CIVISTA BANCSHARES, INC. 10-Q

civb-10q_20220930.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended - September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36192 Civista Bancshares, Inc. (Exact name of registrant as specified in its charter) Ohio 34-1558688 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 East Water Street , Sandusky , Ohio 44870 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: ( 419 ) 625-4121 N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common CIVB NASDAQ Capital Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Shares, no par value, outstanding at November 3, 2022— 15,727,360 shares CIVISTA BANCSHARES, INC. Index PART I. Financial Information 2 Item 1. Financial Statements: 2 Consolidated Balance Sheets (Unaudited) September 30, 2022 and December 31, 2021 2 Consolidated Statements of Operations (Unaudited) Three- and nine-months ended September 30, 2022 and 2021 3 Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three- and nine-months ended September 30, 2022 and 2021 4 Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) Three- and nine-months ended September 30, 2022 and 2021 5 Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2022 and 2021 7 Notes to Interim Consolidated Financial Statements (Unaudited) 8-39 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40-53 Item 3. Quantitative and Qualitative Disclosures About Market Risk 54-55 Item 4. Controls and Procedures 56 PART II. Other Information 57 Item 1. Legal Proceedings 57 Item 1A. Risk Factors 57 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 57 Item 3. Defaults Upon Senior Securities 57 Item 4. Mine Safety Disclosures 57 Item 5. Other Information 57 Item 6. Exhibits 58 Signatures 59 Part I – Financial Information ITEM 1. Financial Statements CIVISTA BANCSHARES, INC. Consolidated Balance Sheets (In thousands, except share data) September 30, 2022 (Unaudited) December 31, 2021 ASSETS Cash and due from financial institutions $ 40,914 $ 253,459 Restricted cash - 10,780 Cash and cash equivalents 40,914 264,239 Investments in time deposits 1,479 1,730 Securities available-for-sale 602,046 559,874 Equity securities 2,028 1,072 Loans held for sale 3,491 1,972 Loans, net of allowance of $ 27,773 and $ 26,641 2,300,841 1,971,238 Other securities 18,578 17,011 Premises and equipment, net 30,168 22,445 Accrued interest receivable 9,175 7,385 Goodwill 101,652 76,851 Other intangible assets, net 11,554 7,581 Bank owned life insurance 53,291 46,641 Swap assets 18,448 11,072 Deferred taxes 25,118 980 Other assets 22,936 22,814 Total assets $ 3,241,719 $ 3,012,905 LIABILITIES Deposits Noninterest-bearing $ 944,241 $ 788,906 Interest-bearing 1,764,012 1,627,795 Total deposits 2,708,253 2,416,701 Short-term Federal Home Loan Bank advances 55,000 — Securities sold under agreements to repurchase 20,155 25,495 Long-term Federal Home Loan Bank advances 6,723 75,000 Subordinated debentures 103,778 103,735 Swap liabilities 18,448 11,072 Securities purchased payable 2,611 3,524 Tax refunds in process 2,709 549 Accrued expenses and other liabilities 21,440 21,617 Total liabilities 2,939,117 2,657,693 SHAREHOLDERS’ EQUITY Common shares, no par value, 40,000,000 shares authorized, 18,731,167 shares issued at September 30, 2022 and 17,709,584 shares issued at December 31, 2021, including Treasury shares 299,515 277,741 Retained earnings 146,546 125,558 Treasury shares, 3,495,622 common shares at September 30, 2022 and 2,755,384 common shares at December 31, 2021, at cost ( 73,641 ) ( 56,907 ) Accumulated other comprehensive income (loss) ( 69,818 ) 8,820 Total shareholders’ equity 302,602 355,212 Total liabilities and shareholders’ equity $ 3,241,719 $ 3,012,905 See notes to interim unaudited consolidated financial statements Page 2 CIVISTA BANCSHARES, INC. Consolidated Statements of Operations (Unaudited) (In thousands, except per share data) Three months ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Interest and dividend income Loans, including fees $ 27,176 $ 22,704 $ 70,065 $ 68,140 Taxable securities 2,936 1,423 6,431 3,928 Tax-exempt securities 1,998 1,555 5,669 4,599 Deposits in other banks 423 102 1,098 341 Total interest and dividend income 32,533 25,784 83,263 77,008 Interest expense Deposits 936 970 2,351 3,366 Federal Home Loan Bank advances 181 194 564 968 Subordinated debentures 975 182 2,701 553 Securities sold under agreements to repurchase and other 2 5 8 19 Total interest expense 2,094 1,351 5,624 4,906 Net interest income 30,439 24,433 77,639 72,102 Provision for loan losses 300 — 1,000 830 Net interest income after provision for loan losses 30,139 24,433 76,639 71,272 Noninterest income Service charges 1,885 1,519 5,004 4,092 Net gain on sale of securities 4 4 10 1,787 Net gain (loss) on equity securities ( 133 ) 50 ( 44 ) 191 Net gain on sale of loans 637 1,612 2,146 6,575 ATM/Interchange fees 1,394 1,330 3,990 3,950 Wealth management fees 1,208 1,236 3,713 3,570 Bank owned life insurance 255 261 732 752 Tax refund processing fees — — 2,375 2,375 Swap fees — 41 — 135 Other 484 373 1,086 1,214 Total noninterest income 5,734 6,426 19,012 24,641 Noninterest expense Compensation expense 12,484 11,390 36,654 34,578 Net occupancy expense 1,252 985 3,428 3,216 Equipment expense 637 444 1,694 1,340 Contracted data processing 846 429 1,899 1,362 FDIC assessment 170 247 568 829 State franchise tax 629 511 1,848 1,607 Professional services 1,335 776 3,593 2,255 Amortization of intangible assets 456 223 890 668 ATM/Interchange expense 604 594 1,659 1,843 Marketing 372 359 1,069 1,000 Software maintenance expense 942 819 2,440 1,872 Other operating expenses 2,828 2,474 7,450 10,132 Total noninterest expense 22,555 19,251 63,192 60,702 Income before taxes 13,318 11,608 32,459 35,211 Income tax expense 2,206 1,966 5,180 5,647 Net Income $ 11,112 $ 9,642 $ 27,279 $ 29,564 Earnings per common share, basic $ 0.72 $ 0.64 $ 1.82 $ 1.90 Earnings per common share, diluted $ 0.72 $ 0.64 $ 1.82 $ 1.90 Weighted average common shares, basic 15,323,294 15,096,162 14,907,539 15,479,424 Weighted average common shares, diluted 15,323,294 15,096,162 14,907,539 15,479,424 See notes to interim unaudited consolidated financial statements Page 3 CIVISTA BANCSHARES, INC. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net income $ 11,112 $ 9,642 $ 27,279 $ 29,564 Other comprehensive income (loss): Unrealized holding losses on available-for-sale securities ( 29,926 ) ( 3,107 ) ( 99,837 ) ( 6,977 ) Tax effect 6,300 652 21,043 1,465 Reclassification of gains recognized in net income ( 4 ) ( 4 ) ( 10 ) ( 2 ) Tax effect — — 2 — Pension liability adjustment 69 81 208 244 Tax effect ( 15 ) ( 17 ) ( 44 ) ( 51 ) Total other comprehensive loss ( 23,576 ) ( 2,395 ) ( 78,638 ) ( 5,321 ) Comprehensive income (loss) $ ( 12,464 ) $ 7,247 $ ( 51,359 ) $ 24,243 See notes to interim unaudited consolidated financial statements Page 4 CIVISTA BANCSHARES, INC. Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) (In thousands, except share data) Common Shares Accumulated Other Total Outstanding Shares Amount Retained Earnings Treasury Shares Comprehensive Income (Loss) Shareholders’ Equity Balance, June 30, 2022 14,537,433 $ 278,240 $ 137,592 $ ( 67,528 ) $ ( 46,242 ) $ 302,062 Net Income — — 11,112 — — 11,112 Other comprehensive loss — — — — ( 23,576 ) ( 23,576 ) Stock-based compensation — 153 — — — 153 Stock issued for acquisition of Comunibanc Corp. 984,723 21,122 21,122 Common stock dividends ($ 0.14 per share) — — ( 2,158 ) — — ( 2,158 ) Purchase of common stock ( 286,611 ) — — ( 6,113 ) — ( 6,113 ) Balance, September 30, 2022 15,235,545 $ 299,515 $ 146,546 $ ( 73,641 ) $ ( 69,818 ) $ 302,602 Common Shares Accumulated Other Total Outstanding Shares Amount Retained Earnings Treasury Shares Comprehensive Income Shareholders’ Equity Balance, June 30, 2021 15,434,592 $ 277,495 $ 109,178 $ ( 45,953 ) $ 11,693 $ 352,413 Net Income — — 9,642 — — 9,642 Other comprehensive loss — — — — ( 2,395 ) ( 2,395 ) Stock-based compensation — 132 — — — 132 Common stock dividends ($ 0.14 per share) — — ( 2,140 ) — — ( 2,140 ) Purchase of common stock ( 404,620 ) — — ( 9,202 ) — ( 9,202 ) Balance, September 30, 2021 15,029,972 $ 277,627 $ 116,680 $ ( 55,155 ) $ 9,298 $ 348,450 See notes to interim unaudited consolidated financial statements Page 5 CIVISTA BANCSHARES, INC. Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) (In thousands, except share data) Common Shares Accumulated Other Total Outstanding Shares Amount Retained Earnings Treasury Shares Comprehensive Income (Loss) Shareholders’ Equity Balance, December 31, 2021 14,954,200 $ 277,741 $ 125,558 $ ( 56,907 ) $ 8,820 $ 355,212 Net Income — — 27,279 — — 27,279 Other comprehensive loss — — — — ( 78,638 ) ( 78,638 ) Stock-based compensation 36,860 652 — — — 652 Stock issued for acquisition of Comunibanc Corp. 984,723 21,122 21,122 Common stock dividends ($ 0.42 per share) — — ( 6,291 ) — — ( 6,291 ) Purchase of common stock ( 740,238 ) — — ( 16,734 ) — ( 16,734 ) Balance, September 30, 2022 15,235,545 $ 299,515 $ 146,546 $ ( 73,641 ) $ ( 69,818 ) $ 302,602 Common Shares Accumulated Other Total Outstanding Shares Amount Retained Earnings Treasury Shares Comprehensive Income Shareholders’ Equity Balance, December 31, 2020 15,898,032 $ 277,039 $ 93,048 $ ( 34,598 ) $ 14,619 $ 350,108 Net Income — — 29,564 — — 29,564 Other comprehensive loss — — — — ( 5,321 ) ( 5,321 ) Stock-based compensation 46,864 588 — — — 588 Common stock dividends ($ 0.38 per share) — — ( 5,932 ) — — ( 5,932 ) Purchase of common stock ( 914,924 ) — — ( 20,557 ) — ( 20,557 ) Balance, September 30, 2021 15,029,972 $ 277,627 $ 116,680 $ ( 55,155 ) $ 9,298 $ 348,450 See notes to interim unaudited consolidated financial statements Page 6 CIVISTA BANCSHARES, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 2022 2021 Net cash provided by operating activities $ 27,421 $ 34,295 Cash flows used for investing activities: Maturities, paydowns and calls of investments in time deposits 245 — Proceeds from sale of time certificates 742 — Maturities, paydowns and calls of securities, available-for-sale 36,910 41,492 Purchases of securities, available-for-sale ( 117,974 ) ( 184,119 ) Proceeds from sale of securities available-for-sale 57,322 — Purchase of other securities ( 1,606 ) — Redemption of other securities 1,592 3,526 Purchase of equity securities ( 1,000 ) — Sale of equity securities — 1,785 Net change in loans ( 158,909 ) 54,926 Proceeds from sale of other real estate owned properties — 118 Proceeds from sale of premises and equipment — 13 Acquisition, net of cash acquired ( 21,870 ) — Premises and equipment purchases ( 3,208 ) ( 1,689 ) Net cash used for investing activities ( 207,756 ) ( 83,948 ) Cash flows from financing activities: Repayment of long-term FHLB advances ( 89,983 ) ( 50,000 ) Net change in short-term FHLB advances 55,000 — Increase in deposits 20,358 245,368 Decrease in securities sold under repurchase agreements ( 5,340 ) ( 5,583 ) Purchase of treasury shares ( 16,734 ) ( 20,557 ) Common dividends paid ( 6,291 ) ( 5,932 ) Net cash provided (used) by financing activities ( 42,990 ) 163,296 Increase (decrease) in cash and cash equivalents ( 223,325 ) 113,643 Cash and cash equivalents at beginning of period 264,239 139,522 Cash and cash equivalents at end of period $ 40,914 $ 253,165 Cash paid during the period for: Interest $ 4,969 $ 4,995 Income taxes 3,737 4,690 Supplemental cash flow information: Transfer of loans from portfolio to other real estate owned — 26 Transfer of premises to held-for-sale — 73 Change in fair value of swap asset ( 7,376 ) 8,906 Change in fair value of swap liability 7,376 ( 8,906 ) Securities purchased not settled 2,611 3,857 The Company purchased all of the capital stock of Comunibanc Corp. for $ 46,090 on July 1, 2022. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 340,649 Less: common stock issued 21,122 Cash paid for the capital stock 24,968 Liabilities assumed $ 294,559 See notes to interim unaudited consolidated financial statements Page 7 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (1) Consolidated Financial Statements Nature of Operations and Principles of Consolidation : Civista Bancshares, Inc. (CBI) is an Ohio corporation and a registered financial holding company. The Consolidated Financial Statements include the accounts of CBI and its wholly-owned subsidiaries: Civista Bank (Civista), First Citizens Insurance Agency, Inc. (FCIA), Water Street Properties, Inc. (Water St.) and CIVB Risk Management, Inc. (CRMI). CRMI is a wholly-owned captive insurance company which allows CBI and its subsidiaries to insure against certain risks unique to their operations. The operations of CRMI are located in Wilmington, Delaware. First Citizens Capital LLC (FCC) is wholly-owned by Civista and holds inter-company debt. The operations of FCC are located in Wilmington, Delaware. First Citizens Investments, Inc. (FCI) is wholly-owned by Civista and holds and manages its securities portfolio. The operations of FCI are located in Wilmington, Delaware. FCIA was formed to allow the Company to participate in commission revenue generated through its third-party insurance agreement. Water St. was formed to hold properties repossessed by CBI subsidiaries. The above companies together are referred to as the “Company.” Intercompany balances and transactions are eliminated in consolidation. Management considers the Company to operate primarily in one reportable segment, banking. The Consolidated Financial Statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2022 and its results of operations and changes in cash flows for the periods ended September 30, 2022 and 2021 have been made. The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Company described in the notes to the audited financial statements contained in the Company’s 2021 annual report. The Company has consistently followed these policies in preparing this Form 10-Q. Civista provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa, Richland, Montgomery, Henry, Wood and Cuyahoga, in the Indiana counties of Dearborn and Ripley and in the Kentucky county of Kenton. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions that are in excess of federally insured limits. (2) Significant 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. 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. Page 8 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Use of Estimates : To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, consideration of impairment of goodwill, fair values of financial instruments, deferred taxes, swap assets/liabilities and pension obligations are particularly subject to change. Effect of Newly Issued but Not Yet Effective Accounting Standards: In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of ASU 2016-13 is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASU 2016-13 was to be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. In November 2019, however, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) . This Update deferred the effective date of ASU 2016-13 for U.S. Securities and Exchange Commission (“SEC”) filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Management is in the process of evaluating the impact adoption of ASU 2016-13 will have on the Company’s Consolidated Financial Statements. This process has engaged multiple areas of the Company in evaluating loss estimation methods and application of these methods to specific segments of the loan portfolio. Management has been actively monitoring FASB developments and evaluating the use of different methods allowed. Due to continuing development of our methodology, additional time is required to quantify the effect this ASU will have on the Company’s Consolidated Financial Statements. Management has run parallel calculations and is finalizing the methodology for adoption in time for the effective date. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): 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 an SEC filer, such as the Company, was to adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In November 2019, however, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) , which deferred the effective date for ASC 350, Intangibles – Goodwill and Other , for SEC filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. Page 9 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments to Topic 825 were to be effective for interim and annual reporting periods beginning after December 15, 2019. In November 2019, however, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) . This Update defers the effective date of ASU 2016-13 for SEC filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update is not expected to have a material impact on the Company’s financial statements. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326 , which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) . The Update defers the effective date of ASU 2016-13 for SEC filers that were eligible to be smaller reporting companies as of November 15, 2019, such as the Company, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial statements. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses , to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. 