ServisFirst Bancshares Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 20, 2026

Key Takeaways

  • Positive Sentiment: ServisFirst posted strong Q2 results, with net income of $85.8 million and diluted EPS of $1.57, up 3.4% sequentially and 40% year over year. Return on average assets improved to 1.91% and return on average common equity remained strong at 17.71%.
  • Positive Sentiment: Loan growth accelerated sharply, with ending loans up 15.3% annualized from the prior quarter and the pipeline at a record level. Management said demand was broad-based across most regions, especially Florida, Tennessee, Houston and Texas.
  • Positive Sentiment: Net interest margin expanded to 3.63%, supported by higher loan yields, disciplined deposit pricing and the recovery of interest income from a paid-off nonaccrual credit. Management expects further margin expansion, though likely at a slower pace than earlier in the year.
  • Positive Sentiment: Credit quality remained solid, with NPAs down nearly $7 million net, modest charge-offs, and the allowance for loan losses essentially stable at 126 basis points of loans. Management said it does not see any systemic weakening in the portfolio.
  • Neutral Sentiment: Capital and liquidity are strong, but growth is creating optionality, with CET1 at 11.83%, book value rising, and no FHLB advances or brokered deposits. Management said it is considering a range of uses for excess capital, including acquisitions or share repurchases, while continuing to invest in Houston.
AI Generated. May Contain Errors.
Earnings Conference Call
ServisFirst Bancshares Q2 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

As a reminder, this conference is being recorded. I would now like to turn the conference over to Davis Mange, Director of Investor Relations. Thank you, Davis. You may begin.

Davis Mange
Davis Mange
Director of Investor Relations at ServisFirst Bancshares

Good afternoon, welcome to our second quarter earnings call. We will have Tom Broughton, our CEO, Jim Harper, our Chief Credit Officer, and David Sparacio, 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 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'll turn the call over to Tom.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Thank you, Davis. Good afternoon. Thank you for joining our second quarter earnings conference call. We are generally pleased with the results. I want to give you a few highlights of the quarter, and I'll be followed by Jim Harper, our Chief Credit Officer, and David Sparacio, our Chief Financial Officer. On the loan side, we saw improved loan demand with annualized loan growth of over 15%. Almost all of our 13 regions or segments had really solid loan growth. The best growth was in our two Florida regions and Tennessee. Though really no region contributed more than 15% of the total growth, and almost none of them were less than 10% of the total growth. It really was very granular, and was not due to several large credits, which was really good.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

We also saw some improvement in our C&I line utilization in the quarter, and that was encouraging as well. Our loan pipeline did grow quarter-over-quarter and is now at a record level. Projected payoffs this quarter are 17%, which is roughly the same as last quarter, and is down from around 33% over the last two years in rough numbers. We are seeing payoffs diminish and return closer to historical levels of typical payoffs. You tend not to notice payoffs when you have robust loan demand. Hopefully, we're seeing loan demand rebuild and begin to, things normalize a bit on that side. Our Houston pipeline is beginning to build, and we also have seen increased activity in Texas. On the deposit side, our growth rate was constrained by some large income tax payments due to sales from properties and companies by our clients.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Our non-interest-bearing deposits grew 20% annualized in the quarter and 14% year-over-year as we continue to emphasize our treasury management services. We benefit from the continued trend of bank mergers, as none of these bank mergers are done to improve customer service. On the new employee front, we added 9 bankers in the quarter. We added 2 in the Piedmont region, 3 in Northwest Florida. Three in Houston, including a new market president and regional CEO in Houston. Our goal is never to set a numerical goal for new bankers. We try to make our bankers more productive and successful and grow their loan and deposit portfolios and be very responsive to our customers' needs. With a name like ServisFirst, customer service is our primary goal. We want bankers who embrace the culture of ServisFirst.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

I'll now turn it over to Jim Harper for a credit update.

