(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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, 2017—10,170,935~~May 4, 2018—10,259,784 shares

	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS
Cash and due from financial institutions	$	33,394		$	36,695		$	118,970		$	40,519
Securities available for sale		229,419			195,864			234,042			230,230
Equity securities								873			832
Loans held for sale		4,662			2,268			2,379			2,197
Loans, net of allowance of $12,946 and $13,305		1,129,046			1,042,201
Loans, net of allowance of $12,814 and $13,134								1,140,944			1,151,527
Other securities		14,247			14,055			14,247			14,247
Premises and equipment, net		17,688			17,920			17,424			17,611
Accrued interest receivable		4,999			3,854			4,842			4,488
Goodwill		27,095			27,095			27,095			27,095
Other intangibles		1,360			1,784
Other intangible assets								1,259			1,279
Bank owned life insurance		24,981			24,552			25,267			25,125
Other assets		9,197			10,975			12,963			10,707
Total assets	$	1,496,088		$	1,377,263		$	1,600,305		$	1,525,857
LIABILITIES
Deposits
Noninterest-bearing	$	357,539		$	345,588		$	535,225		$	361,964
Interest-bearing		843,750			775,515			755,446			842,959
Total deposits		1,201,289			1,121,103			1,290,671			1,204,923
Federal Home Loan Bank advances		56,750			48,500			60,000			71,900
Securities sold under agreements to repurchase		15,148			28,925			17,452			21,755
Subordinated debentures		29,427			29,427			29,427			29,427
Accrued expenses and other liabilities		11,493			11,692			14,712			13,391
Total liabilities		1,314,107			1,239,647			1,412,262			1,341,396
SHAREHOLDERS’ EQUITY
Preferred shares, no par value, 200,000 shares authorized, Series B Preferred shares, $1,000 liquidation preference, 18,975 shares issued at September 30, 2017 and 20,481 shares issued at December 31, 2016, net of issuance costs		17,557			18,950
Common shares, no par value, 20,000,000 shares authorized, 10,918,899 shares issued at September 30, 2017 and 9,091,473 shares issued at December 31, 2016		153,562			118,975
Preferred shares, no par value, 200,000 shares authorized, Series B Preferred shares, $1,000 liquidation preference, 18,409 shares issued at March 31, 2018 and 18,760 shares issued at December 31, 2017, net of issuance costs								17,034			17,358
Common shares, no par value, 20,000,000 shares authorized, 10,991,238 shares issued at March 31, 2018 and 10,946,439 shares issued at December 31, 2017								154,170			153,810
Retained earnings		28,494			19,263			37,902			31,652
Treasury shares, 747,964 common shares at cost		(17,235	)		(17,235	)		(17,235	)		(17,235	)
Accumulated other comprehensive loss		(397	)		(2,337	)		(3,828	)		(1,124	)
Total shareholders’ equity		181,981			137,616			188,043			184,461
Total liabilities and shareholders’ equity	$	1,496,088		$	1,377,263		$	1,600,305		$	1,525,857

												Three months ended
	Three months ended September 30,					Nine months ended September 30,						March 31,
	2017			2016		2017			2016			2018		2017
Interest and dividend income
Loans, including fees	$	13,022		$	11,824	$	37,211		$	35,311		$	13,639	$	11,777
Taxable securities		977			872		2,764			2,494			986		847
Tax-exempt securities		812			664		2,307			1,979			878		712
Federal funds sold and other		25			10		473			376			421		356
Total interest income		14,836			13,370		42,755			40,160
Total interest and dividend income													15,924		13,692
Interest expense
Deposits		607			506		1,500			1,480			707		465
Federal Home Loan Bank advances		276			111		534			312			152		88
Subordinated debentures		268			221		766			650			288		241
Other		5			6		16			17
Securities sold under agreements to repurchase and other													5		6
Total interest expense		1,156			844		2,816			2,459			1,152		800
Net interest income		13,680			12,526		39,939			37,701			14,772		12,892
Provision (credit) for loan losses		—			—		—			(1,300	)
Net interest income after provision (credit) for loan losses		13,680			12,526		39,939			39,001
Provision for loan losses													—		—
Net interest income after provision for loan losses													14,772		12,892
Noninterest income
Service charges		1,177			1,194		3,609			3,714			1,134		1,045
Net gain (loss) on sale of securities		(9	)		18		(9	)		20
Net gain on equity securities													40		—
Net gain on sale of loans		472			541		1,207			1,341			333		257
ATM fees		567			541		1,643			1,584
ATM/Interchange fees													554		510
Wealth management fees		787			688		2,233			1,989			852		707
Bank owned life insurance		142			149		429			415			142		144
Tax refund processing fees		—			—		2,750			2,750			2,200		2,200
Other		329			522		842			1,176			361		275
Total noninterest income		3,465			3,653		12,704			12,989			5,616		5,138
Noninterest expense
Salaries, wages and benefits		7,389			6,375		21,684			19,053
Compensation expense													7,374		6,982
Net occupancy expense		690			708		2,002			2,009			761		658
Equipment expense		350			494		1,097			1,158			374		329
Contracted data processing		357			397		1,174			1,147			348		388
FDIC assessment		115			166		414			597			151		165
State franchise tax		255			251		767			709			318		257
Professional services		534			431		1,718			1,450			552		451
Amortization of intangible assets		158			172		483			527			33		167
ATM expense		233			183		700			379			218		254
Marketing		240			249		768			810			318		252
Other operating expenses		1,846			1,769		5,410			5,314			1,758		1,599
Total noninterest expense		12,167			11,195		36,217			33,153			12,205		11,502
Income before taxes		4,978			4,984		16,426			18,837			8,183		6,528
Income tax expense		1,318			1,304		4,534			5,251			1,194		1,893
Net Income		3,660			3,680		11,892			13,586			6,989		4,635
Preferred stock dividends		308			374		935			1,156			303		319
Net income available to common shareholders	$	3,352		$	3,306	$	10,957		$	12,430		$	6,686	$	4,316
Earnings per common share, basic	$	0.33		$	0.41	$	1.12		$	1.57		$	0.65	$	0.47
Earnings per common share, diluted	$	0.29		$	0.34	$	0.97		$	1.24		$	0.55	$	0.40

													Three Months Ended
	Three months ended September 30,						Nine months ended September 30,						March 31,
	2017			2016			2017			2016			2018			2017
Net income	$	3,660		$	3,680		$	11,892		$	13,586		$	6,989		$	4,635
Other comprehensive income (loss):
Unrealized holding gains (losses) on available for sale securities		86			(1,225	)		1,993			2,273			(3,214	)		452
Tax effect		(29	)		417			(678	)		(772	)		675			(153	)
Pension liability adjustment		426			83			946			249			143			94
Tax effect		(144	)		(28	)		(321	)		(84	)		(30	)		(32	)
Total other comprehensive income (loss)		339			(753	)		1,940			1,666			(2,426	)		361
Comprehensive income	$	3,999		$	2,927		$	13,832		$	15,252		$	4,563		$	4,996

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

Preferred Shares

Common Shares

Accumulated
Other

Total

Outstanding
Shares

Amount

Outstanding
Shares

Amount

Retained
Earnings

Treasury
Shares

Comprehensive
Loss

Shareholders’
Equity

Balance, December 31, 2016

20,481

$
18,950

8,343,509

$
118,975

$
19,263

$
(17,235
)

$
(2,337
)

$
137,616

Net Income

—

—

—

—

11,892

—

—

11,892

Other comprehensive income

—

—

—

—

—

—

1,940

1,940

Conversion of Series B preferred shares
to common shares

(1,506
)

(1,393
)

192,568

1,393

—

—

—

—

Common stock issuance, net of costs

—

—

1,610,000

32,821

—

—

—

32,821

Stock-based compensation

—

—

25,069

377

—

—

—

377

Common stock dividends
($0.18 per share)

—

—

—

—

(1,726
)

—

—

(1,726
)
Preferred stock dividend

—

—

—

—

(935
)

—

—

(935
)
Retirement of common stock

(211
)

(4
)

(4
)
Balance, September 30, 2017

18,975

$
17,557

10,170,935

$
153,562

$
28,494

$
(17,235
)

$
(397
)

$
181,981

	Preferred Shares						Common Shares										Accumulated Other			Total
	Outstanding Shares			Amount			Outstanding Shares		Amount		Retained Earnings			Treasury Shares			Comprehensive Loss			Shareholders’ Equity
Balance, December 31, 2017		18,760		$	17,358			10,198,475	$	153,810	$	31,652		$	(17,235	)	$	(1,124	)	$	184,461
Change in accounting principle for adoption of ASU 2016-01		—			—			—		—		278			—			(278	)		—
Net Income		—			—			—		—		6,989			—			—			6,989
Other comprehensive loss		—			—			—		—		—			—			(2,426	)		(2,426	)
Conversion of Series B preferred shares to common shares		(351	)		(324	)		44,799		324		—			—			—			—
Stock-based compensation		—			—			—		36		—			—			—			36
Common stock dividends ($0.07 per share)		—			—			—		—		(714	)		—			—			(714	)
Preferred stock dividend		—			—			—		—		(303	)		—			—			(303	)
Balance, March 31, 2018		18,409		$	17,034			10,243,274	$	154,170	$	37,902		$	(17,235	)	$	(3,828	)	$	188,043

	Nine months ended September 30,						Three Months Ended March 31,
	2017			2016			2018			2017
Net cash from operating activities	$	11,821		$	11,318		$	6,613		$	8,999
Cash flows used for investing activities:
Maturities and calls of securities, available-for-sale		23,529			23,264			3,563			6,911
Purchases of securities, available-for-sale		(57,005	)		(31,130	)		(10,898	)		(34,158	)
Sale of securities available for sale		953			4,379
Purchases of other securities		(192	)		(474	)		—			(17	)
Purchase of bank owned life insurance		—			(3,885	)
Net loan originations		(86,678	)		(43,285	)
Loans purchased, installment		—			(1,643	)
Net loan repayments (originations)								10,743			(19,344	)
Proceeds from sale of other real estate owned properties		72			238			6			22
Proceeds from sale of premises and equipment		139			—			1			139
Premises and equipment purchases		(755	)		(1,292	)		(105	)		(404	)
Net cash used for investing activities		(119,937	)		(53,828	)
Net cash provided (used) for investing activities								3,310			(46,851	)
Cash flows from financing activities:
Repayment of long-term FHLB advances		(2,500	)		—			(10,000	)		(2,500	)
Net change in short-term FHLB advances		10,750			(36,200	)		(1,900	)		(31,000	)
Increase in deposits		80,186			82,120			85,748			190,350
Decrease in securities sold under repurchase agreements		(13,777	)		(3,327	)		(4,303	)		(5,251	)
Net proceeds from common stock issuance		32,821			—			—			32,829
Cash payment for retirement of common stock		(4	)		—
Common dividends paid		(1,726	)		(1,259	)		(714	)		(506	)
Preferred dividends paid		(935	)		(1,156	)		(303	)		(319	)
Net cash provided by financing activities		104,815			40,178			68,528			183,603
Decrease in cash and due from financial institutions		(3,301	)		(2,332	)
Increase in cash and due from financial institutions								78,451			145,751
Cash and due from financial institutions at beginning of period		36,695			35,561			40,519			36,695
Cash and due from financial institutions at end of period	$	33,394		$	33,229		$	118,970		$	182,446
Cash paid during the period for:
Interest	$	2,753		$	2,442		$	1,462		$	879
Income taxes		4,300			4,700
Supplemental cash flow information:
Transfer of loans from portfolio to other real estate owned		78			73			—			78
Transfer of premises to held-for-sale		3			—			—			3
Transfer of loans held for sale to portfolio		419			—			85			419
Conversion of preferred shares to common shares		1,393			2,497			324			1,242
Securities purchased not settled		1,609			—			1,264			—
Securities sold not settled		—			2,386

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~~, FC Refund Solutions, Inc. (FCRS) and CIVB Risk Management, Inc. (CRMI). FCRS was formed to facilitate payment of individual state and federal income tax refunds. CRMI is a wholly-owned captive insurance company which allows the Company to insure against certain risks unique to its operations and its subsidiaries. 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. ~~The above companies together are referred to as the “Company.” Intercompany balances and transactions are eliminated in consolidation. First Citizens Insurance Agency, Inc.~~FCIA was formed to allow the Company to participate in commission revenue generated through its third party insurance agreement. Insurance commission revenue was less than 1.0% of total revenue through ~~September 30, 2017.~~March 31, 2018. Water Street Properties was formed to hold properties repossessed by CBI subsidiaries. Revenue from Water St. was less than 1.0% of total revenue through ~~September 30, 2017.~~March 31, 2018. 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, 2017~~March 31, 2018 and its results of operations and changes in cash flows for the periods ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ have been made. The accompanying Consolidated Financial Statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. The results of operations for the ~~periods~~period ended ~~September 30, 2017~~March 31, 2018 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 ~~2016~~2017 annual report. The Company has consistently followed these policies in preparing this Form 10-Q.

The Company provides financial services through its offices in the Ohio counties of Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa, Richland, Montgomery and Cuyahoga. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. ~~The bank~~Civista has two concentrations, one is to Lessors of Non-Residential Buildings and Dwellings totaling ~~$284,218,~~$297,281, or ~~24.8%~~25.8% of total loans, as of ~~September 30, 2017~~March 31, 2018 and the other is to Lessors of Residential Buildings and Dwellings totaling ~~$155,616,~~$154,491, or ~~13.6%~~13.4% of total loans, as of ~~September 30, 2017.~~March 31, 2018. These segments of the portfolio are stable and have been conservatively underwritten, monitored and managed by experienced commercial bankers. However, the customers’ ability to repay their loans is dependent on the real estate market and general economic conditions in the area. Other financial instruments that potentially represent concentrations of credit risk include Federal Funds sold and deposit accounts in other financial institutions that are in excess of federally insured limits.

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.

Pension Benefits: Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual ~~results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense~~

results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation of future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, impairment of goodwill, fair values of financial instruments, deferred taxes and pension obligations are particularly subject to change.

Income Taxes: Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

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

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

Derivative Instruments and Hedging Activities: The Company enters into interest rate swap agreements to facilitate the risk management strategies of a small number of commercial banking customers. All derivatives are accounted for in accordance with ASC-815, Derivatives and Hedging. The Company mitigates the risk of entering into these agreements by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes because the Company does not currently intend to execute a setoff with its’ counterparties. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of marketable securities, is posted by the counterparty with net liability positions in accordance with contract thresholds.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. However, in August 2015, the FASB issued ASU 2015-14, ~~Revenue from Contracts with Customers~~ (Topic 606) to defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company’s financial instruments are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

In January 2016, the FASB issued ~~ASU~~Accounting Standards Update (ASU) 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This ~~Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement,~~accounting standard (a) requires separate presentation ~~and disclosure~~ of ~~financial instruments. Among other things, this Update (a) requires~~ equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) ~~to be~~on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires ~~an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk~~

~~when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires~~ separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and ~~(h)~~(g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

The adoption resulted in the Company recognizing a one-time cumulative effect adjustment of $278 on January 1, 2018 between accumulated other comprehensive loss and retained earnings on the consolidated balance sheet for the fair value of the equity securities included in accumulated other comprehensive loss as of the beginning of the period. The adjustment had no impact on net income for any prior periods presented.

