ServisFirst Bancshares Q3 2023 Earnings Call Transcript

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Provided by Quartr
October 16, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Surface First Bancshares Third Quarter Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to our host, Davis Meeves, Director of Investor Relations.

Operator

Thank you, Davis. You may begin.

Speaker 1

Good afternoon and welcome to our 3rd quarter earnings call. We'll have Tom Broughton, our CEO Rodney Rushing, our Chief Operating Officer Henry Abbott, our Chief Credit Officer and Bud Fochi, our CFO, covering some highlights from the quarter and then we'll take your questions. I'll 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 Factors described in our most recent 10 ks and 10 Q filings.

Speaker 1

Forward looking statements speak only as of the date they are made and Service First assumes no duty to update them. With that, I'll turn the call over to Tom. Thank you, Davis. Good afternoon and thank you for joining us for our call as we review the Q3. I thought I'd start by reviewing the current economic outlook.

Speaker 1

Going back to late spring, the conventional wisdom, which Included mine was that we were pretty much headed for a hard economic landing. Much of that outlook was due to we've seen rapid escalation in interest rates. We've seen bank deposit disintermediation for over close to a year at that point and then we'd see credit tightening by most banks. The demand for goods and services continues to be amazing. The consumer appears to be very resilient.

Speaker 1

They're sort of hooked on living large, it seems, since the pandemic started. They were buying stuff when they were stuck at home and now they're consuming stuff. So it seems like we're in a little bit better Spot, and we've been in. We have seen a slowdown in demand for credit, both CRE and C and I. It's probably a combination of our caution and higher interest rates.

Speaker 1

I was with a customer last week and You know, he said the best way I can make $16,000,000 is to pay down $200,000,000 of debt at 0.8 percent of. He said that's the best way for me To improve my earnings, I'm not going to buy any more capital goods. So I think that's probably a prevailing thought. I know Our bank and others are watching for late cycle credit cracks. Henry Abbott will discuss a little bit more in a few minutes on the credit side.

Speaker 1

We don't run our bank based on any kind of economic forecast because they're all wrong. But it does appear we are Headed for more of a soft landing than we envisioned a few months ago. The recent, disinversion of the yield curve will be helpful to us As we move towards a normal yield curve and really the higher for longer rate environment, we think benefits us our future earnings for the bank. So That's sort of a brief overlook of where we are and I'll get down into a little more granular information here. I'll start talking about deposits.

Speaker 1

We have focused on building core deposits over the last four quarters. We've seen really Fantastic results. Our people have done an outstanding job, but they've done what we've asked them to do. And very few banks can demonstrate The deposit growth we've seen combined with 0 Federal Home Loan Bank advances and 0 broker deposits. Our municipal clients have received significant COVID funding this year.

Speaker 1

It will take a bit of time for that to be spent. Most COVID funds I know have to be committed by the end of 2024 and spent by the end of 2026. But I do have faith that most politicians can spend it more quickly than that. Our deposit pipeline is down a bit from the record level last quarter. We are looking for still it's still strong.

Speaker 1

We're looking for granular new relationships that are sticky. On the Correspondent side, Rodney Rushion will give an update in a few minutes when I finish. Our total new accounts were up 19% year over year, While our commercial accounts were up 20% year over year, this is indicative of broad based deposit growth, which is We think our emphasis on deposit growth over current liquidity We'll set the stage for improved profitability in 2024. We are seeing cash on hand stay consistently at the $2,000,000,000 level in October. We are pleased to have built this liquidity at this level during the industry disruption we've seen.

Speaker 1

While it may reduce the net interest margin, it does not Effect net interest income. So very pleased with the deposit situation. Talk a little bit about loan demand. We did turn the Loan spigot back on a few months ago and it started with a trickle as it always does after you shut off the tap. Our loan pipeline today is up 74% over the prior quarter.

Speaker 1

And though it's not back to levels from early It is back to late 2022 levels. We have seen increased activity In the past 30 days and we also loans grew $87,000,000 in the month of September. We are seeing increased confidence by borrowers, both C and I and CRE. Our liquidity position, we think, gives us Significant competitive advantage in the industry. On the production side, we previously announced We added a great new team of bankers in the Montgomery region, 4 new bankers there.

