ServisFirst Bancshares Inc (SFBS) Q1 2019 Earnings Call Transcript
ServisFirst Bancshares Inc (NASDAQ: SFBS)Q1 2019 Earnings CallApril 15, 2019, 5:15 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the ServisFirst Bancshares Incorporated First Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.
I would now like to turn the conference over to Mr. Davis Mange, Vice President of Investor Relations. Please go ahead.
Davis Mange -- Vice President of Investor Relations
Good afternoon, and welcome to our first quarter earnings call. We will have Tom Broughton, our CEO; and Bill Foshee, our CFO, covering some highlights from the quarter and we'll then take your questions.
I'll now cover our forward-looking statements disclosure and then we can get started. Some of the discussion in today's earnings call may include forward-looking statements, subject to assumptions, risks and uncertainties. Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made and ServisFirst assumes no duty to update them.
With that, I'll turn the call over to Tom.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Thank you, Davis. Good afternoon, and welcome to our first quarter 2019 conference call. We had a really great quarter. Very pleased with how the quarter ended up. As most of you know, typically the first quarter is not the best quarter of our year for ServisFirst, but we're very pleased with the solid growth that we did have in the first quarter, which is above average for our company over the last several years.
On the deposit side, we had annualized deposit growth for the quarter of 10% and it was very broad based with Atlanta, Tampa, Mobile, Huntsville and Pensacola having the best growth. Typically in the first quarter we have very little, if any, deposit growth, but this quarter we had really good solid growth. We do have one region that has a very large seasonal account that runs off in the first quarter and it certainly is large enough it affects our overall, not only their numbers but it's large enough to affect our overall numbers as well. So that's sort of unusual type situation, but it's a very profitable account.
We do continue to focus on building core relationships. Our new account openings continue to be very strong. 2019 is off to a wonderful start. Atlanta and Tampa Bay had the best -- looking at the first quarter that really had come out very strong with account openings this year.
On the loan side, we've experienced very solid loan growth during the first quarter. Montgomery and Atlanta were our best regions of the company. Our typical loan growth for last year, I think, were up in the first quarter was 5% annualized and this year it's 8% annualized in the first quarter. So we will continue to see very strong growth there. Bud will discuss our solid credit quality and improved credit metrics in a few minutes, but just a few other things I'd like to cover.
One is, on our loan pipeline, it is on a very solid footing today. It is up a good bit from the first quarter -- into the year -- for the first quarter, it's very strong. It is up -- it is still up net of projected payoffs. Projected payoffs are up a bit as well for the next 120 days where we're seeing a very solid growth in the pipeline.
At our production level, we today have 133 producers. We added five new ones. We had one retire and two departed. So we're seeing really good upgrades in our staff level. We've talked in a number of people, with individual producers today and adding a number of people actually in the month of April. So these numbers don't reflect though the hiring of a number of production trainees that we've done over the last year or so. We've had about 10 production trainees over the last year that'll hopefully there. It'll be a while before they contribute. We look forward to getting them into production in the next couple of years.
So, with that, I'll stop for a moment and turn it over to Bill to talk about the numbers.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Thank you Tom. Good afternoon. First, I'll growth and net interest margin. Our loan and deposit growth were strong in the first quarter. Year-over-year loans grew 12.3% and deposits 18.5%. Our margin -- net interest margin decreased from 3.63% in the fourth quarter to 3.56% in the first quarter. One of the contributing factors was an increase in excess funds of $140 million. Our loan yield increased by 13 basis points, that's primarily due to the increase in prime rate after the Fed rate increase in December of 2018. Funding our loan growth, our deposit cost increased by 20 basis points and 23 basis points for Fed funds purchased. Funding costs related to our correspondent banking relationships will continue to move with Fed rate changes. There the beta for those borrowings is 100%.
For the remainder of 2019, we project the margin to be in the range of 3.60% to 3.65%. And again a reminder, we have no accretion income related to acquisitions.
