Good day, and welcome to the ServisFirst Bancshares Incorporated third quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Davis Mange, Director of Investor Relations. Please go ahead, sir. Good afternoon, and welcome to our third quarter earnings call. We'll have Tom Broughton, our CEO, Bud Foshee, our CFO, and Henry Abbott, our Chief Credit Officer, covering some highlights from the quarter, and then we'll take your questions. 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 projections shared today due to factors described in our most recent 10K and 10Q filings. Forward-looking statements speak only as of the date they are made. ServisFirst assumes no duty to update them. With that, I'll turn the call over to Tom. Thank you, Davis, and good afternoon. Thank you for joining us on our call. I'll talk a few minutes about our loan growth for the quarter. We had $369 million of net loan growth for the quarter, which is an annualized growth rate of 18%. Our goal has been to have a monthly loan growth goal of $100 million a month. We've exceeded that goal over the last two quarters. We certainly were pleased to see. We had thought that we would see line utilization improve in the second half of the year. We saw no improvement this past quarter. We do not know when we will see an improvement in line utilization given the continued low inventories at our customers and supply chain issues that continue. We certainly expect it to be a tailwind for us at some point in the future. That's certainly something to look forward to. We did see net paydowns in commercial industrial loan balances in the quarter, excluding PPP loans. This is both a result of the second round of PPP stimulus, as well as we're seeing very strong profitability in our customer base in the commercial and industrial companies. Loan growth for the quarter was highest in the West Central Florida, Charleston, Dothan, and Northwest Florida regions. Looking at our loan pipeline is about 10% above last quarter and is back at historically high levels. We've looked back at our pre-pandemic pipelines, our pipelines today are roughly double where we were prior to the pandemic. On the deposit side, we do continue to see deposit growth, though most of the growth was in our correspondent division this quarter. Other regions are seeing a flattening in growth during the quarter. Most of the correspondent division growth is attributed to new account growth in the South Florida market with an addition of a key banker in South Florida. Our non-interest-bearing accounts doubled in the quarter in correspondent from $500 million to $1 billion. A few minutes to talk about capital. When we started the pandemic 18 months ago, we were under $10 billion in assets. I remember analysts and investors were asking us what were our plans to do with all our excess capital. Our answer was, it's nice to have excess capital on hand to fund future growth. 18 months later, we're all but at $15 billion in assets. We're quite happy we had the capital support a bigger balance sheet. The question now is how much of the deposit growth is transitory, if any. I don't think any of us know the answer to that question, but what certainly seems logical is that as the massive fiscal stimulus wears off, our deposits will flatten or decline slightly over the next couple of years. As of this morning, we're sitting on $4.6 billion in cash, at the Fed, and we do have a negative carry on that $4.6 billion. I did see an analyst report recently saying we're in the top 10 for cash as a percentage of assets. Bud will go over our plans in a few minutes to invest those funds over time. On the hiring front, we continue to have many conversations, more than in the past few years. Again, more merger activity has led to more discussions with more teams. Early in the pandemic, we took a very conservative approach and did not told everybody that we talked to that we really didn't want to hire anybody or do anything during the early part of the pandemic and wanted to see. We just thought the best thing to do was to be conservative, and that's usually the best thing to do in the banking business, is almost always to be conservative. That's something we're continuing to look at, and we see many opportunities, and our goal is to only bring in a small number of very high-quality bankers. Now I'd like to turn it over to Henry Abbott, our Chief Credit Officer, to talk about our credit situation. Thank you, Tom. I'm very pleased with the bank's performance in the third quarter, and the loan portfolio continues to perform well in the current economic environment. I will give a brief overview of the key ratios for the quarter, but we continue to see strong asset quality, which can be attributed to ServisFirst's strong client selection, credit servicing, and the vitality of the markets in our footprint. Non-Performing Assets to total assets were down to 11 basis points versus 15 basis points last quarter, and 29 basis points in the third quarter of 2020. For the quarter, NPAs were down to $16.5 million. This is a 15% reduction from the prior quarter and a 50% reduction from the third quarter of 2020. This drop is attributed to OREO continuing to be at near record lows, in line with the prior quarter and a $2.7 million reduction in non-performing loans. Our past due to total loans were 8 basis points, $6.8 million, on par with last quarter, and a 27% reduction from the end of the third quarter in 2020. Charge-offs and OREO expenses for the quarter were $1.8 million, an 85% reduction from the $11.5 million in the third quarter of 2020. Our net credit expense annualized for the third quarter would be 8 basis points, and I'm proud to say that year-to-date net credit expenses, when annualized, would be 4 basis points versus credit expenses for 2020 for the whole year of 38 basis points. In the face of strong competition, loans grew by $370 million, excluding PPP payoffs. Including PPP payoffs, our loan outstanding still grew by $163 million. Primarily due to loan growth, we grew our ALL by $4.2 million in the third quarter versus roughly $9.7 million last quarter. Our ALL to loans, excluding PPP loans from total loans, is 1.29. Even as we put some of the more dramatic COVID economic impacts in the rear view mirror, given the bank's continued strong loan growth and the unprecedented government aid still helping borrowers, we felt it appropriate to continue to grow our loan loss reserve. 