Earnings call transcript: ServisFirst Q1 2025 beats EPS estimates, stock dips

ServisFirst Bancshares Inc. (SFBS), a $3.78 billion market cap regional bank, reported its first-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $1.16, compared to the forecasted $1.13. The company’s revenue fell short of projections, recording $125.2 million against an anticipated $129.47 million. Following the announcement, the company’s stock fell 2.88% in after-hours trading, closing at $67.50, down from the last close of $69.72. According to InvestingPro analysis, the stock appears undervalued relative to its Fair Value, presenting a potential opportunity for value investors.

Key Takeaways

• ServisFirst’s EPS exceeded expectations, but revenue missed forecasts.
• The stock declined by 2.88% in after-hours trading.
• The company reported significant net income growth of 26% year-over-year.
• Strong loan and deposit growth was noted, with a focus on organic expansion.
• Future guidance projects low double-digit loan growth.

Company Performance

ServisFirst demonstrated robust performance in Q1 2025, with a net income of $63.2 million, marking a 26% increase from the previous year. The company’s total assets grew by 19% year-over-year, reaching $18.6 billion. This growth aligns with the company’s strategic emphasis on expanding its loan and deposit base, particularly within the Southeast United States. InvestingPro data reveals the company has maintained dividend payments for 12 consecutive years, with an 11.67% dividend growth in the last twelve months, demonstrating strong financial stability.

Financial Highlights

• Revenue: $125.2 million, down from the forecast of $129.47 million.
• Earnings per share: $1.16, exceeding the forecasted $1.13.
• Return on average assets: 1.45%.
• Return on common equity: 15.63%.
• Pre-provision net revenue: $85.7 million.

Earnings vs. Forecast

ServisFirst’s EPS of $1.16 surpassed the forecast by approximately 2.65%, reflecting a positive earnings surprise. However, the revenue shortfall of approximately 3.3% might have tempered investor enthusiasm, contributing to the after-hours stock decline.

Market Reaction

Despite the positive EPS surprise, ServisFirst’s stock decreased by 2.88% in after-hours trading, closing at $67.50. The decline occurred amid a broader market environment that has seen fluctuating investor sentiment, particularly within the banking sector. The stock remains above its 52-week low of $58.43 but well below its high of $101.37.

Outlook & Guidance

Looking ahead, ServisFirst anticipates low double-digit loan growth and expects over $1.9 billion in asset repricing over the next 12 months. The company projects a significant cash flow from fixed-rate loans, amounting to $1.5 billion at a 4.76% rate. Additionally, the effective tax rate is expected to be around 20%. InvestingPro analysis shows the company trading at a P/E ratio of 16.57x, with analysts forecasting continued profitability. For deeper insights into ServisFirst’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Tom Broughton expressed confidence in the company’s strategy, stating, "Main Street is a heck of a lot more durable than Wall Street," highlighting the focus on organic growth. CFO David Sparaccio emphasized competitive and profitable pricing for loans and deposits, which remains a cornerstone of their financial strategy.

Risks and Challenges

• Revenue shortfalls could impact future investor sentiment.
• Macroeconomic pressures and interest rate fluctuations pose ongoing risks.
• Increasing competition in the Southeast banking sector.
• Potential impacts from tariffs and international trade dynamics.
• Non-performing assets in medical-related sectors could affect profitability.

Q&A

During the earnings call, analysts inquired about the impact of tariffs and the company’s municipal deposit growth. Executives highlighted steady loan participation opportunities and addressed concerns regarding non-performing assets in the medical sector, reassuring stakeholders of their strategic management approach.

Full transcript - ServisFirst Bancshares Inc (SFBS) Q1 2025:

Conference Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Davis Maines, Senior Vice President.

Thank you, Davis. You may begin.

Davis Maines, Senior Vice President, Service First: Good afternoon and welcome to our first quarter earnings call. We will have Tom Broughton, our CEO David Spiracio, our CFO Henry Abbott, our Chief Credit Officer and Rodney Rushing, our Chief Operating Officer, covering some highlights from the quarter and then we’ll take your questions. I’ll now 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.

