ServisFirst Bancshares Inc
NYSE:SFBS
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
50.61
98.74
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
ServisFirst Bancshares Inc
You don't have any saved screeners yet
Good day. And welcome to the ServisFirst Bancshares Incorporated Fourth Quarter Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would now like to turn the conference over to Mr. Davis Mange. Please go ahead, sir.
Good afternoon, and welcome to our fourth quarter earnings call. We will have Tom Broughton, our CEO; Bud Foshee, our CFO; and Henry Abbott, our Chief Credit Officer, covering some highlights from the quarter and then we will take your questions.
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 ServisFirst assumes no duty to update them.
With that, I will turn the call over to Tom.
Thank you, Davis, and good afternoon. Welcome to our year end conference call -- earnings call. You don’t go back on time to last March, if you would asked me that, if I thought we would report record earnings for 2020. I certainly would have said, I feel fairly certain we will not report record earnings with a looming pandemic in front of us. So we are very pleased to be able to report record earnings.
I think it speaks very well for the quality of our team and our asset quality. Our credit quality has never been stronger. As Henry Abbott, our Chief Credit Officer will discuss in more detail in a few minutes.
Our deposits grew about $2.5 billion in the past year, a 33% increase, a very large deposit surge because of the pandemic. We are beginning to transition to a $10 billion bank and we have been planning this for several years.
The pandemic just sped up the timeline a bit, we do have all the infrastructure in place to make the transition. Our regulators have been very proactive with working us to ensure a smooth transition and our Chief Risk Officer, Mark McVay has done an outstanding job.
The pandemic helped us transition quickly to new technology and showed us, we really don’t need as much brick-and-mortar as we have even in a bank with a branch like model like ours. It has also made our clients transition more quickly as well.
We are very fortunate to be based entirely in the Southeast, where we have had very few shutdowns and less affected customers than in other parts of the country. Our unemployment rate is good bit lower. More workers have jobs and our economy is a much better shape.
We are seeing a large migration into our footprint. We expect it to continue. I have always said that given a choice between a bad bank in a good market or a good bank in a bad market, I would pick the bad bank in a good market as we can fix a bad bank but we cannot fix a bad market.
Talking a little bit about loan growth for the quarter, particularly we did see 6% annualized growth in the fourth quarter. I thought it would be a bit higher than that. We did not -- I did not anticipate. There’s the fear of higher tax rates. Capital gains rates led several customers to sell their companies and other assets to lock in the current rates. We also lost a few loans on writing structure. We continue to emphasize being a disciplined lender.
Our credit quality was evident in the 2008, 2010 recession and it’s proven again to be the same in 2020. The loan pipeline is off a bit from October, but we are starting to see some projects that have been on hold starting to move forward. We just lost a chunk of a year to the pandemic on the loan side.
Plan utilization is still at historically low levels. We have had a very modest rebound to recap before the pandemic I have seen our line utilization was around 49%, it fell to 37% and is back up to 38.5% at the end of this quarter.
I do expect the line utilizations to rebound over the next year or so supply chains are not rebuilt for our clients. Their inventories are still very low. We are starting to see some prices increase on steel, lumber, which will lead to higher inventories as well for our customers.
Our legacy offices with the largest market share had the most pay downs, which is obviously very obvious that we would have that. So the newer regions had very less business on the books and had less pay downs from the line utilization drop.
We do expect significant loan opportunities going forward for several reasons. One is we made many PPP loans to class of other bank who will transition to bank into us. In addition, we have had many who had a bad experience with another bank with PPP and plan to move their banking to us after their loan forgiveness is done. Also, many banks closed their offices and were working remotely and not returning client calls, which led to a number of dissatisfied clients leading to new client opportunities for ServisFirst.
We also expect substantial growth in construction loan drawals in the next year and we do combine that with the line utilization rebound should lead to some natural loan growth, even without any organic loan growth, which we expect as well.
To mention where we are on the new round of the PPP program, we just got a few days in it. We did start until last Tuesday. So we have had less than a week as of this morning. So we expect that we will have demand of about 25% to 35% of the last round of PPP.
