Civista Bancshares, Inc. Aktie

[Audio Gap] Before we begin, I would like to remind you that this conference call may contain forward-looking statements with respect to the future performance and financial condition of Civista Bancshares, Inc. that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call.

Additionally, management may refer to non-GAAP measures which are intended to supplement, but not substitute the most directly comparable GAAP measures. The press release, also available on the company's website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. 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. Please go ahead.

Good afternoon. This is Dennis Shaffer, President and CEO of Civista Bancshares, and I would like to thank you for joining us for our first quarter 2026 earnings call. I'm joined today by Chuck Parcher, EVP of the company and President of the bank; Rich Dutton, SVP of the company and Chief Operating Officer; Ian Whinnem, SVP of the company and Chief Financial Officer; and other members of our executive team.

This morning, we reported net income for the first quarter of $15 million or $0.72 per diluted share, which represents a $4.8 million or 47% increase over our first quarter of 2025 and a $2.7 million or 22% increase over our linked quarter. This also represented an increase in pre-provision net revenue of $3.8 million or 29% over our first quarter in 2025 and a $3.2 million or 3.8% increase over our linked quarter.

Our first quarter highlights include the successful completion of the core system conversion of the Farmers Savings Bank that we acquired during the fourth quarter of 2025. As a result, our first quarter earnings include what should be the last expenses associated with the acquisition. These onetime expenses impacted our first quarter net income by approximately $400,000 or $0.02 per common share.

For the quarter, core deposit funding increased organically by over $60 million. This allowed us to reduce brokered deposits by $25 million. This represents the sixth consecutive quarter in which we reduced the brokered funding. Our net interest margin expanded by 16 basis points to 3.85% as we continued our disciplined approach to managing our asset pricing and funding costs.

Our earning asset yield for the quarter increased by 5 basis points over our linked quarter to 5.66%. Our cost of funds was 1.96% for the quarter, down 35 basis points from the first quarter of 2025 and 12 basis points from the linked quarter, while our cost of deposits was 1.81%, down 19 basis points year-over-year and 11 basis points sequentially. Our decline in funding cost was largely attributable to $125 million of brokered CDs that matured in late December that carried a weighted average rate of 4.23%. And we were able to replace and reduce these mature and brokered CDs with $100 million in brokered CDs with a weighted average rate of 3.87%, representing a savings of 36 basis points in addition to reducing the amount of brokered funding.

Net interest income for the quarter was $37.8 million, which represents an increase of $5.1 million or 15% compared to the first quarter of 2025 and an increase of $1.4 million or 4% compared to our linked quarter. Despite loan balances being down, we had strong loan production across our footprint during the quarter that was offset by significant payoffs. Our lending teams generated $214 million of new loan production during the quarter that was offset by $83 million in early payoffs in addition to normal principal pay down. Our ROA for the quarter was 1.41%. Our ROE for the quarter improved to 10.97%, and our tangible book value per share improved to $19.70.

Our continued strong financial performance and ability to consistently create capital gives us options as we think about the best ways to deploy our capital. Earlier this week, we announced a quarterly dividend of $0.18 per share, which is consistent with our prior dividend and the renewal of our stock repurchase program authorizing management to repurchase up to $25 million in outstanding common shares.

During the quarter, noninterest income declined by $453,000 or 4.6% from our linked quarter and increased $1.6 million or 20% over the first quarter of 2025. The primary driver of the decline from our linked quarter was a $336,000 decline in card fees due to the typical elevated spending that comes during the holiday. The primary drivers of the increase in noninterest income over the prior year were a $190,000 increase in service charges, a $1 million increase in net gains on loan and lease sales and a $444,000 increase in other income related to reserves that have been established at our insurance subsidiary for claims that subsequently never materialized.

Noninterest expense declined by $1.1 million or 3.6% from our linked quarter and decreased -- or increased $2.7 million or 10% over the prior year. The decline from our linked quarter was a result of a commission accrual adjustment in the fourth quarter of 2025. Our actual commission expense was $1.4 million lower than what had been accrued and was adjusted in the fourth quarter. We are now adjusting all accruals at least quarterly. The primary driver of the increase in noninterest expense over the prior year was a $2.2 million increase in compensation expense associated with increased salaries, commissions and medical expenses.

In addition to annual increases, our average FTE employees increased from 520 in the first quarter of last year to 535 in the first quarter of 2026. Much of the increase in FTEs came from the employees that joined us through our recent Farmers acquisition. We also had $400,000 in other expenses that we believe will be the last significant expenses related to the acquisition. Our efficiency ratio for the quarter improved to 60.1% compared to 64.9% for the prior year first quarter. Our effective tax rate was 16.8% for the quarter.

Turning our focus to the balance sheet. Strong loan production across our footprint was offset by significant payoffs during the quarter. Our lending teams generated $214 million of new loan production during the quarter that was offset by $83 million in payoffs in addition to normal principal pay down. This compares to the prior year's first quarter, when we originated $181 million in new loans and we experienced $21 million in loan payoffs. We consider these good payoffs, as they were successful real estate projects that were sold or taken to the permanent market. We also had a few loans to operating companies that were sold during the quarter and paid off their loans.

Loan production grew with each month's production during the quarter from $49 million in January to $59 million in February to $106 million in March. During the quarter, new and renewed commercial loans were originated at an average rate of 6.52%, and leases were originated at an average rate of 9.03%. Additionally, our undrawn construction lines were $175 million at quarter-end compared to $161 million at year-end.

We ended the quarter with a loan-to-deposit ratio of 92%. Loans secured by office buildings make up only 4.7% 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 2-story offices located outside of central business districts. We also have very little exposure to non-deposit financial institutions.

As a commercial real estate lending bank, we are mindful of our non-owner occupied CRE concentration and continue to diversify our loan portfolio. At March 31, 2026, our CRE to risk-based capital ratio was 261%. While we experienced a reduction in total loans during the quarter, loan demand remains solid in each of our markets, and our pipelines continue to grow. At March 31, 2026, our residential mortgage loan pipeline was up 25%, and our commercial loan pipeline was up 102% over the prior year. We anticipate growing the loan portfolio at a mid-single-digit rate over the balance of the year.

On the funding side, total deposits increased $35.4 million or an annualized growth rate of 4%. However, if we back out the brokered deposits, our core deposit balances grew by $60.4 million or 8% for the quarter. This represents 6 of the last 7 quarters in which we have grown our core deposit balances while reducing our cost of funds. Much of this growth came in interest-bearing demand accounts and in our savings and money market accounts. This increase in lower rate deposits, combined with our continued shift from brokered deposits to more core deposit funding, contributed to an 11 basis point decline in our cost of deposits from the linked quarter.

Our deposit base remains fairly granular, with our average deposit count, excluding CDs, approximately $28,000. Other than the $523 million of public funds, which are primarily operating accounts with various municipalities across our footprint, we had no deposit concentrations at quarter-end.

Our commercial bankers, treasury management officers, private bankers and retail staff continue to have success gathering additional deposits from our commercial, small business and retail customers, as evidenced by our organic deposit growth. We believe our low-cost deposit franchise continues to be 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 $682 million, which represented 16% of our balance sheet, and when combined with our cash balances, represents 22% of our total deposits. Our securities are classified as available for sale and had $49 million or approximately 7% of unrealized losses associated with them.

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. Earlier this week, we announced an $0.18 per share dividend based on the quarter-end market close of $22.79. This represents an annualized yield of 3.16% and a payout ratio of 25%. We view this as a sign of confidence management and our Board of Directors have in Civista's ability to continue generating strong earnings.

Additionally, Civista's Board of Directors increased and renewed a $25 million common share repurchase authorization earlier this week. While we have not repurchased any shares over the past several quarters, our regulatory capital and tangible common equity ratios are strong and continue to grow. We continue to believe our stock is a value, and we'll continue to evaluate repurchase opportunities.

During the quarter, we made a $768,000 credit to our provision and had net charge-offs of $716,000. The credit to our provision was attributable to lower expected losses due to lower outstanding loans and our continued strong credit metrics. Our ratio of the allowance for credit losses to total loans is 1.26% at March 31, 2026, which is consistent with the 1.28% at December 31, 2025. Similarly, our ratio of allowance to nonperforming loans of 135% was virtually unchanged when comparing the same periods. Other than the general concern over the impact of macroeconomic uncertainties, the economy across Ohio and Southeastern Indiana is showing no sign of deterioration, and our credit quality remains strong.

In summary, we are very pleased with the continued expansion in our net interest margin, our ability to generate noninterest income from diversified revenue streams and to control our noninterest expense. We're also very pleased with our team's success in attracting more lower cost funding, which allowed us to continue reducing our dependency on brokered funding and anticipate mid-single-digit deposit and loan growth for the balance of 2026. Overall, 2026 is off to a good start, and our focus continues to be on creating shareholder value.

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

[Operator Instructions] Our first question comes from the line of Brendan Nosal from Hovde Group.

Maybe just starting off here on the loan growth outlook. I totally get the moving pieces this quarter. I mean, it sounds like origination activity is quite strong, but the payoffs were a significant headwind for this quarter. I guess just as you look ahead, what gives you confidence that payoff levels will decline such that you can get back to that mid-single-digit pace of growth?

We watch those closely. This is Chuck. We watch those closely. We've got a couple of other large ones we know that we're going to look at here in the second quarter, but we still think we're going to see some growth in the second quarter. And we feel like that mid-single-digit outlook is pretty good looking forward.

I've got confidence in -- as Dennis mentioned in his comments, our pipeline today is twice as large as it was in the pipeline at the same time last year. And we just got to get those to the closing table. And our -- just based on the production we had in the first quarter, as Dennis also alluded to, our undrawn construction funds are $14 million higher at the end of this quarter than they were at the end of the year. So we feel good about kind of [ prognosticating ] out that mid-single digits.

And first quarter typically is slower for us, too, Brendan, just because we do some construction-type commercial construction loans and stuff. And as Chuck alluded to, I think we put on a lot of balances there towards the end of the first quarter, and some of those were construction projects that we think those funds will draw up.

Okay. Okay. Maybe pivoting to the net interest margin. Heck of a lot of margin expansion this quarter, certainly more than I was expecting. Just as we look ahead, if we're in an environment where we don't get any more Fed rate cuts this year, how do you see the margin trending from this quarter's 3.85% level?

