Civista Bancshares, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Civista Bancshares, Inc., 3rd Quarter 2026 Earnings Call. If at any time during this call you require immediate assistance, please press star 0 for the operator. Before we begin, I would like to remind you that this conference call may contain forward-looking statements with respect to the future performance and financial condition of Civista Bancshares, Inc. that involves risks and uncertainties. Various factors could cause actual results to be materially different, The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures which are intended to supplement but not substitute the most directly comparable GAAP measures. The press release Also available on the company's website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the gap to non-GAP measures. The call will be recorded and made available on Civista Bancshares' website at www.civb.com. At the conclusion of Mr. Parcher's remarks, he and the Civista management team will take any questions you may have. Now, I will turn the call over to Mr. Parcher. Thank you. Please go ahead.

Good afternoon. This is Chuck Parcher, President and CEO of Civista Bancshares. And I would like to thank you for joining us for our third quarter 2026 earnings call. I am joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank, Ian Whinnem, SVP of the company and Chief Financial Officer of the bank, and other members of our executive team. This morning, we reported net income for the third quarter of $16 million, or 77 cents per diluted share, which represents a $3.3 million, or 26% increase over our third quarter in 2025, and a $1.7 million, or 12% increase over our length quarter. This also represents an increase in pre-provision net revenue of $5.3 million, or 33% over our third quarter in 2025. and a $2.2 million or 11% increase over our linked quarter. Net interest income for the quarter totaled $39.4 million, which is 2% higher than the linked quarter. As a result, our net interest margin expanded by four basis points over our linked quarter to 3.93% and by 35 basis points over the prior year's first nine months. Our funding costs for the quarter increased by three basis points to 1.97%, which is 30 basis points lower than the previous year's third quarter as we continue our disciplined approach to managing how we fund our balance sheet. A big part of our funding story during the quarter was our ability to grow non-interest-bearing deposits by $30.3 million and savings and money market accounts by $15.8 million as we were able to attract new and additional deposits primarily from our business and municipal customers. Our cost of core deposits was 1.61%, This success in attracting core funding allowed us to again reduce our reliance on broker funding. During the quarter, we replaced 150 million of brokered CDs bearing a weighted average rate of 3.89%, with 125 million of brokered CDs maturing over the next nine months, with an average rate of 4.08%. During the past nine quarters, we have reduced our broker funding by $223 million, or 41%. Another big part of our story is the return of solid organic loan growth. Despite the continued headwinds of $47 million in early payoffs during the quarter, our loan balances grew by $38 million, or an annual growth rate of 4.7%. Our lending and leasing teams generated $343 million in new organic production during the quarter that was partially offset by those early payoffs in addition to normal principal payouts. Our ROA and ROE for the quarter were 1.48% and 11.21% respectively. This continued strong financial performance and our ability to consistently create capital continues to provide options as we evaluate the most optimal ways for our capital to use. One of those options is repurchasing shares when we feel the opportunity warrants, as it did during the quarter. During the quarter, we repurchased 82,075 shares of Treasury stock at an average price of $26.96. An end of the quarter with a healthy, tangible common equity ratio of 9.88% compared to 9.54% at December 31, 2025. Earlier this week, we announced a quarterly dividend of $0.18 per share, which is consistent with our prior quarter. Based on our September 30 closing share price of $26.38, this represents a 2.73% yield and a dividend payout ratio of 24.75%. During the quarter, non-interest income increased $644,000, or 7% over the lunch quarter, and was consistent with the third quarter of 2025. Controlling expenses is another area of focus and is evidenced by blanket fines when concurring non-interest expense to both our lease quarter, which declined $675,000, or 2.4%, and our prior year's quarter, which declined $349,000, or 1.2%. While there was some noise from non-recurring costs associated with our acquisition of Farmer Savings Bank and our leasing division's poor conversion in the prior year, There were no other significant changes in our non-interest expense categories. Our efficiency ratio for the quarter improved to 55.3% compared to 58.2% for the linked quarter and 61.4% for the prior year's third quarter. Our effective tax rate was 19.1% for the quarter and 17.6% year-to-date. Turning our focus to the balance sheet. For the quarter, total loans and leases grew by $38 million for an annualized rate of 4.7%. Loan demand remained solid across our footprint. While early payoffs seemed to subside, we experienced over 47 million of payoffs during the quarter. These early payoffs were primarily the result of businesses and properties being sold and real estate projects leasing up and moving on to the CMBS permanent market. While we view these payoffs as good, Due to their successful nature, they continue to present headwinds to growing our loan total. While loans were steady in nearly every category, we did experience a $25 million increase in our residential loan portfolio and a $15 million increase in our real estate construction portfolio. The loans we originate for our portfolio continue to be virtually all adjustable rate, and our leases primarily all have maturities of five years or less. Additionally, our undrawn construction lines were $268 million on September 30th, which compares favorably to $250 million at June 30, $208 million at March 31, and $195 million at December 31. This trend, coupled with additions to our lending team and the solid economic performance of Ohio and the greater Midwest, give us confidence that we will continue with mid-single-digit growth as we finish out 2026 and move into 2027. During the quarter, new and renewed commercial loans originated at an average rate of 6.87%, residential real estate loans originated at 6.45%, and loans and leases originated by our leasing division were at an average rate of 9.75%. With the rapid increase in interest rates during the second quarter of September, We anticipate that these rates will continue increasing during the fourth quarter. as we continue to focus on core deposit generating initiatives. And while a quarter does not imply a trend, migration from non-interest bearing and interest bearing demand accounts into higher rate time deposits subsided during the quarter with our time deposit balances remaining unchanged during the quarter. The result for total funding costs Our deposit base continues to be fairly granular, with our average deposit account excluding CDs of approximately $29,000.

At quarter end, our loan-to-deposit ratio was 94.7%, which is consistent with our linked quarters.