00:07 Good day, and welcome to Civista Bancshares Third Quarter twenty twenty one earnings call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. 00:27 Now I'd like to turn the call over to Mr. Dennis Shaffer, President and CEO. Please go ahead.

00:34 Good afternoon. This is Dennis Shaffer, President and CEO of Civista Bancshares, and I would like to thank you for joining us for our third quarter twenty twenty one earnings call. I’m joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank; Chuck Parcher, SVP of the company and Chief Lending Officer of the bank; and other members of our executive team. 01:02 Before we begin, I would like to remind you that this conference call contains 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 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. 01:45 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 available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP and non-GAAP measures. 02:10 We will record this call and make it available on Civista Bancshares’ website at www.civb.com. Again, welcome to Civista Bancshares third quarter twenty twenty one earnings call. At the conclusion of my remarks, we will take any questions you may have. 02:34 Let me start off by noting several significant accomplishments or transactions that occurred during the third quarter. This morning, we reported net income of nine point six million dollars or zero point six four dollars per diluted share for the third quarter of twenty twenty one and net income of twenty…

21:06 We will now begin the question and answer session. [Operator Instructions] First question comes from Terry McEvoy of Stephens. Please go ahead.

21:30 Hey guys, good afternoon. Are you there?

21:46 Hey, Terry.

21:52 First question is the on the expenses, the software maintenance expenses were up about three hundred thousand dollars year over year and I know you mentioned the new digital banking platform. So I guess my question is, is that a good run rate to use going forward? I know you mentioned you're going to roll-out the online account opening next quarter. And maybe spend some time if you could just talking about how the new digital banking platform is? How your customers are using it and some early feedback?

22:23 Okay. Terry, this is Rich. We did have about two hundred thousand dollars worth of kind of one time non-recurring expenses related to that that we did expense in the quarter. So the run rate, I think, I told you last quarter will be about two hundred thousand dollars a quarter and that's just about where we expect it to be going forward. But I think if you're looking at a run rate for expenses for Q4 and Q1 of next year, nineteen point two million dollars is probably a good number.

22:58 And then on the online account opening and stuff, Terry. We'll initially roll that out or it should roll out here in the fourth quarter. But we'll initially roll that out and we'll market it to existing customers within kind of our footprint in the neighboring states and then we'll further expand upon that once we see some patterns and analyze some -- the usage and stuff like that. But the initial rollout will be targeted -- marketed and targeted towards existing customers to begin with so that we can analyze that data.

23:39 And the other thing I'd add to is that, we don't anticipate any additional expenses attributable to that, to the online account opening.

23:47 Great. And then maybe as follow-up, maybe just talk about new loan yields and just margin competition for commercial real estate loans?

24:00 Terry, this is Chuck. I'd love to say that it's softening, that’s not the case. As you know, we've seen a little pickup in the treasury, but we have not seeing the ability to pass that movement upward to our customers as far as the loan rates yet. We're hoping that we'll see that here going forward, but that has not been the case. It's been very competitive. We have had some really nice growth across both of our metro -- all of our metro markets actually and Columbus and Cleveland are ultra-competitive right now.

24:31 Thanks, Chuck. I appreciate the time.

24:33 Thanks Terry.

24:37 Thank. Next question is from Nick Cucharale of Piper Sandler. Please go go ahead.

24:42 Good afternoon. Guys. How are you?

24:45 Hi, Nick. Great.

24:47 Just on the mortgage side, what was the breakdown in purchase versus refinance in the quarter?

24:55 I've got september in front of me, which make for the quarter. September was sixty four percent purchased, thirty six percent refi and we've seen that continue to rotate across the numbers here, here it’s pretty much – it’s pretty close to that, I mean, for the quarter as well. I can give you an exact number after the fact. Bur I know last month it was sixty four thirty six we've been watching it pretty close.

25:19 Okay. And then I appreciate the commentary with respect to the buyback and the increased dividend recently. Can you talk about another prong of your capital allocation strategy just your appetite for M&A and the landscape within your footprint.

25:36 Sure, Nick. We continue to have a number of ongoing talks with many of the smaller banks really across our footprint. I think discussions are probably a little bit more active than they probably -- than normal and there probably are a few more of those discussions going on. 25:59 Our view really hasn't changed much. Where we would like to do a deal, we believe that getting a little larger makes us a little bit more efficient. We continue to be I think opportunistic But for us, it's got to be the right deal, both in terms of creating long term shareholder value and it needs to call for a line for both the buyer and the seller because those are the deals that are most successful. But I would say that the discussions are probably a little bit more active than they have been in the past.

26:38 Thank you for taking my questions.

26:40 Were you still there, I mean next -- sixty nine percent purchase for the quarter.

26:49 Thanks, Chuck.

26:53 Thank you. Next question is from Michael Perito of KBW. Please go ahead.

26:59 Hey. Good afternoon, guys,

27:01 Hi, Mike.

27:06 Two questions. One, just on the size of the balance sheet portfolio, the security portfolio [indiscernible] in the prepared remarks, but it's likely to kind of say pretty flat here [Technical Difficulty] Hopefully, the excess cash works pretty well into the mid-single digit loan growth expectation over the next handful of quarters? Is that generally how you guys are looking at the total asset base?

27:27 I would say yes, that's where we wanted to go is to the loan growth for sure. And again, we did that transaction to kind of little over the end of the quarter. I think we had fifty million dollars of year mark to be invested on. I think forty three of it gotten invested by September thirty and the rest of it had been since. But yes, I think again, things have kind of stabilized and certainly we have our excess liquidity, we don't have to borrow make whether that's where the balance will go.

