Civista Bancshares, Inc. 2026 Q3 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Civista Bancshares Inc. third quarter 2026 earnings call. If at any time during this call you require immediate assistance, please press star zero 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 involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. 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 GAAP to non-GAAP 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 $0.77 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 linked 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 cost 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%, excluding brokered funding, which is just a 2 basis point increase compared to our linked quarter as we were able to replace our recent trend of CD growth with growth in lower cost deposit accounts. This success at attracting core funding allowed us to again reduce our reliance on brokered 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 9 months with an average rate of 4.08%. During the past 9 quarters, we have reduced our brokered 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 at 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 payout. 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 to put 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, and ended 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 linked quarter, and was consistent with the third quarter of 2025. Controlling expenses is another area of focus and is evidenced by slight declines when comparing non-interest expense to both our linked 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 recurring costs associated with our acquisition of Farmers Savings Bank and our leasing division's core 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 totals. 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 5 years or less. Additionally, our undrawn constructions lines were $268 million at September 30, 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 were 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 half of September, we anticipate that these rates will continue increasing during the fourth quarter. On the funding side, total deposits grew by $19 million, which is meaningful given that we were able to further reduce our dependence on brokered deposits by $25 million during the quarter. As I mentioned, this growth was a result of a $30 million increase in non-interest-bearing accounts and a nearly $16 million increase in savings and money market accounts. This represents a $44 million increase in core deposit funding during the quarter as we continue to focus on core deposit generating initiatives. While the 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, our total funding costs increased by only 3 basis points during the quarter as we continue to focus on attracting lower cost core deposits from our retail customers and operating accounts from our business and municipal customers. 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 quarter. Other than $544 million of public funds with various municipalities across our footprint, we had no deposit concentrations at September 30. We believe our low-cost deposit franchise is one of Civista's most valuable characteristics, contributing significantly to our solid net interest margin and overall profitability. We view our securities portfolio as a significant source of liquidity.

At quarter end, our securities portfolio totaled $640 million, which represented 15% of our balance sheet, and when combined with our cash balances, represents 20% of our total deposits. Our securities are classified as available for sale and had $59.9 million, or 9.3%, of unrealized losses associated with them. A few of the more significant non-recurring items during this quarter included the receipt of a $1.8 million of net insurance proceeds related to last December's branch fire, which was recorded as other income. Separately, we sold approximately $8 million of fixed-rate securities yielding 1.3%, recognizing a $1.6 million loss, and purchased approximately $6.6 million of floating rate securities currently yielding 4.6%. This is an example of the kind of opportunistic improvement in our securities portfolio that we think makes sense for Civista and our shareholders.

As I mentioned, we purchased 82,075 shares of treasury stock during the quarter at an average price of $26.96. We continue to believe our stock is of value and will continue to evaluate repurchase opportunities. Civista's earnings continue to create capital and our overall goal remains to maintain adequate capital to support organic growth and prudent investment into our company. We will continue to focus on earnings and will balance the payments of dividends and any repurchases with building capital to support our growth. During the quarter, we made an $823,000 provision to our allowance for credit losses and a $472,000 provision for unfunded commitment and had net charge-offs of $139,000. Our ratio of the allowance for credit loss total loans is 1.29% at September 30, 2026, which is consistent with the 1.28% at December 31, 2025.

Our ratio of allowance to non-performing loans of almost 153.3% improved when compared to the same period. This was largely the result of charging off a relationship that had been in workout for some time and had been fully reserved during 2025. Other than general concern over the impact of macroeconomic uncertainties, the economy across Ohio and Southeastern Indiana is showing no signs of deterioration. Overall, I would characterize our credit metrics as well-managed and continuing to normalize. In summary, this was another solid Civista quarter. We are pleased with the increase in our pre-provision net revenue, which was the result of continued expansion in our net interest margin, our ability to generate non-interest income from diversified revenue streams, and our continued control of non-interest expense.