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ServisFirst Bancshares, Inc. Announces Results for First Quarter of 2020

April 20, 2020 4:01 PM

BIRMINGHAM, Ala., April 20, 2020 (GLOBE NEWSWIRE) -- ServisFirst Bancshares, Inc. (NASDAQ: SFBS), today announced earnings and operating results for the quarter ended March 31, 2020.

First Quarter 2020 Highlights:

Tom Broughton, Chairman, President and CEO, said, “Our current focus is on serving our client needs during the current pandemic and our team has done an outstanding job. I could not be more proud of our hard working bankers who have gone above and beyond. They are what makes our company a standout in our industry for customer service.”

Bud Foshee, CFO, said, “We are pleased to have a strong balance sheet and solid profitability that positions us well during the current pandemic and beyond. Our return on average assets was 1.54% during the first quarter. Our pre-tax, pre-provision return on average assets was 2.49% during the first quarter, which is among the best in the banking industry.”

FINANCIAL SUMMARY (UNAUDITED)
(in Thousands except share and per share amounts)
Period Ending March 31, 2020 Period Ending December 31, 2019 % Change From Period Ending December 31, 2019 to Period Ending March 31, 2020 Period Ending March 31, 2019 % Change From Period Ending March 31, 2019 to Period Ending March 31, 2020
QUARTERLY OPERATING RESULTS
Net Income $34,778 $41,037 (15)% $35,010 (1)%
Net Income Available to Common Stockholders $34,778 $41,005 (15)% $35,010 (1)%
Diluted Earnings Per Share $0.64 $0.76 (16)% $0.65 (2)%
Return on Average Assets 1.54% 1.80% 1.75%
Return on Average Common Stockholders' Equity 16.23% 19.75% 19.42%
Average Diluted Shares Outstanding 54,167,414 54,149,554 54,076,538
BALANCE SHEET
Total Assets $9,364,882 $8,947,653 5 % $8,310,836 13 %
Loans 7,568,836 7,261,451 4 % 6,659,908 14 %
Non-interest-bearing Demand Deposits 1,925,626 1,749,879 10 % 1,572,703 22 %
Total Deposits 7,832,655 7,530,433 4 % 7,083,666 11 %
Stockholders' Equity 881,885 842,682 5 % 745,586 18 %

DETAILED FINANCIALS

ServisFirst Bancshares, Inc. reported net income and net income available to common stockholders of $34.8 million for the quarter ended March 31, 2020, compared to net income and net income available to common stockholders of $35.0 million for the same quarter in 2019. Basic and diluted earnings per common share were $0.65 and $0.64, respectively, for the first quarter of 2020, compared to $0.65 and $0.65, respectively, for the first quarter of 2019.

Annualized return on average assets was 1.54% and annualized return on average common stockholders’ equity was 16.23% for the first quarter of 2020, compared to 1.75% and 19.42%, respectively, for the first quarter of 2019.

Net interest income was $77.6 million for the first quarter of 2020, compared to $75.8 million for the fourth quarter of 2019 and $68.8 million for the first quarter of 2019. The net interest margin in the first quarter of 2020 was 3.58% compared to 3.47% in the fourth quarter of 2019 and 3.56% in the first quarter of 2019. Linked quarter decreases in average rates paid on deposits in excess of decreases in loan yields drove a favorable rate change and increases in average balances in loans, non-interest-bearing demand deposits and equity drove favorable volume change.

Average loans for the first quarter of 2020 were $7.36 billion, an increase of $259.0 million, or 15% annualized, over average loans of $7.10 billion for the fourth quarter of 2019, and an increase of $759.7 million, or 12%, over average loans of $6.60 billion for the first quarter of 2019.

Average total deposits for the first quarter of 2020 were $7.64 billion, a decrease of $44,000, from average total deposits of $7.68 billion for the fourth quarter of 2019, and an increase of $662.7 million, or 10%, over average total deposits of $6.98 billion for the first quarter of 2019.

