Q1 2025 ServisFirst Bancshares Inc Earnings Call
and welcome to the ServisFirst Bancshares First Quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If you require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Davis Mange, Senior Vice President. Thank you, Davis. You may begin.
Speaker Change: Good afternoon, and welcome to our first quarter earnings call. We have Tom Broughton. I see you, David Sparacea, our CFO , Henry Abbott, Chief Credit Officer, and Rodney Rushing, our Chief Operating Officer, covering some highlights from the quarter and then we'll take you questions.
I'll now cover by forward-looking statements to disclosure Thank you.
Speaker Change: Some of the discussions in today's audience call may include forward-looking statements. Actual results may differ from any projections shared today. Do the factors described in my three to 10k and 10k you found?
Speaker Change: Forward-looking statements speak only as if the date they are made in service first soon to no duty that they have been made. With that, I'll turn the call over to Tom.
Tom Broughton: 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 our credit update from Henry Abbott.
Tom Broughton: After Henry's days of ratio 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.
Tom Broughton: Ed Woodie, our controller, activist interim CFO for the last several months and did a great job of getting us through a year in and the 10k filing and we appreciate Ed's hard work.
Tom Broughton: On the long side, we were pleased to see very solid growth, net of payoffs for the first quarter with a 9% annualized growth.
Tom Broughton: As often the first quarter is down or flat in the loan book so that was a very solid start to the year.
Tom Broughton: The Loan Pipeline is up 10% from January and we do still have some projected lump payoffs roughly the same as in the prior quarter.
Tom Broughton: On the deposit side, we saw strong deposit growth in the first quarter, which is a typical of what we usually see in the first quarter. Most of the growth was a municipal and correspondent deposits.
Tom Broughton: We still see COVID ponds working in the way through the government system which is aided municipal deposit growth.
Tom Broughton: We did exit most non-core deposit relationships in the first quarter of last year.
Tom Broughton: 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.
Tom Broughton: We are in discussions with several potential new markets that could happen later this year.
Speaker Change: All in all, I like to say that I think it's business as usual so far. We see an improvement and things are going according to plan. So I'll now turn it over to Henry Abbott for a credit update.
Henry Abbott: Thank you, Tom. The thank got off to a strong start with the Lone Road Tom previously mentioned.
Henry Abbott: We continue to see good moon 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 their current bank from pending mergers or other market disruption.
Henry Abbott: 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
Henry Abbott: Charge-offs were slightly higher than we would have liked at an annualized rate of 19 base points for the first quarter
Henry Abbott: The 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
Henry Abbott: Well, we did charge down some of these loans. I am pleased to say we did grow our hrpll on a dollar amount for the quarter, but given the loan growth we previously discussed, hrpll to total loans did slightly decrease from 1.30 to 1.28 quarter over quarter.
Henry Abbott: RMPAs 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, ADNC, or income-producing theory.
Henry Abbott: 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 million with a $1.75 million reduction from year [inaudible]
Henry Abbott: We took aggressive actions where needed the first quarter on 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.
Good that's not passing over the day [inaudible]
Dave: Thank you, Henry. Good afternoon. I will echo the comments that we feel the quarter was a solid start to 2025. We've reported net income of $63.2 million.
Dave: The alluded earnings per share of $1.16 and pre-provisioned net revenue of $85.7 million. This represented a return on average assets of 1.45% and a return on common equity of 15.63%.
Dave: Net income, more than $13 million or 26% from the first quarter of 2024.
Dave: Compared to the fourth quarter of 2024, net income was down slightly by about $2 million or 3 percent, mostly driven by a reduction in day count and changes in our effective tax rate
Speaker Change: In line with the Loan Growth Reference by both Tom and Henry, we grew our total assets by nearly $1.3 billion from December 31st.
Dave: and ended the quarter at $18.6 billion. This is a 7% growth from December 31 and a 19% growth from March 30th of 2024.
Dave: Three in cash balances at the Fed grew by about $959 million, and ending the loan balances grew about $281 million.
Dave: 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.
Dave: We continue to see core deposit growth in our room to deposit ratio stands at 89% with our adjusted loan to deposit ratio, including correspondent fit funds purchased of 77%
Dave: As I mentioned, our Fed balances increased significantly during the quarter, about $380 million on average balances, versus the fourth quarter, which certainly helps our liquidity but hurts our percentage margin calculation.