The next section I want to cover is salaries. Year-over-year our salaries have increased $1.1 million. We added -- in 2018, we added managers for purchase cards and merchant services. As we talked about in our fourth quarter earnings call, we are the endorsed vendor from the American Bankers Association for our agent credit card program. We have now dedicated two employees full time to the sales for that, to accommodate the referrals we are receiving. Also, we added production offices. We have a Pensacola mortgage office, we also added a loan production office in Fort Walton. And from a back office standpoint, we had no net adds and compliance for our team, but we did have salary increases and we upgraded certain positions.
Next section, our non-interest income. Mortgage banking continues to be a small portion of our total interest income. The net contribution to income is not that meaningful.
Credit card income continues to grow, increased $321,000 from 2018, and just a reminder that we don't -- do not sell any government guaranteed loans, generate non-interest income.
Next, let's talk about loan loss provision. Our first quarter net charge-offs were $3.3 million, $2.1 million of net charge-offs were fully impaired and $1.2 million were unimpaired charge-offs. Now, we have a improving trend in net charge-offs to average loans, it was 0.25% in the third quarter of 2018, 0.30% in the fourth quarter, and 0.20% in the first quarter of this year.
Taxes for the first quarter, the rate was 19.5%, 21.3% without the stock option credits of $772,000. Tax rate for the first quarter of 2018 was 17.8%, 21.4% without stock option credits of $1,453,000. For the remainder of 2019, the projected tax rate is 21.3%.
That concludes my section. And I'll turn it over to Davis.
Davis Mange -- Vice President of Investor Relations
All right. With that, let's open up the floor for questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Brad Milsaps with Sandler O'Neill. Please go ahead.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Hi, good afternoon.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Hi, Brad.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Good afternoon, Brad.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Maybe. Bud, I appreciate, and Tom I appreciate it and Tom I appreciate all the color on everything. Wanted to maybe follow up on the net interest margin. I think you mentioned kind of a 3.60% to 3.65% type range for the remainder of the year. I was just kind of curious, kind of, what was behind -- what were the drivers kind of behind that guidance? Specifically what are you assuming in terms of deploying that excess liquidity that you've built up? And then, maybe, talk a little bit about the deposit market? And what you're seeing in terms of rates, cost of funding on that side of things now, but it appears that the Fed is -- has stopped raising rates.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Yeah. Brad, really right now we're probably higher than normal at this time of year and excess funds will probably stay in $750 million, somewhere in that range, which we expect some of that to decrease over time, kind of does in the second half of each year as our loan and deposit growth both pick up.
But deposits still are -- well, I think, we're going with normally anticipated Fed rate increases, we're hoping deposit pricing gets a little more back to normal, but we still know that, it's only moving up 20 basis points in the first quarter. So I think that's the biggest unknown, it's just what deposit costs are going to be. I don't know what other people -- I think that from what we've heard that deposit pricing is a little bit higher in the Southeast than some of the other regions, so that would be something we just have to look at, but we're going to continue to grow, so we'll just have to figure out from a funding side that the best way to do that.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Got it. And maybe just to follow up on that. It does look like a lot of the growth does tend to come, at least, the last few quarters in our money market category, which was up to almost 180 basis points costs this quarter. Might you slow that a bit or do you think that's going to be kind of the primary category that you're going to find the easiest path to sort of funding the loan growth that you got on tap for the remainder of the year?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I think it's based on our customer base, we're just going to see more -- I mean, over time we're seeing more in the money market account. We just don't have that much and CD is still only about 10% of our deposits, that's just not where we're really grown since the bank opened. It's just 10% to 12% is probably the norm of the CD growth or CD as a percentage of total deposits.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Got it. And then just final question, maybe for Tom. I know BB&T and SunTrust don't overlap in all your markets, but certainly some, just kind of curious, I know it's early but anything you guys might be doing to take advantage of disruption in terms of people, customers, et cetera?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Yeah. Brad, first of all, I know, everybody -- almost everybody -- these BB&T and Central people are pretty smart people. I imagine I think I'll do everything they can, I'll hold on to their good people, because I know unless they have an extremely much lower hockey (ph) than I think they have. So, yeah, there will be some disruption overlap but it hasn't happened yet until there is odd man out. Yeah, we're just -- all we can do in the early days has been a process just trying to -- what we always are doing is try to make great people, potential bankers in all of our markets and some markets where we're not located today, but we don't really have a -- we're not doing anything special for that, we're just always trying to meet new bankers in our existing and new markets. So that -- it's no different than it what we're already doing today.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Great. Thank you, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Thank you, Brad.
