
(1,088 )
270
(214 )

2017

2016

2015

Net loss (gain) recognized in other comprehensive
loss ........................................................................ $
Total recognized in net periodic benefit cost
and other comprehensive loss
(before tax) ................................................. $

(322) $

448 $

412

(441) $

373 $

198

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 15 - RETIREMENT PLANS (Continued)

The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost over the next fiscal year is $380. The Company incurred settlement
costs in 2017, 2016 and 2015 of $237, $259 and $415, respectively.

The weighted average assumptions used to determine benefit obligations at year-end were as follows:

Discount rate on benefit obligation ............................
Long-term rate of return on plan assets ......................
Rate of compensation increase ...................................

3.51%
7.00%
0.00%

4.00 %
7.00 %
0.00 %

4.16 %
7.00 %
0.00 %

2017

2016

2015

The weighted average assumptions used to determine net periodic pension cost were as follows:

Discount rate on benefit obligation ............................
Long-term rate of return on plan assets ......................
Rate of compensation increase ...................................

4.00%
7.00%
0.00%

4.16 %
7.00 %
0.00 %

3.69 %
7.00 %
0.00 %

2017

2016

2015

The Company uses long-term market rates to determine the discount rate on the benefit obligation. Declines in the
discount rate lead to increases in the actuarial loss related to the benefit obligation.

The expectation for long-term rate of return on the pension assets and the expected rate of compensation increases are
reviewed periodically by management in consultation with outside actuaries and primary investment consultants.
Factors considered in setting and adjusting these rates are historic and projected rates of return on the portfolio and
historic and estimated rates of increases of compensation. Since the pension plan is frozen, the rate of compensation
increase used to determine the benefit obligation for 2017, 2016 and 2015 was zero.

The Company’s pension plan asset allocation at year-end 2017 and 2016 and target allocation for 2018 by asset
category are as follows:

Asset Category
Equity securities .........................................................
Debt securities ............................................................
Money market funds ..................................................
Total ......................................................................

Target
Allocation
2018

20-50%
30-60
20-30

Percentage of Plan
Assets
at Year-end

2017

2016

48.0 %
51.9
0.1
100.0 %

47.5 %
52.1
0.4
100.0 %

The Company developed the pension plan investment policies and strategies for plan assets with its pension
management firm. The assets are currently invested in four diversified investment funds, which include two equity
funds, one money market fund and one bond fund. The long-term guidelines from above were created to maximize
the return on portfolio assets while reducing the risk of the portfolio. The management firm may allocate assets among
the separate accounts within the established long-term guidelines. Transfers among these accounts will be at the
management firm’s discretion based on their investment outlook and the investment strategies that are outlined at
periodic meetings with the Company. The expected long-term rate of return on the plan assets was 7.00% in 2017 and
2016. This return is based on the expected return for each of the asset categories, weighted based on the target
allocation for each class.

The Company does not expect to make any contribution to its pension plan in 2018. Employer contributions totaled
$2,000 in 2017. Increased contributions and increased plan assets offset by increased benefit obligations led to a
change in funded status from $(814) at December 31, 2016 to $1,390 at December 31, 2017.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 15 - RETIREMENT PLANS (Continued)

The following tables set forth by level, within the fair value hierarchy, the pension plan’s assets at fair value as of
December 31, 2017 and 2016:

December 31, 2017

Level 1

Level 2

Level 3

Total

Assets:

Cash ..................................................................... $
Bond mutual funds ...............................................
Common/collective trust:

113 $
23

Bonds ..............................................................
Equities ...........................................................

9,980
6,654

Equity market funds:

International ....................................................
Large cap ........................................................
Mid cap ...........................................................
Small cap ........................................................
Total assets at fair value ............................................ $

750
1,085
269
432
19,306 $

— $
—

—
—

—
—
—
—
— $

— $
—

113
23

—
—

9,980
6,654

750
—
1,085
—
269
—
—
432
— $ 19,306

Investment in equity securities, debt securities, money market funds and mutual funds are valued at the closing price
reported on the active market on which the individual securities are traded.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value
or reflective of future fair values. Furthermore, while the Pension Plan believes its valuation methods are appropriate
and consistent with other market participants, the use of different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a different fair value measurement at the reporting date.

