Operator: 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.
Chuck Parcher: Good afternoon. This is Chuck Parcher, President and CEO of Civista Bancshares, and I would like to thank you for joining us for our Q3 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.
Chuck Parcher: 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.
Chuck Parcher: 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 in attracting core funding allowed us to again reduce our reliance on brokered funding. During the quarter, we replaced 150 million of brokered CDs carrying 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.
Chuck Parcher: 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 paydown. 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.
Chuck Parcher: 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 31 December 2025. Earlier this week, we announced a quarterly dividend of $0.18 per share, which is consistent with our prior quarter. Based on our 30 September 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 Q3 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%.
Chuck Parcher: While there was some noise from non-recurring costs associated with our acquisition of The 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 Q3. 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.
Chuck Parcher: 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 30 September, which compares favorably to $250 million at 30 June, $208 million at 31 March, and $195 million at 31 December. 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.
Chuck Parcher: 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 half of September, we anticipate that these rates will continue increasing during Q4. 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 CDs 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.
Chuck Parcher: 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 30 September.
Chuck Parcher: 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 the quarter. I am sorry. 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.
Chuck Parcher: 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 $26.66. 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.
Chuck Parcher: 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 commitments and had net charge-offs of $139,000. Our ratio of the allowance for credit loss and total loans is 1.29% at 30 September 2026, which is consistent with the 1.28% at 31 December 2025. Our ratio of allowance to non-performing loans of almost 153.3% improved when compared to the same period.
Chuck Parcher: 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.
Chuck Parcher: Our growth in core funding allowed us to further reduce our reliance on brokered funding, and loan demand across our footprint continues to build, giving us confidence in our ability to grow both core deposits and loans at a mid-single digit rate as we end 2026 and beyond. The first three quarters of 2026 have set us up for what should be another good year. I don't know what I could have asked for a better start to my tenure as President and CEO. Civista will continue taking care of our customers, supporting our communities, investing in our people, and creating value for our shareholders. Thank you for your attention this afternoon and your investment, and now we will be happy to address any questions you may have.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Thank you. Your first question comes from the line of Brendan Nosal from Hovde Group. Please go ahead.
Brendan Nosal: Hey, good afternoon, folks. Thanks for taking the questions.
Ian Whinnem: Hey, Brendan.
Bob Petitis: Hi, Brendan.
Brendan Nosal: Maybe just starting off on fee income here. I think you folks restated some of your fee lines. If I were to guess, you took the lease gain on sale income out of the gain on sale line and put it into lease revenue. Is that the right way to interpret that change, broadly?
Ian Whinnem: Yeah. We separated out the gain on sale into both the mortgage and the leasing lines.
Brendan Nosal: Okay, perfect. Then just on a related follow-up, nice strong fee income result this quarter at almost $9.4 million. Any thoughts on the major drivers for fee income as we move through the next few quarters?
Ian Whinnem: Yeah. I think for the most part, Q4 will end up being a little bit stronger for interchange income, just because of holiday spending. Interest rates are going to be a big driver on the mortgage side. The leasing side really had a strong Q3 as well as we are anticipating a strong Q4 from them also. From a guidance standpoint, Q3 was strong. We came in a little bit above the guidance that we provided back in July. I think for Q4, we would anticipate a 9% to 9.5% in Q4, with that being dependent on just really what interest rates do to the mortgage business.
Brendan Nosal: Yep. That's helpful. I'm going to sneak one more in here. Just pivoting to the expense base. Costs just came in a lot lower than your outlook from last call for the, what was the Q3 and Q4 at the time. When we look forward to next quarter, does the cost run rate stay at this $28 million level, or does it revert back to the prior outlook, which I think was $29.6 million to $30 million?
Ian Whinnem: Yeah. The $28 million did come in better than expected as a result of good expense management, as well as we ended up with slightly better operating losses than what we anticipated. Some of the investments that we talked about back in July for colleagues, some marketing and some IT spend, those would have occurred late in the Q3 and early in the Q4. So what we do anticipate is probably that expense being in the Q4 being closer to the $28.7 million to $29.5 million range.
Brendan Nosal: Got it. Thanks so much. That's it for my questions.
Ian Whinnem: Thank you.
Bob Petitis: Thanks.
Operator: Thank you. Your next question comes on the line of Jeff Rulis from D.A. Davidson. Please go ahead.
Jeff Rulis: Thanks. Appreciate it. On the non-interest bearing, the strength there, really a strong quarter. I guess you outlined both commercial and public funds. I got to assume maybe some seasonal trends in there, but also just any other detail about attributing that strength in the quarter?
Ian Whinnem: Yeah. This is Ian again. From a deposit standpoint, we do seasonally hit our low point in deposits at the end of Q2. So that is primarily a rundown in those public funds as maybe some consumer spending that occurs around then too. So in that Q3, we end up with a rebound and additional in the Q4. We did a nice investment over the last year within treasury management colleagues as well as private banking, and that has been a nice contributor into building up those non-interest bearing and non-maturity deposits.