Dave: 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.
Dave: We continue to be well capitalized with a common equity tier 1 capital ratio of 11.4% in risk-based capital ratio of 12.9% for the quarter.
Dave: On that interest income, for the quarter, it was $2123.5 million, which is $21 million higher than first quarter, 2024, and just slightly higher than fourth quarter, 2024.
Dave: I will remind you that in first quarter of 2024, we had one extra day doodly beer and fourth quarter of 2024 we had two extra days when compared to first quarter of 2025. We feel good about our dollar margin given the reduction in day count.
Dave: 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 12 months, we will have $1.5 billion of projected cash flow from fixed rate loans at a rate of 4.76%.
Dave: and projected paydowns of mortgage-backed securities of $100 million at the rate of 2.5 percent.
Dave: In addition, with tax and audited statements do soon, we anticipate one repressing opportunities.
Dave: In 2024, total repricing was $357 million. Year to date for 2025, total loans repriced for $60 million in $95 million or pending.
Dave: Plus, we anticipate over $1.9 billion in asset repressing over the next 12 months.
Dave: 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 materialized, so when we unwound that and updated our
Dave: The result was a provision expense of $6.6 million, which is up $2.1 million from First Quarter 2024 and $900,000 from Fourth Quarter.
Dave: The allowance for credit losses ended the quarter just over $165 million, which is an increase of about $576,000 from fourth quarter, primarily due to the growth in the loan bounces.
Dave: As Henry mentioned, our allowance ratio dropped from 1.30% of total loans in the fourth quarter to 1.28% in the first quarter of 2025.
Speaker Change: I will point out that we were at 1.28% in the second quarter of 2024 before the General Hurricane Reserve was established, so this is just a normalization of our allowance level.
Speaker Change: A non-interest income in first quarter of 2025, we were down about 7% versus first quarter of 2024, but this decline was driven by a one-time, holy death benefit recorded in 2024.
Speaker Change: From a normalized rate, we saw an increase of about 7% in non-interested income versus first quarter of 2024, primarily driven by higher service charges on deposit accounts.
Speaker Change: Versus 4th quarter, 2024, non-natured income was down $526,000 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 2nd quarter of 2025.
Speaker Change: During the quarter, our non-issue expense was down $789,000 versus 4th quarter, 2024, and 25th versus 1st quarter, 2024.
Speaker Change: This is a testament to our expense discipline as we have experienced group of 5% in our number of employees since 1st quarter of 2024 and 1st quarter always sees a seasonal spike in payroll taxes versus 4th quarter.
Speaker Change: payroll expense was down about 5% versus 4th quarter due to the true up of 2024 incentive plan payouts.
Speaker Change: 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.
Tom Broughton: For the remainder of the year, we expect our non-interested expense to be in the 46-46.5 million dollar range, obviously fluctuating based on our expansion efforts that Tom mentioned earlier.
Tom Broughton: For the first quarter, our pre-tax net income was relatively flat compared to fourth quarter 2024, which we view as a win considering the fewer dates.
Tom Broughton: Versus the same quarter last year, our pre-tax net income is up over $18 million or 30%. We continue to focus on organic loan and deposit growth, price both competitively and profitably.
Tom Broughton: 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.
Tom Broughton: Now I'll turn it back over to Tom for additional comments.
Tom Broughton: Thank you, David, and I'm sure you've all seen the UK 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.
Tom Broughton: and we wish him well in his next chapter of his business career.
Speaker Change: and I know Rodney wants to make a Rodney Rushing wants to make a few comments as well about Henry. Thanks, Tom, and also I'd like to thank Henry for the hard work you and all your team put in and accomplish that with the last few years.
Speaker Change: As you make this transition to your next business endeavor, I want to especially thank you for making the transition a smooth, seamless one.
Speaker Change: A grand work over the next few weeks full-time, and then in a consulting row with Jim has made this much easier for all of us, and thank you again and good luck.
Speaker Change: With your work ethic, I am sure you will be successful in whatever you do.
With that, I'll turn it back to Thomas.
Thomas: Thank you, Rodney, and I think we'll now open it up for questions.
