Civista Bancshares Inc (CIVB) 2025 Q3 法說會逐字稿

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 Bank Share Inc that involves risk 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 statement made during the call. Additionally, the management may refer to non-GAAP measures which are intended to supplement but not substitute the most directly comparable. 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 conciliation of the cap to non-GAAP measures. This call will be recorded and made available on Civista Bankshar's website at www.cIVP.com. At the conclusion of Mr. Shaffer's remarks, he and the service management team will take any questions you may have. Now, I will turn the call over to Mr. Shaffer.

Thank you.

Good afternoon. This is Dennis Schaffer, President and CEO of Savita Bank Shares, and I would like to thank you for joining us for our 3rd quarter 2025 earnings call. I am joined today by Chuck Parcher, EVP of the company and President of the bank, Rich Dutton. SVP of the company and Chief Operating Officer of the bank, Ian Whidham, 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 $12.8 million or $0.68 per diluted share, which represents a $4.4 million dollar or 53% increase over the third quarter in 2024 and a $1.8 million dollar or 16% increase over our length quarter.

This also represents an increase in pre-provision net revenue of $4.9 million or 45% over our third quarter in 2024 and a $1.9 million dollar or 14% increase over our linked-quarter.

Net interest income for the quarter totaled $34.5 million which is in line with the linked-quarter. As a reminder, last quarter included a one-time $1.6 million dollar adjustment stemming from the conversion of our core lease accounting system.

This non-recurring item boosted net interest income and contributed to our second quarter reported margin of 3.64%. As a result, our net interest margin declined by 6 basis points to 3.58%. However, excluding the prior quarter's adjustment, our margin would have been 3.47%, resulting in an 11 basis point expansion in our margin.

Our funding costs for the quarter declined by 5 basis points to 2.27%, which is 34 basis points lower than the previous year's third quarter.

In July we successfully completed our follow-on common stock offering, issuing approximately 3.78 million new shares and raising $80.5 million of new capital. This additional capital will allow us to continue growing our franchise by accelerating organic growth, investing in technology, people, and infrastructure. More immediately, we used our new capital to reduce overnight borrowings and to strengthen our tangible common equity that we thought might have weighed on our stock.

Earlier this month, we also announced that we have received regulatory approval from both the Federal Reserve and the Ohio Department of Financial Institutions to complete our previously announced merger of Farmers Savings Bank into our bank. Borrowers will hold their shareholder meeting to formally approve the merger agreement on November 4th, and we plan to close the transaction shortly thereafter. Our teams have already begun preparations for a successful system conversion in early February of 2026. We look forward to welcoming farmers, employees and customers into the Savita family.

Earlier this week, we announced a quarterly dividend of $0.17 per share, which is consistent with the prior quarter. Based on September 30th, closing market price of $20.31.

This represents a 3.3% yield and a dividend payout ratio of nearly 25%.

During the quarter, non-interest income increased $3 million or 46.2% over the length quarter and was consistent with the third quarter of 2024.

The primary driver of the increase from our length quarter was a $1.4 million dollar increase in fees related to leasing operations. This increase was attributable to a $1 million dollar reduction in fee income resulting from a non-recurring adjustment in. Second quarter of 2025 related to the SeviSA Leasing and finance core system conversion coupled with increased leasing activity in the 3rd quarter of 2025, resulting in a $300,000 increase in revenues.

Non-interest income for the quarter was $9.6 million which was consistent with the prior year's third quarter. We did experience a $494,000 decline in leasing fees on fewer originations. However, this decline was offset by increases in nearly every other non-interest income category.

We continue to focus on controlling expenses for the quarter, non-interest expense was $28.3 million which represents an increase of $845,000 or 3.1% over the late quarter. However, the primary driver of the increase was $700,000 in non-recurring acquisition expenses related to the merger with farmers savings.

In looking at our non-interest expense compared to the prior year's 3rd quarter, while some of the line items fluctuated, total non-interest expense was virtually unchanged. The main category fluctuations for the 3rd quarter comparisons were compensation. Expense decreased $700,000 for the third quarter of 2025 compared to the prior year's third quarter due to an increase in the deferral of salaries and wages related to the loan originations in 2025.

Marketing expense decreased $300,000 for the third quarter of 2025 compared to the prior year third quarter, mainly due to a shift to lower cost digital marketing and lower promotional expenses related to advertising and product marketing. These decreases were offset by the aforementioned acquisition expenses that increased non-interest expense by $700,000.

Our efficiency ratio for the quarter improved to 61.5% compared to 64.5% for the late quarter and 70.5% for the prior year third quarter. Our effective tax rate was 18.5% for the quarter and 16.2% year to day.