Expected benefit payments, which reflect expected future service, are as follows:

2018 ................................................................................ $
2019 ................................................................................
2020 ................................................................................
2021 ................................................................................
2022 ................................................................................
2023 through 2027 ..........................................................
Total ............................................................................... $

1,903
1,127
650
913
1,182
4,723
10,498

Supplemental Retirement Plan

Civista established a supplemental retirement plan (“SERP”) in 2013, which covers key members of management.
Under the SERP, participants will receive annually, following retirement, a percentage of their base compensations at
the time of their retirement for a maximum of ten years. The SERP liability recorded at December 31, 2017, was
$2,308, compared to $1,984 at December 31, 2016. The expense related to the SERP was $365, $243 and $299 for
2017, 2016 and 2015, respectively. Distributions to participants made in 2017, 2016 and 2015 totaled $41, $34, and
$22, respectively.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 16 - 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 292,209 shares available for grants under
this plan at December 31, 2017.

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 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 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.

On May 16, 2017, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-
restricted common shares of the Company. The aggregate of 6,804 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 2018 Annual
Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $144.

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

No options had been granted under the 2014 Incentive Plan as of December 31, 2017 and 2016.

The Company classifies share-based compensation for employees with “Salaries, wages and benefits” in the
Consolidated Statements of Operations.

The following is a summary of the status of the Company’s restricted shares, and changes therein during the twelve
months ended December 31, 2017 and 2016:

December 31, 2017

December 31, 2016

Nonvested at beginning of period ..............................
Granted ......................................................................
Vested ........................................................................
Forfeited ....................................................................
Nonvested at end of period ........................................

Number of
Restricted
Shares
37,050 $
17,898
(12,810)
—
42,138

Weighted
Average
Grant Date
Fair Value

Number of
Restricted
Shares
16,983 $
28,864
(5,657 )
(3,140 )
37,050

Weighted
Average
Grant Date
Fair Value
10.82
10.75
10.82
10.87
10.77

10.77
22.15
10.76
—
15.60

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 16 - EQUITY INCENTIVE PLAN (Continued)

The following is a summary of the status of the Company’s awarded restricted shares as of December 31, 2017:

Date of Award

Remaining Expense

Remaining Vesting
Period (Years)

At December 31, 2017

January 15, 2016
March 11, 2016
March 20, 2017
March 20, 2017

10,260 $
15,748
11,713
6,185
43,906 $

66
33
110
108
317

3.00
1.00
2.00
4.00
2.79

During the twelve months ended December 31, 2017, the Company recorded $274 of share-based compensation
expense and $152 of director retainer fees for shares granted under the 2014 Incentive Plan. At December 31, 2017,
the total compensation cost related to unvested awards not yet recognized is $317, which is expected to be recognized
over the weighted average remaining life of the grants of 2.79 years.

NOTE 17 - FAIR VALUE MEASUREMENT

U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of
observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the
hierarchy are as follows: 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.

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 are determined by using market data inputs for similar securities that are observable.
(Level 2 inputs).

Fair value 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.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 17 - FAIR VALUE MEASUREMENT (Continued)

Other real estate owned: OREO is carried at the lower of cost or fair value, which is measured at the date 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 December 31, 2017 Using:

(Level 1)

(Level 2)

(Level 3)

Assets measured at fair value on a recurring basis:
U.S. Treasury securities and obligations of
U.S. Government agencies............................... $
Obligations of states and political subdivisions....
Mortgage-backed securities in government
sponsored entities .............................................
Equity securities in financial institutions..............
Fair value swap asset ............................................

Liabilities measured at fair value on a recurring
basis:

Fair value swap liability .......................................

Assets measured at fair value on a nonrecurring
basis:

— $
—

30,357 $
118,056

81,817
832
1,560

1,560

—

Impaired Loans ..................................................... $
Other Real Estate Owned......................................

— $
—

1,040
16

Fair Value Measurements at December 31, 2016 Using:

(Level 1)

(Level 2)

(Level 3)

Liabilities measured at fair value on a recurring
basis:

Fair value swap liability .......................................

Assets measured at fair value on a nonrecurring
basis:

— $
—

37,446 $
94,998

62,642
778
1,839

1,839

—

Impaired Loans ..................................................... $
Other Real Estate Owned......................................