Jim Harper
Jim Harper
Chief Credit Officer at ServisFirst Bancshares

Thanks, Tom. As mentioned, lending activity definitely picked up as we progressed through the quarter as we experienced solid loan growth across most markets. While growth was granular, it was driven by CRE activity. As a result, we experienced an uptick in our CRE outstandings relative to capital, moving from 298% of capital at 331 to 307% at 630 2026. That lending momentum and activity has continued into the early third quarter across our footprint and including Texas, where the team continues to grow and source new opportunities. With regards to NPAs, as noted following the first quarter, we did have successful resolution in several credits early in the second quarter. For the quarter, we saw a net decrease of NPAs of just under $7 million on a net basis.

Jim Harper
Jim Harper
Chief Credit Officer at ServisFirst Bancshares

We don't see any systemic weakening in any particular sector of lending. Our credit quality continues to be strong. On a related note, charge-offs for the quarter and year-to-date continue to be modest, totaling approximately $3.7 million for the quarter. Totaled just over $12 million or 9 basis points for the first half of the year. Lastly, the allowance for loan losses ended the quarter at 126 basis points versus 125 basis points at the end of the first quarter, with increases occurring both within the pooled portfolio and our loans assessed for individual impairment. David will now provide a summary of our financial performance for the second quarter.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Thank you, Jim. Good afternoon, everyone. I'll walk you through the financial details of our second quarter. I'm pleased to report that the momentum we described in the first quarter continued into this quarter. Net interest margin expanded again. Loan growth reached its fastest pace in several quarters. Credit metrics improved meaningfully, and capital continued to build. Taken together, this was solid financial performance for us.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

For the second quarter of 2026, we reported net income of $85.8 million, or $1.57 per diluted share. That compares to $1.52 per share in the first quarter, up 3.4% on a linked-quarter basis, compared to $1.12 per diluted share in the second quarter of last year, an increase of 40% year-over-year. On an adjusted basis, which excludes a legal matter, accrual reversal, and a loss on marketable securities that affected last year's results, diluted earnings per share grew 30% from $1.21 a year ago. For the first six months of 2026, net income was $168.8 million, or $3.09 per diluted share, up 35% from $124.6 million, or $2.28 per diluted share in the same period last year. Return on average assets was 1.91%, up from 1.89% in the first quarter, well above the 1.40% we delivered a year ago.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Return on average common equity was 17.71%, compared to 17.91% last quarter 15.68% on an adjusted basis in the same quarter of last year. These returns continue to reflect the operating leverage in our model. Margin expansion, strong loan growth, expense discipline all moving in the right direction together. Net interest income for the second quarter was $155.6 million, up from $148.1 million in the first quarter, from $131.7 million a year ago. Net interest margin expanded to 3.63%, up 10 basis points on the linked-quarter basis, up 53 basis points year-over-year. I would note that during the quarter, we were fully paid out of a large credit relationship that had previously been on non-accrual status. We recovered $1.9 million of interest income as a result.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

That recovery accounted for five basis points of the improvement in loan yields in total net interest margin. On the funding side, average interest bearing deposit cost was 2.80%, essentially flat to the 2.79% we reported last quarter, down 53 basis points from a year ago as last year's rate cuts worked through the deposit portfolio. On the asset side, loan yields were 6.23%, up five basis points linked-quarter, 6.18% on a normalized basis. Investment yields were 3.81%, up modestly from 3.78% last quarter. Our average rate on federal funds purchased was 3.74%, unchanged from a linked-quarter perspective down from 4.49% a year ago, which is a direct correlation to Fed funds rates. In total, our net interest margin continues to expand, although we are seeing some slowdown in the pace.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

