Q3 2025 ServisFirst Bancshares Inc Earnings Call

During the conference. Please press Star Zero and your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Davis Mange director of Investor Relations. Thank you Davis you may begin.

Good afternoon, and welcome to our third quarter earnings call. Today's speakers will cover some highlights from the quarter and then take your questions.

We will have Tom Broughton, our CEO, Jim Harper, our Chief Credit Officer, David Sparacio, Our CFO I will 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-K and 10-Q filings forward looking statements speak only as of the date. They are made and <unk> assumes no duty to update them with that I'll turn the call over to Tom.

Thank you David Good afternoon, and thank you for joining our third quarter conference call.

Give you a few highlights followed by credit update from Jim Hoffa, and followed by David <unk> with <unk>.

Financial updates.

Talking about loan growth it was below our expectation for the third quarter.

So we went back and reviewed loans booked Andrew.

And draws versus pay downs over the three quarters of 2025 and low loan pay downs were up $500 million.

Over the prior two quarters in the third quarter. So this contribute to the lack of any real.

Real significant loan growth.

We did see a nice increase of over 10% and our loan pipeline in October compared to September.

In comparing our loan pipeline to one year ago, the pipeline is 40% higher today.

In addition to projected pay offs.

Today, our 30% projected pipeline versus one year ago.

There were 41% of the projected new loans. So we do see that there is a slight decline in the pipeline as a percent of alone.

Pay offs as a percent of the loan pipelines so.

The pipeline is not scientific though we do stress to our bankers, who we want to be as accurate as possible.

Every fourth quarter that I can remember had been had we've had solid loan growth. So my expectation would be that we'll have a good closing long quarter.

In loans, and I'll say that not all loan pay offs for bad.

Because some of them that are low fixed rates.

Pay off when the asset sales. So we've had several this quarter so.

I would just say those paid off.

So in the deposit side.

We did see some continued reduction in our high cost municipal deposits in the third quarter. They were offset by some large corporate deposit inflows.

So, but as David will discuss in a few minutes, we're trying to manage down our total deposit cost as the federal reserve reduces the fed funds rate.

On the new markets, we did hire 70 producers in the quarter spread throughout our footprint and we're also proud of.

All of our markets are now profitable.

I think we've ever achieved this before since our first year in business. So we're very proud of that so I'm going to turn it over now to Jim offer for a credit update.

Thanks, Tom as Tom noted lending activity softened a bit during the third quarter, but activity as we moved into the fourth quarter has been robust with activity across our footprint.

From a credit metric standpoint charge offs totaled just over $9 million in the third quarter, which resulted in an annualized net charge off to average loan percentage of 27 basis points higher than recent historical periods.

Charge offs were primarily taken on loans, which had previously been impaired with one exception of a $3 million charge taken on a loan that had not previously been impaired.

From an allowance perspective, the allowance to total loan percentage remains static compared to the second quarter at 128% at quarter end.

Nonperforming assets were notably higher at 930, increasing by approximately $96 million during the quarter with the input increased driven by our relationship with <unk>.

<unk> of eight loans with a large merchant developer rehabilitator of multifamily properties.

Properties associated with the loans are in Alabama, Louisiana and Texas.

Despite us placing these loans on non accrual during the quarter. The bank was able to successfully obtain additional collateral collateral to both bolster our position. Additionally, the borrower is actively selling assets as evidenced by a purchase and sale agreements on five properties in eight letters of intent on others.

As well as pursuing other corporate actions, which are expected to produce meaningful liquidity in the coming quarters.

Speaker #1: Which results in an annualized net charge-off to average loan percentage of 27 basis points, all higher than recent historical periods. The charges were primarily taken on loans that had previously been impaired, with one exception of a $3 million charge taken on a loan that had not previously been impaired.

Tom Broughton: Which results in an annualized net charge-off to average loan percentage of 27 basis points, while higher than recent historical periods. The charges were primarily taken on loans which had previously been impaired, with one exception of a $3 million charge taken on a loan that had not previously been impaired. From an allowance perspective, the allowance to total loan percentage remained static compared to the second quarter at 1.28% at quarter end. Non-performing assets were notably higher at $930 million, increasing by approximately $96 million during the quarter, with the increase driven by a relationship consisting of eight loans with a large merchant developer rehabilitator of multifamily properties. Properties associated with the loans are in Alabama, Louisiana, and Texas. Despite us placing these loans on non-approval during the quarter, the bank was able to successfully obtain additional collateral to bolster our position.

Service first continues to aggressively manage our M. P. As in we expect to have resolutions on several material credits as soon as late in the fourth quarter of this year.

I will now turn it over to David to provide his comments on our third quarter financial performance. Thank.

Speaker #1: From an allowance perspective, the allowance to total loan percentage remained static compared to Q2 at 1.28% at quarter end. Non-performing assets were notably higher at $930 million, increasing by approximately $96 million during the quarter. This increase was driven by a relationship consisting of eight loans with a large merchant developer and rehabilitator of multifamily properties.

Thank you Jim Good afternoon, everybody for the quarter, we reported net income of $65 $6 million.

And diluted earnings per share of $1 20 in pre provision net revenue of $88 $3 million.

This represented a return on average assets of 147% and our return on common equity of 14, 9%.

Net income grew more than $9 million or 18% from same quarter last year.

Speaker #1: Properties associated with the loans are in Alabama, Louisiana, and Texas. Despite placing these loans on non-approval during the quarter, the bank was able to successfully obtain additional collateral to bolster our position.

During this quarter, we had a few unique transactions. The first was the reversal of about $4 $4 million of accrued interest on the credit that Jim spoke of.

Speaker #1: Additionally, the borrower is actively selling assets, as evidenced by purchase and sale agreements on five properties and eight letters of intent on others, as well as pursuing other corporate actions that are expected to produce meaningful liquidity in the coming quarters.

Secondly, we recognized a loss of $7 $8 million on the sale of bonds.

Tom Broughton: Additionally, the borrower is actively selling assets, as evidenced by purchase and sale agreements on five properties and eight letters of intent on others, as well as pursuing other corporate actions which are expected to produce meaningful liquidity in the coming quarters. ServisFirst Bancshares continues to aggressively manage our NPAs, and we expect to have resolutions on several material credits as soon as late in the fourth quarter of this year. I will now turn it over to David to provide his comments on our third quarter financial performance.

And thirdly, we invested in a solar tax credit, which gave us a benefit of about $2 $4 million in tax provision.

When we take these three transactions into account, we view our normalized net income for the quarter to be $73 $8 million or $1 35 earnings per common share.

Speaker #1: ServisFirst continues to aggressively manage our NPAs, and we expect to have resolutions on several material credits as soon as late in the fourth quarter of this year.

I will talk more about these transactions later on.

Speaker #1: I will now turn it over to David to provide his comments on our third quarter financial performance.

Lastly, our book value grew by an annualized 14% versus last quarter and by more than 13% from the same quarter a year ago, ending at $32 37 per share.

Speaker #2: Thank you, Jim. Good afternoon, everybody. For the quarter, we reported net income of $65.6 million, diluted earnings per share of $1.20, and pre-provisioned net revenue of $88.3 million.

David Sparacio: Thank you, Jim. Good afternoon, everybody. For the quarter, we reported net income of $65.6 million and diluted earnings per share of $1.20 and pre-provision net revenue of $88.3 million. This represented a return on average assets of 1.47% and a return on common equity of 14.9%. Net income grew more than $9 million, or 18% from the same quarter last year. During this quarter, we had a few unique transactions. The first was the reversal of about $4.4 million of accrued interest on the credit that Jim spoke of. Secondly, we recognized a loss of $7.8 million on the sale of bonds. Thirdly, we invested in a solar tax credit, which gave us a benefit of about $2.4 million in tax provision. When we take these three transactions into account, we view our normalized net income for the quarter to be $73.8 million or $1.35 earnings per common share.

We continue to be well capitalized with common equity tier one capital ratio of 11, 5% and risk based capital ratio of 12, 8% for the quarter of <unk>.

Speaker #2: This represented a return on average assets of 1.47% and a return on common equity of 14.9%. Net income grew by more than $9 million, or 18%, from the same quarter last year.

Of course these are preliminary numbers.

In net interest income are amounts.

The amount for the quarter was $133 4 million as reported and normalized net interest income was $137 $8 million. This equates to a net interest margin of 3.09% as reported and more importantly, 319% when normalized for the interest.

Speaker #2: During this quarter, we had a few unique transactions. The first was the reversal of about $4.4 million of accrued interest on the credit that Jim spoke of. Secondly, we recognized a loss of $7.8 million on the sale of bonds. Thirdly, we invested in a solar tax credit, which provided us with a benefit of about $2.4 million in tax provision.

Income reversal previously mentioned.

This normalized net interest income just eight $4 million higher than the normalized number for second quarter of 25 and more than $22 $7 million higher than third quarter of 24.

Speaker #2: When we take these three transactions into account, we view our normalized net income for the quarter to be $73.8 million, or $1.35 earnings per common share.

We are pleased with the continued margin expansion, we certainly benefited from the fed's rate reduction in September and are expecting continued margin expansion in fourth quarter due to anticipated additional rate cuts.

Speaker #2: I will talk more about these three transactions later on. Lastly, our book value grew by an annualized 14% versus last quarter and by more than 13% from the same quarter a year ago, ending at $32.37 per share.

David Sparacio: I will talk more about these three transactions later on. Lastly, our book value grew by an annualized 14% versus last quarter and by more than 13% from the same quarter a year ago, ending at $32.37 per share. We continue to be well-capitalized with common equity tier one capital ratio of 11.5% and risk-based capital ratio of 12.8% for the quarter. Of course, these are preliminary numbers. In net interest income, our amount for the quarter was $133.4 million as reported, and normalized net interest income was $137.8 million. This equates to a net interest margin of 3.09% as reported, and more importantly, 3.19% when normalized for the interest income reversal previously mentioned. This normalized net interest income is $8.4 million higher than the normalized number for the second quarter of 2025 and more than $22.7 million higher than the third quarter of 2024.

