CIVISTA BANCSHARES, INC. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction The following discussion focuses on the consolidated financial condition of the Company at March 31, 2025 compared to December 31, 2024, and the consolidated results of operations for the three month period ended March 31, 2025, compared to the same period in 2024. This discussion should be read in conjunction with the unaudited consolidated financial statements and notes included in this Quarterly Report on Form 10-Q. Forward-Looking Statements This Quarterly Report on Form 10-Q 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. Such forward-looking statements could include, but are not limited to: • current and future economic and financial market conditions, including the effects of inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, an increasing federal government budget deficit, slowing gross domestic product, tariffs, trade wars, and other factors beyond our control, any of which may result in adverse impacts on our deposit levels and composition, the quality of investment securities available for purchase, demand for loans, the ability of our borrowers to repay their loans, and the value of the collateral securing loans made by Civista; • recent and future bank failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational impact on the banking industry as a whole, any of which could adversely affect the Company’s business, financial condition and results of operations; • adverse changes in the real estate market, which could cause increases in delinquencies and non-performing assets, including additional loan charge-offs, and could depress our income, earnings and capital; • changes in interest rates resulting from national and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the Federal Reserve System, which may adversely affect interest rates, interest margins, loan demand and interest rate sensitivity; • operational risks, reputational risks, legal and compliance risks, and other risks related to potential fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, or failures, disruptions or breaches in security of our systems, including those resulting from computer viruses or cyber-attacks; • our ability to secure sensitive or confidential client information against unauthorized disclosure or access through computer systems and telecommunication networks, including those of our third-party vendors and other service providers, which may prove inadequate; • a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber-attacks; • competitive pressures and factors among financial services organizations could increase significantly, including product and pricing pressures, changes to third-party relationships and our ability to recruit and retain qualified management and banking personnel; • unexpected losses of services of our key management personnel, or the inability to recruit and retain qualified personnel in the future; • risks inherent in pursuing strategic growth initiatives, including integration and other risks involved in past and possible future acquisitions; • uncertainty regarding the nature, timing, cost and effect of legislative or regulatory changes in the banking industry or otherwise affecting the Company, including major reform of the regulatory oversight structure of the financial services industry; • changes in federal, state and/or local tax laws; Page 36 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) • the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (FASB), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect our reported financial condition or results of operations; • litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or inquiries; • continued availability of earnings and dividends from Civista and excess capital sufficient for us to service our debt and pay dividends to our shareholders in compliance with applicable legal and regulatory requirements; • our ability to raise additional capital in the future if and when needed and/or on terms acceptable to us; • our ability to conform and comply with regulatory requirements and increasing scrutiny and evolving expectations from customers, regulatory authorities, shareholders, investors and other stakeholders with regard to our environmental, social and governance (ESG) policies and practices, which could affect our reputation and business and operating results; • our ability to anticipate and successfully keep pace with technological changes affecting the financial services industry; and • other risks identified from time-to-time in the Company’s other public documents on file with the SEC, including those risks identified in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024. The Company does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law. Financial Condition Total assets of the Company at March 31, 2025 were $4,146,717 compared to $4,098,469 at December 31, 2024, an increase of $48,248, or 1.2%. The increase in total assets was mainly due to increases in net loans of $22,191 and cash and cash equivalents of $27,301. These