ServisFirst Bancshares (SFBS) Q3 FY26 earnings call: guidance and Q&A

Inquired about the magnitude of future NIM expansion, specifically if the 5-7 basis point increase range per quarter is still expected, considering potential December rate hikes and the bank's liability sensitivity.

David Sparacio confirmed expectations for continued NIM expansion in the 5-7 basis point range per quarter into 2027. He cited the repricing of $1.5 billion in low fixed-rate loans at higher 'going on' rates (6.59% in Q3) and the ability to be selective and disciplined on deposit costs, even with rising benchmark rates. He also noted that 53% of the loan book is variable rate, providing upside.

“I still expect it in the 5 to 7 basis point increase range. I mentioned it, we still have about $1.5 billion of fixed rate, low fixed rate loans, repricing.”

asked by Stephen Scouten · answered by David Sparacio

Asked if the current loan-to-deposit ratio and the need for continued strong loan growth could make deposit growth a constraint.

Tom Broughton stated that the bank always prefers to need deposits for loans, as deposits can be found, but loan demand is harder to generate. He expressed optimism for good deposit growth in Q4, citing ongoing deposit initiatives and historical trends, indicating confidence in matching deposit growth with loan demand.

“Given a choice, this is Tom, before, Steve. Given a choice, we always prefer to need deposits for the need loans because we can find the deposits. But you can't just go find the loans, as you well know, is they just don't -- you've got to have the loan demand.”

asked by Stephen Scouten · answered by Thomas Broughton

Followed up on comments about contemplating restructurings in the securities portfolio or non-earning assets, asking for details and potential size.

David Sparacio clarified that while some treasuries were swapped out, the primary focus is on restructuring Bank-Owned Life Insurance (BOLI) assets. Leveraging a recent favorable Treasury ruling, the bank plans to swap out older, low-yielding BOLI policies (totaling $465 million) to improve yields without incurring security losses. Tom Broughton confirmed no security losses are contemplated.

“But the big thing is, in July, the treasury had a ruling on exchanges on bank-owned life insurance on BOLI. And so we have about $465 million in assets in BOLI. That's -- we have some pretty low yields on policies that were put on the books in 2011, 2012, 2013. And so we have an opportunity now with that favorable ruling from the treasury to structure a deal where we can improve those yields and do some swap outs on those.”

asked by David Bishop · answered by David Sparacio

Asked if loan spreads have improved enough to make the bank more optimistic about lending, given previously tight spreads.

Tom Broughton and Rodney Rushing confirmed that competition has become more rational, especially for fixed-rate loans, as higher rates make projects less economical. They noted that customers are now more inclined towards floating-rate loans. This rationalization is seen as an upside to higher interest rates, leading to better pricing discipline.

“I think there is an upside to higher interest rates, Steve. Of course, will there be demand destruction? Who knows the answer to that question. I think rates were already high enough that it made a lot of projects uneconomical to start.”

asked by Stephen Moss · answered by Thomas Broughton

Inquired about any specific credits driving the reserve increase and an update on the roughly $100 million large credit relationship.

Jim Harper stated that the reserve increase was portfolio-based rather than driven by a single credit, with one unexpected notable credit action having minimal impact. Regarding the large credit, he confirmed a $7.7 million charge-off was taken in Q3, representing the first true charge-off for the portfolio of large multifamily properties. The bank is working on an orderly liquidation process for these 8 credits over the next 2-4 quarters.

“Just over $7 million this quarter that represents the first true charge-off we've taken with respect to that portfolio of large multifamily properties. We're continuing to work through an orderly liquidation process with those 8 credits and are working with a broker to identify potential sales opportunities to get those marketed and liquidated.”

asked by Stephen Moss · answered by Jim Harper

Asked about the bank's appetite and strategy for repurchasing shares under the newly approved 2 million share plan, especially considering current economic activity and growth opportunities.

Tom Broughton indicated a cautious approach to share repurchases, emphasizing that once shares are repurchased, the capital is deployed. He stressed the priority of maintaining adequate capital to fund organic growth and create shareholder value through expansion. He stated the bank wants to remain a top-tier, well-capitalized institution and believes it can pursue both growth and repurchases over time without declining capital ratios.

“We've never done this before. we're going to be very careful about how we do it and when we do it. And I'm not sure that as insiders, I'm not sure we know we have a present value analysis, but I'm not sure we all know exactly what the future holds and what bank stock prices will do over the next year.”

asked by Stephen Moss · answered by Thomas Broughton