Non-performing assets to total assets were 0.44% for the first quarter of 2020, a decrease of six basis points compared to 0.50% for the fourth quarter of 2019 and an increase of three basis points compared to 0.41% for the first quarter of 2019. Annualized net charge-offs to average loans were 0.26%, a 10 basis point decrease compared to 0.36% for the fourth quarter of 2019 and an increase of six basis points compared to 0.20% for the first quarter of 2019. We recorded a $13.6 million provision for loan losses in the first quarter of 2020 compared to $5.9 million in the fourth quarter of 2019 and $4.9 million in the first quarter of 2019. We have added a new pandemic qualitative factor to our allowance for loan loss calculation and have increased qualitative factors related to macroeconomic conditions; these changes resulted in the need for an additional loan loss provision during the quarter. The allowance for loan loss as a percentage of total loans was 1.13% at March 31, 2020, an increase of eight basis points compared to 1.05% at December 31, 2019 and an increase of 11 basis points compared to 1.02% as of March 31, 2019. The CARES Act, passed into law on March 27, 2020 as a result of the COVID-19 outbreak, allows companies to delay their adoption of Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments (CECL), including the current expected credit losses methodology for estimating allowances for credit losses. We have elected to delay adoption of ASU 2016-13 until the date on which the national emergency concerning the COVID-19 outbreak terminates or December 31, 2020, with an effective retrospective implementation date of January 1, 2020. In management’s opinion, the allowance is adequate and was determined by consistent application of ServisFirst Bank’s methodology for calculating its allowance for loan losses.

Non-interest income for the first quarter of 2020 increased $1.8 million, or 36%, to $6.7 million from $4.9 million in the first quarter of 2019. Deposit service charges increased $214,000 in the first quarter of 2020, or 13%, compared to the first quarter of 2019. Mortgage banking revenue almost doubled to $1.1 million from the first quarter of 2019 to the first quarter of 2020. Mortgage loan sales increased approximately 96% during the first quarter of 2020 when compared to the same quarter in 2019. Credit card revenue increased $189,000, or 12%, to $1.8 million during the first quarter of 2020, compared to $1.6 million during the first quarter of 2019. The number of credit card accounts increased approximately 43% and the aggregate amount of sales on all credit card accounts increased 29% during the first quarter of 2020. Cash surrender value of life insurance increased $691,000, or 91%, to $1.5 million during the first quarter of 2020, compared to $762,000 during the first quarter of 2019. We purchased $75.0 million of additional life insurance contracts during the third quarter of 2019. Other income for the first quarter of 2020 increased $140,000, or 43%, to $469,000 from $329,000 in the first quarter of 2019.

Non-interest expense for the first quarter of 2020 increased $2.6 million, or 10%, to $27.9 million from $25.3 million in the first quarter of 2019, and increased $2.3 million, or 9%, on a linked quarter basis. Salary and benefit expense for the first quarter of 2020 increased $1.4 million, or 10%, to $15.7 million from $14.3 million in the first quarter of 2019, and increased $2.0 million, or 15%, on a linked quarter basis. We adjusted accrued incentives downward by $1.0 million in December based on actual year-end production in 2019. The number of FTE employees increased from 485 at March 31, 2019 to 492 at March 31, 2020, or 1%, and decreased by eight from the end of the fourth quarter of 2019. Equipment and occupancy expense increased $141,000, or 6%, to $2.4 million in the first quarter of 2020, from $2.3 million in the first quarter of 2019, and decreased $61,000 on a linked-quarter basis. Third party processing and other services expense increased $934,000, or 39%, to $3.3 million in the first quarter of 2020, from $2.4 million in the first quarter of 2019. Professional services expense decreased $46,000, or 5%, to $948,000 in the first quarter of 2020, from $994,000 in the first quarter of 2019, and decreased $215,000 on a linked-quarter basis. FDIC and other regulatory assessments increased $313,000 to $1.3 million in the first quarter of 2020, from $1.0 million in the first quarter of 2019. Growth in our assessment base was partially offset by a decrease in our assessment rate. Expenses associated with other real estate owned increased $579,000 to $601,000 in the first quarter of 2020, from $22,000 in the first quarter of 2019. This increase was the result of write-downs in value of property based on updated appraisals related to one foreclosed loan relationship in our Nashville region. Other operating expenses for the first quarter of 2020 decreased $722,000, or 17%, to $3.6 million from $4.4 million in the first quarter of 2019, and decreased $235,000 on a linked-quarter basis. Write-downs in tax credit investments decreased significantly as our New Market Tax Credit partnerships terminated at the end of 2019. Decreases in travel and entertainment expenses also contributed to the decrease in other operating expenses. We accrued $250,000 for a pending legal matter during the first quarter of 2020. The efficiency ratio was 33.11% during the first quarter of 2020 compared to 34.36% during the first quarter of 2019 and compared to 30.83% during the fourth quarter of 2019.