— $
—

952
37

—
—

—
—
—

—
—

—
—
—

—

—
—
—

—

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 17 - FAIR VALUE MEASUREMENT (Continued)

The following tables presents quantitative information about the Level 3 significant unobservable inputs for assets
and liabilities measured at fair value on a nonrecurring basis at December 31, 2017 and 2016.

December 31, 2017

Fair Value

Impaired loans .................................. $

1,040

Valuation
Technique
Appraisal of
collateral

Quantitative Information about Level 3 Fair Value Measurements
Unobservable
Input

Range

Weighted
Average

Other real estate owned .................... $

Appraisal of
collateral

December 31, 2016

Fair Value

Impaired loans .................................. $

952

Valuation
Technique
Appraisal of
collateral

Quantitative Information about Level 3 Fair Value Measurements
Unobservable
Input

Range

Weighted
Average

Appraisal
adjustments
Liquidation
expense

0% - 30%

16%

0% - 10%

Holding period

0 - 30 months 20 months

Appraisal
adjustments
Liquidation
expense

10% - 30%

0% - 10%

10%

Appraisal
adjustments
Liquidation
expense

10% - 67%

64%

0% - 10%

Holding period

0 - 30 months 19 months

Appraisal
adjustments
Liquidation
expense

10% - 30%

0% - 10%

10%

Other real estate owned .................... $

Appraisal of
collateral

The carrying amount and fair value of financial instruments were as follows:

December 31, 2017
Financial Assets:

Carrying
Amount

Total

Fair Value

Level 1

Level 2

Level 3

Cash and due from financial institutions ................ $
Securities available for sale ....................................
Loans, held for sale .................................................
Loans, net of allowance for loan losses .................. 1,151,527
Other securities .......................................................
Bank owned life insurance......................................
Accrued interest receivable.....................................
Swap asset ..............................................................

14,247
25,125
4,336
1,560

40,519 $
231,062
2,197

40,519 $
231,062
2,197
1,146,969
14,247
25,125
4,336
1,560

40,519 $

— $
—
— 231,062
—
—
—
— 1,146,969
—
—
—
—
—
—
—
1,560

2,197
—
14,247
25,125
4,336
—

Financial Liabilities:

Nonmaturing deposits .............................................
Time deposits .........................................................
Short-term FHLB advances ....................................
Long-term FHLB advances ....................................
Securities sold under agreement to
repurchase ..........................................................
Subordinated debentures .........................................
Accrued interest payable ........................................
Swap liability ..........................................................

981,021
223,902
56,900
15,000

981,021 981,021
—
223,626
56,900
56,900
—
14,964

—
—
—
—

—
223,626
—
14,964

21,755
29,427
410
1,560

21,755
31,052
410
1,560

21,755
—
410
—

—
—
—
1,560

—
31,052
—
—

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 17 - FAIR VALUE MEASUREMENT (Continued)

December 31, 2016
Financial Assets:

Carrying
Amount

Total

Fair Value Level 1

Level 2

Level 3

36,695 $ 36,695 $
Cash and due from financial institutions ............ $
195,864
Securities available for sale ................................
Loans, held for sale ............................................
2,268
Loans, net of allowance for loan losses .............. 1,042,201 1,047,329
14,055
Other securities ..................................................
24,552
Bank owned life insurance .................................
3,854
Accrued interest receivable ................................
1,839
Swap asset ..........................................................

2,268
—
14,055
24,552
3,854
—

—
— $
—
— 195,864
—
—
— 1,047,329
—
—
—
—
—
—
—
1,839

14,055
24,552
3,854
1,839

36,695 $
195,864
2,268

Financial Liabilities:

Nonmaturing deposits ........................................
Time deposits .....................................................
Short-term FHLB advances ................................
Long-term FHLB advances ................................
Securities sold under agreement to
repurchase ......................................................
Subordinated debentures ....................................
Accrued interest payable ....................................
Swap liability .....................................................