Tom Broughton, CEO, Service First: Thank you, Davis. Good afternoon and thank you for joining our first quarter conference call. We felt we’d had a great start to the year, and I’ll give a few details followed by a credit update from Henry Abbott. After Henry, David Sparecia will give us a financial update and this will be David’s first quarterly conference call since joining us several weeks ago. We are pleased to have David with us today.

Ed Woody, our Controller acted as Interim CFO for the last several months and did a great job of getting us through year end and the 10 ks filing and we appreciate Ed’s hard work. On the loan side, we were pleased to see very solid growth net of payoffs for the first quarter with 9% annualized growth. As often the first quarter is down or flat in the loan book, so that was very solid start to the year. The loan pipeline is up 10% from January and we do still have some projected loan payoffs roughly the same as in the prior quarter. On the deposit side, we saw strong deposit growth in the first quarter, which is atypical of what we usually see in the first quarter.

Most of the growth was in municipal and correspondent deposits. We still see COVID funds working their way through the government system, which has aided municipal deposit growth. We did exit most non core deposit relationships in the first quarter of last year. On the new markets, we did add four new producers in the first quarter around different markets. We continue to be pleased with the progress of our newer markets and they are all hitting their goals.

We are in discussions with several potential new markets that could happen later this year. So, all in all, I’d like to say that I think it’s business as usual. So far, we’ve seen improvement and things are going according to plan. So, I’ll now turn it over to Henry Abbott for a credit update. Thank you, Tom.

The bank got off to

Henry Abbott, Chief Credit Officer, Service First: a strong start with the loan growth Tom previously mentioned. We continue to see good loan opportunities for both new and core markets as businesses are looking to expand or in other cases, we see new opportunities due to changes with the current bank from pending mergers or other market disruption. While there is plenty of uncertainty related to the economic environment, we want to continue to lend through this cycle to high performing businesses and long time established players in our markets. Charge offs were slightly higher than we would have liked an annualized rate of 19 basis points for the first quarter. This figure is higher than the prior few quarters, but more in line with pre COVID benchmarks.

The overwhelming majority of the loans that were charged off were individually analyzed and impaired in prior quarters, so we charged off previous impairments based on updated information. While we did charge down some of these loans, I’m pleased to say we did grow our ALLL on a dollar amount for the quarter, but given the loan growth we previously discussed, ALLL to total loans did slightly decrease from 1.3 to 1.28 quarter over quarter. Our NPAs rose in the first quarter, but roughly 70% of the increase was related to two specific relationships. These relationships are in two different markets and both are real estate secured, but neither is related to speculative AD and C or income producing CRE. We continue to try to work loans through the NPA cycle as quickly as we can.

And I’m pleased to say, we even reduced our OREO to under $1,000,000 with a $1,750,000 reduction from year end. We took aggressive actions where needed in the first quarter on a handful of credits, which slightly impacted our earnings, but hopefully set us up for success in the remaining quarters of 2025. We continue to be conservative in our underwriting and diligent in our credit servicing. With that, I’ll pass it over to David.

David Sparaccio, CFO, Service First: Thank you, Henry. Good afternoon. I will echo the comments that we feel the quarter was a solid start to 2025. We reported net income of $63,200,000 diluted earnings per share of $1.16 and pre provision net revenue of $85,700,000 This represented a return on average assets of 1.45% and a return on common equity of 15.63%. Net income grew more than $13,000,000 or 26% from the first quarter of twenty twenty four.

Compared to the fourth quarter of twenty twenty four, net income was down slightly by about $2,000,000 or 3%, mostly driven by a reduction in day count and changes in our effective tax rate. In line with the loan growth referenced by both Tom and Henry, we grew our total assets by nearly $1,300,000,000 from December 31 and ended the quarter at $18,600,000,000 This is a 7% growth from December 31 and a 19% growth from 03/31/2024. Period end cash balances at the Fed grew by about $959,000,000 and ending loan balances grew about $281,000,000 This loan growth was spread evenly throughout our portfolio with new loan yields of 6.81% and about an even split between variable and fixed rates. We ended the quarter with just slightly less than 49% of our loan book being variable rate based. We continue to see core deposit growth in our loan to deposit ratio stands at 89% with our adjusted loan to deposit ratio including correspondent Fed funds purchased of 77%.