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 2020, the FASB issued ASU 2020-03 , Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments , in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance, such as the Company, are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Other amendments are effective upon issuance of this ASU. This Update is not expected to have a significant impact on the Company’s financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The Update is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by reference rate reform. The Update also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is working through this transition via a multi-disciplinary project team. We are still evaluating the impact the change from LIBOR to a benchmark like SOFR or Prime Rate will have on our financial condition, results of operations or cash flows. Page 10 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Other recent ASU’s issued by the FASB did not, or are not believed by management to have, a material effect on the Company’s present or future Consolidated Financial Statements. (3) Securities The amortized cost and fair market value of available-for-sale securities and the related gross unrealized gains and losses recognized were as follows: September 30, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury securities and obligations of U.S. government agencies $ 66,199 $ 22 $ ( 5,677 ) $ 60,544 Obligations of states and political subdivisions 344,225 163 ( 46,581 ) 297,807 Mortgage-backed securities in government sponsored entities 272,950 17 ( 29,272 ) 243,695 Total debt securities $ 683,374 $ 202 $ ( 81,530 ) $ 602,046 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury securities and obligations of U.S. government agencies $ 48,390 $ 30 $ ( 530 ) $ 47,890 Obligations of states and political subdivisions 281,247 17,696 ( 107 ) 298,836 Mortgage-backed securities in government sponsored entities 211,660 2,938 ( 1,450 ) 213,148 Total debt securities $ 541,297 $ 20,664 $ ( 2,087 ) $ 559,874 The amortized cost and fair value of securities at September 30, 2022, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Available for sale Amortized Cost Fair Value Due in one year or less $ 1,500 $ 1,490 Due after one year through five years 47,323 43,934 Due after five years through ten years 72,996 66,744 Due after ten years 288,605 246,184 Mortgage-backed securities 272,950 243,694 Total securities available-for-sale $ 683,374 $ 602,046 Proceeds from sales of securities available-for-sale, gross realized gains and gross realized losses were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Sale proceeds $ 57,322 $ — $ 57,322 $ 1,785 Gross realized gains — — — 1,785 Gross realized losses — — — — Gains (losses) from securities called or settled by the issuer 4 4 10 2 Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $ 176,667 and $ 168,345 as of September 30, 2022 and December 31, 2021, respectively. Page 11 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021: September 30, 2022 12 Months or less More than 12 months Total Description of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Treasury securities and obligations of U.S. government agencies $ 20,930 $ ( 880 ) $ 39,122 $ ( 4,797 ) $ 60,052 $ ( 5,677 ) Obligations of states and political subdivisions 266,106 ( 43,065 ) 8,192 ( 3,516 ) 274,298 ( 46,581 ) Mortgage-backed securities in gov’t sponsored entities 159,647 ( 12,221 ) 79,790 ( 17,051 ) 239,437 ( 29,272 ) Total temporarily impaired $ 446,683 $ ( 56,166 ) $ 127,104 $ ( 25,364 ) $ 573,787 $ ( 81,530 ) December 31, 2021 12 Months or less More than 12 months Total Description of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Treasury securities and obligations of U.S. government agencies $ 41,432 $ ( 473 ) $ 2,014 $ ( 57 ) $ 43,446 $ ( 530 ) Obligations of states and political subdivisions 25,797 ( 107 ) — — 25,797 ( 107 ) Mortgage-backed securities in gov’t sponsored entities 141,327 ( 1,343 ) 3,123 ( 107 ) 144,450 ( 1,450 ) Total temporarily impaired $ 208,556 $ ( 1,923 ) $ 5,137 $ ( 164 ) $ 213,693 $ ( 2,087 ) At September 30, 2022, there were a total of 532 securities in the portfolio with unrealized losses mainly due to higher current market rates when compared to the time of purchase. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to currently higher market rates when compared to the time of purchase. The fair value is expected to recover as the securities approach their maturity date or reset date. The Company does not intend to sell until recovery and does not believe selling will be required before recovery. The following table presents the net gains and losses on equity investments recognized in earnings for the three- and nine-months ended September 30, 2022 and 2021, and the portion of unrealized gains and losses for the period that relates to equity investments held at September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net gains (losses) recognized on equity securities during the period $ ( 133 ) $ 50 $ ( 44 ) $ 191 Less: Net losses realized on the sale of equity securities during the period — — — — Unrealized gains (losses) recognized on equity securities held at reporting date $ ( 133 ) $ 50 $ ( 44 ) $ 191 Page 12 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (4) Loans Loan balances were as follows: September 30, 2022 December 31, 2021 Commercial & Agriculture $ 227,387 $ 246,502 Commercial Real Estate- Owner Occupied 364,468 295,452 Commercial Real Estate- Non-Owner Occupied 956,169 829,310 Residential Real Estate 531,164 430,060 Real Estate Construction 202,793 157,127 Farm Real Estate 25,636 28,419 Consumer and Other 20,997 11,009 Total loans 2,328,614 1,997,879 Allowance for loan losses ( 27,773 ) ( 26,641 ) Net loans $ 2,300,841 $ 1,971,238 Included in Commercial & Agriculture loans above are $ 819 and $ 43,209 of Paycheck Protection Program (“PPP”) loans as of September 30, 2022 and December 31, 2021, respectively. Included in total loans above are net deferred loan fees of $ 1,741 and $ 2,924 at September 30, 2022 and December 31, 2021, respectively, which included net deferred loan fees from PPP loans of $ 38 and $ 1,762 as of September 30, 2022 and December 31, 2021, respectively. Paycheck Protection Program In total, we processed over 3,600 PPP loans totaling $ 399.4 million during 2020 and 2021. Of the total PPP loans we originated, $ 398.4 million had been forgiven or paid off as of September 30, 2022. We recognized $ 1.7 million of PPP fees in income during the first nine months of 2022, and $ 38 thousand of unearned PPP fees remained at September 30, 2022. (5) Allowance for Loan Losses Management has an established methodology for determining the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loss migration rates for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. The following economic factors are analyzed: • Changes in lending policies and procedures • Changes in experience and depth of lending and management staff • Changes in quality of credit review system • Changes in nature and volume of the loan portfolio • Changes in past due, classified and nonaccrual loans and TDRs • Changes in economic and business conditions • Changes in competition or legal and regulatory requirements • Changes in concentrations within the loan portfolio • Changes in the underlying collateral for collateral dependent loans Page 13 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Company considers the allowance for loan losses of $ 27,773 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2022. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three- and nine-months ended September 30, 2022 and 2021. Allowance for loan losses: For the three months ended September 30, 2022 Beginning balance Charge-offs Recoveries Provision Ending Balance Commercial & Agriculture $ 2,790 $ ( 22 ) $ 12 $ ( 51 ) $ 2,729 Commercial Real Estate: Owner Occupied 4,729 — 15 182 4,926 Non-Owner Occupied 14,711 — 16 ( 300 ) 14,427 Residential Real Estate 2,859 ( 39 ) 64 152 3,036 Real Estate Construction 1,969 — — 44 2,013 Farm Real Estate 236 — 1 14 251 Consumer and Other 130 ( 13 ) 4 21 142 Unallocated 11 — — 238 249 Total $ 27,435 $ ( 74 ) $ 112 $ 300 $ 27,773 For the three months ended September 30, 2022, the Company provided $ 300 to the allowance for loan losses, as compared to a provision of $ 0 for the three months ended September 30, 2021. The increase in the provision in the third quarter of 2022, as compared to the third quarter of 2021, reflects the Company’s strong loan growth during the quarter. Our credit quality metrics remain stable despite the ongoing headwinds of the challenging international, national, regional and local economic conditions. While the direct impact of COVID-19 wains, we remain cautious due to increasing inflationary pressures. Criticized loans were reduced in the third quarter, primarily loans to borrowers in the hotel industry, due to improved occupancy. Economic impacts related to the COVID-19 pandemic have improved somewhat, but continued concerns linger due to the disruption of supply chains, workforce shortages, rising inflationary pressures and the prospects of recession. During the three months ended September 30, 2022, the allowance for Commercial & Agriculture loans decreased due to a decrease in general reserves required for this type as a result of a decrease in Commercial & Agriculture loan balances during the quarter. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans decreased due to a decrease in risk rated loans and lower loss rates, offset by an increase in general reserves required as a result of an increase in loan balances. This was represented as a decrease in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in loan balances. This was represented as an increase in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at September 30, 2022. Page 14 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Allowance for loan losses: For the three months ended September 30, 2021 Beginning balance Charge-offs Recoveries Provision Ending Balance Commercial & Agriculture $ 2,320 $ — $ 1 $ 191 $ 2,512 Commercial Real Estate: Owner Occupied 4,027 — — 389 4,416 Non-Owner Occupied 13,546 — 381 ( 757 ) 13,170 Residential Real Estate 2,531 ( 77 ) 53 89 2,596 Real Estate Construction 2,177 — — 282 2,459 Farm Real Estate 290 — 3 15 308 Consumer and Other 202 — 10 — 212 Unallocated 1,104 — — ( 209 ) 895 Total $ 26,197 $ ( 77 ) $ 448 $ — $ 26,568 For the three months ended September 30, 2021, the Company provided $ 0 to the allowance for loan losses. The lack of a provision for the third quarter of 2021 was due to the stability of our credit quality metrics coupled with the stabilization and, in some cases, improvement of international, national, regional and local economic conditions that were adversely impacted by the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. During the three months ended September 30, 2021, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of an increase in non-PPP loan balances. Commercial & Agriculture loan balances decreased during the quarter mainly as a result of the forgiveness and payoff of PPP loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances, offset by a decrease in classified loans balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans decreased due to decreases in classified loan balances and loss rates, offset by an increase in general reserves required as a result of an increase in loan balances. This was represented as a decrease in the provision. The allowance for Residential Real Estate loans increased due to an increase in loss rates for this type of loan. The result was represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in loss rates on substandard classified loan balances, offset by lower loan balances. This was represented as an increase in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at September 30, 2021. Page 15 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Allowance for loan losses: For the nine months ended September 30, 2022 Beginning balance Charge-offs Recoveries Provision Ending Balance Commercial & Agriculture $ 2,600 $ ( 22 ) $ 16 $ 135 $ 2,729 Commercial Real Estate: Owner Occupied 4,464 — 42 420 4,926 Non-Owner Occupied 13,860 — 68 499 14,427 Residential Real Estate 2,597 ( 97 ) 140 396 3,036 Real Estate Construction 1,810 — — 203 2,013 Farm Real Estate 287 — 5 ( 41 ) 251 Consumer and Other 176 ( 45 ) 25 ( 14 ) 142 Unallocated 847 — — ( 598 ) 249 Total $ 26,641 $ ( 164 ) $ 296 $ 1,000 $ 27,773 For the nine months ended September 30, 2022, the Company provided $ 1,000 to the allowance for loan losses, as compared to a provision of $ 830 for the nine months ended September 30, 2021. The increase in provision was due to the strong loan growth during the first nine months of 2022 , as compared to the first nine months of 2021. In addition, the challenges of the international, national, regional and local economic conditions, particularly inflation, have taken greater focus from the prior economic shutdown and restrictions in response to the COVID-19 pandemic. Despite these concerns our portfolio quality has remained stable overall with decreases in criticized loans. We continue to be optimistic that asset quality will continue to remain strong despite ongoing headwinds. While we remain cautious given the impact of inflation on all of our borrowers, we are encouraged by strong loan growth. During the nine months ended September 30, 2022, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of an increase in loss rates, partially offset by a decrease in Commercial & Agriculture loan balances during the first nine months of the year mainly due to the forgiveness or payoff of PPP loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves required for this type as a result of increased loan balances. The result was represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in loan balances. This was represented as an increase in the provision. The allowance for Consumer and Other loans decreased due to a decrease in loan balances. This was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at September 30, 2022. Page 16 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Allowance for loan losses: For the nine months ended September 30, 2021 Beginning balance Charge-offs Recoveries Provision Ending Balance Commercial & Agriculture $ 2,810 $ ( 15 ) $ 164 $ ( 447 ) $ 2,512 Commercial Real Estate: Owner Occupied 4,057 — 6 353 4,416 Non-Owner Occupied 12,451 — 392 327 13,170 Residential Real Estate 2,484 ( 114 ) 232 ( 6 ) 2,596 Real Estate Construction 2,439 — 1 19 2,459 Farm Real Estate 338 — 9 ( 39 ) 308 Consumer and Other 209 ( 19 ) 54 ( 32 ) 212 Unallocated 240 — — 655 895 Total $ 25,028 $ ( 148 ) $ 858 $ 830 $ 26,568 For the nine months ended September 30, 2021, the Company provided $ 830 to the allowance for loan losses. The decrease in the provision in the first nine months of 2021 as compared to the same period of 2020, was due to the stability of our metrics coupled with the stabilization and, in some cases, improvement of international, national, regional and local economic conditions that were adversely impacted by the 2020 economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. For the nine months ended September 30, 2021, the allowance for Commercial & Agriculture loans decreased due to a decrease in general reserves required for this type as a result of a decrease in loss rates. Commercial & Agriculture loan balances decreased during the period mainly from Civista’s participation in the PPP loan program. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of increased loan balances, offset by decreases in classified loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances, offset by a decrease in classified loan balances and by a decrease in loss rates. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in recoveries for this type of loan. The result was represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in loan balances, represented by an increase in the provision. The allowance for Farm Real Estate loans decreased due to a decrease in general reserves required for this type as a result of decreased loan balances. The result was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio at September 30, 2021. Page 17 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of September 30, 2022 and December 31, 2021. September 30, 2022 Loans acquired with credit deterioration Loans individually evaluated for impairment Loans collectively evaluated for impairment Total Allowance for loan losses: Commercial & Agriculture $ — $ — $ 2,729 $ 2,729 Commercial Real Estate: Owner Occupied — 6 4,920 4,926 Non-Owner Occupied — — 14,427 14,427 Residential Real Estate — 1 3,035 3,036 Real Estate Construction — — 2,013 2,013 Farm Real Estate — — 251 251 Consumer and Other — — 142 142 Unallocated — — 249 249 Total $ — $ 7 $ 27,766 $ 27,773 Outstanding loan balances: Commercial & Agriculture $ 809 $ 343 $ 226,235 $ 227,387 Commercial Real Estate: Owner Occupied 1,770 833 361,865 364,468 Non-Owner Occupied 120 140 955,909 956,169 Residential Real Estate 1,410 586 529,168 531,164 Real Estate Construction — — 202,793 202,793 Farm Real Estate — — 25,636 25,636 Consumer and Other 1 — 20,996 20,997 Total $ 4,110 $ 1,902 $ 2,322,602 $ 2,328,614 December 31, 2021 Loans acquired with credit deterioration Loans individually evaluated for impairment Loans collectively evaluated for impairment Total Allowance for loan losses: Commercial & Agriculture $ — $ — $ 2,600 $ 2,600 Commercial Real Estate: Owner Occupied — 7 4,457 4,464 Non-Owner Occupied — — 13,860 13,860 Residential Real Estate — 11 2,586 2,597 Real Estate Construction — — 1,810 1,810 Farm Real Estate — — 287 287 Consumer and Other — — 176 176 Unallocated — — 847 847 Total $ — $ 18 $ 26,623 $ 26,641 Outstanding loan balances: Commercial & Agriculture $ — $ — $ 246,502 $ 246,502 Commercial Real Estate: Owner Occupied — 187 295,265 295,452 Non-Owner Occupied — 0 829,310 829,310 Residential Real Estate 290 526 429,244 430,060 Real Estate Construction — — 157,127 157,127 Farm Real Estate — 509 27,910 28,419 Consumer and Other — — 11,009 11,009 Total $ 290 $ 1,222 $ 1,996,367 $ 1,997,879 Page 18 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following tables present credit exposures by internally assigned risk grades as of September 30, 2022 and December 31, 2021. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans. The Company’s internally assigned risk grades are as follows: • Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. • Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected. • Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that Civista will sustain some loss if the deficiencies are not corrected. • Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances. • Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted. Generally, Residential Real Estate, Real Estate Construction and Consumer and Other loans are not risk-graded, except when collateral is used for a business purpose. Only those loans that have been risk rated are included below. September 30, 2022 Pass Special Mention Substandard Doubtful Ending Balance Commercial & Agriculture $ 212,692 $ 12,155 $ 2,540 $ — $ 227,387 Commercial Real Estate: Owner Occupied 351,464 9,751 3,253 — 364,468 Non-Owner Occupied 932,606 19,526 4,037 — 956,169 Residential Real Estate 141,827 116 5,506 — 147,449 Real Estate Construction 172,120 — 3 — 172,123 Farm Real Estate 25,197 392 47 — 25,636 Consumer and Other 11,993 — 27 — 12,020 Total $ 1,847,899 $ 41,940 $ 15,413 $ — $ 1,905,252 December 31, 2021 Pass Special Mention Substandard Doubtful Ending Balance Commercial & Agriculture $ 244,787 $ 526 $ 1,189 $ — $ 246,502 Commercial Real Estate: Owner Occupied 290,617 3,119 1,716 — 295,452 Non-Owner Occupied 764,181 28,042 37,087 — 829,310 Residential Real Estate 77,594 164 4,455 — 82,213 Real Estate Construction 136,149 260 5 — 136,414 Farm Real Estate 27,023 205 1,191 — 28,419 Consumer and Other 764 — 20 — 784 Total $ 1,541,115 $ 32,316 $ 45,663 $ — $ 1,619,094 Page 19 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following tables present performing and nonperforming loans based solely on payment activity for the periods ended September 30, 2022 and December 31, 2021 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 and if management determines that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months . September 30, 2022 Residential Real Estate Real Estate Construction Consumer and Other Total Performing $ 383,389 $ 30,670 $ 8,977 $ 423,036 Nonperforming 326 — — 326 Total $ 383,715 $ 30,670 $ 8,977 $ 423,362 December 31, 2021 Residential Real Estate Real Estate Construction Consumer and Other Total Performing $ 347,847 $ 20,713 $ 10,225 $ 378,785 Nonperforming — — — — Total $ 347,847 $ 20,713 $ 10,225 $ 378,785 The following tables include an aging analysis of the recorded investment of past due loans outstanding as of September 30, 2022 and December 31, 2021. September 30, 2022 30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Purchased Credit- Impaired Loans Total Loans Past Due 90 Days and Accruing Commercial & Agriculture $ 423 $ 2 $ 694 $ 1,119 $ 225,459 $ 809 $ 227,387 $ — Commercial Real Estate: Owner Occupied 24 — 79 103 362,595 1,770 364,468 — Non-Owner Occupied — — 2 2 956,047 120 956,169 — Residential Real Estate 416 827 1,222 2,465 527,289 1,410 531,164 326 Real Estate Construction — — — — 202,793 — 202,793 — Farm Real Estate — — — — 25,636 — 25,636 — Consumer and Other 58 63 52 173 20,823 1 20,997 — Total $ 921 $ 892 $ 2,049 $ 3,862 $ 2,320,642 $ 4,110 $ 2,328,614 $ 326 December 31, 2021 30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Purchased Credit- Impaired Loans Total Loans Past Due 90 Days and Accruing Commercial & Agriculture $ 249 $ 13 $ 78 $ 340 $ 246,162 $ — $ 246,502 $ — Commercial Real Estate: Owner Occupied — — 106 106 295,346 — 295,452 — Non-Owner Occupied — — 4 4 829,306 — 829,310 — Residential Real Estate 1,848 879 842 3,569 426,201 290 430,060 — Real Estate Construction — — — — 157,127 — 157,127 — Farm Real Estate — — — — 28,419 — 28,419 — Consumer and Other 42 — 9 51 10,958 — 11,009 — Total $ 2,139 $ 892 $ 1,039 $ 4,070 $ 1,993,519 $ 290 $ 1,997,879 $ — Page 20 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of September 30, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 Commercial & Agriculture $ 668 $ 78 Commercial Real Estate: Owner Occupied 206 334 Non-Owner Occupied 2 4 Residential Real Estate 3,514 3,232 Real Estate Construction 3 5 Farm Real Estate — — Consumer and Other 60 20 Total $ 4,453 $ 3,673 Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. Payments received on nonaccrual loans are applied to the unpaid principal balance. A loan may be returned to accruing status only if one of three conditions are met: the loan is well-secured and none of the principal and interest has been past due for a minimum of 90 days; the loan is a TDR and has made a minimum of six months payments; or the principal and interest payments are reasonably assured and a sustained period of performance has occurred, generally six months. Modifications: A modification of a loan constitutes a TDR when the Company for economic or legal reasons related to a borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. Exceptions to this policy exist for loan modifications granted as part of the Company’s COVID-19 deferral program, which allows the Company to not classify a modification so long as certain criteria as established in the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”) are met at the time of the modification. The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve reducing the interest rate lower than the current market rate for new debt with similar risk. Residential Real Estate loans modified in a TDR primarily involve interest rate reductions where monthly payments are lowered to accommodate the borrowers’ financial needs. Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of September 30, 2022, TDRs accounted for $ 7 of the allowance for loan losses. As of December 31, 2021, TDRs accounted for $ 18 of the allowance for loan losses. There were no loans modified as TDRs during the three- and nine-month periods ended September 30, 2022 or 2021. Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. During the three- and nine-month periods ended September 30, 2022 and September 30, 2021, there were no defaults on loans that were modified and considered TDRs during the respective previous twelve months. Page 21 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Impaired Loans: Larger ( greater than $350 ) Commercial & Agricultural and Commercial Real Estate loan relationships, all TDRs and Residential Real Estate and Consumer loans that are part of a larger relationship are tested for impairment on a quarterly basis. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. The following table includes the recorded investment and unpaid principal balances for impaired loans, excluding PCI loans, with the associated allowance amount, if applicable, as of September 30, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial & Agriculture $ 343 $ 343 $ — $ — Commercial Real Estate: Owner Occupied 676 676 — — Non-Owner Occupied 140 140 — — Residential Real Estate 579 604 503 528 Farm Real Estate — — 509 509 Total 1,738 1,763 1,012 1,037 With an allowance recorded: Commercial Real Estate: Owner Occupied 157 157 $ 6 187 187 $ 7 Residential Real Estate 7 11 1 23 27 11 Total 164 168 7 210 214 18 Total: Commercial & Agriculture 343 343 — — — — Commercial Real Estate: Owner Occupied 833 833 6 187 187 7 Non-Owner Occupied 140 140 — — — — Residential Real Estate 586 615 1 526 555 11 Farm Real Estate — — — 509 509 — Total $ 1,902 $ 1,931 $ 7 $ 1,222 $ 1,251 $ 18 The following table includes the average recorded investment and interest income recognized for impaired financing receivables for the three- and nine-month periods ended September 30, 2022 and 2021. September 30, 2022 September 30, 2021 For the three months ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial & Agriculture $ 172 $ — $ — $ — Commercial Real Estate—Owner Occupied 504 3 252 4 Commercial Real Estate—Non-Owner Occupied 70 — 15 — Residential Real Estate 503 9 551 8 Farm Real Estate 247 2 557 6 Total $ 1,496 $ 14 $ 1,375 $ 18 Page 22 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) September 30, 2022 September 30, 2021 For the nine months ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial & Agriculture $ 86 $ — $ 19 $ — Commercial Real Estate—Owner Occupied 349 10 449 15 Commercial Real Estate—Non-Owner Occupied 35 — 29 1 Residential Real Estate 516 19 654 24 Farm Real Estate 381 14 584 18 Total $ 1,367 $ 43 $ 1,735 $ 58 Changes in the accretable yield for PCI loans were as follows, since acquisition: For the Three-Month Period Ended September 30, 2022 For the Three-Month Period Ended September 30, 2021 (In Thousands) (In Thousands) Balance at beginning of period $ 216 $ 224 Acquisition of PCI loans — — Accretion ( 7 ) ( 6 ) Transfer from non-accretable to accretable 7 — Balance at end of period $ 216 $ 218 For the Nine-Month Period Ended September 30, 2022 For the Nine-Month Period Ended September 30, 2021 (In Thousands) (In Thousands) Balance at beginning of period $ 217 $ 225 Acquisition of PCI loans — — Accretion ( 27 ) ( 62 ) Transfer from non-accretable to accretable 26 55 Balance at end of period $ 216 $ 218 The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30: At September 30, 2022 At December 31, 2021 Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) (In Thousands) Outstanding balance $ 4,952 $ 512 Carrying amount 4,110 290 There was no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of September 30, 2022 or December 31, 2021. Foreclosed Assets Held For Sale Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in Other assets on the Consolidated Balance Sheet. As of September 30, 2022 and December 31, 2021, there were no foreclosed assets included in Other assets. As of September 30, 2022 and December 31, 2021, the Company had initiated formal foreclosure procedures on $ 488 and $ 293 , respectively, of consumer residential mortgages. Page 23 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (6) Accumulated Other Comprehensive Income (Loss) The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax for the three-month periods ended September 30, 2022 and September 30, 2021. For the Three-Month Period Ended For the Three-Month Period Ended September 30, 2022(a) September 30, 2021(a) Unrealized Gains and (Losses) on Available-for- Sale Securities (a) Defined Benefit Pension Items (a) Total (a) Unrealized Gains and (Losses) on Available-for- Sale Securities (a) Defined Benefit Pension Items (a) Total (a) Beginning balance $ ( 40,497 ) $ ( 5,745 ) $ ( 46,242 ) $ 18,392 $ ( 6,699 ) $ 11,693 Other comprehensive income (loss) before reclassifications ( 23,626 ) — ( 23,626 ) ( 2,455 ) — ( 2,455 ) Amounts reclassified from accumulated other comprehensive income (loss) ( 4 ) 54 50 ( 4 ) 64 60 Net current-period other comprehensive income (loss) ( 23,630 ) 54 ( 23,576 ) ( 2,459 ) 64 ( 2,395 ) Ending balance $ ( 64,127 ) $ ( 5,691 ) $ ( 69,818 ) $ 15,933 $ ( 6,635 ) $ 9,298 (a) Amounts in parentheses indicate debits on the Consolidated Balance Sheets. The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three-month periods ended September 30, 2022 and September 30, 2021. Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a) Details about Accumulated Other Comprehensive Income (Loss) Components For the Three months ended September 30, 2022 For the Three months ended September 30, 2021 Affected Line Item in the Statement Where Net Income is Presented Unrealized gains (losses) on available-for-sale securities $ 4 $ 4 Net gain on sale of securities Tax effect — — Income tax expense 4 4 Amortization of defined benefit pension items Actuarial gains/(losses) (b) ( 69 ) ( 81 ) Other operating expenses Tax effect 15 17 Income tax expense ( 54 ) ( 64 ) Total reclassifications for the period $ ( 50 ) $ ( 60 ) (a) Amounts in parentheses indicate expenses/losses and other amounts indicate income/benefit. (b) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. Page 24 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax for the nine-month periods ended September 30, 2022 and September 30, 2021. For the Nine-Month Period Ended For the Nine-Month Period Ended September 30, 2022(a) September 30, 2021(a) Unrealized Gains and (Losses) on Available-for- Sale Securities (a) Defined Benefit Pension Items (a) Total (a) Unrealized Gains and (Losses) on Available-for- Sale Securities (a) Defined Benefit Pension Items (a) Total (a) Beginning balance $ 14,675 $ ( 5,855 ) $ 8,820 $ 21,447 $ ( 6,828 ) $ 14,619 Other comprehensive loss before reclassifications ( 78,794 ) — ( 78,794 ) ( 5,512 ) — ( 5,512 ) Amounts reclassified from accumulated other comprehensive income (loss) ( 8 ) 164 156 ( 2 ) 193 191 Net current-period other comprehensive income (loss) ( 78,802 ) 164 ( 78,638 ) ( 5,514 ) 193 ( 5,321 ) Ending balance $ ( 64,127 ) $ ( 5,691 ) $ ( 69,818 ) $ 15,933 $ ( 6,635 ) $ 9,298 (a) Amounts in parentheses indicate debits on the Consolidated Balance Sheets The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the nine-month periods ended September 30, 2022 and September 30, 2021. Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a) Details about Accumulated Other Comprehensive Income (Loss) Components For the Nine months ended September 30, 2022 For the Nine months ended September 30, 2021 Affected Line Item in the Statement Where Net Income is Presented Unrealized gains (losses) on available-for-sale securities $ 10 $ 2 Net gain on sale of securities Tax effect ( 2 ) — Income tax expense 8 2 Amortization of defined benefit pension items Actuarial gains/(losses) (b) ( 208 ) ( 244 ) Other operating expenses Tax effect 44 51 Income tax expense ( 164 ) ( 193 ) Total reclassifications for the period $ ( 156 ) $ ( 191 ) (a) Amounts in parentheses indicate expenses/losses and other amounts indicate income/benefit. (b) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. Page 25 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (7) Goodwill and Intangible Assets The carrying amount of goodwill has increased $ 24,801 since December 31, 2021 as a result of the Comunibanc Corp. acquisition, discussed in Note 18. The balance of goodwill was $ 101,652 at September 30, 2022 and $ 76,851 at December 31, 2021. Acquired intangible assets, other than goodwill, as of September 30, 2022 and December 31, 2021 were as follows: 2022 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortized intangible assets: Core deposit intangibles $ 12,953 $ 4,478 $ 8,475 $ 8,527 $ 3,588 $ 4,939 Total amortized intangible assets $ 12,953 $ 4,478 $ 8,475 $ 8,527 $ 3,588 $ 4,939 Aggregate core deposit intangible amortization expense was $ 456 , and $ 223 , for the three-months ended September 30, 2022 and 2021, respectively, and $ 890 and $ 668 for the nine-months ended September 30, 2022 and 2021, respectively. Activity for mortgage servicing rights (MSRs) and the related valuation allowance for the three- and nine-month periods ended September 30, 2022 and September 30, 2021 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Loan Servicing Rights: Balance at Beginning of Period $ 2,664 $ 2,745 $ 2,642 $ 2,246 Additions 91 164 317 562 Additions from acquisition 419 — 419 — Disposals — — — — Amortized to expense ( 95 ) ( 144 ) ( 299 ) ( 436 ) Other charges — — — — Change in valuation allowance — ( 189 ) — 204 Balance at End of Period $ 3,079 $ 2,576 $ 3,079 $ 2,576 Valuation allowance: Balance at Beginning of Period $ — $ ( 189 ) $ — $ 204 Additions expensed — 189 — 261 Reductions credited to operations — — — ( 465 ) Direct write-offs — — — — Balance at End of Period $ — $ — $ — $ — Estimated amortization expense for each of the next five years and thereafter is as follows: MSRs Core deposit intangibles Total 2022 $ 40 $ 407 $ 447 2023 161 1,579 1,740 2024 160 1,488 1,648 2025 160 1,312 1,472 2026 159 1,193 1,352 Thereafter 2,399 2,496 4,895 $ 3,079 $ 8,475 $ 11,554 Page 26 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (8) Short-Term and Other Borrowings Short-term and other borrowings, which consist of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, are summarized as follows: At September 30, 2022 At December 31, 2021 Federal Funds Purchased Short-term Borrowings Federal Funds Purchased Short-term Borrowings Outstanding balance $ — $ 55,000 $ — $ — Interest rate on balance — 3.02 % — — Three Months Ended September 30, Nine Months Ended September 30, 2022 2022 2021 2021 2022 2022 2021 2021 Federal Funds Purchased Short-term Borrowings Federal Funds Purchased Short-term Borrowings Federal Funds Purchased Short-term Borrowings Federal Funds Purchased Short-term Borrowings Maximum indebtedness $ — $ 56,000 $ — $ — $ — $ 56,000 $ — $ — Average balance — 6,713 — — — 2,380 — — Average rate paid — 2.84 % — — — 2.75 % — — Average balance during the period represents daily averages. Average rate paid represents interest expense divided by the related average balances. These borrowing transactions can range from overnight to six months in maturity. The average maturity was one day at September 30, 2022. Securities sold under agreements to repurchase are used to facilitate the needs of our customers as well as to facilitate our short-term funding needs. Securities sold under repurchase agreements are carried at the amount of cash received in association with the agreement. We continuously monitor the collateral levels and may be required, from time to time, to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The following table presents detail regarding the securities pledged as collateral under repurchase agreements as of September 30, 2022 and December 31, 2021. All of the repurchase agreements are overnight agreements. September 30, 2022 December 31, 2021 Securities pledged for repurchase agreements: U.S. Treasury securities $ 20,155 $ 16,478 Obligations of U.S. government agencies — 9,017 Total securities pledged $ 20,155 $ 25,495 Gross amount of recognized liabilities for repurchase agreements $ 20,155 $ 25,495 Amounts related to agreements not included in offsetting disclosures above $ — $ — Page 27 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (9) Earnings per Common Share The Company has granted restricted stock awards with non-forfeitable rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by ASC 260-10-45. Basic earnings per common share are computed as net income available to common shareholders divided by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Diluted earnings per common share include the dilutive effect, if any, of additional potential common shares issuable under the Company’s equity incentive plan, computed using the treasury stock method. The Company had no dilutive securities for the three- and nine-months ended September 30, 2022 and 2021. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Basic Net income $ 11,112 $ 9,642 $ 27,279 $ 29,564 Less allocation of earnings and dividends to participating securities 52 46 123 122 Net income available to common shareholders—basic $ 11,060 $ 9,596 $ 27,156 $ 29,442 Weighted average common shares outstanding 15,394,898 15,168,233 14,974,862 15,543,488 Less average participating securities 71,604 72,071 67,323 64,064 Weighted average number of shares outstanding used in the calculation of basic earnings per common share 15,323,294 15,096,162 14,907,539 15,479,424 Earnings per common share: Basic $ 0.72 $ 0.64 $ 1.82 $ 1.90 Diluted 0.72 0.64 1.82 1.90 (10) Commitments, Contingencies and Off-Balance Sheet Risk Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amounts of financial instruments with off-balance-sheet risk were as follows at September 30, 2022 and December 31, 2021: Contract Amount September 30, 2022 December 31, 2021 Fixed Rate Variable Rate Fixed Rate Variable Rate Commitment to extend credit: Lines of credit and construction loans $ 45,738 $ 544,286 $ 33,542 $ 455,777 Overdraft protection 10 62,637 7 54,034 Letters of credit 615 876 615 731 $ 46,363 $ 607,799 $ 34,164 $ 510,542 Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from 2.60 % to 7.25 % at September 30, 2022 and from 3.25 % to 8.00 % at December 31, 2021. Maturities extend up to 30 years. Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The reserve balance maintained in accordance with such requirements was $ 0 on September 30, 2022 and December 31, 2021. Page 28 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) (11) Pension Information The Company sponsors a pension plan which is a noncontributory defined benefit retirement plan. Annual payments, subject to the maximum amount deductible for federal income tax purposes, are made to a pension trust fund. In 2006, the Company amended the pension plan to provide that no employee could be added as a participant to the pension plan after December 31, 2006. In 2014, the Company amended the pension plan again to provide that no additional benefits would accrue beyond April 30, 2014. Net periodic pension cost was as follows: Three months ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Service cost $ — $ — $ — $ — Interest cost 103 95 310 285 Expected return on plan assets ( 144 ) ( 160 ) ( 432 ) ( 480 ) Other components 69 81 208 244 Net periodic pension cost $ 28 $ 16 $ 86 $ 49 The Company does no t expect to make any contribution to its pension plan in 2022. The Company made no contribution to its pension plan in 2021. (12) Equity Incentive Plan At the Company’s 2014 annual meeting, the shareholders adopted the Company’s 2014 Incentive Plan (“2014 Incentive Plan”). The 2014 Incentive Plan authorizes the Company to grant options, stock awards, stock units and other awards for up to 375,000 common shares of the Company. There were 118,536 shares available for future grants under this plan at September 30, 2022. No options were granted under the 2014 Incentive Plan during the periods ended September 30, 2022 and 2021. Each year, the Board of Directors has awarded restricted common shares to senior officers of the Company. The restricted shares vest ratably over a three-year or five-year period following the grant date. The product of the number of restricted shares granted and the grant date market price of the Company’s common shares determines the fair value of restricted shares awarded under the Company’s 2014 Incentive Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award. On May 25, 2022, 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 7,224 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 2023 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $ 168 . The Company classifies share-based compensation for employees with “Compensation expense” in the Consolidated Statements of Operations. Page 29 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following is a summary of the Company’s outstanding restricted shares and changes therein for the three- and nine-month periods ended September 30, 2022: Three months ended Nine Months Ended September 30, 2022 September 30, 2022 Number of Restricted Shares Weighted Average Grant Date Fair Value Number of Restricted Shares Weighted Average Grant Date Fair Value Nonvested at beginning of period 71,748 $ 21.88 69,840 $ 20.14 Granted — — 31,774 24.51 Vested — — ( 27,728 ) 24.28 Forfeited — — ( 2,138 ) 21.99 Nonvested at end of period 71,748 $ 21.88 71,748 $ 21.88 The following is a summary of the status of the Company’s outstanding restricted shares as of September 30, 2022: At September 30, 2022 Date of Award Shares Remaining Expense Remaining Vesting Period (Years) April 10, 2018 1,470 $ 8 0.25 March 14, 2019 4,034 49 1.25 March 14, 2020 4,304 21 0.25 March 14, 2020 6,951 106 2.25 March 3, 2021 11,359 170 3.25 March 3, 2021 13,692 164 1.25 March 3, 2022 12,914 264 4.25 March 3, 2022 17,024 296 2.25 71,748 $ 1,078 2.36 The Company recorded $ 153 and $ 132 of share-based compensation expense during the three months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded $ 484 and $ 392 , respectively, of share-based compensation expense. The Company recorded $ 168 of director retainer fees for shares granted under the 2014 Incentive Plan during the nine months ended September 30, 2022. At September 30, 2022, the total compensation cost related to unvested awards not yet recognized was $ 1,078 , which was expected to be recognized over the weighted average remaining life of the grants of 2.36 years. (13) Fair Value Measurement The Company uses a fair value hierarchy to measure fair value. This hierarchy describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices for identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; and Level 3: Significant unobservable inputs that reflect the Company’s own view about the assumptions that market participants would use in pricing an asset. Debt securities: The fair values of securities available-for-sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Equity securities: The Company’s equity securities are not actively traded in an open market. The fair value of these equity securities available-for-sale not actively traded in an open market is determined by using market data inputs for similar securities that are observable (Level 2 inputs). The fair value of the swap asset/liability: The fair value of the swap asset and liability is based on an external derivative model using data inputs based on similar transactions as of the valuation date and classified Level 2. The changes in fair value of these assets/liabilities had no impact on net income or comprehensive income. Page 30 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Mortgage servicing rights: Mortgage servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the discounted cash flow model are those that the Company believes market participants would use in estimating future net servicing income. Significant assumptions in the valuation of mortgage servicing rights include estimated loan repayment rates, the discount rate, servicing costs, and the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation. Impaired loans: The Company has measured impairment on impaired loans based on the discounted cash flows of the loan or 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 as a Level 3 measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table below as it is not currently being carried at its fair value. Assets and liabilities measured at fair value are summarized in the tables below. Fair Value Measurements at September 30, 2022 Using: Assets: (Level 1) (Level 2) (Level 3) Assets measured at fair value on a recurring basis: Securities available-for-sale U.S. Treasury securities and obligations of U.S. Government agencies $ — $ 60,544 $ — Obligations of states and political subdivisions — 297,807 — Mortgage-backed securities in government sponsored entities — 243,695 — Total securities available-for-sale — 602,046 — Equity securities — 2,028 — Swap asset — 18,448 — Liabilities measured at fair value on a recurring basis: Swap liability $ — $ 18,448 $ — Assets measured at fair value on a nonrecurring basis: Mortgage servicing rights $ — $ — $ 3,079 Page 31 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Fair Value Measurements at December 31, 2021 Using: Assets: (Level 1) (Level 2) (Level 3) Assets measured at fair value on a recurring basis: Securities available-for-sale U.S. Treasury securities and obligations of U.S. Government agencies $ — $ 47,890 $ — Obligations of states and political subdivisions — 298,836 — Mortgage-backed securities in government sponsored entities — 213,148 — Total securities available-for-sale — 559,874 — Equity securities — 1,072 — Swap asset — 11,072 — Liabilities measured at fair value on a recurring basis: Swap liability — 11,072 — Assets measured at fair value on a nonrecurring basis: Mortgage servicing rights $ — $ — $ 2,642 Impaired loans — — 11 The following tables present quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021. Quantitative Information about Level 3 Fair Value Measurements September 30, 2022 Fair Value Valuation Technique Unobservable Input Range Weighted Average Mortgage Servicing Rights $ 3,079 Discounted Cash Flow Constant Prepayment Rate 5.2 % - 18 % 7 % Discount Rate 12 % 12 % Quantitative Information about Level 3 Fair Value Measurements December 31, 2021 Fair Value Valuation Technique Unobservable Input Range Weighted Average Impaired loans $ 11 Appraisal of collateral Appraisal adjustments 10 % 10 % Holding period 24 months 24 months Mortgage Servicing Rights $ 2,642 Discounted Cash Flow Constant Prepayment Rate 8 % - 35 % 15 % Discount Rate 12 % 12 % Page 32 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at September 30, 2022 were as follows: September 30, 2022 Carrying Amount Total Fair Value Level 1 Level 2 Level 3 Financial Assets: Cash and due from financial institutions $ 40,914 $ 40,914 $ 40,914 $ — $ — Other securities 18,578 18,578 18,578 — — Loans, held for sale 3,491 3,561 3,561 — — Loans, net of allowance 2,300,841 2,200,018 — — 2,200,018 Bank owned life insurance 53,291 53,291 53,291 — — Accrued interest receivable 9,175 9,175 9,175 — — Financial Liabilities: Nonmaturing deposits 2,436,219 2,436,219 2,436,219 — — Time deposits 272,034 270,928 — — 270,928 Short-term FHLB advances 55,000 55,000 55,000 — — Long-term FHLB advances 6,723 6,716 — — 6,716 Securities sold under agreement to repurchase 20,155 20,155 20,155 — — Subordinated debentures 103,778 97,890 — — 97,890 Accrued interest payable 970 970 970 — — The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at December 31, 2021 were as follows: December 31, 2021 Carrying Amount Total Fair Value Level 1 Level 2 Level 3 Financial Assets: Cash and due from financial institutions $ 264,239 $ 264,239 $ 264,239 $ — $ — Other securities 17,011 17,011 17,011 — — Loans, held for sale 1,972 2,011 2,011 — — Loans, net of allowance 1,971,238 1,945,638 — — 1,945,638 Bank owned life insurance 46,641 46,641 46,641 — — Accrued interest receivable 7,385 7,385 7,385 — — Financial Liabilities: Nonmaturing deposits 2,170,253 2,170,253 2,170,253 — — Time deposits 246,448 247,053 — — 247,053 Long-term FHLB advances 75,000 75,930 — — 75,930 Securities sold under agreement to repurchase 25,495 25,495 25,495 — — Subordinated debentures 103,735 111,118 — — 111,118 Accrued interest payable 315 315 315 — — (14) Derivatives To accommodate customer need and to support the Company’s asset/liability positioning, on occasion we enter into interest rate swaps with a customer and a bank counterparty. The interest rate swaps are free-standing derivatives and are recorded at fair value. The Company enters into a floating rate loan and a fixed rate swap with our customer. Simultaneously, the Company enters into an offsetting fixed rate swap with a bank counterparty. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay a bank counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customer to effectively convert variable rate loans to fixed rate loans. Since the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations. None of the Company’s derivatives are designated as hedging instruments. Page 33 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The Company presents derivative positions net on the balance sheet for customers and financial institution counterparty positions subject to master netting arrangements. The following table reflects the derivatives recorded on the balance sheet: September 30, 2022 December 31, 2021 Notional Amount Fair Value Notional Amount Fair Value Included in other assets: Interest rate swaps with loan customers in an asset position $ — $ — $ 173,491 $ 11,072 Counterparty positions with financial institutions in an asset position 215,383 18,448 — — Total included in other assets $ 18,448 $ 11,072 Included in accrued expenses and other liabilities: Interest rate swaps with loan customers in a liability position $ 215,383 $ 18,448 $ 71,327 $ 1,628 Counterparty positions with financial institutions in a liability position — — 244,818 9,444 Total included in accrued expenses and other liabilities $ 18,448 $ 11,072 Gross notional positions with customers $ 215,383 $ 244,818 Gross notional positions with financial institution counterparties $ 215,383 $ 244,818 The presentation for derivatives for the current and prior periods was revised to present derivative positions net for customer positions. Fair value of swap assets and liabilities for the prior period was not impacted. The effect of swap fair value changes on the Consolidated Statement of Operations are as follows: Location of Amount of Gain or (Loss) Derivatives Gain or (Loss) Recognized in Not Designated Recognized in Income on Derivatives as Hedging Instruments Income on Derivative September 30, 2022 September 30, 2021 Interest rate swaps related to customer loans Other income $ — $ 64 Total $ — $ 64 The Company monitors and controls all derivative products with a comprehensive Board of Director approved commercial loan swap policy. All interest rate swap transactions must be approved in advance by the Lenders Loan Committee or the Directors Loan Committee of the Board of Directors. The Company classifies changes in fair value of derivatives with “Other” in the Consolidated Statements of Operation. At September 30, 2022, the Company did no t have any cash or securities pledged for collateral on its interest rate swaps with third party financial institutions. At December 31, 2021, the Company had cash and securities with a fair value of $ 10,780 and $ 509 , respectively, pledged as collateral. Cash pledged for collateral on interest rate swaps is classified as restricted cash on the Consolidated Balance Sheet. (15) Qualified Affordable Housing Project Investments The Company invests in certain qualified affordable housing projects. At September 30, 2022 and December 31, 2021, the balance of the investment for qualified affordable housing projects was $ 12,377 and $ 13,093 , 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 $ 4,093 and $ 5,706 at September 30, 2022 and December 31, 2021, respectively. These balances are reflected in the Accrued expenses and other liabilities line on the Consolidated Balance Sheet. Page 34 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) During the three months ended September 30, 2022 and 2021, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $ 239 and $ 203 , respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $ 396 and $ 339 , respectively. During the nine months ended September 30, 2022 and 2021, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $ 716 and $ 608 , respectively, offset by tax credits and other benefits from its investment in affordable housing tax credits of $ 1,181 and $ 1,015 , respectively. During the three- and nine-month periods ended September 30, 2022 and 2021, the Company did no t incur any impairment losses related to its investments in qualified affordable housing projects. Other operating expenses and Income tax expense were reclassified for the three- and nine-month periods of September 30, 2021 to reflect the change to proportional amortization method of accounting of $ 203 and $ 608 , respectively. (16) Revenue Recognition The Company accounts for revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers . Revenue associated with financial instruments, including revenue from loans and securities, are outside the scope of ASC 606 and accounted for under other existing GAAP. