Civista Bancshares, Inc.

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 Savista Bank Shares 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 the Savista Bank Shares website at www.civb.com. At the conclusion of Mr. Schaefer's remark, he and the Savista management team will take any questions you may have. Now, I will turn the call over to Mr. Schaefer.

Good afternoon. This is Dennis Schaefer, President and CEO of Savista Bank Shares, and I would like to thank you for joining us for our second quarter 2025 earnings call. I'm joined today by Chuck Percher, 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 Winham, 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 71 cents 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 increase or 6.7% increase over our length quarter. Our second quarter results included a $757,000 positive non-recurring 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 66 cents 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 that carried a rate of 5.18%. 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%, 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 continued 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 17 cents per share, which is consistent with the prior quarter. Based on our July 22nd 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 load and deposit growth, investing in technology and infrastructure, and future acquisitions. We were presented with the farmer's 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 farmers' current markets, greater northeast Ohio, and across Savista's footprint. We look forward to closing the transaction during the fourth quarter and welcoming them into the Savista 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 farmer's transaction presented us with that opportunity. We successfully closed our following offering, raising 76,274,000 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 FarmWorks transaction and begin including the additional earnings it will provide to offset the dilution in earnings created by the additional shares. During the quarter, non-interest 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 late quarter were $1.4 million in fees related to leasing operations at Savista Leasing and Finance. This decline was primarily attributable to the non-recurring adjustments related to our leasing and finance divisions core system conversion. The primary drivers for the $3.8 million decline from the prior year's 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 non-recurring adjustments that occurred in the second quarter. Non-interest expense for the quarter was $27.5 million and represents a $356,000 or 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 positions 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 continued to execute our residual value insurance strategy, reducing depreciation expense related to operating leases. Compared to the prior year's second quarter, non-interest expense declined $907,000, or 3.2%. The decline is attributable to a reduction in equipment expense for the reason 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% for 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 five 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 and 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 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 two-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 30th. 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 highest single digits in 2026 as we leverage the excess farmers' deposits in our loan pipelines bill. 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. While our overall cost of funding only increased one 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 six 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. Non-interest-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% as our deposit initiatives take hold and the farmers' acquisition closes. With respect to FDIC insured deposits, 12.5% or $396 million of our deposits were in excess of the FDIC limits at quarter end. Our cash and unclutched securities at June 30th were $507.9 million, which more than covered our uninsured deposit. Other than the $518.4 million of public funds with various municipalities across our footprint, we had no deposit concentrations at June 30th. We believe our low-cost deposit franchise is one of Syvista'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 30th, our securities were all classified as available for sale and had $63.1 million of unrealized losses associated with them. 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 8.80%, which is deemed well-capitalized for regulatory purposes. Our tangible common equity ratio was 6.70% at June 30th, up from 6.59% at March 31st. Post-capital raise and farmer's 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 due to strategic transactions and general corporate purposes. This is 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 of value. Despite the uncertainties associated with the economy and the expense pressures our borrowers face, our credit quality remains strong and our credit metrics remain stable. For the quarter, criticized credits declined by $2 million with the biggest movement coming from a substandard and non-performing $7.2 million 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 a non-operating hotel loan that had been in workout. Our ratio of allowance for credit losses to total loans is 1.28% at June 30th, which is consistent with the 1.29% at December 31st, 2024. In addition, our allowance for credit losses to non-performing loans is 175% at June 30th, 2025, an improvement when compared to 122% at December 31st, 2024. In summary, it has been a very busy and productive quarter. I could not be more bullish for Savista and our shareholders, given the success of our follow-on offering and our new partnership with Farmer Savings. I look forward to watching our teams work together over the next few quarters to prepare farmers for a successful integration into the Savista 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 bill. While our newly issued shares will put some pressure on our earnings per share for the next several quarters, I am confident in Savista's ability to leverage our new capital generate 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 family. Thank you for your attention this afternoon and your investment, and now we'd be happy to address any questions you may have.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Brendan Nozzle with Hovde Group. Your line is now open.