Civista Bancshares, Inc. (CIVB) Earnings Call Transcript & Summary

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.