Civista Bancshares, Inc.

Before we begin, I would like to remind you that this conference call may contain forward-looking statement with respect to the future performance and financial condition of Sevista Bank Shares, Inc. that involve risk and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings which are available on the company's website. The company disclaims any obligation to update any forward-looking statement made during the call. Additionally, management may refer to the 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 gap to non-gap measures. This call will be recorded and made available on Civista Bank Shares website at www.civb.com. At the conclusion of Mr. Schaefer's remarks, he and the Civista management team will take any questions you may have. Now, I will turn the call over to Mr. Schaefer.

Thank you. Good afternoon. This is Dennis Shaffer, President and CEO of Savista Bank Shares, and I would like to thank you for joining us for our first quarter 2025 earnings call. I am joined today by Rich Dutton, SVP of the company and Chief Operating Officer of the bank, Ian Winham, SVP of the company and Chief Financial Officer of the bank, and other members of our executive team. Chuck Parcher, EVP of the company and chief lending officer of the bank, is on vacation. This morning, we reported net income for the first quarter of $10.2 million, or 66 cents per diluted share, which represents a $3.8 million, or 60%, increase over our first quarter of 2024 and a $275,000 increase over our linked quarter. This also represents an increase in pre-provision net revenue of $4.3 million or 47% over our first quarter in 2024 and a $1.4 million or 11.9% increase over our linked quarter. Core deposit funding continues to be a priority, and we were pleased that our deposit funding, excluding brokered deposits, grew organically by over $67 million during the quarter, which allowed us to continue reducing our reliance on brokered funding. We believe this shift toward more relationship funding contributes to the overall value of our core deposit franchise. I continue to be encouraged by our ability to remain disciplined in pricing both our deposits and loans through this interest rate cycle. Net interest income for the quarter was $32.8 million, which represents an increase of $1.4 million, or 4.5% compared to our linked quarter. The increase was attributable to our earning asset yield increasing six basis points to 5.71% and our overall funding costs decreasing by 11 basis points to 2.31%. Our decline in funding costs was largely attributable to a $150 million in brokered CDs that matured in late December that I mentioned on our last call. They carried a rate of 5.08%, and we were able to replace and reduce them by laddering $125 million in brokered CDs over the subsequent 12 months at a blended rate of 4.37%, representing a savings of 71 basis points. Similarly, we had $150 million in brokered CDs that matured in March that carried a rate of 5.18%. We were also able to replace and reduce these deposits with $125 million of CDs laddered over the next 12 months at a blended rate of 4.26%, representing a savings of 92 basis points. While this had little impact on our first quarter results, we anticipate that it will further reduce our overall funding costs and lead to further margin expansion. We have solid loan demand in each of our markets. However, we continue to be disciplined in our approach to loan and lease pricing, which has had the intended impact of viewing growth. Our loan and lease portfolio grew at an annualized rate of 2.8% during the first quarter. We anticipate continuing to hold loan and lease rates higher as we work to maintain our loan-to-deposit ratio, ideally within a range of 90% to 95%. The result of our continued discipline in managing both our loan and lease pricing, as well as our funding costs, was the continued expansion of our margin, which grew by 15 basis points during the quarter to 3.51%. Our ROA for the quarter was 1%, continuing our spring of improving our ROA in each of the past four quarters. Our ROE for the quarter was 10.39%. Earlier this month, we announced the renewal of our stock repurchase program. The program authorizes management to repurchase up to $13.5 million in outstanding shares and expires on April 15, 2026. While we have not been active in repurchasing shares and remain committed to increasing our tangible common equity, we feel it is important to have the ability to repurchase shares should it become prudent to do so. Last week, we also announced a quarterly dividend of 17 cents per share. Based on the quarter end market close of $19.54, this represents an annualized yield of 3.48%. During the quarter, our non-interest expense was $27.1 million. which represents a $1.2 million or 4.1% decline from our linked quarter and is the result of improvement in nearly every non-interest expense category. We continue to focus on controlling those expenses that are within our control. The largest decline was in compensation-related expenses and was primarily due to five fewer FTEs a reduction in benefit costs, and an increase in the amount of compensation deferred related to loan originations. Compared to the prior year's first quarter, non-interest expense declined $315,000, or 1.1%, and while the improvement did not include as many categories, the results had a similar impact. The largest decline in comparison to the first quarter of the prior year was also attributable to 19 fewer FTEs, a reduction in benefit costs, and an increase in the amount of compensation deferred relating to loan origination. This reduction in expense was partially offset by an increase in professional services related to projects and the conversion of our lease accounting and servicing system. Non-interest income declined $1.2 million, or 12.8% in comparison to the linked quarter, and 396,000, or 4.8% in comparison to the first quarter of the prior year. The primary drivers of the decrease from our linked quarter were a $655,000 decline in gains on the sale of loans, which are made up of mortgages and loans and leases originated by our leasing division due to typically less mortgage and leasing originations during the first quarter, coupled with the impact of higher interest rates. A $314,000 decline in ATM and interchange revenue due to the shift from pre-holiday to post-holiday debit card use. A $124,000 decline in wealth management fees due to market declines during the quarter as assets under management