Fannie Mae, Freddie Mac shares tumble after conservatorship comments
ServisFirst Bancshares Inc. (SFBS), a $4.53 billion market cap regional bank with a beta of 0.85, reported its second-quarter 2025 earnings, meeting EPS expectations but falling short on revenue. The company posted an EPS of $1.21, matching forecasts, while revenue reached $132.11 million, below the anticipated $140.26 million. This revenue miss contributed to a 0.65% decline in the stock price, closing at $83. According to InvestingPro analysis, the stock appears slightly undervalued based on its Fair Value calculation.
Key Takeaways
- EPS met expectations at $1.21, while revenue missed forecasts by 5.81%.
- Stock price decreased by 0.65% following the earnings release.
- Net income grew 18% year-over-year, despite a slight quarter-over-quarter decline.
- Expansion into new markets and product innovations were highlighted.
Company Performance
ServisFirst Bancshares demonstrated robust year-over-year growth in net income, increasing by 18%, while maintaining impressive revenue growth of 17.21%. The company experienced a slight decline of 3% in net income compared to the previous quarter. The bank’s expansion into new markets such as Memphis, Auburn, and Atlanta, along with innovations like a new merchant card processing team, underscores its strategic growth initiatives. InvestingPro data reveals the company maintains a GOOD overall Financial Health Score, with particularly strong marks in profitability metrics. Subscribers can access 8 additional ProTips and comprehensive financial analysis through the Pro Research Report.
Financial Highlights
- Revenue: $132.11 million, down from the forecast of $140.26 million.
- Earnings per share: $1.21, meeting forecasts.
- Net income: $61.4 million, up 18% year-over-year.
- Return on average assets: 1.4%.
- Return on common equity: 14.56%.
Earnings vs. Forecast
ServisFirst Bancshares’ EPS aligned with expectations at $1.21, but revenue fell short by 5.81%. This discrepancy suggests potential challenges in revenue generation or market conditions affecting the company’s operations.
Market Reaction
The stock fell by 0.65% to $83 following the earnings announcement. The decline reflects investor concerns over the revenue miss, despite meeting EPS expectations. Trading at a PEG ratio of 0.92, the stock appears attractively valued relative to its growth prospects. The company has maintained dividend payments for 12 consecutive years, demonstrating consistent shareholder returns. Visit InvestingPro’s Most Undervalued Stocks for more investment opportunities like SFBS.
Outlook & Guidance
The company anticipates a 10-14 basis point increase in net interest margin quarterly, projecting a year-end NIM of 3.20-3.25%. ServisFirst expects continued solid loan growth, with potential for low double-digit increases, and plans to reprice approximately $1 billion in fixed-rate loans over the next 12 months.
Executive Commentary
CEO Tom Broughton emphasized the bank’s focus on commercial and industrial lending, stating, "We are known as a commercial and industrial lending bank." CFO David Spraciu highlighted the company’s strategic fee adjustments, noting, "We haven’t increased our fees in twenty years."
Risks and Challenges
- Revenue shortfall suggests operational or market challenges.
- High interest rates impacting commercial real estate.
- Potential volatility in stock price due to market conditions.
- Loan demand described as "good, not great," indicating moderate growth.
- Challenges in maintaining growth momentum in new markets.
Q&A
Analysts inquired about deposit cost normalization and bond portfolio restructuring. The company clarified its strategy for geographic loan growth and merchant services expansion, aiming to increase penetration from 1% to 8%.
Full transcript - ServisFirst Bancshares Inc (SFBS) Q2 2025:
Conference Operator: Greetings, and welcome to the Service First Bancshares Second Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Davis Mange, Director of Investor Relations. Davis, please go ahead.
Tom Broughton, CEO, Service First Bancshares: Good afternoon and welcome to our second quarter earnings call. Today’s speakers will cover some highlights from the quarter and then we’ll take your questions. We’ll have Tom Broughton, our CEO Jim Harper, our Chief Credit Officer and David Spraciu, our CFO. Now I’ll cover our forward looking statements disclosure. Some of the discussion in today’s earnings call may include forward looking statements.
