ServisFirst sees 10% loan pipeline growth and targets continued margin expansion as Fed cuts rates

Earnings Call Insights: ServisFirst Bancshares (SFBS) Q3 2025

MANAGEMENT VIEW

* CEO Thomas Broughton reported that loan growth for the third quarter fell below expectations due to $500 million in increased paydowns compared to the prior two quarters but noted a loan pipeline increase of over 10% in October versus September and 40% higher than a year ago. He stated, "Every fourth quarter that I can remember has been -- we've had solid loan growth -- so my expectation will be that we'll have a good closing long quarter in loans."
* Broughton also highlighted efforts to manage down total deposit costs as the Federal Reserve reduces the Fed funds rate and mentioned hiring 7 new producers across the company's footprint. "All of our markets are now profitable. I don't think we've ever achieved this before since our first year in business. So we're very proud of that," Broughton said.
* CFO David Sparacio stated, "For the quarter, we reported net income of $65.6 million and diluted earnings per share of $1.20 and preprovision net revenue of $88.3 million." He continued, "When we take these 3 transactions into account, we view our normalized net income for the quarter to be $73.8 million or $1.35 earnings per common share."

OUTLOOK

* Management expects continued margin expansion in the fourth quarter due to anticipated further Fed rate cuts. Sparacio explained, "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."
* The company sees a normalized net interest margin of 3.19% for the third quarter and projects ongoing improvement of 7 to 10 basis points each quarter. "We're still confident with, I'll call it, 7 to 10 basis points improvement in margin each quarter as we've been seeing," Sparacio said.
* Broughton anticipates a solid loan growth close for the year, driven by a strong pipeline and historical fourth-quarter trends.

FINANCIAL RESULTS

* Net income for the quarter was $65.6 million, with diluted earnings per share of $1.20 and preprovision net revenue of $88.3 million.
* Book value per share grew at an annualized 14% versus last quarter, ending at $32.37 per share. The common equity Tier 1 capital ratio was 11.5% and the risk-based capital ratio was 12.8%.
* Net interest income was $133.4 million as reported, with a normalized figure of $137.8 million. Normalized net interest income increased by $8.4 million from the second quarter of 2025 and by $22.7 million from the third quarter of 2024.
* The company recorded a $7.8 million loss on bond sales and recognized a $2.4 million benefit from a solar tax credit investment, lowering the effective average tax rate to 18.9% for the year.
* The efficiency ratio improved to 35.22% in the third quarter of 2025 from 36.90% in the third quarter of 2024.

Q&A

* Stephen Moss, Raymond James: Asked about nonperforming loans and collateral, to which Broughton responded, "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."
* Moss inquired about margin improvement and loan yields. Sparacio stated, "We're still confident with, I'll call it, 7 to 10 basis points improvement in margin each quarter as we've been seeing."
* David Bishop, Hovde Group: Questioned expense trends, with Broughton noting, "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 from an incentive standpoint."
* Stephen Scouten, Piper Sandler: Sought clarity on margin drivers and new markets. Broughton emphasized interest in Texas expansion if the right team is found, and Sparacio confirmed the full benefit of the late Q3 security sale will be reflected in Q4.

SENTIMENT ANALYSIS

* Analyst tone was neutral to slightly positive, with questions focused on collateral adequacy, margin outlook, and expense management, indicating continued monitoring but no acute concerns.
* Management maintained a confident and constructive tone, particularly about margin expansion and loan pipeline growth. Broughton said, "We feel good about our exposure. We don't have a -- it's a good loan."
* Compared to the previous quarter, the tone was more optimistic about margin prospects and stable on credit quality, with management repeatedly expressing confidence in strategic direction.

QUARTER-OVER-QUARTER COMPARISON

* Loan growth slowed in Q3 due to higher paydowns, contrasting with solid growth in Q2. However, the loan pipeline is up 40% year-over-year and management expects a strong Q4 close.
* Margin expansion continues, with normalized net interest margin improving from Q2. The efficiency ratio further improved and book value per share grew faster than in the prior quarter.
* The current quarter saw increased nonperforming assets due to one borrower, with management citing successful collateral enhancement.
* Expense management remains a focus, with incentive accruals normalized after Q2 true-ups.
* Analyst focus shifted from loan growth and deposit normalization in Q2 to credit concerns and margin outlook in Q3.

RISKS AND CONCERNS

* Management highlighted an increase in nonperforming assets, primarily driven by a single large relationship, but stated additional collateral was obtained and asset sales are underway to resolve the situation.
* The company continues to monitor exposure to nondepository financial institutional (NDFI) lending, which remains under 1% of the loan portfolio. Broughton emphasized, "We avoid most of these categories like this, we avoid -- we 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."
* Analysts raised concerns about loan growth pace, expense levels, and the composition of the loan pipeline, all addressed with detailed management responses.

FINAL TAKEAWAY

ServisFirst Bancshares management underscored a robust loan pipeline, ongoing margin improvement fueled by Fed rate cuts, and effective credit risk management despite a rise in nonperforming assets. Continued focus on expense control, expansion into profitable markets, and selective growth initiatives positions the company for a strong finish to 2025, with expectations for further margin gains and solid loan growth in the final quarter of the year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/sfbs/earnings/transcripts]

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