Civista Bancshares Inc (CIVB) 2025 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. 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 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.

This call will be recorded and made available on Civista Bancshares' website at www. civb.com. At the conclusion of Mr. Shaffer's remarks, he and the Civista management team will take any questions you may have. Now I will turn the call over to Mr. Shaffer.

Good afternoon. This is Dennis Shaffer, President and CEO of Civista Bancshares, and I would like to welcome you to our fourth quarter and year end 2025 earnings call. I'm joined today by Chuck Parcher, EVP of the company and President 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 fourth quarter of 2025 of $12.3 million or $0.61 per diluted share, which is consistent with our linked quarter and represents a $2.4 million or 24% increase over the fourth quarter in 2024. Included in the fourth quarter of 2025 results were nonrecurring expenses related to our acquisition of Farmers Savings Bank that negatively impacted net income by $3.4 million on a pretax basis and $2.9 million on an after-tax basis, equating to $0.14 per common share.

Going forward, we expect any additional expenses related to this transaction to be minimal. For the year, we reported net income of $46.2 million or $2.64 per diluted share which compares to $31.7 million or $2.01 per diluted share for 2024. This is particularly impressive given that there are approximately 2 million average additional shares outstanding as a result of our capital offering in July and our acquisition of Farmers Savings Bank in November.

Taking into consideration the nonrecurring adjustments that occurred during 2025, our earnings per share for the year were reduced by $0.15. Backing out the nonrecurring fourth quarter expenses, our pre-provision net revenue increased by $6.7 million or 55% over the previous year's fourth quarter and by $2.2 million over our linked quarter. Our ROA for the quarter was 1.14% and excluding onetime expenses, was 1.42%, continuing our string of improving our ROA for each quarter of 2025. For the year, our ROA was 1.11%.

For the quarter, we were pleased to announce the closing of our transaction with Farmers Savings Bank, adding $106 million in loans and $236 million in low-cost deposits to our balance sheet and are looking forward to a successful system conversion over the weekend of February 7 and 8. Our teams continue to work together towards the successful integration of our organization.

Net interest income for the quarter totaled $36.5 million which is $1.9 million or a 5.5% increase over the linked quarter and a $5.1 million or 16% increase over our fourth quarter and the previous year. During the quarter, our earning asset yield declined 8 basis points, while our funding costs declined 19 basis points. This resulted in the expansion of our net interest margin by 11 basis points to 3.69%.

As we have discussed on previous calls, during the first three quarters of 2025, we were focused on increasing our tangible common equity reducing our CRE to risk-based capital ratio and reducing our reliance on wholesale funding. To that end, we muted loan growth by keeping CRE loan rates somewhat elevated. The success of our July capital offering and the acquisition of Farmers Savings Bank have allowed us to become a little bit more aggressive in lending across our footprint.

Excluding the newly acquired Farmers loans, our loan and lease portfolio grew $68.7 million, which represents an annualized growth rate of 8.7% during the fourth quarter. We anticipate mid-single-digit loan growth in 2026. Core deposit funding continues to be a focus, and we were pleased that our non-broker deposit funding, excluding deposits acquired through the Farmers Savings Bank transaction grew organically by nearly $30 million during the quarter which allowed us to continue reducing our brokered funding. We believe this reduction in wholesale funding enhances the value of our core deposit franchise.

Earlier this week, we announced an increase in our quarterly dividend to $0.18 per share, which represents a $0.01 increase over the prior quarter. based on the December 31 closing market price of $22.22, this represents an annualized yield of 3.2% and a dividend payout ratio of nearly 30%. During the quarter, noninterest income increased $251,000 or 2.6% from our linked quarter and increased $869,000 or 9.6% from the fourth quarter of 2024. The primary drivers of the increase from our linked quarter were $287,000 increase in interchange fees due to the typical elevated spending that comes during the holidays and a $380,000 increase in other fees related to leasing activity.

These increases were partially offset by proceeds on an BOLI policy we received in the prior quarter and a $416,000 reduction of residual income from our leasing activity. As we have noted, leasing fees, particularly residual income are less predictable than more traditional banking fees. For the year, noninterest income decreased by $3.8 million or 10% from 2024. This decline was primarily attributable to lease revenue and residual income, you will recall that we recognized a $1 million nonrecurring adjustment as part of our conversion to our new leasing system during the quarter.