On the provision side, we had single digit loan growth, which equated to a reduction of about $1 $8 million of provision expense for the second quarter I'm, sorry versus the second quarter.

Speaker #2: We continue to be well-capitalized with a common equity Tier 1 capital ratio of 11.5% and a risk-based capital ratio of 12.8% for the quarter. Of course, these are preliminary numbers.

We had little change in our economic and credit indicators in our seasonal model and as a result, our allowance ratio held steady at $1 two 8%.

During the quarter, we recognized as I mentioned $7 $8 million loss on the restructuring of our bond portfolio.

Speaker #2: In net interest income, our amount for the quarter was $133.4 million as reported, and normalized net interest income was $137.8 million. This equates to a net interest margin of 3.09% as reported, and more importantly, 3.19% when normalized for the interest income reversal previously mentioned.

As we did in the second quarter, we strategically sold $83 $4 million of bonds with a weighted average yield of 166% at a loss.

We took advantage of the opportunistic market and reinvested the proceeds in new investment purchases, yielding an average of $6 one 4%.

Speaker #2: This normalized net interest income is $8.4 million higher than the normalized number for the second quarter of 2025, and more than $22.7 million higher than the third quarter of 2024.

The expected payback period on this transaction is about three years this restructuring will position us for stronger margin performance in future quarters.

This transaction has significantly reduced our low yielding bonds as well as our accumulated other comprehensive losses, and we do not anticipate continued restriction of our bond portfolio.

Speaker #2: For your pleas with the continued margin expansion, we certainly benefited from the Fed's rate reduction in September and are expecting continued margin expansion in the fourth quarter due to anticipated additional rate cuts.

David Sparacio: We are pleased with the continued margin expansion. We certainly benefited from the Fed's rate reduction in September and are expecting continued margin expansion in the fourth quarter due to anticipated additional rate cuts. On the provision side, we had single-digit loan growth, which equated to a reduction of about $1.8 million in provision expense for the second quarter. I'm sorry, versus the second quarter. We had little change in our economic and credit indicators in our CECL model, and as a result, our allowance ratio held steady at 1.28%. During the quarter, we recognized, as I mentioned, $7.8 million loss on the restructuring of our bond portfolio. As we did in the second quarter, we strategically sold $83.4 million of bonds with a weighted average yield of 1.66% at a loss.

Excluding these bond losses, our net interest revenue increased by more than $1 $6 million from the second quarter of 25 to the third quarter.

Speaker #2: On the provision side, we had single-digit loan growth, which equated to a reduction of about $1.8 million in provision expense for the second quarter—I'm sorry, versus the second quarter.

This positive increase is primarily driven by our increased service charges, which were implemented on July one and on stronger mortgage production we continue.

Speaker #2: We had little change in our economic and credit indicators in our CISO model, and as a result, our allowance ratio held steady at 1.28%.

To focus on noninterest income growth, especially through our credit cards merchant services and Treasury management products.

Speaker #2: During the quarter, we recognized, as I mentioned, a $7.8 million loss on the restructuring of our bond portfolio. As we did in the second quarter, we strategically sold $83.4 million of bonds with a weighted average yield of 1.66% at a loss.

As our revenue is growing we are managing our noninterest expense, which resulted in an improved efficiency ratio.

Our best in class efficiency improved from 30 690 in third quarter of 24.

To 35, 2% in third quarter of 25, our adjusted efficiency ratio for this quarter. It was 30, 331%, which is dramatically improved from same quarter last year.

Speaker #2: We took advantage of the opportunistic market and reinvested the proceeds in new investment purchases yielding an average of 6.14%. The expected payback period on this transaction is about three years.

David Sparacio: We took advantage of the opportunistic market and reinvested the proceeds in new investment purchases, yielding an average of 6.14%. The expected payback period on this transaction is about three years. This restructuring will position us for stronger margin performance in future quarters. This transaction has significantly reduced our low-yielding bonds, as well as our accumulated other comprehensive losses, and we do not anticipate continued restructuring of our bond portfolio. Excluding these bond losses, our net interest revenue increased by more than $1.6 million from the second quarter of 2025 to the third quarter. This positive increase is primarily driven by our increased service charges, which were implemented on July 1, and on stronger mortgage production. We continue to focus on non-interest income growth, especially through our credit cards, merchant services, and treasury management products.

During this quarter, our noninterest expense was up versus second quarter of 'twenty five due primarily.

Speaker #2: This restructuring will position us for stronger margin performance in future quarters. This transaction has significantly reduced our low-yielding bonds, as well as our accumulated other comprehensive losses. We do not anticipate continued restructuring of our bond portfolio.

To the right sizing of our incentive accrual in the second quarter.

Versus the same quarter last year, we experienced an increase in non interest expense of about $2 $4 million, which is more than outside by a $12 $6 million increase in revenue.

Speaker #2: Excluding these bond losses, our net interest revenue increased by more than $1.6 million from the second quarter of 2025 to the third quarter.

My goal remains constrained noninterest expense growth to a fraction of our revenue growth. We remain focused on expense control continue to seek opportunities to reduce our operating cost.

Speaker #2: This positive increase is primarily driven by our increased service charges, which were implemented on July 1st, and by stronger mortgage production. We continue to focus on non-interest income growth, especially through our credit cards, merchant services, and treasury management products.

So all in the third quarter of 25, our pretax net pre tax net income was up about $2 2 million compared to the second quarter of 25 and up over $6 $4 million versus third quarter of 24, we remain focused on organic loan and deposit growth price both competitively.

Speaker #2: As our revenue is growing, we are managing our non-interest expenses, which resulted in an improved efficiency ratio. Our best-in-class efficiency improved from 36.90% in the third quarter of 2024 to 35.22% in the third quarter of 2025.

David Sparacio: As our revenue is growing, we are managing our non-interest expense, which resulted in an improved efficiency ratio. Our best-in-class efficiency improved from 36.90% in the third quarter of 2024 to 35.22% in the third quarter of 2025. Our adjusted efficiency ratio for this quarter is 33.31%, which is dramatically improved from the same quarter last year. During this quarter, our non-interest expense was up versus the second quarter of 2025, due primarily to the right sizing of our incentive accrual in the second quarter. Versus the same quarter last year, we experienced an increase in non-interest expense of about $2.4 million, which is more than outsized by the $12.6 million increase in revenue. My goal remains 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 cost.

And profitably and we are concentrated on continuous expansion of our market.

As I previously mentioned, we also invested in our solar tax project, which essentially lowered our effective average tax rate for the year to 18, 9%. The solar investment is our first B, we will continue to evaluate other tax improvement opportunities as they arise. This concludes my remarks.

Speaker #2: Our adjusted efficiency ratio for this quarter is 33.31%, which is dramatically improved from the same quarter last year. During this quarter, our non-interest expense was up versus Q2 of 2025 due primarily to the right-sizing of our incentive accrual in the second quarter.

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

David.

Speaker #2: Versus the same quarter last year, we experienced an increase in non-interest expense of about $2.4 million, which is more than outweighed by the $12.6 million increase in revenue.

I would like to cover is there's been recent.

Attention in the media in recent days, the increase of fraud and a few regional banks.

Much of this is related to a category.

Speaker #2: My goal remains 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.

Lindsay called <unk>, which stands for non depository financial institutions lending.

We have avoided any significant exposure in most of the categories that fall within the <unk> category for one main reason and that's because fraud, it's more common in India, <unk> loans, and it's hard to fool proof of your process.

Speaker #2: So, all in, for the third quarter of 2025, our pre-tax net income was up about $2.2 million compared to the second quarter of 2025, and up over $6.4 million versus the third quarter of 2024.

David Sparacio: All in, for the third quarter of 2025, our pre-tax net income was up about $2.2 million compared to the second quarter of 2025 and up over $6.4 million versus the third quarter of 2024. We remain focused on organic loan and deposit growth, priced both competitively and profitably, and we are concentrated on continuing the expansion of our margin. As I previously mentioned, we also invested in a solar tax credit investment, which essentially lowered our effective average tax rate for the year to 18.9%. The solar investment was our first, and we will continue to evaluate other tax improvement opportunities as they arise. This concludes my remarks, and I will now turn it back over to Tom for additional comments.

Warehouse lending ABL lending of four plants, historically have had a greater incidence of fraud and any other types of loans.

Speaker #2: We remain focused on organic loan and deposit growth, priced both competitively and profitably, and we are concentrated on continuing the expansion of our margin.

To cover our total <unk> exposure.

Is $71 million or less than 1% of our loan portfolio.

Speaker #2: As I previously mentioned, we also invested in a solar tax project, which essentially lowered our effective average tax rate for the year to 18.9%.

Thank you everybody knows that our correspondent division.

Does business with our with community correspondent banks and <unk>.

Speaker #2: The solar investment was our first, and we will continue to evaluate other tax improvement opportunities as they arise. This concludes my remarks, and I will now turn it back over to Tom for additional comments.

Most of our exposure is to holding company line of credit to community.

Banks are holding company. So we certainly are comfortable with our exposure in this category.

Speaker #1: Thank you, David. Last thing I'd like to cover is there's been recent attention in the media in recent days on the increase of fraud at a few regional banks.

Tom Broughton: Thank you, David. The last thing I'd like to cover is there's been recent attention in the media in recent days on the increase of fraud at a few regional banks. Much of this is related to a category of lending called NDFI, which stands for Non-Depository Financial Institution lending. We have avoided any significant exposure in most of the categories that fall within the NDFI category for one main reason, and that's because fraud is more common in NDFI loans, and it's hard to foolproof your process. Warehouse lending, ABL lending, and floor plans historically have had a greater incidence of fraud than any other types of loans. To cover, our total NDFI exposure is $71 million, or less than 1% of our loan portfolio.

I I would differentiate a fraud issue from a credit issue.

