ServisFirst Bancshares Earnings Call Signals Profitable Expansion

ServisFirst Bancshares ((SFBS)) has held its Q4 earnings call. Read on for the main highlights of the call.

ServisFirst Bancshares Balances Robust Earnings Momentum With Isolated Credit Headwinds

ServisFirst Bancshares’ latest earnings call painted an overall upbeat picture, with management emphasizing strong earnings growth, expanding margins, improved efficiency, and healthy capital and liquidity. While the bank is contending with elevated nonperforming assets driven largely by one merchant-developer credit and a temporary drag from its Texas expansion, the tone was confident and forward-looking, particularly around 2026 profitability and a sizable loan repricing opportunity that could further lift returns.

Powerful EPS Rebound Caps Strong Year

ServisFirst delivered a strong finish to the year, with diluted EPS of $1.58 in the fourth quarter, up 32% from the prior quarter and 33% from the year-ago period. Net income available to common shareholders reached $86.4 million for the quarter and $276.5 million for the full year. Operating EPS for 2025 came in at $5.25, with GAAP EPS at $5.06, underscoring the bank’s ability to grow earnings even as it navigated securities restructuring, a choppy rate environment, and pockets of credit stress.

Net Interest Margin Expands Despite Rate Cuts

A key highlight was margin expansion in a falling-rate environment. Net interest margin improved from 2.92% in the first quarter to 3.38% in the fourth quarter, supported by better asset yields and lower funding costs. The bank’s asset yield reached 5.79% in Q4, up 10 basis points versus Q1, and the loan portfolio produced a 6.30% yield even as benchmark rates declined by 75 basis points during the quarter. This reflects ServisFirst’s asset mix, loan pricing discipline, and benefit from prior deposit repricing.

Loan Growth Accelerates With a Strong Pipeline

Loan growth regained momentum, with annualized loan growth of 12% in the fourth quarter. Management noted that the loan pipeline increased 11% quarter-over-quarter, and when adjusted for projected payoffs, the pipeline was up roughly 80%. Growth remained balanced across segments, with both commercial and industrial (C&I) and real estate loans growing around 10% for the year. C&I in particular posted its best growth in several years, signaling healthy business demand and reinforcing ServisFirst’s commercial banking franchise.

Efficiency Ratio Dips Below 30% as Costs Stay Tight

Operational efficiency continued to be a standout. The quarterly efficiency ratio fell below 30%, while the full-year adjusted efficiency ratio was roughly 32%, a 14% improvement from 2024. Noninterest expense was flat versus the same quarter last year and down about 3% from the prior quarter, with full-year expenses up only about 2%. These trends show that ServisFirst has been able to scale revenue while tightly controlling costs, providing a cushion as it invests for future growth, particularly in Texas.

Growing Fee Income Diversifies Revenue

The bank also made progress in diversifying its revenue base. Operating noninterest revenue grew 12% for the year, adding a meaningful complement to spread income. Service charges jumped 26% year over year, helped by fee increases, and mortgage banking fee income rose 11%. This fee growth reduces reliance on net interest income and gives ServisFirst additional earnings levers as the rate cycle evolves.

Capital and Liquidity Remain a Core Strength

ServisFirst’s balance sheet remains a key source of comfort for investors. Tangible book value per share rose 4% in the fourth quarter to $33.62, reflecting both earnings retention and limited new securities pressure. Deposits grew 5% year-over-year, while reliance on higher-cost funding declined, with Fed funds purchases down 26% versus a year earlier. Importantly, the bank operates without brokered deposits or FHLB borrowings, highlighting a comparatively clean funding profile and solid liquidity positioning.

Large Loan Repricing Window Sets Up Margin Upside

Management highlighted a sizable repricing opportunity that could further support margins and earnings. About $1.0 billion of low fixed-rate loans with a weighted average yield of 5.18% are scheduled to reprice in 2026. With current new-loan rates around 6.47%, ServisFirst sees roughly 130 basis points of potential yield pickup on that book alone. Including an additional roughly $700 million of expected cash flows and about $300 million tied to covenant or modification repricings, the bank estimates a total repricing opportunity of around $2.0 billion over the next 12 months. This embedded asset sensitivity provides a clear runway for continued net interest margin expansion if credit and funding costs remain in check.