We expect to continue aggressive repricing on fixed-rate loans as they mature and disciplined pricing on deposits, which will continue our margin expansion. Non-interest income was $12.9 million for the quarter, up from $10.8 million in the first quarter and up 43.5% from $9 million a year ago on an adjusted basis. Growth was broad-based. Service charges on deposit accounts was $3.3 million, up 25% year-over-year, reflecting the treasury management pricing changes we implemented last July, and roughly flat linked-quarter to the quarter previously. Mortgage banking revenue was $2.2 million, up 68% year-over-year and 17% linked-quarter, driven by higher secondary market loan sales and the per loan administrative fee increase we put in place earlier this year.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Credit card income grew 18% year-over-year to $2.5 million, and bank-owned life insurance income was $4.1 million, up 94% year-over-year and 47% linked-quarter, reflecting the $25 million of new BOLI contracts we purchased this quarter on top of the $150 million we added in the third quarter of last year. Non-interest expense was $50 million for the quarter, up 5.4% linked-quarter and 13% year-over-year. The linked-quarter increase is primarily due to a negative adjustment recorded in the FDIC special assessment in the first quarter. Despite that growth, our efficiency ratio came in at 29.65%, the third consecutive quarter below 30% and a meaningful improvement from 33.46% a year ago. Salary and benefit expense was $26.3 million, up 16.4% year-over-year, primarily reflecting the full run rate impact of our Houston market expansion.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Full-time equivalent headcount was 663 at quarter end, up 22 from a year ago and up three from the first quarter. Very modest growth relative to the balance sheet expansion we're generating. Our effective tax rate was 19.94% for the second quarter, compared to 17.82% last quarter and 19.82% a year ago. The linked-quarter increase reflects timing of investment tax credits purchases. We continue to actively pursue federal credits with carryback provisions and expect to realize more tax savings in the future. We expect to continue evaluating similar tax advantage investment opportunities as part of our current year tax plan. Turning to the balance sheet, as Tom mentioned, this was a standout quarter for loan growth. Ending loans were $14.48 billion, up $533 million from the first quarter or 15.3% annualized. Our fastest quarterly growth rate in some time.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

On an average basis, loans grew $440 million or 12.8% annualized on a linked-quarter basis. Year-over-year, loans are up $1.25 billion or 9.4%, with our pipeline remaining at record levels and growth broad-based across markets, including a contribution from our Texas market. Deposit growth was more measured this quarter due to the competitive landscape, but remains healthy on a year-over-year basis. Ending deposits were $14.55 billion, up $62 million on a linked-quarter basis and up $686 million or 5% from a year ago. Importantly, non-interest-bearing demand deposits are low-cost, most durable funding source grew to $3 billion, up 5.6% linked-quarter and 13.8% year-over-year. Which tells us our bankers continue to win core operating account relationships even as overall deposit growth moderated this quarter relative to loan growth.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

As Jim mentioned, net charge-offs were low at just 11 basis points annualized for the quarter, down sharply from 25 basis points last quarter and 20 basis points a year ago. With these low charge-offs and our healthy loan growth, we recognized a quarterly provision for loan loss expense of $11.4 million versus $10.6 million from the first quarter of 2026 and $11.3 million in the second quarter of 2025. Our allowance for credit losses stood at 1.26% of total loans, essentially stable versus 1.25% last quarter. We remain comfortable with our reserve coverage given the current portfolio performance. Capital continued to build meaningfully in the second quarter. Common Equity Tier 1 capital risk to weighted assets reached 11.83% on a preliminary basis, relatively flat from 11.86% last quarter and up 45 basis points from a year ago. Total capital to risk weighted assets was 13.09%.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Our Tier 1 leverage ratio was 10.93%, and tangible common equity to tangible total assets was 10.72%. We're generating capital organically at a pace that comfortably funds the loan growth we're seeing while still building cushion. Our book value per share was $36.19 at quarter end, up from $34.99 last quarter and up nearly 15% from $31.52 a year ago. Tangible book value per share was $35.94. On liquidity, we ended the quarter with $1.46 billion in cash and cash equivalents, or about 8% of our total assets. We have no FHLB advances and no brokered deposits. Our funding remains entirely core and relationship driven. I'll now turn it back over to Tom for his closing comments.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Thank you, David. We certainly were pleased with the quarter, not satisfied. I really know how much we can improve from where we are today, I think we can do much better than what we are doing today. We aren't hitting on all 8 cylinders yet to equate it to an automotive car. I feel like we are getting closer to all 8 cylinders than we have been in the last two years. While we're in the middle of our largest regional startup in our history in Houston, we still earned a 1.9% return on assets. I know reaching a 2% return on assets may be tough for the last 10 basis points, it sure does seem like a worthy goal for us to strive for, even though our primary goal will always be to grow earnings per share.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Having more of our regions and markets perform at a higher level can get us to a consistently higher level of financial performance. On an industry level, we are seeing generally good bank earnings and improvement, modest loan losses, controlled expenses, and a decent growth outlook, coupled with a backdrop of a good economic outlook. In addition, we see what appears to be a more favorable or at least not as hostile regulatory environment for banks. Overall, most banks have a favorable outlook for industry, bank stocks continue to be priced well below historical benchmarks over the last decade. I guess only time can make the cloud dissipate over the banks while we continue to perform at a high level every day. We'd be happy to answer any questions you might have.