Speaker 1

We had a total of 5 in the quarter. From a headcount standpoint, we were down 3 for the quarter. We are focused on adding the right people and rightsizing our team This year, we think that will be certainly coming to an end as we go towards the end of the year, and we'll have the right group here. We will open our new Lake Norman office in the Piedmont region soon and it will be a community banking office that's very similar to the offices in Tallahassee, Panama City and Asheville, North Carolina, these community banking offices do produce Good granular and sticky deposits and have improved margins. So with that, I'll turn it over to Rodney to discuss correspondent side.

Speaker 2

Thank you, Tom. Correspondent Banking had a strong deposit rebound closing the quarter with total fundings just over $2,000,000,000 Our deposit growth at September 30 was 12.3% for the quarter. Most of that increase came from Tennessee And our new Texas market expansion was just over $275,000,000 in new deposit relationships coming from those markets. I need to also mention or remind you that correspondent balances are not hot or temporary funding sources As our rates paid are market rates, not rates specials. 70% All correspondent balances are tied to settlement relationships with these downstream banks.

Speaker 2

The division is well diversified in both correspondent bank sizes and geographies. 7 new bank relationships were opened during the quarter in 5 different Correspondent participation loans and new relationship pipelines Are strong for the remainder of the year and also in the 2024. Our correspondent agent bank credit card program has 15 new banks in our pipeline that are in various stages of the sales process. There are 3 new state banking associations reviewing our American Bankers endorsed agent credit card program To determine if they would like to participate, we currently have 9 state endorsements at this time. This has expanded our reach and as the existing pipeline includes banks in Connecticut, Virginia, Texas, Georgia, Montana, Missouri and New York, just for an example of how wide that market has grown.

Speaker 2

Correspondent deposits and fundings in summary, the correspondent balances stabilized in the early second quarter And we had impressive strong growth as you can see for the Q3. And with that, I'll turn it over to Henry Abbott, our Chief Credit Officer.

Speaker 3

Thank you, Rodney. Service First had a very strong Q3, and we're pleased with the bank's results. Past due loans Total loans were down to only 8 basis points. This represents a 45% reduction from the 2nd quarter and a 50% drop from 1st quarter. Our asset quality continues to remain strong, and I'm pleased to say non performing asset to total assets decreased from 16 basis points in the second quarter to only 15 basis points in the 3rd quarter.

Speaker 3

With the current economic outlook, The bank felt it appropriate to maintain its ALLL to total loans of 1.31%, which is consistent with the prior quarter. AD and C as a percentage of risk based capital was 91% at the end of the 3rd quarter and income producing CRE and AD and C to risk based capital was 312%. Both of these figures are down from when we started 2023. We had no material downgrades to the watch list in our CRE portfolio, and we continue to focus on and monitor our AD and C bucket. We also review and stress our entire CRE portfolio via both internal and external sources.

Speaker 3

We use an industry leader in commercial real estate data and analytics to help provide stress testing and real time data on the portfolio. A reminder, our CRE exposure is primarily in the Southeast, which continues to remain one of the strongest areas, And we have no material downtown urban office exposure. Charge offs for the quarter were 15 basis points when annualized and year to date annualized charge offs were only 11 basis points. Charge offs for the quarter were not related to income producing CRE or any SNCs. As I know, those are items of interest and impacted the charge offs at some I continue to feel very good about our diverse and granular loan portfolio and how the firm performed in the Q3.

Speaker 3

With that, I'll hand it over to Bud Foshee.

Speaker 4

Thank you, Henry. Good afternoon. We're very pleased with the progress the bank has made in the 3rd quarter With deposit growth, liquidity, capital and improving loan pipelines, our non interest bearing deposits were stable in the 3rd With the exception of $100,000,000 in deposit runoff related to COVID funds, we were pleased with the total deposit Growth of $854,000,000 in the quarter. We saw loans grow in a quarter after several quarters of Line or flat. The key to improving EPS is loan growth and our team is focused on a more balanced approach to loan and deposit growth Going forward, we had a goal of $1,000,000,000 in liquidity and we have exceeded that goal with $2,000,000,000 at quarter end.

Speaker 4

Our loan repricing initiative will contribute to market expansion later in the year. Examples of our repricing effort, dollars 390,000,000 of loans where the rate has been restructured, loans paid off early, 104,000,000 we have 188,000,000 pending and loan repricing. Loan repricing is the best opportunity to improve profitability combined with loan growth. Loans that repriced or Paid off in the Q3 were $276,000,000 which combined with loan pay downs on fixed rate loans Margin and EPS over time. Net interest margin stabilized in the 3rd quarter, $100,000,000 in the 3rd quarter versus $101,000,000 in the 2nd quarter.

