Image source The Motley Fool.
ServisFirst Bancshares Inc (SFBS 1.79%)
Q1 2019 Earnings Call
April 15, 2019, 5:15 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the ServisFirst Bancshares Incorporated First Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.
I would now like to turn the conference over to Mr. Davis Mange, Vice President of Investor Relations. Please go ahead.
Davis Mange -- Vice President of Investor Relations
Good afternoon, and welcome to our first quarter earnings call. We will have Tom Broughton, our CEO; and Bud Foshee, our CFO, covering some highlights from the quarter. And we'll then take your questions.
I'll now cover our forward-looking statements disclosure and then we can get started. Some of the discussion in today's earnings call may include forward-looking statements subject to assumptions, risks and uncertainties. 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 as of the date they are made, and ServisFirst assumes no duty to update them.
With that, I'll turn the call over to Tom.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Thank you, Davis. Good afternoon, and welcome to our first quarter 2019 conference call. We had a really great quarter. We're pleased with how the quarter ended up. As most of you know, typically the first quarter is not the best quarter of our year for ServisFirst, and -- but we're very pleased with the solid growth that we did have in the first quarter, which is above average for our company over the last several years.
On the deposit side, we had annualized deposit growth for the quarter of 10% and it was very broad-based, with Atlanta, Tampa, Mobile, Huntsville and Pensacola having the best growth. Typically, in the first quarter, we have very little, if any, deposit growth. But this quarter, we had really good solid growth.
We do have one region that has a very large seasonal account that runs off in the first quarter, and it certainly -- it's large enough that it affects our overall -- not only their numbers, but it's large enough to affect our overall numbers as well. So that's sort of unusual type situation, but it's a very profitable account.
We do continue to focus on building core relationships. Our new account openings continue to be very strong. 2019 is off to a wonderful start. Atlanta, Tampa Bay had the best -- looking at the first quarter, they really have come on very strong with account openings this year.
On the loan side, we've experienced very solid loan growth during the first quarter. Montgomery and Atlanta were our best regions of the company. Our typical loan growth last year, I think, in the first quarter was 5% annualized, and this year is 8% annualized in the first quarter. So we continue to see very strong growth there. Bud will discuss our solid credit quality and improved credit metrics in a few minutes, but just a few other things I'd like to cover.
One is on our loan pipeline. It is on a very solid footing today. It is up a good bit from the first -- end of the year for the first quarter is very strong. It is up net -- it's still up net of projected payoffs. Projected payoffs are up a bit as well for the next 120 days, but we are seeing a very solid growth in the pipeline.
At a production level, we today have 133 producers. We added five new ones. We had one retire and two departed. So we're seeing really good upgrades in our staff level. We are talking to a number of people -- of individual producers today and are adding a number of people actually in the month of April. So these numbers don't reflect, though, the hiring of a number of production trainees that we've done over the last year or so. We've hired about 10 production trainees over the last year. That will -- hopefully, there -- it will be a while before they contribute. But we look forward to getting them into production in the next couple of years.
So, with that, I'll stop for a moment and turn it over to Bud to talk about the numbers.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Thank you, Tom. Good afternoon. First, I'll cover growth in net interest margin. Our loan and deposit growth were strong in the first quarter. Year-over-year, loans grew 12.3% and deposits 18.5%. Our margin -- net interest margin decreased from 3.63% in the fourth quarter to 3.56% in the first quarter. One of the contributing factors was an increase in excess funds of $140 million.
Our loan yield increased about 13 basis points. That's primarily due to the increase in prime rate after the Fed rate increase in December of 2018.
Funding our loan growth, our deposit cost did increase about 20 basis points and 23 basis points for Fed funds purchased. Funding costs related to our corresponding banking relationships will continue to move with Fed rate changes. The beta for those borrowings is 100%.
For the remainder of 2019, we project the margin to be in the range of 3.60% to 3.65%. And again, a reminder, we have no accretion income related to acquisitions.
Next section I wanted to cover is salaries. Year-over-year, salaries have increased $1.1 million. We added -- in 2018, we added managers for purchase cards and merchant services. As we talked about in our fourth quarter earnings call, we are the endorsed vendor from American Bankers Association for our agent credit card program. We have now dedicated two employees full time to the sales for that to accommodate the referrals we are receiving.