913,677
207,426
31,000
17,500

913,677 913,677
207,784
—
31,000
31,000
—
17,553

—
—
—
—

—
207,784
—
17,553

28,925
29,427
181
1,839

28,925
27,414
181
1,839

28,925
—
181
—

—
—
—
1,839

—
27,414
—
—

The fair value approximates carrying amount for all items except those described below. Fair value for securities is
based on quoted market values for the individual securities or for equivalent securities. For fixed rate loans or deposits
and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using current market rates applied to the cash flow analysis or underlying collateral values. For swaps, fair
value of the swap asset and liability is based on an external derivative model using data inputs as of the valuation date.
Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on
the current fees or cost that would be charged to enter into or terminate such arrangements and are considered nominal.

For certain homogeneous categories of loans, such as some residential mortgages, credit card receivables, and other
consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted
for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 18 - 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 customer financing needs. These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire
without being used. Off-balance-sheet risk to 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 the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end.

2017

2016

Fixed
Rate

Variable
Rate

Fixed
Rate

Variable
Rate

Commitments to extend credit:

Lines of credit and construction loans ................. $
Overdraft protection .............................................
Letters of credit ....................................................
$

4,982 $ 286,925 $
33,353
2,637
5,613 $ 322,915 $

7
624

6,905 $ 202,923
5 29,075
349
7,510 $ 232,347

600

Commitments to make loans are generally made for a period of one year or less. Fixed-rate loan commitments included
above had interest rates ranging from 2.88% to 10.25% at December 31, 2017 and 3.25% to 8.50% at December 31,
2016. 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 $4,112 on
December 31, 2017 and $2,887 on December 31, 2016.

NOTE 19 - CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS

The Company (consolidated) and Civista collectively, the (“Companies”) are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct
material effect on the Companies’ financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Companies must meet specific capital guidelines that involve quantitative
measures of the Companies’ assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP,
regulatory reporting requirements, and regulatory capital standards. The Companies’ capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Companies
to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted
assets, common equity Tier 1 capital to total risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 2017, that the Companies met all capital adequacy requirements to which they were
subject.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 19 - CAPITAL REQUIREMENTS AND RESTRICTION ON RETAINED EARNINGS (Continued)

As of December 31, 2017, and 2016, the most recent notification from the Federal Reserve Bank categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized
the Companies must maintain minimum total risk-based capital, Tier 1 risk-based capital, common equity Tier 1 risk-
based capital, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification
that management believes have changed the institution’s category.

The Company’s and Civista’s actual capital levels and minimum required capital levels at December 31, 2017 and
2016 were as follows:

Actual

Amount Ratio

For Capital
Adequacy Purposes
Amount Ratio

To Be Well

Capitalized Under
Prompt Corrective

Action Purposes

Amount Ratio

2017
Total Risk Based Capital

Consolidated ............................................... $200,772
Civista ........................................................ 161,394

16.6% $ 97,025
96,880
13.3

8.0 %
8.0

n/a
$ 121,100

n/a
10.0%

Tier I Risk Based Capital

Consolidated ............................................... 187,638
Civista ........................................................ 147,473

15.5
12.2

72,769
72,660

6.0
6.0

n/a
96,880

CET1 Risk Based Capital

Consolidated ............................................... 140,853
Civista ........................................................ 136,760

11.6
11.3

54,576
54,495

4.5
4.5

n/a
78,715

Leverage

Consolidated ............................................... 187,638
Civista ........................................................ 147,473

12.7
10.0

59,089
59,031

4.0
4.0

n/a
73,788

n/a
8.0

n/a
6.5

n/a
5.0

2016
Total Risk Based Capital

Consolidated ............................................... $155,145
Civista ........................................................ 145,270

14.2% $ 87,436
87,334
13.3

8.0 %
8.0

n/a
$ 109,168

n/a
10.0%

Tier I Risk Based Capital

Consolidated ............................................... 141,840
Civista ........................................................ 131,391

13.0
12.0

65,577
65,501

6.0
6.0

n/a
87,334

CET1 Risk Based Capital

Consolidated ............................................... 93,463
Civista ........................................................ 120,465

8.6
11.0

49,183
49,126

4.5
4.5

n/a
70,959

Leverage

Consolidated ............................................... 141,840
Civista ........................................................ 131,391

10.6
9.8

53,774
53,717

4.0
4.0

n/a
67,146

n/a
8.0

n/a
6.5

n/a
5.0

CBI’s primary source of funds for paying dividends to its shareholders and for operating expense is the cash
accumulated from dividends received from Civista. Payment of dividends by Civista to CBI is subject to restrictions
by Civista’s regulatory agencies. These restrictions generally limit dividends to the current and prior two years retained
earnings as defined by the regulations. In addition, dividends may not reduce capital levels below minimum regulatory
requirements. At December 31, 2017, Civista had $36,440 net profits available to pay dividends to CBI.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of CBI follows:

Condensed Balance Sheets
Assets:

December 31,

2017

2016

Cash ........................................................................ $
Securities available for sale ....................................
Investment in bank subsidiary ................................
Investment in nonbank subsidiaries ........................
Other assets ............................................................

