ServisFirst Bancshares, Inc. (SFBS) Q4 2025 Earnings Call Transcript
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Overview
The company showed strong financial performance with improved net interest margins, efficiency ratios, and asset yields. Although there were concerns about nonperforming assets and the accuracy of loan payoff projections, the overall outlook remains positive due to anticipated margin expansion and loan growth. The market cap indicates moderate sensitivity to these factors, leading to a positive stock price prediction.
Key Financial Performance
Loan Growth Annualized growth of 12% for the quarter. Pipeline quarter-over-quarter increased by 11%, and net of projected payoffs increased by 80%. Reasons include diminishing payoff headwinds and robust loan demand.
Net Charge-Offs $6.7 million for the fourth quarter, with the majority related to one credit. Full year charge-offs were 21 basis points. Reasons include proactive management of the loan portfolio.
Allowance to Total Loans 1.25% at year-end, relatively stable throughout the year.
Nonperforming Assets to Total Assets 97 basis points at year-end, up from 26 basis points in fiscal year '24. The increase is largely due to exposure to a single merchant developer.
Earnings Per Share (EPS) $1.58 for the fourth quarter, a 32% increase from Q3 2025 and a 33% increase from Q4 2024. Full year EPS was $5.25 on an operating basis and $5.06 on a GAAP basis.
Net Income $86.4 million for the quarter and $276.5 million for the year. Reasons include disciplined loan pricing and deposit rate reductions.
Return on Average Assets 1.62% for the year.
Return on Common Equity Nearly 17% for the year.
Tangible Book Value Grew 4% during the quarter to $33.62 per share.
Net Interest Margin Increased from 2.92% in Q1 2025 to 3.38% in Q4 2025. Reasons include disciplined loan pricing and deposit rate reductions.
Efficiency Ratio Below 30% for the quarter, with a full-year adjusted efficiency ratio near 32%, a 14% improvement over 2024. Reasons include cost control and increased operating leverage.
Asset Yields 5.79% for the quarter, up 10 basis points from Q1 2025. Loan yields were 6.30%, slightly down due to a 75 basis point reduction in benchmark interest rates.
Cost of Interest-Bearing Liabilities Reduced by 40 basis points versus linked quarters and by 65 basis points versus the same quarter last year. Reasons include favorable customer response to rate cuts.
Noninterest Revenue 26% growth from 2024 to 2025, driven by fee increases. Mortgage banking fee income increased by 11% due to higher mortgage volume. Operating noninterest revenue up 12% for the year.
Noninterest Expense Flat compared to the same quarter last year and down 3% versus linked quarters. Full-year noninterest expense up 2%.
Deposits Grew by 5% year-over-year.
Fed Funds Purchase Dropped by 26% year-over-year, driven by downstream correspondent banks positioning for year-end.
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Operating Highlights
Asian credit card program: Endorsed by the American Bankers Association and 12 state banking associations. Added Ohio and Maryland State Banking Association endorsements. Robust pipeline of new clients and banks in 27 states.
Texas market expansion: New Texas banking team based in Houston joined in December. Team of 9 members, with plans to hire more in the first and second quarters of the year. Temporary office space being used, with plans to open a permanent office.
Loan growth: Annualized growth of 12% for the quarter. C&I book grew nearly 10% during the year, the highest growth rate in several years.
Deposit management: High-cost municipal deposits managed down for the quarter and year. Ability to attract deposits back if needed.
Net interest margin: Increased from 2.92% in Q1 to 3.38% in Q4 2025, driven by disciplined loan pricing and deposit rate reductions.
Efficiency ratio: Dipped below 30% for the quarter, with a full-year adjusted efficiency ratio near 32%, a 14% improvement over 2024.
Texas expansion strategy: Largest team hired since 2005 to establish a strong presence in Texas. Focus on building a franchise in the region.
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Risk or Challenges
Loan Payoffs: Projected payoffs are likely understated, but payoff headwinds are diminishing. This could still pose a challenge to maintaining loan growth.
Nonperforming Assets: Nonperforming assets to total assets increased significantly year-over-year, primarily due to exposure to a single merchant developer. This remains a risk to asset quality.
Credit Metrics: Net charge-offs for the fourth quarter were $6.7 million, with the majority related to one credit. This indicates potential vulnerabilities in credit quality.
Texas Expansion Costs: The expansion into Texas, including hiring and setting up operations, is expected to increase expenses, which could impact the efficiency ratio if revenue growth does not keep pace.
Interest Rate Environment: Loan yields dropped slightly during the quarter, and the company aggressively reacted to rate cuts. This could pressure net interest margins if rates continue to decline.
Deposit Management: Efforts to manage down high-cost deposits could limit liquidity flexibility, especially if robust loan demand requires attracting these deposits back.
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Guidance & Outlook
Loan Growth: Projected annualized loan growth of 12% for the quarter, with an 11% increase in the loan pipeline quarter-over-quarter and an 80% increase net of projected payoffs. Optimism for improved loan growth in the future.
Texas Expansion: The new Texas banking team, based in Houston, is expected to grow with additional hires in the first and second quarters of 2026. This expansion is anticipated to contribute to business growth.
Net Interest Margin: Confidence in maintaining strong asset yields and disciplined loan repricing efforts as the company enters 2026. The net interest margin grew from 2.92% in Q1 2025 to 3.38% in Q4 2025.
Efficiency Ratio: The efficiency ratio is expected to remain neutral despite anticipated expense growth from the Texas expansion, as revenue from the new business is expected to offset costs.