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we pull for questions. Thank you. Our first question comes from the line of David Bishop with Hovde Group. Please proceed.

David Bishop
David Bishop
Managing Director at Hovde Group

Hey, good evening, Tom.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Hey, David.

David Bishop
David Bishop
Managing Director at Hovde Group

Hey, appreciate all the commentary and the preamble there. Just curious, in terms of the lending environment, obviously, you said in-market consolidation is usually beneficial to you all. Just curious, maybe what the hiring pipeline looks like at this point, or is there line of sight into additional banker hires into the second half of the year?

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

I really can't give you a very good answer, David. We talk to people all the time, we're talking to a lot of different people from a lot of different banks. There are mergers going on that you don't see because they're private banks merging, or a private bank selling to a public bank, and you don't notice that. There's constantly, especially in Texas, I'd say there's a lot of movement in the Texas market in terms of mergers and integration. I think it's a more active network in terms of mergers than we've seen in a long time from that standpoint. We're optimistic we'll continue to get looks, and of course, in many cases, people have stay bonus, and certainly for a year after a merger is typically sort of a point before they even think about making a change.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

We're constantly looking and talking to people, I don't have a really good answer for you, I don't think. I know there's been some changes in the national market. It didn't affect us, in any event, I'm sorry, I can't give you a better answer.

David Bishop
David Bishop
Managing Director at Hovde Group

Yeah, no, understood. Maybe talk about the state of loan demand. I think in the past, maybe it was a A minus, B plus. It sounds like the pipeline continues to hit record levels. Just curious how would you characterize the loan demand environment at this point?

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

I guess I have to call it an A, because it's broad-based, it was granular. It's a lot of smaller loans. It's just almost every region of our bank and segment had really good loan demand. I've got to think it's getting much better. Of course, we all know Florida is strong and has been, compared to the average. We've just had a lot of payoffs in Florida, especially in our West Central Florida regions, have more payoffs because the heavy real estate concentration down there than normal. I'd say I'd give it an A now.

David Bishop
David Bishop
Managing Director at Hovde Group

Got it. One final question, I'll hop off and get back on. The commercial real estate concentration ratio, it ticked a tad above 300%. Still comfortable with the ratio at this level of capacity to continue to grow that product?

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Yeah. Hey, David. Absolutely. We have a ratio we're managing to. We've got lots of headroom before we get close to the ratio that would put us in territory we don't really want to be in. I think we saw lots of really good opportunity, even within the CRE asset class. It wasn't a particular retail or office or one to four family. It was broad-based, even within real estate. We saw a little bit of everything in real estate. Yeah, I don't think we have any concerns about where we are from a concentration standpoint. David, we never want to get to the point where we have to tell a good customer that we cannot take care of their needs. We always make sure that we have some drop outer for our good customers, no matter what sort of loan request it is.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Even a, well, a car wash wouldn't be a good answer because we're not looking for car wash loans. If a really good customer wants us to do a car wash, we're going to do a car wash. How about that?