We did have -- I think we made almost 5,000 loans and $1.50 billion in loans last year in that program. So it -- obviously there’s a -- it’s more niche based this time, so we are seeing lower volumes with the fee -- the actual fee income is slightly higher. We do see lower expenses delivering this program with less overtime and other expenses.
I am going to stop there now and I am going to turn it over to Henry Abbott for credit update. Henry?
Thank you, Tom. I am pleased with the bank’s fourth quarter results and how the bank’s loan portfolio performed throughout the pandemic, and optimistic how we are positioned for 2021 and beyond.
Our total past dues to loans was 11 basis points, which is roughly $9 million and that’s on par with the third quarter, which is near historic lows. Non-performing assets were $25.5 million on the total loan portfolio of $8.5 billion.
The $25 million in NPAs is an $8 million reduction from the third quarter and $18.8 million reduction from year end 2019. These resulted in NPA total assets at 21 basis points, which is an 8 basis point reduction from the third quarter and a 29 basis point reduction or over half from the same period in the prior year.
I am proud to say, past dues to total assets and non-performing assets to total assets have not been this low since 2015. As referenced, asset quality improved, which leads me to be optimistic about our outlook in these uncertain times.
We did have roughly $9 million in charge-offs for the quarter, as we have historically referenced, we are proactive in our credit servicing and took appropriate actions as needed on credit in the fourth quarter.
The overwhelming majority of these charge-offs we took in the fourth quarter were related to previously impaired loans, two of the specific charge-offs we took in the fourth quarter were related to borrower misrepresentations on C&I relationship and these charges accounted for just over half of the charge-offs for the quarter, and I’d also note, the charge-offs were down from our third quarter results.
We have grown our ALLL by over $11 million in the past year. As of year-end, our ALLL loans was 1.04%. However, excluding PPP from total loans, our ALLL to total loans was 1.16%, which is higher than we have been at a year-end in roughly 10 years.
As we move to the CECL calculation in 2020, the difference between the amount of credit losses allowance required under our incurred loss methodology and amount required under the CECL methodology resulted in a $2 million reduction, which was shown in our fourth quarter results.
With that, I will pass it back to you, Tom.
Thank you, Henry. Thank you for that update. I will now turn it over to Bud Foshee, our Chief Financial Officer for the financial update.
Thank you, Tom. Good afternoon. Net interest margin for the fourth quarter was 3.27% versus 3.14% in the third quarter. The adjusted margin was 3.23%, excluding the average PPP balances of $1.01 billion and PPP interest and loan fees of $10.1 million. The adjusted margin for the third quarter was 3.25%, the average PPP balances were $1.05 billion and PPP interest and fees were $6.6 million.
Adjusted margin was 3.36% excluding the increase in excess funds of $311 million. In the third quarter, adjusted margin was 3.33% with an increase in average excess funds of $610 million. The remaining net PPP deferred fees at 12/31/20 were $17.8 million.
CD maturities for 2021 are $530 million, $137 million in the first quarter, average rate is 1.25% and is 1.33% for the first quarter maturities. We expect majority of these CDs re-price at 0.40% or below. The re-pricing will result in the $2.3 million annual expense reduction and just the first quarter maturities will reduce annual expenses by $1.1 million.
Quarter-to-date cost of interest-bearing deposits has decreased. It was 0.58 in the third quarter and 0.44 in the fourth quarter, and the last deposit rate cut that we made was on November 23th. End of the year deposit costs, total deposits was 0.28%, total interest-bearing DDAs was 0.25% and total interest-bearing deposits was 0.39%. Just reminder, we have no accretion income-related to acquisitions.
Liquidity, excess funds were $600 million, when we started funding the PPP loans in April of 2020, at the end of the year, the excess funds were $2.1 billion.
For non-interest income, credit card spend $168.4 million in the fourth quarter versus $151.4 million in the third quarter. Total year-to-date spend for 2020 was $601 million in 2019, that was $515 million.
In credit card net income, we made an accrual adjustment of $870,000 in the fourth quarter related to rebates. So fourth quarter net would have been $1.78 million, actual was $913,000 versus $1.8 million in the third quarter. Merchant services fee income, year-to-date income was $565,000 versus $416,000 in 2019 and we have two officers dedicated to selling this service.