The credit deteriorated more theres for all of us for all its just a broad and it typically.

It is fairly common.

Speaker #1: Much of this is related to the category of lending called NDFI, which stands for Non-Depository Financial Institution Lending. We have avoided any significant exposure in most of the categories that fall within the NDFI category for one main reason, and that's because fraud is more common in NDFI loans, and it's hard to foolproof your process.

Say it all the time.

It continues in some sort of a ponzi scheme tied.

Type situation until.

They are found out by their lender and they have to complain on it so we avoid.

Most of these categories like this we avoid.

Shared national credits.

We try to lend to borrowers we think we know will owner managed companies and real estate developers are the best examples is.

Speaker #1: Warehouse lending, ABL lending, and floor plans historically have had a greater incidence of fraud than any other types of loans. To cover our total NDFI exposure, it's $71 million, or less than 1% of our loan portfolio. I think everybody knows that our correspondent division does business with community correspondent banks, and most of our exposure is to holding company lines of credit to community banks.

As lenders, we all make mistakes from time to time, but.

Because we have a record of lending are people, we know our loan losses, they've moved much lower and our credit quality has been much better at service firms buying so that we.

Tom Broughton: I think everybody knows that our correspondent division does business with our community correspondent banks, and most of our exposure is to holding company lines of credit to community banks, holding companies. We certainly are comfortable with our exposure in this category. I would differentiate a fraud issue from a credit issue. It's not that the credit deteriorated where there's fraud. This fraud is just a fraud, and it typically is fairly common. You see it all the time. It continues in some sort of a Ponzi scheme type situation until they are found out by their lender, and they have to come clean on it. We avoid most of these categories like this. We avoid shared national credits. We try to lend to borrowers we think we know well. Owner-managed companies and real estate developers are the best examples.

We consider ourselves a community bank, we have 11 community banks plus our correspondent division. So we are proud of what we have.

Bill to your over the last 20 years.

Speaker #1: Holding companies, so we certainly are comfortable with our exposure in this category. You know, I would differentiate a fraud issue from a credit issue.

Certainly stood the test of time, and we will continue to do so.

This will conclude our bird remarks, and now I'll turn it over the operator for <unk>.

Speaker #1: You know, it's not that the credit deteriorated where there's fraud; this fraud is just fraud, and it typically is fairly common. You see it all the time.

Questions.

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Speaker #1: It continues in some sort of a Ponzi scheme-type situation until they are found out by their lender, and they have to come clean on it.

The comparable Pinto and Mickey Your line is in the question queue.

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Speaker #1: So, we avoid most of these categories like this; we avoid shared national credits. We try to lend to borrowers we think we know well—owner-managed companies and real estate developers are the best examples.

One moment, please while we poll for questions.

Speaker #1: As lenders, we all make mistakes from time to time. However, because we have a record of lending to people we know, our loan losses have been much lower and our credit quality has been much better at ServisFirst Bank.

Tom Broughton: As lenders, we all make mistakes from time to time, but because we have a record of lending to people we know, our loan losses have been much lower, and our credit quality has been much better at ServisFirst Bank. We consider ourselves a community bank. We have 11 community banks plus our correspondent division. We are proud of what we have built here over the last 20 years and certainly stood the test of time and will continue to do so. This will conclude our fair remarks, and now I'll turn it over to the operator for questions.

Thank you. Our first question comes from the line of Steve Moss with Raymond James. Please proceed.

Good afternoon guys.

Thanks Jay.

Hey, Tom maybe just starting with the nonperformer here just curious.

Speaker #1: So, you know, we consider ourselves a community bank. We have 11 community banks, plus our correspondent division. So, we are proud of what we’ve built here over the last 20 years, and certainly have stood the test of time and will continue to do so.

What was the dynamic if you can give us any color that pushed the borrower over to non performing status.

And also what's the loan to value on the on the loan on the loans.

Well.

Speaker #1: So, this will conclude our fair remarks, and now I'll turn it over to the operator for questions.

Which is.

As Jim said, we took additional substantial additional collateral.

Speaker #3: Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad.

Operator: Thank you. We will 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 tone 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull the questions. Thank you. Our first question comes from the line of Steve Moss with Raymond James. Please proceed.

During the quarter and substantially he offered it because he was expecting.

Paint large payment before quarter end that did not come in and so we will have no choice rather than the.

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Move it to non accrual and we will start.

Well.

Like to think we alternate accrual status over the next six months.

Speaker #3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull her questions.

As a selling these properties and many others so.

It's a it's workforce housing and Redeveloped.

Longtime customer we have confidence in the Oh.

This ball, where so we feel good about our exposure we don't have to.

Speaker #3: Thank you. Our first question comes from the line of Steve Moss with Raymond James. Please proceed.

It's a good loan with it obviously, it's not a good alone in dark Blue is not current at the current time, but we feel real comfortable where we are.

Speaker #4: Good afternoon, guys.

[Analyst]: Good afternoon, guys.

Speaker #2: Hi, Steve.

David Sparacio: Hi, Steve.

Speaker #4: Hey, Tom. Maybe just starting with the non-performer here, just curious, you know, what was the dynamic, if you can give us any color, that pushed the borrower over to non-performing status?

[Analyst]: Hey, Tom. Maybe just starting with the non-performer here, just curious, you know, what was the dynamic, if you can give us any color, that pushed the borrower over to non-performing status? You know, and also, what's the loan-to-value on the loans?

Okay.

Got it.

And just in terms of just thinking like what when you guys I.

I hear you on the additional collateral kind of like just maybe just a little comfort in terms of like what's the loan to cost or.

Speaker #4: You know, and also what's the loan-to-value on the loans?

Just kind of how you're thinking about how secure you I hear you youre going to start to come back to accrual status just got it okay.

Speaker #1: Well, as Jim said, we took additional substantial additional collateral during the quarter, and substantially, he offered it, and we because he was expecting a large payment before quarter end that did not come in, so we were left no choice other than to move it to non-accrual, and we'll start, you know, like to think we're going to turn it to accrual status, over the next six months.

Tom Broughton: As Jim said, we took substantial additional collateral during the quarter, and he offered it because he was expecting a large payment before quarter end that did not come in. We were left no choice other than to move it to non-accrual, and we'd like to think we're going to turn it to accrual status over the next six months as he's selling these properties and many others. It's a workforce housing redeveloper, long-term customer. We have confidence in him and this borrower, so we feel good about our exposure. We don't have any, you know, it's a good loan. Obviously, it's not a good loan in terms of he's not current at the current time, but we feel comfortable where we are.

You can set up a little bit.

So we think through the forbearance process and all the actions that we were able to execute towards the end of the quarter.

We did think there was a possibly a little bit of a collateral shortfall and we were able to work with the borrower to obtain additional collateral across several different fronts, and we think we've shored that up so our loan to value well certainly elevated.

We don't we certainly think that it's below one to one at this point and we've got adequate security to covered loans for sure right now.

Speaker #1: As he's selling these properties, and many others, such as workforce housing, redeveloper, and long-term customer, we have confidence in him, this borrower. So we feel good about our exposure.

Okay.

Got you appreciate that.

And then in terms of just kind of.

On the margin front.

Speaker #1: We don’t have any, you know, it’s a good loan. Obviously, it’s not a good loan in terms of he’s not current at the current time, but we feel comfortable where we are.

Here you guys about the the amount of the reversal of accrued interest just curious.

Getting a fed cut next week, you know underlying margin was 219.

Speaker #4: Okay. Yeah, and just in terms of thinking, like when you guys just - I hear you on the additional collateral, kind of like just maybe just a little comfort in terms of what's the loan-to-cost or, you know, just kind of how you're thinking about how secure you are.

I'm just kind of curious on the cadence of margin are you guys still thinking.

[Analyst]: Okay. In terms of just thinking like when you guys, I hear you on the additional collateral, maybe just a little comfort in terms of what's the loan-to-cost or just kind of how you're thinking about how secure you are. I hear you're going to start to come back to accrual status, just kind of if you could stifle it a little bit.

Something close to high single digits to 10, Bips given rate cuts.

And also just curious on loan yields where where loan pricing is in these days.

Yeah. So Steve this is David Yes, we're still confident with.

Speaker #4: I hear you're going to start to come back to accrual status. Just kind of, you can cite it a little bit.

I'll call it seven to 10 basis point improvement in margin each quarter as we've been seeing.

Speaker #1: So we think through the forbearance process and all the actions that we were able to execute toward the end of the quarter. We did think there was possibly a little bit of a collateral shortfall, and we were able to work with the borrower to obtain additional collateral across several different fronts. We think we've shored that up.

Tom Broughton: We think through the forbearance process and all the actions that we were able to execute toward the end of the quarter. We did think there was possibly a little bit of a collateral shortfall, and we were able to work with the borrower to obtain additional collateral across several different fronts, and we think we've shored that up. Our loan-to-value, while certainly elevated, we certainly think that it's below one-to-one at this point, and we've got adequate security to cover the loans for sure right now.

For reference our I don't want to call it adjusted but our normalized spot rate for September.

Was was 328 right for the month excluding.

Excluding neck network interest accrual reversals so.

So we're in good shape on margin.

Speaker #1: So, while our loan-to-value is certainly elevated, we believe that it's below one-to-one at this point. We have adequate security to cover the loans for sure right now.

The fed cut happened September 17th and won't we only experienced about two weeks of benefit from that so we will see that throughout the fourth quarter as well as we anticipate additional cuts in.

Speaker #4: Okay. Got it. I appreciate that. And then, in terms of just kind of on the margin front, I hear you guys about the amount of the reversal of accrued interest.

In the October and December meetings, the fed is going to have.

[Analyst]: Okay. Got it. Appreciate that. In terms of just kind of on the margin front, I hear you guys about the amount of the reversal of accrued interest. Just curious, you know, probably getting a Fed cut next week, you know, underlying margin was 3.19. Just kind of curious, as on the cadence of margin, are you guys still thinking something close to high single digits to 10 basis given rate cuts? Also just curious on loan yields, where loan pricing is these days.