As I mentioned, our Fed balances increased significantly during the quarter about three eighty million dollars on average balances versus the fourth quarter, which certainly helps our liquidity, but hurts our percentage margin calculation. Additionally, we grew our tangible book value by 3% since last quarter and 13% from the same quarter a year ago, ending at $30.31 per share. We continue to be well capitalized with a common equity Tier one capital ratio of 11.4% and risk based capital ratio of 12.9% for the quarter. On net interest income for the quarter, was $123,500,000 which is $21,000,000 higher than first quarter twenty twenty four and just slightly higher than fourth quarter twenty twenty four. I will remind you that in first quarter of twenty twenty four, we had one extra day due to leap year and fourth quarter twenty twenty four, we had two extra days when compared to first quarter twenty twenty five.

We feel good about our dollar margin given the reduction in day count. The margin percentage was diluted this quarter by our higher than normal cash balances at the Fed. This excess cash diluted our margin by six basis points this quarter. Over the next twelve months, we will have $1,500,000,000 of projected cash flow from fixed rate loans at a rate of 4.76% and projected pay downs of mortgage backed securities of $100,000,000 at the rate of 2.5%. In addition, with tax and audited statements due soon, we anticipate loan repricing opportunities.

In 2024, total repricing was $357,000,000 Year to date for 2025, total loans repriced were $60,000,000 and $95,000,000 are pending. Thus, we anticipate over $1,900,000,000 in asset repricing over the next twelve months. Our provision expense was down this quarter due to the release of the reserve previously marked for hurricane losses. We have not seen any hurricane loss materialize. So when we unwound that and updated our CECL model, the result was a provision expense of $6,600,000 which is up $2,100,000 from first quarter twenty twenty four and $900,000 from fourth quarter.

The allowance for credit losses ended the quarter just over $165,000,000 which is an increase of about $576,000 from fourth quarter, primarily due to the growth in the loan balances. As Henry mentioned, our allowance ratio dropped from 1.3% of total loans in the fourth quarter to 1.28% in the first quarter of twenty twenty five. I will point out that we were at 1.28% in the second quarter of twenty twenty four before the general hurricane reserve was established. So this is just a normalization of our allowance level. On non interest income, in first quarter of twenty twenty five, we were down about 7% versus first quarter twenty twenty four, but this decline was driven by a one time BOLI death benefit recorded in 2024.

From a normalized rate, we saw an increase of about 7% in non interest income versus first quarter of twenty twenty four, primarily driven by higher service charges on deposit accounts. Versus fourth quarter twenty twenty four, non interest income was down 5 and $26,000 due to a lower day count and seasonal declines in credit card and mortgage activity. We expect non interest income to pick back up in second quarter of twenty twenty five. During the quarter, our non interest expense was down $789,000 versus fourth quarter twenty twenty four and flat versus first quarter twenty twenty four. This is a testament to our expense discipline as we have experienced growth of 5% in our number of employees since first quarter twenty twenty four.

And first quarter always sees a seasonal spike in payroll taxes versus fourth quarter. Payroll expense was down about 5% versus fourth quarter due to the true up of 2024 incentive plan payouts. This incentive reduction was offset by a one time operational loss we experienced in the first quarter. This resulted in an efficiency ratio below 35%, which we are very proud of. For the remainder of the year, we expect our non interest expense to be in the $46,000,000 to $46,500,000 range, obviously fluctuating based on our expansion efforts that Tom mentioned earlier.

For the first quarter, our pre tax net income was relatively flat compared to fourth quarter twenty twenty four, which we view as a win considering the fewer dates. Versus the same quarter last income is up over $18,000,000 or 30%. We continue to focus on organic loan and deposit growth priced both competitively and profitably. On our income tax provision, we saw an increase driven by less credits. Our 2024 effective tax rate, which was about 18% increased in the first quarter to about 20%, which is the expected run rate for the remainder of 2025.

