ServisFirst Bancshares, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The interim financial statements are unaudited. ServisFirst is a bank holding company headquartered in Birmingham, Alabama, operating through ServisFirst Bank across Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee.
Financial performance and condition
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior quarter |
|---|---|---|
| Total interest income | $181.3 million | $113.2 million in Q1 2022 |
| Net interest income | $108.3 million | $105.7 million in Q1 2022 |
| Net interest margin | 3.15% | 2.89% in Q1 2022 |
| Provision for credit losses | $4.2 million | $5.4 million in Q1 2022 |
| Noninterest income / expense | $6.3 million / $39.7 million | $7.9 million / $37.2 million in Q1 2022 |
| Net income / diluted EPS | $58.0 million / $1.06 | $57.6 million / $1.06 in Q1 2022 |
| Return on average assets / equity | 1.63% / 17.83% | 1.53% / 20.09% in Q1 2022 |
| Efficiency ratio | 34.60% | 32.74% in Q1 2022 |
| Total assets | $14.57 billion | $14.60 billion at Dec. 31, 2022 |
| Total loans / allowance for credit losses | $11.63 billion / $149.0 million | $11.69 billion / $146.3 million at Dec. 31, 2022 |
| Total deposits | $11.62 billion | $11.55 billion at Dec. 31, 2022 |
| Cash and cash equivalents | $871.0 million | $816.1 million at Dec. 31, 2022 |
| Federal funds purchased / other borrowings | $1.48 billion / $65.4 million | $1.62 billion / $64.7 million at Dec. 31, 2022 |
| Operating cash flow | $55.1 million | $69.3 million in Q1 2022 |
Material changes and management commentary
- Net income rose 0.6% year over year. Higher net interest income—supported by a $2.0 billion increase in average loans and higher asset yields—was partly offset by lower noninterest income and higher operating expenses.
- Interest costs rose sharply as rates increased: the average cost of interest-bearing liabilities was 2.98%, versus 0.33% a year earlier. The loan yield rose to 5.70% from 4.34%; management noted that liability costs increased faster than loan yields, weighing on the net interest spread.
- Noninterest income fell 20.5% year over year. The comparison included $3.3 million of securities losses in Q1 2022 and $3.4 million of interest-rate-cap income in Q1 2022; neither was recorded in Q1 2023. Credit card income and mortgage banking revenue also declined.
- Noninterest expense increased 6.6%, including higher processing, occupancy, professional-services and regulatory-assessment costs. Management cited Federal Reserve settlement-related charges and new offices; lower other operating expense partly reflected one-time items recorded in Q1 2022.
- Quarter-end deposits grew $68.5 million, but noninterest-bearing deposits fell $422.6 million while interest-bearing deposits rose $491.1 million. Approximately $6.9 billion of deposits were estimated to be uninsured.
- Loans declined 0.5% from year-end. Nonperforming loans were approximately $17.8 million, or 0.15% of loans, essentially unchanged from December 31, 2022. Net charge-offs were 0.05% of average loans versus 0.11% a year earlier.
- Available-for-sale securities had $63.5 million of gross unrealized losses and held-to-maturity securities had $84.0 million at quarter-end. Management attributed losses to higher market rates, said the securities continued to perform as scheduled, and reported no credit-loss allowance for these securities.
- Cash from investing activities was $86.0 million, compared with $718.8 million used in Q1 2022; financing activities used $86.2 million. The quarter’s net cash increase was $54.9 million.
Liquidity, capital, outlook and risks
- Management reported $2.0 billion of liquid assets, approximately $3.1 billion of potential FHLB funding, up to $3.6 billion of brokered-deposit capacity under policy limits, and about $698 million of unused federal-funds lines, subject to restrictions and collateral requirements. Management believes funding sources are adequate for anticipated needs, while noting additional funding could be needed if growth is sustained.
- The Bank was categorized as well-capitalized. At March 31, 2023, its CET1, total risk-based capital and Tier 1 leverage ratios were 10.45%, 11.55% and 9.91%, respectively. The Company reported a 9.49% Tier 1 leverage ratio.
- No quantitative earnings or revenue guidance was provided. Management said net interest income could benefit over a short period after Federal Reserve rate increases cease, but also warned of continued deposit and borrowing cost pressure and competition on loan pricing.
- Key stated risks include interest-rate and funding-cost changes, deposit outflows, economic and credit deterioration, collateral values, competition, regulatory changes and legal contingencies. Management reported no material changes to previously disclosed risk factors, no material change in internal controls, and no material legal proceedings beyond those previously disclosed.
Important facts for investors to verify
- Deposit mix and stability, including the scale and maturity profile of uninsured deposits and the cost of retaining deposits.
- Reliance on federal funds purchased and the availability, terms and collateral requirements of contingent liquidity sources.
- Net interest margin and spread sensitivity if funding costs continue rising or loan pricing remains competitive.
- Credit trends, especially past-due and nonaccrual loans, the allowance methodology and coverage, and the performance of modified loans. Q1 modifications to borrowers experiencing financial difficulty totaled $61.9 million; none were past due over 30 days or on nonaccrual at quarter-end.
- Unrealized securities losses and the potential effect of interest rates, liquidity needs or required sales on the portfolio and capital.
- Whether expense growth, including processing, regulatory and staffing costs, moderates, and whether noninterest income recovers from the reported declines.