The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes in Note 13 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the March 31, 2018 disclosure. The Company estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and, thus, Level 3 fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values. The fair value of loans held for investment, excluding impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk of the loans. Loans are considered a Level 3 classification.

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers are required to present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components of net periodic benefit cost separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. The Company adopted ASU No. 2017-07 on January 1, 2018 and has retrospectively applied the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the consolidated statement of income statement of operations. ASU No. 2017-07 did not have a material impact on the Company’s Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Subsequent to the issuance of ASU 2014-09, the FASB issued targeted updates to clarify specific implementation issues including ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” For ~~public~~financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including wealth management fees, deposit related fees, interchange fees, and tax refund processing fees. Based on this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company adopted ASU 2014-09 and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. See Note 16 Revenue Recognition for more information.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” Current GAAP is unclear or does not include specific guidance on how to classify certain transactions in the statement of cash flows. This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Entities are required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. The Company adopted ASU No. 2016-15 on January 1, 2018. ASU No. 2016-15 did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities, such as the Company, should apply the amendments in this Update ~~are effective for fiscal years~~to annual periods beginning after December 15, 2017, including interim periods within those ~~fiscal years. For all other entities including not-for-profit entities and employee benefit plans within~~periods. The Company adopted ASU No. 2017-01 on January 1, 2018. ASU No. 2017-01 did not have a material impact on the ~~scope~~Company’s Consolidated Financial Statements.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of ~~Topics 960 through 965 on plan~~a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments in this Update are effective for ~~fiscal years~~all entities for annual periods, and interim periods within those annual periods, beginning after December 15, ~~2018, and~~2017. Early adoption is permitted, including adoption in any interim ~~periods within fiscal years beginning after December 15, 2019. All entities that are not~~period, for public business entities ~~may adopt the~~for reporting periods for which financial statements have not yet been issued. The amendments in this Update ~~earlier as of~~should be applied prospectively to an award modified on or after the ~~fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.~~ adoption date. The Company ~~is currently evaluating the~~adopted ASU No. 2017-09 on January 1, 2018. ASU No. 2017-09 did not have a material impact ~~the adoption of the standard will have~~ on the Company’s ~~financial position or results~~Consolidated Financial Statements.

Effect of ~~operations.~~Newly Issued but Not Yet Effective Accounting Standards:

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard in this Update requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. ~~For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.~~ The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of 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. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer, such as the Company, should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation—Retirement Benefits (Topic 715)~~ . The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other

components of net benefit cost must be disclosed. The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. For all other entities (including all nonprofit organizations “NPOs”), it is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. This guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost. ~~The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.~~

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

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation – Stock Compensation (Topic 718)~~ , which affects any entity that changes the terms or conditions of a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not applyPage 10

Notes to ~~changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments~~Interim Consolidated Financial Statements (Unaudited)

(Amounts in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.thousands, except share data)

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options ), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, such as the Company, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, such as the Company, the amendments in this Update are effective for fiscal

years beginning after December 15, 2018, and interim periods within those fiscal years. ~~For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020.~~ Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In ~~September 2017,~~January 2018, the FASB issued ASU ~~2017-13,~~2018-01, ~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606),~~ Leases (Topic ~~840)~~842), ~~and Leases (Topic~~which provides an optional transition practical expedient to not evaluate under Topic 842): ~~Amendments to SEC Paragraphs Pursuant to~~ existing or expired land easements that were not previously accounted for as leases under the ~~Staff Announcement~~current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the ~~July 20, 2017 EITF Meeting~~date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and ~~Rescission of Prior SEC Staff Announcements and Observer Comments.~~ ~~The SEC Observer said that~~transition requirements for the ~~SEC staff would not object if entities that~~amendments are ~~considered public business entities only because their financial statements or financial information is required to be included in another entity’s SEC filing use~~the same as the effective ~~dates for private companies when they adopt ASC 606,~~ ~~Revenue from Contracts with Customers~~,date and ~~ASC 842,~~ ~~Leases~~.transition requirements in ASU 2016-02. The ~~Update also supersedes certain SEC paragraphs in~~Company is currently evaluating the ~~Codification related to previous SEC staff announcements and moves other paragraphs, upon~~impact the adoption of ~~ASC 606 or ASC 842. This Update is not expected to~~the standard will have ~~a significant impact~~ on the Company’s financial ~~statements.~~position or results of operations.

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10), to clarify certain aspects of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives, or 825-10, Financial Instruments—Overall. (5) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. For public business entities, such as the Company, the amendments in

this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01.

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

September 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2018										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	30,972	$	178	$	(87	)	$	31,063	$	29,989	$	89	$	(281	)	$	29,797
Obligations of states and political subdivisions		109,443		4,397		(225	)		113,615		115,754		2,570		(661	)		117,663
Mortgage-backed securities in government sponsored entities		83,486		793		(356	)		83,923		87,832		279		(1,529	)		86,582
Total debt securities		223,901		5,368		(668	)		228,601	$	233,575	$	2,938	$	(2,471	)	$	234,042
Equity securities in financial institutions		481		337		—			818
Total	$	224,382	$	5,705	$	(668	)	$	229,419

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2017										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	37,406	$	117	$	(77	)	$	37,446	$	30,450	$	100	$	(192	)	$	30,358
Obligations of states and political subdivisions		92,177		3,395		(574	)		94,998		114,002		4,226		(172	)		118,056
Mortgage-backed securities in government sponsored entities		62,756		483		(597	)		62,642		82,098		408		(690	)		81,816
Total debt securities		192,339		3,995		(1,248	)		195,086	$	226,550	$	4,734	$	(1,054	)	$	230,230
Equity securities in financial institutions		481		297		—			778
Total	$	192,820	$	4,292	$	(1,248	)	$	195,864

The amortized cost and fair value of securities at ~~September 30, 2017,~~March 31, 2018, by contractual maturity, is shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities are shown separately.

Available for sale	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	5,099	$	5,108	$	13,831	$	13,776
Due after one year through five years		30,106		30,180		22,569		22,474
Due after five years through ten years		33,441		35,104		31,666		32,835
Due after ten years		71,769		74,286		77,677		78,375
Mortgage-backed securities		83,486		83,923		87,832		86,582
Equity securities		481		818
Total securities available for sale	$	224,382	$	229,419	$	233,575	$	234,042

No proceeds from sales of securities, gross realized gains and gross realized losses were recorded for the three months ended March 31, 2018 and 2017.

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $127,808 and $122,862 as of March 31, 2018 and December 31, 2017, respectively.

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

Securities were pledged to secure public deposits, other deposits and liabilities as required by law. The carrying value of pledged securities was approximately $130,367 and $139,179 as of September 30, 2017 and December 31, 2016, respectively.

Securities with unrealized losses at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 not recognized in income are as follows:

September 30, 2017	12 Months or less					More than 12 months					Total
March 31, 2018																12 Months or less					More than 12 months					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	13,574	$	(48	)	$	3,761	$	(39	)	$	17,335	$	(87	)	$	17,342	$	(158	)	$	9,438	$	(123	)	$	26,780	$	(281	)
Obligations of states and political subdivisions		4,960		(51	)		5,462		(174	)		10,422		(225	)		27,137		(410	)		7,168		(251	)		34,305		(661	)
Mortgage-backed securities in gov’t sponsored entities		21,758		(108	)		15,062		(248	)		36,820		(356	)		50,236		(807	)		20,926		(722	)		71,162		(1,529	)
Total temporarily impaired	$	40,292	$	(207	)	$	24,285	$	(461	)	$	64,577	$	(668	)	$	94,715	$	(1,375	)	$	37,532	$	(1,096	)	$	132,247	$	(2,471	)

December 31, 2016	12 Months or less					More than 12 months					Total
December 31, 2017																12 Months or less					More than 12 months					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	13,271	$	(61	)	$	893	$	(16	)	$	14,164	$	(77	)	$	20,449	$	(100	)	$	6,617	$	(92	)	$	27,066	$	(192	)
Obligations of states and political subdivisions		17,167		(558	)		519		(16	)		17,686		(574	)		4,057		(41	)		7,309		(131	)		11,366		(172	)
Mortgage-backed securities in gov’t sponsored entities		35,453		(566	)		2,849		(31	)		38,302		(597	)		29,534		(195	)		22,199		(495	)		51,733		(690	)
Total temporarily impaired	$	65,891	$	(1,185	)	$	4,261	$	(63	)	$	70,152	$	(1,248	)	$	54,040	$	(336	)	$	36,125	$	(718	)	$	90,165	$	(1,054	)

At ~~September 30, 2017,~~March 31, 2018, there were ~~fifty-eight~~one hundred twenty-two securities in the portfolio with unrealized losses mainly due to higher market rates when compared to the time of purchase. Unrealized losses on securities have not been recognized into income because the issuers’ securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to market yields increasing. The fair value is expected to recover as the securities approach their maturity date or reset date. The Company does not intend to sell until recovery and does not believe selling will be required before recovery.

The following table presents the net gains and losses on equity investments recognized in earnings at March 31, 2018, and the portion of unrealized gains and losses for the period that relates to equity investments held at March 31, 2018:

Included in total loans above are deferred loan ~~(fees) costs~~fees of ~~$(80)~~$148 at ~~September 30, 2017~~March 31, 2018 and ~~$94~~$223 at December 31, ~~2016.~~2017.

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan and lease losses, the Company has segmented certain loans in the portfolio by product type. Loss migration rates for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. The following economic factors are analyzed:

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 ~~$12,946~~$12,814 adequate to cover loan losses inherent in the loan portfolio, at ~~September 30, 2017.~~March 31, 2018. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017.

September 30, 2017	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
March 31, 2018													Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	2,018	$	(11	)	$	134	$	(530	)	$	1,611	$	1,562	$	(125	)	$	19	$	(97	)	$	1,359
Commercial Real Estate:
Owner Occupied		2,171		(301	)		26		177			2,073		2,043		(193	)		9		171			2,030
Non-Owner Occupied		4,606		(38	)		42		663			5,273		5,307		(44	)		14		393			5,670
Residential Real Estate		3,089		(312	)		164		(462	)		2,479		1,910		(22	)		58		(196	)		1,750
Real Estate Construction		420		—			32		215			667		834		—			—		(14	)		820
Farm Real Estate		442		—			2		(20	)		424		430		—			1		(20	)		411
Consumer and Other		314		(135	)		38		108			325		290		(41	)		4		(6	)		247
Unallocated		245		—			—		(151	)		94		758		—			—		(231	)		527
Total	$	13,305	$	(797	)	$	438	$	—		$	12,946	$	13,134	$	(425	)	$	105	$	—		$	12,814

For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the allowance for Commercial & Agriculture loans was reduced by a decrease in general reserves as a result of lower outstanding balances and lower loss rates. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced by a decrease in general reserves and charge-offs. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in outstanding loan balances and loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans ~~increased~~decreased due to ~~higher~~lower outstanding loan balances for this type of loan. The result was represented as a decrease in the provision. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances. The result was represented as a decrease in the provision. The allowance for Consumer and Other loans ~~increased~~decreased due to ~~an increase~~a decrease in general reserves required for this type as a result of ~~higher~~lower loss ~~rates.~~rates, lower outstanding balances and net charge-offs. 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.

	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
March 31, 2017													Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,478	$	(870	)	$	79	$	1,023		$	1,710	$	2,018	$	(1	)	$	56	$	(504	)	$	1,569
Commercial Real Estate:
Owner Occupied		2,467		(166	)		53		(44	)		2,310		2,171		—			2		86			2,259
Non-Owner Occupied		4,657		(23	)		1,365		(1,456	)		4,543		4,606		—			5		(68	)		4,543
Residential Real Estate		4,086		(280	)		384		(735	)		3,455		3,089		(89	)		55		(33	)		3,022
Real Estate Construction		371		(115	)		8		160			424		420		—			5		(12	)		413
Farm Real Estate		538		—			—		(108	)		430		442		—			—		(35	)		407
Consumer and Other		382		(85	)		40		0			337		314		(41	)		3		78			354
Unallocated		382		—			—		(140	)		242		245		—			—		488			733
Total	$	14,361	$	(1,539	)	$	1,929	$	(1,300	)	$	13,451	$	13,305	$	(131	)	$	126	$	—		$	13,300

For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the allowance for Commercial & Agriculture loans ~~increased due to an increase~~was reduced by a decrease in general reserves as a result of ~~higher balances and higher~~lower loss rates, ~~in criticized loans. The result was represented as~~offset by an increase in the ~~provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced not only by a decrease in~~ specific reserves required ~~for this type, but also by decreases in past due, classified and non-accrual loans~~ for this type. The result of these changes was represented as a decrease in the provision. The increase in the allowance for Commercial Real Estate – Owner Occupied was due to an increase in the specific reserves required for this type, but also to an increase in general reserves due to higher loan balances, offset by a decrease in loss rates. The allowance for Commercial Real Estate – Non-Owner Occupied loans was ~~the result of~~reduced by a decrease in ~~general reserves required as a result of lower~~ loss rates ~~and improvement in past due, classified and non-accrual loans~~required for this type. ~~In addition, a payoff on a previously charged down loan was received resulting in a recovery~~The result of ~~approximately $1,303. The net result~~these changes was represented as a decrease in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans ~~increased~~decreased due to ~~an increase in loss rates~~lower outstanding loan balances for this type of loan and recoveries, which was represented as ~~an increase~~a decrease in the provision. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances and a decrease in ~~loss rates.~~classified loans for this type. The result of these changes was represented as a decrease in the provision. ~~Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio.~~

For the three months ended September 30, 2017, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves as a result of higher loan balances, offset by net recoveries. The result was represented as a decrease in the provision. The allowance for ~~Commercial Real Estate – Owner Occupied~~Consumer and Other loans was increased due to an increase in general reserves as a result of higher outstanding loan balances and loss rates. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due toby an increase in general reserves required for this type as a result of higher ~~loan balances and by higher~~ loss rates. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to higher outstanding loan balances for this type of loan and recoveries. 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.

For the three months ended September 30, 2016, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves as a result of higher loss rates and an increase in loan balances. The result was represented as an increase in the provision. The decrease in allowance for Commercial Real Estate – Non-Owner Occupied loans was the result of a decrease in general reserves required as a result of lower loss rates and improvement in past due, classified and non-accrual loans for this type. The net result was represented as a decrease in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in loss rates for this type of loan, which was represented as an increase in the provision. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances, represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio.