Also, we added production offices. We have a Pensacola mortgage office; we also added a loan production office in Fort Walton. And from a back-office standpoint, we had no net adds and compliance or IT, but we did have salary increases as we upgraded certain positions.
Next section, our non-interest income. Mortgage banking continues to be a small portion of our total interest income, but the net contribution income is not that meaningful. Credit card income continues to grow, increased $321,000 from 2018. And just a reminder that we don't -- do not sell any government-guaranteed loans generating non-interest income.
Next let's talk about loan loss provision. First quarter net charge-offs were $3.3 million. $2.1 million of the charge-offs were fully impaired, and $1.2 million were unimpaired charge-offs. We have an improving trend in net charge-offs to average loans. It was 0.25% in the third quarter of 2018, 0.30% in the fourth quarter and 0.20% in the first quarter of this year.
Taxes for the first quarter, the rate was 19.5%, 21.3% without the stock option credits of $772,000. Tax rate for the first quarter of 2018 was 17.8%, 21.4% without stock option credits of $1,453,000. For the remainder of 2019, the projected tax rate is 21.3%.
That concludes my section, and I'll turn it over to Davis.
Davis Mange -- Vice President of Investor Relations
All right. With that, let's open up the floor for questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Brad Milsaps with Sandler O'Neill. Please go ahead.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Hi, good afternoon.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Hi, Brad.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Good afternoon, Brad.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Maybe, Bud, I appreciate, and Tom I appreciate all the color on everything. Wanted to maybe follow up on the net interest margin. I think you mentioned kind of a 3.60% to 3.65% type range for the remainder of the year. I was just kind of curious, kind of what was behind -- what were the drivers kind of behind that guidance? Specifically, what are you assuming in terms of deploying that excess liquidity that you've built up? And then maybe talk a little bit about the deposit market and what you're seeing in terms of rates, cost of funding on that side of things now that it appears that the Fed has stopped raising rates.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Yes. Brad, really right now, we're probably higher than normal at this time of the year on excess funds, will probably staying $750 million, somewhere in that range, which we expect some of that to decrease over time, kind of does in the second half of each year, as our loan and deposit growth both pick up. But deposits still are -- well, I think we're going with normally (ph) anticipated Fed rate increases, we're hoping deposit pricing gets a little more back to normal. But we still don't know that. It's only moving -- we went up 20 basis points in the first quarter.
So I think that's the biggest unknown is just what deposit costs are going to be. I don't know what other people -- I think that from what we've heard that deposit pricing is a little bit higher in the Southeast than some of the other regions. So that will be something we'll just have to look at. But we're going to continue to grow, so we'll just have to figure out from the funding side, the best way of doing that.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Got it. And maybe just a follow-up on that. It does look like a lot of the growth does tend to come, or at least the last few quarters in that money market category, which was up to almost 180 basis points cost this quarter. Might you slow that a bit? Or do you think that's going to be kind of the primary category that you're going to find the easiest path to sort of funding the loan growth that you got untapped for the remainder of the year?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I think based on our customer base, we just don't see more -- I mean, over time, we see more in the money market account. We just don't have that much. And CDs it's still only about 10% of our deposits. That's just not where we've really grown since the bank opened. It's just -- 10% to 12% is probably the norm on CD growth -- or CD as a percentage of total deposits.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Got it. And then just final question, maybe for Tom. I know BB&T and SunTrust don't overlap in all your markets, but certainly some. Just kind of curious, I know it's early, but anything you guys might be doing to take advantage of disruption in terms of people, customers, etc?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Yeah. Brad, first of all, I know everybody -- what I'd remind -- almost everybody is -- these BB&T and SunTrust people are pretty smart people. I imagine they're going to do everything they can to hold on to their good people because -- I know unless they have an extremely much lower I.Q. than I think they have. So yeah, there will be some disruption and overlap, but it hasn't happened yet -- until there's an odd man out. But yeah, we're just -- all we can do in the early days, there's been a process just trying to -- what we always are doing is try to meet and greet people, potential bankers in all of our markets and some markets where we're not located today. But we don't really have a -- we're not doing anything special for that. We're just always trying to meet new bankers in our existing and new markets. So it's no different than what we're already doing today.
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Great. Thank you, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Thank you, Brad.
Operator
Our next question comes from Tyler Stafford with Stephens. Please go ahead.