So.

We're going to continue to see improvement in margin as far as loan yields going on rate dropped a bit last quarter. We were at 707. This quarter, we're at $6 87 for loans going on.

Speaker #4: Just curious, you know, we’re probably getting a Fed cut next week. You know, the underlying margin was 3.19%. Just kind of curious, regarding the cadence of margin, are you guys still thinking something close to a high single-digit to ten-digit given rate cuts?

But we're continuing to magic to manage through the process, we continue to have.

A healthy re pricings and in cash flows we still sitting at about $1 $7 billion in the next 12 months in cash flows and then on top of that as Tom alluded to in earlier conference calls, we have another roughly $300 million a year in covenant bust that get repriced instead of we're sitting at about 2 billion.

Speaker #4: And also, just curious about loan yields, where loan pricing is these days.

Speaker #2: Yeah, so Steve, this is David. Yes, we're still confident with, you know, I call it a 7 to 10 basis points improvement in margin each quarter, which is what we've been seeing.

David Sparacio: Yeah. So, Steve, this is David. Yes, we're still confident with, you know, I call it 7 to 10 basis points improvement in margin each quarter is what we've been seeing. For reference, our, I don't want to call it adjusted, but our normalized spot rate for September was 3.28%, right, for the month, excluding that interest accrual reversal. We're in good shape on margin. The Fed cut happened September 17th, so we only experienced about two weeks of benefit from that. We'll see that throughout the fourth quarter, as well as we anticipate additional cuts in the October and December meetings the Fed's going to have. We're going to continue to see improvement in margin. As far as loan yields, the going-on rate dropped a bit. Last quarter, we were at 7.07%. This quarter, we're at 6.87% for loans going on. We're continuing to manage through the process.

Worth of opportunity.

A repricing on one so we feel really good about the margin expansion and we think that's going to continue at least for the for the foreseeable future as long as there's nothing drastic done by the <unk> by the fed.

Speaker #2: You know, for reference, our I don't want to call it adjusted, but our normalized spot rate for September was 3.28, right, for the month.

Speaker #2: You know, excluding that interest accrual reversal, we’re in good shape on margin. You know, the Fed cut happened on September 17th, so we only experienced about two weeks of benefit from that.

Got you.

In terms of the cash flows for next 12 months, it's still in the high fours in terms of fixed rate loans.

Cash flow.

Yes, it's still in the high fours 487 was the number for second quarter, we don't have an updated number from our our external.

Speaker #2: So, we'll see that throughout the fourth quarter, as well as we anticipate additional cuts in the October and December meetings. The Fed's going to have, so you know, we're going to continue to see improvement in margin.

A L M consulting yet for third quarter, but we didn't get that something thats still on the floor in the high fours.

Of course, okay.

Speaker #2: As far as loan yields, the going-on rate dropped a bit last quarter. We were at 7.07%, and this quarter we're at 6.87% for loans going on.

And Tom in terms of the loan pipeline here picking up.

Just curious where are you seeing.

Speaker #2: But you know, we're continuing to manage through the process. We continue to have healthy repricings and cash flows. We're still sitting at about $1.7 billion in the next 12 months.

The growth in kind of.

That's it.

David Sparacio: We continue to have healthy repricings in cash flows. We're still sitting at about $1.7 billion in the next 12 months in cash flows. On top of that, as Tom alluded to in earlier conference calls, we have another roughly $300 million a year in covenant busts that get repriced. We're sitting at about $2 billion worth of opportunity of repricing on loans. We feel really good about the margin expansion, and we think that's going to continue at least for the foreseeable future as long as there's nothing drastic done by the Fed.

The demand for loans these days.

I can't give you a good answer Steve is all over the board.

Speaker #2: In cash flows, and then, you know, on top of that, as Tom alluded to in earlier conference calls, we have another roughly $300 million a year in covenant busts that get repriced. We're sitting at about $2 billion worth of opportunity for repricing on loans.

You know.

You know, we obviously would like to see more C&I.

It's been more commercial real estate oriented but are.

I didn't say it was the lowest it's been in.

Years and years from a percentile CRA is below 300% of capital.

Speaker #2: So, you know, we feel really good about the margin expansion, and we think that's going to continue at least for the foreseeable future, as long as there's nothing drastic done by the Fed.

So it is.

By region.

It's hit or Miss is here or there and younger I'm Atlanta has been.

Really strong and we've had pockets of.

Speaker #4: Got it. And just in terms of the cash flows for the next 12 months, it's still in the high fours in terms of fixed-rate loans?

[Analyst]: Got it. Just in terms of the cash flows for the next 12 months, it's still in the high fours in terms of fixed-rate loans cash flow?

You know places at some of our markets are doing doing quite well some of our newer markets honestly.

Speaker #4: Cash flow?

You would think they would do well right and they are the newer markets or Memphis, and Oliver and Piedmont region I've had good loan growth this year.

Speaker #2: Yes, it's still in the high fours. 487 was the number for Q2. We don't have an updated number from our external ALM consultant yet for Q3, but we can get that to you.

David Sparacio: Yes, it's still in the high fours. 487 was the number for the second quarter. We don't have an updated number from our external ALM consultant yet for the third quarter, so we can get that to you. It's still in the high fours.

As you would expect that and they are doing that so.

Speaker #2: But it's still in the high fours.

I'd still say loan demand is okay, I saw a banker Saturday and he says it is loan demand makes it. Okay. That's yeah I know it's okay. It's not right. So you know we need a few more rate cuts to hopefully help out.

Speaker #4: High fours. Okay. And Tom, in terms of the loan pipeline here picking up, you know, just curious where you are seeing the growth and kind of, you know, where you are seeing the demand for loans these days?

[Analyst]: High fours. Okay. Tom, in terms of the loan pipeline here picking up, just curious, where are you seeing the growth and where you're seeing the demand for loans these days?

Loan demand overall.

Okay.

Got you.

Right.

Speaker #2: I can't give you a good answer.

Tom Broughton: I can't give you a good answer, Steve. It's all over the board. We obviously would like to see more C&I than, you know, it's been more commercial real estate-oriented, but our AD&C is the lowest it's been in years and years.

Good color on everything you're I'll step back in queue here. Thank you very much guys.

Speaker #1: Steve, it's all over the board. You know, we obviously would like to see more C&I than, you know, it's been more, you know, commercial real estate-oriented. But our AD&C is the lowest it's been in years, in years from a percentile.

Thank you Steve.

Thank you. Our next question comes from the line of Dave Bishop with D Group. Please proceed.

Thank you Hey, good evening gentlemen.

[Analyst]: From a percentile.

Speaker #1: You know, the CRE is below 300% of capital. You know, it's by region; it's hit or miss. It's here, there, and younger.

Tom Broughton: You know, the CRE is below 300% of capital.

Hey, good areas.

[Analyst]: Yeah.

Tom on the expense side, Tom or Dave came in a little bit I think above expectation sound like there were some shoring up on the incentive accruals is that correct and maybe you can sort of ring fence that about maybe expectations, where do you see that compensation salaries and benefits maybe settling into into the.

Tom Broughton: You know, it's by region, it's hit or miss. It's here, there, and younger. I mean, Atlanta's been really strong, and we've had pockets of places that some of our markets are doing quite well. Some of our nearer markets, obviously, you would think they would do well, right? They are. The nearer markets are Memphis and Auburn and Piedmont region, have had good loan growth this year, and that's you would expect that, and they are doing that. I'd still say loan demand is okay. I saw a banker Saturday, and he said, I said, "How's loan demand?" He said, "Okay." I said, "Yeah, I know it's okay. It's not great." We need a few more rate cuts to hopefully help out loan demand overall.

Speaker #1: I mean, Atlanta's been really strong, and we've had pockets of, you know, places that some of our markets are doing quite well. Some of our nearer markets, obviously, you would think they would do well, right?

Final quarter of the year.

Yes, Dave.

Speaker #1: And they are. You know, the nearer markets are, you know, Memphis and Auburn, and the Piedmont region have had good loan growth this year, and that's what you would expect.

The true up really happened in second quarter. So when you compare second quarter to third quarter, It's really second quarter that was whatsoever because of the true up we did a we did an incentive trip, it's all in incentive comp and so.

Speaker #1: And they are doing that. So, you know, I mean, I'd still say loan demand is okay. I saw a banker Saturday and I said, "How's loan demand?" And he said, "Okay." And I said, "Yeah, I know it's okay."

And it's going to depend a lot on loan production.

Went back to accruing.

Accruing <unk>.

Speaker #1: "It's not great. So, you know, we need a few more rate cuts to hopefully help out loan demand overall."

Normal incentive rate for the third quarter and so fourth quarter at this point in time, given the you know the.

And the pipeline, we expect fourth quarter to be very similar to third quarter from an incentive standpoint and so.

Speaker #4: Okay. Got you. All right, well, that's a good call on everything here. I'll step back in the queue. Thank you very much, guys.

[Analyst]: Oh, got you. All right. That's a good call on everything here. I'll step back and cure. Thank you very much, guys.

I wouldn't expect the noninterest expense to come in at the same level as well so roughly.

Speaker #1: Thank you, Steve.

Tom Broughton: Thank you, Steve.

$48 million.

Speaker #3: Thank you. Our next question comes from the line of Dave Bishop with HUBD Group. Please proceed.

Operator: Thank you. Our next question comes from the line of Dave Bishop with Hovde Group, Inc. Please proceed.

I know, it's higher than than expected, but.

But I would just guide you back to our efficiency ratio our efficiency ratio is still best in class in the one <unk>.

Speaker #5: Thank you. Hey, good evening, gentlemen. I'm curious, Tom, on the expand side, Tom and Dave came in a little bit, I think, above expectations.

Dave Bishop: Thank you. Hey, good evening, gentlemen.

[Analyst]: Hey, good.