Brendan, this is Ian. So second quarter, we expect flat to maybe a little bit of expansion, 1 to 2 basis points. And then likely putting that in the mid- to upper 3.80s and then leveling out in the high 3.80s in Q3 and beyond. That's with no rate cuts being planned. If there is a rate cut, we expect that to be maybe 1 to 2 basis points lower. If there's a rate increase at the end of the year, it could be 1 to 2 basis points higher.

And Brendan, we do have about $60 million of loans repricing in the second quarter and I think about $140 million after that for the remainder of the year. So a couple of hundred million dollars of loans will reprice from the 4.75% range to -- reprice today in the 6s.

Our next question comes from the line of Jeff Rulis from D.A. Davidson.

Late last year, we had discussions of kind of the bank putting up $0.75 in quarterly earnings towards the end of '26, implying a $3 annual run rate. It kind of seems like you pulled that forward 9 to 12 months, you're basically at that -- at the core level. I guess as you think about where you reorient with kind of the outlook from here, not to put you on the spot of earnings, but I guess, how do you met that opportunity with also as you talked about the buyback?

I would say, Jeff, the part of the earnings lift this time was that provision. We didn't have to fund any loan growth. That's going to cost us a couple of cents every quarter, on top of the couple of cents reduction that we got this quarter. So from a normalized basis, that $0.72 is probably more in the mid-60s. So not quite into that run rate of $0.75 yet, but we do still anticipate getting there towards the end of this year, maybe into the first quarter next year.

Got it. Appreciate that. And then I guess on the expense run rate, I think we talked previously that as merit increases kind of kick in, in the second quarter, offset by maybe some -- the conversions complete. So just trying to walk through the quarterly progression, do you see sort of flat linked quarter on a core basis and then maybe in -- a little -- some savings? Or how do you see the outlook on run rate?

So excluding the nonrecurring items, we're at $29.4 million for the first quarter. So that would include some of the, I'll call them, duplicative operating expenses, pre-conversion, having 2 cores and some staff that's no longer with Civista. So we've also done reinvestment back into the company by hiring some revenue-generating colleagues, some marketing spend and some tech improvements.

So with that, we're anticipating second quarter being $29.5 million to $30 million, and then probably a little bit of an expansion maybe to $30 million, $30.7 million in the third quarter and fourth quarter.

But we have merit increases that took effect in the -- took effect April 1. So that's in those expense numbers that Ian's [indiscernible].

Okay. And so any sort of cost saves kind of offset by investment kind of getting to that run rate that you outlined?

Yes, that's correct. Yes. It's helping to fund some of those cost investments or spend investments that were just mentioned.

Your next question comes from the line of Adam Kroll from Piper Sandler.

Yes. Maybe just starting on deposits, some really impressive core deposit growth during the quarter. And just given some of the recent investments you made on the tech side, I was just curious, how large of a contributor was the digital channel to that growth and maybe just overall prospects within that segment?

Well, we think it's helping some. Most of our investments are aimed at making it easier to do business with us. So it is helping that some. We have all set up to do online account opening now with our digital apps and stuff. So we are getting that.

The bigger thing that's helping us in some of the deposit growth, at least the organic stuff, is just some of the recent disruption within our marketplace. Ohio has had quite a bit of disruption. And we think by one of the investments we made in the technology and making it easier to do business with us. And then just that disruption, it -- we think we're very well positioned, I think, to attract new clients to the bank and to expand existing relationships.

So our teams are doing a fantastic job with their calling efforts. We're being really collaborative, and we're going to market as a team. And I think through their efforts and making -- just making it easier to do business with us and that disruption, that's the reason behind a lot of that deposit growth.

Got it. I really appreciate the color there. Sticking on the funding side, deposit costs came down quite nicely during the quarter. I was just curious, are you still seeing opportunities to reduce funding costs on both the maturity and non-maturity side if the Fed were to remain on hold?

So right now -- this is Ian -- if rates stay flat on the CDs that are maturing, we're renewing those or picking up these fees at about the same. Staying with those brokers, we're not going to see that significant increase that we saw from the Q4 maturities into Q1. So we have some wiggle room on some of our non-maturities. For the most part, I think most of that's passed and we will be staying about the same.

Got it. And last one for me. Ian, I was wondering if you had the purchase accounting accretion number for the quarter?

I will have to follow up with you on that.

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

Well, first off, congrats on the retirement announcement, Dennis, and for Chuck on becoming CEO on the exciting news.

Thank you.

Thank you.

Most of my questions have been asked already, but the first one I had is on deposit competition. There's been some chatter about it picking up a little bit. Can you talk about what you guys are seeing in your markets and if there's any specific geographies or deposit categories where it's been a little bit more intense?

I would tell you -- this is Chuck. I think it's almost equally intense across almost all of our -- at least our major metro markets. Obviously, the most banked of all the cities is Columbus, so we're probably seeing a little bit more pressure there from the rate side.

But we've held our own pretty well, as you can tell by the deposit growth that we've had. And we feel like we're priced properly to continue to retain our clients and grow at that mid-single-digit pace. So it is very competitive. We're still seeing some banks with some 4 handles, and we're kind of in the high 3s right now, but we feel good about where we're positioned.

We're really just focused on relationships, growing relationships and providing value and providing solutions for our clients. And again, I think attacking the market from a team perspective by bringing different business lines into meeting a lot of our business customers, I think it's been working for us, and that's really going to be our focus. And with that disruption, I think it gives us opportunity there.

Yes. To Dennis' point, the disruption, some of the bigger players in our market, Huntington's, Fifth Third's, Park's, First Financial's are all working on acquisitions, not just in Ohio, but in other regions. I feel like their eye is off the ball a little bit on Ohio. Our biggest competition is coming from really, some of the smaller institutions. From a rate perspective, not from a, I guess, competitive perspective, but from a rate perspective.

Got it. Very helpful. And then the last question I had was in terms of credit. Any areas that have caused you guys to want to pull back at all, or any levels of concern? And do you have exposure to any end market that could maybe be exposed by the higher oil prices?

Go ahead, Mike.

This is Mike. No, we're not seeing anything that's market-specific or industry-specific right now that's causing us any concerns, especially to pull back on any areas.

Your next question comes from the line of Matthew Breese from Stephens.

I wanted to just touch on the NIM a little bit. I know you didn't have a accretable yield at your fingertips, but maybe you could help me out. To what extent the prepayment fees play a role this quarter in loan yields and the NIM? Was that a factor? And is that a factor in kind of your more stable guide in the back half of the year?

This is Ian. No, the payoffs really didn't impact the NIM that way. We got a little bit of fee income on those, just breakage fees, but nothing in the NIM. And as Dennis mentioned earlier, we have a lot of loans that are just going to be repricing in the remainder of the year. So they're going to be moving from these mid 4s into the low 6s. So that's the stuff that we saw come across the first quarter. And we'll continue to see for the remainder of the year, just some NIM lift coming from that.

Yes. The biggest NIM lift again, was the repricing of that brokered CD and the reduction of it. So we reduced to $25 million, then we repriced $100 million and picked up 36 basis points. That was -- that contributed more.

And then on the fee income side, it was just really -- most of those fees were generated by our residential mortgage teams and our leasing group, who both had much better production results than we had a year ago. So that's where a lot of the fees came from.

Understood. You had mentioned just some of the fixed asset repricing. So outside of loans that are pure floating priced off of prime or SOFR, what is kind of the cash flow schedule and maturity schedule for fixed rate and adjustable rate loans for the rest of the year? And new origination yields I'm assuming are kind of in the mid- to high 6s. Is that accurate there?

That's correct. On what's -- the repricing, we're somewhere in that 6.5% range as far as new loans going on and things that would adjust. Most of them are -- the real estate loans are written on 5-year adjustables, and the average margin on those are probably 2.75% over a 5-year treasury or so. Which will take us a little bit, maybe 6.5%, 6.6% today. And we're looking for your -- what was your other question?

Just the loans that are either fixed rate or adjustable, kind of quarterly maturities or quarterly cash flows. You had mentioned that what's maturing is going from a 4 handle to a 6 handle. I just want to get some sense for how much is going to mature this year.

I would tell you, over the next 12 months, we got a little over $200 million.

Yes. $60 million of that -- this is Rich. $60 million of that will happen in the next quarter, in Q2. The balance of it is the rest of the year.

Right.

Got it. Okay. And then you had mentioned brokered being a big area of deposit cost pickup. How much of that is maturing over the next 3 quarters? And what are the rates -- or what is the estimated rate on the stuff that's maturing?

Yes. So we have some that's maturing in April or is maturing this month. That was at 3.70%, repricing a little bit under 4%. Then we have about another [ $125 million ] maturing still this quarter outside of April. That's in that 3.80% range. And then a little bit in September.

We would stay relatively short on all of that. So it's going to reprice pretty close to where it's at, maybe a little bit higher. But again, our plan is to continue to gather deposits and reduce brokered. That helps offset some of that, too.

Got it. Okay. Last one for me is just on [ Reg E ] production that you keep for yourselves and put on the balance sheet versus pursue the secondary market and gain on sale. What is kind of the breakdown of that? And did it shift more towards gain on sale this quarter? Just seasonality-wise, I would expect gain on sale to be down this quarter, but you were up modestly. I'm just curious, how that breakdown was?

Our breakdown by number is usually -- or has been here for the last couple of quarters is about 60% sold, 40% portfolio. And I would tell you that from a balance perspective, that probably runs close to 50-50, just because the stuff that we have to hold on the balance sheet is usually some of our private banking, what I call physician loans and some of the higher balance things, higher balance construction. So dollar volume, 50-50, number, 60-40. And we feel like it's going to probably continue to trend that way.

If we get any kind of blip downward in interest rates, we'll see a little bit more refinance action. And that refinance action is normally much more 80-20-ish that would be sold versus held. But that's kind of the run rate we've had here over the last couple of quarters.

Your next question comes from the line of Adam Kroll from Piper Sandler.

Just a follow-up for me. A pretty strong start to the year on the core fee income side. And I know leasing can kind of jump around, but I'm just curious, how you're thinking about core fee income growth for the remainder of the year?