Income tax expense decreased $467,000, or 6%, to $8.0 million in the first quarter of 2020, compared to $8.5 million in the first quarter of 2019. Our effective tax rate was 18.76% for the first quarter of 2020 compared to 19.53% for the first quarter of 2019. We recognized a reduction in provision for income taxes resulting from excess tax benefits from the exercise and vesting of stock options and restricted stock during the first quarters of 2020 and 2019 of $1.1 million and $772,000, respectively.

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

During the third quarter of 2019, we recorded a $1.7 million credit to our FDIC and other regulatory assessments expense as a result of the FDIC’s Small Bank Assessment Credit. Financial measures included in this press release that are presented adjusted for this credit are net income, net income available to common stockholders, diluted earnings per share, return on average assets and return on average common stockholders’ equity. Each of these five financial measures excludes the impact of this item, net of tax, attributable to the FDIC Small Bank Assessment Credit and are all considered non-GAAP financial measures. This press release also contains certain non-GAAP financial measures, including tangible common stockholders’ equity, total tangible assets, tangible book value per share and tangible common equity to total tangible assets, each of which excludes goodwill and core deposit intangibles associated with our acquisition of Metro Bancshares, Inc. in January 2015 and pre-tax, pre-provision return on average assets. We believe these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that these non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies, including those in our industry, use. The following reconciliation tables provide a more detailed analysis of the non-GAAP financial measures as of and for the comparative periods presented in this press release. Dollars are in thousands, except share and per share data.

Three Months Ended September 30, 2019
Net income - GAAP $149,243
Adjustments:
FDIC Small Bank Assessment Credit 1,669
Tax on adjustment 421
Adjusted net income - non-GAAP $147,995
Net income available to common stockholders - GAAP $149,180
Adjustments:
FDIC Small Bank Assessment Credit 1,669
Tax on adjustment 421
Adjusted net income available to common stockholders -
non-GAAP $147,932
Diluted earnings per share - GAAP $2.76
Adjustments:
FDIC Small Bank Assessment Credit (0.03)
Tax on adjustment 0.01
Adjusted diluted earnings per share - non-GAAP $2.74
Return on average assets - GAAP 1.73 %
Net income - GAAP $149,243
Adjustments:
FDIC Small Bank Assessment Credit 1,669
Tax on adjustment 421
Adjusted net income - non-GAAP $147,995
Average assets - GAAP $8,638,604
Adjusted return on average assets - non-GAAP 1.71 %
Return on average common stockholders' equity - GAAP 19.15 %
Net income - GAAP $149,243
Adjustments:
FDIC Small Bank Assessment Credit 1,669
Tax on adjustment 421
Adjusted net income - non-GAAP $147,995
Average common stockholders' equity - GAAP $779,071
Adjusted return on average common stockholders' equity -
non-GAAP 18.99 %
At March 31, 2020 At December 31, 2019 At September 30, 2019 At June 30, 2019 At March 31, 2019
Book value per share - GAAP $16.38 $15.71 $15.13 $14.55 $13.94
Total common stockholders' equity - GAAP 881,886 842,682 810,537 778,957 745,586
Adjustments:
Adjusted for goodwill and core deposit intangible asset 14,111 14,179 14,246 14,314 14,381
Tangible common stockholders' equity - non-GAAP $867,775 $828,503 $796,291 $764,643 $731,205
Tangible book value per share - non-GAAP $16.12 $15.45 $14.86 $14.29 $13.67
Stockholders' equity to total assets - GAAP 9.42 % 9.42% 9.00% 8.91% 8.97%
Total assets - GAAP $9,364,882 $8,947,653 $9,005,112 $8,740,237 $8,310,836
Adjustments:
Adjusted for goodwill and core deposit intangible asset 14,111 14,179 14,246 14,314 14,381
Total tangible assets - non-GAAP $9,350,771 $8,933,474 $8,990,866 $8,725,923 $8,296,455
Tangible common equity to total tangible assets - non-GAAP 9.28 % 9.27% 8.86% 8.76% 8.81%
Return on average assets - GAAP 1.54 %
Net income $34,778
Adjustments:
Provision for loan losses 13,584
Provision for income taxes 8,032
Net income before provision for loan losses and provision
for income taxes $56,394
Pre-tax, Pre-Provision return on average assets - non-GAAP 2.49 %