That, coupled with the overall decline in lease production this year led to a reduction in lease-related revenues in 2025. We are confident the investments we have made in our leasing infrastructure this year will allow our leasing team to operate at a higher level in 2026.

For the quarter, after adjusting for the $3.4 million in nonrecurring expenses related to the acquisition, non-interest expense was $27.6 million, which is consistent with the $27.7 million in our linked quarter after backing out $664,000 and nonrecurring Farmers expenses incurred in the third quarter. Year to date, after adjusting for the $3.8 million in nonrecurring expenses, noninterest expense decreased $2.4 million or 2.1% from our prior year.

The primary drivers of this decline were a $3.1 million decline in compensation expense and a $1.4 million decline in equipment expense, which were partially offset by slight increases in a number of other expense categories. The decline in compensation expense was due to a slight reduction in FTEs controlling overtime and an increase in the amount of salaries and wages we defer related to loan origination.

The decline in equipment expense was primarily the result of a decline in depreciation expense on leased equipment, this is the result of using residual value insurance to reduce depreciation expense related to operating leases. Our efficiency ratio for the quarter improved to 57.7% compared to 61.4% for the linked quarter and 68.3% from the prior year fourth quarter.

Our effective tax rate was 16.8% for the quarter and 16.3% for the full year. Turning our focus to the balance sheet. As I mentioned, even after backing out the loans we acquired from Farmers Savings Bank, our lending team generated $68.7 million of organic net flow growth during the quarter, which is an annualized rate of 8.7%. While loans grew in nearly every category during the quarter, our most significant increase was a $90 million increase in residential real estate, which included the addition of $56 million in residential loans from Farmers.

The loans we originate for our portfolio continue to be virtually all adjustable rate and our leases all have the maturities of five years or less. Although we were pleased with our success in bringing our CRE concentrations more in line with investor expectations, we will remain mindful of making sure we have the funding and capital to support future CRE growth.

At December 31, our CRE to risk-based capital ratio was 275%. During the quarter, new and renewed commercial loans were originated at an average rate of 6.74%. Residential real estate loans were originated at 6.13% and loans and leases originated by our leasing division were at an average rate of 8.77%.

Loans secured by office buildings make up only 4.5% 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 central business districts. Along with year-to-date loan production, our pipelines are strong and our undrawn construction lines were $162 million at December 31. As previously mentioned, we anticipate our organic loan growth to be in the mid-single digits in 2026 as we leverage Farmers' excess deposits and our loan pipelines continue to build.

On the funding side, we added $236.1 million in low-cost deposits from the Farmers transaction. In addition, we were able to continue our pattern of reducing broker deposits for the fourth consecutive quarter by nearly $30 million. Our continued focus on attracting and retaining lower-cost funding helped us lower our overall cost of funding by 19 basis points during the quarter to 2.08%. While we continue to see some migration from lower rate demand accounts into higher rate time deposits during the quarter, the addition of Farmers' lower rate deposits allowed us to reduce our cost of deposits by 4 basis points to 1.59%.

As shared during our last call, we launched our new digital deposit account opening platforms during the third quarter, limiting online account opening to CDs. In the fourth quarter, we began offering online account opening for checking money market accounts. In addition, we rolled out our deposit product redesign initiative, the goal of this initiative is to align our deposit product set with our new digital channels.

We are seeing some success and look forward to launching a more comprehensive digital marketing campaign for online deposits once we get past the Farmers' system conversion. Our deposit base continues to be fairly granular with our average deposit account, excluding CDs, approximately $28,000.

At quarter end, our loan-to-deposit ratio was 94.3%, which is down slightly from our linked quarter. We anticipate maintaining this ratio within our targeted range of 90% to 95%. Other than the $464.4 million of public funds with various municipalities across our footprint, we had no deposit concentrations at year ahead.

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 security portfolio as a source of liquidity. At December 31, our security portfolio totaled $685 million, which represented 15.8% of our balance sheet and when combined with our cash balances represents 22% of our total deposits. At December 31, 100% of our securities were classified as available for sale and had $45 million of unrealized losses associated with them.

This represents a decline in unrealized losses of $6 million for our linked quarter and a $17 million decline from December 31, 2024. Civista's Strong earnings continue to create capital and our overall goal remains to maintain our capital at a level that supports organic growth and allows for prudent investment into our company. We were happy to announce an $0.18 per share dividend earlier this week, which represents a $0.01 per share increase in our quarterly dividend. We view this as a sign of confidence, management and our Board has in Civista's ability to continue generating strong earnings.