increases were partially offset by decreases in available-for-sale securities of $1,922, premises and equipment of $2,059, and swap assets of $2,463. Total liabilities at March 31, 2025 were $3,749,283 compared to $3,709,967 at December 31, 2024, an increase of $39,316, or 1.1%. The increase in total liabilities was primarily attributable to increases in total deposits of $27,018 and short-term FHLB advances of $21,000, partially offset by decreases in swap liabilities of $2,723 and accrued expenses and other liabilities of $5,721. Loans outstanding as of March 31, 2025 and December 31, 2024 were as follows: March 31, 2025 December 31, 2024 $ Change % Change Commercial & Agriculture $ 330,627 $ 328,488 $ 2,139 0.7 % Commercial Real Estate—Owner Occupied 378,095 374,367 3,728 1.0 % Commercial Real Estate—Non-Owner Occupied 1,246,025 1,225,991 20,034 1.6 % Residential Real Estate 773,349 763,869 9,480 1.2 % Real Estate Construction 297,589 305,992 (8,403 ) -2.7 % Farm Real Estate 22,399 23,035 (636 ) -2.8 % Lease Financing Receivables 44,570 46,900 (2,330 ) -5.0 % Consumer and Other 11,382 12,588 (1,206 ) -9.6 % Total loans 3,104,036 3,081,230 22,806 0.7 % Allowance for credit losses (40,284 ) (39,669 ) (615 ) 1.6 % Net loans $ 3,063,752 $ 3,041,561 $ 22,191 0.7 % Loans held for sale increased $3,659, or 550.2%, since December 31, 2024. The increase was due to increases in both the number of loans and average loan balances held for sale. At March 31, 2025, 16 loans totaling $4,324 were held for sale as compared to 6 loans totaling $665 at December 31, 2024. Page 37 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Net loans have increased $22,191, or 0.7%, since December 31, 2024. The increase at March 31, 2025 can be attributed to increases in four categories, primarily Commercial Real Estate – Non-Owner Occupied and Residential Real Estate, partially offset by a decrease in Real Estate Construction. At March 31, 2025, the net loan to deposit ratio was 95.8% compared to 95.9% at December 31, 2024. During the first three months of 2025, provisions made to the allowances for credit losses and off-balance sheet credit exposures totaled $1,567, compared to a provision of $1,992 during the same period in 2024. The decrease in provision is primarily the result of a recapture of credit losses on commercial and agriculture resulting from a decrease in specific reserves related to one large credit that made a significant paydown during the first quarter of 2025. Commercial and agriculture delinquencies increased significantly during the quarter, primarily in the 30-59 days past due category, which increased from $825 at December 31, 2024 to $9,315 at March 31, 2025; however, this had limited impact on required reserves as $7,704 of the 30-59 days past due balance related to two large credits that were on nonaccrual and individually evaluated as of both March 31, 2025 and December 31, 2024. At December 31, 2024 these credits were current. That recapture of credit losses on commercial and agriculture was offset by provision expense to restore the reserves on commercial real estate non-owner occupied after recognizing $800 in charge-offs during the quarter and to fund additional reserves on the residential real estate and real estate construction segments resulting from slower prepayment speed and higher unemployment forecast assumptions. Reserves on the lease financing receivables portfolio decreased slightly during the first quarter of 2025, consistent with the slight decrease in the outstanding balance of lease financing receivables from December 31, 2024 to March 31, 2025, maintaining a consistent percentage of reserves to lease balance. Total delinquencies on lease financing receivables increased from December 31, 2024 to March 31, 2025; however, the severity of delinquencies improved. Lease financing receivables 30-59 days past due increased, while the balance of 60-89 days past due and 90 days or greater past due both decreased. Nonaccrual lease finance receivables also decreased from $1,238 at December 31, 2024 to $470 at March 31, 2025. Net charge-offs for the first three months of 2025 totaled $633, compared to net charge-offs of $353 for the same period of 2024. For the first three months of 2025, the Company charged off a total of 13 loans, consisting of three Commercial & Agriculture loans totaling $72, four Lease Financing Receivables totaling $90, one Commercial Real Estate – Non-Owner Occupied loan for $800, and five Consumer and Other loans totaling $14. The Commercial Real Estate - Non-Owner Occupied charge-off of $800 is related to a loan that was previously identified and actively monitored by management, classified as nonaccrual and individually evaluated as of both December 31, 2024 and March 31, 2025. In addition, during the first three months of 2025, the Company had recoveries on previously charged-off Commercial & Agriculture loans of $291, Commercial Real Estate – Owner Occupied loans of $5, Residential Real Estate loans of $14, Leasing Finance Receivables of $25 and Consumer and Other loans of $8. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by credit type as well as the overall level of the allowance. Management specifically evaluates loans that do not share common risk characteristics for estimates of loss. To evaluate the adequacy of the allowance for credit losses to cover probable losses in the loan portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. Larger (greater than $350) Commercial & Agricultural and Commercial Real Estate loan relationships, as well as Residential Real Estate and Consumer loans and Lease financing receivables that are part of a larger relationship are individually evaluated on a quarterly basis, when they do not share similar risk characteristics with the collectively evaluated pools. 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 loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. The Company’s policy for recognizing interest income on individually evaluated loans does not differ from its overall policy for interest recognition. Loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for credit losses as a percent of total loans was 1.30% at March 31, 2025 and 1.29% at December 31, 2024. The available-for-sale securities portfolio decreased by $1,922, from $648,067 at December 31, 2024 to $646,145 at March 31, 2025. Management continually evaluates our securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which the Company is exposed. These evaluations Page 38 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) may cause the Company to change the level of funds it deploys into investment securities and change the composition of its investment securities portfolio. As of March 31, 2025, the Company was in compliance with all pledging requirements. Premises and equipment, net, decreased $2,059 from December 31, 2024 to March 31, 2025. The decrease was the result of depreciation of $1,833 and disposals of $76, partially offset by purchases of $161. The decrease in depreciation was mainly attributable to leasing operations as operating leases mature. Since mid-2024, new lease originations have primarily consisted of finance leases which are recorded in loans on the Consolidated Balance Sheets. Bank owned life insurance ("BOLI") increased $387 from December 31, 2024 to March 31, 2025. The increase was the result of increases in the cash surrender value of the underlying insurance policies. Swap assets decreased $2,463 from December 31, 2024 to March 31, 2025. The decrease was primarily the result of a decline in market value. Total deposits as of March 31, 2025 and December 31, 2024 were as follows: March 31, 2025 December 31, 2024 $ Change % Change Noninterest-bearing demand $ 648,683 $ 695,094 $ (46,411 ) -6.7 % Interest-bearing demand 467,601 419,583 48,018 11.4 % Savings and money market 1,146,480 1,126,974 19,506 1.7 % Time deposits 515,910 469,954 45,956 9.8 % Brokered deposits 460,214 500,265 (40,051 ) -8.0 % Total Deposits $ 3,238,888 $ 3,211,870 $ 27,018 0.8 % The Company had approximately $456,569 and $431,713 of uninsured deposits as of March 31, 2025 and December 31, 2024, respectively. Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limit of $250. Total deposits at March 31, 2025 increased $27,018 from December 31, 2024. Noninterest-bearing deposits decreased $46,411 from December 31, 2024, while interest-bearing deposits, including savings and time deposits, increased $73,429 from December 31, 2024. The decrease in noninterest-bearing deposits was primarily due to a $62,499 decrease in noninterest-bearing business accounts mainly due to seasonality, as the first quarter of each year normally sees a decline in business accounts primarily due to tax payments, partially offset by an increase of $11,300 in noninterest-bearing public funds accounts. The increase in interest-bearing demand deposits was primarily due to an increase of $56,267 in interest-bearing public funds accounts, slightly offset by a decrease of $6,276 in Jumbo NOW accounts. The $19,506 increase in savings and money market accounts was primarily due to a $41,791 increase in business money market accounts, and a $5,726 increase in statement savings accounts, mostly offset by a decrease of $22,682 in reciprocal deposits. The $45,956 increase in time deposits was due to increases of $17,569 in jumbo time deposits, $15,622 in retail time deposits, and $19,689 in time certificates over $250, which were slightly offset by a decrease if $7,611 in reciprocal time deposits. The year-to-date average balance of total deposits increased $252,894, compared to the average balance for the same period in 2024, mainly due to a increases of $142,265 in the average balance of time deposits and $110,629 in the average balance of demand and savings, partially offset by a $41,767 decrease in the average balance of noninterest-bearing deposits. Short-term FHLB advances increased $21,000 from December 31, 2024 to March 31, 2025 for purposes of funding loan growth prior to receiving one large deposit on March 31, 2025. The short-term advance was paid off the following day. Swap liabilities decreased $2,723 