Thomas: Thank you. I'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
Thomas: for participants using speaker equipment it may be necessary to pick up your headset before pressing the star keys.
One moment, please follow Paul for questions.
Thomas: Thank you. Our first question comes to the line of Stephen Scouten with Piper Sandler. Please proceed.
Stephen Scowden: Yeah, 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 the positive trends for the rest of the year, given such a strong start here in the first quarter.
Yeah, Stephen, I wouldn't.
Stephen Scowden: I think some of that is probably on the corresponds side Rodney can address that but I think some of the municipal deposits will probably, you know, run down as the course of the year goes on, Rodney will come for the first quarter. The correspondant was up a little on 430 million in total 20.
Stephen Scowden: from year in and you know in the first quarter correspondent balance is tender to grow and accumulate head into the tax season.
Rodney Rushing: and we have seen that level off since then, so that's where a large chunk of the came from.
Rodney Rushing: Okay, so if I think about that, I mean that should kind of normalize but still continue to grow and when we would be fair to assume kind of cash balances move down.
Rodney Rushing: in a likewise fashion throughout the year, and kind of the NIMM maybe pulls back up as the balance sheet remixes. Is that the right way to think about the trajectory of the NIMM from here?
Rodney Rushing: Yes, Stephen, this is David Spuracio. Yes, we're already actually seeing that come down a bit, the catch 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 catch balances to come down over the next few months. So, we're seeing some of that. We're seeing some of that. We're seeing some of that.
Steven: Okay, great. And then just last thing for me, just kind of curious, I mean, obviously Lungroth 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 2nd and a little bit of uncertainty that the market seems to be overwhelmed by.
Steven: You know, I think there might be a bit of hope [inaudible]
Steven: You know, Main Street is a heck of a lot more durable than Wall Street, and I think the effect is
Steven: You know, it helps some companies, it hurts some companies, you know, 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.
Speaker Change: Assembly in May here, Parks and all. So we just don't see, you know, certainly it's not, you know, the commercial real estate transactions need short-term interest rates to...
Speaker Change: to come down to improve the environment there a bit. But, you know, we...
Normal Historical
Speaker Change: Levels of profitability in terms of return-on-assets, return-on-equity that we enjoy so we don't at this point see any significant impact from tariffs. I could be naive but you know things like that that get a pic you don't think
Speaker Change: You know they 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 you know obviously there's a
Speaker Change: Certainly a by-head aspect of people fear in place and they tend to spend money now. So I think there's many positive benefits as negative benefits at this point in time, Stephen. I'm just...
Speaker Change: You know, we don't see anything odd for my corresponded bike. See, there's nothing, you know, there.
Speaker Change: You know, we have 390 corresponded 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...
Speaker Change: Everything is, you know, we don't see anything in our car portfolio, credit card.
You know, everything, even the-
Speaker Change: Seems like the senior housing is hailing up a bit, you know, obviously if you look at the cost of new senior housing and look at what you buy, there are people out buying senior housing projects today existing once because they...
Speaker Change: There's substantially cheaper than building new, so people are looking to the future a little bit. It hadn't healed up, don't get me wrong, but it's healing a bit. I'm reasonably optimistic about the balance of the year, Stephen.
Speaker Change: Great. I like it. I appreciate all the color, guys. Thanks for the time. Thank you Thank you.
Speaker Change: Thank you. Our next question comes from a line of Steve Moss with Raymond James. Please proceed.
Back in afternoon, face to you.
Steve Moss: I mean, I'm just going up on Longworth here, you know, the pipeline's up. You know, you have a good quarter production. You know, you're still thinking like low double digits could be a good pace.
Steve Moss: Yeah, what we do, you know, 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, you know, I guess.
Steve Moss: Not all of them paid off that I had thought would pay off in the first quarter but you know we are we're not seeing any big projects all of our growth we've had so far this year isn't smaller you know chunks which is good and
Steve Moss: We're seeing a nice, steady, granular growth in the lumbar folio, so we feel good about it, and it's broad-based, it tends to be in every market, of course, Florida is by far.
Rodney Rushing: 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 to add there? No, it hasn't been steady from our correspondence. I mean the number of participation opportunities we're seeing.