Operator
Our next question comes from Tyler Stafford with Stephens. Please go ahead.
Tyler Stafford -- Stephens Inc. -- Analyst
Hey. Good afternoon, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Hi, Tyler.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Hi, Tyler.
Tyler Stafford -- Stephens Inc. -- Analyst
Hey, I just wanted to also follow up or start on the margin. So lower the margin outlook, 5 basis points from last quarter. I don't think you had a rate hike built into it in the fourth quarter outlook. So I'm just curious if the slightly lower margin has given the expectation for the higher liquidity from here? Or if it's maybe greater deposit competition that you had expected to see or, I guess, less abating than you'd expected to see?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
I think it's more from a deposit side. Again, I think so that liquidity -- it's just based on the history of the bank. I think some of that liquidity will decrease over time, probably more in the second half of the year so.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
(multiple speakers) But I mean by that, we'll make loans, they won't run off. I think one factor in the first quarter is the growth in the corresponding side was really strong in the first quarter and remind you their deposit beta is always going to be 100%. It was not only 99% or 98%, it's going to be exactly 100%.
Tyler Stafford -- Stephens Inc. -- Analyst
Yup. Okay.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
So that's a factor in that as well.
Tyler Stafford -- Stephens Inc. -- Analyst
Excluding the corresponding deposits, did you see pricing or competition moderate more toward the back-end of the quarter than the beginning part of the quarter?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I think it moderated during the entire quarter, Tyler. I think -- shooting right down the road and you see a banker and a house trader advertising a high rate CD with a banner taped to the side of it, they're usual smaller community banks, they're not major players in the market, but there's still a bit of a catch up effect from the people that kind of call you and say, hey, I've been earning 25 bps in a checking account, I'd like to do a little bit better than that. So you get a little bit of catch up with that as well, Tyler. So...
Tyler Stafford -- Stephens Inc. -- Analyst
Yup.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I'm not at all convinced that a rate curve would help banks margins update (ph) on us too. I don't know -- I know the investors will not believe that, but I don't know any reason why it wouldn't be a good thing.
Tyler Stafford -- Stephens Inc. -- Analyst
Got it, OK. But do you happen to have the spot deposit cost at the end of the quarter on hand?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
No, that has been the mark-to-market or (multiple speakers)
Tyler Stafford -- Stephens Inc. -- Analyst
Right.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
For the last day of the month.
Tyler Stafford -- Stephens Inc. -- Analyst
Yeah, the total deposit costs at the at the end of the quarter if you add it, (multiple speakers)
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Yeah, I'll email it to you, I can -- I'll email it to you. I don't have it here, I think I've got to save it.
Tyler Stafford -- Stephens Inc. -- Analyst
Great. And then just on the credit side, just curious if there's any update on the two larger non-accruals that we talked about last quarter? I think we talked about being able to start working those out, just curious where you are in that process?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Clearance. I was looking at clearance, there's no new impairments.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Tyler, we continue to work about the relationship side of the bank in a prudent manner. We've got one operating company and one healthcare-related assets and we're prudently moving out the balance sheet, healthy balance sheets with the help of the bank council.
Tyler Stafford -- Stephens Inc. -- Analyst
Got it, OK.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
But nothing new to tell or no new exposure there.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. And just lastly for me. Can you just remind us if you guys have any syndicated credits on the balance sheet? And just if so, what does total absolute balances are? Just trying to gauge how -- what the potential size of that is?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
It's around $50 million, seven or eight relationships and these are relationships we have that we owe. We know the CEO, we know the CFO when we have the deposit relationship, they are just not transactions that we bought from shared national credit facilities.
Tyler Stafford -- Stephens Inc. -- Analyst
And clearance, any industry-specific or is it fairly broad-based?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
It's broad-based.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. All right. That's it for me. Thanks, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
I guess, Tyler, with the one healthcare client we expect to be made overall on that credit as well. We expect 100% repayment, we have no repayable on that credit.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. Thanks, Tom.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Well, we know who is next.