About ServisFirst Bancshares, Inc.

ServisFirst Bancshares, Inc. is a bank holding company based in Birmingham, Alabama. Through its subsidiary ServisFirst Bank, ServisFirst Bancshares, Inc. provides business and personal financial services from locations in Birmingham, Huntsville, Montgomery, Mobile and Dothan, Alabama, Pensacola, Sarasota and Tampa Bay, Florida, Atlanta, Georgia, Charleston, South Carolina and Nashville, Tennessee.

ServisFirst Bancshares, Inc. files periodic reports with the U.S. Securities and Exchange Commission (SEC). Copies of its filings may be obtained through the SEC’s website at www.sec.gov or at www.servisfirstbancshares.com.

Statements in this press release that are not historical facts, including, but not limited to, statements concerning future operations, results or performance, are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words "believe," "expect," "anticipate," "project," “plan,” “intend,” “will,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. ServisFirst Bancshares, Inc. cautions that such forward-looking statements, wherever they occur in this press release or in other statements attributable to ServisFirst Bancshares, Inc., are necessarily estimates reflecting the judgment of ServisFirst Bancshares, Inc.’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including: the global health and economic crisis precipitated by the COVID-19 outbreak; general economic conditions, especially in the credit markets and in the Southeast; the performance of the capital markets; changes in interest rates, yield curves and interest rate spread relationships; changes in accounting and tax principles, policies or guidelines; changes in legislation or regulatory requirements; changes in our loan portfolio and the deposit base; economic crises and associated credit issues in industries most impacted by the COVID-19 outbreak, including the restaurant, hospitality and retail sectors; possible changes in laws and regulations and governmental monetary and fiscal policies, including, but not limited to, economic stimulus initiatives; the cost and other effects of legal and administrative cases and similar contingencies; possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and the value of collateral; the effect of natural disasters, such as hurricanes and tornados, in our geographic markets; and increased competition from both banks and non-bank financial institutions. The foregoing list of factors is not exhaustive. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Cautionary Note Regarding Forward-looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K and our other SEC filings. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained herein. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made. ServisFirst Bancshares, Inc. assumes no obligation to update or revise any forward-looking statements that are made from time to time.

More information about ServisFirst Bancshares, Inc. may be obtained over the Internet at www.servisfirstbancshares.com or by calling (205) 949-0302.

Contact: ServisFirst BankDavis Mange (205) 949-3420[email protected]