Mortgage income in fourth quarter, $3.1 million versus $2.5 million in the third quarter. The Durbin Amendment, that is change that will take effect for us on July 1, 2022, anticipated loss of revenues around $950,000. And just a reminder, we do not sell any government guaranteed loans to generate non-interest income.
Non-interest expense, total producers at the end of 2019 were 139, at the end of 2020, 133, and total employees 12/31/19 it was 504 and at the end of 2020 it was 499.
Total non-interest expenses, when you adjust for PPP expenses, the PPP, FASB deferral and ORE expenses, in the first quarter, they were $27.2 million, second quarter, $26.4 million, third quarter, $26.2 million and it increased to $28.4 million in the fourth quarter.
Increase in the fourth quarter has several components. The fourth quarter expense for reserve for unfunded commitments was $1.2 million and the increase was due to portfolio line utilization. It decreased from 52.7% at 12/31/19 to 47.8% at 12/31/20.
Salaries increased to $116,000. We had new hires in Nashville and West Florida. We did open a new office in Venice, Florida, but we also closed an Atlanta office. Also, we will review potential closing of two additional offices when they currently see leases expiring.
Problem credit expense has increased $236,000. We also had PPP expenses, Round One expenses of $209,000 and Round Two of $50,000. The Bank’s Tier 1 leverage ratio was 8.75% at 12/31/20, well above the 8% minimum required by the regulators.
Our earnings retention for 2020 was 77.6%, taxes -- quarter-to-date tax rate for 2020 was 22.1%, the fourth quarter 2019 was 20.1%, year-to-date 2020 the rate is 20.7% and the year-to-date rate for 2019 was 20.1% and the projected tax rate for 2021 is 23%.
This concludes my comments and I will turn the program back over to Tom.
Thank you, Bud. I will cover a couple of more things before we take questions. One, I thought you might be interested in a COVID update. Like all Banks, we took all precautions early on and continue to do so.
But we work remotely in rotation, we require mask, we use barriers, plexiglass and other things, and we have also had many redundant systems, which have proven to be very beneficial. I checked with our HR last week and 17% of our employees have tested positive for COVID. A total of 57% have either been sick, have been out due to exposure or quarantine for other reasons.
So we continue to operate the Bank even though our half of our employees have been out for one reason or another. None of our employees have been hospitalized and we really learned the -- most of them are not too sick to work remotely. So that’s been certainly helpful to operating the bank.
We don’t think we have had -- we -- I think with some employees go to lunch together and that’s probably how there’s probably been some inner-office transmission is just people leaving together and going to launch.
Most of the stories I hear from my employees is, they went to wedding, they went to a social event. They went to a large family, Thanksgiving or Christmas function, so holiday function of some kind. So anyway, that’s your update on COVID. So we are fortunate that we pushed through that with no one being hospitalized here in the office.
We -- as Bud mentioned, we did open our new office in Venice, Florida last week. We had experienced team as we had in the West Florida region. We are also opening our new Fort Walton Beach office this year and one in Summerville, South Carolina. So as we continue to build, look at session, how many offices we need, we do continue to open new offices.
We are optimistic about our growth prospects. As Bud mentioned, we had a number of very fine officers join us in the fourth quarter, not a large number. We have much higher quality officers we are adding to our banking ranks.
So, again, the Bank margins are very helpful for us, both for hiring new bankers and obtaining new clients. The pandemic deposit surge will allow us to grow quality loans as we currently have over $2 billion on deposit. The Fed reserve are in 10 basis points. So, again, we strive to be a disciplined growth company that sets high standards for performance.
We will be happy to answer any questions you have. Thank you.
[Operator Instructions] And our first question will come from Brad Milsaps with Piper Sandler. Please go ahead.
Hi, guys.
Hi, Brad.
Hi, Brad.
Tom I appreciate your optimism around loan growth. So just kind of curious, would you expect kind of with what you have in front of you, you can kind of get back to that sort of low double-digit? Maybe even higher growth rate that you guys have experienced in the past or you think that’s more of a second half ‘21 and ‘22 kind of proposition?