We continue to operate with a $13.5 million repurchase authorization and a 10b5 share repurchase plan in place. While we have not repurchased any shares during the year, we believe our stock is a value, and we will continue to evaluate repurchase opportunity. We ended the year with our Tier 1 leverage ratio at 11.32%, which is deemed well capitalized for regulatory purposes.

Our tangible common equity ratio increased from 9.21% at September 30 to 9.54% at year end on strong earnings. We feel this gives us capital to support organic growth and to invest in technology, people and infrastructure. While economic conditions across the country remain mixed, the economy across Ohio and Southeastern Indiana is showing no systemic signs of deterioration.

Our credit quality remains solid and our credit metrics remain stable. Delinquencies remain low and are consistent with the prior year end, while our net charge-offs were slightly lower in 2025 than the prior year. Our past due loans did increase $7 million during the quarter, and our nonperforming loans increased by $8.5 million to $31.3 million. Total nonperforming loans to total loans were 0.95%, up slightly from the linked quarter, but down from the 1.06% at the end of 2024.

The continued strong performance of our credits, coupled with moderate loan growth, resulted in a $585,000 provision for the quarter. Our ratio of allowance for credit losses to total loans is 1.28% at December 31, which is consistent with the 1.29% at December 31, 2024. And our allowance for credit losses to nonperforming loans is 135% at year end compared to 122% at December 31, 2024.

In summary, our fourth quarter was an extension of what was a very productive and good year. Among the many initiatives we accomplished, we're a successful capital offering, the acquisition of Farmers Savings Bank, rolling out our new digital banking solution and migrating to a new core lease system, all of which contributed to our two long-standing goals, we were able to increase our tangible common equity ratio from 6.43% a year ago to 9.54% at December 31, 2025, and reduced our CRE to risk-based capital ratio from 366% at the beginning of the year to 275% at year end.

These investment and efforts coupled with our expanding net interest margin and controlling expenses produced exceptional results as our full year net income was $14.5 million or 46% higher than a year ago. Civista remains focused on creating shareholder value, serving our customers and being a good corporate citizen in each of the communities that we serve.

Thank you for your attention this afternoon and your investment, and now we'll be happy to address any questions you may have.

(Operator Instructions) Justin Crowley, Piper Sandler.

Hey, good afternoon, guys. Just wanted to start out on the loan growth side of things, some decent growth in the quarter when you set aside Farmers, and you mentioned the guidance for mid-single-digit growth looking out here. Just curious if you could talk a little more on how you think the complexion of that growth will take shape in terms of the split between commercial where you talked about being a little bit more aggressive? And then on the residential side, where you've seen some growth recently?

Yes. Justin, this is Chuck. I think we'll see kind of go back to more normalized growth in '26, meaning that the commercial area will leave that growth, both C&I and commercial real estate. We did have quite a bit of growth in '25 in the residential side. A lot of that due to -- we didn't really have a good outlet for our construction product and our CRE products. So we held most of those on the book.

If we get a little bit of a blip downward in interest rates, we feel like we'll probably move some of that to the secondary market and will come off our balance sheet. So I would focus more so on commercial and C&I growth as we normally do. And hopefully, a little bit of -- a little bit more leasing growth as well, but that will be in the C&I bucket.

And Justin, I might just add that we don't want -- we want our funding to kind of keep pace with our loan growth. And we've been pretty successful in raising deposits over the last six, seven quarters. I think we've grown deposits six of the last seven quarters. But we kind of want to -- those two things will kind of go hand in hand and we made some significant investments in some technology, particularly on the digital front that we think will help us continue to raise deposits so that we can continue to fuel loan growth.

And then I guess you mentioned it, but on that digital channel, depending on the success you see there and how much you can grow that platform, could that potentially get you beyond mid-single-digit growth? Or would it be that, that digital channel is just going to come at -- obviously, it's going to be higher cost there. So you, of course, got to think about the spread on new business. Just curious there.

Right. I don't think it's substantially -- we'll jump at above that right now. I think, again, we want to be mindful of our margin as well. So there's a number of factors that kind of play into that, but we just -- we'll be a little bit mindful of that. But we do think we have opportunities within our markets and stuff.

And we are excited. I mean, I think we'll see accelerated growth through the digital side in '26. It's just -- it's going to be hard to quantify until we get all of our products up and running on there and to see the success that we have.