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the guidance. Noninterest revenue streams in-scope of ASC 606 are discussed below. Service Charges Service charges consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM/Interchange Fees Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Wealth Management Fees Wealth management fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received in the following month through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Tax Refund Processing Fees The Company facilitates the payment of federal and state income tax refunds in partnership with a third-party vendor. Refund Transfers (“RTs”) are fee-based products whereby a tax refund is issued to the taxpayer after the Company has received the refund from the federal or state government. As part of this agreement the Company earns fee income, the majority of which is received in the first quarter of the year. The Company’s fee income revenue is recognized based on the estimated percent of business completed by each date. Page 35 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) Other Other noninterest income consists of other recurring revenue streams such as check order fees, wire transfer fees, safety deposit box rental fees, item processing fees and other miscellaneous revenue streams. Check order income mainly represents fees charged to customers for checks. Wire transfer fees represent revenue from processing wire transfers. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Item processing fee income represents fees charged to other financial institutions for processing their transactions. Payment is typically received in the following month. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three- and nine-months ended September 30, 2022 and 2021. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Noninterest Income In-scope of Topic 606: Service charges $ 1,885 $ 1,519 $ 5,004 $ 4,092 ATM/Interchange fees 1,394 1,330 3,990 3,950 Wealth management fees 1,208 1,236 3,713 3,570 Tax refund processing fees — — 2,375 2,375 Other 274 267 574 944 Noninterest Income (in-scope of Topic 606) 4,761 4,352 15,656 14,931 Noninterest Income (out-of-scope of Topic 606) 973 2,074 3,356 9,710 Total Noninterest Income $ 5,734 $ 6,426 $ 19,012 $ 24,641 (17) Merger On July 1, 2022, CBI completed the acquisition by merger of Comunibanc Corp. in a stock and cash transaction for aggregate consideration of approximately $ 46,090 . As a result of the acquisition, the Company issued 984,723 common shares and paid approximately $ 24,968 in cash to the former shareholders of Comunibanc Corp. The Company and Comunibanc Corp. had first announced that they had entered into an agreement to merge in January of 2022. Immediately following the merger, Comunibanc Corp.’s banking subsidiary, The Henry County Bank (HCB), was merged into CBI’s banking subsidiary, Civista Bank. The assets and liabilities of Comunibanc Corp. were recorded on the Company’s Balance Sheet at their preliminary estimated fair values as of July 1, 2022, the acquisition date, and Comunibanc Corp.’s results of operations have been included in the Company’s Consolidated Statements of Operations since that date. Due to the timing of the acquisition relative to the end of the reporting period, the fair values for certain assets and liabilities acquired from Comunibanc Corp on July 1, 2022 represent preliminary estimates. Based on a preliminary purchase price allocation, the Company recorded $ 24,801 in goodwill and $ 4,426 in core deposit intangibles, representing the principal change in goodwill and intangibles from December 31, 2021. None of the purchase price is deductible for tax purposes. At the time of the merger, Comunibanc Corp had total consolidated assets of $ 315,083 , including $ 175,500 in loans, and $ 271,081 in deposits. The transaction was recorded as a purchase and, accordingly, the operating results of Comunibanc Corp. and HCB have been included in the Company’s Consolidated Financial Statements since the close of business on July 1, 2022. Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. The identifiable intangible assets consist of core deposit intangible which is being amortized over the estimated useful life. The gross carrying amount of the core deposit intangible at September 30, 2022 was $ 4,426 . Page 36 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) In 2022, the Company has incurred additional third-party acquisition-related costs of $ 1.9 million. These expenses are comprised of employee benefits of $ 16.6 thousand, occupancy and equipment expenses of $ 51.6 thousand, software expense of $ 14.0 thousand, consulting and other professional fees of $ 839.4 thousand, data processing costs of $ 558.3 thousand and other operating expenses of $ 373.0 thousand in the Company’s consolidated statement of operations for the nine-month period ended September 30, 2022. As of September 30, 2022, the current year and estimated future amortization expense for the core deposit intangible is as follows: Core deposit intangibles 2022 $ 427 2023 739 2024 684 2025 604 2026 523 Thereafter 1,449 $ 4,426 The following table presents financial information for the former Comunibanc Corp. included in the Consolidated Statements of Operations from the date of acquisition through September 30, 2022. Actual From Acquisition Date Through September 30, 2022 (in thousands) Net interest income after provision for loan losses $ 1,638 Noninterest income 158 Net income 426 The following table presents pro forma information for the three- and nine-month periods ended September 30, 2022 and 2021 as if the acquisition of Comunibanc Corp. had occurred on January 1, 2021. 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. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition. Pro Formas Pro Formas Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net interest income after provision for loan losses $ 30,405 $ 26,891 $ 82,100 $ 78,452 Noninterest income 5,734 6,693 19,387 25,486 Net income 11,176 10,100 26,914 31,015 Pro forma earnings per share: Basic $ 0.74 $ 0.63 $ 1.80 $ 1.88 Diluted $ 0.74 $ 0.63 $ 1.80 $ 1.88 Page 37 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Comunibanc Corp. Core deposit intangibles will be amortized over periods of between ten years using an accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment. Cash paid $ 24,968 Common Shares issued ( 984,723 shares) 21,122 Total $ 46,090 Net assets acquired: Cash and due from financial institutions $ 3,098 Securities available for sale 120,399 Time deposits 742 Loans, net 169,202 Other securities 1,553 Premises and equipment 6,073 Accrued interest receivable 670 Core deposit intangible 4,426 Bank owned life insurance 5,918 Other assets 3,767 Noninterest-bearing deposits ( 122,642 ) Interest-bearing deposits ( 148,552 ) Other borrowings ( 21,706 ) Other liabilities ( 1,659 ) 21,289 Goodwill resulting from Comunibanc Corp. acquisition $ 24,801 Loans purchased with evidence of credit deterioration since origination and for which it was probable that all contractually required payments would not be collected were considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date included information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans were accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which included estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans was not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporated the estimate of the current assumptions, such as default rates, severity and prepayment speeds. The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30: At September 30, 2022 Acquired Loans with Specific Evidence of Deterioration of Credit Quality (ASC 310-30) (In Thousands) Outstanding balance $ 4,421 Carrying amount 3,774 The gross principal due under the contract for acquired receivables not subject to ASC 310-30 is $ 171.1 million. The fair value adjustment is $ 2.1 million and the contractual cash flows not expected to be collected is $ 5.7 million. The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgment in accounting for the acquisition. Page 38 Civista Bancshares, Inc. Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q (Amounts in thousands, except share data) The amount of goodwill recorded reflects a strategic opportunity to expand into new markets that, while similar to existing markets, are projected to be more vibrant in population growth and business opportunity growth. The goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. Additionally, the acquisition will provide exposure to suburbs of larger urban areas without the commitment of operating inside large metropolitan areas dominated by regional and national financial organizations. The acquisition is also expected to create synergies on the operational side of the Company by allowing noninterest expenses to be spread over a larger operating base. (18) Subsequent Events On September 29, 2022, CBI and Civista, entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Vision Financial Group, Inc., a Pennsylvania corporation (“VFG”), and Frederick S. Summers, a resident of the State of Florida (“Seller”), pursuant to which Civista agreed to acquire all of the issued and outstanding shares of capital stock of VFG. VFG is a privately held, independent, full-service equipment leasing and financing company headquartered in Pittsburgh, Pennsylvania. The acquisition of VFG subsequently closed on October 3, 2022 . Under the terms and conditions of the Purchase Agreement, upon closing, Civista acquired all of the issued and outstanding shares of capital stock of VFG from Seller in exchange for: (i) payment to Seller of cash consideration equal to approximately $ 28,600 (subject to adjustment based on the Shareholder Equity of VFG at the time of closing); and (ii) issuance to Seller and certain members of VFG management of an aggregate of 150,145 shares of CBI common stock (“CBI Shares”), equal to $ 5,250 divided by the volume weighted average closing price of a CBI Share on The NASDAQ—Capital Market® for the ten consecutive trading days immediately preceding the closing date. Approximately $ 7,900 of outstanding subordinated debt of VFG was also assumed and paid off by Civista in connection with the transaction. Pursuant to the Purchase Agreement, Seller and certain members of VFG management received an additional amount of contingent consideration in the form of 250,148 restricted CBI Shares with an aggregate value of $ 5,250 . The restricted shares will be subject to vesting or forfeiture based on agreed upon targets of actual originations of equipment leases and similar financing products offered by VFG in 2023 and 2024. The Purchase Agreement contains customary representations, warranties and covenants by each of the parties and contains indemnification provisions under which the parties agreed, subject to certain limitations, to indemnify each other against certain liabilities. At closing, Civista deposited certain portions of the cash consideration with an escrow agent to be held in escrow and made available to satisfy post-closing indemnification claims under the Purchase Agreement. To supplement the indemnification provided by Seller, Civista obtained representation and warranty insurance. The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. Due to the recent closing, management remains in the early stages of reviewing the estimated fair values and evaluating the assumed tax positions of this acquisition. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction within one year of the acquisition. 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) ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction The following discussion focuses on the consolidated financial condition of the Company at September 30, 2022 compared to December 31, 2021, and the consolidated results of operations for the three-and nine-month periods ended September 30, 2022, compared to the same periods in 2021. This discussion should be read in conjunction with the Consolidated Financial Statements and footnotes included in this Form 10-Q. Forward-Looking Statements This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to such matters as the Company’s financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from those discussed in the forward-looking statements include, but are not limited to: • effects of the continuing novel coronavirus (COVID-19) pandemic on national, regional and local economies, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the development, availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages; • current and future economic and financial market conditions, either nationally or in the states in which we do business, including the effects of inflation, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the conflict in Ukraine), and any slowdown in global economic growth, in addition to the continuing impact of the COVID-19 pandemic on our customers’ operations and financial condition, 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; • changes in unemployment levels in our market area, including as a result of the continuing COVID-19 pandemic; • changes in customers’, suppliers’, and other counterparties’ performance and creditworthiness may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic and inflationary pressures; • 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; • the transition away from LIBOR as a reference rate for financial contracts, which could negatively impact our income and expenses and the value of various financial contracts; • 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; • the lack of assurances regarding the future revenues of our tax refund program; 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) • risks inherent in pursuing strategic growth initiatives, including integration and other risks involved in past, pending and possible future acquisitions; including, without limitation, the recently completed acquisitions of Comunibanc Corp. and VFG; • 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 and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, as well as the reforms provided for in the Coronavirus Aid, Relief and Economic Security (CARES) Act and the follow-up legislation in the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021; • changes in federal, state and/or local tax laws; • 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 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, 2021. 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 September 30, 2022 were $3,241,719 compared to $3,012,905 at December 31, 2021, an increase of $228,814, or 7.6%. The increase in total assets was due to the Company’s acquisition by merger of Comunibanc Corp. effective July 1, 2022 and increases in loans of $329,603, accompanied by increases in securities available-for-sale, and other assets of $42,172 and $24,260, respectively, partially offset by a decrease in cash and cash equivalents of $223,325. Total liabilities at September 30, 2022 were $2,939,117 compared to $2,657,693 at December 31, 2021, an increase of $281,424, or 10.6%. The increase in total liabilities was primarily attributable to an increase in total deposit accounts of $291,552, accompanied by an increase in short term FHLB borrowings of $55,000, partially offset by decreases in long term FHLB borrowings of $68,277. 