from December 31, 2024 to March 31, 2025. The decrease was the result of a decrease in fair value of swap liabilities. Accrued expenses and other liabilities decreased $5,721 from December 31, 2024 to March 31, 2025. The decrease was due to a decrease in accrued interest on brokered CDs of $3,019 as a result of interest payments in the first quarter of 2025; and a decrease in accrued commissions and incentives of $2,730 relating to accrued earned commissions and performance incentives being paid in the first quarter of 2025 . Page 39 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Shareholders’ equity at March 31, 2025 was $397,434, or 9.6% of total assets, compared to $388,502, or 9.5% of total assets, at December 31, 2024. The increase was as a result of net income of $10,168 and an increase in the fair value of securities, net of tax, of $1,408, partially offset by dividends paid on common shares of $2,632. Total outstanding common shares at March 31, 2025 were 15,519,072, which increased from 15,487,667 common shares outstanding at December 31, 2024. Common shares outstanding increased due to the grant of 39,587 restricted common shares to certain officers under the Company’s 2024 Incentive Plan, partially offset by 8,182 common shares surrendered by officers to the Company to pay taxes upon vesting of restricted shares. Results of Operations Three Months Ended March 31, 2025 and 2024 The Company had net income of $10,168 for the three months ended March 31, 2025, an increase of $3,808 from net income of $6,360 for the same period of 2024. Basic and diluted earnings per common share were $0.66 for the quarter ended March 31, 2025, compared to $0.41 for the same period of 2024. The primary reasons for the changes in net income are explained below. Net interest income for the three months ended March 31, 2025 was $32,773, an increase of $4,401 from $28,372 for the same period of 2024. This increase was a result of an increase of $3,605 in total interest and dividend income, coupled with a $796 decrease in total interest expense. Total interest-earning assets averaged $3,801,709 during the three months ended March 31, 2025, an increase of $249,157 from $3,552,552 for the same period of 2024. The Company’s total average interest-bearing liabilities increased from $2,720,586 during the three months ended March 31, 2024 to $2,999,661 during the three months ended March 31, 2025. The Company’s fully tax equivalent net interest margin for the three months ended March 31, 2025 and 2024 was 3.51% and 3.22%, respectively. Total interest and dividend income was $53,733 for the three months ended March 31, 2025, an increase of $3,605 from $50,128 for the same period of 2024. The increase in interest and dividend income is attributable to a $3,162 increase in interest and fees on loans and a $621 increase in interest income on taxable securities. The $3,605 increase in interest and fees on loans is attributable to increases in both average balances and loan yield. The average balance of loans increased by $219,409, or 7.6%, to $3,099,440 for the three months ended March 31, 2025, as compared to $2,880,031 for the same period of 2024. The loan yield increased to 6.23% for the three months ended March 31, 2025, from 6.20% for the same period of 2024. Interest on taxable securities increased $621 to $3,555 for the three months ended March 31, 2025, compared to $2,934 for the same period of 2024. The average balance of taxable securities increased $46,078 to $396,893 for the three months ended March 31, 2025, as compared to $350,815 for the same period of 2024. The yield on taxable securities increased 31 basis points to 3.31% for the three months ended March 31, 2025, compared to 3.00% for the same period of 2024 resulting from the purchase of similar securities with higher rates due to the yield curve change from the first quarter of 2025 compared to the same period of 2024. Interest on tax-exempt securities decreased $35 to $2,340 for the three months ended March 31, 2025, compared to $2,375 for the same period of 2024. The average balance of tax-exempt securities decreased $8,907 to $286,481 for the three months ended March 31, 2025, as compared to $295,388 for the same period of 2024. The yield on tax-exempt securities increased 6 basis points to 3.91% for the three months ended March 31, 2025, compared to 3.85% for the same period of 2024. Total interest expense decreased $796, or 3.7%, to $20,960 for the three months ended March 31, 2025, compared with $21,756 for the same period of 2024. For the three months ended March 31, 2025, the average balance of interest-bearing liabilities increased $285,504 to $3,006,090, as compared to $2,720,586 for the same period of 2024. Interest incurred on deposits decreased by $271 to $15,716 for the three months ended March 31, 2025, compared to $15,987 for the same period of 2024. The average balance of interest-bearing deposits increased by $252,893 to $2,538,560 for the three months ended March 31, 2025, as compared to the same period in 2024, slightly offset by a decrease in the rate paid on time deposits from 5.33% in 2024 to 4.22% in 2025. The decrease in rates on time deposits is primarily related to paying lower rates on retail and brokered CDs due to the lower rate environment in the first quarter of 2025 compared to the same period of 2024. Interest expense incurred on short-term FHLB advances decreased because of the yield curve shifting downwards during the first three months of 2025 compared to the same period of 2024. The following table presents the condensed average balance sheets for the three months ended March 31, 2025 and 2024. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using Page 40 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities. Three Months Ended March 31, 2025 2024 Assets: Average balance Interest Yield/ rate* Average balance Interest Yield/ rate* Interest-earning assets: Loans, including fees** $ 3,099,440 $ 47,646 6.23 % $ 2,880,031 $ 44,485 6.20 % Taxable securities 396,893 3,555 3.31 % 350,815 2,934 3.00 % Tax-exempt securities 286,481 2,340 3.91 % 295,388 2,375 3.85 % Interest-bearing deposits in other banks 18,895 192 4.13 % 26,318 334 5.09 % Total interest-earning assets $ 3,801,709 $ 53,733 5.71 % $ 3,552,552 $ 50,128 5.64 % Noninterest-earning assets: Cash and due from financial institutions 43,203 29,599 Premises and equipment, net 46,404 54,980 Accrued interest receivable 13,567 12,724 Intangible assets 133,268 134,872 Bank owned life insurance 62,916 58,472 Other assets 58,588 61,456 Less allowance for loan losses (39,956 ) (37,356 ) Total Assets $ 4,119,699 $ 3,867,299 Liabilities and Shareholders Equity: Interest-bearing liabilities: Demand and savings $ 1,578,949 $ 5,729 1.47 % $ 1,383,225 $ 3,986 1.15 % Time 959,611 9,987 4.22 % 902,442 12,001 5.33 % Short-term FHLB advances 355,589 3,929 4.48 % 328,687 4,515 5.51 % Long-term FHLB advances 1,408 9 2.56 % 2,275 13 2.29 % Other borrowings 6,430 145 9.14 % — — 0.00 % Subordinated debentures 104,103 1,161 4.52 % 103,957 1,241 4.79 % Total interest-bearing liabilities $ 3,006,090 $ 20,960 2.83 % $ 2,720,586 $ 21,756 3.21 % Noninterest-bearing deposits 670,774 712,483 Other liabilities 45,813 63,778 Shareholders’ Equity 397,021 370,452 Total Liabilities and Shareholders’ Equity $ 4,119,698 $ 3,867,299 Net interest income and interest rate spread (1) $ 32,773 2.88 % $ 28,372 2.43 % Net interest margin (2) 3.51 % 3.22 % (1) Net interest spread represents the difference between the yield on average interest-earning assets and the cost of interest-bearing liabilities. (2) Net interest margin represents net interest income divided by average interest-earning assets. * Average yields are presented on a tax equivalent basis. The tax equivalent effect associated with loans and investments, included in the yields above, was $622 and $632 for the periods ended March 31, 2025 and 2024, respectively. ** Average balance includes nonaccrual loans. Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended March 31, 2025 and 2024. Page 41 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Increase (decrease) due to: Volume (1) Rate (1) Net (Dollars in thousands) Interest income: Loans, including fees $ 3,374 $ (213 ) $ 3,161 Taxable securities 341 280 621 Tax-exempt securities (48 ) 13 (35 ) Interest-bearing deposits in other banks (83 ) (59 ) (142 ) Total interest income $ 3,584 $ 21 $ 3,605 Interest expense: Demand and savings $ 616 $ 1,127 $ 1,743 Time 723 (2,737 ) (2,014 ) Short-term FHLB advances 348 (934 ) (586 ) Long-term FHLB advances (5 ) 1 (4 ) Other borrowings 145 — 145 Subordinated debentures 2 (82 ) (80 ) Total interest expense $ 1,829 $ (2,625 ) $ (796 ) Net interest income $ 1,755 $ 2,646 $ 4,401 (1) The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate. The Company provides for loan losses through regular provisions to the allowance for credit losses. During the three months ended March 31, 2025, the Company recorded a provision for credit losses of $1,567, a decrease of $425, from $1,992 during the three months ended March 31, 2024. Noninterest income for the three-month periods ended March 31, 2025 and 2024 was as follows: Three Months Ended March 31, 2025 2024 $ Change % Change Service charges $ 1,524 $ 1,440 $ 84 5.8 % Net gain (loss) on equity securities (29 ) (141 ) 112 -79.4 % Net gain on sale of loans and leases 604 863 (259 ) -30.0 % ATM/Interchange fees 1,326 1,383 (57 ) -4.1 % Wealth management fees 1,340 1,276 64 5.0 % Lease revenue and residual income 1,896 1,674 222 13.3 % Bank owned life insurance 387 350 37 10.6 % Swap fees 72 57 15 26.3 % Other 740 1,354 (614 ) -45.3 % Total noninterest income $ 7,860 $ 8,256 $ (396 ) -4.8 % Total noninterest income for the three months ended March 31, 2025 was $7,860, a decrease of $396, or 4.8%, from $8,256 for the same period of 2024. Other income decreased $614 for the three months ended March 31, 2025, compared to the same period of 2025, mostly related to lower fee revenue from CLF. Net gain on sale of loans and leases decreased $259 for the three months ended March 31, 2025, compared to the same period of 2024, primarily due to lower originations. Net