Now, I will turn it back over to Tom for additional comments.

Tom Broughton, CEO, Service First: Thank you, David. And I’m sure you’ve all seen the eight ks we filed a little bit ago after the market closed regarding Henry’s career change. I would like to thank Henry Abbott for all his contributions to our strong credit culture and we wish him well in his next chapter of his business career. And I know Rodney wants to make Rodney Rush wants to make a few comments as well about Henry.

Rodney Rushing, Chief Operating Officer, Service First: Thanks, Tom. And also, I’d like to thank Henry for the hard work you and all your team put in and accomplished over the last few years. As you make this transition to your next business endeavor, I want to especially thank you for making the transition a smooth, seamless one, Agreeing to work over the next few weeks full time and being in a consulting role with Jim has made this much easier for all of us. And thank you again and good luck. With your work ethic, I am sure you will be successful in whatever you do.

With that, I’ll turn it

Tom Broughton, CEO, Service First: back to Tom. Thank you, Rodney. And I think we’ll now open it up for questions.

Conference Operator: Thank you. We’ll now be conducting a question and answer session. Our first question comes from the line of Stephen Scouten with Piper Sandler. Please proceed.

Davis Maines, Senior Vice President, Service First: Yes, good afternoon everyone. Congrats on a great quarter here. I know you mentioned some influence from municipal deposits, but just kind of curious how you think or how you’re thinking about deposit trends for the rest of the year given such a strong start here in the first quarter?

Tom Broughton, CEO, Service First: Yes. Stephen, I wouldn’t be I wouldn’t project that out the next three quarters.

Conference Operator: I don’t

Tom Broughton, CEO, Service First: think I think some of that is probably on the correspondent side. Rodney can address that. But I think some of the municipal deposits will probably run down as the course of the year goes on. Rodney, you want Yes.

Rodney Rushing, Chief Operating Officer, Service First: For the first quarter, correspondent was up a little over $430,000,000 in total fundings from year end. And in the first quarter, correspondent balances tend to grow and accumulate head into the tax season. And we have seen that level off since then. So but that’s where a large chunk of it came from.

Davis Maines, Senior Vice President, Service First: Okay. So if I think about that, I mean, that should kind of normalize but still continue to grow. And when they would we would be fair to assume kind of cash balances move down in likewise fashion throughout the year and kind of the NIM maybe pulls back up as balance sheet remixes. Is that the right way to think about the trajectory of the NIM from here?

David Sparaccio, CFO, Service First: Yes, Stephen, this is David Sparaccio. Yes, we’re already actually seeing that come down a bit, the cash balances. We track them on a daily basis and we’re seeing some of that retract as well. So I mean, you could see the average balances are not nearly as high as the period end balances were. So we expect that those cash balances to come down over the next few months.

Davis Maines, Senior Vice President, Service First: Okay, great. And then just last thing for me, just kind of curious, I mean, obviously, loan growth was fantastic here in the quarter. And just anything kind of anecdotal that you’re hearing from customers, if there’s been any sort of change in the pipeline or demand kind of post April 2 and a little bit of this uncertainty that the market seems to be overwhelmed by?

Tom Broughton, CEO, Service First: I think there may be a bit of a slowdown, Stephen, but Main Street is a heck of a lot more durable than Wall Street. And I think the effect is it helps some companies, it hurts some companies. If you’re a Porsche dealer and they make nothing in The United States, then you probably are pretty concerned right now. We don’t like any Porsche dealers, I don’t think to my knowledge. If you’re a Ford dealer, you’re feeling pretty good about the 80% of their models assembled and made here, parts and all.

So we just don’t see certainly, it’s not the commercial real estate transactions need short term interest rates to come down to improve the environment there a bit. But we think that what we need to see is a combination of asset repricing and growth at the same time and that will get us to where we need to be in terms of growing our earnings back to more normal historical levels profitability in terms of return on assets or return on equity that we enjoyed. So we don’t at this point see any significant impact from tariffs. I could be naive, but things like that that get a big carry on about it on CNBC all day long, but people on Main Street don’t watch CNBC. They’re running their companies and businesses.