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) Loans outstanding as of September 30, 2022 and December 31, 2021 were as follows: September 30, 2022 December 31, 2021 $ Change % Change Commercial & Agriculture $ 227,387 $ 246,502 $ (19,115 ) -7.8 % Commercial Real Estate—Owner Occupied 364,468 295,452 69,016 23.4 % Commercial Real Estate—Non-Owner Occupied 956,169 829,310 126,859 15.3 % Residential Real Estate 531,164 430,060 101,104 23.5 % Real Estate Construction 202,793 157,127 45,666 29.1 % Farm Real Estate 25,636 28,419 (2,783 ) -9.8 % Consumer and Other 20,997 11,009 9,988 90.7 % Total loans 2,328,614 1,997,879 330,735 16.6 % Allowance for loan losses (27,773 ) (26,641 ) (1,132 ) 4.2 % Net loans $ 2,300,841 $ 1,971,238 $ 329,603 16.7 % Included in Commercial & Agriculture loans above were $819 of PPP loans as of September 30, 2022 and $43,209 of PPP loans as of December 31, 2021. Loans held for sale increased $1,519, or 77.0%, since December 31, 2021. The increase was due to an increase in the average loan balance held for sale. At September 30, 2022, 19 loans totaling $3,491 were held for sale as compared to 14 loans totaling $1,972 at December 31, 2021. Net loans have increased $329,603, or 16.7%, since December 31, 2021. The Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction and Consumer and Other loan portfolios increased $69,016, $126,859, $101,104, $45,666 and $9,988, respectively, since December 31, 2021, while the Commercial & Agriculture and Farm Real Estate loan portfolios decreased $19,115 and $2,783, respectively, since December 31, 2021. Loans acquired as part of the Comunibanc Corp. acquisition for Commercial & Agriculture, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Residential Real Estate, Real Estate Construction, Farm Real Estate and Consumer and Other loan portfolios totaled $9,731, $30,680, $45,731, $61,752, $12,394 $2,872 and $11,757, respectively. At September 30, 2022, the net loan to deposit ratio was 85.0% compared to 81.6% at December 31, 2021. The increase in the net loan to deposit ratio is primarily the result of an increase in loans, partially offset by an increase in deposits. During the first nine months of 2022, provisions made to the allowance for loan losses totaled $1,000, compared to a provision of $830 during the same period in 2021. The increase in provision was due to the strong loan growth during the first nine months of 2022. The challenges of the international, national, regional and local economic conditions, particularly inflation, has taken greater focus from the prior economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. Despite these concerns, our portfolio quality has remained stable overall with decreases in criticized loans. We continue to be optimistic that asset quality will continue to remain strong despite ongoing headwinds. While we remain cautious given the impact of inflation on all of our borrowers, we are encouraged by strong loan growth. Net recoveries for the first nine months of 2022 totaled $132, compared to net recoveries of $710 in the first nine months of 2021. For the first nine months of 2022, the Company charged off a total of 14 loans. One Commercial and Agriculture loan totaling $22, five Residential Real Estate loan totaling $97 and eight Consumer and Other loans totaling $45 were charged off in the first nine months of the year. In addition, during the first nine months of 2022, the Company had recoveries on previously charged-off Commercial and Agriculture loans of $16, Commercial Real Estate – Owner Occupied loans of $42, Commercial Real Estate – Non-Owner Occupied loans of $68, Residential Real Estate loans of $140, Farm Real Estate loans of $5 and Consumer and Other loans of $25. For each loan category, as well as in total, the percentage of net charge-offs to loans was less than one percent. Nonperforming loans increased by $1,106 since December 31, 2021, which was due to a $780 increase in loans on nonaccrual status and an increase in loans past due 90 days and accruing of $326. Each of these factors was considered by management as part of the examination of both the level and mix of the allowance by loan type as well as the overall level of the allowance. Management specifically evaluates loans that are impaired for estimates of loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in the portfolio, management considers specific reserve allocations for identified portfolio loans, reserves for delinquencies and historical reserve allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. 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) Management analyzes each impaired Commercial and Commercial Real Estate loan relationship with a balance of $350 or larger, on an individual basis and designates a loan as impaired when it is in nonaccrual status or when an analysis of the borrower’s operating results and financial condition indicate s that underlying cash flows are not adequate to meet its debt service requirements. L oans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loan losses as a percent of total loans was 1.19% at September 30, 2022 and 1.33% at December 31, 2021 . The available-for-sale security portfolio increased by $42,172, from $559,874 at December 31, 2021 to $602,046 at September 30, 2022. Securities acquired as part of the acquisition of Comunibanc Corp. totaled $120,399 and $57,322 were sold immediately after the merger. Management continually evaluates our securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability and the level of interest rate risk to which the Company is exposed. These evaluations may cause the Company to change the level of funds it deploys into investment securities and change the composition of its investment securities portfolio. As of September 30, 2022, the Company was in compliance with all pledging requirements. Premises and equipment, net, increased $7,723 from December 31, 2021 to September 30, 2022. The increase is the result of new purchases of $3,208, offset by depreciation of $1,558. Premises and equipment, net, acquired from the acquisition of Comunibanc Corp. totaled $6,073. Goodwill increased by $24,801, from $76,851 at December 31, 2021 to $101,652 at September 30, 2022. The increase is due to the goodwill created from the acquisition of Comunibanc Corp. Other intangible assets increased $3,973 from year-end 2021. The increase includes $4,426 of core deposit intangibles and $419 of mortgage servicing rights from the acquisition of Comunibanc Corp. Bank owned life insurance (BOLI) increased $6,650 from December 31, 2021 to September 30, 2022. BOLI acquired from the merger with Comunibanc Corp. totaled $5,918. The remaining difference is the result of increases in the cash surrender value of the underlying insurance policies. Swap assets increased $7,376 from December 31, 2021 to September 30, 2022. The increase is primarily the result of an increase in market value. Deferred taxes available-for-sale securities increased $24,138 from December 31, 2021 to September 30, 2022. The increase is the result of an increase in deferred taxes - securities of $21,044. Total deposits as of September 30, 2022 and December 31, 2021 were as follows: September 30, 2022 December 31, 2021 $ Change % Change Noninterest-bearing demand $ 944,241 $ 788,906 $ 155,335 19.7 % Interest-bearing demand 560,594 537,510 23,084 4.3 % Savings and money market 931,393 843,837 87,556 10.4 % Time deposits 272,025 246,448 25,577 10.4 % Total Deposits $ 2,708,253 $ 2,416,701 $ 291,552 12.1 % Total deposits at September 30, 2022 increased $291,552 from year-end 2021. Noninterest-bearing deposits increased $155,335 from year-end 2021, while interest-bearing deposits, including savings and time deposits, increased $136,217 from December 31, 2021. Noninterest-bearing deposits acquired in the acquisition of Comunibanc Corp. totaled $65,491, while interest-bearing deposits, including savings and time deposits totaled $185,332. The increase in noninterest-bearing deposits was partially due to increases in cash balances related to the Company’s participation in a tax refund processing program, which added noninterest-bearing deposits of $60,070. In addition, demand deposit and public fund demand deposit accounts increased $19,672 and $10,212, respectively. Noninterest-bearing deposits acquired from Comunibanc Corp. totaled $65,491 at September 30, 2022. The increase in interest-bearing deposits was primarily due to increases in personal interest-bearing demand and public fund interest-bearing demand accounts of $8,044 and $11,782, respectively, accompanied by decreases in business interest-bearing demand and JUMBO NOW accounts of $30,951 and $9,523, respectively. Interest-bearing demand deposits acquired from Comunibanc Corp. totaled $41,376 at September 30, 2022. Statement savings, business money market savings and public fund money market savings accounts increased by $25,012, $5,376 and $1,669, respectively, accompanied by a decrease in brokered money market savings accounts of $16,997. Savings and money market deposits 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) acquired from Comunibanc Corp. totaled $ 87 , 641 at September 30, 2022 . Time certificates over $250, time certificates and Jumbo time certificates decreased $ 7 , 767 , $ 11 , 365 and $ 9 , 676 , respectively. Time deposits acquired from Comunibanc Corp. totaled $ 56 , 315 at September 30, 2022 . The year-to-date average balance of total deposits in creased $ 93,652 , compared to the average balance for the same period in 20 2 1 , mainly due to increases in the average balances of interest-bearing demand and savings and money markets accounts of $ 47 , 234 and $ 46 , 890 , respectively. In addition, the average balance of time deposits de creased $ 19 , 909 as compared to the same period in 202 1 . FHLB advances decreased $13,277 from December 31, 2021 to September 30, 2022. The decrease is due to the repayment of an FHLB advance in the amount of $75,000. This advance had terms of one hundred twenty months with a fixed rate of 1.03% and was puttable. The advance was not replaced. Long-term advances acquired in the acquisition of Comunibanc Corp. totaled $21,706, of which $14,983 has been paid down. The Company had $55,000 in overnight funds with FHLB as of September 30, 2022. Securities sold under agreements to repurchase, which tend to fluctuate based on the liquidity needs of customers and short-term nature of the instrument, decreased $5,340 from December 31, 2021 to September 30, 2022. Securities purchased payable decreased $913 from December 31, 2021 to September 30, 2022. The decrease is primarily the result of a decrease in accounts payable related to securities purchased but not yet funded of $913. Tax refunds in process increased $2,160 from December 31, 2021 to September 30, 2022. The increase is primarily the result of an increase in a clearing account related to our tax refund processing program of $2,160. Shareholders’ equity at September 30, 2022 was $302,602, or 9.3% of total assets, compared to $355,212, or 11.8% of total assets, at December 31, 2021. The decrease was the result of a decrease in the fair value of securities available-for-sale, net of tax, of $78,802, dividends on common shares of $6,291 and the purchase of treasury shares of $16,734, offset by net income of $27,279 and a decrease in the Company’s pension liability, net of tax, of $164. Total outstanding common shares at September 30, 2022 were 15,235,545, which increased from 14,954,200 common shares outstanding at December 31, 2021. Common shares outstanding increased due to the issuance of 984,723 common shares to former shareholders of Comunibanc Corp. in connection with the acquisition of Comunibanc Corp. effective July 1, 2022. Additionally, common share outstanding was impacted by 740,238 common shares being repurchased by the Company at an average repurchase price of $22.61. The Company repurchased 341,963 common shares pursuant to a stock repurchase program announced on May 4, 2022 and 392,847 common shares pursuant to a stock repurchase program announced on August 12, 2021. The repurchase program publicly announced on May 4, 2022 authorized the Company to repurchase a maximum aggregate value of $13,500 of the Company’s common shares until May 9, 2023. The repurchase plan publicly announced on August 12, 2021 authorized the Company to repurchase a maximum aggregate value of $13,500 of the Company’s common shares until August 10, 2022. An additional 5,428 common shares were surrendered by officers to the Company to pay taxes upon vesting of restricted shares and 2,138 restricted common shares were forfeited. The repurchase of common shares was offset by the grant of 31,774 restricted common shares to certain officers under the Company’s 2014 Incentive Plan. In addition, 7,224 common shares were issued to Civista directors as a retainer payment for service on the Civista Board of Directors. Results of Operations Three Months Ended September 30, 2022 and 2021 The Company had net income of $11,112 for the three months ended September 30, 2022, an increase of $1,470 from net income of $9,642 for the same three months of 2021. Basic earnings per common share were $0.72 for the quarter ended September 30, 2022, compared to $0.64 for the same period in 2021. Diluted earnings per common share were $0.72 for the quarter ended September 30, 2022, compared to $0.64 for the same period in 2021. The primary reasons for the changes in net income are explained below. Net interest income for the three months ended September 30, 2022 was $30,439, an increase of $6,006 from $24,433 for the same three months of 2021. This increase is the result of an increase of $6,749 in total interest income, offset by an increase of $743 in interest expense. Interest-earning assets averaged $3,002,256 during the three months ended September 30, 2022, an increase of $254,806 from $2,747,450 for the same period of 2021. The Company’s average interest-bearing liabilities increased from $1,716,512 during the three months ended September 30, 2021 to $1,893,092 during the three months ended September 30, 2022. The Company’s fully tax equivalent net interest margin for the three months ended September 30, 2022 and 2021 was 4.03% and 3.62%, respectively. Page 44 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Total interest income was $ 32 , 533 for the three months ended September 3 0 , 20 2 2 , a n in crease of $ 6,749 from $ 2 5 , 784 of total interest income for the same period in 20 2 1 . The increase in interest income is attributable to increases in interest and fees on loans and interest income on taxable and tax-exempt securities of $ 4,472, $1,513, and $443 , respectively . Interest on loans in creased $ 4,472 to $2 7 , 176 for the three months ended September 30, 2022, as compared to $22, 704 for the same period in 2021. The average balance of loans increased by $ 278 , 923 , or 1 3 . 9 % to $ 2 , 289 , 588 for the three months ended September 3 0 , 20 2 2 as compared to $ 2 , 0 10 , 665 for the same period in 20 2 1 . The loan yield in creased to 4 . 71 % for the three months ended September 3 0 , 202 2 , from 4 . 