SFBS Q1 Deep Dive: Loan and Deposit Growth Offset Margin Pressures Amid Credit Transition

Regional banking company ServisFirst Bancshares (NYSE:SFBS) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 18.3% year on year to $131.8 million. Its non-GAAP profit of $1.16 per share was 2% below analysts’ consensus estimates.

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

StockStory’s Take

ServisFirst Bancshares began 2025 with revenue and non-GAAP earnings that came in just below Wall Street’s expectations, while still achieving notable year-over-year growth. Management pointed to robust loan and deposit expansion as a primary driver, especially in municipal and correspondent accounts, and highlighted that loan growth was broad-based across geographies and business types. CEO Tom Broughton called out a “solid start to the year,” emphasizing the company’s success in growing both new and core market relationships. The quarter also saw higher charge-offs and a moderate increase in nonperforming assets, with most of the uptick traced to a small number of medical-related relationships, which management noted were not speculative real estate loans.

Looking ahead, ServisFirst’s outlook hinges on maintaining momentum in loan growth, normalizing deposit trends as municipal funds recede, and managing net interest margin as cash balances decline. Management expects some deposit runoff in the coming quarters, which should help reduce funding costs and support margin improvement. CFO David Sparacio stated, “We expect those cash balances to come down over the next few months,” indicating a likely positive effect on net interest margin. The company also anticipates continued opportunities for loan repricing and portfolio growth, while remaining cautious about economic uncertainties and potential headwinds from credit quality normalization.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to above-average loan and deposit growth, a focus on expense discipline, and careful credit management, while also noting the impact of higher cash balances on margins.

• Loan portfolio expansion: The company saw annualized loan growth of 9% in the first quarter, with a diverse mix across new and existing markets. Management described the pipeline as “up 10% from January,” and characterized growth as granular rather than dependent on large single deals.
• Deposit growth dynamics: Strong deposit inflows were concentrated in municipal and correspondent accounts, partially aided by lingering COVID-related government funds. Management noted this trend is atypical for the first quarter and expects some runoff later in the year.
• Margin dilution from liquidity: Elevated cash balances at the Federal Reserve, which increased by approximately $959 million, diluted net interest margin by six basis points. Management anticipates these balances will decline and help margins recover over time.
• Stable operating expenses: Noninterest expense was down compared to the prior quarter and flat year-over-year, reflecting ongoing cost control. The efficiency ratio remained below 35%, despite a one-time operational loss and seasonal payroll fluctuations.
• Credit quality normalization: Charge-offs rose to pre-pandemic levels, and nonperforming assets increased, mostly linked to two specific medical-related borrowers. The company took aggressive action on impaired loans, aiming to position the credit portfolio for improved performance in future quarters.

Drivers of Future Performance

Management expects continued loan growth, normalization of deposit mix, and disciplined expense management to shape results this year, while monitoring credit quality and external economic conditions.

• Deposit runoff and margin improvement: As municipal and correspondent deposits decline, management believes funding costs will decrease and net interest margins will improve, supported by a gradual reduction in excess cash balances held at the Federal Reserve.
• Loan repricing and growth: The company anticipates over $1.9 billion in assets will reprice within the next twelve months, creating opportunities to enhance yield. Management remains focused on organic growth in both core and newer markets, despite recognizing the potential for some loan payoffs to temper overall growth rates.
• Credit and economic uncertainties: While management is optimistic about continued business expansion, they remain cautious about external risks, including economic slowdowns and potential normalization of credit performance. The recent uptick in charge-offs and nonperforming assets will be monitored closely.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be tracking (1) the pace at which municipal and correspondent deposits run off and the resulting impact on funding costs and margin, (2) progress on repricing and growing the loan portfolio in both existing and new markets, and (3) trends in credit quality as the company manages through higher charge-offs and nonperforming assets. The hiring of new producers and any expansion into additional markets will also be important milestones.

ServisFirst Bancshares currently trades at $74.88, down from $77.62 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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