Turning our focus to the balance sheet for the quarter, total loans and leases declined by $55.1 million. Loan demand remains strong across our footprint. However, we experienced over $120 million of payoffs during the quarter. Most of these payoffs were the result of businesses being sold and real estate projects leasing up and moving on to the CMBS permanent market. While we view most of these payoffs as good due to their successful nature, it does present some headwinds when a significant number of loan payoffs pay off in one quarter.

While loans were flat or declined in nearly every category, our most significant declines were a $36 million dollar decline in commercial and egg loans and a $48 million dollar decline in non-owner occupied CRE. Both were primarily the result of the previously mentioned payoffs. We did have a $27 million dollar increase in residential loans. The loans we originate for our portfolio continue to be virtually all adjustable rate, and our leases all have maturities of 5 years or less.

Year-to-date we have grown our loan portfolio by $14 million.

As we have shared on previous calls, we've been pricing commercial and egg opportunities aggressively and had been more conservative in how we price commercial real estate opportunities, attempting to manage our concentration in the CRE portfolio. Post-capital raise, we have become more aggressive in pricing CRE opportunities, which has contributed to substantially increasing our pipelines going into the 4th quarter. That said, we are mindful of making sure we have the funding and capital to support our CRE growth. At September 30th, our CRE to risk-based capital ratio was 288%. We have established an internal CRA CRE limit of approximately 325% of our risk-based capital going forward.

During the quarter, new and renewed commercial loans were originated at an average rate of 7.25%. Residential real estate loans were originated at 6.59%, and loans and leases originated by our leasing division at an average rate of 9.36%. Those cured by office buildings make up 4.8% of our total loan portfolio. As we have stated previously, these loans are not secured by high rise metro office buildings, rather, they are predominantly secured by single or two-story offices located outside of our central business districts.

Along with year-to-date loan production, our pipelines are strong and are undrawn construction lines for $173 million at September 30th. This should allow our organic loan growth to return to an annualized mid-single-digit rate for the fourth quarter and increase into the mid to high single-digits in 2026 as we leverage farmers' excess deposits and our loan pipelines continue to build.

On the funding side, total deposits grew by $33.4 million which is meaningful given that we were able to reduce our dependence on broker deposits by $23 million during the quarter. This represents a $56.4 million dollar increase in core deposit funding during the quarter as we continue to focus on our deposit generating initiatives. This helped us lower our overall cost of funding by 5 basis points during the quarter to 2.27%. We continue to see migration from interest-bearing demand accounts into higher rate deposit accounts during the quarter, which caused our cost of funds to increase 15 basis points. However, as we previously mentioned, our total funding costs declined by 5 basis points as we executed the funding approach that we messaged on last quarter's call. We continue to focus on growing core funding. In July we launched our new digital deposit account opening platform. We started slowly limiting online account opening to CDs and markets near our current branch locations where we felt we had some name recognition. We planned to begin offering checking and money market accounts during the 4th quarter. We are also preparing to roll out our deposit product redesign initiative during the 4th quarter. The goal of this initiative will be to streamline deposit accounts that we acquired through various acquisitions and align our product set with our new digital channels.

Our deposit base continues to be fairly granular with our average deposit account excluding CDs, approximately $27,500. Non-interest-bearing deposit and business operating accounts continue to be a focus. In addition to those already mentioned, we have several initiatives underway to gather these type of deposits, including monthly marketing blitzes and marketing to load and no deposit balance loan customers, which are yielding some success.

At quarter end, our loan to deposit ratio was 95.8%, which is down from the late quarter. We anticipate further reducing this ratio into our targeted range of 90% to 95% once the farmer's acquisition closes.

Other than the $509.5 million of public funds with various municipalities across our footprint, we had no deposit concentrations at September 30th.

We believe our low cost deposit franchise is one of Sevita's most valuable characteristics, contributing significantly to our solid net interest margin and overall profitability, and look forward to adding farmers low cost deposit base to our franchise.

The declining interest rate environment reduced some of the pressure on bond portfolios at September 30th. Our securities were all classified as available for sale and had $44.5 million of unrealized losses associated with them. This represented a reduction in unrealized losses of $8.9 million since December 30, 2024. At September 30th, our security portfolio was $657 million which represented 16% of our balance sheet, and when combined with cash balances, it represents 22.3% of our deposits.

We ended the quarter with our tier one leverage ratio at 11%, which is deemed well capitalized for regulatory purposes.

Our tangible common equity ratio increased from 6.7% at June 30th to 9.21% at September 30th on our strong earnings and successful capital raise. However, post closing on our farmers' acquisition.

