ServisFirst Bancshares, Inc.

Greetings and welcome to the Service First Bank Shares fourth quarter and full year 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 your host, Davis Mage, the Director of Investor Relations. Thank you, Davis. You may begin.

Good afternoon and welcome to our fourth quarter earnings call. Today's speakers will cover some highlights from 2023 and then take questions. We'll have Tom Broughton, our CEO, Rodney Rushing, our Chief Operating Officer, Henry Abbott, our Chief Credit Officer, Bud Foshee, our CFO, and Kirk Presley, who will be taking over as CFO after Bud retires later this quarter. 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 file. Forward-looking statements speak only as 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 our fourth quarter earnings call. Well, you know, 2023 was not what we expected it to be when the year began, but we are pleased with the results of the hard work by our bankers, who I think are the best in the industry, where we ended up the year. But we'll go into more detail on, but we certainly are pleased to see the net interest income not only stabilize, but to improve in the fourth quarter. And what we found over the years, and In banking, you can cut expenses to improve profitability, but you cannot reach prosperity without the net interest margin reaching acceptable levels. We do expect some tailwinds from the margin both this year and 2025. You'll hear more about that as we move through our speakers. We are pleased to announce that Joel Smith has joined us as president of Memphis, Tennessee Market, and we'll certainly provide more information on the team and our location there soon. It is a great market. Total deposits in Memphis are $41 billion, and we think we have a great opportunity there. As we've commented in prior calls, once we saw the run-up in treasury rates in mid-2022, we pivoted to deposit gathering, which proved to be great timing given the events of March of 2023. Our results in 2023 exceeded expectations with year-over-year deposit growth of 15%. New commercial accounts were up 15% over 2022, and total new accounts, including retail accounts, were up 12% year-over-year. We are one of the few banks our size who has no broker deposits or federal home loan advances. This will certainly serve us well if the regulators announce new liquidity standards as expected. Rodney Rushin will discuss a little bit more about the correspondent division after I finish my remarks. Loans grew slightly in the fourth quarter. We did have loan growth in five of the last seven months of the year. CNI line utilization has really not improved since it's been pretty flat since June 30, 2022, certainly with the after effects of the Triple P program. And then as rates moved higher, that also has reduced borrowings more than you would see otherwise. And of course, most of this reduction in The borrowers on the C&I side was funded with non-expiry deposits, so you really have the worst of both worlds there when you're taking money out of non-expiry accounts to pay down lines of credit. We do think most of that is in the rearview mirror at this point. The back story of the quarter is we had $178 million of loans that paid off early in the at an average rate of 4.3%. So getting those loan payoffs was a good thing and improved profitability. We are growing increasingly optimistic that as activity is picking up, we will see more normalized loan growth this year. Our loan pipeline has increased 50% since last quarter end, which has improved substantially from 2023 levels. We're certainly not at the blistering pace of 2022, but that year was certainly way above normal in loan activity and will not be a typical year. We think the pipeline is very robust at this point, and we do see loan activity picking up on a weekly basis. And certainly activity in a new market like Memphis will help carry us, give us some momentum later in the year. On the production side, we hired seven new producers in the fourth quarter, up a net of three. a total of 143. Even though we are adding a team in Memphis, we do expect to improve the efficiency of some of our other markets over time, and maybe our headcount will end up more balanced as we go through the end of the year. Credit quality does remain strong. I think most of us in the industry and all investors have been waiting for a recession since 2019. But we do not see any early signs of difficulties emerging, and Henry Abbott will discuss it in a few minutes in more detail. So in this time, I'm going to turn it over to Rodney to talk about the correspondent division.

Thank you, Tom. Correspondent banking had a strong second half of 2023 and fourth quarter, both deposit growth and new relationships. As I reported last quarter, that correspondent balance grew. They continued expanding with just over $280 million, or a 15% increase during the second half of the year. During the fourth quarter, we opened nine new correspondent banking relationships with a total of 28 for 2023. Three new agent bank credit card issuers, where we had 14 new issuers for the entire year. Eight new settlement banks during the fourth quarter, 15 for the year. Most new account activity came from our newly expanded Texas market, while new agent credit card issuers were spread across the U.S. As we look to continue this momentum into 2024, our focus has shifted some from deposit growth and toward improving liability costs. We are specifically optimistic about this outlook in correspondent banking. If interest rate futures markets are accurate, and we are in a declining rate environment. Correspondent banking should benefit from these falling rates. As rates decline, our correspondent liability costs will decline step for step with a beta of one. In addition, at the same time, funds will migrate from interest-bearing deposits to non-interest-bearing accounts. The only other topic I'd like to mention, Tom, is that we've completed the credit card system conversion. and we have worked through the changes and have the benefits and extra features it provides both us and our agent banks. Because of that, we are optimistic about credit card revenue contributions in 2024. With that, I'll turn it over to Henry Abbott for comments, who has a short report, I believe. Short usually means good news, coming from our chief credit officer. Henry.