28:02 Helpful. Thanks. And then just on the expenses, I think you said nineteen point two million dollars was a better kind of starting point in grow off of for the next couple of quarters. And just curious, Dennis, as we look at overall core expenses, I think like seventy seven on pace to do about maybe seventy seven million dollars, seventy seven point five million dollars. I mean, how should we think about kind of year on year growth? I mean, maybe a little too early in the budgeting process to ask, but there's lot of labor pressures kind of an interesting market out there right now. I mean, is it -- do you think -- putting you up in the kind of seventy nine point five million dollars eighty million dollars full year range for next year is too heavy or do you think that there's enough kind of headwinds out there where pace to add two percent growth in there also that run rate.

28:50 You're right, we're early in the budgeting process, but I think if you grew expenses in the two percent to four percent range just across the board, that's kind of a way we're looking at it again very preliminarily. And you alluded to interesting on the wages. I don't know if that's the adjective we would use. But yes, it's out for sure.

29:11 Yes. I mean, I think the wage inflation is real. I mean in September, we did half on a dollar or now increased all of our hourly non-exempt employees. In the end, it just means that the cost eventually that gets passed on the consumers, so the banks have figure out way to operate more efficiently. And we know that consumer and business behaviors are changing and more customers are baking digitally. So that's why we invested in dollars we did and upgrading our mobile app for consumers and our treasury management platform for our business customers, and it's also why we migrated to use online account opening feature. And that's a big step forward for us. So to combat that inflation I think banks are just going to have to figure out how to kind of operate more efficiently in some of these areas. And that's what we'll be looking to address and tackle.

30:20 Okay. Helpful. As just lastly on the NIM, I think you Rich or Dennis, I think you might have said, there's was like eight fifty thousand of interest income to come in from some of the liquidity deployment. But I think back out the PPP and the accretion, the core NIM quarter was about three point two six up a four bps quarter on quarter. And I just -- I mean, it seems like with the loan growth and the actions you took over the course of the quarter that should continue to move higher. I guess mike my broader question is, with the long end where it is and no help on short term rates, do you guys have any thoughts about where that core NIM could trend to near term with the loan yield pressures you're seeing? And just any insight there would be helpful starting point.

31:04 I think you're right. If it goes up or down, it's going to be basis points. I mean, I think we done and continue to monitor the excess liquidity to see if there's opportunities there, but really the things that we put in place where we would expect to push the margin up again basis points. I think we said last quarter, twelve basis points or seventeen basis over the twelve month period and that's kind of play out where we wanted to. I think Chuck and his team are doing the best they can to hold the line. And I think we're putting on assets at a rate pretty comparable with what we had did in the prior quarter. So less pressure there. 31:46 But absent of any movement in interest rates larger scale, I think where we are is where we'll be, but possibly we could trend that, but it would be again, basis point.

31:58 And when you make all the adjustments, Mike, I think for the year, it's been basis points contraction for us as opposed to some of our competitors that I've looked at, they've had that or more in a quarter. So think our adjustments have been -- I mean, we've been doing a pretty good job avoiding the line, reducing our interest expense and holding the line on our loan pricing.

32:33 Helpful. All right, guys. I appreciate all the insights as always. Thank you.

32:40 [Operator Instructions] Next question is from Russell Gunther of D.A. Davidson. Please go ahead.

32:51 Hey, good afternoon guys. I wanted to talk about the growth outlook. So really strong result over the last couple of quarters. Understand the guide for the year of mid-single digits and implies kind of a like amount in the fourth quarter. But as you look out into twenty twenty two, I mean, is a high single digit pace achievable for you guys or what would cause you or the growth results to take a step back sustainably going forward from where you've been running the past couple of quarters.

33:28 I mean, I think that -- we've kind of always been that mid to high level single digit growth Russell. I think that's probably a pretty good forecast for us. I mean, a lot of it depends on how fast some of our projects get completed and how fast they go to the current market. We've seen a little bit more aggression out of the market lately, taking those projects off our balance sheet little quicker than they have in the past. That might now limit us a little bit from the growth cycle, even though the books is long. But I think you're probably in the right -- in the right thought process, mid to high single digit price, probably somewhere in the center of that, to be honest with you.

34:13 And then is that likely to remain commercial weighted or is there any increased appetite to portfolio single family resi? I know you mentioned -- the security book not really expected to build, but this portfolio in single family at all incrementally more attractive here.

34:31 It's interesting. The one thing might help us a little bit is, maybe we might not run off as much single family. I think this year and last, look, I think we're now eighteen million dollars from the beginning of the year in single family as we've taken some of our on balance sheet single family product and moved it into sales -- and sold the market. So maybe we'll get a little bit more take growth just by not doing as much of that as the refinancing stuff.

34:54 Yes, that's kind of somewhat reflected with our swap strategy as well. I mean, we just have not taken -- we’d rather get the yield right now as opposed to really book those interest yield deals, the single family deals. So it is going to almost entirely be growth come from that commercial book.

35:20 Great. Well, thank you guys. Rest of my questions are asked and answered. Appreciate your help.

35:25 You bet. Thank you.

35:28 Thanks Russell.

35:29 This concludes the question and answer session. Now I'd like to turn the conference back over to Mr. Dennis Shaffer for closing remarks. Please go ahead.

35:36 Well, in closing, I just want to thank everyone for listening and thank those that participated on the call. Again, we are pleased with our third quarter and we look forward to talking to you guys again in a few months to share our year end results. So, thank you for your time today.

35:55 Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.