Speaker 4

89% of our new loans are floating rate And about 41% of total loans are floating rate today. Our adjusted loan to deposit ratio at December 30, 2023 was 80.5%. This ratio includes the correspondent Fed funds purchase. We saw improvement in core non interest income in the quarter with improvements in both credit cards and mortgage. We expect continued improvement over the balance of the year.

Speaker 4

As a reminder, the 2nd quarter non interest income included a death benefit 890,000. In discussing non interest expense, we have made an effort to hold the line on expense growth in 2023. We have experienced increases in non core expenses. Problem credit, which was primary legal expenses related to credits, check fraud And credit card fraud, and we had one case of $600,000 in credit card fraud. These items increased $1,400,000 from the Q1 of 2023.

Speaker 4

We also experienced an increase in FDIC insurance, dollars 825,000 from the Q1. We have built our staffing and our new offices and do not expect additional headcount for any existing offices. Our teams are performing quite well and have grown new accounts 19% year over year. We continued our growth in book value per share. Our CET1 ratio was 10 point 6% to 9% and our Tier 1 leverage ratio was 9.35.

Speaker 4

Our capital continues to be a strength. That concludes my remarks. And I'll turn the program back over to Tom.

Speaker 1

Thank you, Bud. If we made a list of the 20 most important metrics in managing a bank, we are performing extremely well Almost all of those except for the one that's the most important, which is earnings per share. We've got to get our earnings back up to where they were. It's going to take a few quarters, we think, But we'll get there. So we think our performance and all those other metrics will lead to improved earnings per share So we'll open it up now for questions.

Speaker 1

I'll be glad to see what you have on your mind.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Kevin Fitzsimons with D. A. Davidson.

Operator

Please proceed with your question.

Speaker 5

Hey, guys. Good afternoon.

Speaker 6

Hi, Kevin.

Speaker 5

I'm just trying to I know there's a number of contributors in here to the margin, but I'm just trying to let unpack. I think when we were on the last conference call, we talked about The NIM maybe stabilizing in Q3 and then beginning to expand in Q4. And There's looks like there's maybe a couple of contributors here and maybe you can kind of go through them In terms of what contributed. So it looks like on the one hand, you talked about re pricing the loans and maybe That's going to help earnings in the future, but it seems like that might have led to less Substantial loan growth that you might have had otherwise and then coupled with pay downs. On the funding side, You had a very successful quarter growing deposits and building up that liquidity, but I guess it comes at a cost to that ratio.

Speaker 5

And I know you don't you talked about not necessarily managing to that ratio, but and then the loan to deposit ratio, it looks like it Came into and so I'm just trying to like weigh all those with the increased funding, was that Seating that goal of $1,000,000,000 to $2,000,000,000 Was that more a byproduct of just the movement you saw In the correspondent network and elsewhere or was it a deliberate aim? Because most banks are talking about, I'm not sure if you guys put it this way, but really loan growth being governed by the pace of deposit growth. And in this case, we saw A big delta between deposit growth and loan growth. So I know that's a lot, but I just wanted to set up on Helping us understand where the margin goes from here. Thanks.

Speaker 1

Yes. I'll probably let me Bud will have to give you some actual numbers. But my take on it is that the improvement And loan repricing has been swallowed up by deposit repricing to this point in time. So that's why you hadn't seen the margin improve yet because of that. If we think the rate increases are behind us, Then it stabilizes from this point forward pretty well.

Speaker 1

And as we reprice loans, more of that starts flowing to net income Instead of flow into reprice deposits. So that's the first thing, I think. And of course, we had no idea of deposits. We asked our people 15 months ago to focus solely on growing deposits. Our incentive plan is skewed Almost 100% of that for the year 2023.

Speaker 1

So you probably heard me say people do what you incent And they've done what we've stated them to do. They have grown deposits. So now we've actually gone back and For the last 3 months of the year, we're putting a special incentive to grow loans From October 15 to January 15 to have an incentive to grow loans about A fair amount of money to try to get the loan pipeline restarted. But I guess, Budd, I don't Obviously, when you add that much in deposits, they're sitting at the Fed, it does not do anything to help The net interest margin at all, but that wasn't the point. It doesn't hurt the net interest income.