That’s a really good question, Brad. It’s the timing of when does the rebound and loan demand. We think -- the line utilization we think will bounce back, but I couldn’t say that it’s going to be evenly over the next four quarters, right? That would be speculative on my part.
And the construction loan line drawals, we have a fair pipeline of construction loan draws that will happen this year that will add to the -- be additive to our loan growth. So, I feel good about that part. Just the line utilization, I don’t know exactly when we will see the rebound that I would expect there, Brad.
But the pipelines never really strong in the first quarter, because we close everything, we get close by year end, right, that’s -- for incentive purposes, everybody wants to get their deals closed by the fourth quarter, all our bankers do. So the first quarter is always a little on the slim side. So I would expect a pickup a good bit in the second quarter, third, fourth quarter, Brad.
And but two things, we are in the throes of PPP, the current program right now. So that sort of got our -- nobody’s out doing any prospecting right now we are trying to make sure all our clients’ needs are taken care of, first of all.
And also we are still in a pandemic and companies move in their banking to us, let’s say, yeah, we are going to do it, but when we get through the pandemic, when we get through the loan forgiveness for existing banks. So moving their bank is not top of mind right now for our customers. So, that’s -- we need a little bit of time I think to get this pandemic behind us perhaps.
And Tom, for the growth that you are seeing, what types of rates are you seeing on the new loan originations that are coming on?
Hey, Brad. It’s Bud. We are -- with savings, I would say, we are getting 4.25% on new deals.
Okay. Great. And then maybe just another follow-up, Bud, obviously, liquidity continues to be a big headwind for the margin, kind of curious are you guys going to kind of hold that, kind of wait for the loan growth to come, would you increase the bond book at all? Just kind of trying to get a sense of kind of how you are thinking about that big liquidity bucket that you have got on the balance sheet right now?
Well, we like to try, but Fed buys up everything. So there’s really nothing to buy. You are about like if you break even every month, that what pays down a mortgage backs, you can buy. It would be hard to build it up by that much just based on what’s out there from an inventory standpoint right now.
Okay. Great. I will hop back in queue.
Thank you.
[Operator Instructions] Our next question will come from Kevin Fitzsimmons with D.A. Davidson. Please go ahead.
Hey. Good afternoon, everyone.
Hey, Kevin.
Hey, Kevin.
Just curious, it sounds like everything is going in the right direction in terms of credit and you guys all feel comfortable. I am wondering what you are seeing in terms of migration into criticized and classifieds, whether any of the big decline we have seen in deferrals has migrated to those categories yet? Thanks.
No. I mean, I think, for the year, we were up in criticized assets. But for the quarter, we were down in the fourth quarter on our criticized assets and we are -- as folks got off of the deferrals, they start making payments again. We haven’t increased TDRs. They are continuing to pay. So, for the quarter, we did see a decrease, but as of 12/31/2019 we were in a pandemic, so they are up for the year.
Yeah. I think, Kevin, if I -- very, very few of our credit problems have anything to do with the pandemic. I mean there is some. I mean, but probably, like, if Henry would -- 5% or 10% of our problem credits being tied to the pandemic, being damage from the pandemic, would that be...
Yeah. I mean from a loss perspective, I can really only harp on one and that was one we talked about last quarter...
Right.
…deeply impacted. But other than that these are existing credits, we have just been working through.
That’s really…
Actually.
Credit problem -- our credit problems have really nothing to do with the pandemic, so.
Yeah. Okay. Is it fair to say though you are -- are you taking a more, not more proactive, but are you taking a deliberate approach because of the pandemic to work those through this -- the pipe a little quicker than you might, if you didn’t have the pandemic looming out there?
We are, Kevin, is just a good time to take a hard look, especially the fourth quarter, you don’t want to carry something over from year-to-year that has any sort of loss potential in it, right? So you as a former examiner would not appreciate us doing that if we were a bank. So we are trying -- we do try to be a fairly aggressive these days and looking at everything out there. It’s good time to go ahead and deal with the problem.
Sounds very reasonable to me. Can you -- Bud, I appreciate all the numbers on PPP, some of those were coming kind of quick. If you -- how should we look at the timing of the forgiveness on what’s remaining on Round One and the recognition of the fees -- in terms of over the next few quarters? Will it all occur in the first quarter? Will it be spread between the next two quarters? And then, do you feel -- likewise on the Round Two, do you think that is basically all buttoned up by the end of this quarter that in terms of timing on that? Thanks.
