Civista Bancshares, Inc.

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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 Sevista Bank Shares Inc. that involve 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 in Savista Bankshare's website at www.civb.com. At the conclusion of Mr. Schaefer's remarks, he and the Savista management team will take any questions you may have. Now, I will turn the call over to Mr. Schaefer. Please go ahead.

Good afternoon. This is Dennis Schaefer, President and CEO of Savista Bankshare's. and I would like to thank you for joining us for our first quarter 2026 earnings call. I'm joined today by Chuck Parcher, EVP of the company and president of the bank, Rich Dutton, SVP of the company and chief operating officer, Ian Wynnum, SVP of the company and chief financial officer, and other members of our executive team. This morning, we reported net income for the first quarter of $15 million, or 72 cents per diluted share, which represents a $4.8 million, or 47% increase, over our first quarter of 2025, and a $2.7 million, or 22% increase, over our linked quarter. This also represented an increase in pre-provision net revenue of $3.8 million, or 29% over our first quarter in 2025, and a $3.2 million or 3.8% increase over our linked quarter. Our first quarter highlights include the successful completion of the core system conversion of the Farmer's Savings Bank that we acquired during the fourth quarter of 2025. As a result, our first quarter earnings include what should be the last expenses associated with the acquisition. These one-time expenses impacted our first quarter net income by approximately $400,000, or two cents for common share. For the quarter, core deposit funding increased organically by over $60 million. This allowed us to reduce brokered deposits by $25 million. This represents the sixth consecutive quarter in which we reduced brokered funding. Our net interest margin expanded by 16 basis points to 3.85% as we continued our disciplined approach to managing our asset pricing and funding costs. Our earning asset yield for the quarter increased by 5 basis points over our length quarter to 5.66%. Our cost of funds was 1.96% for the quarter, down 35 basis points, from the first quarter of 2025 and 12 basis points from the linked quarter, while our cost of deposits was 1.81%, down 19 basis points year over year and 11 basis points sequentially. Our decline in funding costs was largely attributable to $125 million in brokerage CDs that matured in late December that carried a weighted average rate of 4.23%. We were able to replace and reduce these maturing broker CDs with $100 million in broker CDs with a weighted average rate of 3.87%, representing a savings of 36 basis points in addition to reducing the amount of broker funding. Net interest income for the quarter was $37.8 million. which represents an increase of $5.1 million or 15% compared to the first quarter of 2025 and an increase of $1.4 million or 4% compared to our linked quarter. Despite loan balances being down, we had strong loan production across our footprint during the quarter that was offset by significant payoffs. Our lending teams generated $214 million of new loan production during the quarter that was offset by $83 million in early payoffs in addition to normal principal pay down. Our ROA for the quarter was 1.41%. Our ROE for the quarter improved to 10.97%. And our tangible book value per share improved to $19.76. Our continued strong financial performance and ability to consistently create capital gives us options as we think about the best ways to deploy our capital. Earlier this week, we announced a quarterly dividend of 18 cents per share, which is consistent with our prior dividend and the renewal of our stock repurchase program, authorizing management to repurchase up to $25 million in outstanding common shares. During the quarter, non-interest income declined by $453,000, or 4.6%, from our linked quarter and increased $1.6 million, or 20%, over the first quarter of 2025. The primary driver of the decline from our linked quarter was a $336,000 decline in card fees due to the typical elevated spending that comes during the holidays. The primary drivers of the increase in non-interest income over the prior year were a $190,000 increase in service charges, a $1 million increase in net gains on loan and lease sales, and a $444,000 increase in other income related to reserves that have been established that are insurance subsidiary for claims that subsequently never materialized. Non-interest expense declined by $1.1 million or 3.6% from our linked quarter and decreased or increased $2.7 million or 10% over the prior year. The decline from our linked quarter was the result of a commission accrual adjustment in the fourth quarter of 2025. Our actual commission expense was $1.4 million lower than what had been accrued and was adjusted in the fourth quarter. we are now adjusting all accruals at least quarterly. The primary driver of the increase in non-interest expense over the prior year was a $2.2 million increase in compensation expense associated with increased salaries, commissions, and medical expenses. In addition to annual increases, Our average FTE employees increased from 520 in the first quarter of last year to 535 in the first quarter of 2026. Much of the increase in FTEs came from the employees that joined us through our recent farmers acquisition. We also had $400,000 in other expenses that we believe will be the last significant expenses related to the acquisition. Our efficiency ratio for the quarter improved to 60.1% compared to 64.9% for