SELECTED FINANCIAL HIGHLIGHTS (Unaudited)
(In thousands except share and per share data)
1st Quarter 2020 4th Quarter 2019 3rd Quarter 2019 2nd Quarter 2019 1st Quarter 2019
CONSOLIDATED STATEMENT OF INCOME
Interest income $96,767 $98,187 $101,130 $97,787 $93,699
Interest expense 19,127 22,410 28,125 27,702 24,921
Net interest income 77,640 75,777 73,005 70,085 68,778
Provision for loan losses 13,584 5,884 6,985 4,884 4,885
Net interest income after provision for loan losses 64,056 69,893 66,020 65,201 63,893
Non-interest income 6,674 6,936 6,202 5,778 4,944
Non-interest expense 27,920 25,503 25,153 26,022 25,328
Income before income tax 42,810 51,326 47,069 44,957 43,509
Provision for income tax 8,032 10,289 9,506 9,324 8,499
Net income 34,778 41,037 37,563 35,633 35,010
Preferred stock dividends - 32 - 31 -
Net income available to common stockholders $34,778 $41,005 $37,563 $35,602 $35,010
Earnings per share - basic $0.65 $0.76 $0.70 $0.66 $0.65
Earnings per share - diluted $0.64 $0.76 $0.69 $0.66 $0.65
Average diluted shares outstanding 54,167,414 54,149,554 54,096,368 54,089,107 54,076,538
CONSOLIDATED BALANCE SHEET DATA
Total assets $9,364,882 $8,947,653 $9,005,112 $8,740,237 $8,310,836
Loans 7,568,836 7,261,451 7,022,069 6,967,886 6,659,908
Debt securities 827,032 759,649 688,271 658,221 631,946
Non-interest-bearing demand deposits 1,925,626 1,749,879 1,678,672 1,576,959 1,572,703
Total deposits 7,832,655 7,530,433 7,724,158 7,404,794 7,083,666
Borrowings 64,707 64,703 64,693 64,684 64,675
Stockholders' equity $881,885 $842,682 $810,537 $778,957 $745,586
Shares outstanding 53,844,009 53,623,740 53,579,013 53,526,882 53,495,208
Book value per share $16.38 $15.71 $15.13 $14.55 $13.94
Tangible book value per share (1) $16.12 $15.45 $14.86 $14.29 $13.67
SELECTED FINANCIAL RATIOS (Annualized)
Net interest margin 3.58% 3.47% 3.36% 3.44% 3.56%
Return on average assets 1.54% 1.80% 1.67% 1.69% 1.75%
Return on average common stockholders' equity 16.23% 19.75% 18.69% 18.72% 19.42%
Efficiency ratio 33.11% 30.83% 31.76% 34.30% 34.36%
Non-interest expense to average earning assets 1.29% 1.17% 1.16% 1.28% 1.31%
CAPITAL RATIOS (2)
Common equity tier 1 capital to risk-weighted assets 10.68% 10.50% 10.39% 10.18% 10.30%
Tier 1 capital to risk-weighted assets 10.68% 10.50% 10.39% 10.19% 10.30%
Total capital to risk-weighted assets 12.54% 12.31% 12.27% 12.02% 12.21%
Tier 1 capital to average assets 9.56% 9.13% 8.88% 9.00% 9.03%
Tangible common equity to total tangible assets (1) 9.28% 9.27% 8.86% 8.76% 8.81%
(1) See "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" for a discussion of these Non-GAAP financial measures.
(2) Regulatory capital ratios for most recent period are preliminary.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
March 31, 2020 March 31, 2019 % Change
ASSETS
Cash and due from banks $80,461 $71,058 13 %
Interest-bearing balances due from depository institutions 297,943 547,036 (46)%
Federal funds sold 306,127 181,435 69 %
Cash and cash equivalents 684,531 799,529 (14)%
Available for sale debt securities, at fair value 826,782 631,696 31 %
Held to maturity debt securities (fair value of $250 at March 31, 2020 and 2019) 250 250 -
Mortgage loans held for sale 6,747 1,223 452 %
Loans 7,568,836 6,659,908 14 %
Less allowance for loan losses (85,414) (70,207) 22 %
Loans, net 7,483,422 6,589,701 14 %
Premises and equipment, net 55,992 57,664 (3)%
Goodwill and other identifiable intangible assets 14,111 14,381 (2)%
Other assets 293,047 216,392 35 %
Total assets $9,364,882 $8,310,836 13 %
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing $1,925,626 $1,572,703 22 %
Interest-bearing 5,907,029 5,510,963 7 %
Total deposits 7,832,655 7,083,666 11 %
Federal funds purchased 543,623 373,378 46 %
Other borrowings 64,707 64,675 - %
Other liabilities 42,012 43,531 (3)%
Total liabilities 8,482,997 7,565,250 12 %
Stockholders' equity:
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at
March 31, 2020 and March 31, 2019 - -
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 53,844,009 shares
issued and outstanding at March 31, 2020, and 53,495,208 shares issued and outstanding
at March 31, 2019 54 54 - %
Additional paid-in capital 221,901 218,147 2 %
Retained earnings 641,980 527,853 22 %
Accumulated other comprehensive income (loss) 17,448 (969) NM
Total stockholders' equity attributable to ServisFirst Bancshares, Inc. 881,383 745,084 18 %
Noncontrolling interest 502 502 - %
Total stockholders' equity 881,885 745,586 18 %
Total liabilities and stockholders' equity $9,364,882 $8,310,836 13 %