Jeff Rulis: That is great. I guess I will roll the deposit strength into the next question on the margin. You have got some pieces there where running down the brokered, you talked about the asset repricing tailwinds. Well, maybe I would step back. The securities repositioning, timing of when that occurred in the quarter, and is there a tail of maybe benefit that you did not fully capture in the Q3 from that piece alone?
Ian Whinnem: Yeah, there is a tail to that. It happened towards the end of the quarter.
Jeff Rulis: Okay. Ian, if I package a lot of these tailwinds into Q4, sounds like a nice margin uptick late quarter in Q3, but safe to assume there is still some upward trajectory here?
Ian Whinnem: Yeah. I think the headwind that we are going to have, or at least for one item, is going to be that subordinated debt that reprices. It moves from a 3.25% fixed rate on 1 December to a variable rate of 3 months SOFR plus 219. That is going to cost us on a quarterly basis between 5 and 6 basis points, is what we are anticipating now. In Q4 alone, it is only there for 1 month, so it is really only a 2 basis point impact for that. So we think that for Q4, we came in in line with the guidance we had for July. Going forward, we anticipate probably plus or minus 1 to 2 basis points above where we came in for Q3, including that offset for the sub-debt.
Ian Whinnem: Then as with any kind of a rate increase that happens in December, heading into 2027, probably another 1 to 2 basis points improvement there.
Jeff Rulis: Okay. Ian, I guess the full subordinated debt impact is maybe an offset for the full quarter in Q1 then?
Ian Whinnem: That is correct. That is the right way to think of that.
Bob Petitis: Go ahead.
Jeff Rulis: Okay.
Ian Whinnem: Jeff, we do feel we have some tailwinds too on the repricing of some of our commercial portfolio. Bob can speak to it, but I think we have about $270 million over the next 12 months, 9.30% to 9.30% that are going to reprice off of a roughly 5% rate into something 250 to 300 over the five-year treasury.
Jeff Rulis: No, that is great. Sounds positive. Thank you.
Ian Whinnem: Thank you.
Operator: Thank you. Your next question comes on the line of Adam Kroll from Piper Sandler. Please go ahead.
Ian Whinnem: Hi, Adam.
Adam Kroll: Hey, guys.
Ian Whinnem: Yeah.
Adam Kroll: Hope you are doing well.
Ian Whinnem: Thank you.
Adam Kroll: Maybe starting out, for Ian, on funding costs. I think in the last hiking cycle, you had around a 50% interest-bearing deposit beta. I would be curious to hear just sort of expectations for deposit betas with this hike and potentially additional hikes, just given some of the optimization you have had within your funding base over the past several quarters.
Ian Whinnem: Yeah. From a beta standpoint, we have put into place our playbook, which anticipates both a lag as well as a beta approach. I think 50% is probably about right, with a lag associated with that. We have had some customers that are asking for some exceptions or rate increases, but for the most part, we have not had to move our rack rates. Our best rates are still on the 15 to 36 month at 4%, and less than one year at 375 for our CDs.
Adam Kroll: Got it. Maybe moving to loan growth on the mid-single-digit loan growth guide. I would just be curious to hear which segments you expect to drive that over the next several quarters, and just how the pipelines are shaking out today.
Bob Petitis: Yeah, this is Bob Petitis, and I think from a general perspective, there is not really any specific lines. You have office and you have some categories that we are definitely more bearish in, but overall, it is really more about the relationship for us. So I am not sure there are any segments that we truly shy away from, per se. As far as the pipelines, the pipelines are actually quite strong. Feel really good about where we are at there, including the residential pipeline, which we expect some headwinds with the increased rates. So, so far, so good from that perspective.
Adam Kroll: Got it.
Adam Kroll: We do feel good about what we talked about with the amount of unfunded construction loans that are out there right now. It is built back up to $270 million on our balance sheet at quarter end. That is funds that will go out the door. Funding through the balance of the year, it will be winter pretty soon, and construction will slow down a little bit, but it will give us a nice jumpstart into the end of Q1, Q2 next year.
Adam Kroll: Got it. I appreciate the color there. Maybe just one last one for me, a follow-up on expenses. You have had another quarter of really strong cost controls, but I was just curious how you are thinking about expenses in 2027, and if there is any significant investments within tech or talent additions planned within that.
Ian Whinnem: Yeah, this is Ian. I think that is the plan. We are looking at revenue-generating investments. So whether that be colleagues, marketing, or in technology investments that drive revenue. Some of those do have a little bit of a period where it takes time to get to that break-even point, but we do anticipate the continuation of those investments.
Adam Kroll: Got it. Thanks for taking my questions.
Operator: Thank you. Once again, should you have a question, please press star followed by the 1 on your telephone keypad. Your next question comes from the line of Timothy Switzer from KBW. Please go ahead.
Timothy Switzer: Hey, good afternoon. Thanks for taking my questions. Chuck, congrats on the good first quarter.
Chuck Parcher: Hey, thanks, Tim.
Timothy Switzer: I had a follow-up on the deposit beta real quick. Can you repeat what that number was? I did not hear it. Was that for total deposits or just interest-bearing?