decreased. and a $384,000 decline in BOLI revenue as we received $314,000 in proceeds from a debt benefit in the prior quarter. These declines were offset by an increase of $616,000 in lease revenue and residual income generated by our leasing division. The primary drivers for the decline from the prior year's first quarter were attributable to a $396,000 decline in gains on the sale of loans due to the same seasonality and high interest rates previously mentioned and lower lease rate-related fees, which are included in other incomes. The combination of increased revenue and disciplined expense control resulted in an efficiency ratio of 64.9% for the quarter compared to 68.3% for the length quarter and 73.8% for the prior year's first quarter. Turning our focus to the balance sheet. For the quarter, total loans and leases grew by $22.8 million. This represents an annualized growth rate of 2.8%. While we experienced increases in commercial and ag, both owner-occupied and non-owner-occupied commercial real estate and residential real estate, we saw small declines in all other loan categories. As we 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. The loans we originate for our portfolio are virtually all adjustable rate loans, and our leases all have maturities of five years or less. New and renewed commercial loans were originated at an average rate of 7.16% during the quarter, which is similar to our origination rate during the linked quarter. Loans secured by office buildings make up 5.25% of our total loan portfolio. As we have stated previously, these loans are not secured by high-rise metro office buildings. Rather, they are predominantly secured by single or two-story offices located outside of central business districts. Along with year-to-date loan production, our pipelines are solid and our undrawn construction lines or $226 million at March 31st. We continue to see loan opportunities in each of our markets, and we anticipate loan growth to be in the mid-single-digit range for the balance of 2025. However, loan demand may be impacted the longer the economic uncertainty persists. On the funding side, total deposits increased $27 million, or an annualized growth rate of 3.2%. However, if we back out broker deposits, our deposits balance grew by 67.1 million, or 2.5% for the quarter, which we believe is the result of our focus on deepening customer relationships. We did see some migration from non-interest-bearing accounts into higher-rate deposit accounts during the quarter, but our cost of deposits, excluding broker deposits, declined by 12 basis points from the linked quarters. Our deposit base remains fairly granular with our average deposit account excluding CDs approximately $28,000. With respect to FDIC insured deposits, excluding Savista's own deposit accounts, 13.1% or $419.8 million of our deposits were in excess of the FDIC limits at quarter end. Our cash and unflinched securities at March 31st were $523.7 million, which more than covers these uninsured deposits. Other than $568 million of public funds, which are primarily operating accounts with the various municipalities across our footprint, we had no deposit concentration at March 31st. At quarter end, our loan to deposit ratio was 95.8%. 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 is one of Savista's most valuable characteristics. contributing significantly to our solid net interest margin and overall profitability. At March 31st, our security portfolio was $648.5 million, which represents 15.6% of our balance sheet. The interest rate environment continues to put pressure on bond portfolios, At March 31st, all of our securities were classified as available for sale and had $60 million of unrealized losses associated with that. This represented a decrease in unrealized losses of $2.5 million since December 31st, 2024. We ended the court with our Tier 1 leverage ratio at 8.66%, which is deemed well capitalized for regulatory purposes. Our tangible common equity ratio was 6.59% at March 31st, an increase from 6.43% at December 31st, 2024. So this is earnings continue to create capital, and our overall goal remains to grow our capital to a level adequate to support organic growth. We did increase our dividend in the prior quarter, and although we have not purchased any shares during the past five quarters, we continue to believe our stock is a value. Our capital levels remain strong. We recognize our tangible common equity ratio still screams low. Our previous guidance remains that we would like to rebuild our TCE ratio back to between 7 and 7.5%. To that end, we will continue to focus on earnings and will balance the payment of dividends and any stock repurchases with building capital to support our growth. During the quarter, we made a $1.6 million provision. We had charge-offs of $976,000, of which $800,000 was related to one of the non-performing credits we discussed in the fourth quarter. That loan is expected to pay off today. The balance of the provision was attributable to loan growth, and the impact historically low prepayments in our loan portfolio have had on our CECL model. Our ratio of the allowance from credit losses to total loans is 1.30% at March 31st, 2025, which is consistent with 1.29% at December 31st, 2024. Other than a general concern over the impact Of macroeconomic uncertainties, the economy across Ohio and southeastern Indiana is showing no signs of deterioration, and our credit quality remains strong. In summary, we are very pleased with the continued expansion of our net interest margin and our ability to control non-interest expense during the quarter. We are pleased with our team's success in attracting more lower cost funding, and anticipate low to mid single-digit loan growth for the balance of 2025 as we temper loan growth to match our ability to fund that growth at a reasonable cost. Overall, 2025 is off to a solid start, and our focus continues to be on creating shareholder value. Thank you for your attention this afternoon and your investment, and now we will be happy to address any questions that you may have.

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star key followed by one on your touchtone phone. You will hear a one-tone prompt acknowledging your request. Your request will be pulled in the order they are received. If you would like to decline from the polling process, please press the pound key. Please ensure you leave the handset and if you are using a speakerphone before pressing any key.