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except per share data)
Three Months Ended March 31,
2020 2019
Interest income:
Interest and fees on loans $89,385 $85,524
Taxable securities 5,154 3,746
Nontaxable securities 233 446
Federal funds sold 277 1,219
Other interest and dividends 1,718 2,764
Total interest income 96,767 93,699
Interest expense:
Deposits 16,745 22,145
Borrowed funds 2,382 2,776
Total interest expense 19,127 24,921
Net interest income 77,640 68,778
Provision for loan losses 13,584 4,885
Net interest income after provision for loan losses 64,056 63,893
Non-interest income:
Service charges on deposit accounts 1,916 1,702
Mortgage banking 1,071 575
Credit card income 1,765 1,576
Increase in cash surrender value life insurance 1,453 762
Other operating income 469 329
Total non-interest income 6,674 4,944
Non-interest expense:
Salaries and employee benefits 15,658 14,265
Equipment and occupancy expense 2,400 2,259
Third party processing and other services 3,345 2,411
Professional services 948 994
FDIC and other regulatory assessments 1,332 1,019
Other real estate owned expense 601 22
Other operating expense 3,636 4,358
Total non-interest expense 27,920 25,328
Income before income tax 42,810 43,509
Provision for income tax 8,032 8,499
Net income 34,778 35,010
Dividends on preferred stock - -
Net income available to common stockholders $34,778 $35,010
Basic earnings per common share $0.65 $0.65
Diluted earnings per common share $0.64 $0.65

LOANS BY TYPE (UNAUDITED)
(In thousands)
1st Quarter 2020 4th Quarter 2019 3rd Quarter 2019 2nd Quarter 2019 1st Quarter 2019
Commercial, financial and agricultural $2,771,307 $2,696,210 $2,653,934 $2,633,529 $2,522,136
Real estate - construction 548,578 521,392 550,871 603,779 556,219
Real estate - mortgage:
Owner-occupied commercial 1,678,532 1,587,478 1,526,911 1,538,279 1,500,595
1-4 family mortgage 675,870 644,188 632,346 630,963 629,285
Other mortgage 1,834,137 1,747,394 1,592,072 1,496,512 1,394,611
Subtotal: Real estate - mortgage 4,188,539 3,979,060 3,751,329 3,665,754 3,524,491
Consumer 60,412 64,789 65,935 64,824 57,062
Total loans $7,568,836 $7,261,451 $7,022,069 $6,967,886 $6,659,908