4,747
778
149,965
12,635
1,226
Total assets ........................................................ $ 216,072 $ 169,351

29,908 $
832
167,192
12,928
5,212

Liabilities:

Deferred income taxes and other liabilities ............ $
Subordinated debentures ........................................
Total liabilities ..................................................

2,184 $
29,427
31,611

2,308
29,427
31,735

Shareholders’ Equity:

18,950
Preferred stock ........................................................
118,975
Common stock........................................................
19,263
Accumulated earnings ............................................
(17,235 )
Treasury Stock........................................................
(2,337 )
Accumulated other comprehensive loss .................
Total shareholders’ equity .................................
137,616
Total liabilities and shareholders’ equity .......... $ 216,072 $ 169,351

17,358
153,810
31,652
(17,235)
(1,124)
184,461

Condensed Statements of Operations
Dividends from bank subsidiaries .............................. $
Interest expense ..........................................................
Pension expense .........................................................
Other expense, net ......................................................
Income (loss) before equity in undistributed net
earnings of subsidiaries ....................................
Income tax benefit ......................................................
Equity in undistributed net earnings of subsidiaries ..
Net income ................................................................. $
Comprehensive income .............................................. $

For the years ended December 31,
2015
2016
2017

— $
(1,035)
(925)
(1,071)

(3,031)
1,407
17,496
15,872 $
17,284 $

— $ 14,226
(760 )
(388 )
(1,755 )

(884 )
(184 )
(920 )

(1,988 )
11,323
676
959
463
18,529
17,217 $ 12,745
15,375 $ 12,297

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)

Condensed Statements of Cash Flows
Operating activities:

Net income ............................................................ $
Adjustment to reconcile net income to net cash
from (used for) operating activities:

Change in other assets and other liabilities .....
Gain on sale of fixed asets...............................
Equity in undistributed net earnings of
subsidiaries .................................................
Net cash (used for) from operating
activities .....................................................

Investing activities:

For the years ended December 31,
2015
2016
2017

15,872 $

17,217 $ 12,745

(2,147)
(66)

1,821
—

1,324
—

(17,496)

(18,529 )

(463 )

(3,837)

509

13,606

Proceeds from sale of premises and equipment ....
Acquisition and additional capitalization of
subsidiary, net of cash acquired .......................
Net cash used for investing activities ..............

138

—

(275)
(137)

—
—

(16,637 )
(16,637 )

Financing activities:

Cash paid on fractional shares on preferred
stock conversion to common stock ..................
Net proceeds from common stock issuance ..........
Payment to repurchase common stock ..................
Cash dividends paid ..............................................

Net cash from (used for) financing
activities .....................................................
Net change in cash and cash equivalents ...................
Cash and cash equivalents at beginning of year .........
Cash and cash equivalents at end of year ................... $

—
32,821
(4)
(3,682)

(1 )
—
—
(3,254 )

—
—
—
(3,139 )

29,135
25,161
4,747
29,908 $

(3,255 )
(2,746 )
7,493
4,747 $

(3,139 )
(6,170 )
13,663
7,493

NOTE 21 - PREFERRED SHARES

On December 19, 2013, the Company completed the sale of 1,000,000 depositary shares, each representing a 1/40th
ownership interest in a 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Share, Series B, of the
Company, with a liquidation preference of $1,000 per share (equivalent to $25.00 per depositary share). The Company
sold the maximum of 1,000,000 depositary shares in the offering, resulting in gross proceeds to the Company of
$25,000.

Using proceeds from the sale of the depositary shares, the Company redeemed all of its outstanding Series A Preferred
Shares for an aggregate purchase price of $22,857, which redemption was completed as of February 15, 2014.