We anticipate our tangible common equity ratio declining to 8.6%, which we feel gives us capital to support organic growth, invest in technology, people, and infrastructure.

So this is earnings continue to create capital and. 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 we'll balance the payment of dividends and any repurchases with building capital to support our growth.

Although we did not repurchase any shares during the quarter, we continue to believe our stock is of value.

Despite comments made during some of the large bank earning calls, the economy across our footprint continues to show no real signs of concern. For the most part, our borrowers plan for and continue to successfully navigate tariff and other economic issues specific to their industries. Our credit quality remains strong and our credit metrics remain stable. So Vista, like most community banks, has no exposure to shared national credits, nor do we have significant exposure to floor plans, indirect auto lending, or loans to non-depository financial institutions, which seems to be the types of credit that have caused much of the recent concern.

For the quarter, criticized credits were virtually unchanged at $93.3 million. The continued strong performance of our credits coupled with significant loan payoffs resulted in a minimal $200,000 provision for the quarter. Our ratio of our allowance for credit losses to loans is 1.30% at September 30th, which is consistent with the 1.29% at December 31, 2024. In addition, our allowance for credit losses to non-performing loans is 177% at September 30th, an improvement when compared to 122% at December 31, 2024.

In summary, it's been a very busy and productive quarter. We reported strong earnings that were 53% higher than the previous year's quarter. We grew free provision net revenue by 45% over the previous year's quarter.

After adjusting for one tiny items, we expanded our margin by 11 basis points over our length quarter.

We continue to gather new customers, increasing core deposits by $87 million year-to-date.

We had a very successful capital raise, and our teams are working toward the successful integration of our new farmers team members and customers.

That's a pretty productive quarter and one that I believe sets us up for a strong finish to the year and one that should get us off to a strong start in 2026. I cannot be more bullish for Savita and our shareholders. So thank you for your attention this afternoon and your investment, and now we'll be happy to address any questions you may have.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. To ask the question, you may press start and one on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To draw your question, please press the pound key. We'll pause for a moment to compile the Q&A roster.

Our first question comes from the line of Ryan Payne from DA Davidson. Your line is open.

Hey, good afternoon guys.

Maybe starting with the margin, how do you see that shaking out on a rate sensitivity basis? If we do see a few more cuts before the end of the year and, any expected impact from further cuts if we kind of think into 2026.

Yeah, hey Ryan, it's Ian.

So the way that we're, really looking at it right now is just a cut in October, another cut in December, and then we're still working through kind of that 2026 guidance.

At least from a baseline of if there's a cut in October and December, also with the addition of farmers coming in, we are anticipating the margin to expand about another 5 basis points in the 4th quarter from where the 3rd quarter was.

Got it. Helpful. And moving to capital, so on capital priorities post close of farmers sounds like that'll be reserved for organic growth and you will remain opportunistic on repurchases, but maybe on M&A, how conversations are going and has the deal kind of brought in more inbounds or interests?

No, I wouldn't say it has. I mean, I think, really, we're really focused right now on growing organically first off, and we want to increase our tangible book value. We want to continue to see our earnings per share growth. M&A can be tough at times, for instance, last year we took, looked at 6 deals.

And we passed on all 6 of those deals because they just didn't meet our criteria. So, we feel we're pretty disciplined when we evaluate an M on a transaction, and we're going to continue to stay disciplined, as opportunities present themselves, the farmers deal checked a lot of boxes for us and gave us some much-needed liquidity.

So that's why we went ahead and did that deal, there's been other deals. Announced here even this week in Ohio that certainly probably does spur some interest, but really the main reason we raised the capital was to help support our organic growth and allow us to make the necessary investments like I mentioned in technology and people and infrastructure, our real focus is really on deepening our relationships and growing fee income, expanding our digital services and bringing new products and verticals.

Because we want to gain just a greater share of our customers want, and we want to focus on attracting new customers to the bank. So our data tells us that, a couple that customers with strong relationships bring in about 4 times the revenue compared to other customers. So in order to deepen those relationships and bring in those customers, we have to make capital investments in things like artificial intelligence and profitability tools, and I think these investments will. Us to, precisely target our best opportunities, improve the effectiveness of our cross selling efforts, improve retention, and just optimize profitability by putting these pricing tools in the hands of our sales teams. So you know that's just one example of how we plan to use the capital. I think another example that we've talked about on previous calls is how we've been using it to make investments in the robotic process automation, so. So you know we'll continue to focus on just leveraging that type of automation to help us grow the bank while just improving our our operating leverage. We've had some success with that and we're going to continue to make improvements because I think that just makes us a more efficient organization.