SUMMARY OF LOAN LOSS EXPERIENCE (UNAUDITED)
(Dollars in thousands)
1st Quarter 2020 4th Quarter 2019 3rd Quarter 2019 2nd Quarter 2019 1st Quarter 2019
Allowance for loan losses:
Beginning balance $76,584 $77,192 $71,386 $70,207 $68,600
Loans charged off:
Commercial financial and agricultural 2,640 4,742 3,626 3,610 3,037
Real estate - construction 454 - - - -
Real estate - mortgage 1,678 1,689 4,974 169 50
Consumer 58 139 172 63 218
Total charge offs 4,830 6,570 8,772 3,842 3,305
Recoveries:
Commercial financial and agricultural 62 51 126 117 12
Real estate - construction 1 1 1 - 1
Real estate - mortgage 1 2 - 4 7
Consumer 12 24 60 16 7
Total recoveries 76 78 187 137 27
Net charge-offs 4,754 6,492 8,585 3,705 3,278
Allocation from Loan Guarantee Program - - 7,406 - -
Provision for loan losses 13,584 5,884 6,985 4,884 4,885
Ending balance $85,414 $76,584 $77,192 $71,386 $70,207
Allowance for loan losses to total loans 1.13% 1.05% 1.10% 1.02% 1.05%
Allowance for loan losses to total average
loans 1.16% 1.08% 1.11% 1.05% 1.06%
Net charge-offs to total average loans 0.26% 0.36% 0.49% 0.22% 0.20%
Provision for loan losses to total average
loans 0.74% 0.33% 0.40% 0.29% 0.30%
Nonperforming assets:
Nonaccrual loans $28,914 $30,091 $35,732 $21,840 $22,154
Loans 90+ days past due and accruing 4,954 6,021 5,317 10,299 5,021
Other real estate owned and
repossessed assets 7,448 8,178 5,337 5,649 5,480
Total $41,316 $44,290 $46,386 $37,788 $32,655
Nonperforming loans to total loans 0.45% 0.50% 0.58% 0.46% 0.41%
Nonperforming assets to total assets 0.44% 0.50% 0.52% 0.43% 0.39%
Nonperforming assets to earning assets 0.45% 0.50% 0.53% 0.44% 0.40%
Reserve for loan losses to nonaccrual loans 295.41% 254.51% 216.03% 326.86% 316.90%
Restructured accruing loans $975 $625 $3,468 $2,742 $2,742
Restructured accruing loans to total loans 0.01% 0.01% 0.05% 0.04% 0.04%
TROUBLED DEBT RESTRUCTURINGS (TDRs) (UNAUDITED)
(In thousands)
1st Quarter 2020 4th Quarter 2019 3rd Quarter 2019 2nd Quarter 2019 1st Quarter 2019
Beginning balance: $3,330 $11,248 $11,284 $12,289 $14,555
Additions 350 250 - - -
Net (paydowns) / advances (232) (3,481) 714 (12) (766)
Charge-offs (1,081) (1,333) (750) (993) (1,500)
Transfer to OREO - (3,354) - - -
$2,367 $3,330 $11,248 $11,284 $12,289

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except per share data)
1st Quarter 2020 4th Quarter 2019 3rd Quarter 2019 2nd Quarter 2019 1st Quarter 2019
Interest income:
Interest and fees on loans $89,385 $89,407 $90,767 $88,610 $85,524
Taxable securities 5,154 4,702 4,367 4,193 3,746
Nontaxable securities 233 274 316 393 446
Federal funds sold 277 1,053 1,768 1,998 1,219
Other interest and dividends 1,718 2,751 3,912 2,593 2,764
Total interest income 96,767 98,187 101,130 97,787 93,699
Interest expense:
Deposits 16,745 19,786 24,787 24,240 22,145
Borrowed funds 2,382 2,624 3,338 3,462 2,776
Total interest expense 19,127 22,410 28,125 27,702 24,921
Net interest income 77,640 75,777 73,005 70,085 68,778
Provision for loan losses 13,584 5,884 6,985 4,884 4,885
Net interest income after provision for loan losses 64,056 69,893 66,020 65,201 63,893
Non-interest income:
Service charges on deposit accounts 1,916 1,806 1,735 1,786 1,702
Mortgage banking 1,071 1,366 1,333 1,087 575
Credit card income 1,765 1,891 1,868 1,741 1,576
Securities (losses) gains - (1) 34 (6) -
Increase in cash surrender value life insurance 1,453 1,419 787 778 762
Other operating income 469 455 445 392 329
Total non-interest income 6,674 6,936 6,202 5,778 4,944
Non-interest expense:
Salaries and employee benefits 15,658 13,680 15,499 14,339 14,265
Equipment and occupancy expense 2,400 2,339 2,387 2,287 2,259
Third party processing and other services 3,345 3,176 2,923 2,724 2,411
Professional services 948 1,163 887 1,191 994
FDIC and other regulatory assessments (credits) 1,332 1,171 (296) 1,081 1,019
Other real estate owned expense 601 103 78 212 22
Other operating expense 3,636 3,871 3,675 4,188 4,358
Total non-interest expense 27,920 25,503 25,153 26,022 25,328
Income before income tax 42,810 51,326 47,069 44,957 43,509
Provision for income tax 8,032 10,289 9,506 9,324 8,499
Net income 34,778 41,037 37,563 35,633 35,010
Dividends on preferred stock - 32 - 31 -
Net income available to common stockholders $34,778 $41,005 $37,563 $35,602 $35,010
Basic earnings per common share $0.65 $0.77 $0.70 $0.67 $0.65
Diluted earnings per common share $0.64 $0.76 $0.69 $0.66 $0.65

AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS (UNAUDITED)
ON A FULLY TAXABLE-EQUIVALENT BASIS
(Dollars in thousands)
1st Quarter 2020 4th Quarter 2019 3rd Quarter 2019 2nd Quarter 2019 1st Quarter 2019
Average Balance Yield / Rate Average Balance Yield / Rate Average Balance Yield / Rate Average Balance Yield / Rate Average Balance Yield / Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)
Taxable $7,328,594 4.89% $7,066,576 5.00% $6,927,075 5.18% $6,756,927 5.24% $6,570,920 5.26%
Tax-exempt (2) 32,555 4.04 35,563 4.00 34,195 3.98 32,124 3.83 30,577 3.81
Total loans, net of
unearned income 7,361,149 4.88 7,102,139 4.99 6,961,270 5.17 6,789,051 5.23 6,601,497 5.25
Mortgage loans held for sale 4,282 2.16 6,505 2.44 6,482 2.45 5,208 3.85 1,614 6.53
Debt securities:
Taxable 750,413 2.75 670,732 2.81 595,405 2.93 565,491 2.97 518,955 2.89
Tax-exempt (2) 44,029 2.33 50,825 2.17 59,992 2.21 77,364 2.10 87,537 2.12
Total securities (3) 794,442 2.72 721,557 2.76 655,397 2.87 642,855 2.86 606,492 2.78
Federal funds sold 105,423 1.06 238,927 1.75 312,968 2.24 323,714 2.48 192,690 2.57
Interest-bearing balances with banks 469,199 1.47 602,755 1.81 690,973 2.25 411,481 2.53 438,099 2.56
Total interest-earning assets $8,734,495 4.46% $8,671,883 4.49% $8,627,090 4.65% $8,172,309 4.80% $7,840,392 4.85%
Non-interest-earning assets:
Cash and due from banks 66,140 70,381 71,418 76,988 74,430
Net premises and equipment 58,066 57,986 58,243 58,607 58,852
Allowance for loan losses, accrued
interest and other assets 241,479 233,885 162,654 156,264 149,941
Total assets $9,100,180 $9,034,135 $8,919,405 $8,464,168 $8,123,615
Interest-bearing liabilities:
Interest-bearing deposits:
Checking $956,803 0.57% $961,258 0.69% $900,754 0.84% $909,847 0.88% $942,686 0.86%
Savings 67,380 0.50 62,311 0.53 57,431 0.60 54,391 0.57 54,086 0.55
Money market 4,061,286 1.10 4,189,283 1.34 4,265,435 1.76 3,932,459 1.88 3,758,162 1.78
Time deposits 805,924 2.09 712,155 2.15 703,278 2.20 694,414 2.16 698,976 2.06
Total interest-bearing deposits 5,891,393 1.14 5,925,007 1.32 5,926,898 1.66 5,591,111 1.74 5,453,910 1.65
Federal funds purchased 492,638 1.31 420,066 1.74 441,526 2.30 418,486 2.57 312,989 2.59
Other borrowings 64,707 4.85 64,698 4.79 64,689 4.79 64,680 4.84 64,671 4.90
Total interest-bearing liabilities $6,448,738 1.19% $6,409,771 1.39% $6,433,113 1.73% $6,074,277 1.83% $5,831,570 1.73%
Non-interest-bearing liabilities:
Non-interest-bearing
demand deposits 1,749,671 1,759,671 1,654,928 1,591,722 1,524,502
Other liabilities 39,801 41,112 34,070 35,161 36,362
Stockholders' equity 853,800 818,320 792,284 763,742 735,611
Accumulated other comprehensive
income (loss) 8,170 5,261 5,010 (734) (4,430)
Total liabilities and
stockholders' equity $9,100,180 $9,034,135 $8,919,405 $8,464,168 $8,123,615
Net interest spread 3.27% 3.10% 2.92% 2.97% 3.12%
Net interest margin 3.58% 3.47% 3.36% 3.44% 3.56%
(1)Average loans include loans on which the accrual of interest has been discontinued.
(2)Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.
(3)Unrealized losses on available-for-sale debt securities are excluded from the yield calculation.

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Source: ServisFirst Bancshares, Inc.

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