Yes. So for the noninterest income, so as you mentioned, strong first quarter, had a good recovery on the mortgage and CLF when compared to this time last year. We did have a captive reinsurance reserve release that occurred in the first quarter that would be nonrecurring and only a small amount of security gains. So when we adjust for the seasonality of gain on sale, thinking that Q2 comes in between $9.1 million and $9.5 million and then maybe increasing another $0.25 million in the third quarter just due to seasonality on gain on sale.

Your next question comes from the line of Daniel Cardenas from Brean Capital.

Just a quick question. Given the market disruption that we've seen in Ohio, what kind of opportunities is that presenting for you on the talent addition side?

It's been really good for us, to be honest with you, Dan. I mean, we've had a lot of -- not moving as far as lenders moving out, but we've reassigned some people, people got promoted, et cetera. And we've done a really good job of picking up talent from those institutions that have had some M&A activities with them. The one we still benefit from, even though it's probably the farthest one away, is the whole WesBanco/Premier piece. We've continued to get some talent from that area, but it's probably the one that we've probably got the most talent from in our entire organization.

But it's been good. And everybody is sitting around our table right now is continuing to get calls from some of those institutions to see if they got -- if we've got opportunities here. Probably our most recent acquisition came from the Westfield deal that got sold. We just -- our new Treasurer just came over and started a month ago from their institution. So it's been really good for us to be able to upgrade talent.

Excellent. And then I know you just completed the FSB deal, but as you look at future acquisitions, I mean geographically, where do you see yourself targeting?

You want to take -- I mean, I think we're going to be very similar. Our thoughts are still very similar to what they always have been. Ohio and the adjoining states is probably as far as we would look right now. And obviously, if it's fill in, it would be a little bit more preferable than to an add-on in some of those locations. But I think that we're not going to jump to Tennessee or to South Carolina or whatever. We're going to kind of stick to our knitting and stay within our marketplace right now in Ohio and the adjoining states.

Yes. And I would just say, Dan, that our first priority really is on organic initiatives that create sustainable value for the company. We made -- as I mentioned, those -- we've made a lot of investments in technology that makes it easier to do business with us. And with all that disruption, we think we're really well positioned to attract new clients and deepen those relationships.

We continue to maintain pretty good dialogue with a lot of the banks within our footprint here. But anything we would do, I think will need to create great strategic value for us and be financially compelling. But the first -- our main focus really right now is on building capacity from within and prioritizing just some of that organic development.

There are no further questions at this time. I will now turn the call over to Mr. Shaffer. Please continue.

Okay. Well, in closing, I just want to thank everyone for their investment in Civista and for joining today's call. Our first quarter results, I think, were due in large part to the hard work and discipline of our team. I'm very pleased with this quarter's accomplishments, our strong financial results and just the disciplined approach that we have here in managing Civista. And I remain very confident that we are well positioned for long-term future success.

So I look forward to talking to you all again in a few months to share our second quarter results. Thank you for your time today.

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

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 3 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 nonbroker 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 5 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 2-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 1 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 2 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] Your question is from the line of Justin Crowley from Piper Sandler.

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. So -- and we've been pretty successful in raising deposits over the last 6, 7 quarters. I think we've grown deposits 6 of the last 7 quarters. But we kind of want to -- those 2 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 1 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 1 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.

Your next question comes from the line of Jeff Rulis from 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 1 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 1 credit. So we think it's somewhat an isolated instance. I think the nonperformance actually were down for the year [indiscernible] .

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. So -- 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 2 full months of the 3-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] Your next question comes from the line of Terry McEevy from 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 5-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 5-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 3- or 5-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 3 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 1 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.

Your last question is from the line of Tim Switzer from 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 will 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.

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, the 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.

Thank you. 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 2025 earnings call. I'm 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 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 $12.8 million or $0.68 per diluted share, which represents a $4.4 million or 53% increase over the third quarter in 2024 and a $1.8 million or 16% increase over our linked 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 or a 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 onetime $1.6 million adjustment stemming from the conversion of our core lease accounting system. This nonrecurring 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 cost 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. Farmers will hold their shareholder meeting to formally approve the merger agreement on November 4, 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 Civista family.

Earlier this week, we announced a quarterly dividend of $0.17 per share, which is consistent with the prior quarter. Based on September 30 closing market price of $20.31, this represents a 3.3% yield and a dividend payout ratio of nearly 25%.

During the quarter, noninterest income increased $3 million or 46.2% over the linked quarter and was consistent with the third quarter of 2024. The primary driver of the increase from our linked quarter was a $1.4 million increase in fees related to leasing operations. This increase was attributable to a $1 million reduction in fee income resulting from a nonrecurring adjustment in the second quarter of 2025 related to the Civista Leasing and Finance core system conversion, coupled with increased leasing activity in the third quarter of 2025, resulting in a $300,000 increase in revenues.

Noninterest 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 noninterest income category.

We continue to focus on controlling expenses. For the quarter, noninterest expense was $28.3 million, which represents an increase of $845,000 or 3.1% over the linked quarter. However, the primary driver of the increase was $700,000 in nonrecurring acquisition expenses related to the merger with Farmers Savings.

In looking at our noninterest expense compared to the prior year's third quarter, while some of the line items fluctuated, total noninterest expense was virtually unchanged. The main category fluctuations for the third 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's 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 noninterest expense by $700,000.

Our efficiency ratio for the quarter improved to 61.5% compared to 64.5% for the linked 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-date.

Turning our focus to the balance sheet. For the quarter, total loans and leases declined by $55.1 million. Loan demand remained 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 decline in commercial and ag loans and a $48 million decline in nonowner-occupied CRE, both were primarily the result of the previously mentioned payoffs.

We did have a $27 million 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 ag opportunities aggressively. It 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 fourth quarter. That said, we are mindful of making sure we have the funding and capital to support our CRE growth. At September 30, our CRE to risk-based capital ratio was 288%. We have established an internal 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 were at an average rate of 9.36%.

Loans secured 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 2-story offices located outside of our central business districts.

Along with year-to-date loan production, our pipelines are strong and our undrawn construction lines were $173 million at September 30. This should allow our organic loan growth to return to an annualized mid-single-digit range 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 brokered deposits by $23 million during the quarter. This represents a $56.4 million 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 in markets near our current branch locations where we felt we had some name recognition.

We plan to begin offering checking and money market accounts during the fourth quarter. We are also preparing to roll out our deposit product redesign initiative during the fourth 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. Noninterest-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 glitches and marketing to low to 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 linked quarter. We anticipate further reducing this ratio into our targeted range of 90% to 95% once the Farmers acquisition closes.

Other than the $509.5 million of public funds with various municipalities across our footprint, we had no deposit concentrations at September 30. We believe our low-cost deposit franchise is one of Civista's most valuable characteristics, contributing significantly to our solid net interest margin and overall profitability 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 30, 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 31, 2024. At September 30, 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 1 leverage ratio at 11%, which is deemed well capitalized for regulatory purposes. Our tangible common equity ratio increased from 6.7% at June 30 to 9.21% at September 30 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.

Civista's earnings continue to create capital and our overall goal remains to maintain adequate capital to support organic growth and prudent investment into our company. We will continue to focus on earnings and will balance the 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 a 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 remain strong and our credit metrics remain stable. Civista, like most community banks, has no exposure to shared national credits nor 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 resulting in a minimal $200,000 provision for the quarter. Our ratio of our allowance for credit losses to loans is 1.30% at September 30, which is consistent with the 1.29% at December 31, 2024. In addition, our allowance for credit losses to nonperforming loans is 177% at September 30, 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 pre-provision net revenue by 45% over the previous year's quarter. After adjusting for onetime items, we expanded our margin by 11 basis points over our linked 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 towards 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 Civista and our shareholders.

So thank you for attention -- your attention this afternoon and your investment. And now we will be happy to address any questions you may have.

[Operator Instructions] Our first question comes from the line of Ryan Payne from D.A. Davidson.

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?

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 fourth quarter from where the third quarter was.

Got it. Helpful. And moving to capital. So on capital priorities post close of Farmers, it sounds like that will 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 interest?

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 grow. 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&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' wallet, and we want to focus on attracting new customers to the bank.

So our data tells us that customers with strong relationships bring in about 4x 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 enable 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 team.

So 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 we'll continue to focus on just leveraging that type of automation to help us grow the bank while just improving 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 markets, and we feel there's really a lot of organic opportunity for us as we continue to make the necessary capital investments to 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, anything impacting that this quarter? And would you expect to stay in kind of this range going forward?

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

Our next question comes from the line of Brendan Nosal from Hovde Group.

Maybe just starting off here on the outlook for loan growth. Hear you loud and clear on the mid-single-digit pace 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's a pretty meaningful ramp. Just talk about why you have confidence in your ability to achieve that.

Sure, Brendan. 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 what I would call good payoffs, a couple of companies selling and a few projects going out to the permanent market.

But our pipeline right now is sitting 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 fourth quarter. We know we've got a few more payoffs that we're kind of staring out in the fourth quarter, but not to the same level that we had in the third. 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 loan, we maintain that relationship, and we're making money in other areas of the bank. So I think that's important to note that kind of -- I sat in our wealth and trust and wealth meeting yesterday and a couple of those loan payoffs, we've got significant wealth related. We're now managing that money that the business owner received. 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. 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 we should think about that line item going forward?

Yes, absolutely. So in the third quarter, roughly $1.1 million gain on sale. It's about $850,000 of it was mortgage, $300,000 of it was CLF or 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 that lumpy stuff that we end up seeing as opposed to the more traditional gain 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 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. 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?

Yes. So if we take that $9.6 million that we had in the third quarter, if we back out the BOLI and the security gains, getting us down to about $9 million, we anticipate being about $9.2 million in the fourth quarter, and that would include about $50,000 from Farmers.

Our next question comes from the line of Terry McEvoy from Stephens.

Maybe a question on the decline in loan yields in the third quarter relative to the second quarter. Could you just talk about, is that just a mix shift you're building the residential portfolio, some pricing competition? And then looking out into the fourth 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?

Yes. So just a reminder, Terry, this is Ian, in the first quarter -- or sorry, in the second quarter, we had a nonrecurring item that was in the interest income, which is about $1 billion. And so if that gets excluded, then we end up being much more normalized on the yields on loans.