The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

September 30, 2017	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
March 31, 2018									Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	81	$	122	$	1,408	$	1,611	$	—	$	60	$	1,299	$	1,359
Commercial Real Estate:
Owner Occupied		—		4		2,069		2,073		—		8		2,022		2,030
Non-Owner Occupied		—		—		5,273		5,273		—		—		5,670		5,670
Residential Real Estate		52		114		2,313		2,479		37		105		1,608		1,750
Real Estate Construction		—		—		667		667		—		—		820		820
Farm Real Estate		—		6		418		424		—		6		405		411
Consumer and Other		—		—		325		325		—		—		247		247
Unallocated		—		—		94		94		—		—		527		527
Total	$	133	$	246	$	12,567	$	12,946	$	37	$	179	$	12,598	$	12,814
Outstanding loan balances:
Commercial & Agriculture	$	89	$	1,170	$	146,278	$	147,537	$	80	$	1,025	$	135,971	$	137,076
Commercial Real Estate:
Owner Occupied		—		1,039		166,639		167,678		—		532		162,453		162,985
Non-Owner Occupied		—		50		424,380		424,430		—		43		436,117		436,160
Residential Real Estate		139		1,386		266,314		267,839		119		1,335		265,976		267,430
Real Estate Construction		—		—		77,978		77,978		—		—		95,856		95,856
Farm Real Estate		—		613		38,353		38,966		—		793		37,135		37,928
Consumer and Other		—		—		17,564		17,564		—		—		16,323		16,323
Total	$	228	$	4,258	$	1,137,506	$	1,141,992	$	199	$	3,728	$	1,149,831	$	1,153,758

December 31, 2016	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
December 31, 2017									Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	86	$	82	$	1,850	$	2,018	$	82	$	4	$	1,476	$	1,562
Commercial Real Estate:
Owner Occupied		—		4		2,167		2,171		—		6		2,037		2,043
Non-Owner Occupied		—		—		4,606		4,606		—		—		5,307		5,307
Residential Real Estate		89		102		2,898		3,089		44		109		1,757		1,910
Real Estate Construction		—		—		420		420		—		—		834		834
Farm Real Estate		—		—		442		442		—		6		424		430
Consumer and Other		—		—		314		314		—		—		290		290
Unallocated		—		—		245		245		—		—		758		758
Total	$	175	$	188	$	12,942	$	13,305	$	126	$	125	$	12,883	$	13,134
Outstanding loan balances:
Commercial & Agriculture	$	88	$	1,983	$	133,391	$	135,462	$	87	$	438	$	151,948	$	152,473
Commercial Real Estate:
Owner Occupied		—		1,896		159,468		161,364		—		1,010		163,089		164,099
Non-Owner Occupied		—		359		395,572		395,931		—		44		425,579		425,623
Residential Real Estate		168		1,686		245,454		247,308		128		1,360		267,247		268,735
Real Estate Construction		—		—		56,293		56,293		—		—		97,531		97,531
Farm Real Estate		—		614		40,556		41,170		—		608		38,853		39,461
Consumer and Other		—		1		17,977		17,978		—		—		16,739		16,739
Total	$	256	$	6,539	$	1,048,711	$	1,055,506	$	215	$	3,460	$	1,160,986	$	1,164,661

The following tables present credit exposures by internally assigned grades as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. 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.

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

September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Ending Balance
March 31, 2018											Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	140,866	$	4,697	$	1,974	$	—	$	147,537	$	131,082	$	2,820	$	3,174	$	—	$	137,076
Commercial Real Estate:
Owner Occupied		156,583		7,119		3,976		—		167,678		155,400		1,273		6,312		—		162,985
Non-Owner Occupied		421,452		2,174		804		—		424,430		433,379		2,334		447		—		436,160
Residential Real Estate		63,081		2,054		5,998		—		71,133		61,428		1,884		5,628		—		68,940
Real Estate Construction		73,581		15		27		—		73,623		89,195		1,276		27		—		90,498
Farm Real Estate		30,604		6,513		1,849		—		38,966		29,034		6,094		2,800		—		37,928
Consumer and Other		1,598		—		75		—		1,673		1,434		—		67		—		1,501
Total	$	887,765	$	22,572	$	14,703	$	—	$	925,040	$	900,952	$	15,681	$	18,455	$	—	$	935,088

December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Ending Balance
December 31, 2017											Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	127,867	$	4,300	$	3,295	$	—	$	135,462	$	140,842	$	8,412	$	3,219	$	—	$	152,473
Commercial Real Estate:
Owner Occupied		151,659		4,016		5,689		—		161,364		155,756		1,166		7,177		—		164,099
Non-Owner Occupied		393,592		1,676		663		—		395,931		422,363		2,321		939		—		425,623
Residential Real Estate		59,015		1,661		6,911		—		67,587		62,628		1,997		5,873		—		70,498
Real Estate Construction		50,678		16		27		—		50,721		91,545		15		27		—		91,587
Farm Real Estate		31,814		5,673		3,683		—		41,170		25,228		11,236		2,997		—		39,461
Consumer and Other		2,135		—		109		—		2,244		1,312		—		70		—		1,382
Total	$	816,760	$	17,342	$	20,377	$	—	$	854,479	$	899,674	$	25,147	$	20,302	$	—	$	945,123

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 that have not been assigned an internal risk grade. The types of loans presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due or if management thinks that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

September 30, 2017	Residential Real Estate		Real Estate Construction		Consumer and Other		Total
March 31, 2018									Residential Real Estate		Real Estate Construction		Consumer and Other		Total
Performing	$	196,706	$	4,355	$	15,847	$	216,908	$	198,490	$	5,358	$	14,802	$	218,650
Nonperforming		—		—		44		44		—		—		20		20
Total	$	196,706	$	4,355	$	15,891	$	216,952	$	198,490	$	5,358	$	14,822	$	218,670

December 31, 2016	Residential Real Estate		Real Estate Construction		Consumer and Other		Total
December 31, 2017									Residential Real Estate		Real Estate Construction		Consumer and Other		Total
Performing	$	179,721	$	5,572	$	15,725	$	201,018	$	198,237	$	5,944	$	15,341	$	219,522
Nonperforming		—		—		9		9		—		—		16		16
Total	$	179,721	$	5,572	$	15,734	$	201,027	$	198,237	$	5,944	$	15,357	$	219,538

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

September 30, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Purchased Credit- Impaired Loans		Total Loans		Past Due 90 Days and Accruing
March 31, 2018																	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Purchased Credit- Impaired Loans		Total Loans		Past Due 90 Days and Accruing
Commercial & Agriculture	$	389	$	—	$	664	$	1,053	$	146,395	$	89	$	147,537	$	—	$	188	$	41	$	808	$	1,037	$	135,959	$	80	$	137,076	$	—
Commercial Real Estate:
Owner Occupied		—		174		516		690		166,988		—		167,678		—		320		44		390		754		162,231		—		162,985		—
Non-Owner Occupied		164		108		420		692		423,738		—		424,430		—		—		49		167		216		435,944		—		436,160		—
Residential Real Estate		218		242		878		1,338		266,362		139		267,839		—		1,643		64		554		2,261		265,050		119		267,430		—
Real Estate Construction		—		68		27		95		77,883		—		77,978		—		—		—		27		27		95,829		—		95,856		—
Farm Real Estate		—		—		193		193		38,773		—		38,966		—		152		—		186		338		37,590		—		37,928		—
Consumer and Other		86		10		48		144		17,420		—		17,564		44		64		76		20		160		16,163		—		16,323		20
Total	$	857	$	602	$	2,746	$	4,205	$	1,137,559	$	228	$	1,141,992	$	44	$	2,367	$	274	$	2,152	$	4,793	$	1,148,766	$	199	$	1,153,758	$	20

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Purchased Credit- Impaired Loans		Total Loans		Past Due 90 Days and Accruing
December 31, 2017																	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Purchased Credit- Impaired Loans		Total Loans		Past Due 90 Days and Accruing
Commercial & Agriculture	$	156	$	20	$	152	$	328	$	135,046	$	88	$	135,462	$	—	$	575	$	2	$	685	$	1,262	$	151,124	$	87	$	152,473	$	—
Commercial Real Estate:
Owner Occupied		722		553		280		1,555		159,809		—		161,364		—		897		104		484		1,485		162,614		—		164,099		—
Non-Owner Occupied		147		—		316		463		395,468		—		395,931		—		133		—		470		603		425,020		—		425,623		—
Residential Real Estate		1,812		507		1,049		3,368		243,772		168		247,308		—		1,613		229		785		2,627		265,980		128		268,735		—
Real Estate Construction		—		—		27		27		56,266		—		56,293		—		—		—		27		27		97,504		—		97,531		—
Farm Real Estate		93		—		—		93		41,077		—		41,170		—		27		—		186		213		39,248		—		39,461		—
Consumer and Other		215		31		31		277		17,701		—		17,978		9		92		96		16		204		16,535		—		16,739		16
Total	$	3,145	$	1,111	$	1,855	$	6,111	$	1,049,139	$	256	$	1,055,506	$	9	$	3,337	$	431	$	2,653	$	6,421	$	1,158,025	$	215	$	1,164,661	$	16

The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Commercial & Agriculture	$	1,889	$	1,622	$	1,004	$	887
Commercial Real Estate:
Owner Occupied		1,989		1,461		806		1,476
Non-Owner Occupied		566		464		268		711
Residential Real Estate		2,798		3,266		2,589		2,778
Real Estate Construction		27		27		27		27
Farm Real Estate		193		2		186		186
Consumer and Other		70		101		64		67
Total	$	7,532	$	6,943	$	4,944	$	6,132

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. The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve reducing the interest rate lower than the current market rate for new debt with similar risk. Real Estate loans modified in a TDR were primarily comprised of interest rate reductions where monthly payments were lowered to accommodate the borrowers’ financial needs.

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of ~~September 30, 2017,~~March 31, 2018, TDRs accounted for ~~$298~~$216 of the allowance for loan losses. As of December 31, ~~2016,~~2017, TDRs accounted for ~~$278~~$169 of the allowance for loan losses.

Loan modifications that are considered TDRs completed during the ~~periods~~three-month period ended ~~September 30, 2017 and September 30, 2016~~March 31, 2018 were as ~~follows:~~follows. There were no loans modified in trouble debt restructuring during the three-month period ended March 31, 2017:

								For the Three-Month Period Ended
	For the Three-Month Period Ended September 30, 2016							March 31, 2018
	Number of Contracts		Pre- Modification Outstanding Recorded Investment			Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—		$	—		3	$	591	$	591
Commercial Real Estate—Owner Occupied		—		—			—		—		—		—
Commercial Real Estate—Non-Owner Occupied		—		—			—		—		—		—
Residential Real Estate		—		—	��		—		—		—		—
Real Estate Construction		—		—			—		—		—		—
Farm Real Estate		1		86			86		—		—		—
Consumer and Other		—		—			—		—		—		—
Total Loan Modifications		1	$	86		$	86		3	$	591	$	591

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

During ~~both~~ the ~~three- and nine-month~~three-month periods ended ~~September 30,~~March 31, 2018 and March 31, 2017, ~~and September 30, 2016,~~ there were no defaults on loans that were modified and considered TDRs during the respective twelve previous months.

Impaired Loans: Larger (greater than $350) Commercial & Agricultural and Commercial Real Estate loan relationships, all TDRs and Residential Real Estate and Consumer loans that are part of a larger relationship are tested for impairment on a quarterly basis. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables, excluding PCI loans, with the associated allowance amount, if applicable, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

	September 30, 2017						December 31, 2016						March 31, 2018						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial & Agriculture	$	—	$	—			$	1,230	$	1,751			$	760	$	760			$	—	$	—
Commercial Real Estate:
Owner Occupied		814		1,069				1,658		1,803				218		218				693		913
Non-Owner Occupied		50		53				359		386				43		47				44		48
Residential Real Estate		996		1,068				1,259		1,590				957		1,030				977		1,049
Farm Real Estate		149		149				614		614				333		333				148		148
Consumer and Other		—		—				1		1				—		—				—		—
Total		2,009		2,339				5,121		6,145				2,311		2,388				1,862		2,158
With an allowance recorded:
Commercial & Agriculture		1,170		1,720	$	122		753		1,303	$	82		265		365	$	60		438		438	$	4
Commercial Real Estate:
Owner Occupied		225		225		4		238		238		4		314		314		8		317		317		6
Non-Owner Occupied		—		—		—		—		—		—		—		—		—		—		—		—
Residential Real Estate		390		394		114		427		431		102		378		381		105		383		387		109
Farm Real Estate		464		464		6		—		—		—		460		460		6		460		460		6
Total		2,249		2,803		246		1,418		1,972		188		1,417		1,520		179		1,598		1,602		125
Total:
Commercial & Agriculture		1,170		1,720		122		1,983		3,054		82		1,025		1,125		60		438		438		4
Commercial Real Estate:
Owner Occupied		1,039		1,294		4		1,896		2,041		4		532		532		8		1,010		1,230		6
Non-Owner Occupied		50		53		—		359		386		—		43		47		—		44		48		—
Residential Real Estate		1,386		1,462		114		1,686		2,021		102		1,335		1,411		105		1,360		1,436		109
Farm Real Estate		613		613		6		614		614		—		793		793		6		608		608		6
Consumer and Other		—		—		—		1		1		—		—		—		—		—		—		—
Total	$	4,258	$	5,142	$	246	$	6,539	$	8,117	$	188	$	3,728	$	3,908	$	179	$	3,460	$	3,760	$	125

The following table includes the average recorded investment and interest income recognized for impaired financing receivables for the ~~three- and nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017.

	September 30, 2017				September 30, 2016				March 31, 2018				March 31, 2017
For the three months ended:	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	1,366	$	7	$	2,401	$	8	$	732	$	7	$	1,852	$	6
Commercial Real Estate—Owner Occupied		1,377		18		1,774		21		771		9		1,886		22
Commercial Real Estate—Non-Owner Occupied		202		2		556		1		43		1		358		—
Residential Real Estate		1,437		17		1,873		21		1,348		17		1,671		16
Real Estate Construction		—		—		—		—		—		—		—		—
Farm Real Estate		614		8		1,032		7		701		7		614		6
Consumer and Other		—		—		2		—		—		—		1		—
Total	$	4,996	$	52	$	7,638	$	58	$	3,595	$	41	$	6,382	$	50

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

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

There has been $133 and $175 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of September 30, 2017 and December 31, 2016, respectively.

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

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

There has been $37 and $126 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of March 31, 2018 and December 31, 2017, respectively.

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, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, a total of ~~$27~~$11 and ~~$37,~~$16, respectively of foreclosed assets were included with other assets. As of ~~September 30, 2017,~~March 31, 2018, included within the foreclosed assets is ~~$27~~$11 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company had initiated formal foreclosure procedures on ~~$251~~$454 and ~~$710,~~$239, respectively, of consumer residential mortgages.