And obviously, there’s a certainly a buy ahead aspect that people fear inflation. They tend to spend money now. So there I think there’s many positive benefits as negative benefits at this point in time, Stephen. I’m just we don’t see anything odd from our correspondent banks either. There’s nothing there we have three ninety correspondent banks.

So we really capture a pretty good cross section of the Southeast United States plus more. So I don’t think we’d be hearing things and I think everything is we don’t see anything in our card portfolio, credit card portfolio, anything odd. We don’t everything, even the seems like the senior housing is healing up a bit. Obviously, if you look at the cost of new senior housing and look at what you buy, there are people out buying senior housing products projects today, the existing ones, because they’re substantially cheaper than building new. So people are looking to the future a little bit.

It had nailed up, don’t get me wrong, but it’s healing a bit. So, I’m reasonably optimistic about the balance of the year, Stephen.

Davis Maines, Senior Vice President, Service First: Great. I like it. Appreciate all the color guys. Thanks for the time.

Tom Broughton, CEO, Service First: Thank you.

Conference Operator: Thank you. Our next question comes from the line of Steve Moss with Raymond James. Please proceed.

Davis Maines, Senior Vice President, Service First: Hi, good afternoon. Hey, Steve. Tom, just following up on loan growth here. The pipeline is up. You had a good quarter production.

You’re still thinking like low double digits could be a good pace?

Tom Broughton, CEO, Service First: Yes, we do. Some of that we still have some payoffs. I was kind of hoping they would go away after the first quarter, but some of it seems like they I guess not all of them paid off that I had thought would pay off in the first quarter. But we are we’re not seeing any big projects. All of our growth we’ve had so far this year is in smaller chunks, which is good.

And we’re seeing nice steady granular growth in the loan portfolio. So we feel good about and it’s broad based. This tends to be in every market. Of course, Florida is by far probably the best, but we’re seeing a lot of opportunity in a lot of places. So I think I don’t know, Rodney, do you have anything else you want

Rodney Rushing, Chief Operating Officer, Service First: to add there? No. It’s been steady from our correspondence. I mean, the number of participation opportunities we’re seeing has just we’ve not had a spike and we’ve not had a decline. It’s been steady for the first quarter and we’ve seen several over the last two or three weeks.

I mean, it just we’ve not seen the slowdown in the projects from

Tom Broughton, CEO, Service First: Again, I don’t I think the tariff effect it’s been nil at this point in time.

Davis Maines, Senior Vice President, Service First: Right. Okay. No, that’s fair. That makes sense. And then in terms of just kind of curious, loan pricing for the quarter on new originations was $684,000,000 I guess, and renewals.

Just curious, has that gotten tighter here as the quarter has gone on? Or are you kind of still holding, you think, in the high 6s on originations? Just kind of think about that roll on, roll off dynamic with loans repricing going forward.

Tom Broughton, CEO, Service First: I think it’s been the same. It’s already too tight. Don’t get me wrong, Steve. I mean, I’m not happy with the pricing we’re achieving today. I think it should be higher given, but obviously people are projecting that we’re going to see a downturn in rates and at some point in the year.

So it’s been steady at those levels.

Davis Maines, Senior Vice President, Service First: Okay. And then the other question for me here, just on the operating expenses, 46,000,000 to 46.5 for each quarter for the rest of the year. Is that before the potential of new hires?

David Sparaccio, CFO, Service First: Yes, that is before any potential new hires. So I had to comment in there. Tom talked about expansion efforts. We continue to evaluate any new producers out there. And so if we hire additional, that would add to that baseline.

Yes.

Davis Maines, Senior Vice President, Service First: Okay. Course, we continually

Tom Broughton, CEO, Service First: have a doge program ongoing in terms of evaluating effectiveness of our producers. So it’s you always you get some growth and then you have some reductions in force as well, Steve, so.