Okay. Where is that digital channel now? I don't know if you have the balances handy? And what kind of yields are we talking about there?

Well, we don't have the balances handy, right off the top. We just -- we're kind of in the infancy stages of that. But we are seeing some success. I think we've shifted from just offering CDs online, which what we recently rolled it out. We wanted to make sure that we had things working and all our fraud prevention in place and stuff.

And then now we've added checking and savings and money market accounts. And just last month, I mean just adding -- just we were surprised that we opened 28 new checking accounts last month through the digital front and stuff. So we just think there's opportunity, but we'll try to give updates on balances as we go, maybe get further along in the year and stuff.

Okay. Got it. And then maybe one on the NIM. The past few rate cuts that will continue to work their way through here. But can you give us a sense for how the margin could trend through the year?

Number one, I guess, if we get more of a pause out of the Fed over the near or medium term? And then maybe square that to a scenario where we do eventually get a couple more cuts.

Justin, this is Ian. So right now, I'd say for the first quarter, we'd expect that margin to expand 2 to 3 basis points and then into the second quarter and beyond, maybe another 3 to 4 and capping out around there.

Okay. And that forecast, does that sort of assume a flat rate scenario? Or what does that -- what's embedded there?

Right now, we're assuming a cut in June and then again in the fourth quarter. And if it is flat, it will be a little bit higher at the end of the year.

And then maybe just one last one on expenses. Obviously, some noise with a partial quarter of Farmers, but what's the best way to think about run rate certainly in the first quarter, but even just beyond that, considering the cost saves that will come out of the acquisition once you get through conversion?

Yes. So we have -- the expenses that we have in the first quarter we're still going to have the higher expenses for Farmers running their core as well as the personnel until the conversion occurs in the first week of February. Following that, we'll have a reduction of expenses, but that won't occur until that third month of the first quarter. So what we're anticipating is first quarter expenses to be similar to where we are maybe in that 29% range, 29% to 29.5% for the first quarter expenses.

In the second quarter, we're going to have the merit increases that come in once per year for our colleagues, and that will offset those reductions I mentioned a little bit ago. We're making some good investments into our company.

We're using some of that capital we raised to invest back in the company, too. So that's -- we are buying -- investing in some technology, investing in some people and some resources to continue to grow the franchise.

Jeff Rulis, D.A. Davidson.

Just a question on the credit side. It sounds like pretty steady state, you don't seem to, I guess, tracking some of the linked quarter. The question being, was a lot of that acquired on the Farmers side from the linked quarter increase.

Jeff, this is Mike Mulford. No, the credit quality we brought over from FSB was very good. So that was not the reason for the increase.

What was that? If you could just --

We had one credit that we had a participation with another bank that we put on nonaccrual in the fourth quarter, it was about $8 million. And so we're working with that lead bank to resolve that. It was a case of -- it had been current, it matured in November, so it did hit 30 days at year end, but again, we put it on nonaccrual until we get the situation resolved.

That was $8 million as Mike mentioned of the $8.5 million increase in nonperforming So it really was just that one credit. So we think it's somewhat an isolated instance. I think the nonperformance actually were down for the year (inaudible)

Okay. Sounds like that credit might have some potential for a more expedited resolution, or I don't want to your mouth, but you feel good about that moving through?

I mean, it's in early stages. Again, we're working with lead bank and while not originated by us, we participated in it. It was a borrower that we had been familiar with, and we had made loans to before in the past. So again, we're working through it. I expect it will take a better part of the '26 to work that out.

And even though we knew the borrower, we have no other levels on the books with that borrower. And then again, just, Jeff, we typically don't buy a lot of participations. We participate in loans out, but we typically have not been a bank that's bought a lot of participation just because we have such strong organic -- just strong demand within our market. So most of what -- how we grow our portfolio is organically.

Got it. And just a follow-on the margin 3.69%. Just trying to get -- what proportion of accretion assumptions, if we're looking at kind of inching up from here, any unpacking the core versus accretion?

Yes. The so within the fourth quarter, the accretion is going to be in there for two full months of the three-month quarter. When we think in terms of the dollar impact, it's pretty minimal. It's an immaterial acquisition for the most part.

Okay. All right. Last one, I apologize. The tax rate is something in the mid-16s, is that a level you subscribe to?

Correct. Yes, we're anticipating 16.5% for 2027 -- 16.5% for 2026, my apologies.

(Operator Instructions) Terry McEvoy, Stephens.