Speaker 1

And that's we think showing liquidity today, We will start rationalizing deposit cost as we go forward. We had a call with our regional executives Couple of weeks ago, when we're starting to try to rationalize some of that cost because we're in a pretty good spot and We think again, we think having all this excess liquidity is significant competitive advantage with our in the industry. I probably didn't answer your question, Ken.

Speaker 5

No, no, that was helpful, Tom. I just I guess I know there's a lot of moving parts to But are you do you guys feel like that it sounds like you're overshot not overshot, but I mean, it's never You can never have too much of it, but is it and it's just 1 quarter, but do you feel assuming the Fed is mostly Do you feel we're getting closer to that ratio stabilizing and then maybe heat up to expand in 24%. Is that what you

Speaker 1

Yes. We mentioned that our municipal clients have had Big liquidity, these are existing customers. We're not there are core relationships. We're not out bidding on money Municipalities, in fact, we're not bidding on money with municipalities. We're not going to do that.

Speaker 1

These are core relationships at Some reasonable price that doesn't leave you a lot of profit when you put give the money to the Fed to hold, but nevertheless, we're not going to tell a good client we won't Take their money. So that's the bottom line. But they're not there's not again, We don't have any brokered deposits and we don't have any home loan bank advances. So we're in really kind of a spot. I don't think most of the industry

Speaker 5

Would try places with us if they could. And Tom, just on loan growth, typically you guys have seen More back half of the year heavy in loan growth, if I recall correctly. And it sort of gains momentum over the course of the year. And so On the one hand, you mentioned that a lot of customers are looking to pay down debt. There's the impact of rates.

Speaker 5

There's the impact of you guys being Tightening standards, and but on the other hand, you cited, if I heard it correct, a big increase The loan pipeline and last quarter you were kind of it seemed like much more optimistic on the economy. So Do you feel like loan growth is just going to grind higher at this point, not necessarily in leaps and bounds?

Speaker 1

Yes, we do. Now again, like I said, our loans grew $87,000,000 in the month of September. We've seen a lot of activity just in the last 30 days. It seems like we've seen things really pick up. Borrows are getting a little bit more confidence in the economy and Starting with projects in both C and I and CRE.

Speaker 1

So and again, we're being a little bit more creative in trying to find Sources alone demand right now, Kevin, and I think that's what we had to do after 'eight on 'nine-ten after the people weren't buying boats and airplanes during that period of time and we had to try to finance operating equipment For trucking companies and things that were still growing and doing well. So that's what we're trying to do this time. We just have to be a little more creative Finding the loan demand out there than you do when times are really good.

Speaker 5

Right. Okay. All right. Well, thank you very much. I'll hop out and let others hop in.

Speaker 5

Thanks.

Speaker 7

Thanks, David.

Operator

Thank you. Our next question comes from Steve Moss with Raymond James. Please proceed with your question.

Speaker 1

Good afternoon. Hi, Steve.

Speaker 8

Tom, you spoke about loan pipeline improving here. Just kind of curious, What is the rate you're seeing these days and kind of hearing you say $87,000,000 of growth in September, Kind of feels like maybe we'll see a decent step up in growth for the Q4 on loans?

Speaker 1

Go ahead, Budd.

Speaker 4

Yes. We think that loans can increase. The rate The new loans went on during September was 8.35%. So we feel like it could be that or above. And like Tom said, we put in an extra incentive for loans in the Q4, so we expect Loans to increase.

Speaker 4

I mean, 4th quarter is always our best quarter.

Speaker 1

Steve, what I can't project is what kind of payoffs we're going to have. And I'm looking at Henry Abbott. If we've got if a multifamily developer is looking at going Permanent financing with Fannie Mae, I mean, their rate is going up, but it's still less than what we're charging them. I mean, They might pay 6 at Fannie, but they're going to pay us they're paying us 8 in the quarter, 8.5. So there's what I can't predict,

Speaker 8

Great. And then maybe just curious in terms of the underlying mix in the pipeline, is that a

Speaker 7

little more weighted towards CRE and construction

Speaker 8

these days? Or is there a healthy C and I component? Just kind of These days or is there a healthy C and I component? Just kind of curious

Speaker 7

about the business mixes.

Speaker 3

Yes. I mean, I think it's a mix. I mean, we're seeing a lot of AD and T opportunities, but at the same time, we know we've got a limited bucket. So we're being more selective on those and obviously trying to point our incentive and our folks to go after C and I opportunities and those are certainly what We're looking for and striving for.