So again, we will. Look at M&A if it meets our criteria, but our main focus is really to organically grow the bank and just increase our earnings. There's just a lot of disruption right now in our market, and we feel there's really a lot of organic opportunity for us as we continue to make the necessary capital investments, take advantage of those opportunities.

Great. Got it. Last one for me, just a housekeeping item, the effective tax rate coming in higher than historical, any, anything impacting that this quarter and, would you expect to stay in kind of this range going forward?

Yeah, it's we ended up increasing our expected earnings for the remainder of the year. So to balance that out, it did increase the third quarter, on a year to day basis we're at that 16 to 16.5% range. We anticipate that for the fourth quarter.

Got it. Alright, thanks for the detail guys. I'll step back.

Thanks you.

Our next question comes from the line of Brandon Osa from Healthy Group. Your line is open.

Hey, good morning, folks. Hope you're doing well. I'm sorry, good answering, maybe just starting off here on the outlook for low growth, hear you loud and clear on, the mid single-digit page for the fourth quarter and then mid to high across 2026. Can you just kind of talk about your confidence in achieving that, given that, year-to-date loan balances are pretty flat, so that that's a pretty meaningful ram. Just talk about why you have confidence in your ability to achieve that.

Sure, Brandon, this is Chuck. If you look historically, we've always been a great loan generating, operation, and, with our where our real estate concentrations were earlier in the year, we really weren't, I don't want to say we weren't competitive, but we weren't very aggressive in trying to bring new, business into the bank and it kind of caught up with us a little bit here in the third quarter where we had a bunch of expected payoffs, as Dennis mentioned, most of them. I would call good payoffs a couple companies selling and and a few projects going out to the permanent market, but our pipeline right now is sitting high, higher than it was last year, significantly higher than it was earlier in the year. So we feel good with the momentum going into the 4th quarter. We know we've got a few more payoffs that we're kind of staring at the 4th quarter, but not to the same to the same level that we had in the 3rd, so we feel good about, looking out to that mid single-digit growth going forward.

And Brendan, I would mention that I think it's important to note on the payoffs that we had several of our business clients that we were really successful in maintaining some of those deposits both at the bank and at the wealth management level, in areas of the bank. So even though we lost some of the interest income from the payoffs of the loan, we maintained that relationship and we're making money in other areas of the bank. So. I think that's important to note that that kind of, I sat in our wealth and trust wealth meeting yesterday and a couple of those loan payoffs, we've got significant wealth we're now managing that money that the business owner received. So so we are making some money from that. So I just think it's important to note that we didn't include that in our earlier comments.

Yes, so that's helpful color. I appreciate it. Maybe moving over to the fee income, gain on sale of loans was up significantly for the quarter. Can you just kind of decompose that into, 1 to 4 family gains versus lease gain on sale, and how you, we should think about that line item going forward.

Yeah, absolutely, so in the third quarter, roughly $1.1 million gain on sale, is about $850,000 of this mortgage, $300,000 of it was CLF for our leasing side of things.

Of the there was an additional $300,000 on that for gain on disposal of equipment.

On the leasing side, so that's kind of lumpy stuff that we end up seeing as opposed to the more traditional get on sale.

And Brendan, I will say I think probably like almost every other community bank in the country, we really do feel like we'll see a major uptick in gain on sale if we see the the 30 year mortgage refinance rates go under 6%. We've got a, I think we've got a backlog of what we would consider a lot of refinance opportunity if we do see those rates dip down for a while.

Okay, good, and then while I have you just maybe on fee income overall, I know that it tends to be volatile quarter to quarter, and this felt like a particularly strong quarter versus earlier in the year. Any thoughts on the overall level of fee income, to wrap up the year?

Yeah, so if we take that $9.6 million that we had in the third quarter, if we back out the bully and the security gains, getting us down to about $9 million we anticipate being about 9.2% in the fourth quarter, and that would include about $50,000 from farmers.

Fantastic. Thanks for taking the questions.

My next question comes from the line of Terry McEvoy from Stephens the line is open.

Hi, good afternoon everybody.

Maybe, a question on the decline in in loan yields, in the 3rd quarter relative to the second quarter, could you just talk about is that just a mixed shift you're building the residential portfolio, some pricing competition, and then, looking out into the 4th quarter, do you see an opportunity to expand loan yields, kind of on a core basis before the merger just on some, fixed asset repricing.

Yeah, so, just a reminder, Terry, because he had in the first quarter, or sorry, in the second quarter we had that non-recurring item that was in the interest income, which is about a million dollars, and so if that gets excluded, then we end up being much more normalized on the on the yields on loans.