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

	For the Nine-Month Period Ended								For the Nine-Month Period Ended									For the Three-Month Period Ended									For the Three-Month Period Ended
	September 30, 2017 (a)								September 30, 2016 (a)									March 31, 2018(a)									March 31, 2017(a)
	Unrealized Gains and Losses on Available-for- Sale Securities		Defined Benefit Pension Items			Total			Unrealized Gains and Losses on Available-for- Sale Securities			Defined Benefit Pension Items			Total			Unrealized Gains and Losses on Available-for- Sale Securities			Defined Benefit Pension Items			Total			Unrealized Gains and Losses on Available-for- Sale Securities		Defined Benefit Pension Items			Total
Beginning balance	$	2,008	$	(4,345	)	$	(2,337	)	$	3,554		$	(4,049	)	$	(495	)	$	3,185		$	(4,309	)	$	(1,124	)	$	2,008	$	(4,345	)	$	(2,337	)
Other comprehensive income before reclassifications		1,309		—			1,309			1,514			—			1,514			(2,539	)		—			(2,539	)		299		—			299
Amounts reclassified from accumulated other comprehensive loss		6		625			631			(13	)		165			152			—			113			113			—		62			62
Net current-period other comprehensive income		1,315		625			1,940			1,501			165			1,666			(2,539	)		113			(2,426	)		299		62			361
Reclassification of equity securities from accumulated other comprehensive loss																			(278	)		—			(278	)		—		—			—
Ending balance	$	3,323	$	(3,720	)	$	(397	)	$	5,055		$	(3,884	)	$	1,171		$	368		$	(4,196	)	$	(3,828	)	$	2,307	$	(4,283	)	$	(1,976	)

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

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

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a)							Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a)
Details about Accumulated Other Comprehensive (Loss) Components	For the three months ended September 30, 2017			For the three months ended September 30, 2016			Affected Line Item in the Statement Where Net Income is Presented	For the three months ended March 31, 2018			For the three months ended March 31, 2017			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(9	)	$	18		Net gain (loss) on securities available for sale
Tax effect		3			(6	)	Income tax expense
		(6	)		12		Net of tax
Amortization of defined benefit pension items
Actuarial gains/(losses) (b)		(426	)		(83	)	Salaries, wages and benefits		(143	)		(94	)	Other operating expenses
Tax effect		144			28		Income tax expense		30			32		Income tax expense
		(282	)		(55	)	Net of tax		(113	)		(62	)	Net of tax
Total reclassifications for the period	$	(288	)	$	(43	)	Net of tax	$	(113	)	$	(62	)	Net of tax

~~The balance~~There has been no change in the carrying amount of goodwill ~~was~~of $27,095 ~~at September 30, 2017~~for the periods ended March 31, 2018 and December 31, ~~2016.~~2017. Management performs an ~~annual~~ evaluation of goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Management last performed an evaluation of the Company’s goodwill during the fourth quarter of ~~2016~~2017 and concluded that the Company’s goodwill was not impaired at December 31, ~~2016.~~

~~There was no change in the carrying amount of goodwill for the periods ended September 30, 2017 and December 31, 2016.~~2017.

Acquired intangible assets, other than goodwill, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:

	2017						2016						2018						2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets(1):
MSRs	$	1,022	$	302	$	720	$	912	$	250	$	662	$	1,094	$	338	$	756	$	1,065	$	322	$	743
Core deposit intangibles		7,274		6,634		640		7,274		6,152		1,122		7,274		6,771		503		7,274		6,738		536
Total amortized intangible assets	$	8,296	$	6,936	$	1,360	$	8,186	$	6,402	$	1,784	$	8,368	$	7,109	$	1,259	$	8,339	$	7,060	$	1,279

Aggregate core deposit intangible amortization expense was $33 and $167 for the three-months ended March 31, 2018 and 2017, respectively.

Aggregate mortgage servicing rights amortization was $16 and $11 for the three-months ended March 31, 2018 and 2017, respectively.

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

~~Aggregate core deposit intangible amortization expense was $158, $172, $483 and $527 for the three and nine-months ended September 30, 2017 and 2016, respectively.~~

~~Aggregate mortgage servicing rights amortization was $23, $30, $51 and $45 for the three and nine-months ended September 30, 2017 and 2016, respectively.~~

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

Short-term borrowings, which consist of federal funds purchased and other short-term borrowings are included in Federal Home Loan Bank advances on the Consolidated Balance Sheets and are summarized as follows:

	At September 30, 2017						At December 31, 2016						At March 31, 2018					At December 31, 2017
	Federal Funds Purchased			Short-term Borrowings			Federal Funds Purchased			Short-term Borrowings			Federal Funds Purchased		Short-term Borrowings			Federal Funds Purchased			Short-term Borrowings
Outstanding balance	$	—		$	41,750		$	—		$	31,000		$	—	$	55,000		$	—		$	56,900
Maximum indebtedness		22,500			115,050			20,000			70,400			—		78,400			20,000			115,050
Average balance		156			42,102			116			10,483			—		29,717			119			38,825
Average rate paid		1.71	%		1.08	%		0.86	%		0.42	%		—		1.47	%		1.68	%		1.12	%
Interest rate on balance		—			1.17	%		—			0.64	%		—		1.72	%		—			1.42	%

Average balance during the period ~~represent~~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, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

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, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. All of the repurchase agreements are overnight agreements.

	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Securities pledged for repurchase agreements:
U.S. Treasury securities	$	742	$	1,761	$	778	$	874
Obligations of U.S. government agencies		14,406		27,164		16,674		20,881
Total securities pledged	$	15,148	$	28,925	$	17,452	$	21,755
Gross amount of recognized liabilities for repurchase agreements	$	15,148	$	28,925	$	17,452	$	21,755
Amounts related to agreements not included in offsetting disclosures above	$	—	$	—	$	—	$	—

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

	Three months ended				Nine months ended				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2018		2017
Basic
Net income	$	3,660	$	3,680	$	11,892	$	13,586	$	6,989	$	4,635
Preferred stock dividends		308		374		935		1,156		303		319
Net income available to common shareholders—basic	$	3,352	$	3,306	$	10,957	$	12,430	$	6,686	$	4,316
Weighted average common shares outstanding—basic		10,170,734		8,042,303		9,815,118		7,922,170		10,213,264		9,100,330
Basic earnings per common share	$	0.33	$	0.41	$	1.12	$	1.57	$	0.65	$	0.47
Diluted
Net income available to common shareholders—basic	$	3,352	$	3,306	$	10,957	$	12,430	$	6,686	$	4,316
Preferred stock dividends		308		374		935		1,156		303		319
Net income available to common shareholders—diluted	$	3,660	$	3,680	$	11,892	$	13,586	$	6,989	$	4,635
Weighted average common shares outstanding for basic earnings per common share		10,170,734		8,042,303		9,815,118		7,922,170		10,213,264		9,100,330
Add: Dilutive effects of convertible preferred shares		2,426,565		2,922,609		2,455,008		3,024,712		2,384,130		2,508,003
Average shares and dilutive potential common shares outstanding—diluted		12,597,299		10,964,912		12,270,126		10,946,882		12,597,394		11,608,333
Diluted earnings per common share	$	0.29	$	0.34	$	0.97	$	1.24	$	0.55	$	0.40

For the ~~three-month period~~quarters ended ~~September 30,~~March 31, 2018 and March 31, 2017, there were 2,426,565 dilutive shares related to the Company’s convertible preferred stock. For the nine-month period ended September 30, 2017 there were 2,455,008 dilutive shares related to the Company’s convertible preferred stock. For the three-month period ended September 30, 2016 there were 2,922,609 dilutive shares related to the Company’s convertible preferred stock. For the nine-month period ended September 30, 2016 there were 3,024,7122,384,130 and 2,508,003, respectively, of average dilutive shares related to the Company’s convertible preferred stock. Under the “if converted” method, all convertible preferred shares are assumed to be converted into common shares at the corresponding conversion rate. These additional shares are then added to the common shares outstanding to calculate diluted earnings per share.

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment. The contractual amounts of financial instruments with off-balance-sheet risk were as follows for ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

	Contract Amount								Contract Amount
	September 30, 2017				December 31, 2016				March 31, 2018				December 31, 2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitment to extend credit:
Lines of credit and construction loans	$	8,042	$	271,718	$	6,905	$	202,923	$	8,339	$	292,221	$	4,982	$	286,925
Overdraft protection		6		32,223		5		29,075		2		33,007		7		33,353
Letters of credit		624		317		600		349		624		2,627		624		2,637
	$	8,672	$	304,258	$	7,510	$	232,347	$	8,965	$	327,855	$	5,613	$	322,915

Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included in the table above had interest rates ranging from ~~3.25%~~2.88% to ~~8.00%~~8.50% at ~~September 30, 2017~~March 31, 2018 and from ~~3.25%~~2.88% to ~~8.75%~~10.25% at December 31, ~~2016.~~2017. Maturities extend up to 30 years.

Civista is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements was ~~$5,223~~$55,399 on ~~September 30, 2017~~March 31, 2018 and ~~$2,887~~$4,112 on December 31, ~~2016.~~2017.

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.

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2017			2016			2017			2016			2018			2017
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost		171			170			509			509			125			167
Expected return on plan assets		(283	)		(274	)		(844	)		(821	)		(273	)		(278	)
Other components		426			83			946			249			143			94
Net periodic pension benefit	$	314		$	(21	)	$	611		$	(63	)	$	(5	)	$	(17	)

The ~~total amount of~~Company does not expect to make any contribution to its pension ~~contributions expected to be paid by the Company~~plan in ~~2017 is $2,000.~~2018. The Company contributed ~~$500~~$2,000 in ~~2016.~~2017.

At the Company’s 2014 annual meeting, the shareholders adopted the Company’s 2014 Incentive Plan (“2014 Incentive Plan”). The 2014 Incentive Plan authorizes the Company to grant options, stock awards, stock units and other awards for up to 375,000 common shares of the Company. There were 292,209 shares available for future grants under this plan at ~~September 30, 2017.~~March 31, 2018.

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

On January 4, 2016, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 2,730 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2016 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $32.

On May 17, 2016, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 12,285 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2017 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $130.

On May 16, 2017, directors of the Company’s banking subsidiary, Civista, were paid a retainer in the form of non-restricted common shares of the Company. The aggregate of 6,804 common shares were issued to Civista directors as payment of their retainer for their service on the Civista Board of Directors covering the period up to the 2018 Annual Meeting. This issuance was expensed in its entirety when the shares were issued in the amount of $144.

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

No options had been granted under the 2014 Incentive Plan as of March 31, 2018 and 2017.

The Company classifies share-based compensation for employees with “Compensation expense” in the Consolidated Statements of Operations.

~~No options had been granted under the 2014 Incentive Plan as of September 30, 2017 and 2016.~~

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

The following is a summary of the status of the Company’s restricted shares and changes therein for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2017:~~March 31, 2018:

	Three months ended				Nine months ended					Three months ended
	September 30, 2017				September 30, 2017					March 31, 2018
	Number of Restricted Shares		Weighted Average Grant Date Fair Value		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		42,138	$	15.60		37,050		$	10.77		42,138		$	15.60
Granted		—		—		17,898			22.15		—			—
Vested		—		—		(12,810	)		10.76		(17,956	)		14.01
Forfeited		—		—		—			—		—			—
Nonvested at September 30, 2017		42,138	$	15.60		42,138		$	15.60
Nonvested at end of period											24,182		$	16.78

The following is a summary of the status of the Company’s awarded restricted shares as of ~~September 30, 2017:~~March 31, 2018:

At September 30, 2017
At March 31, 2018							At March 31, 2018
Date of Award	Shares		Remaining Expense		Remaining Vesting Period (Years)			Shares		Remaining Expense		Remaining Vesting Period (Years)
March 17, 2015		16,699	$	9		0.25
January 15, 2016									6,160	$	60		2.75
March 11, 2016		15,748		41		1.25			5,256		25		0.75
March 20, 2017		11,713		126		2.25			7,814		95		1.75
January 15, 2016		10,260		72		3.25
March 20, 2017		6,185		119		4.25			4,952		100		3.75
		60,605	$	367		2.93			24,182	$	280		2.20

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company recorded ~~$225~~$36 of share-based compensation expense ~~and $152 of director retainer fees~~ for shares granted under the 2014 Incentive Plan. At ~~September 30, 2017,~~March 31, 2018, the total compensation cost related to unvested awards not yet recognized is ~~$367,~~$280, which is expected to be recognized over the weighted average remaining life of the grants of ~~2.93~~2.20 years.

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

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

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

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 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.

Impaired loans: The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the ageof 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.

Other real estate owned: OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value,

and is therefore not included in the table below. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. Management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the properties are categorized in the below table as Level 3 measurements since these adjustments are considered to be unobservable inputs. Income and expenses from operations are included in other operating expenses. Further declines in the fair value of the collateral subsequent to foreclosure are included in net gain on sale of other real estate owned.

Assets and liabilities measured at fair value are summarized in the table below.

	Fair Value Measurements at September 30, 2017 Using:						Fair Value Measurements at March 31, 2018 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)		(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	$	—	$	31,063	$	—	$	—	$	29,797	$	—
Obligations of states and political subdivisions		—		113,615		—		—		117,663		—
Mortgage-backed securities in government sponsored entities		—		83,923		—		—		86,582		—
Total securities available for sale								—		234,042		—
Equity securities in financial institutions		—		818		—		—		873		—
Swap asset		—		1,706		—		—		2,065		—
Liabilities measured at fair value on a recurring basis:
Swap liability		—		1,706		—		—		2,065		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	1,639	$	—	$	—	$	1,345
Other real estate owned		—		—		27		—		—		11

	Fair Value Measurements at December 31, 2016 Using:						Fair Value Measurements at December 31, 2017 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)		(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	$	—	$	37,446	$	—	$	—	$	30,358	$	—
Obligations of states and political subdivisions		—		94,998		—		—		118,056		—
Mortgage-backed securities in government sponsored entities		—		62,642		—		—		81,816		—
Total securities available for sale								—		230,230		—
Equity securities in financial institutions		—		778		—		—		832		—
Swap asset		—		1,839		—		—		1,560		—
Liabilities measured at fair value on a recurring basis:
Swap liability		—		1,839		—		—		1,560		—
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	—	$	—	$	952	$	—	$	—	$	1,040
Other real estate owned		—		—		37		—		—		16

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2018.

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a nonrecurring basis at ~~September 30,~~December 31, 2017.

