ServisFirst Bancshares (SFBS) Q3 2026 earnings review
ServisFirst profit rises, but deposits fall and margin stops widening
ServisFirst earned more than ever, but the deposits that fund its lending went backwards. Profit per share rose 23% excluding last year's bond loss, and loans grew 11% from a year ago. Deposits fell $461 million from June, so chief executive Tom Broughton's bank borrowed more from other banks, and its lending margin stopped widening.
| Profit per share, excluding one-offs | $0.80 +23% from a year ago |
|---|---|
| Loans vs deposits | +$259M vs −$461M from last quarter loans now 105% of deposits by our math |
| Net interest margin | 3.63% unchanged from last quarter; 3.09% a year ago |
| Company outlook | None issued $577M of CDs mature in Q4 at 3.36% |
⚖️ Verdict: 🔴 Bearish
The story got worse because the widening lending margin and cheap deposits that lifted profit over the past year both stopped helping. The margin's gain fell short of finance chief David Sparacio's target for a second quarter, costs overshot his run rate, and the efficiency ratio moved back above 30%. The good news: business loans led growth, nonaccrual loans fell and the board authorised a buyback.
The question now is whether ServisFirst can keep growing loans without the deposits to fund them. Either new deposits let it fund loans at 2.8%, or it keeps borrowing from other banks at 3.8% and the margin narrows. December's deposit balance and the fourth-quarter margin will tell.
🐂 Bull Case
Business Loans Now Lead Loan Growth
ServisFirst makes most of its money lending to companies and property owners across the Southeast and, since last year, in Houston. Over the past year loans on rented commercial property grew fastest, and by June that category had pushed the bank's property exposure past three times its capital, a level regulators screen for.
This quarter the mix changed. Loans rose $259 million, and more than half of that came from commercial, financial and agricultural loans, the bank's business lending line. Loans on rented commercial property added only $18 million. Chief executive Tom Broughton said: "We see solid economic trends, and loan activity is improving with continued growth in our loan pipeline".
- Business loans: +15% from a year ago, +4% from last quarter
- Loans on rented commercial property: +16% from a year ago, +0.3% from last quarter
- Rate on new loans: 6.59%, against 6.33% last quarter and 6.24% for the whole book
The mix matters because business loans add less to the property concentration, and the new loans came on well above the rate the whole book earns, so this growth lifts the margin. But the total halved from June's $533 million, so the record pipeline Broughton described in July has not yet turned into bookings at that pace.
What to watch: fourth-quarter loan growth and the split by loan type in the January release. Business loans leading again at a faster total pace would show demand, not property lending, is now driving the book.
Profit Per Share Rises 23% Excluding One-Offs
ServisFirst reported earnings per share of $0.80, up 33% from a year ago. The comparison flatters, because a year ago the bank sold low-yielding bonds at a $7.8 million loss. Excluding that loss, profit per share rose 23%, and this quarter carries no such items.
The gain came from lending. Net interest income, what the bank earns on loans and securities minus what it pays for deposits and borrowings, rose 20% to $159.8 million, because the margin widened over the year while the loan book grew.
- Return on equity: 17.3%, from 14.9% a year ago
- Return on assets: 1.89%, from 1.47%
- Book value per share: $18.63, up 14%
- Common equity tier 1 capital: 11.98% of risk-weighted assets, from 11.49%
Finance chief David Sparacio said the bank keeps growing "through asset and margin growth, while maintaining a best-in-class efficiency ratio". The numbers support the first half, because profit before tax rose 34%. But the margin was unchanged from June, so next year's profit growth rests on loan growth alone unless it widens again.
What to watch: fourth-quarter profit per share against this quarter's $0.80. A rise with the margin still unchanged would show that loan growth alone can carry earnings.
Positives this quarter didn't test
Two parts of the case for ServisFirst got no numbers in this release, so they stay open rather than confirmed, and each has a clear place where the reading will appear.
- Houston: salary costs rose $1.4 million from a year ago because of "the full impact of our Houston market expansion", the bank said, but it gave no Texas loan or deposit balances; the quarterly filing or the call would show them.
- Loan pipeline: Broughton said it keeps growing but gave no size; fourth-quarter loan growth is the only reading available.
🐻 Bear Case
Loan Losses Rise While Broughton Sees Solid Trends
One large property developer's loans, about $100 million, have sat on ServisFirst's nonaccrual list since last autumn, meaning the bank no longer counts their interest. Nonperforming assets have held near 1% of total assets for a year, so the question is whether the bank is clearing the problem or absorbing losses on it.
This quarter gave some of both. Nonaccrual loans fell $9.6 million, but foreclosed property on the books rose $10.0 million, so the bank took collateral rather than cash. It also charged off $7.0 million of construction loans, a category with no charge-offs a year ago.
- Provision for credit losses: $15.2 million, from $11.4 million last quarter
- Net charge-offs: 0.21% of average loans, from 0.11%
- Reserve as a share of nonaccrual loans: 118%, from 107%
Chief executive Tom Broughton said "We see solid economic trends". That sits awkwardly beside a provision at 0.41% of average loans, the highest rate in the five quarters the release shows. Coverage of the nonaccrual book improved, which is the better reading, but partly because the bank wrote loans off.
What to watch: the reserve held against the developer relationship, in the quarterly filing's collateral-dependent loan table. A reserve far below the gap between loan balances and appraised values would mean more charge-offs are still to come.
Lending Margin Stops Widening for Now
Net interest margin, the gap between what ServisFirst earns on loans and what it pays for money, drove most of the past year's profit growth as it climbed from 3.09% to 3.63%. In July finance chief David Sparacio told analysts the gain would slow, and pointed to a smaller rise this quarter.