Tyler Stafford -- Stephens Inc. -- Analyst
Hey. Good afternoon, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Hi, Tyler.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Hi, Tyler.
Tyler Stafford -- Stephens Inc. -- Analyst
Hey, I just wanted to also follow up or start on the margin. So lower the margin outlook 5 basis points from last quarter, I don't think you had a rate hike built into it in the fourth quarter outlook. So I'm just curious if the slightly lower margin is given the expectation for the higher liquidity from here or if it's maybe greater deposit competition that you had expected to see, or I guess, less abating than you had expected to see?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I think it's more from a deposit side. Again, I think that liquidity is -- I mean, just based on the history of the bank, I think some of that liquidity will decrease over time, probably more in the second half of the year, so. That's just a bit. I mean, after...
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Yes, Bud means by that, we'll make loans. We won't run all. I think one factor in the first quarter is the growth in the correspondent side was really strong in the first quarter. And remind you, their deposit beta is always going to be 100%. It's not going to be 99% or 98%. It's going to be exactly 100%.
Tyler Stafford -- Stephens Inc. -- Analyst
Yup. Okay.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
So that's the factor in that as well.
Tyler Stafford -- Stephens Inc. -- Analyst
Excluding the correspondent deposits, did you see pricing or competition moderate more towards the back end of the quarter than the beginning part of the quarter?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
I think it moderated during the entire quarter, Tyler. I think that the deposits -- sure, you can ride down the road and you see a bank in a house trader advertising or high rate CD with a banner taped to the side of it. They're usually smaller community banks, and they're not major players in the market. But there is still bit of a catch-up effect from the people that kind of call you and say, hey, I've been earning 25 bps in a checking account. I'd like to do a little bit better than that. So you get a little bit of catch-up with that as well, Tyler.
Tyler Stafford -- Stephens Inc. -- Analyst
Yup.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
So I'm not at all convinced that a rate cut wouldn't help banks' margins, to tell you the honest truth. I don't know -- I know the investors don't believe that, but I don't know any reason why it wouldn't be a good thing.
Tyler Stafford -- Stephens Inc. -- Analyst
Got it. Okay. But do you happen to have the spot deposit cost at the end of the quarter on hand?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
No, that was -- for the month of March or...
Tyler Stafford -- Stephens Inc. -- Analyst
Correct.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
...for the last day of the month?
Tyler Stafford -- Stephens Inc. -- Analyst
Yes, just the total deposit cost at the end of the quarter, if you had it. If not, that's okay.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Yes, I can -- I'll e-mail it to you. I don't have it here. Everything I've got is averaged.
Tyler Stafford -- Stephens Inc. -- Analyst
Great. And then just on the credit side, just curious if there is any update on the two larger non-accrual that we talked about last quarter. I think we talked about being able to start working those out. Just curious where you are in that process.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Clarence Pouncey is here with us and I was looking to Clarence to see -- there is no new impairments.
Clarence Pouncey -- Executive Vice President and Chief Operating Officer
No. Tyler, we're continuing to work both the relationship side of the bank in a prudent manner. We've got one operating company and one health care-related asset that we are prudently moving out of the balance sheet, off the balance sheet, with the help of our bank counsel.
Tyler Stafford -- Stephens Inc. -- Analyst
Got it, okay.
Clarence Pouncey -- Executive Vice President and Chief Operating Officer
But nothing new, Tyler, or no new exposure there.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. And then lastly from me, can you just remind us if you guys have any syndicated credits on the balance sheet and just -- if so, what those total absolute balances are? Just trying to gauge what the potential size of that is?
Clarence Pouncey -- Executive Vice President and Chief Operating Officer
It's around $50 million, seven or eight relationships. And these are relationships we have that we owe -- we know the CEO; we know the CFO and we have a past relationship. They're just not transactions that we bought from shared national credit facilities.
Tyler Stafford -- Stephens Inc. -- Analyst
And Clarence, any industry-specific or is it fairly broad-based?
Clarence Pouncey -- Executive Vice President and Chief Operating Officer
It's broad-based.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. All right. That's it for me. Thanks, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Now I guess, Tyler, with the one health care credit we have, we expect to be made whole on that credit as well. We expect 100% repayment. We have no impairment on that credit.
Tyler Stafford -- Stephens Inc. -- Analyst
Okay. Thanks, Tom.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Well, we know who is next.