Davis Maines, Senior Vice President, Service First: I hear you I hear you there, Tom. Okay. Sounds good. And last one for me, just on the non performers. I know you guys said they were not income producing and not speculative A, B and C.

Just kind of curious what kind of industries they were to? Or any additional color you can give around those nonperformers that were added?

Tom Broughton, CEO, Service First: Go ahead, Andrew.

Henry Abbott, Chief Credit Officer, Service First: Yes. I mean, both are, I guess, I’d say kind of medical related in very different markets. But once again, those are C and I operating, not just income producing properties.

Davis Maines, Senior Vice President, Service First: Okay. Like senior assisted living or kind of curious how to

Tom Broughton, CEO, Service First: One’s a hospital. Yes, one’s

Henry Abbott, Chief Credit Officer, Service First: a hospital and then one’s a doctor.

Tom Broughton, CEO, Service First: And the doctor is just he’s just a doctor that’s got cash flow issues, but a lot of assets. Yes. He’s overextended, but we’ve got really good collateral and feel good about our collateral with him. He’s just you only say about doctors, Steve. They get overextended.

Davis Maines, Senior Vice President, Service First: That’s good, Tom. I’m going to take a pass on that one. But I appreciate all the color here and thank you very much. Nice quarter. Thank you.

Conference Operator: Thank you. Our next question comes from the line of David Bissett with Hovde Group. Please proceed.

Henry Abbott, Chief Credit Officer, Service First: Hey, good evening gentlemen. Hi, Dave.

David Bissett, Analyst, Hovde Group: Tom, Dave, quick question. You sort of alluded to the influx of the liquidity. I think it was six basis points of NIM pressure. I appreciate the data as a supplement. Looks like your cost of interest bearing deposits were 3.42%, two basis points above the quarterly average.

Is that reflecting some of the pressure from that muni inflows? And just how much do you expect some of that is there a way to frame the dollar inflow that could flow out over the next couple of quarters?

Tom Broughton, CEO, Service First: The two funds, the largest influx was municipal and correspondent and they’re higher cost funds. Is that what you mean, Dave? I mean, they’re higher cost of funds. So it doesn’t it’s not like we have repricing of our existing deposits or anything to that. Is that where you’re going with it, Dave?

David Bissett, Analyst, Hovde Group: Yes. Just sort of trying to get a sense as those muni and correspondent funds sort of trickle about out, can we expect to see that number start to move south, so to speak, that $3.42, where do you see that sort of trending over the next couple of months or so?

David Sparaccio, CFO, Service First: Yes. I would expect, as Tom said, we don’t expect that municipal deposit base to stick, right? And so we expect it to exit eventually. And so when it does that, it will drop the cost of deposits down because it is higher yielding for that bucket, right?

Tom Broughton, CEO, Service First: Given our ongoing excess liquidity, we’re always we are looking for additional levers we can pull to try to improve income without undue increases in risk. But we might deploy some liquidity if we can find some avenues to do so, Dave. So we’re looking I don’t it won’t be huge amounts of effect on net income, but it will be a little bit. So when you got that much cash, every little bit helps.

David Bissett, Analyst, Hovde Group: Got it. And then Dave, I think you gave some doubt about the amount number of loans you expect to reprice over the next twelve months. If I just go through that again real quick. Thanks.

David Sparaccio, CFO, Service First: Yes. We have about $900,000,000 right now that’s going to reprice in a year or less. And the weighted average rate right now is 4.76% and that’s on the fixed rate book. On the variable rate book, we have about $2,200,000,000 that’s going to reprice in the next year or less and the weighted average rate on that is 7.52% right now.

Tom Broughton, CEO, Service First: And then we’ve got the cash flow on fixed rate loans as The cash flow on fixed rate loans is I mean and paid ounces of $1,000,000,000 4 point 7 6 billion dollars

David Bissett, Analyst, Hovde Group: Got it. Perfect. Appreciate the color.

Tom Broughton, CEO, Service First: Okay, Dave. Thank you.

Conference Operator: Thank you. There are no further questions at this time. With that, that concludes today’s teleconference call. You may disconnect your lines at this time. Thank you everyone for your participation.

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