Actual results may differ from any projections shared today due to factors described in our most recent 10 ks and 10 Q filings. Forward looking statements speak only as of the date they are made and Service First assumes no duty to update them. With that, I’ll turn the call over to Tom. Thank you, Davis, and thank you for joining our second quarter conference call. I’m going give you a few highlights and we’ll follow that with a credit update from Jim Harper, and then David Sparecia will give you a little bit more financial information on the quarter.
From a loan standpoint, we did see solid loan growth in the quarter. Net of paid offs, our growth was 11% annualized. We do see continue to see the life loan pipeline being very robust and staying robust levels. I will say, you know, characterize the loan demand is good, not great. And, course, everybody, we’re not immune from the payoffs that you’re hearing from everybody.
So we we do have elevated payoffs on the commercial real estate side. Luckily, we are known as a commercial and industrial lending bank. So those are certainly not not don’t have the same level of payoffs that you see on the on the CRE side. So we are replacing on the CRE side. We are replacing the payoffs with new projects, but with the large equity requirements that we have today, our funding will not begin until the projects are well underway.
On the real estate projects, a lot of projects still don’t pencil out at today’s higher interest rates. If we see a few cuts, we think the demand would be And I think a lot of projects we’re seeing are tax credit oriented, low income housing type products that are government supported projects. So those are still, have robust demand for those. On the deposit side, we saw some normalization of some of our higher cost municipal and correspondent deposits in the quarter.
We had one large municipal deposit, where the funds have been sitting for two years while construction projects are beginning and those have begun so that those funds are running off as we expected in that large account. So really we are focused on opening core deposits accounts with, you know, treasury products that go along with those. That is our focus of our bank and always has been and always will. In the new markets area. We we did hire seven new producers in the second quarter in our footprint.
And also I wanted to mention that we have ramped up in the last couple of quarters in a merchant area. We brought on a team of merchant group and to increase our production on the merchant side, we think we have great potential to grow our merchant business. We don’t count those people’s revenues, as the producer count is only commercial bankers, but they are revenue generators and we think they’ll do a fantastic job, growing, merchant revenue for us. So I’m going now turn it over to Jim Harper for a credit update.
Jim Harper, Chief Credit Officer, Service First Bancshares: Thanks, Tom. Good afternoon. As Tom mentioned, we continue to see solid loan growth in the second quarter and through year to date 25%. And there appears to be continued solid demand into the third quarter and the second half of the year with active owner and non owner occupied CRE and C and I pipelines. While total charges in the second quarter were just under $6,500,000 they were driven primarily by a charge of just over $5,000,000 related to one loan, which was a situation in which the borrower’s performance deteriorated quickly and unexpectedly.
Our allowance relative to total loans, which did increase by almost $5,000,000 compared to the first quarter remained flat on a relative basis at 1.28% at quarter end. On the non performing asset front NPAs remained stable also on a quarter over quarter basis moving from 40 basis points at threethirty one to 42 basis points at sixthirty. And we continue to aggressively manage our NPAs. As evidence of those efforts, we achieved resolution on a couple of long term problem credits in the second quarter and expect additional resolutions throughout the second half of this year. In summary, through our granular portfolio review that we execute on a quarterly basis, we haven’t identified any systemic issues or concerns whether by industry or borrower type including within our income producing and AD and C portfolios.
Of course, there continue to be isolated incidents of credit deterioration, but we’re not seeing any broader negative trends from a credit quality perspective. And I’ll turn it over to David for his financial highlights.
David Spraciu, CFO, Service First Bancshares: Thank you, Jim. Good afternoon, everybody. For the quarter, we reported net income of $61,400,000 and diluted earnings per share of $1.12 and pre provision net revenue of $87,900,000 This represented a return on average assets of 1.4% and a return on common equity of 14.56%. Net income grew more than $9,000,000 or 18% from second quarter twenty twenty four. Compared to the first quarter of twenty twenty five, net income was down slightly by about $1,800,000 or 3%.