Operator
(Operator Instructions) Our next question comes from William Wallace with Raymond James. Please go ahead.
William Wallace -- Raymond James -- Analyst
Good afternoon, guys.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Hey, Wallace. Our screen went dark for a minute, I know who comes next, I saw your name also next on the list (inaudible) questions.
William Wallace -- Raymond James -- Analyst
I was wondering if you thought I was going to be, be it me or not.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I didn't. I'm not psychic. I saw your name on the list (technical difficulty) earlier.
William Wallace -- Raymond James -- Analyst
I would have been impressed. But it sounds like you don't have the numbers at your fingertips. One of my questions was around the margin as well. I was just curious if you had the average cost of deposits by month in the first quarter, but sounds like you don't have that handy.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
I have that for February and March. Total cost of deposits or interest-bearing deposits?
William Wallace -- Raymond James -- Analyst
Total cost of deposits.
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Okay. Total cost in February was 1.30, 1.32 in March. And I'll find January -- I'll tell you January.
William Wallace -- Raymond James -- Analyst
Are you guys seeing any change in borrower behavior around what they're looking for on structure? Are you seeing anybody looking maybe to -- more now towards variable or shorter terms, whereas before, people were trying to go as long as they could?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
I don't think we see it. I don't think we see a change, Wallace. The people that want float usually want to float. People who want fixed usually always want fixed, it doesn't matter what's happening. So I don't really have a problem with that. There are -- we'll see people in the market offering long fixed rates that they cannot hedge profitably. So they're clearly just putting some 10- and 15-year loans on the balance sheet, with the thought that they'll -- I don't know what their thinking is, but we had not done that.
William Wallace -- Raymond James -- Analyst
And when you look at your different markets, do you see, on the loan pricing side, any markets that are frustratingly competitive or irrational on the pricing front?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
No, I don't think we would say that any of them are much different than -- you say people, certain banks, typically larger regional banks are offering some 10- and 15-year fixed, but it's always on owner occupied commercial real estate loans. They are not doing it on anything -- any other product. They clearly are trying to -- obviously, the regulators want everybody to do a lot more owner-occupied CREs. So I don't think the regulators want everybody to do a lot of long-term fixed rate CRE loans, but that's what they are asking really. So..
William Wallace -- Raymond James -- Analyst
Yeah.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Well that all that we see it on really.
William Wallace -- Raymond James -- Analyst
Okay. The last question I would have would be, given your expectations on your guide for margin and your visibility into loan growth, do you think your efficiency ratio has room for improvement? Or do you think you've kind of hit the level of efficiency that -- the best level that you can achieve?
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
First quarter is going to be lower -- I'm sorry, higher, because you have -- like compared to fourth quarter, you had two less business days in the month. That's probably about, I think, $1.5 million in net interest margin for those two days. So it's just kind of -- first quarter is always going to show a higher efficiency ratio.
William Wallace -- Raymond James -- Analyst
Sure. I'm thinking maybe more bigger picture, like for the year 2019 versus 2018?
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
We have hired a lot of people in the last two year, a lot of them are back-office people. Those are expenses we don't think we'll have to schedule as much going forward as we have in the past. You know we had pretty good increase in payroll year-over-year, first quarter '19 versus '18. A lot of it is production related. And a lot of it has been back-office people. So our efficiency ratio, we think, can improve from here. But it's certainly something -- something I dream about at night -- improvement in the efficiency ratio.
William Wallace -- Raymond James -- Analyst
I know it's important to you. That was all the questions I had. I appreciate the time, But if you're able to get that January cost, I'd love to see it.
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
Yes, I'll pull it and send it to you as soon as we get off. Thank you, Wally.
William Wallace -- Raymond James -- Analyst
Yeah. I appreciate it.
Operator
And this concludes our question-and-answer session as well as the conference. Thank you for attending today's presentation, and you may now disconnect.
Duration: 25 minutes
Call participants:
Davis Mange -- Vice President of Investor Relations
Thomas Ashford Broughton -- Chairman, President and Chief Executive Officer
William Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Brad Milsaps -- Sandler O'Neill + Partners -- Analyst
Tyler Stafford -- Stephens Inc. -- Analyst
Clarence Pouncey -- Executive Vice President and Chief Operating Officer
William Wallace -- Raymond James -- Analyst
Transcript powered by AlphaStreet
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