Dave Bishop: I'm curious, Tom, on the expense side, Tom and Dave came in a little bit, I think, above expectations. It sounded like there was some shoring up on the incentive accruals. Is that correct? Maybe you can sort of ring-fence that and maybe expectations where you see that compensation, salaries, and benefits maybe settling into the final quarter of the year.

We're not.

The expense increase is a fraction of what our revenue increases and as long as we continue on that trajectory trajectory. That's what I'm I'm pleased with from a results standpoint.

Speaker #5: It sounded like there were some shoring up on the incentive accruals. Is that correct? Maybe you can sort of ring-fence that amount and set expectations for where you see compensation, salaries, and benefits settling into the final quarter of the year.

Got it I appreciate that color and then Tom.

Speaker #2: Yeah, Dave, you know, the true up really happened in second quarter. So when you compare second quarter to third quarter, it's really second quarter that was lower.

David Sparacio: Yeah, Dave, you know, the true up really happened in the second quarter. When you compare second quarter to the third quarter, it's really second quarter that was lower because of the true up. We did an incentive true up. It's all an incentive comp, and it's going to depend a lot on loan production. We went back to accruing our normal incentive rate for the third quarter. Fourth quarter, at this point in time, given the uptick in the pipeline, we expect fourth quarter to be very similar to third quarter from an incentive standpoint. I would expect the non-interest expense to come in at the same level as well, so roughly $48 million. I know it's higher than expected, but I would just guide you back to our efficiency ratio. Our efficiency ratio is still best-in-class in the low 30s.

When we had you on the virtual road.

Last month, or so it's still sort of fresh on the news the opportunities from the <unk> in your backyard any early signs of success there or you are pretty active in terms of recruiting efforts I mean any commentary you can provide there in terms of maybe early reads of.

Speaker #2: Because of the true-up, you know, we did an incentive true-up. It's all an incentive comp, and so it's going to depend a lot on loan production.

And our relationship with her banker hires.

Speaker #2: You know, we went back to accruing our normal incentive rate for the third quarter. At this point in time, given the uptick in the pipeline, we expect the fourth quarter to be very similar to the third quarter.

Because you know broaden it out you know any if not only mergers that cause off.

They create opportunity we're looking at.

Obviously, there are other mergers.

Announced are going on and we.

Speaker #2: From an incentive standpoint. And so I would expect the non-interest expense to come in at the same level as well. So roughly, you know, 48 million dollars I know it's higher than expected.

We look for opportunities in many in many fronts.

Feel good about our ability to.

Attract customers.

And offer them a more stable.

Based and they see it and in some cases out there in the market. So we feel confident about where we are and opportunities you know again.

Speaker #2: You know, but I would just guide you back to our efficiency ratio. Our efficiency ratio is still best in class in the 130s. You know, the expense increase is a fraction of what our revenue increase is.

You've got to be out so you can say Poland.

David Sparacio: We're not—the expense increase is a fraction of what our revenue increase is. As long as we continue on that trajectory, that's what I'm pleased with from a results standpoint.

Again, most of our opportunities come from existing customers or about 80% of our <unk>.

Speaker #2: And as long as we continue on that trajectory, that's what I'm pleased with from a results standpoint.

New business comes from referrals from existing clients. So that is something that we emphasize are trying to do a good job of taking care of our clients are they will send us their friends and colleagues that they do business with and know well so we.

Speaker #5: Got it. Appreciate that color. That then, Tom, you know, I think when we had you on the virtual road last month or so, you know, still sort of, you know, fresh on the news, you know, the opportunities from the MOE in your backyard.

Dave Bishop: Got it. Appreciate that color. Tom, I think when we had you on the virtual road last month or so, it was still sort of fresh in the news, the opportunities from the MOE in your backyard. Any early signs of success there? Are you pretty active in terms of recruiting efforts? Any commentary you can provide there in terms of maybe early reads of relationship wins or banker hunters?

We think that's the very best thing, we can do is take care of our clients.

Take care of their needs and we will get more just like them. So.

Speaker #5: Any early signs of success there, or are you pretty active in terms of recruiting efforts? Any commentary you can provide in terms of maybe early reads of, you know, relationship wins or banker hunters?

Got it and then one follow up maybe housekeeping question.

But the tax rate I know with the solar tax credit investment bounced around a little bit maybe a good expectation for the effective tax rate going forward. Thanks.

Tom Broughton: I just broaden it at, you know, any, it's not only mergers that create opportunity. We're looking at, obviously, there are other mergers announced or going on, and we look for opportunities on many fronts and feel good about our ability to at least attract customers and offer them a more stable base than they see in some cases out there in the market. We feel confident about where we are and opportunities. Again, though, you've got to be out seeing people. Most of our opportunities come from existing customers, or about 80% of our new business comes from referrals from existing clients. That is something that we emphasize and try to do a good job of taking care of our clients. They'll send us their friends and colleagues that they do business with and know well.

Speaker #1: Because, you know, broadly, that, you know, any it's not only mergers that cause the create opportunity. We're looking at, you know, obviously there are other mergers, you know, announced or going on, and we look for opportunities in many fronts.

Yeah, I think the the 18, 9% Dave is going to stick for the year at least for 2025.

As Tom mentioned this this deal that.

Speaker #1: And, you know, feel good about our ability to, you know, at least attract customers and offer them a more stable base than they see in some cases out there in the market.

That we did it kind of opened our eyes a bit on what's available and what's out there in the market and so we have some good contacts we have some good relationships and so we're going to continue to develop those opportunities and and take advantage of them and so the goal.

Speaker #1: So we feel confident about where we are and the opportunities ahead. You know, again, though, you've got to be out seeing people. Most of our opportunities come from existing customers, and about 80% of our new business comes from referrals from existing clients.

You saw our tax rate jumped up a little bit in second quarter and so the goal is to is to keep it certainly below 20% for sure.

And so for 2026, we don't have anything that's planned right now, but we continue to have discussions with with folks that have opportunities for us to take advantage of so you know.

Speaker #1: So that is something that we emphasize, and we're trying to do a good job of taking care of our clients. They'll send us their friends and colleagues that they do business with and know well.

I would expect it to be in the 18 and 19% for the foreseeable future.

Speaker #1: So we think that the very best thing we can do is take care of our clients and take care of their needs, and we'll get more just like them.

Tom Broughton: We think that's the very best thing we can do, take care of our clients and take care of their needs, and we'll get more just like them.

Perfect. Thanks for the color.

Youre welcome. Thank you Doug.

Speaker #1: So.

Thank you.

Question comes from the line of Stephen Scouten with Piper Sandler. Please proceed.

Speaker #5: Got it. And one final, maybe housekeeping question. The tax rate, I know with the solar tax credit investment, bounced around a little bit. Maybe a good expectation for the effective tax rate going forward?

Dave Bishop: Got it. One final, maybe housekeeping question. The tax rate, I know with the solar tax credit investment, bounced around a little bit. Maybe a good expectation for the effective tax rate going forward? Thanks.

Yes, thanks, good afternoon.

David I want to reconcile one number real quick I think you said, maybe 328 margin for the month of September extra reversal is that that interest reversal. The main difference versus the 297 listed in the supplemental information.

Speaker #5: Thanks.

Speaker #2: Yeah, I think the 18.9% Dave is going to stick for the year, at least for 2025. As Tom mentioned, this deal that we did, it kind of opened our eyes a bit on what's available and what's out there in the market.

David Sparacio: Yeah, I think the 18.9%, Dave, is going to stick for the year, at least for 2025. As Tom mentioned, this deal that we did, it kind of opened our eyes a bit on what's available and what's out there in the market. We have some good contacts. We have some good relationships. We're going to continue to develop those opportunities and take advantage of them. The goal, you saw our tax rate jumped up a little bit in the second quarter. The goal is to keep it certainly below 20% for sure. For 2026, we don't have anything that's planned right now, but we continue to have discussions with folks that have opportunities for us to take advantage of. I would expect it to be in the 18, 19% for the foreseeable future.

Yes that is correct, yes, it was about 31 basis points from net interest reversed.

Okay, Great and so you would expect to kind of see that seven to 10 basis points. The way you would think about it in the fourth quarter would be seven to 10 bps potential roughly offer the $3 19, all in number or is that the right way to think about it.

Speaker #2: And so we have some good contacts. We have some good relationships. And so we're going to continue to develop those opportunities and take advantage of them.

Speaker #2: And so, you know, the goal, you know, you saw our tax rate jumped up a little bit in Q2, and so the goal is to keep it certainly below 20% for sure.

Yes that is correct.

Great.

And then Tom maybe kind of following up on that question around dislocation I like how you said that you know kind of offer and stability in the market and being there for your customers are there any kind of new markets, maybe on the horizon for you guys, where where that level of business.

Speaker #2: And so, you know, for 2026, we don't have anything that's planned right now, but we continue to have discussions with folks that have opportunities for us to take advantage of.

Speaker #2: So, you know, I would expect it to be in the 18% to 19% range for the foreseeable future.

Quality and stability you don't see being offered today that you'd be interested in whether that's opened up by M&A or otherwise.

Speaker #5: Perfect. Thanks for the color.

Dave Bishop: Perfect. Thanks for the color.

Speaker #2: You're welcome.

David Sparacio: You're welcome.

Speaker #5: Thank you, Dave.

[Analyst]: Thank you, Dave.

Yes, I think you know certainly we've always had an interest in finding the right the right people in Texas and that's something we're very interested in us.

Speaker #3: Thank you. Our next question comes from the line of Steven Scouting with Piper Sandler. Please proceed.

Operator: Thank you. Our next question comes from the line of Steven Scouten with Piper Sandler. Please proceed.

It's not easy, Texas is not an easy I'm not suggesting this uneasy market I'm, suggesting that there are.

Speaker #5: Yeah, thanks. Good afternoon. David, I want to reconcile one number real quick. I think you said maybe a 3.28 margin for the month of September, ex the reversal.