the prior year first quarter. Our effective tax rate was 16.8% for the quarter. Turning our focus to the balance sheet, strong loan production across our footprint was offset by significant payoffs during the quarter. Our lending teams generated $214 million of new loan production during the quarter that was offset by $83 million in payoffs in addition to normal principal paydown. This compares to the prior year's first quarter when we originated $181 million in new loans and we experienced $21 million in loan payoffs. We consider these good payoffs as they were successful real estate projects that were sold or taken to the permanent market. We also had a few loans to operating companies that were sold during the quarter and paid off their loans. Loan production grew with each month's production during the quarter from $49 million in January to $59 million in February to $106 million in March. During the quarter, new and renewed commercial loans were originated at an average rate of 6.52%. and leases were originated at an average rate of 9.03%. Additionally, our undrawn construction lines were $175 million at quarter end compared to $161 million at year end. We ended the quarter with a loan to deposit ratio of 92%. Loans secured by office buildings make up only 4.7% 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. We also have very little exposure to non-deposit financial institutions. As a commercial real estate lending bank, we are mindful of our non-owner-occupied CRE concentration and continue to diversify our loan portfolio At March 31, 2026, our CRE to risk-based capital ratio was 261%. While we experienced a reduction in total loans during the quarter, loan demand remained solid in each of our markets, and our pipelines continued to grow. At March 31, 2026, our residential mortgage loan pipeline was up 25%, and our commercial loan pipeline was up 102% over the prior year. We anticipate growing the loan portfolio at a mid-single-digit rate over the balance of the year. On the funding side, total deposits increased $35.4 million, or an annualized growth rate of 4%. However, if we back out the broker deposits, our core deposit balances grew by $60.4 million, or 8% for the quarters. This represents six of the last seven quarters in which we have grown our core deposit balances while reducing our cost of funds. Much of this growth came in interest-bearing demand accounts and in our savings and money market accounts. This increase in lower rate deposits combined with our continued shift from broker deposits to more core deposit funding contributed to an 11 basis point decline in our cost of deposits from the linked quarter. Our deposit base remains fairly granular, with our average deposit account excluding CDs approximately $28,000. Other than the $523 million of public funds, which are primarily operating accounts with various municipalities across our footprint, we had no deposit concentrations at quarter end. 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 continues to be one of Savista's most valuable characteristics, contributing significantly to our solid net interest margin and overall profitability. We view our securities portfolio as a significant source of liquidity. At quarter end, our securities portfolio totaled $682 million, which represented 16% of our balance sheet, and when combined with our cash balances, represents 22% of our total deposit. Our securities are classified as available for sale and have $49 million, or approximately 7% of unrealized losses associated with them. Savista's strong earnings continue to create capital. Their overall goal remains to maintain our capital at a level that supports organic growth and allows for prudent investment into our company. Earlier this week, we announced an $0.18 share dividend. Based on the quarter-end market close of $22.79, this represents an annualized yield of 3.16% and a payout ratio of 25%. We view this as a sign of confidence management and our Board of Directors have in Savista's ability to continue generating strong earnings. Additionally, Savista's Board of Directors increased and renewed a $25 million common share repurchase authorization earlier this week. While we have not repurchased any shares in the past several quarters, our regulatory capital and tangible common equity ratios are strong, and continue to grow. We continue to believe our stock is at value and will continue to evaluate repurchase opportunities. During the quarter, we made a $768,000 credit to our provision and had net charge-offs of $716,000. The credit to our provision was attributable to lower expected losses due to lower outstanding loans and our continued strong credit metrics. Our ratio of the allowance for credit losses to total loans is 1.26% at March 31, 2026, which is consistent with the 1.28% at December 31, 2025. Similarly, our ratio of allowance to non-performing loans of 135% was virtually unchanged when comparing the same period. Other than the 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 in our net interest margin, our ability to generate non-interest income from diversified revenue streams, and to control our non-interest expense. We're also very pleased with our team's success in attracting more lower-cost funding, which allowed us to continue reducing our dependency on broker funding and anticipate mid-single-digit deposit and loan growth for the balance of 2026. Overall, 2026 is off to a good start, and our focus continues to be on creating shareholder value. Thank you for your attention this afternoon. and in your investment, and now we'll be happy to address any questions you may have.