Net Income: Increased by approximately 15% from the second quarter.
Diluted EPS: Increased by approximately 15% from the second quarter.
Net Interest Margin: Increased to $115 million in the third quarter from $106 million in the second quarter.
Annualized Net Charge-Offs: 9 basis points for the quarter, down from 10 basis points in the second quarter.
Loan Loss Reserve: Increased by $4 million for the quarter; reserve to total loans at 1.31%.
Nonperforming Assets (NPAs): 25 basis points of total assets in the third quarter.
Efficiency Ratio: Fell below 37%.
Noninterest Expenses: Core run rate for the third quarter was 1.8% above the second quarter’s $44.8 million.
Tax Rate: Third quarter rate at 17.2%, expected to be around 19% for the fourth quarter.
Release Date: October 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Servisfirst Bancshares Inc (NYSE:SFBS) reported a 15% increase in net income from the second quarter, with a similar rise in diluted EPS.
The company experienced a significant improvement in net interest margin, which increased by 9% from the previous quarter.
Loan losses remain minimal, with annualized net charge-offs to total average loans at only 9 basis points, a reduction from previous quarters.
The bank’s credit quality remains strong, with non-performing assets to total assets at just 25 basis points.
Servisfirst Bancshares Inc (NYSE:SFBS) continues to expand its market presence, adding new bankers and making progress in new markets like Memphis and Auburn.
Negative Points
Loan balances did not grow in the third quarter due to early payoffs and election-related delays.
There was a significant municipal deposit outflow in the third quarter, which impacted cash balances.
The company is facing challenges in the hospitality loan segment due to exposure limits and overbuilding in commercial real estate.
A large borrower was downgraded to special mention due to construction delays and cash flow issues, although no significant losses are expected.
The resignation of the CFO, Kirk Pressley, for personal reasons may lead to transitional challenges in financial leadership.
Q & A Highlights
Q: Can you provide more details on the loan pipeline and expectations for the fourth quarter compared to the second quarter? A: Thomas Broughton, CEO: The pipeline is strong, but it’s hard to predict if it will match the outstanding second quarter. The fourth quarter typically sees a lot of closings due to year-end activities. We expect a decent closing amount, but there are also payoffs as some loans move to the permanent market.
Q: What are you seeing in terms of loan pricing, especially with recent treasury volatility? A: Thomas Broughton, CEO: Loan pricing remains consistent with prior quarters, around 8%. Edison Woodie, Controller: The mix has shifted slightly with more fixed-rate loans, but overall pricing is holding up well.
Q: Regarding the large borrower placed on special mention, what is the size of this relationship and the total criticized and classified loans? A: Henry Abbott, Chief Credit Officer: The borrower relationship is $97 million, divided into eight projects. The largest is $20 million. These are special mention, not substandard, and there’s no significant change in total special mention and substandard loans.
Q: Do you expect any significant loss content from the special mention loans? A: Thomas Broughton, CEO: No reserve is needed for these loans. The borrower has one problematic project due to construction delays, but we believe it’s a short-term issue. The borrower is strong, and we like the asset class.
Q: What are the trends in loan growth and new hires, particularly in new markets? A: Thomas Broughton, CEO: We hired four new bankers, with some in Auburn and Memphis. We expect contributions from new hires to start showing in about six months. We are optimistic about growth in new and core markets.
Q: Was there anything unusual about the increase in loan yields this quarter? A: Kirk Pressley, CFO: The increase is part of a recurring trend, not a onetime event. The second quarter’s loan growth and repricing of fixed-rate loans contributed significantly.
Q: What are you seeing in terms of new CD pricing? A: Thomas Broughton, CEO: CD rates have decreased quickly, with six-month CDs dropping from 5% to 4.25%. Major operators are showing more rational pricing, and we have room to improve our CD rates as they mature.
Q: What drove the increase in short-term liquidity and cash, and how will it affect funding? A: Kirk Pressley, CFO: The average cash balance was higher due to a municipal outflow, but it didn’t significantly impact NIM dollars. We expect cash levels to adjust as we fund loans in the fourth quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