During the quarter, we had two significant non routine transactions. The first was an $8,600,000 loss on the restructuring of our bond portfolio. During the quarter, we decided to strategically sell about $70,000,000 of bonds that were yielding a 1.34% at a loss. And when we sold those, we reinvested the $62,000,000 of proceeds in new investments with a yield of average of 6.28%. The expected payback period on this transaction is three point eight years.
The restructuring will position us for stronger margin performance in future quarters. Secondly, we reversed an interest expense accrual of about $2,300,000 that had been building for several quarters. This accrual was related to a legal matter that has been resolved, so we have seen an artificial reduction of about seven basis points in our deposit costs. The reported 3.5% of deposit cost will not sustain in future quarters. We expect it to be similar to first quarter at about 3.57%.
We continue to focus internally on growing our margin, emphasizing price discipline for both loans and deposits. Our adjusted margin is 3.05 for the quarter, which is up 13 basis points from linked quarter and 26 basis points from the same quarter of last year. We continue to have repricing opportunities and cash flow pay downs on our existing fixed rate book of loans. We have about $1,000,000,000 in valuable rate loans maturing in the next twelve months. Lastly, our tangible book value grew by annualized 12.5% versus last quarter and by nearly 14% from the same quarter a year ago, ending at $31.27 per share.
We continue to be well capitalized with a common equity Tier one capital ratio of 11.38% and risk based capital ratio of 12.81% for the quarter. Net interest income for the quarter was $131,700,000 as reported and adjusted net interest income was $129,400,000 This adjusted net interest income is $5,900,000 higher than first quarter twenty twenty five and more than $23,000,000 higher than second quarter of twenty twenty four. We are pleased in the margin improvement, which has increased from a normalized spot rate of 3.06% in March to 3.19% in June. If you recall, first quarter margin was weighed down by excess cash balances. Those balances have reduced as expected and are more stable.
As a result, we expect our margin to continue to increase throughout the year and expect that to accelerate if the Fed decides to lower benchmark rates. This quarter saw a significant increase in our provision expense, which was necessary to maintain our allowance for credit losses given the loan growth and significant charge off that Jim mentioned in the second quarter. We had little change in our economic and credit indicators in our CECL model and as a result, our allowance for credit losses ratio had held steady at 1.28%. We expect provision expense to normalize based on the current economic environment and the steady loan growth we have experienced year to date. Our non interest income, was down significantly due to the bond book restructure that I discussed earlier.
Excluding that loss, adjusted net interest revenue for the quarter was just under $9,000,000 which is $706,000 better than first quarter twenty twenty five and about 1% higher than second quarter of twenty twenty four. We continue to focus on non interest income growth through merchant services processing and treasury management services. Tom already spoke about the onboarding of the new merchant team and they continue to concentrate on cross selling opportunities. We also increased service charges related to our treasury management services on July 1, which is the first we’ve done in twenty years. So although we haven’t seen those results in the second quarter, we will see those in future quarters.
During the quarter, our non interest expense was down $1,900,000 versus first quarter, primarily due to the large operational loss recorded in first quarter. Versus same quarter of last year, we experienced an increase of non interest expense of about $1,400,000 This roughly 3% increase versus 2024 is a modest increase given the 18% increase we realized in net income. My goal is to constrain non interest expense growth to a fraction of our revenue growth. We remain focused on expense control and continue to seek opportunities to reduce our operating costs. The largest effort we had this quarter in back office operation was a conversion involving our core processing system.
We successfully unwound a configuration that involved a third party processing our transactions and switched to a direct relationship with Jack Henry. We will realize some cost savings in future quarters associated with this change, but we continue to expect our non interest expense to be in the 46,000,000 to $46,500,000 range per quarter. Our non interest expense this quarter represents an efficiency ratio below 34% and we do not expect drastic changes in our efficiency ratio going forward. So all in our second quarter twenty twenty five pre tax net income was down about $2,500,000,000 compared to first quarter and up over $10,000,000 versus second quarter of twenty twenty four. Our adjusted pre tax net income was up $3,800,000 versus first quarter and up over $16,000,000 versus second quarter of twenty twenty four.