Could you just talk about new commercial loan yields and maybe just comment on loan spreads and overall competition there?

I mean, Ohio is still pretty competitive -- Ohio and Indiana, I should say, it's still a relatively competitive work. I think we put last December new and renew came on at 6.7% I would tell you some of the larger deals are coming a little bit less than that. I would say the good deals are probably coming in at 6.25%, 6.5% right now. But it's been relatively consistent. The five-year treasury has been relatively constant here over the last 60 to 90 days and that margin is still coming in relatively 2.75%, give or take over the five-year.

We do have some loans repricing in the first quarter and throughout the remainder of the year. Chuck, do you want to share that one?

Yes, we just bring that based on 12/31 year end. We've got about $225 million of credit that we put on three- or five-year adjustables, and they will reprice throughout 2026. And those rates, give or take, I would tell you are coming off 4.75%, and probably will come back in -- probably take 1.5 points on most of those.

That's helpful. And then you've got a large -- a couple of large Ohio banks focused elsewhere, Detroit. I'm going to guess about 100 miles from Sandusky, which is another market going through some disruption. So how are you thinking about maybe playing some offense in 2026, given that backdrop? And could it impact your expenses if hiring picks up?

We feel good about it, Terry. I mean we've already -- we've hired -- I think we've got three new lenders coming on here at the beginning of the year. Now there were replacements or filling slots of people that got elevated within our organization. We've got another couple of people coming on in -- at the end of the first quarter, waiting to get their bonuses at their shops.

So we feel good about where the talent is coming from. We're picking them up from banks that, to be honest, they have either been -- that are either being acquired or already have been obviously, the WesBanco, PremierOne and was a big one that was last year, and we've got some talent from there in -- most of in treasury area, finance area came from Premier.

And we feel really good about the disruptions we're not only getting calls from employees at those institutions, but we're also getting calls from the clients of those institutions as they go -- start to go through the changes. So we feel like we've got a lot of opportunity just because of the disruption.

Yes. That expense rate we mentioned earlier does include some of those additions, Terry, that some of the investments we're making back into the company. on the people side.

Tim Switzer, KBW.

I apologize if any of this has already been covered, but the first question I have is with regards to capital stack, you guys are pretty healthy capital levels close to Farmers'. Are there any -- is there any like optimization you need to make now that you've closed that deal? And then what are your thoughts on share repurchases going forward? I know historically, you guys have said you think it's a good value at these prices.

Yes. Yes. We still think we're a value. So we continue to -- we didn't repurchase anything last year, but we do have our $13.5 million authorization in place. We're set up there.

And as long as we feel there's value there, certainly, we'll consider. We think that's a good way to deploy capital. But we kind of evaluate -- we've been in blackout where we weren't able to purchase that through the acquisition. So we continue to evaluate that. And as long as we continue to have strong earnings, that's definitely part of our capital stack. So we're always looking for ways to maximize our capital.

Got it. Okay. And I assume most everything on guidance has been covered by this point, but -- can you maybe discuss what you guys are seeing for leasing revenue next year? It's just always kind of a tougher item to model.

Yes. So I can speak that, Tim, are you talking about the noninterest income side of it there?

Exactly.

Correct. Yes. So it is a little lumpy. And so within the fourth quarter, we did have a lease disposal gain that came in, it was about $0.5 million, about $500,000. So when we think in terms of the guidance, within the fourth quarter, we have a MasterCard annual volume bonus that we get of about $250,000 that comes in each year.

We had those security gains, which is about $120,000, and then that first quarter, usually, we see a little bit of a slowdown on the mortgage gain on sale as well as the leasing gain on sale. So we expect that leasing revenue to drop off on the gain on sale and maybe a little bit slower on the traditional leasing revenue. But total noninterest income, we probably guide you towards maybe $7.8 million to $8.2 million for the first quarter and then increasing from there to the second quarter, maybe another $0.5 million.

There are no further questions at this time. I would like to turn the call back to Mr. Dennis Shaffer for closing comments. Sir, please go ahead.

Thank you. Well, in closing, I just want to thank everyone for joining today's call and for your investment in Civista. Our quarter and our year-end results were due in large part to the hard work and discipline of our team. I remain confident that this quarter and this year -- this quarter and the year's list of accomplishes our strong financial results, our disciplined approach to managing Civista, positions us very well for long-term future success.

And just look forward to talking to everyone in a few months to share our first quarter results. So thank you for your time today.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.