	Quantitative Information about Level 3 Fair Value Measurements							Quantitative Information about Level 3 Fair Value Measurements
September 30, 2017	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
December 31, 2017								Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired loans	$	1,639	Appraisal of collateral	Appraisal adjustments	10% - 48%		34%	$	1,040	Appraisal of collateral	Appraisal adjustments	0% - 30%	16%
				Liquidation expense	0% - 10%		4%				Liquidation expense	0% - 10%	8%
				Holding period	0 - 30 months	20 months					Holding period	0 - 30 months	20 months
Other real estate owned	$	27	Appraisal of collateral	Appraisal adjustments	10% - 30%		10%	$	16	Appraisal of collateral	Appraisal adjustments	10% - 30%		10%
				Liquidation expense	0% - 10%		10%				Liquidation expense	0% - 10%		10%

The ~~following table presents quantitative information about~~methods of determining the ~~Level 3 significant unobservable inputs for~~fair value of assets and liabilities presented in the note are consistent with our methodologies disclosed in the Company’s 2017 Form 10-K, except for the valuation of loans held for investment which was impacted by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the fair value of loans held for investment, excluding impaired loans measured at fair value on a ~~nonrecurring~~non-recurring basis, ~~at December 31, 2016.~~is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk of the loans. Loans are considered a Level 3 classification.

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at March 31, 2018 are as follows:

September 30, 2017	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
March 31, 2018											Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	33,394	$	33,394	$	33,394	$	—	$	—	$	118,970	$	118,970	$	118,970	$	—	$	—
Securities available for sale		229,419		229,419		—		229,419		—
Other securities		14,247		14,247		14,247		—		—		14,247		14,247		14,247		—		—
Loans, held for sale		4,662		4,662		4,662		—		—		2,379		2,379		2,379		—		—
Loans, net of allowance for loan losses		1,129,046		1,130,083		—		—		1,130,083
Loans												1,140,944		1,128,603		—		—		1,128,603
Bank owned life insurance		24,981		24,981		24,981		—		—		25,267		25,267		25,267		—		—
Accrued interest receivable		4,999		4,999		4,999		—		—		4,842		4,842		4,842		—		—
Swap asset		1,706		1,706		—		1,706		—
Financial Liabilities:
Nonmaturing deposits		947,262		947,262		947,262		—		—		1,149,514		1,149,173		1,149,173		—		—
Time deposits		254,027		254,017		—		—		254,017		141,157		141,119		—		—		141,119
Short-term FHLB advances		41,750		41,722		41,722		—		—		55,000		55,000		55,000		—		—
Long-term FHLB advances		15,000		14,966		—		—		14,966		5,000		4,962		—		—		4,962
Securities sold under agreement to repurchase		15,148		15,148		15,148		—		—		17,452		17,452		17,452		—		—
Subordinated debentures		29,427		29,470		—		—		29,470		29,427		32,031		—		—		32,031
Accrued interest payable		244		244		244		—		—		100		100		100		—		—
Swap liability		1,706		1,706		—		1,706		—

The carrying amount and fair values of financial instruments not measured at fair value on a recurring or nonrecurring basis at December 31, 2017 are as follows:

December 31, 2016	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
December 31, 2017											Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from financial institutions	$	36,695	$	36,695	$	36,695	$	—	$	—	$	40,519	$	40,519	$	40,519	$	—	$	—
Securities available for sale		195,864		195,864		—		195,864		—
Loans, held for sale		2,268		2,268		2,268		—		—		2,197		2,197		2,197		—		—
Loans, net of allowance for loan losses		1,042,201		1,047,329		—		—		1,047,329
Loans												1,151,527		1,146,969		—		—		1,146,969
Other securities		14,055		14,055		14,055		—		—		14,247		14,247		14,247		—		—
Bank owned life insurance		24,552		24,552		24,552		—		—		25,125		25,125		25,125		—		—
Accrued interest receivable		3,854		3,854		3,854		—		—		4,488		4,488		4,488		—		—
Swap asset		1,839		1,839		—		1,839		—
Financial Liabilities:
Nonmaturing deposits		913,677		913,677		913,677		—		—		981,021		981,021		981,021		—		—
Time deposits		207,426		207,784		—		—		207,784		223,902		223,626		—		—		223,626
Short-term FHLB advances		31,000		31,007		31,007		—		—		56,900		56,900		56,900		—		—
Long-term FHLB advances		17,500		17,553		—		—		17,553		15,000		14,964		—		—		14,964
Securities sold under agreement to repurchase		28,925		28,925		28,925		—		—		21,755		21,755		21,755		—		—
Subordinated debentures		29,427		27,414		—		—		27,414		29,427		31,052		—		—		31,052
Accrued interest payable		181		181		181		—		—		410		410		410		—		—
Swap liability		1,839		1,839		—		1,839		—

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

~~Securities available for sale:~~ The fair value of securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For equity securities, management uses market information related to the value of similar institutions to determine the fair value (Level 2 inputs).

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

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

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

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

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

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

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

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

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

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

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

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

The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis point change in interest rates as of ~~September 30, 2017.~~March 31, 2018.

	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency
Derivative Assets	$	60,711			5.09	%	$	35		Monthly	$	80,468			5.18	%	$	44		Monthly
Derivative Liabilities		(60,711	)		-5.09	%		(35	)	Monthly		(80,468	)		-5.18	%		(44	)	Monthly
Net Exposure	$	—					$	—			$	—					$	—

The following table summarizes the Company’s interest rate swap positions and the impact of a 1 basis point change in interest rates as of December 31, ~~2016.~~2017.

	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency	Notional Amount			Weighted Average Rate Received/(Paid)			Impact of a 1 basis point change in interest rates			Repricing Frequency
Derivative Assets	$	52,975			5.07	%	$	30		Monthly	$	66,227			5.08	%	$	36		Monthly
Derivative Liabilities		(52,975	)		-5.07	%		(30	)	Monthly		(66,227	)		-5.08	%		(36	)	Monthly
Net Exposure	$	—					$	—			$	—					$	—

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

The Company invests in certain qualified affordable housing projects. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the balance of the investment for qualified affordable housing projects was ~~$3,079~~$3,630 and ~~$2,754,~~$3,204, 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 ~~$4,741~~$3,955 and ~~$2,313~~$4,510 at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of ~~$247~~$129 and ~~$231,~~$82, offset by tax credits and other benefits from its investment in affordable housing tax credits of ~~$414~~$219 and $442, respectively. During the quarters ended September 30, 2017 and 2016, the Company recognized amortization expense with respect to its investments in qualified affordable housing projects of $82 and $77, offset by tax credits and other benefits from its investment in affordable housing tax credits of $138, ~~and $147,~~ respectively. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company did not incur impairment losses related to its investment in qualified affordable housing projects.

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 2 Significant Accounting Policies, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. 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 new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

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.

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 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.

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.

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 months ended March 31, 2018 and 2017.

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31, 2018 and December 31, 2017, the Company did not have any significant contract balances.

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

On March 11, 2018, CBI and United Community Bancorp (“UCB”), and United Community Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which CBI will acquire UCB and its wholly-owned subsidiary, United Community Bank (“United Community”). It is anticipated that United Community will be merged with and into Civista, upon completion of the transaction. At that time, United Community’s eight banking offices located in Southeastern Indiana, and its Loan Production office in Northern Kentucky, will become offices of Civista. As of December 31, 2017, UCB and United Community Bank had total consolidated assets of $546 million, total loans of $296 million and total deposits of $462 million.

Under the terms of the Merger Agreement, for each share of UCB common stock issued and outstanding, UCB shareholders have the right to receive 1.027 CBI common shares and $2.54 in cash, as each of those terms is defined in the Merger Agreement. In addition, CBI has agreed to cash out all of the 212,563 outstanding UCB stock options for an amount equal to the difference between $26.22 per share and the exercise price of the stock options. The aggregate cash consideration to be paid by CBI in respect of the outstanding UCB common shares and the cash-out of outstanding UCB stock options is approximately $13.6 million.

The merger is anticipated to be completed during the third quarter of 2018, and is subject to the satisfaction of the closing conditions in the Merger Agreement and the approval of the appropriate regulatory authorities and of the shareholders of UCB.

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

The following discussion focuses on the consolidated financial condition of the Company at ~~September 30, 2017~~March 31, 2018 compared to December 31, ~~2016,~~2017, and the consolidated results of operations for the ~~three- and nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2018, compared to the same period in ~~2016.~~2017. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q.

This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to such matters as the Company’s financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “believe,” “belief,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “estimate,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from results discussed in the forward-looking statements include, but are not limited to, changes in financial markets or national or local economic conditions; sustained weakness or deterioration in the real estate market; volatility and direction of market interest rates; credit risks of lending activities; changes in the allowance for loan losses; legislation or regulatory changes or actions; increases in Federal Deposit Insurance Corporation (“FDIC”) insurance premiums and assessments; changes in tax laws; failure of or breach in our information and data processing systems; unforeseen litigation; and other risks identified from time-to-time in the Company’s other public documents on file with the SEC, including those risks identified in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017, as supplemented by the risks identified in “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. 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.

Total assets of the Company at ~~September 30, 2017~~March 31, 2018 were ~~$1,496,088~~$1,600,305 compared to ~~$1,377,263~~$1,525,857 at December 31, ~~2016,~~2017, an increase of ~~$118,825,~~$74,448, or ~~8.6%~~4.9%. The increase in total assets was mainly attributable to increases in cash and due from banks, securities available for sale ~~loans held for sale~~ and other assets offset by a decrease in loans. Total liabilities at ~~September 30, 2017~~March 31, 2018 were ~~$1,314,107~~$1,412,262 compared to ~~$1,239,647~~$1,341,396 at December 31, ~~2016,~~2017, an increase of ~~$74,460,~~$70,866, or ~~6.0%~~5.3%. The increase in total liabilities was mainly attributable to increases in total deposits and ~~FHLB overnight advances~~accrued interest, taxes and other expenses offset by ~~a decrease~~decreases in FHLB long-term advances and securities sold under agreements to repurchase.

Loans outstanding as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:

	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Commercial & Agriculture	$	147,537		$	135,462		$	137,076		$	152,473
Commercial Real Estate—Owner Occupied		167,678			161,364			162,985			164,099
Commercial Real Estate—Non-Owner Occupied		424,430			395,931			436,160			425,623
Residential Real Estate		267,839			247,308			267,430			268,735
Real Estate Construction		77,978			56,293			95,856			97,531
Farm Real Estate		38,966			41,170			37,928			39,461
Consumer and Other		17,564			17,978			16,323			16,739
Total loans		1,141,992			1,055,506			1,153,758			1,164,661
Allowance for loan losses		(12,946	)		(13,305	)		(12,814	)		(13,134	)
Net loans	$	1,129,046		$	1,042,201		$	1,140,944		$	1,151,527

Net loans have ~~increased $86,845~~decreased $10,583 or ~~8.3%~~0.9% since December 31, ~~2016.~~2017. The Commercial Real Estate – Non-Owner Occupied loan portfolio increased $10,537 since December 31, 2017, while the Commercial & Agriculture, Commercial Real Estate – Owner Occupied, ~~Commercial Real Estate – Non-Owner Occupied,~~ Residential Real Estate, ~~and~~ Real Estate Construction, ~~loan portfolios increased $12,075, $6,314, $28,499, $20,531 and $21,685, respectively, since December 31, 2016, while the~~ Farm Real Estate and Consumer and Other loan portfolios decreased ~~$2,204~~$15,397, $1,114, $1,305, $1,675, $1,533 and ~~$414,~~$416, respectively, since December 31, ~~2016.~~2017. At March 31, 2018, the net loan to deposit ratio was 88.4% compared to 95.6% at December 31, 2017.

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

Loans held for sale have increased $2,394 or 105.6% since December 31, 2016, due to an increase in originations. At September 30, 2017, the net loan to deposit ratio was 94.0% compared to 93.0% at December 31, 2016.

During the first ~~nine~~three months of 2018 and 2017, there were no provisions made to the allowance for loan losses from earnings. During the first nine months of 2016, the Company received a payoff on a nonperforming loan. This particular loan had been analyzed previously and had been charged down based on a deterioration of real estate collateral values during the recent recession. As a result of the payoff of the loan, the Company recovered the charged down amount of approximately $1,303. The result of the transaction was a credit of $1,300 from the allowance for loan losses during the nine months of operations in 2016. Net charge-offs for the first ~~nine~~three months of ~~2017~~2018 totaled ~~$359,~~$320, compared to a net ~~recovery~~charge offs of ~~$390~~$5 in the first ~~nine~~three months of ~~2016.~~2017. For the first ~~nine~~three months of ~~2017,~~2018, the Company charged off a total of ~~fifty-four~~thirteen loans. ~~Twenty-four~~Seven Real Estate Mortgage loans totaling ~~$312, two~~$22, one Commercial and Agriculture loan totaling ~~$11, four~~$125, one Commercial Real Estate – Owner Occupied ~~loans~~loan totaling ~~$301,~~$193, one Commercial Real Estate – Non-Owner Occupied loan totaling ~~$38~~$44 and ~~twenty-three~~three Consumer and Other loans totaling ~~$135~~$41 were charged off in the first ~~nine~~three months of the year. In addition, during the first ~~nine~~three months of ~~2017,~~2018, the Company had recoveries on previously charged-off Commercial and Agriculture loans of ~~$134,~~$19, Commercial Real Estate – Owner Occupied loans of ~~$26,~~$9, Commercial Real Estate – Non-Owner Occupied loans of ~~$42,~~$14, Real Estate Mortgage loans of ~~$164, Real Estate Construction loans of $32,~~$58, Farm Real Estate of $2$1 and Consumer and Other loans of ~~$38.~~$4. 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~~decreased by ~~$624~~$1,184 since December 31, ~~2016,~~2017, which was due to ~~an increase~~a decrease in loans on nonaccrual status of ~~$589~~$1,188 and an increase in loans past due 90 days and accruing of ~~$35.~~$4. 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.

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 that underlying cash flows are not adequate to meet its debt service requirements. In addition, loans held for sale are excluded from consideration as impaired. Loans are generally moved to nonaccrual status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The allowance for loan losses as a percent of total loans was ~~1.13%~~1.11% at ~~September 30, 2017~~March 31, 2018 and ~~1.26%~~1.13% at December 31, ~~2016.~~2017.

The available for sale security portfolio increased by ~~$33,555,~~$2,980, from ~~$195,864~~$231,062 at December 31, ~~2016~~2017 to ~~$229,419~~$234,042 at ~~September 30, 2017. The increase in the available for sale security portfolio is due to the investment of the net proceeds from the public offering completed by the Company on February 24, 2017.~~March 31, 2018. 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, 2017,~~March 31, 2018, the Company was in compliance with all pledging requirements.

Premises and equipment, net, have decreased ~~$232~~$187 from December 31, ~~2016~~2017 to ~~September 30, 2017.~~March 31, 2018. The decrease is the result of new purchases of ~~$755,~~$105, offset by ~~disposals, net of gains of $72,~~ depreciation of ~~$912 and the transfer of $3 of assets to premises and equipment held for sale.~~$292.

Bank owned life insurance (BOLI) increased ~~$429~~$142 from December 31, ~~2016~~2017 to ~~September 30, 2017.~~March 31, 2018. The difference is the result of increases in the cash surrender value of the underlying insurance policies.

