ServisFirst SFBS Q2 2025 Earnings Call Summary

Key Financial Highlights from Q2 2025

ServisFirst Bancshares, Inc. (NYSE: SFBS) delivered impressive financial results for the second quarter of 2025, showcasing strong growth in net income and tangible book value. The company managed to navigate challenges such as increased payoff activity in commercial real estate and elevated provision expenses linked to loan growth and a significant individual charge-off.

The company executed a strategic bond portfolio restructuring, which resulted in an $8.6 million loss but allowed for reinvestment into higher-yielding assets. This move is expected to enhance net interest margin over time. Despite some deposit outflows, particularly from high-cost municipal accounts, the bank maintained a focus on core deposit growth tied to treasury products.

Operating expenses were well-controlled, with an efficiency ratio below 34% in Q2 2025. Capital ratios remained robust, reinforcing the bank's well-capitalized status. Management projects that adjusted net interest margin will rise steadily by 10 to 14 basis points per quarter, aiming for a 3.25% to 3.30% adjusted margin by year-end 2025.

Loan Growth and Credit Quality

Loan growth, net of payoffs, reached 11% annualized in Q2 2025, supported by an active pipeline across commercial and industrial as well as commercial real estate segments. The allowance for credit losses remained steady at 1.28% of total loans in Q2 2025, with an increase of almost $5 million compared to the first quarter, primarily due to a single $5 million charge-off during Q2 2025.

Nonperforming assets moved from 40 basis points at March 31, 2025, to 42 basis points at June 30, 2025. However, management continues to aggressively manage nonperforming assets, with resolutions on a couple of long-term problem credits achieved in the second quarter. No systemic issues or broader negative trends were identified in the credit quality review.

Financial Performance and Projections

Net income was $61.4 million in Q2 2025, up 18% or more than $9 million year over year. This represented a decrease of $1.8 million, or 3%, compared to the first quarter of 2025. Diluted earnings per share was $1.12 in the second quarter of 2025, while pre-provision net revenue was $87.9 million.

Return on average assets was 1.4% in the second quarter of 2025, and return on common equity was 14.56%. Net interest income was $131.7 million in Q2 2025, with adjusted net interest income at $129.4 million. This was $5.9 million higher than in the first quarter of 2025 and more than $23 million higher than in the second quarter of 2024.

Non-interest income was just under $9 million in the second quarter of 2025, with a $706,000 increase compared to the first quarter of 2025 and about 1% higher than in the second quarter of 2024. Non-interest expense was down $1.9 million from the first quarter of 2025 but up $1.4 million, or 3%, compared to the same quarter of 2024. The efficiency ratio remained below 34% in Q2 2025, with expectations for non-interest expense of $46 million to $46.5 million per quarter going forward.

Capital ratios were strong, with the common equity Tier 1 capital ratio at 11.38% and the total risk-based capital ratio at 12.81% at quarter end.

Strategic Initiatives and Future Outlook

The bank continued to focus on core deposit growth, with efforts to maintain and expand its treasury management services. A new team was onboarded to increase merchant processing penetration from 1% to an anticipated 8% within the customer base. Service charge increases on treasury management services took effect July 1, with revenue impact expected in future quarters.

A core processing system conversion was successfully completed, targeting cost savings in future quarters. The adjusted loan-to-deposit ratio, factoring in Fed funds purchased, was reported in the mid-80% range, with no immediate liquidity concerns noted by management.

Conference Call Highlights

During the conference call, Tom Broughton, Chairman, President, and Chief Executive Officer, highlighted the solid loan growth in the quarter, noting that demand was good but not great. He emphasized the importance of maintaining a focus on core deposit growth and the strategic shift toward deposit generation.

Jim Harper, Chief Credit Officer, provided a credit update, highlighting the continued solid loan growth and the impact of a significant charge-off on the allowance for credit losses. He also mentioned the resolution of several long-term problem credits and the absence of systemic issues in the credit portfolio.

David Sparacio, Chief Financial Officer, discussed the financial highlights, including the impact of the bond portfolio restructuring and the reversal of an interest expense accrual. He emphasized the focus on growing margins through price discipline for both loans and deposits.

Additional Insights and Market Trends

The company also addressed market trends, noting that while there was uncertainty around tariffs, it did not significantly impact their operations. The construction loan bucket saw an increase, requiring additional reserves due to the CECL model. The loan pipeline remained robust, with growth observed across multiple markets.

Regarding fixed-rate loans, approximately $1 billion in variable rate loans and $1.5 billion in fixed rate loans (with a weighted average yield of 4.87%) are set to reprice in the next twelve months.

The bank's tangible book value increased at a 12.5% annualized rate quarter over quarter in Q2 2025, and 14% year over year, reaching $31.27 per share in Q2 2025.

Conclusion

ServisFirst Bancshares, Inc. demonstrated resilience and strategic execution in Q2 2025, navigating challenges while delivering strong financial performance. With a focus on core deposit growth, efficient operations, and strategic investments, the company is well-positioned for continued success in the coming quarters.