Release Date: July 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Servisfirst Bancshares Inc (SFBS, Financial) reported strong deposit growth of 16% annualized for the quarter.
- Loan growth was robust at 15% annualized, with a significant increase in C&I loans.
- The company added 14 new bankers in the quarter, expanding its footprint in key markets like Florida and Auburn Opelika.
- Net income increased by 17% annualized, and the net interest margin rose by 13 basis points to 2.79%.
- Core noninterest income grew significantly, driven by strong mortgage fee income, credit card income, and deposit fees.
Negative Points
- Non-interest expenses increased more than expected due to higher healthcare costs and investments in new markets.
- The ALLL to total loans ratio decreased from 1.31% to 1.28%, driven by improved collateral values on substandard credits.
- There was a minor increase in the cost of deposits, which is expected to continue as deposits grow.
- The company experienced higher commissions related to strong mortgage activity, impacting non-interest expenses.
- Non-interest bearing deposits showed some pressure at the end of the quarter, although average balances remained stable.
Q & A Highlights
Q: Can you provide more details on the loan pipeline growth? Is it broad-based or concentrated in specific loan types or geographies?
A: The loan pipeline growth is broad-based, covering various loan types and geographies. We have seen a resurgence in C&I loans as customers are borrowing again for capital expenditures. The growth is not limited to any one state but is spread across all our markets.
Q: How do you foresee the margin expansion trend after the recent increases?
A: While we don't forecast specific NIM percentages, we expect the margin to continue benefiting from asset growth and repricing of fixed-rate loans and securities. We anticipate this tailwind to persist for several quarters.
Q: What are the current trends in the correspondent banking business?
A: We are seeing growth primarily in newer markets like Texas, Tennessee, and Kentucky. We have added over 25 banks in Texas and continue to see a strong pipeline in these regions.
Q: Can you elaborate on the recent growth in non-owner occupied commercial real estate loans?
A: The growth in non-owner occupied CRE loans is driven by existing and new customers with significant equity in projects, particularly in multifamily and warehouse sectors. Liquidity and deposit growth have also attracted new customers.
Q: What should we expect for the expense run rate moving forward?
A: The $44.8 million figure, adjusted for the new accounting standard, is a better run rate for non-interest expenses. We expect expenses to grow at a slower pace for the remainder of the year, with a tax rate around 20%.
Q: Are there any concerns about the recent pressure on non-interest bearing deposits?
A: The average balance of non-interest bearing deposits remained stable, despite a dip at the end of the quarter. We don't see this as a new trend and expect balances to recover.
Q: What is the outlook for new hires and staffing levels?
A: While we don't have immediate plans for new hires, we remain open to adding teams in the right markets. Our focus is on long-term growth and acquiring the best talent.
Q: What is your target loan-to-deposit ratio moving forward?
A: We are comfortable running in the mid-90s for the loan-to-deposit ratio. We view correspondent banking relationships as quasi-deposits, which supports this ratio.
Q: How are CD rates trending, and what are your expectations for new CD offerings?
A: CD rate pressures have moderated recently. We expect rates to continue moderating, with new offerings likely in the 4.5% range.
Q: What is the expected volume of loan repricings for the rest of the year?
A: We anticipate around $1 billion in loan repricings, including opportunities arising from covenant violations. This process will pick up in the third quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
