SFBS Q3 Deep Dive: Loan Growth Lags, Margin Expansion and Credit Quality in Focus

Regional banking company ServisFirst Bancshares (NYSE:SFBS) fell short of the market’s revenue expectations in Q3 CY2025, but sales rose 10.2% year on year to $136.3 million. Its non-GAAP profit of $1.30 per share was 2.7% below analysts’ consensus estimates.

Is now the time to buy SFBS? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

ServisFirst Bancshares’ Q3 results fell short of Wall Street’s expectations, with the stock trading down modestly in response. Management attributed the underperformance to weaker-than-anticipated loan growth, which was driven by elevated loan paydowns and softer lending activity. CEO Thomas Broughton noted that while loan production was below projections, the company’s loan pipeline improved late in the quarter. The bank also faced a notable increase in nonperforming assets, largely tied to a single relationship in multifamily real estate, but emphasized efforts to secure additional collateral and actively manage credit risk. CFO David Sparacio explained that unique items, including a bond portfolio restructuring loss and a solar tax credit investment, impacted reported earnings.

Looking ahead, management believes that continued margin expansion will be driven by lower deposit costs as the Federal Reserve reduces interest rates, along with repricing opportunities in the loan portfolio. Sparacio stated, “We are still confident with 7 to 10 basis points improvement in margin each quarter as we’ve been seeing.” The company expects loan growth to rebound in the coming quarters, supported by a stronger loan pipeline and new market initiatives. Broughton highlighted ongoing investments in talent and targeted market expansion, while also noting that expense discipline and selective tax strategies, such as further solar tax credit investments, could support future profitability.

Key Insights from Management’s Remarks

Management pointed to a mix of factors impacting Q3 performance, including subdued loan demand, credit quality developments, and actions taken to improve future margins and profitability.

• Loan growth below expectations: Despite a higher year-over-year loan pipeline, Q3 saw increased paydowns, limiting net loan growth. Broughton noted loan payoffs were up $500 million compared to previous quarters, with the pipeline now 40% higher than the prior year, suggesting potential improvement ahead.
• Nonperforming assets rise: Nonperforming assets grew due to one large multifamily borrower, but the bank secured additional collateral and expects resolutions through asset sales and other actions in the near term. Harper, Chief Credit Officer, emphasized active management and expressed confidence in recovering value.
• Deposit cost management underway: The bank reduced high-cost municipal deposits, offsetting them with inflows from corporate clients. Management aims to further lower total deposit costs as the Fed cuts rates, which should support net interest margin.
• Bond portfolio restructuring: The sale of low-yield securities at a loss and reinvestment into higher-yielding assets are expected to benefit future net interest income. Sparacio described the expected payback period for the transaction as roughly three years and indicated no further restructuring is anticipated.
• Expense and tax strategy: Noninterest expense grew but was outpaced by revenue gains, driving an improved efficiency ratio. The company’s investment in a solar tax credit reduced its effective tax rate to 18.9%, and management plans to pursue similar tax optimization opportunities.

Drivers of Future Performance

Management anticipates that margin expansion, improved loan growth, and disciplined expense management will be key themes for the remainder of the year.

• Margin expansion focus: The company expects net interest margin to continue rising as deposit costs decline in response to Federal Reserve rate cuts and as higher-yielding assets replace lower-yielding ones in the portfolio. Sparacio projected an additional 7 to 10 basis points margin improvement per quarter, barring major changes in monetary policy.
• Loan growth recovery: Management cited a 40% year-over-year increase in the loan pipeline, with particular strength expected from new market hires and recent geographic expansions. Broughton suggested that typical fourth-quarter seasonality could further support loan growth if economic conditions remain stable.
• Expense and tax discipline: Ongoing efforts to constrain noninterest expense growth relative to revenue and to optimize the tax rate through targeted investments, such as solar tax credits, are expected to underpin profitability. Management’s goal is to keep overall expense growth at a fraction of revenue gains and maintain an effective tax rate below 20%.

Catalysts in Upcoming Quarters

Over the coming quarters, the StockStory team will be monitoring (1) whether the expanded loan pipeline translates into sustained loan growth, (2) the resolution of nonperforming assets tied to multifamily real estate, and (3) ongoing improvements in net interest margin as deposit costs decline and bond portfolio changes take effect. Execution on expense discipline and further tax optimization strategies will also be areas of focus.

ServisFirst Bancshares currently trades at $73.08, down from $76.47 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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