Rodney Rushing: has just, it would not have a spike and would not have had a decline. It's been steady for the first quarter.
Rodney Rushing: and we've seen several of the last two or three weeks. I mean, it just...
We've not seen the slowdown in the projects.
Rodney Rushing: Again, I think the tariff effect has been nil at this point in time.
Right, okay.
Rodney Rushing: That makes sense. And then in terms of, you know, just kind of curious, you know, loan pricing for the quarter on New Regions was $6.84, I guess, new and original and renewals. Just curious, you know, has that gotten tighter here as the quarter gone on or you kind of still holding you think in the high sixes. [inaudible]
Rodney Rushing: on Originations. Just kind of think of a roll-off dynamic with loans repressing going forward.
Speaker Change: 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 price when we're achieving today. I think it...
Speaker Change: 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.
This has been stated in those levels.
Okay.
Speaker Change: And then the other question for me here, just on the operating expenses, 46,000,000 to 46 and a half, a breach quarter of the rest of the year, is that before, is over new hires?
Speaker Change: Yes, that is before any potential new waters. I had to comment in there. Tom talked about expansion efforts. We continually evaluate any new producers out there and so if we hire additional that would add to that base one. Yes.
Speaker Change: Of course, I appreciate that. We can genuinely have a doge program on going, you know, in terms of a vague way, you know, affects them as our producers. So, you know, you always, you get some growth and then you have some, some...
Some reductions in force as well, Steve, so...
I hear you there.
Speaker Change: There you go, 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 ADNC.
Speaker Change: Just kind of curious, what kind of industries they were to or any additional code you can give around those non-performers that were added?
and Converdation Properties [inaudible]
Speaker Change: Okay, like senior assistant living or kind of curious set up? No, it's a hospital. Yeah, one's a hospital and then one's a doctor.
Speaker Change: In the doctors, he's just a doctor that's got cash flow issues, but a lot of assets.
He's overextended, but we've got really good collateral.
Speaker Change: and feel good about our collateral. With him, he's just, you know,
You want to say about Dr. Steve?
So Tom, thank you. I appreciate it.
Speaker Change: That was a good top. 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.
Speaker Change: Thank you. Our next question comes to the line of David Bishop with Hubby Group. Please proceed.
Hey, good evening, gentlemen.
Hi, David.
Speaker Change: Thank you, Tom Dave, for your question. You sort of alluded to the influx of the quality. I think it was...
Speaker Change: Six basis points of impression. I appreciate the data, the supplement.
Speaker Change: Looks like your cost of interest bearing deposits for 342, two basis points above the...
Speaker Change: The quarterly average, is that reflecting some of the pressure from that, the community inflows and just, you know, how much do you expect some of that, that, you know, is our way to frame the dollar inflow that could flow out of the next couple quarters.
You know it's the Tick Fonds.
Speaker Change: What's your main day? I mean, they're higher cost of funds so it doesn't it's not like we have every price and Existing deposits or anything to that is is that where you're going with it day? Yeah, just sort of trying to get a sense You know as those meeting it corresponded funds
Speaker Change: sort of circle about how can we expect to see that that number starts to move south so to speak that 342, you know where do you see that sort of trying to go over the next couple of months or so
Speaker Change: You know, giving our own going, you know, excess liquidity, we're always, you know, we are looking for, you know, additional labor, we can pull to try to improve income without...
Speaker Change: You know, under 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 want to be, you know, huge amounts of effect on that income but it'll be a little bit so
when you got that much cash every little bit helps.
Speaker Change: Got it. Then Dave, I think you gave some down about the amount, a number of loans you expect to repredate over the next 12 months. You can just go through that again real quick. Thanks.
Dave: Yeah, we have about $900 million right now that's going to reprise in a year or less in the
Dave: and then we've got the cash flow on fixed right along to the well.
Dave: The cash flow will fix right lines, I mean, and pay down, there's a billion five.
476.
Got it.
Perfect. Appreciate the color.
Hey Dave.
Thank you
Thank you. There are no further questions at this time.
Dave: With that, that concludes today's teleconference call. You may disconnect your lines at this time. Thank you everyone for your participation.
Dave: I patriarchally don't like Luis Bring Lenor to her Princess to New York We won't owe anyone I don't believe in kings And horse