ServisFirst Bancshares, Inc. — 2011 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2011; comparisons are primarily with 2010. ServisFirst is a bank holding company operating through ServisFirst Bank, with 10 offices in Alabama and Florida, including a new Pensacola office opened in April 2011. Its community-banking business focuses on commercial and consumer lending and deposit gathering. Year-end assets were approximately $2.46 billion.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Total assets | $2.461 billion | $1.935 billion |
| Total loans | $1.831 billion | $1.395 billion |
| Total deposits | $2.144 billion | $1.759 billion |
| Stockholders’ equity | $196.3 million | $117.1 million |
| Net interest income | $75.3 million | $62.9 million |
| Provision for loan losses | $9.0 million | $10.4 million |
| Net income | $23.4 million | $17.4 million |
| Net income available to common stockholders | $23.2 million | $17.4 million |
| Basic / diluted EPS | $4.03 / $3.53 | $3.15 / $2.84 |
| Net interest margin | 3.79% | 3.94% |
| Return on average assets / equity | 1.08% / 14.73% | 1.04% / 15.86% |
- Net interest income rose 19.8%, primarily reflecting 22.6% growth in average loans. Noninterest income increased 34.0% to $6.9 million; noninterest expense rose 21.0% to $37.5 million, largely from added staff and expansion costs.
- Net interest margin narrowed 15 basis points as asset yields fell; the average yield on interest-earning assets declined to 4.58% from 4.88%, while the average cost of interest-bearing liabilities declined to 1.00% from 1.13%.
- Net charge-offs fell to $5.0 million, or 0.32% of average loans, from $7.0 million, or 0.55%. Nonperforming loans were $13.8 million, 0.75% of loans, versus $14.3 million, 1.03%. The allowance was $22.0 million, 1.20% of loans, compared with $18.1 million, 1.30%.
- 2011 cash flows: operating activities provided $24.3 million; investing activities used $507.7 million, principally reflecting loan growth; financing activities provided $494.5 million. Cash and cash equivalents increased $11.0 million to $242.9 million.
- Reported liquid assets, including cash, federal funds sold and available-for-sale securities, totaled $536.7 million; unused federal funds lines were approximately $140 million, subject to conditions. Net loans were 84.37% of deposits.
- Year-end funding included $79.3 million of federal funds purchased, $5.0 million of other borrowings, and $30.5 million of trust preferred securities. The Bank prepaid $20 million of FHLB advances and incurred $738,000 in prepayment penalties. The company also issued $40 million of Treasury SBLF preferred stock and raised $10.2 million net from common stock issuance.
Material changes versus the prior year
- Assets grew 27.2%, loans 31.3%, and deposits 21.9%. Commercial, financial and agricultural lending increased to $799.5 million; construction loans declined to $151.2 million from $172.1 million.
- Equity rose $79.2 million, chiefly from the Treasury preferred-stock issuance, common-stock sale, and earnings. The Bank was categorized as well-capitalized; consolidated total risk-based capital was 12.79%, Tier 1 capital 11.39%, and leverage ratio 9.17%.
- The net interest margin decreased despite higher net interest income. Noninterest expense growth outpaced noninterest income growth, while lower loan-loss provision and charge-offs supported earnings.
- Nonperforming assets increased to $26.1 million from $21.3 million, mainly as other real estate owned rose to $12.3 million from $7.0 million; nonperforming loans declined.
- In the fourth quarter, net interest income was $21.1 million and net income available to common stockholders was $6.5 million, or $1.10 basic and $0.97 diluted EPS. These quarterly figures are unaudited.
Outlook, risks, contingencies and unusual items
- No quantified earnings or growth guidance is provided. Management describes continued organic growth and market expansion as strategic priorities, while noting that additional capital may be needed to support longer-term growth.
- Key risks include economic weakness in Alabama and Florida, real-estate collateral values, commercial and construction lending, local-market concentration, competition, interest-rate movements, and evolving regulatory requirements. Commercial and industrial loans were 43.7% of loans; construction and development loans were 8.3%. About 96% of loans were in Alabama markets.
- Commitments to extend credit were $697.9 million; credit-card arrangements were $19.7 million; standby letters of credit and financial guarantees were $42.9 million. These are off-balance-sheet commitments and do not necessarily represent expected cash outflows.
- Other notable items: $390,000 of income from bank-owned life insurance purchased in 2011; credit-card income rose to $481,000 after a servicing-provider change; securities gains were $666,000. Impaired loans totaled $37.3 million, including $16.3 million of construction loans; troubled debt restructurings totaled $4.5 million and were reported as performing under their restructured terms.
- The company reported no material legal proceedings. The common stock had no public trading market; the company had never paid common dividends and did not expect to do so in the near future. Preferred-stock dividends were paid.
- KPMG issued unqualified opinions on the 2011 financial statements and internal control over financial reporting. Management and the auditor concluded internal controls were effective as of year-end.
Important facts for investors to verify
- Whether loan growth can be sustained without weakening underwriting, and how commercial, construction and real-estate credit quality develops; review impaired loans, nonperforming assets, charge-offs and reserve adequacy.
- How the company funds further growth and maintains liquidity and capital, including the maturity and terms of borrowings, trust preferred securities, and Treasury SBLF preferred stock.
- Whether deposit growth remains stable and cost-effective, particularly given local competition and the concentration of deposits and loans in a limited geographic footprint.
- Whether margin pressure, expansion-related expenses and low interest rates affect future profitability; the filing provides no formal numerical earnings guidance.
- The practical liquidity and valuation implications of the common stock’s lack of a public market, potential dilution from options and convertible securities, and the absence of common dividends.