Noninterest Revenue: Projected growth in noninterest revenue, driven by service charges and mortgage banking fee income, which saw significant increases in 2025.
Expense Growth: Anticipated growth in expenses due to the Texas expansion, but this is expected to be neutral to the efficiency ratio as the new business generates revenue.
Dividend Policy: The company plans to continue its policy of returning capital to shareholders through dividends.
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Shareholder Return Plan
Dividend Increase: The company recently increased its dividend, aligning with its long-standing policy of returning capital to shareholders.
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Key Q&A
Q:What are the current trends in loan payoffs and expectations for loan growth?
A:Projected payoffs have dropped substantially quarter-over-quarter, leading to an increase in the net pipeline. However, management expressed skepticism about the accuracy of these projections, noting that payoffs are an inexact science. Loan growth is trending in the right direction.
Q:How is commercial borrower loan demand performing, particularly in C&I and CRE?
A:Loan demand has improved to an A-minus level, better than previous quarters. C&I demand showed significant growth, marking the best performance in a while. Hospitality loans remain abundant in the market.
Q:What is the outlook for the margin and its components for 2026?
A:The December spot margin of 3.50% is a good starting point for 2026. Loan fees contributed to the margin increase, and management expects continued margin expansion due to repricing opportunities on low fixed-rate loans and stable loan yields. Approximately $1 billion in fixed-rate loans will reprice in 2026, with an opportunity to gain 130 basis points. Additional cash flows and covenant violations could bring the total repricing opportunity to $2 billion.
Q:What is the status of the $5 million charge-off and multifamily workforce housing nonperforming loans?
A:The $5 million charge-off was related to a healthcare asset and was largely reserved for beforehand. For the multifamily workforce housing loans, management is working with the borrower to manage assets and find an orderly resolution, including selling parts of the portfolio.
Q:What is the expected tax rate for 2026?
A:Management plans to continue leveraging tax credits, particularly solar credits, to manage the tax rate. State apportionments caused a slight increase in the fourth quarter.
Q:What are the expectations for the Texas team’s growth in 2026?
A:The Texas team is budgeted for the highest growth among all regions in 2026. They are primarily C&I lenders, and management is optimistic about their potential despite initial expenses being a drag on the efficiency ratio.
Q:What is the expected expense growth and efficiency ratio for 2026?
A:Expense growth is expected to be in the high single digits, driven by producer hires. The efficiency ratio is projected to remain between 30% and 33%, with short-term increases due to the Texas team’s initial expenses.
Q:What is the hiring strategy in light of M&A disruptions?
A:Management plans to hire as many good bankers as possible, prioritizing talent acquisition over meeting earnings budgets. They acknowledge the limited availability of high-quality bankers in the market.
Q:What is the expected run rate for BOLI going forward?
A:The run rate for BOLI is expected to be approximately $4 million per quarter, excluding a $4.3 million death benefit received in the quarter.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the accuracy of projected payoffs, the exact impact of loan fees on the margin, and the precise timeline for resolving multifamily workforce housing nonperforming loans. Additionally, they used vague language regarding the potential for rate cuts in 2026 and the availability of high-quality bankers in the market.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
American Bankers
Association agent
Association state
Bancshares End
Bank credit
Bankers Association
Banking Association
CI book
Chief Credit
Credit Officer
Houston
Loan
Texas correspondent
activity
addition Texas
allowance loan
asset yield
banking
charge offs
correspondent bank
course
credit card
debt
end basis
fee
ground
liability
mortgage
office
past
point basis
portion portfolio
program
rate asset
regard
repricing
standpoint
yield basis
SFBS Transcript
ServisFirst Bancshares, Inc. (SFBS) Q4 2025 Earnings Call Transcript
Positive1-20
The company showed strong financial performance with improved net interest margins, efficiency ratios, and asset yields. Although there were concerns about nonperforming assets and the accuracy of loan payoff projections, the overall outlook remains positive due to anticipated margin expansion and loan growth. The market cap indicates moderate sensitivity to these factors, leading to a positive stock price prediction.
ServisFirst Bancshares, Inc. (SFBS) Q3 2025 Earnings Call Transcript
Positive10-20
The earnings call indicates strong financial performance, with increased net interest income and margin expansion. Despite some nonperforming assets, management's optimistic guidance on margin improvement and loan growth, particularly in commercial real estate, suggests a positive outlook. The Q&A revealed confidence in handling nonperforming loans and potential market expansion into Texas. The market cap being mid-sized suggests moderate price sensitivity, leading to a positive prediction.
ServisFirst Bancshares, Inc. (SFBS) Q2 2025 Earnings Call Transcript
Positive7-22
The earnings call reflects strong financial performance with an 18% increase in net income, improved margins, and disciplined expense control. The Q&A section highlights plans for margin improvements, deposit management, and growth in commercial credit demand. While management avoided specifics on loan growth, the overall sentiment is positive, with strong financial metrics and optimistic guidance. The market cap suggests a moderate reaction, leading to a predicted stock price movement of 2% to 8% over the next two weeks.
ServisFirst Bancshares, Inc. (NYSE:SFBS) Q1 2025 Earnings Call Transcript
Unknown4-23
The earnings call presents mixed signals: while there is positive growth in loan balances and a solid financial performance, the EPS miss, higher charge-offs, and increased NPAs present concerns. The Q&A section suggests some uncertainty, particularly in deposit trends and loan pricing. The market cap indicates a moderate reaction to news, and the absence of a share repurchase program or dividend increase further tempers positive sentiment. Overall, the stock is likely to remain neutral, with minor fluctuations expected within the 2% range over the next two weeks.
SFBS Report
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