And Terry, to your point, it just got the 9:30 report, we're watching very closely the amount of loans that'll reprice over the next 12 months, and we've got about $225 million that will reprice here over the next 12 months. In those adjustable rate 5, most of them 5 to 3 year mortgages, so we do feel we'll see a pick up, in yield on that 225 million as we fight, a little bit of the probably, floating rate stuff going down during the same time period.

Great, and thanks for the reminder and and the update there. Much appreciated. And then, I believe you said the systems conversion early February, could you talk about the timing of the cost saves and, in the back half of next year, do you expect that to be fully in the run rate?

Yes, so we anticipate, as you mentioned, the system conversion occurring that reduces a lot of the contract expenses for processing, as well as some of the staffing reductions will take place following that too.

Great, thanks for taking my questions.

Our next question comes from the line of Tim Switzer from KBW. Your line is open.

Hey, good afternoon, thanks for taking my question.

I do most might have been answered already, but, could you, are you able to tie down at all when in November you guys are expecting to close Farmers beginning of the quarter towards the end, just to kind of help us with the modeling.

Yeah, we hope, we, they have their shareholders meeting on November 4th, and we hope to close it shortly thereafter, definitely probably before the middle of the month, so if you're modeling you you you're going to have at least 45 days, for the quarter.

Okay, great, we'll have both banks together, that would be, that would probably be fairly conservative. We hope to be a few days ahead of that, but, to be safe on your modeling.

Got you. Okay, and then I, the nim guidance has been very helpful. Are you able to?

Quantified all what maybe the purchase accounting impact is on the name and what you guys expect on like a full quarter.

Basis.

Yeah, let me see if I have that handy.

I do not have that in front of me actually.

We'll shoot that out to we'll shoot that out to all of the analysts on the call today.

Okay, and then I was wondering what you guys are seeing in terms of like loan competition on pricing, in your markets any kind of changes there recently?

I think excuse me, Tim, I think everybody's gotten a little bit more aggressive, we're seeing that the rates kind of fall down below that 6.5 level, probably somewhere between the 6 and 6.5 level on the on the better deals. So it's pretty competitive across, I wouldn't tell you there's any one market here in Ohio or Indiana's any less or more competitive, they're all very competitive right now, both on the deposit and on the loan side.

And then I would say, Tim, the disruption in the marketplace is obviously I think going to help us, you've got some of the bigger players like Huntington and 5th 3rd who have announced some deals, out of state, and, their focus is probably, their attention is elsewhere and then. We still, the premier West Bankco thing is less than a year old, and we just saw the middle field announcement yesterday, all that disruption really helps us, so, in that change, so we think that, we think that'll benefit us both from a loan and deposit standpoint.

Okay, yeah, that's helpful outside of the disruption that you mentioned, do you have a sense for the loan pricing specifically how much is that the competition is being driven by.

Either slowing demand from borrowers versus simply the lower rates, from the Fed.

Yeah.

I think the demand's been pretty consistent. I mean, as I said earlier, we were, we weren't quite as aggressive in the first half of the year just based on we were sitting out on the balance sheet, but I would tell you demand has been pretty consistent in Ohio all year, and we don't knock on wood, the economy here, especially in the three seasons in Ohio, has been really good, and we don't see that changing anytime soon.

Yeah, we feel the economy, and then our customers have really adapted to some of the conditions as I stated on in during earlier comments. I think, it's probably, more driven by rate. Than anything else, I mean, the lower rates by the Fed and stuff, that's going to, hopefully spur spur a little bit more activity as well.

And I think there's, and I do think, especially some of our competition, I think there's a lot more confidence.

Commercial real estate than there was, 12 to 18 months ago, I think everybody was a little bit leery of it, which helped us keep rates up on certain things, but now I think that that's started to subside, obviously, and rates are, starting to shoot back down.

Got you, very helpful, thank you guys.

Hey Tim, this is I.

On the the accretion question that you had, be about $150,000 in the fourth quarter.

Okay, so then when we get into the full quarter.

In 11 that would be 300.

Yeah, in that range maybe 280.

Perfect. All right, thank.

You so much.

There are no further questions at this time. I would now like to turn the conference back to Mr. Shaffer. Please go ahead.

Well thank you. And in closing, I just want to thank everyone for joining us for today's call and for your investment. And so this that I remain really confident that this quarter's list of accomplishments and strong financial results and just our disciplined approach to managing the company's position company position is really well for long-term future success. I look forward to talking to you all again in a few months to share our year-end results. So thank you for your time today.

This concludes today's conference call.

Thank you for participating. You may now disconnect.