And Terry, to your point, we just got the 9/30 report. We're watching very closely the amount of loans that will 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 most of them 5- and 3-year mortgages. So we do feel we'll see a pickup 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. Thanks for the reminder and the update there. Much appreciated. And then I believe you said the systems conversion early February, could you maybe 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 deal.

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

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? Is it beginning of the quarter, towards the end? Just to kind of help us with the modeling.

Yes. We hope -- they have their shareholders' meeting on November 4, and we hope to close it shortly thereafter, definitely probably before the middle of the month. So if you're modeling, you're going to have at least 45 days for the quarter. We'll have both banks together. 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 the NIM guidance has been very helpful. Are you able to quantify at all what maybe the purchase accounting impact is on the NIM and what you guys expect from like a full quarter basis?

Yes. Let me see if I have that handy. I do not have that in front of me actually.

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?

Tim, I think everybody has 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 better deals. So it's pretty competitive across -- I wouldn't tell you there's any one market here in Ohio or Indiana that's any less or more competitive. They're all very competitive right now, both on the deposit and on the loan side.

And 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 Fifth Third, who have announced some deals out of state. And their focus is probably -- their attention is elsewhere. And then we still -- the premier WesBanco thing is less than a year old, and we just saw the Middlefield announcement yesterday. All that disruption really helps us, so in that change. So we think that will benefit us both from a loan and deposit standpoint.

Okay. Yes, that's helpful. And outside of the disruption that you mentioned, do you have a sense for the loan pricing specifically, how much of that the competition is being driven by either slowing demand from borrowers versus simply the lower rates from the Fed?

I think the demand has been pretty consistent. I mean, as I said earlier, we weren't quite as aggressive in the first half of the year just based on where we're sitting out on the balance sheet. But I would tell you demand has been pretty consistent in Ohio all year. And we -- knock on wood, the economy here, especially in the 3Cs in Ohio has been really good, and we don't see that changing anytime soon.

Yes. We feel the economy and our customers have really adapted to some of the conditions, as I stated 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 a little bit more activity as well.

And I think there's -- I do think -- especially some of our competition, I think there's a lot more confidence around 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's started to subside, obviously, and rates are starting to shoot back down.

Tim, this is Ian. On the accretion question that you had, it would be about $150,000 in the fourth quarter.

Okay. So then when we get into the full quarter in Q1, that would be $300,000.

Yes, in that range, maybe $280,000.

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

Thank you. And in closing, I just want to thank everyone for joining us for today's call and for your investment in Civista. I remain really confident that this quarter's list of accomplishments and strong financial results and just our disciplined approach to managing the company positions us 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.

Before we begin, I would like to remind you that this conference call may contain forward-looking statements with respect to the future performance of financial condition of Civista Bancshares, Inc. that involves risks and uncertainties and 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 the 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 thank you for joining us for our second quarter 2025 earnings call. I'm joined today by Chuck Parcher, EVP of the Company and President and Chief Lending Officer of the bank; 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 second quarter of $11 million or $0.71 per diluted share, which represents a $4 million or 56% increase over our second quarter in 2024 and an $847,000 increase over our linked quarter. This also represents an increase in pre-provision net revenue of $3.3 million or 37.5% over our second quarter in 2024 and a $770,000 or 6.7% increase over our linked quarter.

Our second quarter results included a $757,000 positive nonrecurring adjustment related to finalizing the conversion of our leasing division's core system. Absent this adjustment, net income for the second quarter would have been $10.3 million or $0.66 per diluted share.

Net interest income for the quarter was $34.8 million, which represents an increase of $2 million or 6.2% compared to our linked quarter. The increase was attributable to our earning asset yield increasing 13 basis points to 5.84% while holding our overall funding costs steady at 2.32%.

Our cost of core deposits increased by 6 basis points to 1.48%, which was offset by the repricing of a $150 million brokered CD that matured in late March at carry a rate of 5.8%. We were also able to reduce and replace these deposits with $125 million of CDs laddered over the next 12 months at a blended rate of 4.26% and representing a savings of 92 basis points. This resulted in our margin expanding by 13 basis points to 3.64% compared to the linked quarter.

We continue to have solid loan demand across our footprint. Our loan and lease portfolio grew at an annualized rate of 6.8% during the quarter. This was organic growth, and we believe it is indicative of the continued strength of our markets and our organization. We continued our focus on holding loan rates at higher levels to ensure an appropriate return for the use of our liquidity and capital.

Earlier this week, we announced a quarterly dividend of $0.17 per share, which is consistent with the prior quarter. Based on our July 22 dividend declaration date closing share price of $21.26, this represents a 3.20% yield and a dividend payout ratio of nearly 24%.

This month, we also announced entering into a definitive agreement to acquire the former Savings Bank based in Spencer, Ohio and the announcement of an $88.5 million follow-on capital offering. The acquisition was not contingent on raising capital, but we felt the additional earnings, the acquisition will provide would offset the earnings dilution created by issuing additional shares. We have been considering raising capital for some time and viewed pairing it with an acquisition as a great opportunity to improve our TCE ratio above 8% and reduce our CRE ratio below 300%.

The additional capital will allow us to grow our franchise by accelerating organic low-end deposit growth, investing in technology and infrastructure and future acquisitions. We were presented with the Farmers opportunity early this year and thought it was both strategically and financially compelling. We have very similar philosophies in how we view our employees, our customers and the communities that we serve.

As we have in prior acquisitions, our strategy will be to leverage Farmers $233 million in low-cost core deposits and their $161 million security portfolio to fund loan growth into Farmer's current markets, greater Northeast Ohio and across Civista's footprint. We look forward to closing the transaction during the fourth quarter and welcoming them into the Civista family.

With respect to the capital raise, we have said for some time that we would need to raise capital to support our strong organic growth. Ideally, we wanted to raise that additional capital in conjunction with an acquisition. The Farmers transaction presented us with that opportunity. We successfully closed our follow-on offering raising 76,274,000 share of additional capital, net of offering costs and issuing 3,788,238 additional shares.

The immediate use of the proceeds generated from the offering will be to reduce overnight borrowings with the longer-term strategy to convert these funds into loans over the next several quarters. We will work as quickly as possible to close the Farmers transaction and begin including the additional earnings it will provide to offset the dilution of the earnings created by the additional shares.

During the quarter, noninterest income declined $1.3 million or 16.2% from the first quarter and $3.8 million from the second quarter of 2024. The primary drivers of the decline from our linked quarter were $1.4 million in fees related to leasing operations at Civista Leasing and Finance. This decline was primarily attributable to the nonrecurring adjustments related to our Leasing and Finance division's core system conversion. The primary drivers for the $3.8 million decline from the prior year second quarter were a $2 million decline in fees generated from leasing operations due to stronger lease originations in '24 and lower residential fee revenue in 2025, along with the nonrecurring adjustments that occurred in the second quarter.

Noninterest expense for the quarter was $27.5 million and representing $356,000 or a 1.3% increase over the first quarter. This was due to an increase in compensation and is primarily attributable to merit increases, which take effect in April of each year. In addition, we made a few individual salary adjustments for in-demand physicians to get those employees into an appropriate salary range.

This increase was partially offset by declines in professional fees as we concluded our annual audit during the first quarter and equipment expense as we continue to execute our residual value insurance strategy, reducing depreciation expense related to operating leases.

Compared to the prior year's second quarter, noninterest expense declined $907,000 or 3.2%. The decline is attributable to a reduction in equipment expense for the reasons previously mentioned and a reduction in compensation expense is the result of 11 fewer FTEs. This reflects closing a branch during the fourth quarter of last year, shutting down our call center in the first quarter of this year and not replacing a few positions.

Our efficiency ratio for the quarter improved to 64.5% compared to 64.9% for the linked quarter and 72.6% from the prior year second quarter. Our effective tax rate was 14.6% for the quarter and 14.7% year-to-date. Turning our focus to the balance sheet.

For the quarter, total loans and leases grew by $47.1 million. This represents an annualized growth rate of 6.1%. While we experienced increases in nearly every loan category, our most significant increase was in residential loans, which increased by $42 million. 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. As we have shared on previous calls, we continue to price commercial and ag loan opportunities aggressively and are being more conservative in how we price commercial real estate opportunities as we try to manage the overall mix in our loan portfolio.

During the quarter, new and renewed commercial loans were originated at an average rate of 7.48%. Residential real estate loans were originated at 6.53% and loans and leases originated by our leasing division were at an average rate of 9.05%. Loans stirred 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 2-story offices located outside of central business districts.

Along with year-to-date loan production, our pipelines are steady and our undrawn construction lines were $188 million at June 30. Post capital raise and Farmers acquisition, our pro forma CRE to risk-based capital ratio will be 292% and while we anticipate maintaining this ratio at no more than 325%, this will allow us to be a little bit more aggressive in our CRE lending.

We anticipate loan growth will remain in the mid-single digit for the balance of 2025 and accelerate into the high single digits in 2026 as we leverage the excess Farmers deposits and our loan pipeline to build.

On the funding side, total deposits were mostly flat, declining just $42.7 million or 1.3% for the quarter. This was primarily attributable to one municipal customer that deposited approximately $47 million during the first quarter and transferred those funds out during the second quarter.

We continue to focus on growing core funding. In July, we launched our new digital deposit account opening platform using [ mantle ], that we expect to ramp up during the third and fourth quarters, focusing our marketing on new customers outside our current branch locations. Our overall cost of funding only increased 1 basis point to 2.32%. We continue to see migration from lower rate interest-bearing accounts into higher rate deposit accounts during the quarter. As a result, our cost of deposits, excluding broker deposits, increased by 6 basis points from the linked quarter to 1.48%.

Our deposit base continues to be fairly granular with our average deposit account, excluding CDs, approximately $27,000. Noninterest-bearing deposits and business operating accounts continue to be a focus, in addition to our new digital platform, we have several initiatives underway to gather these types of deposits, including monthly marketing blitzes and marketing to low and no deposit balance loan customers.

At quarter end, our loan-to-deposit ratio was 98.6%, which is up from our linked quarter and is higher than we would like it to be. We anticipate reducing this ratio to our targeted range of 90% to 95% and as our deposit initiatives take hold and the Farmers acquisition closes. With respect to FDIC insured deposits, 12.5% or $398.6 million of our deposits were in excess of the FDIC limit at quarter end. Our cash and unpledged securities at June 30 were $507.9 million, which more than covered our other insured deposits.

