ServisFirst Bancshares (SFBS 1.19%) reported net income of $61.4 million (GAAP) for Q2 2025, which grew 18% year-over-year. However, sequentially, net income was down 3%.
Driving this growth was net interest income, which reached $131.7 million, with an adjusted net interest margin of 3.05%. Annualized net loan growth was 11%.
Management restructured its bond portfolio while reaffirming its stable credit quality. , which it expects to drive near-term net interest margin expansion and incremental non-interest income from merchant and treasury management services.
Net interest income rises while SFBS sharpens margin discipline
Adjusted net interest income rose $5.9 million quarter-over-quarter, and over $23 million year over year, while management completed a $70 million bond sale to reposition yields. The expected payback period on the bond restructuring is 3.8 years, and the company projects ongoing earnings accretion from the reinvestment spread following the bond portfolio restructuring.
"During the quarter, we decided to strategically sell about $70 million of bonds that were yielding a 1.34% at a loss. And when we sold those, we reinvested the $62 million of proceeds into new investments with a yield of an average of 6.28%. The expected payback period on this transaction is 3.8 years. The restructuring will position us for stronger margin performance in future quarters."
— David Sparacio, CFO
This proactive securities portfolio management enhances ServisFirst's future net interest margin and earnings power, accelerating margin normalization as older, low-yielding assets exit the balance sheet.
Loan growth broad-based, but elevated payoffs pressure net expansion
Quarterly loan balances rose at an 11% annualized pace. New construction projects remain selective, skewing toward government-supported, low-income housing due to prevailing high interest rates.
"So we do have elevated payoffs on the commercial real estate side. Luckily, we are known as a commercial and industrial lending bank. So those certainly do not have the same level of payoffs that you see on the CRE side. So we are replacing on the CRE side. We are replacing the payoffs with new projects but with the large equity requirements that we have today, our funding will not begin until the projects are well underway."
— Tom Broughton, CEO
ServisFirst's lending mix, with an emphasis on C&I assets, mitigates near-term risk from soft CRE origination.
ServisFirst fortifies capital, manages credit amid isolated losses
CET1 capital measured 11.38%, risk-based capital reached 12.81%, and the bank’s allowance for credit losses held steady at 1.28% of loans despite a single $5 million charge-off that dominated provisioning expenses. Nonperforming assets were stable at 42 basis points, and management resolved several legacy problem credits, with no systemic credit issues identified across segments.
"While total charges in the second quarter were just under $6.5 million, they were driven primarily by a charge of just over $5 million related to one loan which was a situation in which the borrower's performance deteriorated quickly and unexpectedly. Our allowance relative to total loans, which did increase by almost $5 million compared to the first quarter, remained flat on a relative basis at 1.28% at quarter-end. On the nonperforming asset front, NPAs remained stable.
— Jim Harper, Chief Credit Officer
Solid capital ratios, granular credit oversight, and the absence of broad credit deterioration reinforce long-term balance sheet resilience.
Looking Ahead
Management forecasts that adjusted net interest margin will increase by 10-14 basis points per quarter, targeting a 3.25%-3.30% exit rate for 2025, with the cost of deposits expected to stabilize in the 3.50%-3.57% range in future quarters if the Fed holds rates steady.
Non-interest income should benefit from Q3 2025, driven by the treasury management fee increase from July 1, as wel as through efforts to raise merchant services penetration from 1% toward an 8% goal. No new market expansions are planned, with focus remaining on deepening existing client relationships and by tightly controlling non-interest expense at $46 million to $46.5 million per quarter.