Speaker 1

Yes, we think we need to kind of stay on to that 100% AD and C Exposure level that seems to be a bright line with it might become more of a bright line with the regulators. We're not sure, but That was your thought on that. Great.

Speaker 8

Okay. And then just in terms of thinking about the liquidity on balance sheet here, You guys achieved the goal of having $1,000,000,000 on balance sheet. Curious, let's just say there is a healthy step up And loan growth and it may be sustained for the next quarter or 2. Are you willing to dip below that $1,000,000,000 of liquidity or kind of How do we think about funding loan growth? Will it be more by deposits or existing liquidity?

Speaker 1

Yes. So we've got $2,000,000,000 in cash at the Fed today, and I guess we've got some short term Treasury is at about $250,000,000 Budd? We do. So you say we got $2,250,000,000 we really Thanks. And of that, we could put $1,500,000,000 probably into the loan bucket Now again, some of these municipal deposits are going again, they're going to spend it.

Speaker 1

You know, politicians always find a way to spend money as you know. So it will burn a hole in their pocket a bit. It will take a couple of years Turn some of it off and we'll replace it by then with other deposits. But right now, we feel good about where we are. We just Again, are actively looking for the right we're still being careful on loans.

Speaker 1

I mean, we're not really Talking to we're trying to talk to the people we've always done business with or rather than somebody that just walks in the door.

Speaker 7

Got

Speaker 8

it. One last one for me here, just on the reserve ratio. You guys have built it up For a number of quarters, this quarter kind of flat. Just curious, is this kind of as high as it can go In terms of what maybe the auditors are comfortable with or is there any ability are you guys just more comfortable with credit and hence The reserve ratio is not climbing up as much or not climbing?

Speaker 3

I mean, I think the primary driver, as Tom mentioned And his remarks was kind of the economic outlook improved over the past 2 or 3 quarters. So I mean that's where we were able to maintain where we are. It Pain where we are. It just depends on kind of the key drivers being unemployment and GDP are going to impact the model and the outlook on those.

Speaker 1

Yes. Unfortunately, there's a limit on what you can I think bankers by nature would have a much higher loan loss reserve if we were left to our own desires, but we're not? And The CECL models are they can switch change on the dime as you well know.

Speaker 7

Right.

Speaker 8

Okay. Well, I appreciate all the color and I'll step back. Thanks, guys.

Speaker 1

Thank you.

Operator

Our next question comes from Graham Dyck with Piper Sandler. Please proceed with your question.

Speaker 6

Hey, good evening, guys.

Speaker 1

Hey, Greg.

Speaker 6

I just wanted to circle back with something you just touched on is that That $1,500,000,000 number of deployment into loans, do you what's sort of the ideal time horizon

Speaker 1

You know why I'm laughing, Graham? I don't know. I mean, At this point, I don't know. I just don't know how quickly we can book getting loans on the books and I don't know what will Pay off, our loan pipeline is pretty robust, but it's nothing like $1,500,000,000 I can tell you that. So That is a $64,000 question, which is that was you weren't born when the $64,000 question came about, Graham, but I'll cover it sometime.

Speaker 8

Okay. Fair enough.

Speaker 6

So then I guess I wanted to just talk a little bit more about deposits, as it relates to the pipeline. You mentioned that the pipeline is smaller than it was last quarter now. Can you just provide what the pipeline was heading into 3Q and then also what it was heading into 4Q?

Speaker 1

Yes. It's not a scientific number, and we don't ever discuss it. But let me see where the I

Speaker 6

don't have it.

Speaker 1

Probably down a couple of $100,000,000 from the last quarter, Graham? Okay. So we put it on the book. So we got it on the book. So and again, We're trying to rationalize deposit costs now.

Speaker 1

It's time to start improving profitability. But we've got to be a little bit smarter about it.

Speaker 6

Okay. And then on that front with deposit costs, I mean, it seems like most of the growth has been in money market And I guess most of that's probably fully indexed and floating, right? So as you start to adjust your strategy on the deposit Pipeline and pricing perspective, what does that sort of look like for you guys? Is it saying like no more index money market and just time at a rate Hello, Fed funds? How do you guys kind of approach that from here, I guess?