Other than the $518.4 million of public funds with various municipalities across our footprint, we had no deposit concentrations at June 30. We believe our low-cost deposit franchise is one of Civista's most valuable characteristics contributing significantly to our solid net interest margin and overall profitability and look forward to adding Farmers deposit base.

The interest rate environment continues to put pressure on our bond portfolios, at June 30, our securities were all classified as available for sale and had $63.1 million of unrealized losses associated with that. This represented an increase in unrealized losses of $5.6 million since December 31, 2024.

At June 30, our security portfolio was $645 million, which represented 15.4% of our balance sheet. And when combined with cash balances, it represented 22.5% of our deposits. We ended the quarter with our Tier 1 leverage ratio at 8.8%, which is deemed well capitalized for regulatory purposes. Our tangible common equity ratio was 6.7% at June 30, up from 6.59% at March 31.

Post capital raise and Farmers acquisition, our Tier 1 leverage ratio increases to 10.6%, and our tangible common equity ratio increases to 8.6%, which we feel gives us capital to support organic growth, future strategic transactions and general corporate purposes.

The business earnings continue to create capital and our overall goal remains to maintain adequate capital to support organic growth and potential acquisitions. We will continue to focus on earnings and will 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 do continue to believe that our stock is valued. Despite the uncertainties associated with the economy and the expense pressures on borrower space, our credit quality remains strong and our credit metrics remain stable.

For the quarter, criticized credits declined by $2 billion with the biggest movement coming from a substandard and nonperforming $7.2 billion loan payoff. We did make a $1.2 million provision during the quarter, which was primarily attributable to funding loan growth. And a $549,000 charge-off, which was associated with the nonoperating hotel loan that has been worked out. Our ratio of allowance for credit losses to total loans is 1.28% at June 30, which is consistent with the 1.29% at December 31, 2024.

In addition, our allowance for credit losses to nonperforming loans is 175% at June 30, 2025, an improvement when compared to 122% at December 31, 2024.

In summary, it has been a very busy and productive quarter. I could not be more bullish for Civista and our shareholders, given the success of our follow-on offering and our new partnership with Farmers savings. I look forward to watching our teams work together over the next few quarters to prepare farmers for a successful integration into the Civista family. Our margins remain strong, and we will continue our focus on generating more lower-cost funding. We anticipate loan growth will remain in the mid-single-digit range for the balance of 2025 and accelerate into the high single digits in 2026 as we leverage the excess Farmers deposits in our loan pipelines build.

While our newly issued shares will put some pressure on our earnings per share for the next several quarters, I am confident in Civista's ability to leverage our new capital generates solid earnings and create long-term shareholder value while meeting the needs of our customers and communities. We also look forward to welcoming Farmers customers, employees and their communities into the Civista family.

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. [Operator Instructions] Your first question comes from Brendan Nosal with Hovde Group.

Maybe just starting off here on the core margin. Actually the onetime noise that you guys called out, it more or less came in as expected, it was up nicely from the first quarter. Any thoughts on how that core margin trends over the balance of the second half as you weigh deposit competition with a pickup in asset yields on remixing?

Brent, this is Ian. So as we kind of think of Q2 going into Q3, early in Q2, we shifted our focus on our CDs into a shorter term as we expected some rate cuts occurring in the third and fourth quarters. So now our highest rate on those 3 months CDs as opposed to 7 and 12 months that we're doing earlier in the year.

Also, we have a good amount of loans that are coming up for repricing as they come forward into the year, that's going to be helping us also. We have about $50 million in the third quarter, another $50 million in the fourth quarter. They're going to reprice up about 150 basis points. So as we factor in those as well as the immediate benefit that we get out of that $75 million of capital that's paying down borrowings immediately. That's going to pay off near 4.5% of the borrowings.

All in all, we expect our margin for the third quarter to come in maybe low to mid 3.50%, so somewhere around 3.52%, 3.53% and then expanding a little bit more in the fourth quarter.

I appreciate the color there. That's helpful. One more for me before I step back. Can you just update us on the competitive environment and how it's evolved for both lending and funding, we're hearing that several larger regionals are starting to step back into certain asset classes and trying to grow loans again. So I'm just kind of curious what your experience is.

We're seeing some of the same thing you're just alluding to. I think the regions are getting a little more aggressive. I think the WesBanco Premier thing as it kind of settles through, I think WesBanco is going to get a little more aggressive as well. We are seeing some opportunities in the marketplace because of that acquisition, both with talent and with new clients. So we look forward to that, but it is a very competitive market across both deposits and lending.

Your next question comes from Terry McEvoy with Stephens.

Dennis, you said in your prepared remarks, you're seeing solid loan growth across the footprint. Could you just talk about maybe specific markets or sectors that are behind the demand? And were you maybe a bit more selective on loan growth in the second quarter, given the loan-to-deposit ratio? And I think that kind of feeds into your optimism for accelerated loan growth next year?

Yes. I think we've been viewing loan growth for a while. Now a lot of that loan growth in the second quarter was residential loan growth. We've been muting kind of the CRE just because of our -- the higher concentration. So I think the additional capital is going to help us accelerate that organic growth. And we felt we were kind of at a point where we needed to do something to be able to accelerate that. We know that the next quarter or 2, we'll probably take a step back as far as EPS growth and things like that.

But then we really look long term, we think we can accelerate it and keep growing that and improving our ROA, improving our earnings and stuff. So we do see loan growth accelerating because there's a lot of opportunities over the last year to 18 months that we passed on. The opportunities are really throughout our footprint. Ohio has really become a business-friendly state. So we are adding jobs all throughout the state, there's been some significant companies announced investments into Ohio. So we feel really bullish on that, and we see that with our loan demand. I mean we see our lenders bringing in stuff from all across our footprint. So I'll let Chuck here comment to see if he has other comments, he's probably even closer to it than I am.

Well, I just think -- I think Dennis alluded to it, but the nice part of Ohio right now is the three major cities, Cleveland, Columbus and Cincinnati are all doing quite well, all expanding marketplaces from a jobs perspective and from a population perspective slightly. So we feel good about that. We really never saw any, what I would call, major deterioration in our office, even though we don't have much Central City office with very little at all. All of our office really held in there pretty good, the demand around, especially the suburbs of those three cities and then you throw in Dayton and Toledo are doing very well as well. So we feel good about what where we're positioned inside the Midwest right now.

And then as a follow-up, Dennis, thanks for running through some of the deposit initiatives. I believe it was last year when you announced a few other initiatives, one, I believe, with the state of Ohio. Can you just talk about the last year's deposit growth strategy in those initiatives. Are they at capacity? And then what do you think some of these newer initiatives can add to the balance sheet over the next few years?

Yes. Some of the things we did last year are probably at capacity. I mean, they were specifically like Ohio homebuyers was a specific program and stuff. So I think some of the new initiatives we are limitless for us. We've made a big investment into this mantle product. And that's a new deposit account origination system that really can expand our footprint and stuff and provide people in just an easier way to open accounts will initially lead with, as Ian was alluding to, when he addressed the margin question, a kind of higher rate CD to attract people. But that's still cheaper than some of the broker deposits and borrowings that we have. So the goal was to raise enough deposits to kind of keep pace with our loan growth.

So that was a significant investment. We already talked about targeting these low and no deposit balances. I think in our strategic plan, we have -- we call for maybe hiring some more treasury management officers. We've had great success and growing -- adding deposits and growing the fee income over the last several years. So that's one of our initiatives, and we'd like to kick off and stuff.

Maybe some branch -- adding some branches in areas where we've identified where we think there's growth and opportunity for us. So there are just a number of initiatives that we've outlined in our strategic plan that we are starting to execute on some of those, they take a little while to take hold, but hopefully, we're able to execute and increase our deposits to help keep pace with a lot of that what we see on the opportunity on the loan side.

Your next question comes from Tim Switzer with KBW.

I've been jumping around calls. So sorry, if this is already covered. But after adjusting for the onetimer in leasing fee income this quarter, still a little bit below what we had, and I know that line item can jump around quite a bit. Can you give us an update on maybe what we should be projecting going forward there?

Chuck, if you got thoughts on that?

Well, I think -- I mean, I think our gain on sale and mortgage will continue to stay relatively consistent. And we're hoping the back half of the leasing year will be a little bit better. I think Trump's Big Beautiful, whatever you want to call it, Bill, brought back accelerated depreciation. We feel like the back half of the year on the leasing side, we'll have a little more volume there from that perspective. So...

Pipelines are a little bit up -- they're reporting. So we don't have probably a real good number for you yet, Tim, but it's been very lumpy. So for us because we've been just tweaking like I said, we did the core conversion and there too. So that's been a little bit -- it just made things lumpy, but we'll see if we can get a better number and provide some guidance here to everyone little bit later.

Yes. This is Ian, just to add a little, I think the first half, as Dennis just mentioned, was slow because of the CapEx spending on businesses on the leasing side. And then also, I think our sales team just had some distress because of our core system conversion. So as we take those two items away of getting bonus depreciation put in, maybe a little bit more comfort on what the future looks like with tariffs. We do expect to see that business rebound in second half.

Okay. All right. That makes sense. And you just touched on my next question related to the tariffs. Have you guys done kind of like a good deep dive into your loan book, see where you have exposure, if any? And what were the results of that?

We did look at it, and we've had quite a few conversations with our -- especially our larger manufacturers, believe it or not, most of them are optimistic. I feel like if we do bring more stuff into -- back domestically from overseas that there's opportunity there. Almost all of them said the capacity isn't there right now, take on all that work, that would all come back tomorrow, but most are optimistic.

Now at the same time, as what Ian just alluded to, CapEx spend, everybody is still kind of waiting to see how it totally plays out and at least CapEx spending for our, what I would call, major middle market borrowers has not accelerated yet to look at that. I think everybody is still waiting a little bit to see how it totally plays out.

[Operator Instructions] your next question comes from Manuel Navas with D.A. Davidson.

Loan growth was a little bit higher through May. Was there some payoffs in commercial by the end of the quarter in June? Just trying to understand that shift.

Yes. Not anything drastic from that perspective. Our run rate has been pretty consistent, Manuel. So I guess, I don't know what are you picking that up from, I guess, the...

I guess the update through May, I think, had a little bit more loan growth. And the mantle initiative, is there any numbers around that so far in terms of amounts that is brought in here in July? Or just you've just been pretty excited about how it...