We remain focused on organic loan and deposit growth priced both competitively and profitably. And lastly, we continue to strategize on reducing our tax expense and we were able to realize a slight decrease from first quarter to second quarter in our effective tax rate, which we will continue to focus on going forward. That now concludes our prepared comments and we will turn it over to the operator for questions.
Conference Operator: Thank you. We’ll now be conducting a question and answer session. Our first question today is coming from Stephen Scouten from Piper Sandler. Your line is now live.
Stephen Scouten, Analyst, Piper Sandler: Hey, good afternoon, everyone. I guess maybe if I could start on just the net interest margin and kind of how I know you said you expect it to move higher from here. What’s kind of the starting point ex that interest reversal in your mind and kind of where that could potentially end the year from a trajectory standpoint ex any Fed actions?
David Spraciu, CFO, Service First Bancshares: Yes. So Stephen, this is David Spiracio. The starting point, our adjusted margin is 3.06% for the quarter, right, excluding the interest expense item that we talked about. We I mentioned we continue to focus on deposit and loan pricing across the footprint. And absent any changes from the Fed, expect it to continue to increase on a quarterly basis.
We’re seeing about anywhere from 10 to 14 basis points each quarter. So if you just interpolate that and think that we could get like 10 basis points in the third quarter and then another 10 basis points in the fourth quarter, we should be ending the year, somewhere near the three twenty five to three twenty range is what we’re anticipating.
Stephen Scouten, Analyst, Piper Sandler: Okay. Fantastic. Very helpful. And then in terms of deposit growth, I know you mentioned some kind of outflows expected outflows on the municipal side. But how do you think about, I guess, the ability to drive deposit growth in line with the nice loan growth you’ve had?
David Spraciu, CFO, Service First Bancshares: Yes. So again, it’s David. And if you recall back in the first quarter, we had hefty deposits. We had some excess funding that really hurt our margin. And so we knew some of those municipal deposits were going to run off and we were okay with that.
Some of them were high yielding. I mean, we fortunately have the ability, I mean, we pay the right price, we could bring in deposits. So we have the ability to onboard some deposits. Right now, we’re just trying to manage through what we need to fund our loan growth and not have that excess funding in position.
Stephen Scouten, Analyst, Piper Sandler: Okay, great. And then just kind of last thing for me. I think you guys noted maybe 23 new FTEs this quarter. I think Tom said seven of those were new lenders potentially. Can you give us a feel maybe what markets those new lenders are coming from?
If there’s any potential new markets that you guys are thinking about new MSAs moving into? And then maybe any color, any additional color on that merchant banking initiative, just kind of what the focus is there, it’s certain dollar revenue companies or kind of how we
Jim Harper, Chief Credit Officer, Service First Bancshares: should think about that opportunity?
Tom Broughton, CEO, Service First Bancshares: HR is very literal in their headcount. 14 of them are former employees. So you can x out 14 off that list. They don’t count for anything.
David Spraciu, CFO, Service First Bancshares: Yeah. They’re they’re our interns. And and if you look at the supplemental schedule we shared, we were up twenty three and fourteen of those, as Tom said, are interns. So we don’t consider those full, you know, long time employees. They’re they’re temporary employees.
There are new new markets, so it’s it’s just adding to the staff that we already had in fluency predominantly.
Dave Bishop, Analyst, Hovde Group: Yeah. If it’s somebody
Thomas, Analyst Representative, Raymond James: if if
Tom Broughton, CEO, Service First Bancshares: they’re not, you know, production people and their support for production people, you know, we hire a new teller in Auburn, Alabama or Memphis, Tennessee or something like that so that, you know, they’re not very expensive people. So
Stephen Scouten, Analyst, Piper Sandler: And then just maybe thinking about that opportunity set in that merchant banking area that you spoke of?
Tom Broughton, CEO, Service First Bancshares: It’s not in merchant it’s merchant. It’s merchant card.
David Spraciu, CFO, Service First Bancshares: It’s it’s card processing. And so the the the thinking there is, you know, the what the the merchant processing we do for our existing customer base is a very low penetration rate. And so the theory there is that we’re going to be able to increase our penetration rate amongst our existing customers.
