ServisFirst Bancshares, Inc.

Good day and welcome to the Service First Bancshares, Inc. Fourth Quarter Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Davis Mange. Please go ahead, sir.

Good afternoon and welcome to our Fourth Quarter Earnings Call. We will have Tom Broughton, our CEO, Bud Foshee, our CFO, and Henry Abbott, our Chief Credit Officer, covering some highlights from the quarter, and then we'll take your questions. I'll now cover our forward-looking statements disclosure. Some of the discussion in today's earnings call may include forward-looking statements. Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filing. Forward-looking statements speak only as of the date they are made, and Service First assumes no duty to update them. With that, I turn the call over to Tom.

Thank you, Davis, and good afternoon. Welcome to our year-end conference call, earnings call. Going back in time to last March, if you had asked me if I thought we would report record earnings for 2020, I certainly would have said I feel fairly certain we will not report record earnings with a looming pandemic in front of us. We are very pleased to be able to report record earnings. I think it speaks very well for the quality of our team and our asset quality. Our credit quality has never been stronger, as Henry Abbott, our Chief Credit Officer, will discuss in more detail in a few minutes. Our deposits grew by $2.5 billion in the past year, a 33% increase, a very large deposit surge because of the pandemic. We are beginning the transition to a $10 billion bank, and we've been planning this for several years. The pandemic just sped up the timeline a bit. We do have all the infrastructure in place to make the transition. Our regulators have been very proactive with working us to ensure a smooth transition, and our chief risk officer, Mark McVeigh, has done an outstanding job. The pandemic helped us transition quickly to new technology. and showed us we really don't need as much brick and mortar as we have even with a branch like model like ours. It has also made our clients transition more quickly as well. We are very fortunate to be based entirely in the southeast where we have had very few shutdowns and less affected customers than in other parts of the country. Our unemployment rate is a good bit lower. More workers have jobs, and our economy is in much better shape. We are seeing a large migration into our footprint, and we expect it to continue. I've always said that given a choice between a bad bank and a good market, or a good bank and a bad market, I would pick the bad bank and a good market, as we can fix a bad bank, but we cannot fix a bad market. Talking a little bit about loan growth, for the quarter, particularly, We did see 6% annualized growth in the fourth quarter. I thought it would be a bit higher than that. What I did not anticipate is the fear of higher tax rates. Capital gains rates led several customers to sell their companies and other assets to lock in the current rates. We also lost a few loans on rate and structure. We continue to emphasize being a disciplined lender. Our credit quality was evident in the 2008 and 2010 recession and has proven again to be the same in 2020. The loan pipeline is off a bit from October, but we are starting to see some projects that have been on hold starting to move forward. We just lost a chunk of a year to the pandemic on the loan side. Line utilization is still at historically low levels. We've had a very modest rebound. To recap, before the pandemic, our C&I line utilization was around 49%. It fell to 37%, and it's back up to 38.5% at the end of this quarter. I do expect the line utilization to rebound over the next year or so. Supply chains are not rebuilt for our clients. Their inventories are still very low. We're starting to see some prices increase on steel, lumber, which will lead to higher inventories as well for our customers. Our legacy offices with the largest market share had the most pay downs, which is obviously very obvious that you would have that. So the newer regions had less business on the books and had less pay downs from the line utilization drop. We do expect significant loan opportunities going forward for several reasons. One is we made many Triple P loans to clients of other banks who will transition their banking to us. In addition, we've had many who've had a bad experience in another bank with Triple P and plan to move their banking to us after their loan forgiveness is done. Many banks closed their offices and were working remotely and not returning client calls, which led to a number of dissatisfied clients leading to new client opportunities for service first. We also expect substantial growth in construction loan draws in the next year. Combining that with the line utilization rebound should lead to some natural loan growth, even without any organic loan growth, which we expect as well. To mention where we are on the new round of the Triple P program, we just got a few days in it. We didn't start until last Tuesday, so we've had less than a week as of this morning. So we expect that we will have demand of about 25% to 35% of the last round of Triple P. We did have I think we made almost 5,000 loans and $1.5 billion in loans last year in that program. Obviously, it's more needs-based this time, so we're seeing lower volumes. The actual fee income is slightly higher. We do see lower expenses delivering this program with less overtime and other expenses. I'm going to stop there now, and I'm going to turn it over to Henry Abbott for a credit update. Henry?