gain (loss) on equity securities increased $112 as a result Page 42 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) of the decrease in market value being less in the first quarter of 2025 compared to the same period in 2024 coupled with an increase of $222 in lease revenue and residual income from stronger lease originations. Noninterest expense for the three-month periods ended March 31, 2025 and 2024 was as follows: Three Months Ended March 31, 2025 2024 $ Change % Change Compensation expense $ 14,043 $ 15,457 $ (1,414 ) -9.1 % Net occupancy expense 1,634 1,368 266 19.4 % Contracted data processing 567 545 22 4.0 % FDIC Assessment 873 484 389 80.4 % State franchise tax 526 485 41 8.5 % Professional services 2,090 1,149 941 81.9 % Equipment expense 2,103 2,535 (432 ) -17.0 % ATM/Interchange expense 580 625 (45 ) -7.2 % Marketing 296 479 (183 ) -38.2 % Amortization of core deposit intangibles 332 391 (59 ) -15.1 % Software maintenance expense 1,277 $ 1,189 88 7.4 % Other 2,805 $ 2,734 71 2.6 % Total noninterest expense $ 27,126 $ 27,441 $ (315 ) -1.1 % Total noninterest expense for the three months ended March 31, 2025 was $27,126, a decrease of $315, or 1.1%, from $27,441 reported for the same period of 2024. The decrease in total noninterest expense was primarily due to decreases in compensation expense and equipment expense, mostly offset by increases in professional services and FDIC assessment. The decrease in compensation expense was primarily due to lower employee benefit costs, lower full time equivalent employees ("FTE"), coupled with an increase in the deferral of salaries and wages related to the loan growth in the first three months of 2025. The decrease in equipment expense was mainly due to normal depreciation as well as decreases in expenses related to operating lease contracts. The increase in professional fees was attributable to utilizing consultants to assist in the transitioning of the new core operating system at CLF. The increase in FDIC assessment was due to an increase in the total assessment base resulting from the Company's overall balance sheet growth year-over-year. The average FTEs were 520 at March 31, 2025, a decrease of 19 FTEs over the same period of 2024. Income tax expense for the three months ended March 31, 2025 totaled $1,772, up $937 compared to the same period of 2024. The effective tax rates for the three-month periods ended March 31, 2025 and 2024 were 14.8% and 11.6%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low-income housing tax credits, tax-deductible captive insurance premiums and bank owned life insurance income. Capital Resources Shareholders’ equity totaled $397,434 at March 31, 2025, compared to $388,502 at December 31, 2024. Shareholders’ equity increased during the first three months of 2025 as a result of net income of $10,168 and an increase in the fair value of securities available-for-sale, net of tax, of $1,408, partially offset by dividends on common shares of $2,632. All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of March 31, 2025 and December 31, 2024 as identified in the following table: Total Risk Based Capital Tier I Risk Based Capital CET1 Risk Based Capital Leverage Ratio Company Ratios—March 31, 2025 14.5 % 11.0 % 10.0 % 8.7 % Company Ratios—December 31, 2024 13.9 % 10.4 % 9.5 % 8.6 % For Capital Adequacy Purposes 8.0 % 6.0 % 4.5 % 4.0 % To Be Well Capitalized Under Prompt Corrective Action Provisions 10.0 % 8.0 % 6.5 % 5.0 % Page 43 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Liquidity The Company maintains a conservative liquidity position. All securities, with the exception of equity securities, are classified as available-for-sale. Securities, with maturities of one year or less, totaled $8,840, or 1.25% of the total security portfolio, at March 31, 2025. The available-for-sale securities portfolio helps to provide the Company with the ability to meet its funding needs. The Condensed Consolidated Statements of Cash Flows (Unaudited) contained in the Consolidated Financial Statements detail the Company’s cash flows from operating activities resulting from net earnings. As reported in the Condensed Consolidated Statements of Cash Flows (Unaudited), our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $3,612 and $752 for the three months ended March 31, 2025 and 2024, respectively. The primary additions to cash from operating activities are from proceeds from the sale of loans. The primary use of cash from operating activities is from loans originated for sale. Net cash used for investing activities was $21,231 and $34,172 for the three months ended March 31, 2025 and 2024, respectively, principally reflecting our loan and investment security activities. Cash provided by financing activities was $44,920 and $23,324 for the three months ended March 31, 2025 and 2024, respectively. The primary additions in financing activities is the increase in deposits and short-term FHLB advances, partially offset by the payment of common dividends. Future loan demand of Civista may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available-for-sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $50,000. As of March 31, 2025, Civista had total credit availability with the FHLB of $870,985 with standby letters of credit totaling $125,400 and a remaining borrowing capacity of approximately $384,230. In addition, CBI maintains a credit line with a third party lender totaling $10,000. No borrowings were outstanding by CBI under this credit line as of March 31, 2025. Page 44 Civista Bancshares, Inc. Quantitative and Qualitative Disclosures About Market Risk Form 10-Q (Amounts in thousands, except share data) ITEM 3. Quantitative and Qualitat ive Disclosures About Market Risk The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Company’s safety and soundness. Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality. The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, issue policy statements and guidance on sound practices for managing interest-rate risk, which form the basis for ongoing evaluation of the adequacy of interest-rate risk management at supervised institutions. The guidance also outlines fundamental elements of sound management and discusses the importance of these elements in the context of managing interest-rate risk. 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. Page 45 Civista Bancshares, Inc. Quantitative and Qualitative Disclosures About Market Risk Form 10-Q (Amounts in thousands, except share data) Several ways an institution can manage interest-rate risk include selling existing assets or repaying certain liabilities; matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or securities; and hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest-rate risk. Interest rate swaps, futures contracts, options on futures, and other such derivative financial instruments often are used for this purpose. Because these instruments are sensitive to interest rate changes, they require management expertise to be effective. The Company has not purchased derivative financial instruments to hedge interest rate risk in the past and does not currently intend to purchase such instruments in the near future. Financial institutions are also subject to prepayment risk in falling rate environments. For example, mortgage loans and other financial assets may be prepaid by a debtor so that the debtor may refinance its obligations at new, lower rates. Prepayments of assets carrying higher rates reduce the Company’s interest income and overall asset yields. A large portion of an institution’s liabilities may be short-term or due on demand, while most of its assets may be invested in long-term loans or securities. Accordingly, the Company seeks to have in place, sources of cash to meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or selling assets. FHLB advances and wholesale borrowings may also be used as important sources of liquidity for the Company. The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, 2024 and March 31, 2025, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Company’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of up to 400 basis points from 100 basis points and interest rate decreases of 100 basis points and up to 400 basis points at March 31, 2025 and December 31, 2024. Net Portfolio Value March 31, 2025 December 31, 2024 Change in Rates Dollar Amount Dollar Change Percent Change Dollar Amount Dollar Change Percent Change +400bp 681,623 51,165 8 % 649,236 46,009 8 % +300bp 671,860 41,402 7 % 640,723 37,496 6 % +200bp 660,729 30,271 5 % 630,945 27,718 5 % +100bp 648,385 17,927 3 % 620,021 16,794 3 % Base 630,458 — 0 % 603,227 — 0 % -100bp 612,441 (18,017 ) (3 )% 584,528 (18,699 ) (3 )% -200bp 584,558 (45,900 ) (7 )% 556,163 (47,064 ) (8 )% -300bp 569,453 (61,005 ) (10 )% 530,688 (72,539 ) (12 )% -400bp 639,958 9,500 2 % 593,087 (10,140 ) (2 )% The change in net portfolio value from December 31, 2024 to March 31, 2025, can be attributed to a couple of factors. The yield curve has widened since last year with the short-end shifting down and the long-end shifting upward. Additionally, the volume of assets and funding sources has changed, but the asset mix remains centered on loan and deposits. The volume of loans and deposits has increased, while the volume of short-term FHLB advances and other borrowings has decreased. The volume shifts from the end of the year contributed to an increase in the base net portfolio value. 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 the 100, 200, 300 and 400 basis point movements would lead to a slightly larger increase in the market value of liabilities than assets. Accordingly, the Company sees an increase in the net portfolio value. The change in the rates down scenarios for the 100, 200, and 300 basis point movements would lead to a larger decrease in the market value of liabilities than in assets, leading to a decrease in the net portfolio value with the exception of the down 400 basis point which has a higher market value of assets then liabilities. Page 46 Civista Bancshares, Inc. Controls and Procedures Form 10-Q (Amounts in thousands, except share data)