The rise came in smaller still. Excluding a $1.9 million interest recovery that lifted June's figure, the margin widened by 0.05 percentage points, the same as the quarter before and below what Sparacio had pointed to.
- Margin, reported: 3.63%, unchanged from last quarter
- Margin in September alone: 3.68%, from 3.59% in June
- Cost of interest-bearing deposits at quarter end: 2.89%, from 2.80%
Two forces now pull against each other. New loans still carry a higher rate than the book earns, so repricing helps, and the September figure says the quarter ended better than it averaged. But deposit costs have started rising again, because the bank is paying up to keep money and borrowing more from other banks.
What to watch: the fourth-quarter margin against this quarter's 3.63%. A rise of 0.04 points or more would mean the September exit rate held and funding costs stayed contained.
Deposits Fall While Loans Keep Growing
A bank funds loans with deposits first and borrowed money second. ServisFirst added $1.4 billion of loans over the past year while its deposits ended where they started, so loans now exceed deposits: 105% by our math, up from 94% a year ago.
The gap widened sharply this quarter. Deposits fell $461 million from June. To fund its loans the bank raised federal funds purchased, overnight borrowing from the smaller banks it serves, by $386 million to $1.97 billion.
- Deposits: $14.09 billion, down 0.1% from a year ago
- Cash and equivalents: $1.19 billion, down a third from a year ago
- Interest paid on borrowed funds: $17.1 million, up 16% from last quarter
The cheapest money is the one bright spot: noninterest-bearing deposits rose 12% from a year ago to $2.91 billion, though they slipped from June. The mix still matters. Borrowed money costs 3.78% against 2.80% for interest-bearing deposits, so every dollar of loans funded by borrowing earns the bank about one percentage point less.
What to watch: total deposits at December 31 against $14.09 billion. Growth in line with loans would show the outflow was a quarter-end timing effect, not customers moving money elsewhere.
Costs Rise Above Plan as Efficiency Crosses 30%
ServisFirst's main claim to investors is that it runs a bank with fewer people and branches than rivals. Its efficiency ratio, costs as a share of revenue, had stayed below 30% for three quarters, and in July Sparacio called $50 million a stable quarterly cost run rate.
Costs came in at $52.2 million, 4.5% above June, and the ratio rose to 30.20%. Other operating expenses did the damage. They rose $2.2 million from June, 1.2 percentage points of revenue by our math, with no explanation in the release. Salaries rose as headcount grew by twelve, which the bank attributed to "the full impact of our Houston market expansion".
The ratio is still low for a bank, so the point is direction, not level. But the Houston team now sits fully in the cost base while its loans and deposits remain undisclosed, so the ratio can only fall if revenue outgrows the new costs, and this quarter revenue grew 2.6% against costs up 4.5%.
What to watch: whether other operating expenses return toward the $6 to $7 million of earlier quarters. A second quarter near $9 million would mean the cost base has reset higher rather than one item landing in September.
👓 Other Themes
ServisFirst Authorises Its First Buyback
After the quarter closed, ServisFirst's board authorised what the bank calls its "inaugural stock repurchase program": up to 2 million shares, about 1.8% of those outstanding, through the end of next year. It also completed a two-for-one stock split during the quarter. Capital keeps building, with common equity tier 1 at 11.98% of risk-weighted assets, and no repurchases yet reported.
💲 Other KPIs
Up 21.8% from a year ago, slower than the 43.5% rise last quarter. Fee income is what the bank earns outside lending: service charges, card and mortgage fees, and income on bank-owned life insurance, which rose 81% after the bank bought more policies. It is still only 7% of revenue, so lending sets the result.
Down from 19.94% last quarter, because the bank bought investment tax credits during the quarter. The rate has moved with those purchases all year: 17.82%, then 19.94%, now 17.21%. For the nine months it stands at 18.34%, below last year's 18.89%, so the lower rate added about a cent to profit per share this quarter by our math.
Down 15.5% from a year ago and 4.1% from June, as the bank lets bonds mature and puts the cash into loans. Securities yield 3.85% against 6.24% on loans, so each dollar that moves lifts the margin, but the shrinking bond book also leaves less to sell for liquidity: unpledged securities counted as liquidity fell to $297 million.
🔮 Guidance
New. ServisFirst gives no earnings forecast, but it does say which deposits come due. About $577 million of certificates of deposit mature next quarter at 3.36%. The bank paid 2.89% on interest-bearing deposits at quarter end, so renewing them at today's rates would lower funding costs. That gap has narrowed from 1.22 points a year ago to 0.47 points by our math, so the help from CD repricing shrinks each quarter.
❓ Key Questions
What reserve covers the developer loans, and at what values?
Nonaccrual loans fell $9.6 million while foreclosed property rose $10.0 million. The release does not say whether the shift came from the large multifamily relationship, or how the current appraisals compare with the loan balances.
Which deposits left in the quarter, and will they return?
Deposits fell $461 million from June with no explanation. Whether the money was quarter-end timing, correspondent bank balances or customers moving to rivals decides how much the bank must keep borrowing at 3.78%.
How large are Houston's loans and deposits now?
Salary costs now carry the full Houston team, but the release gives no Texas balances. Without them readers cannot tell whether the efficiency ratio's rise above 30% is a timing gap or a lasting cost.
What drove the $2.2 million rise in other operating expenses?
The line rose a third from June and 47% from a year ago. Management offered no reason; a one-off item and a new run rate mean different things for a bank built on a sub-30% cost ratio.
Does property lending still face a limit against capital?
Loans on commercial property passed three times capital in June. Business loans led growth this quarter, but the bank has not said whether an internal ceiling now governs property lending or whether this quarter's mix will hold.