ServisFirst Bancshares Inc. (SFBS) ended September lending about $1.05 for every $1.00 of deposits, as calculated by Trend & Ticker from the Birmingham, Alabama bank's October 19 earnings release. Deposits fell $461 million in the quarter, and the release gave no reason for the drop. Three months earlier, loans sat just under deposits.

The bank reported third-quarter net income of $87.3 million, or 80 cents a diluted share, in its October 19 release. That compares with 78 cents in the second quarter and 60 cents a year earlier, when a $7.8 million securities loss cut results.

Financial Modeling Prep put the consensus at 83 cents a share before the report. ServisFirst came in 3 cents below it.

Deposits fell while the loan book grew

• Loans ended the quarter at $14.74 billion, up 7.1% annualized from June and 10.7% from a year earlier.
• Deposits ended at $14.09 billion, down 12.6% annualized from June and 0.1% from a year earlier.
• Net interest income rose to $159.8 million from $155.6 million in the second quarter.
• Net interest margin, the gap between what the bank earns on loans and securities and what it pays for funds, held at 3.63%, against 3.09% a year earlier.
• Annualized net charge-offs rose to 0.21% of average loans from 0.11%.

Between June and September the loan book added $259 million while deposits lost $461 million, both figures from the release. That gap is what pushed the loan book past the deposit base.

A flat margin with a one-off in the base

The unchanged margin understates the quarter. The second quarter carried a $1.9 million interest recovery from a large borrower whose loans had been on nonaccrual status, meaning the bank had stopped booking interest on them.

Excluding that recovery, the release said, the third-quarter margin was 5 basis points higher. A basis point is one hundredth of a percentage point.

Taxes helped too. The effective rate fell to 17.21% after ServisFirst bought investment tax credits, the release said.

Credit costs moved the other way. The provision for credit losses rose to $15.2 million from $11.4 million, while nonperforming assets stayed at 0.96% of total assets.

Chief executive Tom Broughton said loan activity is improving and the loan pipeline keeps growing.

One cost line jumped. Other operating expenses reached $8.9 million, up 33.2% from the second quarter, and the release gave no reason. The efficiency ratio rose to 30.20% from 29.65%.

Capital and the new buyback

The common equity tier 1 ratio rose to a preliminary 11.98% from 11.83%. ServisFirst's first repurchase plan, which we covered in our report on the 2 million share authorization, came after quarter end.

Book value reached $18.63 a share, up 14% in a year. The fourth-quarter release will show whether that capital goes to buybacks or to loans the deposit base no longer covers.