Other assets increased $2,256 from December 31, 2017 to March 31, 2018. The increase is the result of increases in prepaid expenses, fair value of swap assets and low income housing investments.

Total deposits as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are as follows:

	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Noninterest-bearing demand	$	357,539	$	345,588	$	535,225	$	361,964
Interest-bearing demand		188,570		183,759		202,264		183,680
Savings and money market		401,153		384,330		412,025		435,377
Time deposits		254,027		207,426		141,157		223,902
Total Deposits	$	1,201,289	$	1,121,103	$	1,290,671	$	1,204,923

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

Total deposits at ~~September 30, 2017~~March 31, 2018 increased ~~$80,186~~$85,748 from year-end ~~2016.~~2017. Noninterest-bearing deposits increased ~~$11,951~~$173,261 from year-end ~~2016,~~2017, while interest-bearing deposits, including savings and time deposits, ~~increased $68,235~~decreased $87,513 from December 31, ~~2016.~~2017. The increase in noninterest-bearing deposits was primarily due to increases in ~~public fund deposits and~~ cash balances remaining related to the Company’s participation in a tax refund processing ~~program.~~program, which added noninterest-bearing deposits of $195,926. This increase is temporary as transactions are processed and is expected to return to levels more consistent with December 31, ~~2016~~2017 over the next ~~quarter.~~two quarters. The interest-bearing deposit ~~increase~~decrease was mainly due to a decrease in brokered deposits offset by increases in ~~brokered deposits.~~interest-bearing demand and savings accounts. The year-to-date average balance of total deposits ~~increased $11,370~~decreased $11,696 compared to the average balance of the same period in ~~2016~~2017 due to ~~increases~~decreases in ~~demand~~time deposits and ~~savings and money market~~demand deposit accounts. The ~~increase~~decrease in average balance is due to ~~increases~~decreases of ~~$18,086~~$47,506 in demand deposit accounts ~~$11,867~~and $2,594 in time deposit accounts, offset by increases of $4,906 in statement savings accounts, $29,024 in money market accounts ~~$6,332 in NOW accounts~~ and ~~$10,264 in statement saving accounts, offset by decreases of $18,569 in time certificates, $5,953 in CDARS deposits and $9,177~~$4,502 in interest-bearing public funds.

FHLB advances ~~increased $8,250~~decreased $11,900 from December 31, ~~2016~~2017 to ~~September 30, 2017.~~March 31, 2018. The ~~increase~~decrease is due to ~~an increase~~a decrease in overnight funds of ~~$10,750.~~$1,900. In addition, on ~~January 11, 2017,~~February 15, 2018, an FHLB advance in the amount of ~~$2,500~~$10,000 matured. This advance had terms of ~~one hundred and twenty~~forty-two months with a fixed rate of ~~4.25%~~1.5%. The advance was not replaced. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased ~~$13,777~~$4,303 from December 31, ~~2016~~2017 to ~~September 30, 2017.~~March 31, 2018.

Accrued interest, taxes and other expenses increased $1,321 from December 31, 2017 to March 31, 2018. The increase is primarily the result of an increase in a clearing account related to the Company’s tax refund processing program and increases in the market value of swap liabilities.

Shareholders’ equity at ~~September 30, 2017~~March 31, 2018 was ~~$181,981,~~$188,043, or ~~12.2%~~11.8% of total assets, compared to ~~$137,616,~~$184,461, or ~~10.0%~~12.1% of total assets, at December 31, ~~2016. The increase in the ratio of equity to total assets was the result of increases in total assets as well as shareholders’ equity.~~2017. The increase in shareholders’ equity resulted primarily from ~~the completion of the Company’s public offering of its common stock on February 24, 2017, which resulted in net proceeds of $32,821. Shareholders’ equity was also positively impacted by~~ net income of ~~$11,892,~~$6,989, a decrease in the Company’s pension liability, net of tax, of ~~$625, an increase~~$113, a decrease in the fair value of securities available for sale, net of tax, of ~~$1,315~~$2,539 and offset by dividends on preferred stock and common stock of ~~$935~~$303 and ~~$1,726,~~$714, respectively. Total outstanding common shares at ~~September 30, 2017~~March 31, 2018 were ~~10,170,935.~~10,243,274. Total outstanding common shares at December 31, ~~2016~~2017 were ~~8,343,509.~~10,198,475. The increase in common shares outstanding is the result of ~~a public offering of 1,610,000 shares completed on February 24, 2017,~~ the conversion of ~~1,506~~351 shares of the Company’s previously issued preferred shares into ~~192,568~~44,799 common shares, the grant of 17,898 restricted common shares to certain officers under the Company’s 2014 Incentive Plan, the grant of 7,171 common shares to directors of the Company as a retainer for their service and the retirement of 211 common shares on September 22, 2017.shares.

The Company had net income of ~~$11,892~~$6,989 for the ~~nine~~three months ended ~~September 30, 2017, a decrease~~March 31, 2018, an increase of ~~$1,694~~$2,354 from net income of ~~$13,586~~$4,635 for the same ~~nine~~three months of ~~2016.~~2017. Basic earnings per common share were ~~$1.12~~$0.65 for the ~~period~~quarter ended ~~September 30, 2017,~~March 31, 2018, compared to ~~$1.57~~$0.47 for the same period in ~~2016.~~2017. Diluted earnings per common share were ~~$0.97~~$0.55 for the ~~period~~quarter ended ~~September 30, 2017,~~March 31, 2018, compared to ~~$1.24~~$0.40 for the same period in ~~2016.~~2017. The primary reasons for the changes in net income are explained below.

Net interest income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$39,939,~~$14,772, an increase of ~~$2,238~~$1,880 from ~~$37,701~~$12,892 in the same ~~nine~~three months of ~~2016.~~2017. Total interest income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$42,755,~~$15,924, an increase of ~~$2,595~~$2,232 from ~~$40,160~~$13,692 in the same ~~nine~~three months of ~~2016.~~2017. Average earning assets increased ~~5.0%~~2.4% during the ~~nine months~~quarter ended ~~September 30, 2017~~March 31, 2018 as compared to the same period in ~~2016.~~2017. Average loans, taxable securities and non-taxable securities ~~and bank stocks~~ for the first ~~nine months~~quarter of ~~2017~~2018 increased ~~7.3%~~7.4%, ~~4.4%, 14.4%~~6.7% and ~~4.2%~~28.8%, respectively, compared to the first ~~nine months~~quarter of last year. The increases were offset by a decrease in interest-bearing deposits in other banks. Interest-bearing deposits in other banks decreased mainly due to our tax refund processing program. The timing of cash inflows and outflows leads to large, but temporary, fluctuations in cash on deposit. The yield on the loan portfolio ~~decreased 8~~increased 35 basis points for the first ~~nine months~~quarter of ~~2017~~2018 compared to the first ~~nine months~~quarter of last year. The yield on earning assets increased 648 basis points for the first ~~nine months~~quarter of ~~2017~~2018 compared to the first ~~nine months~~quarter of last year. Total interest expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$2,816,~~$1,152, an increase of ~~$357~~$352 from ~~$2,459~~$800 in the same ~~nine~~three months of ~~2016.~~2017. Interest expense on savings and money market accounts and time deposits ~~decreased $48~~increased $129 and $113, respectively in the first ~~nine months~~quarter of ~~2017~~2018 compared to the same period in ~~2016.~~2017. Average savings and money market accounts increased 9.1% while time deposits decreased 1.4% for the first ~~nine months~~quarter of ~~2017 decreased 11.9%~~2018 compared to the ~~first nine months of 2016.~~same period in 2017. Interest expense on ~~demand and savings accounts,~~ FHLB borrowings and trust preferred securities increased ~~$68, $222~~$64 and ~~$116,~~$47, respectively, in the first ~~nine months~~quarter of ~~2017~~2018 compared to the same period in ~~2016.~~2017. The interest rate paid on FHLB borrowings during the first ~~nine months~~quarter of ~~2017 decreased 10 basis~~2018 increased 31basis points as compared to the same period in ~~2016,~~2017, while the average balance increased ~~84.9%~~39.4%. The interest rate paid on trust preferred securities during the first ~~nine months~~quarter of ~~2017~~2018 increased 5365 basis points as compared to the same period in ~~2016.~~2017. The Company’s net interest margin for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 was ~~3.93% compared to 3.89% for the period ended September 30, 2016.~~4.05% and 3.67%, respectively.

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

The following table presents the condensed average balance sheets for the ~~nine~~three months ended ~~September~~March 30, ~~2017~~2018 and ~~2016.~~2017. 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 in 2018 and a 35% tax rate for tax-exempt interest ~~income.~~income in 2017. The average yield has been computed using the historical amortized cost average balance for available-for-sale securities.

	Nine Months Ended September 30,																Three Months Ended March 31,
	2017								2016								2018								2017
Assets:	Average balance			Interest		Yield/ rate*			Average balance			Interest		Yield/ rate*			Average balance			Interest		Yield/rate*			Average balance			Interest		Yield/rate*
Interest-earning assets:
Loans, including fees	$	1,094,401		$	37,211		4.55	%	$	1,019,793		$	35,311		4.63	%	$	1,147,441		$	13,639		4.82	%	$	1,067,903		$	11,777		4.47	%
Taxable securities		144,379			2,764		2.59	%		138,374			2,494		2.45	%		140,999			986		2.83	%		132,152			847		2.62	%
Tax-exempt securities		86,713			2,307		5.65	%		75,806			1,979		5.64	%		101,478			878		4.53	%		78,810			712		5.69	%
Interest-bearing deposits in other banks		78,576			473		0.80	%		103,336			376		0.49	%		113,025			421		1.51	%		188,813			356		0.76	%
Total interest-earning assets	$	1,404,069			42,755		4.20	%	$	1,337,309			40,160		4.14	%	$	1,502,943		$	15,924		4.37	%	$	1,467,678		$	13,692		3.89	%
Noninterest-earning assets:
Cash and due from financial institutions		53,487								58,864								90,358								98,472
Premises and equipment, net		18,084								16,860								17,529								18,124
Accrued interest receivable		4,446								4,262								4,445								3,933
Intangible assets		28,682								29,289								28,368								28,827
Other assets		10,164								9,986								11,243								10,328
Bank owned life insurance		24,747								23,111								25,175								24,602
Less allowance for loan losses		(13,156	)							(14,516	)							(13,141	)							(13,311	)
Total Assets	$	1,530,523							$	1,465,165							$	1,666,920							$	1,638,653
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	582,716		$	413		0.09	%	$	564,743		$	345		0.08	%	$	616,213		$	252		0.17	%	$	577,809		$	123		0.09	%
Time		181,931			1,087		0.80	%		206,620			1,135		0.73	%		187,391			455		0.98	%		189,985			342		0.73	%
FHLB		57,195			534		1.25	%		30,933			312		1.35	%
Federal funds purchased		156			2		1.71	%		155			1		0.86	%
FHLB advance																		39,642			152		1.56	%		28,440			88		1.25	%
Subordinated debentures		29,427			766		3.48	%		29,427			650		2.95	%		29,427			288		3.97	%		29,427			241		3.32	%
Repurchase Agreements		18,597			14		0.10	%		21,015			16		0.10	%		18,398			5		0.11	%		23,581			6		0.10	%
Total interest-bearing liabilities	$	870,022			2,816		0.43	%	$	852,893			2,459		0.39	%	$	891,071		$	1,152		0.52	%	$	849,242		$	800		0.38	%
Noninterest-bearing deposits		478,137								460,051								576,809								624,315
Other liabilities		12,881								20,211								14,608								13,168
Shareholders’ Equity		169,483								132,010								184,432								151,928
Total Liabilities and Shareholders’ Equity	$	1,530,523							$	1,465,165							$	1,666,920							$	1,638,653
Net interest income and interest rate spread				$	39,939		3.77	%				$	37,701		3.75	%				$	14,772		3.85	%				$	12,892		3.51	%
Net interest margin							3.93	%							3.89	%							4.05	%							3.67	%

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

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~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. The table is presented on a fully tax-equivalent basis.

	Increase (decrease) due to:									Increase (decrease) due to:
	Volume (1)			Rate (1)			Net			Volume (1)			Rate (1)			Net
	(Dollars in thousands)									(Dollars in thousands)
Interest income:
Loans, including fees	$	2,546		$	(646	)	$	1,900		$	911		$	951		$	1,862
Taxable securities		133			137			270			70			69			139
Tax-exempt securities		356			(28	)		328			201			(35	)		166
Interest-bearing deposits in other banks		(106	)		203			97			(184	)		249			65
Total interest income	$	2,929		$	(334	)	$	2,595		$	998		$	1,234		$	2,232
Interest expense:
Demand and savings	$	11		$	57		$	68		$	9		$	120		$	129
Time		(142	)		94			(48	)		(5	)		118			113
FHLB		247			(25	)		222
Federal funds purchased		—			1			1
FHLB advance											40			24			64
Subordinated debentures		—			116			116			—			47			47
Repurchase agreements		(2	)		—			(2	)		(1	)		—			(1	)
Total interest expense	$	114		$	243		$	357		$	43		$	309		$	352
Net interest income	$	2,815		$	(577	)	$	2,238		$	955		$	925		$	1,880

The Company provides for loan losses through regular provisions to the allowance for loan losses. NoDuring the quarters ended March 31, 2018 and March 31, 2017, no provision for loan losses was provided during the nine months ended September 30, 2017. During the first nine months of 2016, the Company received a payoff on a nonperforming loan. This particular loan had been analyzed previously and had been charged down based on a deterioration of real estate collateral values during the recent recession. As a result of the payoff of the loan, the Company recovered the charged-down amount of approximately $1,303. The result of the transaction was a reversal of $1,300 from the allowance for loan losses during the nine months of operations in 2016.provided.

Noninterest income for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ are as follows:

	Nine months ended September 30,					Three months ended March 31,
	2017			2016		2018		2017
Service charges	$	3,609		$	3,714	$	1,134	$	1,045
Net gain on sale of securities		(9	)		20
Net gain on equity securities							40		—
Net gain on sale of loans		1,207			1,341		333		257
ATM fees		1,643			1,584
ATM/Interchange fees							554		510
Wealth management fees		2,233			1,989		852		707
Bank owned life insurance		429			415		142		144
Tax refund processing fees		2,750			2,750		2,200		2,200
Other		842			1,176		361		275
Total noninterest income	$	12,704		$	12,989	$	5,616	$	5,138

Noninterest income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$12,704, a decrease~~$5,616, an increase of ~~$285~~$478 or ~~2.2%~~9.3% from ~~$12,989~~$5,138 for the same period of ~~2016.~~2017. The primary reasons for the ~~decrease~~increase follow.

Service ~~charge fee income for~~charges increased $89 or 8.5% during the ~~period ended September 30, 2017 was $3,609, down $105 or 2.8% over~~first quarter of 2018 compared to the same period of ~~2016.~~2017. The ~~decrease~~increase is primarily due to ~~decreases~~a change in the business ~~service charges and~~account earnings credits, along with an increase on overdraft charges.

