ServisFirst Bancshares, Inc.

Greetings and welcome to the Surface First Bank Share Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to our host, Davis Mays, Director of Investor Relations. Thank you, Davis. You may begin.

Good afternoon, and welcome to our third quarter earnings call. We'll have Tom Broughton, our CEO, Rodney Rushing, our Chief Operating Officer, Henry Abbott, our Chief Credit Officer, and Bud Foshee, our CFO, 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 filings. Forward-looking statements speak only of the date they are made, and Service First assumes no duty to update them. With that, I'll turn the call over to Tom.

Thank you, Davis. Good afternoon, and thank you for joining us for our call as we review the third quarter. I thought I'd start by reviewing the current economic outlook. you know, going back to late spring, the conventional wisdom, which included mine, was that we were pretty much headed for a hard economic landing. Much of that outlook was due to, you know, we'd seen rapid escalation in interest rates. We've seen bank deposit disintermediation for over close to a year at that point. And then we'd see credit tightening by most banks. You know, the demand for goods and services continues to be, you know, amazing. The consumer appears to be very resilient. You know, they're sort of hooked on living large, it seems, since the pandemic started. They were buying stuff when they were stuck at home, and now they're consuming stuff. So, you know, it seems like we're in a little bit better spot than we've been in. We have seen a slowdown in demand for credit, both CRE and C&I. It's probably a combination of our caution and higher interest rates. You know, I was with a customer last week, and, you know, he said the best way I can make $16 million is to pay down $200 million of debt at 0.08%. He said that's the best way for me to improve my earnings. I'm not going to buy any more capital goods. So I think that's probably a prevailing thought. I know our bank and others are watching for late cycle credit cracks. Henry Abbott will discuss a little bit more in a few minutes on the credit side. We don't run our bank based on any kind of economic forecast because they're all wrong, but it does appear we are headed for more of a soft landing than we envisioned a few months ago. The recent disinversion of the yield curve will be helpful to us as we move towards a normal yield curve and really the higher for longer rate environment we think benefits us, our future earnings for the bank. That's Sort of a brief overlook of where we are and get down into a little more granular information here. Start talking about deposits. We have focused on building core deposits over the last four quarters. We've seen really fantastic results. Our people have done an outstanding job. They've done what we've asked them to do. And very few banks can demonstrate the deposit growth we've seen combined with zero deposits. federal home loan bank advances, and zero broker deposits. Our municipal clients have received significant COVID funding this year. It'll take a bit of time for that to be spent. Most COVID funds I know have to be committed by the end of 2024 and spent by the end of 2026, but I do have faith that most politicians can spend it more quickly than that. Our deposit pipeline is down a bit from the record level last quarter. It's still strong. We're looking for granular new relationships that are sticky. On the correspondent side, Rodney Rushin will give an update in a few minutes when I finish. Our total new accounts are up 19% year over year. while our commercial accounts are up 20% year-over-year. This is indicative of broad-based deposit growth, which is what we wanted. We think our emphasis on deposit growth over current liquidity will set the stage for improved profitability in 2024. We're seeing cash on hand stay consistently at the $2 billion level in October. We are pleased to have built this liquidity this level during the industry disruption. We've seen, while it may reduce the net interest margin, it does not affect net interest income. So, very pleased with the deposit situation. Talk a little bit about loan demand. We did turn the loan spigot back on a few months ago, and it started with a trickle, as it always does after you shut off the tap. Our loan pipeline today is up 74% over the prior quarter. And though it's not back to levels from early 2022, it is back to late 2022 levels. We have seen increased activity in the past 30 days, and loans grew $87 million in the month of September. We are seeing increased confidence by borrowers, both C&I and CRE. Our liquidity position we think gives us a significant competitive advantage in the industry. On the production side, we previously announced we added a great new team of bankers in the Montgomery region, four new bankers there. We had a total of five in the quarter. From a headcount standpoint, we were down three for the quarter. We are focused on adding the right people and right size in our team this year. We think that'll be certainly coming to an end as we go towards the end of the year, and we'll have the right group here. We will open our new Lake Norman office in the Piedmont region soon, and it'll be a community banking office that's very similar to the offices in Tallahassee, Panama City, and Asheville, North Carolina. These community banking offices do produce good granular and sticky deposits and have improved margins. So with that, I'll turn it over to Rodney to discuss the correspondent side.