Speaker 1

Well, it depends on what as a percent of Fed funds, what is the rate? You're not interested in 100 percent of Fed funds, you're interested in some percentage of Fed funds. So that You got to have some margin and what you will at least have some margin in what you leave sitting at the Fed because we got a lot of cash sitting at the Fed right now. Of course, the other question is when do you start buying securities? And we got to buy securities again someday, but Given we've got so much we don't we want a little bit more floating rate assets on the book.

Speaker 1

We're hesitant to move into longer term when I say longer term, say 2 to 5 year Treasuries. So that's you might be smart to start doing it now, but we're not going to be smart because we're not going to do it now. We're just waiting on that. But again, we're going to have to do it someday.

Speaker 6

Yes, understood. And I guess just one more follow-up on the deposit front and the costs. So that money market piece, just correct me if I'm wrong, that's like that's fully floating, right? So that there's not a lot of No maturities in that thing or any, I guess, exception pricings within that segment that's going to cause that to have any further catch up. So for example, if we get no more rate hikes, it's probably going to stick around 4.25% on cost, right?

Speaker 1

We think so, Graham.

Speaker 6

All right. That's helpful. That's all I had. Thanks, guys.

Speaker 1

All right, Budd. Thank you.

Operator

Our next question comes from Dave Bishop with Hard Group. Please proceed with your question.

Speaker 7

Hey, good evening, gentlemen. How are you?

Speaker 1

Good, Dave. From Hub, you grew.

Speaker 7

Yes. Thank you for clarifying that. Hey, Tom, you noted the revamp of the incentive plans. Obviously, they were Very successful on the funding side this quarter. From an operating expense standpoint, does that imply maybe an acceleration of Great expenses into the last quarter of the year and how should we think maybe about expense growth into the next year?

Speaker 1

No, we've already caught up. We accrued more in the third A good bit more in the Q3, Dave. I don't know the exact number, but you got it over there, but we're going to approve more in the 3rd and the 4th quarter To account for that, so we've already started doing that in the because they have we have been wildly successful at raising deposits and they've done what we asked them to do.

Speaker 7

Got it. And then circling back to the liquidity and maybe securities Outlook here, and then maybe answer that last question or so, but there's been a lot of chatter and I think you even noted we're probably in A higher for longer scenario economic outlook here, interest rate outlook moving forward. Is there a potential to potentially restructure the And maybe, I don't know, sell off some of the lower yielding stuff, pay off some of the borrowings To improve the margin and profitability, just curious how we should think about that.

Speaker 4

Hey, Davis, Budd, I don't see us selling anything. I think we'll Continue to buy. If we buy, we'll buy treasury short term, 6 months to a year. This takes a long time to actually pay back and earn money. I just I don't know, just something I don't want to do.

Speaker 4

We'd rather just hold it to maturity.

Speaker 1

And what if rates drop? Yes. I mean, Probably my salesman can always show you a Bloomberg run that shows that makes you a lot of money to reposition securities.

Speaker 7

Got it. No, understood. Understood. And then a housekeeping question, I guess, maybe for Budd. Good tax rates this year moving forward.

Speaker 7

It looks like there were some lower than trend tax rate this quarter. Curious how should we think about next quarter and into Yes,

Speaker 4

I would say 18% would be a good write for Q4.

Speaker 7

18%?

Speaker 1

18%. Yes.

Speaker 7

Got it. Great. Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Speaker 1

Thanks, Seth. I think we're done. Thank you, everybody, for joining us.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Strong deposit growth added $854 million in Q3, boosting core balances and placing over $2.25 billion at the Fed with zero FHLB advances or brokered funds.
  • Loan activity resumed as the pipeline rose 74% quarter-over-quarter and new loans grew $87 million in September, averaging 8.35% rates with 89% floating, supported by fresh Q4 loan incentives.
  • Credit quality remained robust with nonperforming loans down to 8 bps of total loans (a 45% QoQ reduction), nonperforming assets at 15 bps of assets, and an allowance ratio of 1.31%.
  • The net interest margin stabilized in Q3 despite deposit repricing pressure, underpinned by $390 million of loans repriced and $188 million pending, positioning NIM for expansion once loan repricing outpaces funding costs.
  • Capital and efficiency stayed solid with a CET1 ratio of 10.6% and Tier 1 leverage of 9.35%, while core noninterest income improved and expense growth was contained aside from $2.2 million of legal, fraud, and FDIC charges.
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Earnings Conference Call
ServisFirst Bancshares Q3 2023
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