[Analyst]: Yeah, thanks. Good afternoon. David, I want to reconcile one number real quick. I think you said maybe a 3.28% margin for the month of September, X the reversal. Is that interest reversal the main difference versus the 2.97% listed in the supplemental information?

You have the right group of people with a.

Speaker #5: Is that interest reversal the main difference versus the $297 million listed in the supplemental information?

Base like ours, I think it could be a really good place too.

To do business and I think we could.

Speaker #2: Yes, that is correct. Yes, it was about 31 basis points on that interest reversal.

Texas is a very Texas centric place.

David Sparacio: Yes, that is correct. Yes, it was about 31 basis points on that interest reversal.

You can see.

Speaker #5: Okay, great. And so you would expect to kind of see that 7 to 10 basis points the way you would think about it into the fourth quarter would be 7 to 10 bips, potential roughly off of the 319 all-in number.

People layer.

[Analyst]: Okay. Great. You would expect to kind of see that 7 to 10 basis points. The way you would think about it in the fourth quarter would be 7 to 10 basis points potential, roughly off of the 319 all-in number. Is that the right way to think about it?

Texas people like to do business with actions and not people from Alabama, or New York or anywhere else, So I get that and I'm aware of it. So that's something we do.

Speaker #5: Is that the right way to think about it?

Are certainly keenly interested in in that market.

Speaker #2: Yes, that is correct.

David Sparacio: Yes, that is correct.

Speaker #5: Okay, great. And then, Tom, maybe you know, kind of following up on that question around dislocation. I like how you said that, you know, kind of offering stability in the market and being there for your customers.

[Analyst]: Okay. Great. Tom, maybe, kind of following up on that question around dislocation, I like how you said that, kind of offering stability in the market and being there for your customers. Are there any kind of new markets, maybe on the horizon for you guys where that level of business quality and stability you don't see being offered today that you'd be interested in, whether that's opened up via M&A or otherwise?

Im not do not change the subject with Dublin back of what.

David to my interest rates as the fed cuts rate that Reits that is our opportunity to say, okay, we need to try to manage down our deposit cost.

Speaker #5: Are there any kind of new markets, maybe on the horizon for you guys, where that level of business quality and stability you don't see being offered today that you'd be interested in, whether that's opened up by M&A or otherwise?

At least more than.

The fed cut so to pick up 25, our goal is to manage down more than that more than that 25 bps. So I think that.

Speaker #2: Yeah, I think,

Tom Broughton: Yeah, I think, you know, certainly we've always had an interest in finding the right people in Texas. That's something we're very interested in. It's not easy. Texas is not an easy market. I'm not suggesting it's an easy market. I'm suggesting that if you had the right group of people with a bank base like ours, I think it could be a really good place to do business. I think we could, you know, Texas is a very Texas-centric place. You can't send people there. The Texas people like to do business with Texans and not people from Alabama or New York or anywhere else. I get that, and I'm aware of it. That's something we are certainly keenly interested in in that market. Not to change the subject, but doubling back on what David told me about interest rates.

It's an opportunity when we see you.

Speaker #1: You know, certainly we've always had an interest in finding the right people in Texas. That's something we're very interested in; it's not easy.

Cutting right SaaS or any stupid.

And I would I wouldn't avoid any further questions yeah that makes sense.

Speaker #1: Texas is not an easy market. I'm not suggesting it's an easy market. I'm suggesting that there are, if you have the right group of people, with a bank base like ours, I think it could be a really good place to do business.

But.

No I appreciate that that's a good reminder.

And along with that kind of maybe bounce back to the NIM a little bit I guess is when was that security sale completed this quarter and is there any sort of incremental benefit to the run rate of securities yields and the NIM in the fourth quarter from that from that trades.

Speaker #1: And I think we could, you know, Texas is a very Texas-centric place. You can't send people there. You know, Texas people like to do business with Texans.

Yes.

The security sale was done in late in third quarter, maybe maybe the third week of September and so youre not going to see much more benefit at all in third quarter. As a result of that Youll see the full benefit of it in the fourth quarter and I don't have a number off top of my head exactly what that is but it's going to be.

Speaker #1: And not people from Alabama, or New York, or anywhere else. So I get that, and I'm aware of it. So that's something we are certainly keenly interested in, that market.

Speaker #1: And I'm not to change the subject, but doubling back on what David said regarding our interest rates, as the Fed cuts rates, that is our opportunity to say, okay, we need to try to manage down our deposit costs, you know, at least more than the Fed cut.

500 basis points 450 basis points.

$80 million, so our I'm, sorry $7 million.

Tom Broughton: As the Fed cuts rates, that is our opportunity to say, "Okay, we need to try to manage down our deposit cost, at least more than the Fed cut." If the Fed cuts 25, our goal is to manage down more than that, more than that 25 bps. I think that's an opportunity. When we see the Fed cutting rates, that's our opportunity, Steven. I wouldn't avoid any further questions.

Yep.

Do that math for sure good.

That's great.

Yeah.

Okay. I think that's all I had guys great I appreciate all the time.

Speaker #1: So if the Fed cuts by 25, our goal is to manage down more than that—more than that 25 basis points. So I think that's an opportunity.

Thank you Steven.

Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker #1: It's what, when we see a, you know, the Fed cutting rates, that's our opportunities, Steve, and I wouldn't avoid any further questions.

Speaker #5: Oh, yeah, that makes sense. But no, I appreciate that. That's a good reminder. And along with that, kind of maybe bouncing back to the NIM a little bit, I guess, is when was that security sale completed this quarter?

[Analyst]: Oh, yeah, that makes sense.

Tom Broughton: But yeah.

[Analyst]: No, I appreciate that. That's a good reminder. Along with that, kind of maybe bouncing back to the NIM a little bit, I guess, when was that security sale completed this quarter? Is there any sort of incremental benefit to the run rate of securities yields in the NIM into Q4 from that trade?

Speaker #5: And is there any sort of incremental benefit to the run rate of security yields in the NIM into the fourth quarter from that trade?

Speaker #2: Yeah, the security sale was done late in the third quarter, maybe the third week of September. So, you’re not going to see much more benefit at all in the third quarter as a result of that.

David Sparacio: Yeah, the security sale was done late in the third quarter, maybe the third week of September. You're not going to see much of a benefit at all in the third quarter as a result of that. You'll see the full benefit of it in the fourth quarter. I don't have a number off the top of my head exactly what that is, but it's going to be, you know, 500 basis points, 450 basis points on $80 million, or I'm sorry, $70 million. Yep.

Speaker #2: You'll see the full benefit of it in the fourth quarter. I don't have an exact number off the top of my head, but it's going to be around 500 basis points, 400 basis points, or 50 basis points on $70 million, or I'm sorry, $80 million.

Speaker #2: Yep.

Speaker #5: I can do that math for sure. Good. That's great. Okay. I think that's all I had, guys. Great. I appreciate all the time.

[Analyst]: I can do that math for sure. Good. That's great. Okay, I think that's all I had, guys. Great. Appreciate all the time.

Speaker #1: Thank you, Steven.

Tom Broughton: Thank you, Steven.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker #1: Normal presentation. If anyone should require operator assistance during the conference, please press star zero, and your telephone keypad. As a reminder, this conference is being recorded.

Speaker #1: It is now my pleasure to introduce your host, Davis Mange, Director of Investor Relations. Thank you, Davis. You may begin.

Speaker #2: Good afternoon, and welcome to our third quarter earnings call. Today's speakers will cover some highlights from the quarter and then take your questions. We will have Tom Broughton, our CEO; Jim Harper, our Chief Credit Officer; and David Sparacio, our CFO.

Speaker #2: 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 projection shared today, due to factors described in our most recent 10-K and 10-Q filings.

Speaker #2: Forward-looking statements speak only as of the date they are made, and ServisFirst assumes no duty to update them. With that, I'll turn the call over to Tom.

Speaker #3: Thank you, Davis. Good afternoon, and thank you for joining our third quarter conference call. I'll give you a few highlights, followed by credit update from Jim Harper and followed by David Sparacio with some financial updates.

Speaker #3: Let's talk about loan growth. It was below our expectation for the third quarter. We went back and reviewed loans booked and draws versus pay balance over the three quarters of 2025, and loan pay balance were up $500 million over the prior two quarters, in the third quarter.

Speaker #3: So, this contributed to the lack of real significant loan growth. We did see a nice increase of over 10% in our loan pipeline in October, compared to September.

Speaker #3: In comparing our loan pipeline to one year ago, the pipeline is 40% higher today. In addition, the projected payoffs today are 30% of the projected pipeline, versus one year ago, they were 41% of the projected new loans.

Speaker #3: So, we do see that there is a slight decline in the pipeline as a percent of the loan payoffs as a percent of the loan pipeline.

Speaker #3: So, you know, the pipeline is not scientific, though we do stress to our bankers we want to be as accurate as possible. Every fourth quarter that I can remember has been had we've had solid loan growth, so my expectation would be that we'll have a good closing loan quarter.

Speaker #3: In loans, and I'll say that not all loan payoffs are bad, because some of them that are low fixed rates pay off when the asset sells, so we've had several this quarter.

Speaker #3: So, we're glad to see those payoffs. So, on the deposit side, we did see some continued reduction in our high-cost municipal deposits in the third quarter.

Speaker #3: They were offset by some large corporate deposit inflows, so, but as David will discuss in a few minutes, we're trying to manage down our total deposit costs as the Federal Reserve reduces the Fed funds rate.

Speaker #3: On the new markets, we did hire seven new producers. In the quarter, spread throughout our footprint, and we're also proud I put out that all of our markets are now profitable.

Speaker #3: I don't think we've ever achieved this before since our first year in business, so we're very proud of that. So, I'm going to turn it over now to Jim Harper for a credit update.

Speaker #4: Thanks, Tom. As Tom noted, lending activity softened a bit during the third quarter, but activity as we moved into the fourth quarter has been robust.