Texas Expansion and Correspondent Banking Fuel Strategic Growth

Strategic initiatives, notably in Texas and correspondent banking, are central to ServisFirst’s long-term growth story. The bank’s entry into Texas is anchored by a nine-person Houston team that is already generating business, and 2026 budgeted growth for Texas is the highest among all regions. At the same time, the company’s correspondent banking network now includes 388 banks, 145 of which settle at the Federal Reserve, broadening its distribution and fee opportunities. The bank is also seeing traction in an Asian credit card program, with about 150 banks in the pipeline and support from major banking associations, indicating a widening national footprint beyond its core Southeastern markets.

Nonperforming Assets Rise on Single Developer Exposure

The main blemish in an otherwise strong year was asset quality, which was pressured by issues tied largely to one merchant-developer relationship. Nonperforming assets rose to 97 basis points of total assets at year-end, up sharply from 26 basis points at the end of 2024, though essentially flat versus the 96 basis points level reported in the third quarter. Management stressed that this is a localized problem, concentrated in a single exposure rather than broad-based deterioration, but it remains a key area for investors to watch.

Net Charge-Offs, Provisioning and Credit Costs Stay Manageable

Credit costs moved higher but remained within manageable levels. Net charge-offs were about $6.7 million in the fourth quarter, with the majority tied to the same problematic credit. Full-year net charge-offs were 21 basis points, consistent with a still-benign credit environment. The bank recorded a CECL provision of $7.9 million in Q4, and the allowance for credit losses ended the year at 1.25% of loans, providing a reasonable reserve cushion in light of current loss experience and the identified troubled relationship.

Past Securities Restructuring Weighed on Earlier Results

Management also acknowledged that prior securities actions had dampened earlier quarters. Securities losses recognized in the second and third quarters of 2025 stemmed from a restructuring of the bond portfolio, an effort to reposition the balance sheet for better future performance. While unrealized losses in the securities book are now small, those realized losses created a drag on reported earnings in midyear, making the fourth-quarter rebound appear even more pronounced.

Texas Market Still in Investment Mode and Dragging Efficiency

All of ServisFirst’s markets are currently profitable except for the new Texas operation, which is still in ramp-up mode. Management expects the Texas buildout to act as an expense drag in the near term, pushing the efficiency ratio from its recent sub-30% level toward the low 30s in 2026, with guidance in roughly the 30%–33% range. The bank is effectively trading some short-term efficiency and margin pressure for what it believes will be a high-growth, high-return market over the medium term.

Loan Payoffs Add Uncertainty to Growth Outlook

While the loan pipeline is strong, management underscored that both pipeline and payoff forecasts are inherently imprecise. Projected payoffs declined meaningfully from the prior quarter, which helped drive the strong net pipeline numbers, but executives cautioned that payoffs may be understated and are being monitored closely. This introduces some uncertainty into near-term loan growth trends, as higher-than-expected payoffs could partially offset new originations even as demand remains healthy.

Balancing Expense Growth With Rate Sensitivity

Looking ahead, ServisFirst is budgeting high-single-digit expense growth in 2026 to support hiring and infrastructure, especially in Texas. At the same time, the balance sheet remains slightly liability sensitive. During the recent rate-cutting period, deposit costs proved responsive, with a deposit beta of about 83 basis points and interest-bearing liability costs falling roughly 40 basis points quarter-over-quarter and about 65 basis points year-over-year. Future changes in interest rates could still influence margins and deposit pricing dynamics, but the bank’s recent experience suggests it can actively manage through rate cycles.

Forward Guidance Highlights Margin Upside and Near-Term Investment

Management pointed to the December spot net interest margin of around 3.50%—above the 3.38% reported for the full fourth quarter—as a reasonable starting point for 2026, and expects further margin expansion driven by the roughly $2.0 billion loan repricing opportunity. With 86% of variable-rate loans carrying floors at an average of 4.74%, asset yields should remain well supported even if rates move around. The team expects high-single-digit expense growth next year to fund continued Texas expansion and additional hiring in the first half of the year, acknowledging a short-term drag on results but targeting an efficiency ratio in the low 30s as those investments mature. Management also emphasized ongoing loan momentum, solid credit metrics—despite the isolated NPA spike—and strong capital and returns, including tangible book value of $33.62, full-year operating EPS of $5.25, and double-digit returns on equity.

In sum, the call portrayed ServisFirst as a bank in a strong offensive position: delivering robust earnings and margin expansion, managing costs tightly, and investing aggressively in growth markets, all while contending with a manageable set of credit and expansion-related challenges. For investors, the key storylines are the bank’s embedded margin upside from loan repricing, disciplined expense management, and the long-term promise of the Texas buildout, balanced against near-term noise from an isolated credit issue and the costs of growth.