Civista Bancshares, Inc.

Good afternoon, ladies and gentlemen. 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 Suvisa Backshare 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 Servista Bank Shares' website at www.civb.com. At the conclusion of Mr. Schaefer's remarks, he and the Servista 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 Servista Bank Shares, and I would like to welcome you. to our fourth quarter and year-end 2025 earnings call. I'm joined today by Chuck Parcher, EVP of the company and president 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 fourth quarter of 2025 of $12.3 million, or 61 cents per diluted share, which is consistent with our length quarter and represents a $2.4 million or 24% increase over a fourth quarter in 2024. Included in the fourth quarter of 2025 results were non-recurring expenses related to our acquisition of Farmer Savings Bank that negatively impacted net income by $3.4 million on a pre-tax basis and $2.9 million on an after-tax basis equating to 14 cents per common share. Going forward, we expect any additional expenses related to this transaction to be minimally. For the year, we reported net income of $46.2 million, or $2.64 per diluted share, which compares to $31.7 million, or $2.01 per diluted share for 2024. This is particularly impressive given that there are approximately 2 million average additional shares outstanding as a result of our capital offering in July and our acquisition of Farmer Savings Bank in November. Taking into consideration the non-recurring adjustments that occurred during 2025, our earnings per share for the year were reduced by 15 cents. Backing out the non-recurring fourth quarter expenses, 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. For the year, our ROA was 1.11%. For the quarter, we were pleased to announce the closing of our transaction with Farmers Savings Bank, adding $106 million in loans and $236 million in low-cost deposits to our balance sheet and are looking forward to a successful system conversion over the weekend of February 7th and 8th. Our teams continue to work together toward the integration of our organizations. Net interest income for the quarter totaled $36.5 million which is $1.9 million or 5.5% increase over the linked quarter and a $5.1 million or 16% increase over our fourth quarter in the previous year. During the quarter our earning asset yield declined eight basis points while our funding costs declined 19 basis points. This resulted in the expansion of our net interest margin by 11 basis points to 3.69%. As we have discussed on previous calls, during the first three quarters of 2025, we were focused on increasing our tangible common equity, reducing our CRE to risk-based capital ratio, and reducing our reliance on wholesale funding. To that end, we muted loan growth by keeping CRE loan rates somewhat elevated. The success of our July capital offering and the acquisition of Farmers Savings Bank have allowed us to become a little bit more aggressive in lending across our footprint. Excluding the newly acquired farmers loans, our loan and lease portfolio grew $68.7 million, which represents an annualized growth rate of 8.7% during the fourth quarter. We anticipate mid-single-digit loan growth in 2026. More deposit funding continues to be a focus, and we were pleased that our non-brokered deposit funding, excluding deposits acquired through the Farmer's Savings Bank transaction, grew organically by nearly $30 million during the quarter, which allowed us to continue reducing our brokered funding. We believe this reduction in wholesale funding enhances the value of our core deposit franchise. Earlier this week, we announced an increase in our quarterly dividend to 18 cents per share, which represents a one cent increase over the prior quarter. Based on the December 31st closing market price of $22.22, this represents an annualized yield of 3.2% and a dividend payout ratio of nearly 30%. During the quarter, non-interest income increased $251,000 or 2.6% from our linked quarter and increased $869,000 or 9.6% from the fourth quarter of 2024. The primary drivers of the increase from our linked quarter were a $287,000 increase in interchange fees due to the typical elevated spending that comes during the holidays and a $380,000 increase in other fees related to leasing activity. These increases were partially offset by proceeds on a boy policy we received in the prior quarter and a $416,000 reduction in residual income from our leasing activity. As we have noted, leasing fees, particularly residual income, are less predictable than more traditional banking fees. For the year, non-interest income decreased by $3.8 million or 10% in 2024. This decline was primarily attributable to lease revenue and residual income. You will recall that we recognized a $1 million non-recurring adjustment as part of our conversion to our new leasing system during the quarter. That, coupled with the overall decline in lease production this year, led to a reduction in lease-related revenues in 2025. We are confident the investments we have made in our leasing infrastructure this year will allow our leasing team to operate at a higher level in 2026. For the quarter, after adjusting for the $3.4 million in non-recurring expenses related to the acquisition, Non-interest expense was $27.6 million, which is consistent with the $27.7 million in our linked quarter after backing out $664,000 in non-recurring farmers' expenses incurred in the third quarter. Year-to-date, after adjusting for the $3.8 million in non-recurring expenses, non-interest expense decreased $2.4 million or 2.1% from our prior year. The primary drivers of this decline were a $3.1 million decline in compensation expense and a $1.4 million decline in equipment expense, which were partially offset by slight increases in a number of other expense categories. The decline in compensation expense was due to a slight reduction in FTEs controlling overtime and an increase in the amount of salaries and wages we defer related to loan origination. The decline in equipment expense was primarily the result of a decline in depreciation expense on leased equipment. This is the result of using residual value insurance to reduce depreciation expense related to operating leases. Our efficiency ratio for the quarter improved to 57.7% compared to 61.4% for the length quarter and 68.3% for the prior year fourth quarter. Our effective tax rate was 16.8% for the quarter and 16.3% for the full year. Turning our focus to the balance sheet. As I mentioned, even after backing out the loans we acquired from Farmers Savings Bank, our lending team generated $68.7 million of organic net loan growth during the quarter, which is an annualized rate of 8.7%. While loans grew in nearly every category during the quarter, our most significant increase was a $90 million increase in residential real estate, which included the addition of $56 million in residential loans from farmers. 