Tom Broughton, CEO, Service First Bancshares: And it’s not it’s pretty good profitability on it. It’s not big dollars, Steven, but it’s we have like a 1% penetration and the new team says we should have 8% penetration. So we can go up fairly substantial nice little kick to the noninterest income.
Dave Bishop, Analyst, Hovde Group: Got it. Okay.
Stephen Scouten, Analyst, Piper Sandler: Thanks for all the color there. I appreciate the time.
Tom Broughton, CEO, Service First Bancshares: Thank you.
Conference Operator: Thank you. Next question today is coming from Steve Moss from Raymond James. Your line is now live.
Thomas, Analyst Representative, Raymond James: Hey, good afternoon. This is Thomas on for Steve. Thank you for taking my question. Another strong quarter of loan growth from you guys. Appreciate the commentary you provided.
But maybe just want to see what are some of the broad trends that you’re seeing out there today in terms of the demand for commercial credit? I know a lot of people were uncertain and pulling back with the tariff uncertainty that was going on. So just maybe any anecdotal things that you’ve heard?
Tom Broughton, CEO, Service First Bancshares: I think tariffs is a good excuse. If you’re not executing, I think it’s a great excuse to not be executing and because we just don’t see that much you know, impact from the tariffs. Now, you know, our our construction loan bucket went up in the quarter and because of our CECL model, we have to keep a lot more money in reserve for construction loans. So our construction loan, you know, we had to increase our, what, $5,000,000, Jim, in our construction loan Yeah. Loan loss reserve.
So, you know, that’s that’s costly to add to the construction loans. But, you know, it’s not one area, you know, I can say, well, it’s a lot in Florida. It’s really broad based. There’s a lot of there’s a lot of markets. There’s, you know, some of our new markets like Memphis and Auburn, Alabama, We’re doing real well in Atlanta.
We’re doing, of course, well in Florida, Montgomery, Alabama, you know, through the Auburn expansion. So it’s and I don’t believe in Ash North Carolina. The Piedmont area has grown, so I’m leaving some out. But it’s pretty broad based, Thomas, is what I’m trying to say. It’s not in one asset class exactly.
We feel pretty good Okay.
Thomas, Analyst Representative, Raymond James: So we thinking maybe low double digits is still on the table potentially?
Tom Broughton, CEO, Service First Bancshares: Yes. I mean, again, if we had great loan demand, it would certainly be more than because we are fighting the everybody’s fighting the payoff headwinds and it could we could be less than double digits this quarter. I can’t hard to project every quarter because if you look back over the last six quarters or so, it will be pretty good. It will be double digit and then it will be 7% or 8% or something like that. So I can’t give you a really solid answer other than our pipeline is good and the pipeline of payoffs is pretty good too.
Thomas, Analyst Representative, Raymond James: Okay. Great. That’s fair. And, I’m sorry if I missed this in the prepared remarks, but what do you have, in terms of fixed rate loans repricing over the next twelve months?
David Spraciu, CFO, Service First Bancshares: We have about $1,000,000,000 probably about $1,000,000,000 in the next twelve months. I’m sorry.
Tom Broughton, CEO, Service First Bancshares: Accounting repricing investment securities is right at $2,000,000,000 a year for twelve months, between $1,000,000,000 a little over $1.9 Cap’s cash flow on fixed rate loans and everything else. What are those loans?
Thomas, Analyst Representative, Raymond James: Do you happen to have a yield that they’re coming off at or a pickup that you’re getting?
David Spraciu, CFO, Service First Bancshares: If you give us a minute, we can get it for you. Yes. So, we have a weighted average yield of $4.87 right now on the, for the next twelve months on, dollars 1,500,000,000.0 of loans. Fixed rate.
Thomas, Analyst Representative, Raymond James: Okay, great. I appreciate it. That’s all for me. Thank you so much.
Tom Broughton, CEO, Service First Bancshares: Thank you, Tom. Thanks, Tom.
Conference Operator: Thank you. Our next question is coming from Dave Bishop from Hovde Group. Your line is now live.