Gain on sale of loans ~~decreased $134~~increased $76 or 29.6% during the first ~~nine months~~quarter of ~~2017~~2018 compared to the same period of ~~2016.~~2017. The ~~decrease~~increase is due to ~~a decrease~~an increase in the premium on loans sold. ~~The decrease in the premium was offset by an increase in the~~In addition, volume of loans sold increased during the first ~~nine months~~quarter of ~~2017.~~2018. Volume was ~~$53,091,~~$14,636, up ~~$1,860~~$2,484 or ~~3.6%~~20.4% as compared to the same period in ~~2016.~~2017.

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

Wealth management fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that we manage and the fee rate charged to customers. Wealth management fee income increased ~~$244~~$145 or ~~12.3%~~20.5% during the first ~~nine months~~quarter of ~~2017~~2018 compared to the same period in ~~2016.~~2017. The increase is mainly related to increases in assets under management and market conditions compared to the same period in ~~2016.~~2017.

The Company processes state and federal income tax refund payments for customers of third-party income tax preparation vendors. The third-party vendors pay us a fee for processing the payments. Tax refund processing fees were ~~$2,750 during~~$2,200 for the first ~~nine~~three months of ~~2017~~2018 and ~~2016.~~2017. This fee income is seasonal in nature, the majority of which is received in the first quarter of the year.

Other income ~~decreased $334~~increased $86 during the first ~~nine months~~quarter of ~~2017~~2018 compared to the same period of ~~2016.~~2017. The ~~decrease~~increase is mainly due to ~~decreases~~increases in swap related income and ~~gain/loss on sale of OREO properties~~deluxe income during the first ~~nine months~~quarter of ~~2017~~2018 as compared to the same period in ~~2016.~~2017.

Noninterest expense for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ are as follows:

	Nine months ended September 30,				Three months ended March 31,
	2017		2016		2018		2017
Salaries, Wages and benefits	$	21,684	$	19,053
Compensation expense					$	7,374	$	6,982
Net occupancy expense		2,002		2,009		761		658
Equipment expense		1,097		1,158		374		329
Contracted data processing		1,174		1,147		348		388
FDIC assessment		414		597		151		165
State franchise tax		767		709		318		257
Professional services		1,718		1,450		552		451
Amortization of intangible assets		483		527		33		167
ATM expense		700		379		218		254
Marketing		768		810		318		252
Other		5,410		5,314
Other operating expenses						1,758		1,599
Total noninterest expense	$	36,217	$	33,153	$	12,205	$	11,502

Noninterest expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$36,217,~~$12,205, an increase of ~~$3,064,~~$703, or 6.1%, from ~~$33,153~~$11,502 reported for the same period of ~~2016.~~2017. The primary reasons for the increase follow.

~~Salaries, wages and benefits~~Compensation expenses were ~~$21,684,~~$7,374, up ~~$2,631~~$392 or ~~13.8%~~5.6% as compared to the same period of ~~2016.~~2017. These increases are mainly due to an increase in payroll and payroll related expenses ~~resulting from an increase in full time equivalent (FTE) employees and~~due to annual pay increases. ~~FTE employees increased 13.7, to 347 FTE, as compared to the same period of 2016.~~ In addition, ~~incentive~~commission based costs ~~higher~~and employee insurance ~~costs and pension~~ costs increased, as compared to the same period of ~~2016.~~2017.

~~FDIC assessments were $414, down $183~~Net occupancy and equipment expense increased $148, or ~~30.7% compared to~~15.0% from the same period ~~in 2016. The year-over-year decrease is the result~~ of ~~a new lower assessment rate schedule that became effective in 2016.~~

~~State franchise taxes were $767, up $58 or 8.2% compared to the same period in 2016.~~2017. The year-over-year increase was attributable to an increase in miscellaneous building repairs, increased small equipment purchases, increased janitorial services and increased ground maintenance and utilities costs due to the ~~Company’s equity capital, on which the Ohio financial institutions tax is based.~~extended cold weather we are experiencing in our region.

~~Professional services costs increased $268,~~State franchise taxes were $318, up $61 or ~~18.5% from~~23.7% compared to the same period ~~of 2016.~~in 2017. The year-over-year increase was attributable to ~~recruitment activities,~~an increase in equity capital. The Ohio Financial Institutions tax is based on equity capital.

Professional services costs increased $101, or 22.4% from the same period of 2017. The quarter-over-quarter increase was attributable to increased examination fees, increased facilities management costs and increased professional services costs to analyze workflow systems and recommend process improvements.

Amortization expense decreased $134, or 80.2% from the same period of 2017, as a result of scheduled amortization of intangible assets associated with mergers.

ATM costs were ~~$700, up $321~~$218, down $36 or ~~84.7%~~14.2% compared to the same period in ~~2016.~~2017. The ~~increase~~decrease is primarily due to ~~vendor credits that expired~~increased expenses paid in ~~the second quarter of 2016, expenses incurred with~~2017 relating to the Company’s debit card program conversion ~~increased cardholder usage~~as compared to the same period in 2018.

Marketing costs were $318, up $66 or 26.2% compared to the same period in 2017. The increase is due to a general increase in marketing expenses and ~~ATM card related expenses.~~higher promotional points and benefits paid in the first quarter of 2018 compared to the same period of 2017.

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

~~Income tax expense for the nine months ended September 30, 2017 totaled $4,534, down $717~~Other operating expenses were $1,758, up $159 or 9.9% compared to the same period in ~~2016.~~2017. The increase is primarily due to higher director fees, travel and lodging, stationery and supplies and bad check expense in 2018 as compared to the same period in 2017.

Income tax expense for the three months ended March 31, 2018 totaled $1,194, down $699 compared to the same period in 2017. The effective tax rates for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2018 and 2017 were 14.6% and ~~September 30, 2016 were 27.6% and 27.9%~~29.0%, respectively. The Tax Cuts and Jobs Act, enacted on December 22, 2017, lowered the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The difference between the statutory federal income tax rate and the Company’s effective tax rate is the permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, low income housing tax credits and bank owned life insurance income.

The Company had net income of $3,660 for the three months ended September 30, 2017, a decrease of $20 from net income of $3,680 for the same three months of 2016. Basic earnings per common share were $0.33 for the quarter ended September 30, 2017, compared to $0.41 for the same period in 2016. Diluted earnings per common share were $0.29 for the quarter ended September 30, 2017, compared to $0.34 for the same period in 2016. The primary reasons for the changes in net income are explained below.

Net interest income for the three months ended September 30, 2017 was $13,680, an increase of $1,154 from $12,526 in the same three months of 2016. Total interest income for the three months ended September 30, 2017 was $14,836, an increase of $1,466 from $13,370 in the same three months of 2016. Average earning assets increased 8.3% during the quarter ended September 30, 2017 as compared to the same period in 2016. Average loans, taxable securities, non-taxable securities and bank stocks for the third quarter of 2017 increased 7.6%, 9.6%, 20.2% and 3.6%, respectively, compared to the third quarter of last year. The increases were partially offset by a decrease in interest-bearing deposits in other banks. The yield on the loan portfolio increased 9 basis points for the third quarter of 2017 compared to the third quarter of last year. The yield on earning assets increased 10 basis points for the third quarter of 2017 compared to the third quarter of last year. Total interest expense for the three months ended September 30, 2017 was $1,156, an increase of $312 from $844 in the same three months of 2016. Interest expense on time deposits increased $59 in the third quarter of 2017 compared to the same period in 2016. Average time deposits for the third quarter of 2017 decreased 6.5% compared to the same period in 2016. Interest expense on savings and money market accounts, FHLB borrowings and trust preferred securities increased $44, $165 and $47, respectively, in the third quarter of 2017 compared to the same period in 2016. The interest rate paid on FHLB borrowings during the third quarter of 2017 increased 4 basis points as compared to the same period in 2016, while the average balance increased 140.6%. The interest rate paid on trust preferred securities during the third quarter of 2017 increased 62 basis points as compared to the same period in 2016. The Company’s net interest margin for the three months ended September 30, 2017 and 2016 was 4.08% and 4.06%, respectively.

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

The following table presents the condensed average balance sheets for the three months ended September 30, 2017 and 2016. 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 35% 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,

2017

2016

Assets:

Average
balance

Interest

Yield/rate*

Average
balance

Interest

Yield/rate*

Interest-earning assets:

Loans, including fees

$
1,122,131

$
13,022

4.60
%

$
1,042,721

$
11,824

4.51
%
Taxable securities

150,534

977

2.61
%

138,092

872

2.56
%
Tax-exempt securities

93,022

812

5.53
%

77,378

664

5.56
%
Interest-bearing deposits in other banks

11,450

25

0.87
%

12,878

10

0.31
%
Total interest-earning assets

$
1,377,137

14,836

4.42
%

$
1,271,069

13,370

4.32
%
Noninterest-earning assets:

Cash and due from financial institutions

24,652

24,591

Premises and equipment, net

18,000

16,975

Accrued interest receivable

4,460

4,134

Intangible assets

28,541

29,136

Other assets

10,352

10,196

Bank owned life insurance

24,889

24,308

Less allowance for loan losses

(12,988
)

(14,424
)

Total Assets

$
1,475,043

$
1,365,985

Liabilities and Shareholders Equity:

Interest-bearing liabilities:

Demand and savings

$
594,088

$
160

0.11
%

$
574,322

$
118

0.08
%
Time

194,364

447

0.91
%

207,947

388

0.74
%
FHLB

85,840

276

1.28
%

35,673

111

1.24
%
Federal funds purchased

462

2

1.72
%

462

1

0.86
%
Subordinated debentures

29,427

268

3.61
%

29,427

221

2.99
%
Repurchase Agreements

14,328

3

0.08
%

18,827

5

0.11
%
Total interest-bearing liabilities

$
918,509

1,156

0.50
%

$
866,658

844

0.39
%
Noninterest-bearing deposits

363,783

347,912

Other liabilities

12,826

14,678

Shareholders’ Equity

179,925

136,737

Total Liabilities and Shareholders’ Equity

$
1,475,043

$
1,365,985

Net interest income and interest rate spread

$
13,680

3.91
%

$
12,526

3.93
%
Net interest margin

4.08
%

4.06
%

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

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. The following table provides an analysis of the changes in interest income and expense between the three months ended September 30, 2017 and 2016. The table is presented on a fully tax-equivalent basis.

The Company provides for loan losses through regular provisions to the allowance for loan losses. During the quarters ended September 30, 2017 and September 30, 2016, no provision for loan losses was provided.

~~Noninterest income for the three-month periods ended September 30, 2017 and 2016 are as follows:~~

~~Noninterest income for the three months ended September 30, 2017 was $3,465, a decrease of $188 or 5.1% from $3,653 for the same period of 2016. The primary reasons for the increase follow.~~

Gain on sale of loans decreased $69 or 12.8% during the third quarter of 2017 compared to the same period of 2016. The decrease is due to a decrease in the premium on loans sold. The decrease in the premium was offset by an increase in the volume of loans sold during the third quarter of 2017. Volume was $22,153, up $629 or 2.9% as compared to the same period in 2016.

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

Wealth management fee income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that we manage and the fee rate charged to customers. Wealth management fee income increased $99 or 14.4% during the third quarter of 2017 compared to the same period in 2016. The increase is mainly related to increases in assets under management and market conditions compared to the same period in 2016.

Other income decreased $193 during the third quarter of 2017 compared to the same period of 2016. The decrease is mainly due to decreases in swap related income and gain/loss on sale of OREO properties during the third quarter of 2017 as compared to the same period in 2016.

~~Noninterest expense for the three-month periods ended September 30, 2017 and 2016 are as follows:~~

Noninterest expense for the three months ended September 30, 2017 was $12,167, an increase of $972, or 8.7%, from $11,195 reported for the same period of 2016. The primary reasons for the increase follow.

Salaries, wages and benefits were $7,389, up $1,014 or 15.9% as compared to the same period of 2016. These increases are mainly due to an increase in payroll and payroll related expenses due to an increase in full time equivalent (FTE) employees and annual pay increases. FTE employees increased 14.6, to 353.7 FTE, as compared to the same period of 2016. In addition, incentive based costs, employee insurance costs and pension costs increased, as compared to the same period of 2016.

Equipment expenses were $350, down $144 or 29.1% compared to the same period in 2016. The quarter-over-quarter increase was attributable to lower repair and maintenance expense during the third quarter of 2017 as compared to the same period.

FDIC assessments were $115, down $51 or 30.7% compared to the same period in 2016. The quarter-over-quarter decrease is the result of a new lower assessment rate schedule that became effective in 2016.

Professional services costs increased $103, or 23.9% from the same period of 2016. The quarter-over-quarter increase was attributable to recruitment activities, facilities management and professional services to analyze workflow systems and recommend process improvements.

~~ATM costs were $233, up $50 or 27.3% compared to the same period in 2016. The increase is primarily due to increases in cardholder usage and ATM card expenses during the third quarter of 2017.~~

Income tax expense for the three months ended September 30, 2017 totaled $1,318, up $14 compared to the same period in 2016. The effective tax rates for the three-month periods ended September 30, 2017 and September 30, 2016 were 26.5% and 26.2%, 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.

Shareholders’ equity totaled ~~$181,981~~$188,043 at ~~September 30, 2017~~March 31, 2018 compared to ~~$137,616~~$184,461 at December 31, ~~2016.~~2017. The increase in shareholders’ equity ~~resulted primarily from the completion of the Company’s public offering of its common stock on February 24, 2017, which resulted in net proceeds of $32,821. Shareholders’ equity~~ was ~~also~~ positively impacted by net income of ~~$11,892,~~$6,989, a ~~$625~~$113 net decrease in the Company’s pension

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

liability and ~~an increase~~a decrease in the fair value of securities available for sale, net of tax, of ~~$1,315,~~$2,539, which was offset by dividends on preferred stock and common stock of ~~$935~~$303 and ~~$1,726,~~$714, respectively.

All of the Company’s capital ratios exceeded the regulatory minimum guidelines as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 as identified in the following table:

	Total Risk Based Capital			Tier I Risk Based Capital			CET1 Risk Based Capital			Leverage Ratio			Total Risk Based Capital			Tier I Risk Based Capital			CET1 Risk Based Capital			Leverage Ratio
Company Ratios—September 30, 2017		16.6	%		15.5	%		11.6	%		12.7	%
Company Ratios—December 31, 2016		14.2	%		13.0	%		8.6	%		10.6	%
Company Ratios—March 31, 2018														16.9	%		15.9	%		12.1	%		11.8	%
Company Ratios—December 31, 2017														16.6	%		15.5	%		11.6	%		12.7	%
For Capital Adequacy Purposes		8.0	%		6.0	%		4.5	%		4.0	%		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	%		10.0	%		8.0	%		6.5	%		5.0	%

The Company paid a cash dividend of $0.07 per common share on February 1, 2018. In 2017, the Company paid a cash dividend of $0.06 per common share on February 1, ~~2017, on May 1, 2017 and on August 1,~~ 2017. ~~In 2016, the Company paid a cash dividend of $0.05 per common share on February 1, 2016 and on May 1, 2016 and paid a cash dividend of $0.06 per common share on August 1, 2016.~~ The Company also paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $303 on March 15, 2018. In 2017, the Company paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $319 on March 15, ~~2017 and approximately $308 on June 15, 2017 and on September 15,~~ 2017. In 2016, the Company paid a 6.50% cash dividend on its Series B preferred shares in the amount of approximately $391 on March 15, 2016 and on June 15, 2016 and approximately $374 on September 15, 2016.