Yes, we don't really -- we just kicked it off July 7. So we do see some positive pickup in CD balances, but we're 2 weeks into it. So there's -- it was nothing major, like we haven't raised $100 million of deposits. We've got lots of employees in our family so far.

I appreciate the commentary on leasing recovery. Is that also impacting the loan balances as well or the lease...

On the leasing side, yes. .

Yes. So yes, on the leasing side, we sell about half of them. And so that would increase our leases that go on to the balance sheet too, if that's what your question is.

And then in the average balance sheet, was there anything interesting going on in deposit costs? It seems like CDs came down, but then your other line kind of saw a jump in deposit cost. Is that just some of the public funds? Your overall deposit costs were fine, but does it seem like some of the geographies shifted around.

Yes, we have seen a little bit of shift in some larger deposits that are in some of the different pricing buckets for public funds.

That goes back, I guess, to the competitive environment remain while, some of those higher deposit balances, we've had to tweak up. We kind of have priced into our effective Fed funds rate, but we did see a little bit of shift in some of the higher deposit balances. Discount to the effective funds rate. We still discount to that, right.

There are no further questions at this time. I will now turn the call over to Dennis Shaffer for closing remarks.

Well, in closing, I just want to thank everyone for joining us for today's call. The quarter is strong. We had this quarter's strong financial results. Our announcement of the Farmers deal and the follow-on offering were due in large part, just a lot of hard work and discipline from our team. I'm really confident as we move forward that we continue to improve on our strong core deposit franchise and we take this disciplined approach to managing the company. And I think it's just going to lead to a lot of long-term future success for us. So I look forward to talking to everyone again in a few months to share our third quarter results. Thank you for your time today.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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 in 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 this call.

Additionally, management may refer to non-GAAP measures, which are intended to supplement, but not substitute the most direct 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. Civista management team will take any questions you may have.

I will now turn the call over to Mr. Shaffer. Please go ahead.

Thank you. Good afternoon, this is Dennis Shaffer, President and CEO of Civista Bancshares. We are excited to discuss yesterday's announcement on the acquisition of Farmers Saving Bank based in Spencer, Ohio and the $70 million follow-on capital offering, an investor presentation was posted with details of both. I'm joined today by Chuck Parcher, Executive Vice President of the company and President and Chief Lending Officer of the bank; Ian Whinnem, SVP of the company and Chief Financial Officer of the bank and other members of our executive team.

I'm going to start with giving an update on the progress we've made to our refreshed strategic plan that we completed in the middle of 2004, and then I will discuss the acquisition and the capital offering and how those fit into the context of our strategy. Our strategic plan consists of 4 pillars. The first pillar is to grow deposits and relationships, which we view as the fuel and allows us to grow the company. Within this initiative at the end of last year, we selected the man online deposit account origination platform to replace our previous online solution. The oral solution will provide a fast and secure deposit account opening solution that is better than most community banks and it's comparable. So in some cases, even better than those larger banks, and we just rolled that product out July 2. So in addition, we also have a treasury management team focused on gathering customers core operating accounts and the company remains focused on growing deposits and relationships. Our second pillar is to transition digital to bring the bank. In addition to the label product, we need additional digital investments with hard monitoring. We have not had any significant losses but know that the threat exists and the threat is increasing. With this investment, we expect to protect our customers' deposits and their losses. In addition to mail and the fraud prevention, we also have access to the Q2 marketplace for partners of our online banking platform are available for quicker integration.

Our third pillar is leveraging technology to optimize profitability. We have been making investments in technology for items such as robotics. We'll utilize robotic process automation for some simple reconciliations in our finance area. They also for quality control work within our loan operations areas just to name a couple of examples. We feel utilizing this type of technology will enable us to scale more efficiently as the company grows. We have also been investing in data, which has provided helpful information to our sales teams on opportunities and have brought in some new younger colleagues with their education and data analytics that are helping us move this forward.

Another example would be in the finance team area where we have created a new reporting that provides information faster to senior leadership for better decision-making and a new budgeting and forecasting software. And then our fourth pillar is to really invest in our people and invest in talent to drive our growth. We have been very successful with this color, making investments into colleagues with experience in many cases from larger institutions where they have deep books of business.

In addition, the market disruptions from recent acquisitions in our footprint has created opportunities for us to attract some new colleagues. Beyond the progress by success of our strategic plan, we continue to see growth within our footprint that -- in which we have presence in the 5 largest MSAs in Ohio. For those of you that were aware over the past few years, Ohio has become very business friendly. We have seen many companies announced that they are bringing jobs into Ohio. Integral industries, a defense contracting company that specializes in drone technology has announced they are now bringing 4,000 jobs to Central Ohio. Intel, a semiconductor company continues to build their new plant also in Columbus area, which will bring around 3,000 new jobs. National resilience is creating about 1,000 new jobs with their facility expansion in Cincinnati area. And in addition, Ohio has become a national leader in data centers, hosting over 180 data centers from Google, Meta, Amazon and Microsoft, just to name a few of the great things happening here in Ohio.

Turning towards the transaction at Farmer Savings, opportunistic M&A has always been a core part of our strategy. And as many of you know, we continue to build relationships with banks throughout Ohio. In the City of Ohio, there are approximately about 160 banks, of which 100 or so are less than $500 million in assets. This positions Civista to be the consolidator of choice as the larger banks in the state are too big to be a good cultural fit for these smaller institutions. Specific to Farmer Savings, why I would not characterize our relationship for Farmer Savings as long-standing. We have developed a strong relationship with Tom Lee and his team since being presented with this opportunity earlier this year. We have very similar philosophies in how we view our employees, our customers in the communities that we serve.

This transaction will allow Civista to strengthen our core deposit franchise and leverage the liquidity and farmers deposits and security portfolio will provide to lend in the farmers savings current markets, Northeast Ohio and across Civista's footprint. We have said for some time that we will need to raise capital to support our strong organic growth. Ideally, we wanted to raise an additional capital in conjunction with an acquisition. This transaction presents us with that opportunity.

And yesterday, we also announced a $70 million follow-on capital offering. Included in the investor presentation that was released, we outlined several strategic priorities. This additional capital will allow us to address, including bolstering our tangible common equity, reducing our CRE concentration, allowing us to continue our strong organic loan growth as well as positioning us to opportunistically pursue M&A. While the acquisition was not contingent on raising additional capital, we believe the combination of these transactions check all the boxes with respect to the strategic objectives we've outlined the and communicated.

Since our last M&A transactions, which were the acquisition of Community Corporation in July of 2022, Envision Financial, which has begun our leasing division in September of 2022. We have been focused on successfully integrating those acquisitions and growing our combined markets. The success of these transactions is evidenced by the organic loan and deposit growth we have achieved in the Toledo MSA and across our footprint as well as growth in our leasing presence across the country over the past 2 years. We have often stated that we would only consider opportunities that both strategically in our financially compelling. Farmers Savings is such an opportunity for us.

Before we go through a brief review of the transaction rationale and our model assumptions, I want to personally thank Tom Lee and the Farmers Savings team for working with us over the past several months. It has been a pleasure, and we look forward to them joining the Civista family and partnering together to realize this tremendous opportunity.

As we've outlined on Page 5 of the presentation, this transaction adds 2 branches in Northeast Ohio with $183 million in low-cost core deposits, approximately 14% of which are noninterest bearing. This will provide us with highly attractive low cost core deposits in Medina and Moraine counties, almost 46% loan-to-deposit ratio and our $161 million security portfolio will provide ample liquidity to expand lending opportunities impeded in Medina and Moraine counties and throughout the Civista's footprint.

Other key provisions of our agreement included an adjustment to the purchase price should longer-term interest rates, increase prior to close, and farmers security portfolio lease value. There is also a key shareholders have also signed deposit retention agreements in addition to the more customary share lockup agreement.

We have listed on Page 6, the criteria we use in evaluating potential acquisition partners, while farmers is on the small end of our desired asset range, we believe it meets each of the criteria we consider in evaluating viable M&A partners.

On Page 7 is an overview of farmers showing how it fits into our footprint and adds to Civista's strong core deposit franchise with its 1.72% total cost of deposits, high percentage of nontime deposits and a strong deposit market share in both Spencer and Wellington. While there's execution risk in every transaction, we view this as a very logical and a low-risk opportunity. It builds in our existing footprint, which allows us to leverage Civista's main recognition. We believe they're low loaded deposit ratio will allow us to execute a strategy. We have successfully used in our 2 most recent bank transactions funding those credit needs within Medina and Moraine counties and using the excess funding available through their excess deposits and by liquidating their security portfolio to originate loans across our footprint.

As you can see on Page 9, Farmer's loan portfolio does not significantly alter the pro forma loan portfolio. We will, however, have the opportunity to mark their loan portfolio to market, picking up yield as we amortized nearly $6 million in estimated interest rate marks into income post acquisition. It's not often as we've been able to reduce our cost of deposits for our acquisition.

But as Page 10 shows Farmers provides us the opportunity to reduce our loan-to-deposit ratio and our cost of deposits while meaningfully providing us with core deposit funding that we will use to reduce wholesale funding day 1 and convert into loans over future quarters.

Page 11 provides a summary of how we analyze the transaction. The consideration for the deal is 1,434,491 shares of our stock and $34.925 million of cash before any adjustment. There is a purchase price mechanism as farmers tangible equity is not $56 million at closing. Today, this represents approximately $67.3 million. The transaction metrics are in line with current comparable M&A deals. What was important to us is 10% accretion of the fully integrated and synergies are phased in, in a very manageable tangible good grade value drawn back in 3 years.

And let me go back and there's a $67.3 million is the aggregate value of the deal. So I want to make sure that, that was clear, it was not related to the equity. Finally, we have level cost savings at 30%, which we believe is conservative, while recent deals have been gaining regulatory approval much more quickly, we have modeled a closing date of December 31 or before. We are in good regulatory standing and farmers doesn't have a holding company, so we believe we can accomplish closing this year. Again, we are extremely excited to be able to make this announcement today and look forward to farmers, employees, customers and communities becoming part of the Civista family.