Tom Broughton, CEO, Service First Bancshares: Yes. Good evening, Hey, Dave.
Dave Bishop, Analyst, Hovde Group: Dave, maybe during the preamble, think you spoke about maybe some of the trends you’re seeing in the cost of deposits. I know there were some noise this quarter. I was wondering if you could go over what our expectations should be just on deposit cost trends.
David Spraciu, CFO, Service First Bancshares: Yes. I think it’s going to normalize more like the first quarter. We have an anomaly this quarter in the adjustment that we took. So if you look at our adjusted cost of deposits, we’re at $3.57 as opposed to $3.50, which is reported. And so I think that’s what it’s going to
Tom Broughton, CEO, Service First Bancshares: be going
David Spraciu, CFO, Service First Bancshares: forward. We are slightly liability sensitive. So that’s assuming a Fed rate cut comes in, we will accelerate that. But, without any Fed cut rates right now, we’re gonna hold probably around, you know, $3.50, three fifty seven range.
Dave Bishop, Analyst, Hovde Group: Got it. And I think, Tom or Dave you noted a change, a late quarter change, I think maybe the first of the month and the treasury management fees you’re charging on the services. Just curious how we should think about that just from a dollar perspective? Would that be a meaningful bump in that run rate moving forward?
David Spraciu, CFO, Service First Bancshares: Yes. I mean, you guys know we’re not a big non interest revenue bank, right? And so we did increase our treasury management fees. They went into effect July 1, so there’s no impact at all in the second quarter. We do expect a pickup in the third quarter.
Tom Broughton, CEO, Service First Bancshares: Hopefully, they’ll increase their noninterest bearing deposits. That’s you won’t see a revenue increase Dave. You’ll see an increase in NIBs.
David Spraciu, CFO, Service First Bancshares: And then their earnings credit will account for the increased fees. Right, right. But we haven’t increased our fees in twenty years, so we thought it was prudent
Tom Broughton, CEO, Service First Bancshares: in giving some Got of our new
Dave Bishop, Analyst, Hovde Group: it. Got it. And then, Tom, it sounded like the loan pipeline continues to hold in strong. You noted the increase in the construction loans outstanding. Just curious if there was any sort of commonality in terms of the types of projects were funded?
Were these relatively newer credits? Or were these, like you said, some projects where there was lot of equity behind it just took a while to sort of fund up? Just curious some color behind that growth.
Jim Harper, Chief Credit Officer, Service First Bancshares: Jim, you want to comment? I’d say both actually. I think it was a mix of projects that had a lot of equity that probably got to the point where they were drawn on lines. But I think there was certainly an aspect where it was new production also, I’d say both for sure.
Dave Bishop, Analyst, Hovde Group: Got it. And then, one final question that with the funding noise here. I guess loan to deposit ratio at that mid-ninety percent range. Is there a comfort level to allow that to continue to creep up to the basically at par? Do you think that sort of comes back down to the lower 90s over time this year?
Thanks.
Tom Broughton, CEO, Service First Bancshares: Well, of course, we include Fed funds purchased as a so if you look at our adjusted loan to deposit ratio, I don’t know exactly what it is today, but it’s closer to 80% than it is to 90%. Would that be correct, Davis? Yeah. It’s it’s it’s in the eighties, mid eighties. Mid eighties.
So, yeah, we’re we’re in good shape from a liquidity and funding standpoint. That’s we we can we want to be in a position to need to generate deposits, right, rather than needing to generate loans. We’ve been needing to generate loans for the last couple of years. We want it to be a problem of needing deposits, not needing loans. So we’d like to swap that to problems.
You either need one or the other all the time. They’re never balanced. So we’d much rather be in the need for deposits than the need for loan.
Dave Bishop, Analyst, Hovde Group: Got it. Understood. Thanks for taking my question.
Conference Operator: Thank you. We’ve reached the end of our question and answer session. I’d like to turn the floor back over for any further or closing comments.
Tom Broughton, CEO, Service First Bancshares: There are no further comments. That concludes our call. Thank you all for joining.
Conference Operator: Thank you. Thank you. Does conclude today’s teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.