Speaker #4: With activity across our footprint, from a credit metrics standpoint, charge-offs totaled just over $9 million in the third quarter, which results in an annualized net charge-off to average loan percentage of 27 basis points.

Speaker #4: I'll higher than recent historical periods, the charges were primarily taken on loans, which had previously been impaired, with one exception of a $3 million charge taken on a loan that had not previously been impaired.

Speaker #4: From an allowance perspective, the allowance to total loan percentage remained static compared to the second quarter, at 1.28% at quarter end. Non-performing assets were notably higher at 930, increasing by approximately 96 million dollars during the quarter, with the increase driven by a relationship consisting of eight loans with a large merchant developer rehabilitator of multifamily properties.

Speaker #4: Properties associated with the loans are in Alabama, Louisiana, and Texas. Despite us placing these loans on non-accrual during the quarter, the bank was able to successfully obtain additional collateral to bolster our position.

Speaker #4: Additionally, the borrower is actively selling assets as evidenced by purchase and sale agreements on five properties, and eight letters of intent on others. As well as pursuing other corporate actions, which are expected to produce meaningful liquidity in the coming quarters.

Speaker #4: ServisFirst continues to aggressively manage our NPAs, and we expect to have resolutions on several material credits, as soon as late in the fourth quarter of this year.

Speaker #4: I will now turn it over to David to provide his comments on our third quarter financial performance.

Speaker #5: Thank you, Jim. Good afternoon, everybody. For the quarter, we've reported net income of $65.6 million, and diluted earnings per share of $1.20, and pre-provisioned net revenue of $88.3 million.

Speaker #5: This represented a return on average assets of 1.47%, and a return on common equity of $14.9%. Net income grew more than $9 million or 18% from same quarter last year.

Speaker #5: During this quarter, we had a few unique transactions. The first was the reversal of about $4.4 million of accrued interest on the credit that Jim spoke of, secondly, we recognized a loss of $7.8 million on the sale of bonds, and thirdly, we invested in a solar tax credit, which gave us a benefit of about $2.4 million in tax provision.

Speaker #5: When we take these three transactions into account, we view our normalized net income for the quarter to be $73.8 million or $1.35 earnings per common share.

Speaker #5: I will talk more about these three transactions later on. And lastly, our book value grew by an annualized 14% versus last quarter, and by more than 13% from the same quarter a year ago, ending at $32.37 per share.

Speaker #5: We continue to be well-capitalized, with common equity Tier 1 capital ratio of 11.5% and risk-based capital ratio of 12.8% for the quarter. Of course, these are preliminary numbers.

Speaker #5: In net interest income, our amount for the quarter was $133.4 million as reported, and normalized net interest income was $137.8 million. This equates to a net interest margin of 3.09% as reported, and more importantly, 3.19% when normalized for the interest income reversal previously mentioned.

Speaker #5: This normalized net interest income is 8.4 million dollars higher than the normalized number for second quarter of '25, and more than 22.7 million dollars higher than third quarter of '24.

Speaker #5: We are pleased with the continued margin expansion. We certainly benefited from the Fed's rate reduction in September, and are expecting continued margin expansion in fourth quarter due to anticipated additional rate cuts.

Speaker #5: On the provision side, we had single-digit loan growth, which equated to a reduction of about 1.8 million dollars in provision expense for the second quarter, I'm sorry, versus second quarter.

Speaker #5: We had little change in our economic and credit indicators in our CISO model, and as a result, our allowance ratio held steady at 1.28%.

Speaker #5: During the quarter, we recognized, as I mentioned, $7.8 million loss on the restructuring of our bond portfolio. As we did in the second quarter, we strategically sold 83.4 million dollars of bonds, with a weighted average yield of 1.66% at a loss.

Speaker #5: We took advantage of the opportunistic market and reinvested the proceeds in new investment purchases, yielding an average of $6.14%. The expected payback period on this transaction is about three years.

Speaker #5: This restructuring will position us for stronger margin performance in future quarters. This transaction has significantly reduced our low-yielding bonds, as well as our accumulated other comprehensive losses, and we do not anticipate continued restructuring of our bond portfolio.

Speaker #5: Excluding these bond losses, our net interest revenue increased by more than 1.6 million dollars from the second quarter of '25 to the third quarter.

Speaker #5: This positive increase is primarily driven by our increased service charges, which were implemented on July 1st, and on stronger mortgage production. We continue to focus on non-interest income growth, especially through our credit cards, merchant services, and treasury management products.

Speaker #5: As our revenue is growing, we are managing our non-interest expense, which resulted in an improved efficiency ratio. Our best-in-class efficiency improved from 36.90 in third quarter of '24 to 35.22% in third quarter of '25.

Speaker #5: Our adjusted efficiency ratio for this quarter is 33.31%, which is dramatically improved from same quarter last year. During this quarter, our non-interest expense was up versus second quarter of '25, due primarily to the right-sizing of our incentive accrual in the second quarter.

Speaker #5: Versus the same quarter last year, we experienced an increase in non-interest expense of about 2.4 million dollars, which is more than outsized by the 12.6 million dollar increase in revenue.

Speaker #5: My goal remains 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.

Speaker #5: So, all in, for third quarter of '25, our pre-tax net income was up about 2.2 million dollars compared to the second quarter of '25, and up over 6.4 million dollars versus third quarter of '24.

Speaker #5: We remain focused on organic loan and deposit growth, priced both competitively and profitably, and we are concentrated on continuing expansion of our margin. As I previously mentioned, we also invested in a solar tax project with which essentially lowered our effective average tax rate for the year, to 18.9%.

Speaker #5: The solar investment was our first, and we will continue to evaluate other tax improvement opportunities as they arise. This concludes my remarks, and I will now turn it back over to Tom for additional comments.

Speaker #3: Thank you, David. Last thing I'd like to cover is there's been recent attention in the media in recent days on the increase of fraud at a few regional banks.

Speaker #3: Much of this is related to a category of, you know, lending called MBFI, which stands for Non-Depository Financial Institution Lending. We have avoided any significant exposure in most of the categories that fall within the MBFI category for one main reason, and that's because fraud is more common in MBFI loans, and it's hard to foolproof your process.

Speaker #3: Warehouse lending, ABL lending, and floor plans historically have had a greater incidence in fraud than any other types of loans. To cover our total MBFI exposure is $71 million.

Speaker #3: Or less than 1% of our loan portfolio. I think everybody knows that our correspondent division does business with community correspondent banks, and most of our exposure is to holding company lines of credit to community banks.

Speaker #3: Holding companies. So, we certainly are comfortable with our exposure in this category. You know, I would differentiate a fraud issue from a credit issue.

Speaker #3: You know, it's not that the credit deteriorated where there's fraud. This fraud is just a fraud, and it typically is fairly common. You see it all the time.

Speaker #3: It continues in some sort of a Ponzi scheme-type situation until they are found out by their lender. And they have to come clean on it.

Speaker #3: So, we avoid most of these categories like this. We avoid sharing national credits. We try to lend to bars. We think we know well.

Speaker #3: Owner-managed companies and real estate developers are the best examples. We as lenders, we all make mistakes from time to time, but we, you know, because we have a record of lending to people we know, our loan losses have been much lower, and our credit quality has been much better at ServisFirst Bank.

Speaker #3: So, you know, we consider ourselves a community bank. We have 11 community banks. Plus, our correspondent division. So, we are proud of what we have built here over the last 20 years, and certainly stood the test of time, and will continue to do so.

Speaker #3: So, this will conclude our fair remarks, and now I'll turn it over to the operator for questions.

Speaker #1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #1: The confirmation tone 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.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. One moment, please, while we pull for questions.

Speaker #1: Thank you. Our first question comes from a line of Steve Moss with Raymond James. Please proceed.

Speaker #6: Good Good afternoon, guys.

Speaker #4: Hi, Steve.

Speaker #6: Hey, Tom. Maybe just starting with the non-performer here, just curious, you know, what was the dynamic, if you can give us any color, that pushed the borrower over to non-performing status?

Speaker #6: You know, and also, what's the loan-to-value on the loan on the loans?

Speaker #4: Well, as Jim said, we took additional substantial additional collateral during the quarter, and substantially. He offered it, and we because he was expecting a large payment before quarter end that did not come in.

Speaker #4: So, we were left no choice other than to move it to non-accrual, and we'll start, you know, like to think we will turn it to accrual status, over the next six months.

Speaker #4: As he's selling these properties, and many others. So, it's workforce housing redeveloper long-term customer. We have confidence in him, this borrower, so we feel good about our exposure.

Speaker #4: We don't have any, you know, it's a good loan. Obviously, it's not a good loan in terms of he's not current at the current time, but we feel comfortable where we are.

Speaker #6: Okay. Yeah, and just in terms of just thinking like when you guys just I hear you on the additional collateral, kind of like just maybe just a little comfort in terms of like what's the loan-to-cost or, you know, just kind of how you're thinking about how secure you are.

Speaker #6: I hear you're going to start to come back to accrual status, just kind of you could cite it a little bit.

Speaker #4: So, we think through the forbearance process and all the actions that we were able to execute toward the end of the quarter, we did think there was possibly a little bit of a collateral shortfall, and we were able to work with the borrower to obtain additional collateral across several different fronts, and we think we've shored that up.

Speaker #4: So, our loan-to-value while certainly elevated, we certainly think that it's, you know, below one to one at this point, and we've got adequate security to cover the loans for sure right now.

Speaker #6: Okay. Got it. Appreciate that. And then, in terms of just kind of on the margin front, I hear you guys about the amount of the reversal of accrued interest.

Speaker #6: Just curious, you know, probably getting a Fed cut next week, you know, underlying margin was 3.19. You know, just kind of curious as on the cadence of margin, are you guys still thinking something close to high single digits to 10 basis given rate cuts?

Speaker #6: And also just curious on loan yields, where loan pricing is these days.

Speaker #4: Yeah, so Steve, this is David. Yes, we're still confident with, you know, I call it 7 to 10 basis points improvement in margin each quarter as we've been seeing.