As of December 31, 2017, a total of 750,382 depository shares were outstanding.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 22 - EARNINGS PER COMMON SHARE

The factors used in the earnings per share computation follow.

Basic

2017

2016

2015

Net income ........................................................... $
Preferred stock dividends ....................................
Net income available to common
shareholders—basic ........................................ $
Weighted average common shares
outstanding—basic .......................................... 9,906,856 8,010,399 7,822,369
1.43

Basic earnings per share ................................. $

17,217 $
1,501

15,872 $
1,244

12,745
1,577

15,716 $

14,628 $

11,168

1.96 $

1.48 $

Diluted

Net income available to common
shareholders—basic ........................................ $
Preferred stock dividends on convertible
preferred stock ................................................

Net income available to common
shareholders—diluted ................................ $

14,628 $

15,716 $

11,168

1,244

1,501

1,577

15,872 $

17,217 $

12,745

Weighted average common shares outstanding
for earnings per common share basic .............. 9,906,856 8,010,399 7,822,369
Add: dilutive effects of convertible preferred
shares .............................................................. 2,445,760 2,940,562 3,095,966

Average shares and dilutive potential
common shares outstanding—diluted ....... 12,352,616 10,950,961 10,918,335
1.17

Diluted earnings per share ................................... $

1.57 $

1.28 $

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

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 23 - QUARTERLY FINANCIAL DATA (UNAUDITED)

Interest
Income

Net
Interest
Income

Net
Income

Basic
Earnings
per
Common
Share

Diluted
Earnings
per
Common
Share

2017

First quarter (1)(2) .............................................. $ 13,692 $ 12,892 $
13,367
Second quarter (3)(4) .........................................
13,680
Third quarter (3) .................................................
14,563
Fourth quarter (3)(5) ..........................................

14,228
14,836
15,838

2016

First quarter (1)(2) .............................................. $ 13,053 $ 12,235 $
12,940
Second quarter (5)(6) .........................................
12,526
Third quarter (7) .................................................
12,558
Fourth quarter (8) ...............................................

13,739
13,370
13,405

4,635 $
3,596
3,660
3,981

4,725 $
5,181
3,680
3,631

0.47 $
0.32
0.33
0.36

0.55 $
0.61
0.41
0.39

0.40
0.29
0.29
0.30

0.43
0.47
0.34
0.33

(1)

Interest income and net interest income increased due to loan volume and rate and volume on interest-bearing
deposits in other banks.

(2) Net income increased due to fees on tax refund processing program.

(3)

Interest income and net interest income increased due to increases in loan volume and rate.

(4) Net income decreased due to a decrease in fees on the tax refund processing program.

(5)

Interest income and net interest income increased due to interest recoveries on non-performing loans.

(6) Net income increased due to interest recoveries and provision credit.

(7)

Interest income, net interest income and net income decreased due to previous quarter interest recoveries and
provision credit.

(8)

Interest income and net interest income increased due to loan volume and interest recoveries.

NOTE 24 - 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.

CIVISTA BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Amounts in thousands, except share data)

NOTE 24 - DERIVATIVE HEDGING INSTRUMENTS (Continued)

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

Weighted
Average Rate
Received/
(Paid)

Notional
Amount

Impact of a
1 basis
point change
in interest rates

Derivative Assets ...................................................... $ 66,227
(66,227)
Derivative Liabilities ................................................
—
Net Exposure ............................................................ $

5.08% $
-5.08%
$

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, 2016.

Weighted
Average Rate
Received/
(Paid)

Notional
Amount

Impact of a
1 basis
point change
in interest rates

Derivative Assets ...................................................... $ 52,975
(52,975)
Derivative Liabilities ................................................
—
Net Exposure ............................................................ $

5.07% $
-5.07%
$

Repricing
Frequency
36 Monthly
(36 ) Monthly
—

Repricing
Frequency
30 Monthly
(30 ) Monthly
—

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.

NOTE 25 – QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company invests in qualified affordable housing projects. At December 31, 2017 and 2016, the balance of the
Company’s investments in qualified affordable housing projects was $3,204 and $2,754, respectively. These balances
are reflected in the other assets line on the Consolidated Balance Sheet. The unfunded commitments related to the
investments in qualified affordable housing projects totaled $4,510 and $2,313 at December 31, 2017 and 2016,
respectively.