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. Although we were pleased with our success in bringing our CRE concentrations more in line with investor expectations, we will remain mindful of making sure we have the funding and capital to support future CRE growth. At December 31st, our CRE to risk-based capital ratio was 275%. During the quarter, new and renewed commercial loans were originated at an average rate of 6.74%. Residential real estate loans were originated at 6.13%. And loans and leases originated by our leasing division were at an average rate of 8.77%. Loans secured by office buildings make up only 4.5% 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 strong and our undrawn construction lines were $162 million at December 31st. As previously mentioned, We anticipate our organic loan growth to be in the mid-single digits in 2026 as we leverage farmers' excess deposits and our loan pipelines continue to build. On the funding side, we added $236.1 million in low-cost deposits from the farmers' transaction. In addition, we were able to continue our pattern of reducing broker deposits for the fourth consecutive quarter by nearly $30 million. Our continued focus on attracting and retaining lower cost funding helped us lower our overall cost of funding by 19 basis points during the quarter to 2.08%. While we continue to see some migration from lower rate demand accounts into higher rate time deposits during the quarter, the addition of farmers' lower rate deposits allowed us to reduce our cost of deposits by four basis points to 1.59%. As shared during our last call, we launched our new digital deposit account opening platform during the third quarter, limiting online account opening to CDs. In the fourth quarter, we began offering online account opening for checking and money market accounts. In addition, we rolled out our deposit product redesign initiative. The goal of this initiative is to align our deposit product set with our new digital channels. We are seeing some success and look forward to launching a more comprehensive digital marketing campaign for online deposits once we get past the farmers' system conversion. Our deposit base continues to be fairly granular, with our average deposit account excluding CDs approximately $28,000. At quarter end, our loan-to-deposit ratio was 94.3%, which is down slightly from our linked quarter. We anticipate maintaining this ratio within our targeted range of 90 to 95%. Other than the $464.4 million of public funds with various municipalities across our footprint, we had no deposit concentrations at year end. 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. We view our security portfolio as a source of liquidity. At December 31st, our security portfolio totaled $685 million, which represented 15.8% of our balance sheet, and when combined with our cash balances, represents 22% of our total deposits. At December 31st, 100% of our securities were classified as available for sale, and had $45 million of unrealized losses associated with them. This represents a decline in unrealized losses of $6 million from our link quarter and a $17 million decline from December 31st, 2024. So this is strong earnings continue to create capital, and our overall goal remains to maintain our capital at a level that supports organic growth and allows for prudent investment into our company. We were happy to announce an $0.18 per share dividend earlier this week, which represents a penny per share increase in our quarterly dividend. We view this as a sign of confidence. Management and our board has this ability to continue generating strong earnings. We continue to operate with a $13.5 million repurchase authorization. and a 10B5 share repurchase plan in place. While we have not repurchased any shares during the year, we believe our stock is of value, and we will continue to evaluate repurchase opportunities. We ended the year with our Tier 1 leverage ratio at 11.32%, which is deemed well-capitalized for regulatory purposes. Our tangible common equity ratio increased from 9.21% at September 30th to 9.54% at year end on strong earnings. We feel this gives us capital to support organic growth and to invest in technology, people, and infrastructure. While economic conditions across the country remain mixed, the economy across Ohio and southeastern Indiana is showing no systemic signs of deterioration. Our credit quality remains solid and our credit metrics remain stable. Delinquencies remain low and are consistent with the prior year end, while our net charge-offs were slightly lower in 2025 than the prior year. Our past due loans did increase $7 million during the quarter, and our non-performing loans increased by $8.5 million to $31.3 million. Total non-performing loans to total loans were 0.95%, up slightly from the linked quarter, but down from the 1.06% at the end of 2024. The continued strong performance of our credits, coupled with moderate loan growth, resulted in a $585,000 provision for the quarter. Our ratio of allowance for credit losses to total loans is 1.28% at December 31st, which is consistent with the 1.29% at December 31st, 2024. And our allowance for credit losses to non-performing loans is 135% at year-end, compared to 122% at December 31, 2024. In summary, our fourth quarter was an extension of what was a very productive and good year. Among the many initiatives we accomplished were a successful capital offering, the acquisition of Farmer's Savings Bank, rolling out our new digital banking solution, and migrating to a new core lease system all of which contributed to our achievement of two long-standing goals we were able to increase our tangible common equity ratio from 6.43 a year ago to 9.54 at december 31st 2025 and reduced our cre to risk-based capital ratio from 300 and 66% at the beginning of the year to 275% at year end. These investments and efforts coupled with our expanding net interest margin and controlling expenses produced exceptional results as our full year net income was $14.5 million or 46% higher than a year ago. The VISTA remains focused on creating shareholder value, serving our customers and being a good corporate citizen in each of the communities that we serve. Thank you for your attention this afternoon and your investment. And now we'd be happy to address any questions you may have.

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. If you would like to withdraw from the polling process, please press store, then the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question comes from the line of Justin Crowley from Piper Sandler.