David Bishop
David Bishop
Managing Director at Hovde Group

Sounds great. Appreciate the color.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Thank you.

Operator

Thank you. Our next question comes to the line of Stephen Scouten with Piper Sandler. Please proceed.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

Yeah, good afternoon, everyone. Great quarter here. Obviously, the NIM expansion, in particular, was really impressive. I know you noted there was a bit of a recovery there, maybe contributed five basis points to the loan yield. Just kind of want to level set a little bit. When you talk about expecting the margin to continue to expand from here, would that be off of this 363 NIM, or should we use maybe the June NIM of the 359 more as a starting point for continued expansion from here?

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Yeah, Stephen, this is David. Yes, when I'm talking about it, I would refer to the adjusted number, which is the 358. To your point, 359 was our spot rate for the month of June. We still have over $2 billion of opportunity between scheduled maturities on loans, cash flows, as well as covenant violations and loan modifications. If you look at our total yield on the loan portfolio adjusted for the quarter, it's coming in at 618. Our going on rate is at 632, so we still have some room to grow that, to expand that, but that gap is starting to narrow. We still expect to see expansion in the margin, but as I said, I think it's just going to slow because that gap of going on versus total portfolio is starting to narrow.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

That makes sense. Okay. I think previously you kind of thought, hey, 7 to 9 basis points in NIM expansion quarterly, but maybe that's 4 to 6 or something in this sort of, as we move further down the path. Is that a decent way to think about it?

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

We may get one more quarter of the 7 to 9 range, but I would start to think about the 5, 4 to 6 kind of range of expansion as we get towards the end of the year.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

Still something a lot of folks don't have directionally, that's fantastic. In terms of kind of balance sheet migrations and ability to fund loan growth, I mean, the loan deposit ratios obviously ticked up here on the really strong growth. Could we expect to see maybe securities balances decrease further? Or how do you think about, Tom, you said, look, if a good customer wants to make a loan, we're going to make the loan. How do you make sure you have the funding to be able to do that, and does that potentially put pressure on deposit costs moving forward to make sure you can do that?

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Well, we always want to be in a position where we need deposits. That's the first thing is if we generate the loan demand, we'll work hard to generate the deposits to fulfill the loan demand. That's the preferred position for the bank is to need deposits and rather than trying to find loans to make. That's the second part of the leg, and we feel confident we can do that. The second half is typically, we typically see nice deposit growth in the second half of the year. We saw a large number of tax payments, some major large tax payments by individuals, several well over $100 million each, in April 15th filing cycle, or at least paying estimates. The second half of the year is when we always generate deposits, we feel good about it.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Steven, I will add, when Tom talks about the healthy pipeline, we're talking about loans and deposits at the same time, not just the loans side. I mean, we're seeing opportunities in deposits, especially out of Texas. We're having some opportunities in Texas.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

Got it. Just with that securities book, I think maybe you showed in the supplement $260 million or so of unpledged securities remaining. Is that kind of the magnitude of what could potentially run down if needed to kind of remix the balance sheet away from securities, maybe into loans, given the demand?

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Yeah, I don't think our first priority is going to be to run down the security book because we use that for collateralization, because we do a fair amount of business for municipal deposits, right? We have to collateralize those. I think we have some mortgage repos, which is a short-term investment we have, and we can unwind some of those if we need the liquidity. I think that's what we would look to. Yeah, that's what we're going to do.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

Okay, great. Just last thing from me, maybe a very high class, I don't want to call it a problem, but high class issue to think through is just, I mean, you're growing capital even with this rapid loan growth, given the strength of the profitability. How do you think about what to do with this building excess capital and what the best uses are for it above and beyond organic growth? Would a share repurchase at any point be on the table?