Yeah. The current PPP is spread throughout the year. I know it’s a little bit elevated more in the, probably in the first half of the year. So we anticipate we had there $17 million left or $17.8 million. So essentially, all of that will play out.
We don’t -- we see maybe just a small amount left, maybe at the end of 2021, but as far as the fees, I would say, it’s more first half weighted and with their round, I really don’t. Do you have any?
I don’t have the feel for…
Yeah.
But, I am sorry, it’s too early. We think it all be paid off in this calendar year, we think. Yeah, but I can’t tell you the timing though.
And just to dovetail little on Brad’s question on the excess liquidity, so you have already got this very excess liquid position. But isn’t it likely now to get even more elevated, because now you basically are getting cash coming from the SBA on Round One and then, is your expectation that -- I know there is a limited amount of what you can do with it, but you expect some of it to -- some of the deposits that are related to PPP to go away once PPPs forgiven?
That would be -- our assumption is that there is -- we will see deposits migrate out at some point, but we are projecting net deposit growth for this year. So each of our regions roll -- we roll out their numbers in our own and so they are optimistic. They continue to grow their balance sheet. Yeah, we need to find some loans.
Right. Understood. All right, guys. Thanks very much.
Thank you, Kevin.
Thank you.
[Operator Instructions] Our next question will come from William Wallace with Raymond James. Please go ahead.
Thanks. Good evening, guys. So, Tom, in your prepared remarks, you mentioned crossing over $10 billion, which we generally assume comes with elevated costs around the compliance side of the business. You also mentioned that the pandemic helped you learned that the branch network is not as necessary even -- I believe you said even for a branch-light network like yours. Can you talk a little bit about the push and pull of the potential cost pressures from going over $10 billion and what relief valves you may have on the branch side or whatever other side there is? And then maybe just kind of help us think about where we end up the year from an expense perspective?
I will let Bud address most of the question, Wally. We are looking at branch rationalization. As we open new branches, we are going to always be saying, where can we be more efficient and we think there are opportunities as leases come up. It take a little bit of time. But we have got a couple of offices, we think we can consolidate.
We are obviously consolidating one in the Atlantic region, starting in March. It will be closed. So that will be added to our efficiency a little bit. But it’s going to be a noisy year, because we are going through the system conversion and I will let Bud refer to that and -- from -- and also your overall question of expenses on compliance. So, go ahead, Bud.
Yeah. Well, on the compliance side, the regulators have really been working with us for several years on what we would need. So we don’t see an elevated expense from a compliance side. We feel like we are pretty well staffed in that area.
Really on the system conversion, the system conversion will take place. We will phase that in starting in February. So really you got elevated costs from our current provider, because we are under short-term agreement with them and then the costs for the new system will only be there for a couple of months this year. So you will have elevated IT expenses this year, but we will have a lower IT expense next year with the provider.
I mean going back from clients and we are just not a consumer Bank. I think that’s where a lot of banks have increased expenses as they crossed $10 billion and what is -- that’s just something we don’t have to worry about for month from that side as far as staffing and infrastructure.
Okay. And maybe just trying to put a bow on this, you did about, I don’t know, it’s like 8% or 9% growth in your expense in 2020. Do you think that the growth is at that range in ‘21 or is it above that or do you think that you have got opportunities to slow that growth down?
I would say, it’s still going to be in that range mainly because of the elevated IT expenses.
Okay. And then just one housekeeping question. I couldn’t find it anywhere else, I mean it was probably somewhere, but what was the period end PPP balance?
Oh! One second, $900 million.
Okay. Thank you.
The balance -- which you asked was the balance, I didn’t hear that?
Yeah. Yeah.
Okay.
Yeah.
Yeah. Yeah. The ending year balance. I got the average. I just didn’t get any. Thank you, guys.
Thanks, Wallace.
Thank you.
Thank you, Wally.
This concludes our question-and-answer session, as well as our conference call for today. Thank you for attending today’s presentation. You may now disconnect.