CIVB Q4 2025: Net Interest Margin Expands 11bps as Deposit Mix and Loan Growth Rebalance Franchise
CIVB’s fourth quarter showcased disciplined margin expansion and improved capital ratios, with loan growth pivoting back toward core commercial segments while digital deposit initiatives began to gain traction. Management’s focus on funding mix and operational leverage, alongside the Farmer Savings Bank integration, positions the franchise for steady mid-single-digit loan growth in 2026. Investors should watch for further efficiency gains and digital channel scaling as the system conversion completes and investments in technology begin to impact deposit gathering and cost structure.
Summary
- Margin Expansion Anchors Profitability: Net interest margin widened as funding costs declined and deposit mix improved.
- Organic Loan Growth Resumes: Lending shifted back to commercial segments, leveraging capital and low-cost deposits post-acquisition.
- Digital and Efficiency Initiatives Set Up 2026: Technology investments and cost discipline support a multi-year growth and margin story.
Performance Analysis
CIVB delivered a fourth quarter marked by robust pre-provision net revenue growth and a notable 11 basis point expansion in net interest margin to 3.69%. This improvement stemmed primarily from a 19 basis point reduction in funding costs, driven by a shift toward lower-cost, non-brokered deposits and the integration of Farmer Savings Bank’s deposit base. Net interest income rose both sequentially and year-over-year, reflecting the combined impact of organic loan growth and the acquired loan portfolio.
Non-interest income increased modestly from the prior quarter, aided by seasonal interchange fee gains and higher leasing-related fees, though full-year non-interest income was down due to a decline in lease production and residual income. On the expense side, after normalizing for acquisition-related costs, non-interest expense remained stable sequentially and declined year-over-year, with compensation and equipment expense savings offsetting selective investments in technology and personnel. The efficiency ratio improved sharply, reflecting strong operating leverage.
- Deposit Funding Mix Shift: Organic non-brokered deposit growth and acquisition-driven inflows reduced wholesale funding reliance and lowered cost of funds.
- Loan Growth Rebalancing: Excluding Farmer’s, organic loan growth annualized at 8.7%, with commercial and residential real estate both contributing.
- Expense Control and Leverage: Compensation discipline and equipment cost reductions improved the efficiency ratio to 57.7%.
Credit quality remained stable, with a single non-accrual participation driving most of the increase in non-performing loans, while overall charge-offs and delinquencies stayed low. Capital ratios strengthened, supporting both organic growth and ongoing investment in digital infrastructure and talent.
Executive Commentary
"Our pre-provisioned 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 one-time expenses was 1.42%, continuing our string of improving our ROA for each quarter of 2025."
Dennis Schaefer, President and CEO
"So right now, I'd say for the first quarter, we'd expect the margin to expand two to three basis points. And then into the second quarter beyond, maybe another three to four, and capping out around there."
Ian Winham, Senior Vice President and Chief Financial Officer
Strategic Positioning
1. Capital and Funding Optimization
Management’s capital raise and the Farmer Savings Bank acquisition have reshaped the funding profile, enabling a pivot away from brokered deposits and supporting more aggressive lending. The tangible common equity ratio rose to 9.54%, and the CRE to risk-based capital ratio was brought down to 275%, both key investor watchpoints for banking sector risk and growth capacity.
2. Digital Channel and Product Redesign
The launch of a digital deposit account opening platform and redesign of deposit products aligns the franchise with evolving customer expectations, though digital balances remain nascent. Early signs of checking account growth through digital channels suggest potential for future deposit gathering efficiency, particularly as digital marketing ramps post-system conversion.
3. Core Loan Growth and Portfolio Mix
With CRE concentration now within targeted ranges, management is refocusing on commercial and C&I (commercial and industrial) lending, supported by a healthy pipeline and strong deposit base. Adjustable rate structures and short-duration leases provide some protection against rate volatility, while residential growth is expected to moderate as secondary market activity resumes if rates decline.