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

It is a champagne problem. I would agree. The last time we had this issue was right before COVID hit, and then we had extremely rapid growth during the COVID period, and all those questions went away because we grew into our capital pretty quickly there for a period of time. We don't take anything off the table, whether it would be an acquisition or whether it would be stock repurchase. We're going to do the best thing for our shareholders, whatever we think that is.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

Got it. Okay. Makes sense, Tom. Appreciate you guys' time and all the color. Congrats again on a great quarter.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Thank you.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Hey, Steven, I will add also just a side note. When you were asking about the securities, the $260 million in securities on our supplemental data, we are applying a haircut to that. We worked with regulators, and we are highlighting our available liquidity in that supplement. We agreed with the regulators that we would haircut our securities in the event of a liquidity crisis. That's why you've seen a decrease on that so much in the second quarter versus.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

Got it.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

-the

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Got it.

Stephen Scouten
Stephen Scouten
Managing Director at Piper Sandler

Very helpful. Thanks, David.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

You're welcome.

Operator

Thank you. Our next question comes from the line of Steve Moss with Raymond James. Please proceed.

Steve Moss
Steve Moss
Managing Director at Raymond James

Good afternoon, guys.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Hey, Steve.

Steve Moss
Steve Moss
Managing Director at Raymond James

Hey, Tom. Maybe just circling back here to loan demand and the pipeline being at record highs, given that paydowns have slowed, for the remainder of the year, are you thinking a mid-teens type growth rate is a fair assumption?

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

It's hard to say. I don't like to give a forecast because we really don't know. We had a pretty good size payoff this month that we knew was coming. It was also a watchlist loan, so that's not all bad, to get a watchlist pay down. If loan demand holds up, we think we can end up with a pretty decent year, Stephen, but it's kind of hard to say. For right now, it looks pretty good, but you get rates going up, we get some kind of geopolitical event. It's funny how the thing in Iran started, that kind of beat everything back for a few weeks, and things slowed down. Jim Harper's sitting here, he sits there at his desk and has the deal flow come in, and it'll drop, and then it'll come back, and it has not been consistent all year.

Jim Harper
Jim Harper
Chief Credit Officer at ServisFirst Bancshares

I actually even thought early May was really slow. You look up at the end of June, and this is what we've done, right? It lasted a couple of weeks and rebounded really quickly.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Yeah.

Jim Harper
Jim Harper
Chief Credit Officer at ServisFirst Bancshares

Yeah.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Yeah. Barring any geopolitical events, certainly, and rate increases, we think we're positioned for rates to go up or down. We think we're going to be fine. We think it'll work out. I guess I don't have a very good answer for your questions, Stephen.

Steve Moss
Steve Moss
Managing Director at Raymond James

No worries. I figured I'd ask and see what you'd say, Tom. I guess the color was helpful, I will say that. The other thing here in terms of sticking with loans for a moment, with the large, nearly $100 million relationship that you guys have on nonaccrual, just kind of wondering what's the update on the status of that relationship these days?

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Yeah. All those properties are being listed for sale. Expect those to be disposed of. All of our nonaccrual loans are properly reserved. We feel good about where we are on that relationship and that we have proper reserves in place as needed.

Steve Moss
Steve Moss
Managing Director at Raymond James

Okay, great. Last one for me here, just on the sub 30% efficiency ratio subject. Curious how you guys are thinking about expenses for the upcoming quarter. Obviously, you've had a fair amount of investment in Houston, just kind of curious as to how you guys are thinking about total expenses here.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

So Stephen, this is David. I think our $50 million run rate is a good run rate right now. I think we have fully baked in there the Houston team, right? The Houston team's going to continue to expand, although not as quickly as it has the last couple of quarters, I don't think. What we're seeing right now is Houston is sort of a drag on the efficiency ratio, right? Because their loans and their business or deposits are not ramping up as quickly as their expenses are. It's just a natural evolution of building out the franchise, right? I think from here, Houston is only going to improve in regards to the efficiency ratio. They're going to grow their income, right? More loans are going to come on the books. Is the efficiency ratio going to stay below 30%?