During the years ended December 31, 2017 and 2016, the Company recognized amortization expense with respect to
its investments in qualified affordable housing projects of $354 and $304, respectively, which was included within
pre-tax income on the Consolidated Statements of Operations.

Additionally, during the years ended December 31, 2017 and 2016, the Company recognized tax credits and other
benefits from its investments in affordable housing tax credits of $686 and $538, respectively. During the years ended
December 31, 2017 and 2016, the Company did not incur impairment losses related to its investment in qualified
affordable housing project.

CIVISTA
BANCSHARES, INC.

Directors
Thomas A. Depler
Attorney, Poland, Depler & Shepherd Co., LPA

Allen R. Maurice
Attorney, Wagner, Maurice & Davidson Co., LPA

James O. Miller
Chairman of the Board, Civista Bancshares, Inc.
Chairman of the Board, Civista Bank

Dennis E. Murray, Jr.
Lead Director
Partner, Murray & Murray Co., LPA

Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA
Of Counsel, Payne, Nickles & Company

M. Patricia Oliver
Partner, Tucker Ellis LLP

Dennis G. Shaffer
CEO and President, Civista Bancshares, Inc.

J. William Springer
President and CEO, Industrial Nut Corp.

Daniel J. White
International Business Consultant

Officers
James O. Miller
Chairman of the Board, Civista Bancshares, Inc.
Chairman of the Board, Civista Bank

Dennis G. Shaffer
CEO and President, Civista Bancshares, Inc.

John A. Betts
Senior Vice President

Richard J. Dutton
Senior Vice President

Donna M. Jaskolski
Senior Vice President

James E. McGookey
Senior Vice President, General Counsel
and Corporate Secretary

Todd A. Michel
Senior Vice President

Charles A. Parcher
Senior Vice President

Paul J. Stark
Senior Vice President

CIVISTA
BANK

Directors
John O. Bacon
President and CEO, The Mack Iron Works Company

Barry W. Boerger
Self-Employed Farmer

Thomas A. Depler
Attorney, Poland, Depler & Shepherd Co., LPA

Blythe A. Friedley
Owner/President, Friedley & Co. Agency, Inc.

Allen R. Maurice
Attorney, Wagner, Maurice & Davidson Co., LPA

James O. Miller
Chairman of the Board, Civista Bancshares, Inc.
Chairman of the Board, Civista Bank

Dennis E. Murray, Jr.
Partner, Murray & Murray Co., LPA

Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA
Of Counsel, Payne, Nickles & Company

M. Patricia Oliver
Partner, Tucker Ellis LLP

Dennis G. Shaffer
CEO and President, Civista Bank

Harry Singer
President and CEO, Sandusco, Inc.
and ICM Distributing Company, Inc.

J. William Springer
President and CEO, Industrial Nut Corp.

Daniel J. White
International Business Consultant

Gerald B. Wurm
President, Wurm’s Woodworking Co.

Directors Emeritus
Civista Bancshares, Inc. and Civista Bank

James D. Heckelman
Founder, Dan-Mar Co., Inc.

David A. Voight
Former Chairman of the Board, Civista Bancshares, Inc.

SHAREHOLDER INFORMATION

Annual Meeting of the Civista Bancshares, Inc. Shareholders
Tuesday, April 17, 2018 at 10:00 a.m.
Bowling Green State University, Firelands College, Huron, OH

Civista Bancshares, Inc.
100 East Water Street
Sandusky, OH 44870
Tel:
Toll Free:
Fax:
www.civb.com

(419) 625-4121
(888) 645-4121
(419) 627-3359

As a Civista Bancshares, Inc. shareholder, we encourage you to access your account(s) online at
www.amstock.com. Here you can easily initiate a number of transactions and inquiries as well as access
important details about your portfolio and general stock transfer information.

• Update your mailing address
• Access statement information
• Print a duplicate 1099 tax form
• Consolidate accounts
• Enroll in our Direct Stock Purchase Plan
• Request a replacement dividend check
• Download stock transfer forms
• And more

You may also access this information via the Interactive Voice Response (IVR) system by calling
(800) 937-5449. Outside of the US, dial (718) 921-8124.

By mail, contact our Transfer Agent at the below address:

Civista Bancshares, Inc.
c/o American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219