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 Civista Bank Share Inc. That involves 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, 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 gap to non-gap measures. This call will be recorded and made available on Syvista Bankshare's website at www.civp.com. At the conclusion of Mr. Schaefer's remarks, he and the Syvista 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 Schaefer, President and CEO of Savista Bank Shares, and I would like to thank you for joining us for our third quarter 2025 earnings call. I am 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 Winnop, 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 68 cents 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-provisioned net revenue of $4.9 million or 45% over our third quarter in 2024 and a $1.9 million or 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 one-time $1.6 million adjustment stemming from the conversion of our core lease accounting system. This non-recurring 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 six 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 five 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 4th, 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 Savista family. Earlier this week, we announced a quarterly dividend of 17 cents per share, which is consistent with the prior quarter. Based on September 30th closing market price of $20.31, This represents a 3.3% yield and a dividend payout ratio of nearly 25%. During the quarter, non-interest 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 non-recurring adjustment in the second quarter of 2025 related to the Savista 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. Non-interest 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 non-interest income category. We continue to focus on controlling expenses. For the quarter, non-interest 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 non-recurring acquisition expenses related to the merger with Farmer Savings. In looking at our non-interest expense compared to the prior year's third quarter, while some of the line items fluctuated, total non-interest 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 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 non-interest 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 remains 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 CMVS 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 non-owner-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 five 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 and have 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 30th, 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 two-story offices located outside of our central business districts. Along with year-to-date loan production, our pipelines are strong and are undrawn to construction lines for $173 million at September 30th. 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 broker 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 five 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 five 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 and 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. Non-interest-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 blitzes 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 farmer's acquisition closes. Other than the $509.5 million of public funds with various municipalities across our footprint, we had no deposit concentrations at September 30th. 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, 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 30th, 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 31st, 2024. At September 30th, 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 30th to 9.21% at September 30th 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. So this is 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 remains strong and our credit metrics remain stable. Savista, like most community banks, has no exposure to shared national credits nor do 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, resulted in a minimal $200,000 provision for the quarter. Our ratio of our allowance for credit losses to loans is 1.30% at September 30th, which is consistent with the 1.29% at December 31st, 2024. In addition, our allowance for credit losses to non-performing loans is 177% at September 30th, an improvement when compared to 122% at December 31st, 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-provisioned net revenue by 45% over the previous year's quarter. After adjusting for one-time 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 Savista and our shareholders. So thank you for your attention this afternoon and your investment, and now we will be happy to address any questions you may have.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press the pound key. We'll pause for a moment to compile the Q&A roster. Our first question comes from the line of Ryan Payne from DA Davidson. Your line is open.