The Company maintains a conservative liquidity position. All securities are classified as available for sale. Securities, with maturities of one year or less, totaled ~~$5,108,~~$13,776, or ~~2.2%~~5.9% of the total security portfolio at ~~September 30, 2017.~~March 31, 2018. 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 ~~$11,821~~$6,613 and ~~$11,318~~$8,999 for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. These amounts differ from net income due to a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash ~~used~~provided (used) for investing activities was ~~$119,937~~$3,310 and ~~$53,828~~$(46,851) for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, principally reflecting our loan and investment security activities. Cash provided by deposits, borrowings and net proceeds from our common equity offering comprised most of our financing activities, which resulted in net cash provided of ~~$104,815~~$68,528 and ~~$40,178~~$183,603 for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively.

Future loan demand of Civista may be funded by increases in deposit accounts, proceeds from payments on existing loans, the maturity of securities, and the sale of securities classified as available for sale. Additional sources of funds may also come from borrowing in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent banks, Civista maintains federal funds borrowing lines totaling $42,500. As of ~~September 30, 2017,~~March 31, 2018, Civista had total credit availability with the FHLB of ~~$355,367~~$358,569 with standby letters of credit totaling ~~$19,600~~$20,000 and a remaining borrowing capacity of approximately ~~$279,017.~~$278,569. In addition, Civista Bancshares, Inc. maintains a credit line totaling $7,500.

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

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

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

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

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

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

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

The following table provides information about the Company’s financial instruments that were sensitive to changes in interest rates as of December 31, ~~2016~~2017 and ~~September 30, 2017,~~March 31, 2018, based on certain prepayment and account decay assumptions that management believes are reasonable. The table shows the changes in the Company’s net portfolio value (in amount and percent) that would result from hypothetical interest rate increases of 200 basis points and 100 basis points and an interest rate decrease of 100 basis points at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

The Company had derivative financial instruments as of December 31, ~~2016~~2017 and ~~September 30, 2017.~~March 31, 2018. 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	Net Portfolio Value																	Net Portfolio Value
		September 30, 2017								December 31, 2016									March 31, 2018								December 31, 2017
Change in Rates		Dollar Amount		Dollar Change			Percent Change			Dollar Amount		Dollar Change			Percent Change				Dollar Amount		Dollar Change			Percent Change			Dollar Amount		Dollar Change			Percent Change
+200bp			257,937		34,479			15	%		229,366		31,559			16	%			324,955		37,885			13	%		270,928		33,923			14	%
+100bp			246,494		23,036			10	%		219,008		21,201			11	%			312,969		25,899			9	%		261,071		24,066			10	%
Base			223,458		—			—			197,807		—			—				287,070		—			—			237,005		—			—
-100bp			221,782		(1,676	)		-1	%		186,624		(11,183	)		-6	%			262,763		(24,307	)		-9	%		223,526		(13,479	)		-6	%

The change in net portfolio value from December 31, ~~2016~~2017 to ~~September 30, 2017,~~March 31, 2018, can be attributed to two factors. While the yield curve has risen and flattened slightly from the end of the year, both the volume and mix of assets and funding sources has changed. ~~Cash, as it relates~~The additional volumes, related to the tax refund processing program, ~~has decreased while the volume of loans and securities have both increased. This change in~~contributed to the mix of assets being relatively heavier in cash compared to the end of the year. This change in mix tends to ~~increase~~decrease volatility. The funding volume and mix has shifted from borrowed money and CDs to deposits, ~~and CDs,~~ which tends to increase volatility. The increased volume of ~~loans~~cash and ~~securities~~the shifts in mixes led to the increase in the base. Beyond the change in the base level of net portfolio value, projected movements in rates, up or down, would also lead to changes in market values. The change in the rates up scenarios for both the 100 and 200 basis point movements would lead to a faster decrease in the fair value of liabilities, compared to assets. Accordingly we would see an increase in the net portfolio value. However, a downward change in rates would lead to a decrease in the net portfolio value as the fair value of liabilities would increase more quickly than the fair value of assets.

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, 2017,~~March 31, 2018, were effective.

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.

There were no new material legal proceedings or material changes to existing legal proceedings during the current period.

~~There were no material changes during the current period to~~The following information updates our risk factors and should be read in conjunction with 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, ~~2016.~~2017.

The market price of Civista common shares after the Merger may be affected by factors different from those affecting the shares of United Community or Civista currently, resulting in a reduction in the market price of Civista common shares after the Merger.

Upon completion of the Merger, United Community shareholders will become Civista shareholders. Civista’s business differs in some important respects from that of United Community and, accordingly, the price of Civista common shares after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of Civista and United Community.

Completion of the United Community Bancorp Merger is subject to many conditions and if these conditions are not satisfied or waived, the United Community Bancorp Merger will not be completed.

The respective obligations of Civista Bancshares, Inc. and Civista Bank, on the one hand, and United Community Bancorp, on the other hand, to complete the United Community Bancorp Merger are subject to the fulfillment of customary closing conditions, including approval of the United Community Bancorp Merger Agreement by the requisite vote of the United Community Bancorp shareholders, receipt of required regulatory approvals, effectiveness of the registration statement to be filed by Civista Bancshares, Inc. and approval for listing on NASDAQ, with respect to the Civista Bancshares, Inc. Common Shares to be issued in the United Community Bancorp Merger. These conditions to the consummation of the United Community Bancorp Merger may not be fulfilled and, accordingly, the United Community Bancorp Merger may not be completed. In addition, the United Community Bancorp Merger Agreement provides certain termination rights for each party and further provides that, in the event the United Community Bancorp Merger Agreement is terminated under certain circumstances in connection with a competing acquisition transaction, United Community Bancorp will be required to pay Civista Bancshares, Inc. a termination fee equal to $3,500,000.

We could experience difficulties in effectively integrating United Community Bancorp, which could contribute to our not fully achieving the expected benefits from the United Community Bancorp Merger.

We may not be able to achieve fully the strategic objectives and operating efficiencies in the United Community Bancorp Merger. The costs or difficulties relating to and the time involved in the integration of United Community Bancorp with Civista Bank may be greater than expected or the anticipated revenue synergies and cost savings from the United Community Bancorp Merger may not be fully realized or realized within the expected timeframe. In addition, the market and industries in which Civista Bank and United Community Bancorp operate are highly competitive. Customer and employee relationships and business operations for each of Civista Bank and United Community Bancorp may be disrupted by the United Community Bancorp Merger. Any of these factors could contribute to our not fully achieving the expected benefits from the United Community Bancorp Merger.

Future expansion may adversely affect our financial condition and results of operations as well as dilute the interests of our shareholders and negatively affect the price of our Common Shares.

In addition to the pending United Community Bancorp Merger, we may acquire other financial institutions, or branches or assets of other financial institutions, in the future. We may also open new branches and enter into new lines of business or offer new products or services. Any such expansion of our business will involve a number of expenses and risks, which may include:

We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we expect. Neither can we assure that integration efforts for any future acquisitions will be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders.

Any merger or acquisition opportunity that we decide to pursue will ultimately be subject to regulatory approval or other closing conditions. We may expend substantial time and resources pursing potential acquisitions which may not be consummated because regulatory approval or other closing conditions are not satisfied.

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.

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)

Large accelerated filer	☐		Accelerated filer	☒
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

PART I.	Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (Unaudited) ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017	2
	Consolidated Statements of Operations (Unaudited) Three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	3
	Consolidated Statements of Comprehensive Income (Unaudited) Three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	4
	Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) ~~Nine~~Three months ended ~~September 30, 2017~~March 31, 2018	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) ~~Nine~~Three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	6
	Notes to Interim Consolidated Financial Statements (Unaudited)	~~7-33~~7-32
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~34-44~~33-39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~45-46~~40-41
Item 4.	Controls and Procedures	4742

PART II.	Other Information
Item 1.	Legal Proceedings	4843
Item 1A.	Risk Factors	4843
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4844
Item 3.	Defaults upon Senior Securities	4844
Item 4.	Mine Safety Disclosures	4844
Item 5.	Other Information	4844
Item 6.	Exhibits	4845
Signatures		4946

	For the Three-Month Period Ended March 31, 2018			For the Three-Month Period Ended March 31, 2017
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	15		$	49
Acquisition of PCI loans		—			—
Accretion		(7	)		(9	)
Balance at end of period	$	8		$	40

Net gains (losses) recognized in equity securities during the period	$	40
Less: Net gains (losses) realized on the sale of equity securities during the period		—
Unrealized gains (losses) recognized in equity securities held at reporting date	$	40

	September 30, 2017			December 31, 2016
Commercial and agriculture	$	147,537		$	135,462
Commercial real estate- owner occupied		167,678			161,364
Commercial real estate- non-owner occupied		424,430			395,931
Residential real estate		267,839			247,308
Real estate construction		77,978			56,293
Farm Real Estate		38,966			41,170
Consumer and other		17,564			17,978
Total loans		1,141,992			1,055,506
Allowance for loan losses		(12,946	)		(13,305	)
Net loans	$	1,129,046		$	1,042,201

	For the Nine-Month Period Ended September 30, 2017
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—	$	—
Commercial Real Estate—Owner Occupied		—		—		—
Commercial Real Estate—Non-Owner Occupied		—		—		—
Residential Real Estate		1		13		13
Real Estate Construction		—		—		—
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		1	$	13	$	13

	September 30, 2017				September 30, 2016
For the nine months ended:	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	1,609	$	27	$	1,453	$	19
Commercial Real Estate—Owner Occupied		1,632		66		1,954		66
Commercial Real Estate—Non-Owner Occupied		280		5		1,519		858
Residential Real Estate		1,554		56		1,699		60
Real Estate Construction		—		—		473		—
Farm Real Estate		614		21		1,123		17
Consumer and Other		—		—		2		—
Total	$	5,689	$	175	$	8,223	$	1,020

	For the Nine-Month Period Ended September 30, 2017			For the Nine-Month Period Ended September 30, 2016
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	49		$	82
Acquisition of PCI loans		—			—
Accretion		(27	)		(24	)
Balance at end of period	$	22		$	58

	For the Three-Month Period Ended September 30, 2017			For the Three-Month Period Ended September 30, 2016
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	31		$	66
Acquisition of PCI loans		—			—
Accretion		(9	)		(8	)
Balance at end of period	$	22		$	58

	At September 30, 2017		At December 31, 2016
	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	$	795	$	850
Carrying amount		228		256

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) (a)
Details about Accumulated Other Comprehensive (Loss) Components	For the nine months ended September 30, 2017			For the nine months ended September 30, 2016			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(9	)	$	20		Net gain (loss) on securities available for sale
Tax effect		3			(7	)	Income tax expense
		(6	)		13		Net of tax
Amortization of defined benefit pension items
Actuarial gains/(losses) (b)		(946	)		(249	)	Salaries, wages and benefits
Tax effect		321			84		Income tax expense
		(625	)		(165	)	Net of tax
Total reclassifications for the period	$	(631	)	$	(152	)	Net of tax

	MSRs		Core deposit intangibles		Total
2018	$	31	$	78	$	109
2019		42		88		130
2020		42		72		114
2021		42		68		110
2022		41		68		109
Thereafter		558		129		687
	$	756	$	503	$	1,259

	Three Months Ended September 30,
	2017								2016
Assets:	Average balance			Interest		Yield/rate*			Average balance			Interest		Yield/rate*
Interest-earning assets:
Loans, including fees	$	1,122,131		$	13,022		4.60	%	$	1,042,721		$	11,824		4.51	%
Taxable securities		150,534			977		2.61	%		138,092			872		2.56	%
Tax-exempt securities		93,022			812		5.53	%		77,378			664		5.56	%
Interest-bearing deposits in other banks		11,450			25		0.87	%		12,878			10		0.31	%
Total interest-earning assets	$	1,377,137			14,836		4.42	%	$	1,271,069			13,370		4.32	%
Noninterest-earning assets:
Cash and due from financial institutions		24,652								24,591
Premises and equipment, net		18,000								16,975
Accrued interest receivable		4,460								4,134
Intangible assets		28,541								29,136
Other assets		10,352								10,196
Bank owned life insurance		24,889								24,308
Less allowance for loan losses		(12,988	)							(14,424	)
Total Assets	$	1,475,043							$	1,365,985
Liabilities and Shareholders Equity:
Interest-bearing liabilities:
Demand and savings	$	594,088		$	160		0.11	%	$	574,322		$	118		0.08	%
Time		194,364			447		0.91	%		207,947			388		0.74	%
FHLB		85,840			276		1.28	%		35,673			111		1.24	%
Federal funds purchased		462			2		1.72	%		462			1		0.86	%
Subordinated debentures		29,427			268		3.61	%		29,427			221		2.99	%
Repurchase Agreements		14,328			3		0.08	%		18,827			5		0.11	%
Total interest-bearing liabilities	$	918,509			1,156		0.50	%	$	866,658			844		0.39	%
Noninterest-bearing deposits		363,783								347,912
Other liabilities		12,826								14,678
Shareholders’ Equity		179,925								136,737
Total Liabilities and Shareholders’ Equity	$	1,475,043							$	1,365,985
Net interest income and interest rate spread				$	13,680		3.91	%				$	12,526		3.93	%
Net interest margin							4.08	%							4.06	%

Exhibit	Description	Location
2.1	Agreement and Plan of Merger, dated March 11, 2018 by and between Civista Bancshares, Inc., Civista Bank, United Community Bancorp and United Community Bank.	Filed as Exhibit 2.1 to Civista Bancshares, Inc.’s Current Report on Form 8-K dated and filed on March 12, 2018 and incorporated herein by reference. (File No. 001-36192)
3.1	Amended and ~~Restated~~restated Articles of Incorporation of ~~the Company,~~Civista Bancshares, Inc., as filed with the Ohio Secretary of State on December 4, 2015.	Filed as Exhibit 3.1 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)


/s/ ~~James O. Miller~~Dennis G. Shaffer		~~November 8, 2017~~May 10, 2018
~~James O. Miller~~Dennis G. Shaffer		Date
President, Chief Executive Officer


/s/ Todd A. Michel		~~November 8, 2017~~May 10, 2018
Todd A. Michel		Date
Senior Vice President, Controller