Ian Whinnem: That would be just the interest-bearing side of things. I think we are anticipating what will work out to be about a 50% beta, where our playbook has both a lag as well as a beta assigned to it, and both those get factored into that.
Timothy Switzer: Okay. So it sounds like that beta kind of picks up over the course of a rate hike cycle, assuming we get several?
Ian Whinnem: Yeah. As I mentioned earlier, we are seeing good results and not a lot of pressure to raise our rack rates or even exceptions right now. So we are staying positive with that. But as more rate increases come, whether it be later this year into next year, might put a little more pressure on that. But we think our playbook is going to work, allowing us to keep that lag going.
Timothy Switzer: Okay. And I guess that is kind of a reflection maybe of pretty rational deposit pricing in your markets right now?
Ian Whinnem: Yeah, there is some of that. We still see some irrational offers. There is a lot of fine print on them, so our sales team is knowledgeable about that and teaching our customers about the fine print and the value of the relationship that Civista brings. That is making a lot of those customers not necessarily move for a small change. I would love to say there was not any irrational competition out there, but it seems like every market has one or two.
Timothy Switzer: Okay. Yeah, makes sense. The last one is, any updated thoughts you guys have on participating in bank M&A? Just your level of interest generally, then maybe what criteria you would be looking for.
Chuck Parcher: Yeah, I do not think really, Tim, our criteria has changed much. Obviously, I am talking to a lot of people, and I think it will be interesting to see what the sentiment is coming out of the backside of the election, because it seems like some people are starting to at least think about what the future of their banks are. We do not have anything imminent right now. We are continuing to have dialogue, and if it makes sense to us, unless it was a massively strategic thing, we are not going to get outside of any parameters that would be considered anything really longer than three years or very dilutive. We really want to protect our shareholders. But if we can do the right deals that are profitable to them with a short payback, we will consider them.
Timothy Switzer: Okay, great. Thank you guys.
Chuck Parcher: Thanks, Tim.
Operator: Thank you. Your next question comes from the line of Tyler Kashiatori from Stephens. Please go ahead.
Tyler Cacciatori: Hey, good morning. This is Tyler on from Stephens.
Ian Whinnem: How's it going, Tyler?
Operator: Thank you.
Tyler Cacciatori: Just starting on loan demand. With the higher rates, are you starting to see any impact on borrower activity or the pipeline? Then just on overall yields, can you talk a little bit about roll-on versus roll-off dynamics?
Chuck Parcher: Yeah, we really haven't seen a whole lot of pullback so far, and I think we're expecting it. But so far, the pipeline's continuing to increase and we feel good about right now where things are going. So again, I remain bullish in that single-digit growth. That's very achievable.
Bob Petitis: I think, Tyler, if we get a much more increase, I think some of the deals will become. You're going to have to see some pullback, or you're going to have to see more equity in the deals. A couple of deals we've seen already that got a little tight, they've agreed to put more equity in to make the deals work. But obviously, depending on where the Fed goes and where the long-term Treasury goes, that'll kind of affect that going forward.
Chuck Parcher: And the rates that we are putting them on at?
Bob Petitis: Oh, rates. I am sorry. Rates we are putting them on, we are in the mid to high 7s right now on a five-year. Trying to hold that 275-type margin, and following the market. If anything, we might be coming down on duration a little bit, just to remain competitive.
Tyler Cacciatori: Got it. That is helpful. And then just on the subordinated debt, I hear you on the impacts there, but any thoughts on redeeming that when it comes due in December? Or are you prioritizing buybacks and organic growth out of that?
Ian Whinnem: Yeah, this is Ian. We have done our analysis, kind of looked at different scenarios. As of now, there is no plans to redeem the subordinated debt nor even do partial payout, pay down of it. We just think of it as, even though the capital efficacy is declining on 1 December, it is still a good rate in terms of the borrowing side of it and for the amount of capital that we get from it. So we will continue to evaluate that, but right now, we think the best use for capital is either to have it there for organic growth or for some of that stock buyback.
Tyler Cacciatori: Got it. Then, sorry if I missed it, but how do more hikes affect the margin here?
Ian Whinnem: Yeah. For each rate hike, we would anticipate one to two basis points per quarter, or with each hike, I should say.
Bob Petitis: Expansion.
Ian Whinnem: Of expansion. Yes. Because we maintain a-
Tyler Cacciatori: Got it.
Ian Whinnem: slightly asset-sensitive position.
Tyler Cacciatori: Thanks. That will be it for me.
Ian Whinnem: Thanks, Tyler.
Bob Petitis: Thanks.
Operator: Thank you. There are no further questions at this time. I will now hand the call back to Mr. Parcher for any closing remarks.
Chuck Parcher: Yeah, in closing, I would like to thank everyone for joining me today for my first earnings call as the President and CEO, and for your investment in Civista. I remain confident that this quarter's list of accomplishments, strong financial results, and our disciplined approach to managing the company position us well for long-term future success. I look forward to talking to you again in a few months to share our year-end results. Thank you for your time today.
Operator: This does conclude today's call. Thank you for participating. You may all disconnect.