With respect to the $70 million follow-on offering, the terms of our following on offerings are outlined on Page 13. And again, the acquisition is not contingent on raising capital. As mentioned earlier, we spent a better part of 2024 updating our strategic plan and part of that was looking at our capital stack. As a Board and management team, we have evaluated various capital alternatives and believe long-term permanent capital is the best solution for Civista and its existing and potential new shareholders.

We outlined in the deck on Page 19, the last 10-year history of Civista. And as you can see, we have a proven ability to grow organically and successfully integrate acquisitions. We believe there will be no shortage of opportunities on both of these funds. As mentioned earlier, we operate in all 5 major MSAs in Ohio, Cleveland, Columbus, Cincinnati, Dayton and Toledo and in the surrounding small town communities similar to Spencer. For those of you less familiar with Civista, we have included an illustration of our footprint on Page 14 as well as including a summary of the sources that drive our diverse revenue stream.

On Page 16, we outlined Civista's strong financial trends over the past 5 years, fueled by our low-cost core deposit base. Our transition away from our third-party tax refund processing business at the beginning of 2024, coupled with continued strong organic loan growth, causing a temporary increase in wholesale funding that we have successfully reduced over the course of the past 3 quarters. We continue to focus on driving earnings through the disciplined management of our net interest margin.

Page 17 illustrates how we have managed our better-than-peer top quartile net interest margin over the past several years. Non-owner occupied commercial real estate loans have been a post-pandemic area of investor focus, particularly office space and central business districts. Civista is a CRE lender.

Page 18 breaks down our loan portfolio at March 31, showing 23.4% of our total non-owner occupied CRE portfolio was made up of combination of dedicated office -- health care office and mixed use office loans, nearly $16 million of these loans were located in central business districts. Our disciplined approach for managing the company continues to yield strong core earnings, and we believe the opportunity is created by the acquisition of Farmers and the additional capital raise in this offering will position us well for the next several years. While we always been well capitalized by regulatory standards, this capital offering will address our lower-than-peer tangible common equity ratio. We continue to believe Civista runs fast in the 7.5% to 8% TCE range. The follow-on transaction and our track record of solid quarterly earnings gets us back into a TCE range that is comparable to our peer-leading proxy peers that we compare ourselves to as well as reducing our CRE to risk-based capital ratio below 300%, which we believe has created reluctance from some investors not familiar with Civista and our management team to invest in Civista.

In closing, let me summarize. We believe the strategic initiatives discussed today position the company well for future growth. Civista is positioned with enough capital to drive significant growth in the coming years of both EPS and tangible book value per share. The acquisition of Farmers is accretive and is timely. Going in -- going the Farmers acquisition allows us to neutralize the dilution that is normally associated with a stand-alone follow-on stock offering. The acquisition and stock offerings together are expected to reduce our CRE ratio from 362% to 297%, improve our TCE ratio from 6.6% to 8.4% and provide liquidity to increase loan growth in the short term to meet short to medium term.

We will now ask the operator to open up the lines for questions.

[Operator Instructions] First, we will hear from Brendan Nosal from Hovde Group.

So maybe just to start off here, a couple on Farmers itself. Maybe looking at their loan book, there's a lot of 1 to 4 family in their portfolio. Can you just kind of walk us through the characteristics of that 1 to 4 family book? And then if you see any opportunities to maybe sell out of some of that position to more rapidly remix their earning asset base.

This is Michael Mulford, the Chief Credit Officer. Yes, the 1 to 4 family is mostly 30-year first mortgage loans and some 15 years second mortgage loans. I don't think they have any home equity lines.

And I would say -- this is Chuck, Brendan. I mean, it's a lot of stuff on a lower rate, and you'll see in deck in the [indiscernible] transaction, we've got a $6 million interest rate mark on that portfolio, most of it in that -- on that resi piece. So I don't see where we're going to have a lot of opportunities to sell out of that product. I think we'll hold it to term to $6 million over the life of those loans, just much like our portfolio here, if we get a different interest rate on the mortgage side, and we have some of that we can go back out and try to refinance into saleable products, we'll do that. But I think most of those are going to be on the books for a while.

And then most of those are, in fact, pretty good loan to values. They did a really good job of getting equity into the deal or -- so most of them were at pretty good loan-to-values.

Maybe one more on the funding base. Just kind of curious, your own thoughts on the deposit. It's obviously quite low cost. But I guess given the cost, there's more time deposit in that mix than I would have expected. So maybe just kind of speak to why they're able to keep funding cost so low given that mix and then your line of sight to maintaining that lower cost despite seemingly higher cost products.

Yes. I think the whole banks have seen kind of a shift from noninterest-bearing into savings and time deposits and things like that. Their jumbo times deposits are a little bit higher, primarily because the Lee family has a significant deposit relationship at the bank. And part of the deal does include some lockup agreements on deposits for 2 years. They need to maintain those at the bank. Tom and Reid Firstone, the Chairman, Tom Lee and Reid Firestone both grew up in the area, they're really well, well connected. They are going to be great ambassadors for the bank. They know everybody in town and in Spencer, Farmers is the only bank in town. There are 2 other banks in Wellington, but that Tom's hometown, and he's really well connected. We feel that we're going to maintain all of those deposits, all the -- the plan to retain most of the employees, and they are the ones that have the relationships in those communities. And we feel really good about the deposit base. We're not concerned at all about the deposit mix, the cost of the deposits is drills 20-some basis points less than our deposits. So we feel really, really good about that deposit portfolio.

Okay. Excellent. I'm going to sneak one more in here. Just kind of curious with the fresh slug of capital that you folks are raising right now. Any thoughts on the desire to restructure your own securities portfolio with that fresh capital?

No. No. We don't feel that we've talked about that. We don't feel that's the best use of capital. We'll play around the fringes, but we would have done that with or without any capital, but we may do $30 million or $40 million a year or something. But we don't feel that's the best use of our capital. Our best user -- the reason we're raising capital is really to accelerate growth in the company, one through acquisition and two, organic growth. We've been muting loan growth for some time over the last year or 2. And we've been telling you we're going to do 4% to 5%.

We won't pass -- we've been passing up on some opportunities of the conditional capital, lower debt CRE ratio 297%. So we're going to manage that. We'll go back above 300%. We'll go into the 325% range probably if we will manage that, but it does allow us to, I think, continue to grow and not pass up on certain opportunities. Where we're at today at 362%, we've been managing them to not go above 370%, 375% . So there are some deals, I think that some good deals that we passed on. So what we think -- and our modeling doesn't have any of this growth budget in India, we haven't even sat down and budgeted that, but that the intent is really on the capital raise is to accelerate the growth of the company.

Next question will be from Justin Crowley of Piper Sandler.

Just on that point of accelerating growth, how should we think about just the overall pro forma loan growth rate going forward? With capital now less of a limiting factor? Is the demand there at present to see that pace of growth move beyond kind of that lower or mid-single-digit level that you've been running at?

Yes. Justin, it's Chuck. I would think that we'll model going into next year compared to this year modeling low to mid-single digits. I'm pretty confident that we'll model more into next year, mid- to high single digits. We've -- as Dennis mentioned, that's freeing down that CRE concentration is 297%. It is a big move for us and feel really good about it. We've been trying to manage into that 370%, 375% month to exceed that. Obviously, we are a CRE bank, we will let that drift up for a little bit. We're going to try to manage the company around that 325% number into the future. I think in a few years to get there, obviously. But I would -- what that does, it really allows us to do a few more deals here looking forward. If I look back the last 12 months, just because of concentration issues, we have passed on some really nice deals that we probably would have done. The one thing we're not going to do, though, is we're not going to let the loan growth far exceed our deposit growth. So as long as we think you grow the deposits commensurately you'll see our loan growth projections move upward.

But we think we can accelerate that deposit growth. So not only this transaction with farmers to bring some much-needed liquidity. But now we've kicked off this mall project. So while we entered into agreement with in late December of last year, for the first 6 months of the year to make sure we have all our controls in place. We've launched that. We think that, that's going to expand our digital footprint allow us to expand our footprint digitally, and we think that's going to accelerate the loan growth. We're working with -- with them, there's -- we can change our marketing efforts, but it's to these areas that we're not in. And we're going to lead with a CD product, and it will be a -- you've got to attract to lead with rate right now, but we're still in a borrowing position. Remember when they paid 4.38% on those funds. So any funds that we attract digitally even through a higher rate CD that we can do cheaper than what we're borrowing so we can save 20 -- 25 or 30 basis points, we think that's a pause. And we think that we'll be able to attract and then try to turn some of those folks into relationship accounts.

Okay. That's helpful. And then somewhat related. I guess what's the update you provided on 2Q results. On a core basis, looking like it will be flat to down as far as the margin. Can you just talk through what you're seeing there, particularly on the funding cost side? Dennis sort of to the point you raised, I know the idea has been replacing broken money to get some expansion here for at least stand-alone to this. So just wondering what else might be a play there.

Yes. Justin, this is Ian. So in addition to the funding costs for the CD funding, it is still coming in cheaper than the overnight borrowings that we had. So we're getting a benefit from that side of things. Of course that's working against us and on the lending side, the loan growth that we had was more in the beside of things as those construction loans just continue to build out those rates are in spreads, a little bit tighter than the commercial side.

Okay. Got it. And then maybe just last one. I know that in hasn't drive here yet on this latest deal, but in terms of your thoughts on using M&A to build scale going forward, to what extent would you say this transaction put you on the sidelines for a period of time? How do you think about that as you look into the future?

Yes, we don't think it puts us on the sign range at all. It's a fairly low risk, one, it's a term loan risk transaction. Remember, we got $106 million of loans, 68% of their book are single-family loans. We don't feel there's not much risk at all in that -- in the loan book. And it takes 3, 4, 5 months to get to this stage. So some -- that were the break today, it's going to be 4 or 5 months before we announced it. So we don't think it puts us on the sidelines at all. There's plenty of capital in this -- we'll have plenty of capital in industry TCE to about 8.4%. We're generally our earning, and we have some pretty good earnings, so we can a little more continue to generate capital, which will help our TCE. So we think that there's room to do another deal. In the past, we've always said let's do this deal in stope integrate. This was a very well run bank, so they all don't have any issues, in fact, create people. So I think the integration is that going to go very well, and it's not going to hinder us from if we want to do another deal. .

Next question will be from Tim Switzer at KBW.