4 8 % for the same period in 20 2 1 . Interest on taxable securities increased $1,513 to $2,936 for the three months ended September 30, 2022, compared to $1,423 for the same period in 2021. The average balance of taxable securities increased $89,942 to $354,597 for the three months ended September 30, 2022, as compared to $264,655 for the same period in 2021. The yield on taxable securities increased 88 basis points to 3.06% for 2022, compared to 2.18% for 2021. Interest on tax-exempt securities increased $443 to $1,998 for the three months ended September 30, 2022, compared to $1,555 for the same period in 2021. The average balance of tax-exempt securities increased $50,340 to $268,327 for the three months ended September 30, 2022, as compared to $217,987 for the same period in 2021. The yield on tax-exempt securities decreased 44 basis points to 3.47% for 2022, compared to 3.91% for 2021 due to the impact of lower interest rates in 2022 as compared to the same period of 2021. Interest expense increased $743, or 55.0%, to $2,094 for the three months ended September 30, 2022, compared with $1,351 for the same period in 2021. The change in interest expense can be attributed to an increase in the average balance of interest-bearing liabilities, accompanied by increases in rates. For the three months ended September 30, 2022, the average balance of interest-bearing liabilities increased $176,580 to $1,893,092, as compared to $1,716,512 for the same period in 2021. Interest incurred on deposits decreased by $34 to $936 for the three months ended September 30, 2022, compared to $970 for the same period in 2021. Although the average balance of interest-bearing deposits increased by $149,936 for the three months ended September 30, 2022, as compared to the same period in 2021, deposit expense decreased due to a decrease in the rate paid on time deposits from 1.03% in 2021 to 0.79% in 2022. Interest expense incurred on FHLB advances decreased 6.7% from 2021. The average balance on FHLB balances decreased $42,951 for the three months ended September 30, 2022, as compared to the same period in 2021, as a result of the repayment of a long-term advance. Interest expense incurred on subordinated debentures increased $793, to $975 for the three months ended September 30, 2022, compared to $182 for the same period in 2021. For the three months ended September 30, 2022, the average balance of subordinated debentures increased $73,402 to $103,751, as compared to $30,349 for the same period in 2021. During the fourth quarter of 2021, the Company entered into a Subordinated Note Purchase Agreement pursuant to which the Company sold and issued $75,000 aggregate principal amount of its 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031. Page 45 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) The following table presents the condensed average balance sheets for the three months ended September 3 0 , 20 2 2 and 20 2 1 . The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities. Three Months Ended September 30, 2022 2021 Assets: Average balance Interest Yield/ rate* Average balance Interest Yield/ rate* Interest-earning assets: Loans, including fees** $ 2,289,588 $ 27,176 4.71 % $ 2,010,665 $ 22,704 4.48 % Taxable securities 354,597 2,936 3.06 % 264,655 1,423 2.18 % Tax-exempt securities 268,327 1,998 3.47 % 217,987 1,555 3.91 % Interest-bearing deposits in other banks 89,744 423 1.87 % 254,143 102 0.16 % Total interest-earning assets $ 3,002,256 $ 32,533 4.30 % $ 2,747,450 $ 25,784 3.82 % Noninterest-earning assets: Cash and due from financial institutions 58,581 33,803 Premises and equipment, net 28,633 22,845 Accrued interest receivable 8,907 7,417 Intangible assets 84,265 84,949 Other assets 48,013 39,111 Bank owned life insurance 53,131 46,557 Less allowance for loan losses (27,546 ) (26,683 ) Total Assets $ 3,256,240 $ 2,955,449 Liabilities and Shareholders Equity: Interest-bearing liabilities: Demand and savings $ 1,457,112 $ 379 0.10 % $ 1,331,032 $ 302 0.09 % Time 280,903 557 0.79 % 257,047 668 1.03 % Short-term FHLB advances 6,713 48 2.08 % - — 0.00 % Long-term FHLB advances 25,336 133 2.84 % 75,000 194 1.03 % Subordinated debentures 103,751 975 3.73 % 30,349 182 2.45 % Repurchase Agreements 19,277 2 0.04 % 23,084 5 0.09 % Total interest-bearing liabilities $ 1,893,092 $ 2,094 0.44 % $ 1,716,512 $ 1,351 0.31 % Noninterest-bearing deposits 980,999 849,501 Other liabilities 77,015 40,466 Shareholders’ Equity 305,134 348,970 Total Liabilities and Shareholders’ Equity $ 3,256,240 $ 2,955,449 Net interest income and interest rate spread $ 30,439 3.86 % $ 24,433 3.51 % Net interest margin 4.03 % 3.62 % *—Average yields are presented on a tax equivalent basis. The tax equivalent effect associated with loans and investments, included in the yields above, was $532 and $414 for the periods ended September 30, 2022 and 2021, respectively. **—Average balance includes nonaccrual loans. Page 46 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended September 3 0 , 20 2 2 and 20 2 1 . Increase (decrease) due to: Volume (1) Rate (1) Net (Dollars in thousands) Interest income: Loans, including fees $ 3,267 $ 1,205 $ 4,472 Taxable securities 819 694 1,513 Tax-exempt securities 633 (190 ) 443 Interest-bearing deposits in other banks (106 ) 427 321 Total interest income $ 4,613 $ 2,136 $ 6,749 Interest expense: Demand and savings $ 30 $ 47 $ 77 Time 58 (169 ) (111 ) Short-term FHLB advances 48 — 48 Long-term FHLB advances (180 ) 119 (61 ) Subordinated debentures 642 151 793 Repurchase agreements (1 ) (2 ) (3 ) Total interest expense $ 597 $ 146 $ 743 Net interest income $ 4,016 $ 1,990 $ 6,006 (1) The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate. The Company provides for loan losses through regular provisions to the allowance for loan losses. Provisions for loan losses totaled $300 and $0 during the quarters ended September 30, 2022 and 2021, respectively. The increase in the provision in the third quarter of 2022 reflects the Company’s strong loan growth during the quarter. Our credit quality metrics remain stable despite the ongoing headwinds of the challenging international, national, regional and local economic conditions. While the direct impact of COVID-19 wains, we remain cautious due to increasing inflationary pressures. Criticized loans were reduced in the third quarter, primarily loans to borrowers in the hotel industry due to improved occupancy. Economic impacts related to the COVID-19 pandemic have improved somewhat, but continued concerns linger due to the disruption of supply chains, workforce shortages, rising inflationary pressures and the prospects of recession. Noninterest income for the three-month periods ended September 30, 2022 and 2021 are as follows: Three months ended September 30, 2022 2021 $ Change % Change Service charges $ 1,885 $ 1,519 $ 366 24.1 % Net gain on sale of securities 4 4 — 0.0 % Net gain (loss) on equity securities (133 ) 50 (183 ) -366.0 % Net gain on sale of loans 637 1,612 (975 ) -60.5 % ATM/Interchange fees 1,394 1,330 64 4.8 % Wealth management fees 1,208 1,236 (28 ) -2.3 % Bank owned life insurance 255 261 (6 ) -2.3 % Swap fees — 41 (41 ) -100.0 % Other 484 373 111 29.8 % Total noninterest income $ 5,734 $ 6,426 $ (692 ) -10.8 % Page 47 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Noninterest income for the three months ended September 30, 2022 was $5,734, a decrease of $692, or 10.8%, from $6,426 for the same period of 2021. The decrease was primarily due to decreases in net gain (loss) on equity securities, net gain on sale of loans and swap fees, offset by increases in service charges and other income. Net gain (loss) on equity securities decreased as a result of market value decreases. Net gain on sale of loans decreased primarily as a result of a decrease in volume of loans sold. During the three-months ended September 30, 2022, 117 loans were sold, totaling $33,929. During the three-months ended September 30, 2021, 303 loans were sold, totaling $56,887. Swap fees decreased due to the volume of swaps performed during the quarter ended September 30, 2022 as compared to the same period of 2021. Service charges increased due to higher service charges of $196 and overdraft fees of $130. Other income increased as result of an increase in servicing fee income. Noninterest expense for the three-month periods ended September 30, 2022 and 2021 are as follows: Three months ended September 30, 2022 2021 $ Change % Change Compensation expense $ 12,484 $ 11,390 $ 1,094 9.6 % Net occupancy expense 1,252 985 267 27.1 % Equipment expense 637 444 193 43.5 % Contracted data processing 846 429 417 97.2 % FDIC assessment 170 247 (77 ) -31.2 % State franchise tax 629 511 118 23.1 % Professional services 1,335 776 559 72.0 % Amortization of intangible assets 456 223 233 104.5 % ATM/Interchange expense 604 594 10 1.7 % Marketing 372 359 13 3.6 % Software maintenance expense 942 819 123 15.0 % Other 2,828 2,474 354 14.3 % Total noninterest expense $ 22,555 $ 19,251 $ 3,304 17.2 % Noninterest expense for the three months ended September 30, 2022 was $22,555, an increase of $3,304, or 17.2%, from $19,251 reported for the same period of 2021. The primary reasons for the increase were increases in compensation expense, net occupancy, equipment expense, contracted data processing expense, state franchise tax, professional services, amortization expense, software maintenance expense and other operating expense, offset by a decrease in FDIC assessment. The increase in compensation expense was mainly due to the acquisition of Comunibanc Corp. The increase in occupancy expense is due to increases in utilities and ground maintenance. Equipment expense increased due to increases in computer, security and office equipment purchases of $101. Contracted data processing fees increased due to the payment of deconversion fees related to the merger with Comunibanc Corp. of $349. The quarter-over-quarter decrease in FDIC assessments was attributable to lower assessment multipliers charged to Civista. The increase in state franchise tax expense was attributable to an increase in equity capital, which is the basis of the Ohio Financial Institutions tax. Professional services increased due to acquisition and merger related legal, accounting and tax professional fees of $430, accompanied by increases in recruitment fees and increased call volumes at the Company’s call center. The increase in amortization of intangible assets is related to the merger with Comunibanc Corp. The increase in software maintenance expense is due to a general increase in legacy software maintenance contracts and the implementation of our new digital banking. The increase in other operating expense is primarily due to merger related expenses of $116 and travel, lodging and meals of $64. Income tax expense for the three months ended September 30, 2022 totaled $2,206, up $240 compared to the same period in 2021. The effective tax rates for the three-month periods ended September 30, 2022 and 2021 were 16.7% and 16.9%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income. Nine Months Ended September 30, 2022 and 2021 Page 48 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 Company had net income of $27,279 for the nine months ended September 30, 2022, a decrease of $2,285 from net income of $29,564 for the same nine months of 2021. Basic earnings per common share were $1.82 for the period ended September 30, 2022, compared to $1.90 for the same period in 2021. Diluted earnings per common share were $1.82 for the period ended September 30, 2022, compared to $1.90 for the same period in 2021. The primary reasons for the changes in net income are explained below. Net interest income for the nine months ended September 30, 2022 was $77,639, an increase of $5,537 from $72,102 in the same nine months of 2021. This increase is the result of an increase of $6,255 in total interest income, partially offset by an increase of $718 in interest expense. Interest-earning assets averaged $2,895,090 during the nine months ended September 30, 2022, an increase of $52,628 from $2,842,462 for the same period of 2021. The Company’s average interest-bearing liabilities increased from $1,724,858 for the first nine months of 2021 to $1,850,724 for the same period in 2022. The Company’s fully tax equivalent net interest margin for the nine months ended September 30, 2022 and 2021 was 3.62% and 3.48%, respectively. Total interest income increased $6,255 to $83,263 for the period ended September 30, 2022. This change was the result of increases in the average balance of interest-earning assets, accompanied by higher yields on the portfolio. The average balance of loans increased by $66,278, or 3.2%, to $2,111,019 for the period ended September 30, 2022, as compared to $2,044,741 for the period ended September 30, 2021. The loan yield decreased to 4.44% for 2022, from 4.46% in 2021. Interest on taxable securities increased $2,503 to $6,431 for the period ended September 30, 2022, compared to $3,928 for the same period in 2021. The average balance of taxable securities increased $107,283 to $322,262 for the period ended September 30, 2022, as compared to $214,979 for the period ended September 30, 2021. The yield on taxable securities increased 2 basis points to 2.53% for 2022, compared to 2.51% for 2021. Interest on tax-exempt securities increased $1,070 to $5,669 for the period ended September 30, 2022, compared to $4,599 for the same period in 2021. The average balance of tax-exempt securities increased $51,252 to $262,790 for the period ended September 30, 2022, as compared to $211,538 for the period ended September 30, 2021. The yield on tax-exempt securities decreased 47 basis points to 3.55% for 2022, compared to 4.02% for 2021. Interest on interest-bearing deposits in other banks increased $757 to $1,098 for the period ended September 30, 2022, compared to $341 for the same period in 2021. The average balance of interest-bearing deposits in other banks decreased $172,185 to $199,019 for the period ended September 30, 2022, as compared to $371,204 for the period ended September 30, 2021. The yield on interest-bearing deposits in other banks increased 62 basis points to 0.74% for 2022, compared to 0.12% for 2021. Interest expense increased $718, or 14.6%, to $5,624 for the period ended September 30, 2022, compared with $4,906 for the same period in 2021. The change in interest expense can be attributed to an increase in rate, accompanied by an increase in the average balance of interest-bearing liabilities. For the period ended September 30, 2022, the average balance of interest-bearing liabilities increased $125,866 to $1,850,724, as compared to $1,724,858 for the period ended September 30, 2021. Interest incurred on deposits decreased by $1,015 to $2,351 for the period ended September 30, 2022, compared to $3,366 for the same period in 2021. Although the average balance of interest-bearing deposits increased by $97,088 for the period ended September 30, 2022, as compared to the same period in 2021, deposit expense decreased due to a decrease in the rate paid on demand and savings accounts from 0.10% in 2021 to 0.08% in 2022. The rate paid on time deposits decreased from 1.18% in 2021 to 0.80% in 2022. Interest expense incurred on FHLB advances and subordinated debentures increased 114.7% from 2021. The average balance on FHLB balances decreased $39,815 as a result of the repayment of a long-term advance for the period ended September 30, 2022, as compared to the same period in 2021, while the rate paid decreased 11 basis points. In addition, the average balance of subordinated debentures increased $73,377 to $103,726, as compared to $30,349 for the same period in 2021. During the fourth quarter of 2021, the Company entered into a Subordinated Note Purchase Agreement pursuant to which the Company sold and issued $75,000 aggregate principal amount of its 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031. The rate paid on subordinated debentures increased 97 basis points for the period ended September 30, 2022, as compared to the same period in 2021. Page 49 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) The following table presents the condensed average balance sheets for the nine months ended September 30, 2022 and 2021. The daily average loan amounts outstanding are net of unearned income and include loans held for sale and nonaccrual loans. The average balance of securities is computed using the carrying value of securities. Rates are annualized and taxable equivalent yields are computed using a 21% tax rate for tax-exempt interest income. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities. Nine Months Ended September 30, 2022 2021 Assets: Average balance Interest Yield/ rate* Average balance Interest Yield/ rate* Interest-earning assets: Loans, including fees** $ 2,111,019 $ 70,065 4.44 % $ 2,044,741 $ 68,140 4.46 % Taxable securities 322,262 6,431 2.53 % 214,979 3,928 2.51 % Tax-exempt securities 262,790 5,669 3.55 % 211,538 4,599 4.02 % Interest-bearing deposits in other banks 199,019 1,098 0.74 % 371,204 341 0.12 % Total interest-earning assets $ 2,895,090 $ 83,263 3.88 % $ 2,842,462 $ 77,008 3.71 % Noninterest-earning assets: Cash and due from financial institutions 108,220 37,763 Premises and equipment, net 24,429 22,578 Accrued interest receivable 8,025 8,146 Intangible assets 84,268 84,817 Other assets 44,077 38,426 Bank owned life insurance 48,965 46,310 Less allowance for loan losses (27,168 ) (26,288 ) Total Assets $ 3,185,906 $ 3,054,214 Liabilities and Shareholders Equity: Interest-bearing liabilities: Demand and savings $ 1,414,215 $ 860 0.08 % $ 1,297,217 $ 979 0.10 % Time 250,230 1,491 0.80 % 270,139 2,387 1.18 % Short-term FHLB advance 2,380 49 2.75 % — — — Long-term FHLB advance 58,263 515 1.18 % 100,458 968 1.29 % Subordinated debentures 103,726 2,701 3.48 % 30,349 553 2.51 % Repurchase Agreements 21,910 8 0.05 % 26,695 19 0.10 % Total interest-bearing liabilities $ 1,850,724 $ 5,624 0.41 % $ 1,724,858 $ 4,906 0.38 % Noninterest-bearing deposits 936,686 940,123 Other liabilities 76,748 39,952 Shareholders’ Equity 321,748 349,281 Total Liabilities and Shareholders’ Equity $ 3,185,906 $ 3,054,214 Net interest income and interest rate spread $ 77,639 3.47 % $ 72,102 3.33 % Net interest margin 3.62 % 3.48 % *—Average yields are presented on a tax equivalent basis. The tax equivalent effect associated with loans and investments, included in the yields above, was $1,508 and $1,228 for the periods ended September 30, 2022 and 2021, respectively. **—Average balance includes nonaccrual loans. Page 50 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the nine months ended September 30, 2022 and 2021. The table is presented on a fully tax-equivalent basis. Increase (decrease) due to: Volume (1) Rate (1) Net (Dollars in thousands) Interest income: Loans, including fees $ 2,201 $ (276 ) $ 1,925 Taxable securities 2,470 33 2,503 Tax-exempt securities 1,657 (587 ) 1,070 Interest-bearing deposits in other banks (225 ) 982 757 Total interest income $ 6,103 $ 152 $ 6,255 Interest expense: Demand and savings $ 83 $ (202 ) $ (119 ) Time (165 ) (731 ) (896 ) Short-term FHLB advance 49 — 49 Long-term FHLB advance (378 ) (75 ) (453 ) Subordinated debentures 1,824 324 2,148 Repurchase agreements (3 ) (8 ) (11 ) Total interest expense $ 1,410 $ (692 ) $ 718 Net interest income $ 4,693 $ 844 $ 5,537 (1) The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate. The Company provides for loan losses through regular provisions to the allowance for loan losses. Provisions for loan losses totaled $1,000 and $830 during the periods ended September 30, 2022 and 2021, respectively. The increase in provision was due to the strong loan growth during the first nine months of 2022. The challenges of the