ServisFirst Bancshares, Inc.

Greetings and welcome to the Service First Bank Shares third quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you 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 your host, Davis Maids, Director of Investor Relations. Thank you, Davis. You may begin.

Good afternoon and welcome to our third quarter earnings call. Today's speakers will cover some highlights from the quarter and then take your questions. We'll have Tom Broughton, our CEO, Henry Abbott, our chief credit officer, Herc Presley, our CFO, and Ed Woody, our controller. 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 projection shared today. due to factors described in her 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'll turn the call over to Tom.

Thank you, Davis. Good afternoon, and thank you for joining our third quarter earnings call. We were very pleased with the quarter's metrics, and we're pleased with Outlook for the future. And I'll start by talking about loans and sort of Outlook there. Our pipeline is very strong. And, you know, we had great loan growth in the second quarter, not in the third quarter. We are here in the line waiting until after the election more than I would have expected. Though our loan balances did not grow in the quarter, we had early payoffs on $126 million of loans and an average rate of 4.89%. So that was good news for the shareholders. In addition, we had repricing on $105 million of loans in the quarter of low-rate, fixed-rate loans. This will contribute to an improved margin going forward, as Kurt will discuss in more detail in a few minutes, and he'll also explain our positive balance sheet outlook. Loan demand is very robust in one segment, hospitality, but that's certainly a segment where we have limits on our exposure to the industry. We do typically see very strong loan growth at year end, and I'm assuming we'll see rebounding closings in the fourth quarter. The election delay is typical, but after a strong second quarter, I thought that we would not see that issue this year, but we did. It could also be some customers waiting to see if we have more Fed rate cuts come after the one that was at the very end of the third quarter. We got nothing, as you all know, until the very end of the third quarter. I also think some borrowers want to see more certainty on rate cuts. Some projects do not pencil out at current rates in many cases, and demand for new product on many segments of commercial real estate is suppressed just due to overbuilding in the last couple of years in some segments. On the deposit side, we did have one larger municipal outflow, one municipal account outflow in the third quarter, but we expected to return in the fourth quarter We are trying to be disciplined on loan pricing, and we do have great options whether we have, as you know, no broker deposits or federal home loan advances on our balance sheet. We do continue to see more pricing discipline from our major competitors, so that is a very good thing. As Henry will discuss, loan losses continue to be quite benign, and we still have not seen any normalization as referred to these days. The bottom line is the economy continues to be quite good. Having said that, we have said for a long while that we need to see higher margins because we expect higher loan losses at some point in the future. Loan losses are often lumpy, and we could see large increases in a quarter. Nothing expected today, but it's always best to expect the unexpected. The rate cuts will help some of our developers who have been pinched by the rate increases. A good example is one of our larger relationships as a workforce housing real estate developer that experienced tight cash flows in the last year as their interest rate hedges have expired. Due to Hurricane Helene, their payments were delayed past month end, past quarter end, and as a bunch of caution, we've downgraded all their nine projects to special mention. One of those projects was paid off after quarter end with a $10 million loan. They have one project that has permitting delays will require them to do a capital call with their investors. The customer does have a very solid balance sheet, net worth, and he and his spouse personally guarantee the debt. So this is an example of how rate cuts will help some customers whose cash flow is impacted by higher rates. I'm surprised not seeing more of this in our customer base, but many customers have been able to pass on interest rate increases to their customers in the form of higher prices, including the form of higher rents on apartment complexes and other properties, warehouses. In any event, we are pleased with where we are from a credit quality standpoint. We expect loan demand rebound in the fourth quarter, to some extent at least, and pleased with our pipeline in the future. From a standpoint of where we are with our teams, we have We did add four new bankers in the quarter. We have a total of 155 frontline bankers today. Those are all commercial and private bankers. We are very pleased with our new markets. Memphis and Auburn are the newest markets, and they are really, neither one of them have a permanent office yet, but they're both making great progress on that front. So I'll turn it over to Henry now to talk in more detail about credit quality.