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

That's going to be a challenge. We're not adding a ton of head count. You could see what we put on in the quarter. Tom talked about it. We had nine bankers that were added in the quarter. Most of what we add from an FTE perspective are customer facing. We're not adding back office costs. We don't have additional technology that we're spending money on. I think the non-interest expense run rate is pretty stable at the $50 million rate right now.

Steve Moss
Steve Moss
Managing Director at Raymond James

Okay, great. I appreciate all that color there. Thank you very much, guys.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Thank you.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Thank you.

Operator

Thank you. Our next question comes to the line of David Bishop with Hovde Group. Please proceed.

David Bishop
David Bishop
Managing Director at Hovde Group

Yeah, just a quick follow-up maybe for David. David, just curious, it sounds like maybe the Fed's next move is up maybe rather than down or stable as we thought maybe last quarter. Just curious if the interest rate risk profile, how that shapes out for a more hawkish Fed rather than dovish here at this point.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Yeah. David, if I could predict what the Fed was going to be doing, I would be in a different business, right? I'd probably be making more money betting on the market. We have asked our asset liability management consultant to run a couple of different scenarios for us. As we stand right now, we're pretty neutral in regards to interest rate sensitive. We're still slightly liability sensitive, but just barely. We looked at two scenarios. We looked at increasing 25 basis points, which if that happens, we lose about $240,000 in the first year of net interest income. Not a big amount at all. It's a nominal impact. If rates decrease 25 basis points, we're looking at gaining $105,000 in net interest income. I point those out to show you that's the band. We have like a $300,000 swing either way.

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

To Tom's point, what's going on in Iran, there's just a lot of unknowns in the economy right now, and I think the Fed as much as they want to decrease interest rates, there's going to be continued pressure from an inflationary standpoint to increase rates. I think we're just going to get a stagnant environment, at least for the remainder of this year. I don't see any rate movement this year, barring any, to Tom's point, any geopolitical event that's going to change that. I think as we stand right now, we're going to be at a neutral rate environment.

David Bishop
David Bishop
Managing Director at Hovde Group

Okay, great. Appreciate that. David, maybe a good effective tax rate to use. I know it's bounced around a little bit here, but just curious, any color you can give there?

David Sparacio
David Sparacio
CFO at ServisFirst Bancshares

Yeah, David, I talked about it. We have some carryback capacity on tax credits, we continue to work on that front to maximize those. I expect to see some benefit from those in the future, in the second half of the year. My target is to stay below 20% on effective tax rate. We're doing things where we try to look at tax investments for the current year and then purchasing credits for a carryback perspective. I guess for your benefit, I would try to target below 20% is what I would hope for.

David Bishop
David Bishop
Managing Director at Hovde Group

Okay. Got it. One final question. Tom, just curious in terms of the Houston expansion, if you're at a point where you can maybe give outstanding balances, just curious if those offices started funding out from a loan and deposit basis. Thanks.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Yeah. They funded $50 million or so in the quarter in loans and maybe $25 million-$30 million in deposits in the quarter. It's building. It is starting to ramp up, David, in terms of both loan and deposits.

David Bishop
David Bishop
Managing Director at Hovde Group

Got it. Thank you.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Sure.

Operator

Thank you. There are no further questions at this time. I'd like to pass it back over to Tom for any closing remarks.

Tom Broughton
Tom Broughton
CEO at ServisFirst Bancshares

Have none. Thank you everybody for joining us. Have a great evening.

Operator

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

Executives
    • Davis Mange
      Davis Mange
      Director of Investor Relations
    • Tom Broughton
      Tom Broughton
      CEO
    • Jim Harper
      Jim Harper
      Chief Credit Officer
    • David Sparacio
      David Sparacio
      CFO
Analysts
Powered by Quartr