Operator
(Operator Instructions) Our next question comes from William Wallace with Raymond James. Please go ahead.
William Wallace -- Raymond James -- Analyst
Good afternoon, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Hey, Wallace. Our screen went dark for a minute, I know who comes there, I saw your name sort of mixed on the list (technical difficulty) questions.
William Wallace -- Raymond James -- Analyst
I was wondering if you thought I was going to be, believe me or not.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I didn't. I'm not psychic. I'm sorry, (technical difficulty) earlier.
William Wallace -- Raymond James -- Analyst
I would have been impressed. It sounds like you don't have the numbers at your fingertips. One of my questions was around the margin as well, I was just curious if you had the average cost of deposits by month in the first quarter, but it sounds like you don't have that handy.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I have that for February and March. Total cost of deposits or interest-bearing deposits?
William Wallace -- Raymond James -- Analyst
Total cost of deposits.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Okay. Total cost in February was 1.30, 1.32 in March and up on January -- absolutely January.
William Wallace -- Raymond James -- Analyst
Are you guys seeing any change in buyer behavior around what they're looking for on structure? Are you seeing anybody looking, maybe, to -- more now toward variable or shorter terms, whereas before people were trying to go as long as they could.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
I don't think we see it. I don't think we see a change, Wallace. People want to float, usually they want to float and the people that won't perhaps usually always want be, but it doesn't matter what's happened and so I don't we really haven't had a problem with either. We'll see people in the market offering long fixed rates that they cannot hedge profitably. So they're clearly just putting some 10 and 15-year loans on the balance sheet with the thought that they'll -- don't know what their thinking is, but we have not done that.
William Wallace -- Raymond James -- Analyst
And when you look at your different markets, do you see on the loan pricing side any markets that are frustratingly competitive or irrational on the pricing front?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
No, I don't think we would say that any of them are much different than -- you say people certain banks are -- typically larger regional banks are offering some 10 and 15-year fix, but it's always on owner occupied commercial real estate loans. They're not doing on anything, any other product. They clearly are trying to -- obviously the regulators won't thereby to do a lot more owner occupied CREs. So I don't think regulators want everybody to do all the long term fixed rate that CRE wants, but that's not what they're asking really. So...
William Wallace -- Raymond James -- Analyst
Yeah.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
That all what we see it on really.
William Wallace -- Raymond James -- Analyst
Okay. The last question I would have would be, given your expectations on your guide for margin and your visibility into loan growth, do you think your efficiency ratio has room for improvement or do you think you've kind of hit the level of efficiency that the best level that you can achieve?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
First quarter is going be lower, I'm sorry higher, because you have to -- I'll compare to the fourth quarter, you had two less business days in the month, that's probably about I think made in half in net interest margin for those two days. So just kind of -- it -- first quarter is always going to show a higher efficiency ratio.
William Wallace -- Raymond James -- Analyst
Sure. I'm thinking maybe more bigger picture, like, for the year, 2019 versus 2018?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
We have hired a lot of people in the last two years, a lot of more back office people. Those are expenses we don't think we'll have to scale as much going forward as we have in the past. We know we've had pretty good increase in payroll year-over-year first quarter '19 versus '18, lot of it is production related and a lot of it has been back office people. So our efficiency ratio, we think, can improve from here, but it's certainly something I dream about at night improvement of the efficiency ratio.
William Wallace -- Raymond James -- Analyst
I know it's important to you. That was all the questions I had. I appreciate the time, but if you're able to get that January cost I'd love to see it.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Yeah. I'll send it to you as soon as we get out. Thank you, Wall.
William Wallace -- Raymond James -- Analyst
Yeah. I appreciate it.
Operator
And this concludes our question-and-answer session as well as the conference. Thank you for attending today's presentation, and you may now disconnect.
Duration: 25 minutes
Call participants:
Davis Mange -- Vice President of Investor Relations
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Tyler Stafford -- Stephens Inc. -- Analyst
William Wallace -- Raymond James -- Analyst
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