Speaker #4: You know, for reference, our I don't want to call it adjusted, but our normalized spot rate for September was 3.28, right, for the month.

Speaker #4: You know, excluding that interest accrual reversal. So, we're in good shape on margin. You know, the Fed cut happened September 17th, so we only experienced about two weeks of benefit from that.

Speaker #4: So, we'll see that throughout the fourth quarter as well as we anticipate additional cuts in the October and December meetings. The Fed's going to have so, you know, we're going to continue to see improvement in margin.

Speaker #4: As far as loan yields, the going on rate dropped a bit last quarter. We were at 7.07. This quarter, we're at 6.87 for loans going on.

Speaker #4: But, you know, we're continuing to to manage through the process. We continue to have healthy repricings and cash flows. We're still sitting at about 1.7 billion in the next 12 months.

Speaker #4: In cash flows and then, you know, on top of that, as Tom alluded to, in earlier conference calls, we have another roughly $300 million a year in covenant busts that get repriced.

Speaker #4: And so, we're sitting at about $2 billion worth of opportunity of repricing on loans. So, you know, we feel really good about the margin expansion.

Speaker #4: And we think that's going to continue at least for the foreseeable future. As long as there's nothing drastic done by the Fed.

Speaker #6: Got it. And just in terms of the cash flows for the next 12 months, it's still in the high fours in terms of the fixed-rate loans?

Speaker #6: Cash flow?

Speaker #4: Yes, it's still in the high fours. 487 was the number for second quarter. We don't have an updated number from our external ALM consultant yet for the third quarter.

Speaker #4: So, but we can get that to you. But still in the high fours.

Speaker #6: High fours. Okay. And Tom, in terms of the loan pipeline here picking up, you know, just curious where are you seeing the growth and kind of, you know, where you're seeing the demand for loans these days?

Speaker #4: I can't give you a good answer, Steve. It's all over the board. You know, we obviously would like to see more C&I than, you know, it's been more, you know, commercial real estate-oriented, but our, you know, our our AD&C is the lowest it's been in years, in years from a percentile.

Speaker #4: You know, the CRE is below 300% of capital. You know, so it's by region, you know, it's hit or miss. It's here, there, and younger.

Speaker #4: I mean, Atlanta's been really strong. And we've had pockets of, you know, places that some of our markets are doing quite well. Some of our nearer markets, obviously, you would think they would do well, right?

Speaker #4: And they are. You know, the newer markets are, you know, Memphis and Auburn and Piedmont region have had good loan growth this year. And that's, you would expect that.

Speaker #4: And they are doing that. So, you know, I mean, I'd still say loan demand is okay. I saw a banker Saturday, and I said, "How's loan demand?" And he said, "Okay." I said, "Yeah, I know it's okay.

Speaker #4: It's not great." So, you know, we need a few more rate cuts to hopefully help out loan demand overall.

Speaker #6: Okay. Got it. All right. Well, that's good color on everything here. I'll step back in the queue. Thank you very much, guys.

Speaker #4: Thank you, Steve.

Speaker #1: Thank you. Our next question comes from a line of Dave Bishop with HUBD Group. Please proceed.

Speaker #6: Thank you. Hey, good evening, gentlemen. I'm curious, hey Tom, on the expense side, Tom and Dave, came in a little bit, I think, above expectations.

Speaker #6: Sounded like there were some shoring up on the incentive accruals. Is that correct? Maybe you can sort of ring-fence that about and maybe expectations where you see that compensation salaries and benefits maybe settling into into the final quarter of the year.

Speaker #5: Yeah, Dave. You know, the true up really happened in second quarter. So, when you compare second quarter to the third quarter, it's really second quarter that was lower.

Speaker #5: Because of the true up, you know, we did an incentive true up. It's all an incentive comp. And so, it's going to depend a lot on loan production.

Speaker #5: You know, we went back to accruing our normal incentive rate for the third quarter. And so, fourth quarter, at this point in time, given the uptick in the pipeline, we expect fourth quarter to be very similar to third quarter.

Speaker #5: From an incentive standpoint. And so, you know, I would expect the non-interest expense to come in at the same level as well. So, you know, roughly, you know, $48 48 million I know it's higher than expected.

Speaker #5: You know, but I would just guide you back to our efficiency ratio. Our efficiency ratio is still best in class in the low 30s.

Speaker #5: You know, we're not the expense increase is a fraction of what our revenue increase is. And as long as we continue on that trajectory, that's what I'm pleased with from a result standpoint.

Speaker #6: Got it. Appreciate that color. That Tom, you know, I think we had you on the virtual road. Last month or so, you know, still sort of, you know, fresh in the news, you know, the opportunities from the MOE in your backyard.

Speaker #6: Any early signs of success there, or you're pretty active in terms of recruiting efforts? Any commentary you can provide there in terms of maybe early reads of, you know, relationship wins or banker hunters?

Speaker #4: I just, you know, broaden it at, you know, any it's not only mergers that cause the create opportunity. We're looking at, you know, obviously, there are other mergers announced or going on, and we look for opportunities in many fronts.

Speaker #4: And, you know, feel good about our ability to, you know, at least attract customers and offer them a more stable base than they see it in some cases out there, in the market.

Speaker #4: So, we feel confident about where we are, and opportunities. You know, again, though, you've got to be out seeing people, and again, most of our opportunities come from existing customers or about 80% of our new business comes from referrals from existing clients.

Speaker #4: So, that is something that we emphasize of trying to do a good job of taking care of our clients so they'll send us their friends and colleagues that they do business with and know well.

Speaker #4: So, we think that's the very best thing we can do, is take care of our clients and take care of their needs, and we'll get more just like them.

Speaker #4: So.

Speaker #6: Got it. And one final, maybe housekeeping question. The tax rate, I know with the solar tax credit investment bounced around a little bit. Maybe a good expectation for the effective tax rate going forward?

Speaker #6: Thanks.

Speaker #5: Yeah, I think the 18.9% Dave is going to stick for the year, at least for 2025. As Tom mentioned, you know, this deal that we did, it kind of opened our eyes a bit on what's available and what's out there in the market.

Speaker #5: And so, we have some good contacts. We have some good relationships. And so, we're going to continue to develop those opportunities and take advantage of them.

Speaker #5: And so, you know, the goal you know, you saw our tax rate jumped up a little bit in second quarter. And so, the goal is to is to keep it certainly below 20% for sure.

Speaker #5: And so, you know, for 2026, we don't have anything that's planned right now, but we continue to have discussions with folks that have opportunities for us to take advantage of.

Speaker #5: So, you know, I would expect it to be in the 18, 19% for the foreseeable future.

Speaker #6: Perfect. Thanks for the color. Thank you,

Speaker #5: You're welcome.

Speaker #6: Dave.

Speaker #1: Thank you. Our next question comes from a line of Steven Scouting with Piper Sandler. Please proceed.

Speaker #6: Yeah, thanks. Good afternoon. David, I want to reconcile one number real quick. I think you said maybe a 3.28 margin for the month of September X, the reversal.

Speaker #6: Is that interest reversal the main difference versus the 2.97 listed in the supplemental information?

Speaker #5: Yes, that is correct. Yes, it was about 31 basis points on that interest reversal.

Speaker #6: Okay. Great. And so, you would expect to kind of see that 7 to 10 basis points the way you would think about it in the fourth quarter would be 7 to 10 bips potential roughly off of the 3.19 all-in number.

Speaker #6: Is that the right way to think about it?

Speaker #5: Yes, that is correct.

Speaker #6: Okay. Great. And then, Tom, maybe, you know, kind of following up on that question around, you know, dislocation. I like how you said that, you know, kind of offering stability in the market and being there for your customers.

Speaker #6: Are there any kind of new markets maybe on the horizon for you guys where you know that level of business quality and stability you don't see being offered today that you'd be interested in, whether that's opened up by M&A or otherwise?

Speaker #4: Yeah, I think, you know, certainly we've always had an interest in finding the right people in Texas. And that's something we're very interested in is, you know, it's not easy.

Speaker #4: Texas is not an easy I'm not suggesting it's an easy market. I'm suggesting that there are if you have the right group of people, with a bank base like ours, I think it could be a really good place to do business.

Speaker #4: And I think we could, you know, Texas is a very Texas-centric place. You can't send people there. You know, Texas people like to do business with Texans.

Speaker #4: And not people from Alabama or New York or anywhere else. So, I get that. And I'm aware of it. So, that's something we you know are certainly keenly interested in that market.

Speaker #4: And I'm not to change the subject, but doubling back on what David to my interest rates, as the Fed cuts rate, that is our opportunity to say, "Okay, we need to try to manage down our deposit cost you know at least more than the Fed cut." So, if the Fed cuts 25 our goal is to manage down more than that, more than that 25 bip.

Speaker #4: So, I think that's a it's an opportunity. It's what when we see the Fed cutting rates, that's our opportunity, Steve, and I wouldn't avoid any further questions.

Speaker #6: Oh, yeah, that makes sense.

Speaker #4: Inflation, but.

Speaker #6: No, I appreciate that. That's a good reminder. And along with that, kind of maybe bouncing back to the NIM a little bit, I guess, when was that security sale completed this quarter?

Speaker #6: And is there any sort of incremental benefit to the run rate of securities yields in the NIM? Into fourth quarter from that trade?

Speaker #5: Yeah, the security sale was done in late in third quarter, maybe the third week of September. And so, you're not going to see much more benefit at all in third quarter as a result of that.

Speaker #5: You'll see the full benefit of it in the fourth quarter. And I don't have a number off the top of my head exactly what that is, but it's going to be you know 500 basis points, 450 basis points on $80 million dollars.

Speaker #5: So, or I'm sorry, $70 million. Yep.

Speaker #6: I can do that math for sure. Good. That's great. Okay. I think that's all I had, guys. Great. Appreciate all the time.

Speaker #4: Thank you, Steven.