Congratulations on the deal. You guys have mentioned a few times, you have the possibility of how this positions you for more M&A. Can you kind of review the criteria you guys would be looking at for another transaction, especially on the geographic markets you find the most attractive here?

Yes. You go the investor deck, we outlined that Tim on Page 6 and just to get on a couple of the region, the ideal and the beauty about the partner deal is to check every one of these that we got on year 8 to 11 or 12 things are criteria. I mean, if checks every one of those boxes. But we generally would like to find banks that do have a lower loan deposit ratio. We may not hit as well as Farmers was, but if we could find something in that 70%, 80% of the loan-to-deposit ratio range, something that have reasonable deposit costs.

We always want to be able to be accretive. Earn back in a reasonable period of time, usually less than 3 years. What operationally -- we needs to be operationally compatible. We want things that we believe are a strong cultural fit. And in the Farmers deal, we think it's definitely a cultural fit. So there's just a number of things. We don't want to buy something that's broke with a lot of credit issues. So it needs to have manageable cutting issues, Farmers have really credit. So -- but our criteria is at least they have managed most stuff. Now when you look at the deals, obviously, we lay all this out and the next year, we announced could be -- could be the exact opposite. There may be some reason that can help us to do that. But if you had to ask me to lay out that criteria, this is what we look for. And there's opportunity within our footprint. And remember, our footprint is not just Ohio, we would go into Eastern Indiana, Southern Michigan, Northern Kentucky, Western PA.

So it's not yet solely Ohio. But we do think we can be the best consolidator within this footprint we ran out. And frankly, we'd like to do a little bit bigger deals. One of the things that we're trying to do through acquisition is get our market capital is even above $500 million. And we think that's going to attract even more investors because I meet with a number of investors that has told me that their minimum to invest, you have to have at least a $500 million market cap. So we think that's a plus 2, and that might be our next deal or so. So who knows, but we really are happy to just deal check all those boxes. And see, the fact that this was a negotiated deal and the fact that we've been having a lot of conversations with a lot of other banks. We're hoping that this is an impetus to 1 or 2 more negotiated deals in the near future.

Right. Got it. And then I'm going to be a little bit more near-term focus here for a second. Can you explain some of the drivers behind the stable to lower NIM in Q2? And then what we should expect going forward?

Yes, absolutely. So in terms of Q2, let me just look to Page 9. So for the first quarter, our net interest margin were as I mentioned, we had good success with deposits and shifting our focus just after we had our earnings call in that early part of April, we started shifting our focus on a 7- to 12-month special on CDs into shorter term, really where our best grade is right now is at 3 months and 6 months. And where those are is a higher rate just as we look forward and saw rate cuts coming in June, September and December at the time. We went to just be have a little more optionality and makes that we had our deposits able to reprice if that happened.

In terms of -- and I also did mention the loans, our loan growth occurred in a lower spread product with those mortgages as opposed to commercial real estates. That's where the compression happened on the event. In terms of the -- as reported versus core, we had 2 nonrecurring items within the quarter One of them being we did a system conversion on our leasing platform. And as we do that conversion, working through the reconciliation of that a true-up on the balance sheet that was needed as we were some loans on that leasing platform that is over-amortized. And we trued up the loan side have to adjust the income statement positively at interest income, and that provides a positive difference between the gap in the core.

The second item is a reserve we have established in the third quarter of 2024 for a reconciling item. As we went through the reconciliation process, we did not need all of the reserve that was established. So we brought some progress back into income has made our credit to expenses. Both of those items reclassified immaterial. But due to the transaction, we felt that was appropriate to break it out between the gap in the quarter. So on the earning side of things, first quarter, we reported net income of $10.2 million and earnings per share of $0.66. In the second quarter, we're expecting net income to be about the same on a core basis and to exceed on the as reported. And on the EPS side, we expect to report about the same as the first quarter on a core basis and to exceed second quarter on the as-reported basis.

Next question will be from Manuel Navas at D.A. Davidson.

Staying on the topic of kind of near-term trends. Deposits did come down a little bit. Is that more a function of kind of like brokered paydowns? Or what else is driving it because you're saying that you're bringing in CDs just kind of what drove the deposit paydown or deposit come down a little bit so far into May and the increase in borrowings?

Yes. So a little bit feasibility in here. So we did have a large deposit at a rate for the end of March that ended up leaving but the upper fund deposit is leading for different funding options in the month of April. So it's just there for a corporate time prints unnatural list at the end of the first quarter. After that, we seasonality due to public funds even the tax payments in the January and July periods. So the rule is going to spend down as you end up in the under first and into second quarters before they get that replacement from tax dollars. What we are seeing, though, is that -- is mentioned earlier, we did launch the mental CD pricing product. And so what this does is allows nice quick account opening where we're launching with CDs right now.

We have the product itself, the full KYC where it does a good verification of fraud detection of any fraudulent account openings that also has funding built into it using the flat software so that we get automatic funding from trusted sources. With those, you end up getting good core deposits that we'll then have good knowledge of the customer and the ability to then cross-sell.

We want start on July 2, already seeing very nice results with that. We are targeting that along with using the preferred marketing companies that made recommended, which includes some social media and online advertising in our rural markets that are a little bit more sparse and away from our branches, but still have good name recognition. So we're expecting good deposit growth in the second half of the year from that.

Okay. That's good color. I appreciate that. You also asked -- you talked a little bit about the loan acceleration, but it's actually pretty impressive. But it seems like it's largely almost seasonal. Is that the main reason it's like seasonal resi base? Is that why you about raising the loan guidance even more -- not that you did -- how it's going to be eruption related?

I think that -- that's a little bit why the balance is they're starting to draw on some of those construction loans that are on the books. So there's no saleable construction product we have. We've looked for some, but it's probably not a good saleable loan products. So we end up booking those onto the books. And then they -- eventually, if we then get, some rates would dip maybe 0.5% or so. We -- they most likely refinance into a saleable 30 years or 15-year deal.

Yes, the same our mix was a little heavier in the residential and that would normally want even from a growth perspective, as Dennis alluded to, our construction product goes on the books. Our physician loan product goes on the book, which we have a really nice product. And then our CRA product goes on the books, too. I would see us do a lot of no-cost refinance off the balance sheet. As Dennis mentioned, if we could give a little bit of great relief here in the future on the long end of the curve.

Yes, that would be great. And the more of the on balance sheet growth acceleration for next year?

Correct. Even if we start to ramp it up now, you're not going to -- we're not going to see the effect of that at least probably ended the late third quarter or early fourth quarter in the next year.

Am I reading this right, like you locked in the jumbo deposits about $50 million from the acquisition for 2 years? Are there...

No, not 50.

Not half of it.

We're about $24 million.

Okay. It's pretty low cost. [indiscernible] price increases?

No. I mean, it will adjust to whatever our rates are at that time. So I think it's lower cost because a lot of it did a little bit longer-term CD. So as they mature, those will go into wherever we're at. And right now, the higher rates are on the shorter-term stuff the lower rates we wondered if they chose the same term and stuff that would still lock in at rates very comparable to what it is today for them.

Okay. And the -- you talked about being a little conservative on the cost save at 30%. Can you just talk about where you're getting it and where you can see it possibly some outperformance?

Yes. So 30%, we feel good about -- it's a relatively small base. So noninterest expense for Farmers is about $4 million, so 30%, it's not $1 million. We're going to see that from some contract cancellations, primarily in the -- the corporate officer with Jack Henry. After we do that syetem conversion in the first quarter of '26, then we'll be able to end that contract and start to realize the savings. And as Dennis has mentioned that their CEO will be retiring. We'll be getting some savings out of that also. That's the main constituency.

We're planning on keeping most of the people. So from a people perspective, they're very valuable to us, and we were trying to keep most of those people and stuff. So again, any smaller deals, it really comes out like CEO because he's lowest, highly compensated person. And as Ian mentioned, today, the contracts, the cor and the integration should go very well because they're a Jack Henry Bank. Their 2020 and we're silver Lake. We're just the next version up. So we think that integration will go well too.

Yeah. And at that,as mentioned, we do plan on keeping the customer facing colleagues, all of them because it's important that is going to be for that community and for those customers.

[Operator Instructions] Next we will hear from Terry McEvoy at Stephens.

This is Brandon Rud on for Terry. Most of my questions has already been asked, and maybe just 2 quick modeling ones. Do you have the period over which the credit and rate marks on the loan portfolio will be accretive to NII. I think you typically see 5 years, you said maybe in the 1 to 4 families. So I'm assuming it's a bit longer than that.

Yes. No, there'll be a little bit longer. So you're right. It's interest rate side that are mainly beyond those mortgages. As Chuck had mentioned, it originated when rates were really low, and that low to mid rise. These are in rural markets. So you can have pretty slow prepayments on those. So we expect those to kind of have that longer life in that 10-year range in terms of the modeling of it, we did do a [indiscernible] approach.

Okay. Perfect. And just my last one here quick. Do the day 2 CECL provision expense?

Yes, it's -- really quickly for lease. I think it's just under $1 million.

And at this time, I would like to turn the call back over to Mr. Shaffer for closing remarks. .

Yes, thank you, [indiscernible]. I'll just mention really quickly, sorry. Just that price protection on the deal. I think Dennis mentioned that within his comments, but just provide a little more clarity. The [indiscernible] the deal was paid $56 million from when the negotiation started as the interest rates have boost since then that equity investment portfolio has gone down in value of the AOCI, decreased the equity down currently gets under age 51, between 50 and 51. So we had a $5.5 million reduction that dollar per dollar comes off of the purchase price on the cash side. On the other side of things, there's a rebound on that longer-term rates were kind of attaching it to the 10-year -- have done 10-year were to go up and recover and go about $56 million, then there's a 50% give back to borrowers and the rationale versus 50% remains [indiscernible].

And so the price of tangible book value if you're running today on the transaction as you're just looking at it today would be 128% of tangible book.

As compared to 139% in the deck.

Yes. So there's 139% in the deck, it would be 128% today. So we wanted to clarify that. So in closing, I just want to thank everyone for their time today and for joining us for this very exciting announcement for both Civista and for Farmers. We could not also be happier about the demand for the capital raise and the investors that is attracted. So we are excited. We're really bullish on where we're headed, and we look forward to talking to you here in a couple of weeks when we will be referring. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask you to please disconnect your lines. Have a good weekend.