international, national, regional and local economic conditions, particularly inflation, has taken greater focus from the prior economic shutdown and restrictions in response to the ongoing COVID-19 pandemic. Despite these concerns, our portfolio quality has remained stable overall with decreases in criticized loans. We continue to be optimistic that asset quality will continue to remain strong despite ongoing headwinds. While we remain cautious given the impact of inflation on all of our borrowers, we are encouraged by strong loan growth. Noninterest income for the nine-month periods ended September 30, 2022 and 2021 are as follows: Nine months ended September 30, 2022 2021 $ Change % Change Service charges $ 5,004 $ 4,092 $ 912 22.3 % Net gain on sale of securities 10 1,787 (1,777 ) -99.4 % Net gain (loss) on equity securities (44 ) 191 (235 ) -123.0 % Net gain on sale of loans 2,146 6,575 (4,429 ) -67.4 % ATM/Interchange fees 3,990 3,950 40 1.0 % Wealth management fees 3,713 3,570 143 4.0 % Bank owned life insurance 732 752 (20 ) -2.7 % Tax refund processing fees 2,375 2,375 — 0.0 % Swap fees — 135 (135 ) -100.0 % Other 1,086 1,214 (128 ) -10.5 % Total noninterest income $ 19,012 $ 24,641 $ (5,629 ) -22.8 % Noninterest income for the nine months ended September 30, 2022 was $19,012, a decrease of $5,629, or 22.8%, from $24,641 for the same period of 2021. The decrease was primary due to decreases in net gain on the sale of securities of $1,777, net gain (loss) on equity securities of $235, net gain on sale of loans of $4,429, swap fees of $135 and other income of $1289, which was offset by an increase in service charges of $912. Net gain on sale of securities decreased due to the sale of Visa Class B shares in 2021. Net gain (loss) on equity securities decreased as a result of market value decreases. Net gain on sale of Page 51 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) loans decreased primarily as a result of a decrease in volume of loans sold. During the nine -months ended September 30, 2022, 571 loans were sold, totaling $ 107 , 587 . During the nine -months ended September 30, 2021, 1,055 loans were sold, totaling $ 204 , 728 . Swap fees decreased due to the volume of swaps performed during the nine -months ended September 30, 2022, as compared to the same period of 2021 . Other income decreased as result of an increase in insurance loss reserves from the Company’s reinsurance subsidiary. S ervice charges increased due to an increase in service charges and overdraft fees of $ 336 and $ 576 , respectively. Tax refund processing fees were $2,375 for each of the nine months ended September 30, 2022 and 2021. These fees are received for processing state and federal income tax refund payments for customers of third-party income tax preparation vendors. This fee income is seasonal in nature, the majority of which is earned in the first quarter of the year. Noninterest expense for the nine-month periods ended September 30, 2022 and 2021 are as follows: Nine months ended September 30, 2022 2021 $ Change % Change Compensation expense $ 36,654 $ 34,578 $ 2,076 6.0 % Net occupancy expense 3,428 3,216 212 6.6 % Equipment expense 1,694 1,340 354 26.4 % Contracted data processing 1,899 1,362 537 39.4 % FDIC assessment 568 829 (261 ) -31.5 % State franchise tax 1,848 1,607 241 15.0 % Professional services 3,593 2,255 1,338 59.3 % Amortization of intangible assets 890 668 222 33.2 % ATM/Interchange expense 1,659 1,843 (184 ) -10.0 % Marketing 1,069 1,000 69 6.9 % Software maintenance expense 2,440 1,872 568 30.3 % Other operating expenses 7,450 10,132 (2,682 ) -26.5 % Total noninterest expense $ 63,192 $ 60,702 $ 2,490 4.1 % Noninterest expense for the nine months ended September 30, 2022 was $63,192, an increase of $2,490, or 4.1%, from $60,702 reported for the same period of 2021. The primary reasons for the increase were increases in compensation expenses of $2,076, equipment expense of $354, contracted data processing of $537, state franchise tax of $241, professional services of $1,338, amortization of intangible assets of $222 and software maintenance expense of $568, offset by decreases in FDIC assessments of $261, ATM/Interchange expense of $184 and other operating expenses of $2,682. The increase in compensation expense was due to increased payroll, 401k expenses, payroll taxes and commission and incentive based costs and the acquisition by merger of Comunibanc Corp. Payroll and payroll related expenses increased due to annual pay increases. Equipment expense increased due to an increase in computer and security equipment purchases of $202 and reimbursement of COVID-19 expenses of $12 in 2021. Contracted data processing fees increased due to merger related system deconversion fees of $564, offset by a decrease in computer processing fees. The decrease in FDIC assessments was attributable to lower assessment multipliers charged to Civista. The increase in state franchise tax expense was attributable to an increase in equity capital, which is the basis of the Ohio Financial Institutions tax, offset by the payment of $172 of additional taxes in 2021 as a result of findings from a State of Ohio audit. Professional services increased due to merger related legal, accounting and tax professional fees, accompanied by increases in recruitment fees and increased call volumes at the Company’s call center. The decrease in ATM/Interchange expense is the result of a decrease in billings from Mastercard in 2022 and lower processing fees. The increase in software maintenance expense is due to a general increase in legacy software maintenance contracts and the implementation of our new digital banking. The decrease in other operating expense is primarily due to the prepayment expense of $3,717 related to the early payoff of an FHLB long-term advance, offset by a credit to the valuation adjustment for mortgage servicing rights and increases in travel, lodging and meals, stationery and supplies and bad check expense. Income tax expense for the nine months ended September 30, 2022 totaled $5,180, down $467 compared to the same period in 2021. The effective tax rates for the nine-month periods ended September 30, 2022 and 2021 were 16.0% and 16.0%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income. Page 52 Civista Bancshares, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q (Amounts in thousands, except share data) Capital Resources Shareholders’ equity totaled $302,602 at September 30, 2022, compared to $355,212 at December 31, 2021. Shareholders’ equity decreased during the first nine months of 2022 as a result of a decrease in fair value of securities available-for-sale, net of tax, of $78,802, dividends on common stock of $6,291 and the Company’s repurchase of common shares during the period, which totaled $16,734, offset by net income of $27,279 and a $164 net decrease in the Company’s pension liability. All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of September 30, 2022 and December 31, 2021 as identified in the following table: Total Risk Based Capital Tier I Risk Based Capital CET1 Risk Based Capital Leverage Ratio Company Ratios—September 30, 2022 15.6 % 11.6 % 10.5 % 9.3 % Company Ratios—December 31, 2021 19.2 % 14.3 % 12.9 % 10.2 % 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 % 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 $1,490, or 0.3% of the total security portfolio at September 30, 2022. The available-for-sale portfolio helps to provide the Company with the ability to meet its funding needs. The Condensed Consolidated Statements of Cash Flows (Unaudited) contained in the Consolidated Financial Statements detail the Company’s cash flows from operating activities resulting from net earnings. As reported in the Condensed Consolidated Statements of Cash Flows (Unaudited), our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $27,421 and $34,295 for the nine months ended September 30, 2022 and 2021, 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 by investing activities was $207,756 and $83,948 for the nine months ended September 30, 2022 and 2021, respectively, principally reflecting our loan and investment security activities. Cash provided by and used for deposits and purchase of treasury shares comprised most of our financing activities, which resulted in net cash provided by of $42,990 and $163,296 for the nine months ended September 30, 2022 and 2021, respectively. Future loan demand of Civista may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available-for-sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $50,000. As of September 30, 2022, Civista had total credit availability with the FHLB of $753,521 with standby letters of credit totaling $110,900 and a remaining borrowing capacity of approximately $580,827. 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 September 30, 2022. Page 53 Civista Bancshares, Inc. Quantitative and Qualitative Disclosures About Market Risk Form 10-Q (Amounts in thousands, except share data) ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The Company’s primary market risk exposure is interest-rate risk and, to a lesser extent, liquidity risk. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Interest-rate risk is the exposure of a banking organization’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value. However, excessive levels of interest-rate risk can pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest-rate risk at prudent levels is essential to the Company’s safety and soundness. Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest-rate risk and the organization’s quantitative level of exposure. When assessing the interest-rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest-rate risk at prudent levels with consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and, where appropriate, asset quality. The Federal Reserve Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance 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 54 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, 2021 and September 30, 2022, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Company’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and interest rate decreases of 100 basis points and 200 basis points at September 30, 2022 and December 31, 2021. The Company had derivative financial instruments as of December 31, 2021 and September 30, 2022. The changes in fair value of the assets and liabilities of the underlying contracts offset each other. Expected maturity date values for interest-bearing core deposits were calculated based on estimates of the period over which the deposits would be outstanding. The Company’s borrowings were tabulated by contractual maturity dates and without regard to any conversion or repricing dates. Net Portfolio Value September 30, 2022 December 31, 2021 Change in Rates Dollar Amount Dollar Change Percent Change Dollar Amount Dollar Change Percent Change +200bp 536,144 27,071 5 % 531,385 44,276 9 % +100bp 525,656 16,583 3 % 521,707 34,598 7 % Base 509,073 — — 487,109 — — -100bp 498,583 (10,490 ) (2 )% 495,963 8,854 2 % -200bp 483,999 (25,074 ) (5 )% 548,326 61,217 13 % The change in net portfolio value from December 31, 2021 to September 30, 2022, can be attributed to a couple of factors. The yield curve has risen and inverted compared to the end of the year, and both the volume and mix of assets and funding sources has changed. The volume of cash has decreased, and the mix has shifted toward loans. While the loan portfolio increased due to growth and acquisition, the market value of loans has decreased due to market rate increases. The volume non-maturing deposits has increased due to acquisition, but the market value has decreased. The volume and mix shifts from the end of the year, along with market rate changes, contributed to a small decrease in the base net portfolio value, which partially offset the increase due to acquisition. Beyond the change in the base level of net portfolio value, projected movements in rates, up or down, would also lead to changes in market values. The change in the rates up scenarios for both the 100 and 200 basis point movements would lead to a larger decrease in the market value of liabilities than assets. Accordingly, we see an increase in the net portfolio value. The change in the rates down scenario for both the 100 and 200 basis point movements would lead to a larger increase in the market value of liabilities than assets, leading to a decrease in the net portfolio value. Page 55 Civista Bancshares, Inc. Controls and Procedures Form 10-Q (Amounts in thousands, except share data) ITEM 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive and our principal financial officers, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive and our principal financial officers concluded that our disclosure controls and procedures as of September 30, 2022, were effective. Changes in Internal Control over Financial Reporting There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Page 56 Civista Bancshares, Inc. Other Information Form 10-Q Part II—Other Information Item 1. Legal Proceedings In the ordinary course of their respective businesses, CBI or Civista or their respective properties may be named or otherwise subject as a plaintiff, defendant or other party to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, the Company cannot state what the eventual outcome of any such matters will be. However, based on current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of CBI or Civista. Item 1A. Risk Factors There were no material changes during the current period to the risk factors disclosed in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2022, the Company purchased common shares as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (Units) that May Yet Be Purchased Under the Plans or Programs July 1, 2022 - July 31, 2022 91,245 $ 21.40 91,245 $ 10,369,055 August 1, 2022 - August 31, 2022 57,182 $ 21.71 57,182 $ 9,127,902 September 1, 2022 - September 30, 2022 138,184 $ 21.13 138,184 $ 6,208,107 Total 286,611 $ 21.33 286,611 $ 6,208,107 On May 4, 2022, the Company announced a new common share repurchase program to replace its previous repurchase program. The new repurchase program authorizes the Company to repurchase a maximum aggregate value of $13,500,000 of its outstanding common shares through May 9, 2023. As of September 30, 2022 a total of 341,963 common shares had been repurchased for an aggregate purchase price of $7,291,893 under this repurchase program. Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information None Page 57 Civista Bancshares, Inc. Other Information Form 10-Q Item 6. Exhibits Exhibit Description Location 2.1 Agreement and Plan of Merger, dated January 10, 2022 by and between Civista Bancshares, Inc. and Comunibanc Corp. Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on January 10, 2022 and incorporated herein by reference. (File No. 001-36192) 2.2 Stock Purchase Agreement, dated as of September 29, 2022, by and among Civista Bancshares, Inc., Civista Bank, Vision Financial Group, Inc. and Frederick Summers Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K filed on September 30, 2022 and incorporated herein by reference. (File No. 001-36192) 3.1 Second Amended and Restated Articles of Incorporation of Civista Bancshares, Inc., as filed with the Ohio Secretary of State on November 15, 2018. Filed as Exhibit 3.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K, filed on November 16, 2018 and incorporated herein by reference. (File No. 001-36192) 3.2 Amended and Restated Code of Regulations of Civista Bancshares, Inc. (adopted April 15, 2008) Filed as Exhibit 3.2 to Civista Bancshares, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed on November 8, 2017 and incorporated herein by reference. (File No. 001-36192) 31.1 Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer. Included herewith 31.2 Rule 13a-14(a)/15-d-14(a) Certification of Principal Accounting Officer. Included herewith 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Included herewith 32.2 Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Included herewith 101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022, formatted in Inline Extensible Business Reporting Language: (i) Consolidated Balance Sheets (Unaudited) as of September 30, 2022 and December 31, 2021; (ii) Consolidated Statements of Income (Unaudited) for the three- and nine-months ended September 30, 2022 and 2021; (iii) Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three-and nine-months ended September 30, 2022 and 2021; (iv) Consolidated Statement of Shareholders’ Equity (Unaudited) for the three- and nine-months ended September 30, 2022 and 2021; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the nine months ended September 30, 2022 and 2021; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited). Included herewith 104 Cover page formatted in Inline Extensible Business Reporting Language. Included herewith Page 58 Civista Bancshares, Inc. Signatures Form 10-Q Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Civista Bancshares, Inc. /s/ Dennis G. Shaffer November 9, 2022 Dennis G. Shaffer Date Chief Executive Officer and President /s/ Todd A. Michel November 9, 2022 Todd A. Michel Date Senior Vice President, Controller Page 59