4. Efficiency and Operating Leverage
Expense discipline, evidenced by a 2.1% year-over-year decline in non-interest expense after adjustments, is matched by targeted investments in technology and personnel, especially as the bank leverages market disruption to attract talent. The improved efficiency ratio demonstrates successful execution on cost containment even as the bank invests for growth.
5. Credit Quality and Risk Controls
Credit metrics remain stable, with non-performing loans at 0.95% of total loans and allowance coverage at 135% of NPLs, despite a single credit driving most of the increase in non-accruals. The portfolio remains predominantly organic, with limited participation exposure and minimal office CRE risk.
Key Considerations
This quarter’s results reflect a deliberate rebalancing of growth, funding, and operational discipline, positioning CIVB to capitalize on local market disruption and digital channel expansion in 2026. The following key considerations frame the strategic context:
- Deposit Franchise Value: Core deposit growth and digital onboarding are lowering funding costs and supporting margin, but scaling digital remains a multi-quarter effort.
- Loan Growth Prioritization: Commercial and C&I lending are expected to lead growth, with residential real estate moderating as secondary market conditions evolve.
- Efficiency Leverage: Technology investments and FTE discipline are yielding improved efficiency ratios, with more room for operating leverage as integration and digital scaling progress.
- Credit Vigilance: While credit remains benign, management is closely monitoring isolated non-accruals, with no systemic deterioration observed in core markets.
- Capital Deployment Flexibility: Strong capital ratios provide optionality for share repurchases and further investment, though no buybacks occurred in 2025 due to transaction blackout periods.
Risks
Key risks include the potential for digital deposit initiatives to underdeliver on growth or cost efficiency, especially if competitive pressures require higher promotional rates. CRE exposure remains a sector risk, though concentrations have been reduced. Credit risk is low but not eliminated, as evidenced by the isolated non-accrual. Macroeconomic softness or a change in rate trajectory could impact margin expansion and loan demand, while integration risks linger as the Farmer Savings Bank system conversion completes.
Forward Outlook
For Q1 2026, CIVB expects:
- Net interest margin to expand by 2 to 3 basis points, with further modest expansion into Q2.
- Non-interest income guidance of $7.8 to $8.2 million, with seasonal moderation in leasing and mortgage gain-on-sale revenue.
For full-year 2026, management guides to:
- Mid-single-digit organic loan growth, led by commercial and C&I lending, contingent on deposit growth keeping pace.
- Efficiency ratio maintenance as cost saves from Farmer Savings Bank integration offset merit increases and technology investments.
Management highlighted that capital levels will support both organic growth and opportunistic share repurchases, with the digital channel and deposit product redesign expected to drive incremental funding gains as the year progresses.
- Margin expansion assumptions incorporate two rate cuts (June and Q4), with upside if rates remain flat.
- Expense run-rate expected to normalize post-integration, with ongoing investment in people and technology.
Takeaways
CIVB’s quarter confirms a strategic pivot toward margin-driven profitability and funding mix optimization, with digital and operational investments setting the stage for continued efficiency and growth in 2026.
- Margin and Funding Mix: Net interest margin expansion and deposit mix improvement are providing a durable earnings base, while digital initiatives are early but promising.
- Core Lending Rebound: Commercial and C&I loan growth is resuming as CRE concentrations moderate, leveraging strong capital and funding positions.
- Execution Watchpoints: Investors should monitor digital deposit scaling, expense leverage post-integration, and any signs of credit normalization as leading indicators for the franchise’s multi-year trajectory.
Conclusion
CIVB exits 2025 with an improved margin, stronger capital, and an operational platform ready to support disciplined growth and digital expansion in 2026. The balance of funding cost management, credit vigilance, and targeted investment positions the bank to capitalize on market disruption and evolving customer preferences.
Industry Read-Through
CIVB’s results highlight the growing importance of deposit franchise value and digital onboarding in regional banking, as funding costs and margin management remain the primary levers in a flattening rate environment. The bank’s experience with CRE concentration reduction and capital optimization offers a playbook for peers navigating similar regulatory and market pressures. Sector-wide, disciplined expense control and targeted digital investments are emerging as key differentiators for sustainable profitability and growth, especially as lending competition intensifies and credit normalization risk lingers.