2021 continues to be a very strong year for the bank, and our core key credit metrics continue to improve, and charge-offs continue to be near historic lows. With that, I'll hand it over to Bud. Thank you, Henry. Good afternoon. Liquidity, Tom mentioned we have a plan to invest a portion of our excess funds. Our initial goals are to purchase 15-year mortgage backs and five- and seven-year treasuries. The net monthly investment security growth will be about $100 million. We will increase these monthly purchases over time. Current yield on mortgage backs is approximately 1.30%. Current yield on five-year treasuries is approximately 1.08% and 1.38% for seven-year treasuries. We also decided to retain a portion of our mortgage originations. For the third quarter, we sold $33 million to investors and retained $53 million. Net interest margin, average loans exclusive of PPP increased by $424 million in the third quarter. Average PPP loans decreased by $387 million for a net average growth of $37 million. PPP fees and interest income were $6.4 million in the third quarter compared to $10.2 million in the second quarter. An increase of $971 million in average excess funds decreased the margin by 20 basis points in the third quarter. Non-interest expenses, salaries increased $852,000 comparing third quarter 2021 to 2020. The majority of this increase was in West Central Florida as we added production staff and opened the Orlando office. West Central Florida had the highest year-over-year loan growth. We've also hired 15 new producers in 2021. We increased the incentive accrual in the third quarter by $1.1 million based on high dollar volume of loan production this year. We invested in a New Markets Tax Credit during the quarter. The investment write-down increased non-interest expenses by $2.8 million for the quarter, was more than offset by income tax reduction of $3.3 million. Non-interest income, credit card income continues to grow. It's $2.04 million in the third quarter versus $1.8 million in the third quarter 2020. Third quarter spend was $216 million in 2021 versus $151 million in 2020. That concludes my remarks, and I turn the program back over to Tom. Thank you, Bud. We do continue to be optimistic about our future growth due to strong pipelines and conversations with clients regarding their future plans. All in all, we were pleased with the quarter, we're pleased with the outlook, and we'll be more than happy to answer any questions you might have. Thank you. Let's open the floor for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Brad Milsaps with Piper Sandler. Please go ahead. Hey, good afternoon, guys. Hey, Brad. Hey, Brad. Tom, I was just curious, obviously another great quarter of loan growth. If you could give us a sense of where your new loans are coming on the books, kind of relative to the current book yield. Yeah. Brad, with the fees, we're still putting loans on at 415 to 420, right? Okay, great. Bud, based on your comments, I wanted to make sure I heard you correctly. You thought that the pace of securities purchases would be right around $100 million a month, so about $300 million a quarter. Is that correct? Right. Yeah. We're just going to watch rates. I know five and seven-year Treasuries have been trending up. We'll just watch it. I'm sure we'll look at increasing that purchase amount over time. That's $100 million a month and $300 million a quarter is our current goal. Yeah. All else equal, you might get the securities portfolio up to $2 billion or so by the end of next year? Yes. Yeah. If that right, yeah. Obviously, Bud, no one has a crystal ball, but just kind of curious, if we got 50 basis points, or 75, starting late next year, aside from the obvious, your cash balances would get a higher rate. What do you think the impact would be for you guys, however you want to express it in terms of NIM? Just kind of curious what the impact would be on loan yields with higher Fed funds and taking into account anything you might have sitting at floors, et cetera. I don't know if I have a good answer just off the top of my head, especially when you go into the loan side. I'd really have to look at that. How much cash are we going to have on deposit at the Fed then? Yeah. $1 billion or $3 billion? A lot of ifs on that one. Yeah. Well, maybe ask differently. Can you just remind us of your kind of split between sort of prime or your LIBOR-based loans versus fixed rate? What now? The mix? Yeah. Between floating and fixed. Yeah. Let me think. We're at 60-something percent on fixed. Brad, let me look. That one, I think we're probably 60%-65% on fixed. I know that's been shrinking, but I just don't have it right here, and I didn't bring that up. I didn't have that in my notes, I don't think, so sorry. I can email it to you then. Yeah, okay. No problem. All right, great. Well, I'll hop back in queue and let some other folks hop in. Thank you, guys. Yep. All the cash is floating rate. The $4.6 billion is in a floating rate, Brad. Sure. Absolutely. Yep. Got it. That's the biggest floating rate asset we have, that cash. Yep, understood. The next question will come from Kevin Fitzsimmons with D.A. Davidson. Please go ahead. Hey, good afternoon, guys. Hey, Kevin. Afternoon. Just digging into the loan growth a little bit. Tom, you mentioned in the release about the economy, the economic recovery. You also had cited just a few minutes ago that line utilization really hasn't picked up like you would have hoped. If you would really to attribute this growth to just pure economic expansion versus the effect of your hiring efforts and bringing folks over, and that probably dovetails with the deals that are going on. Maybe it's not just from hiring, but you're getting some loan opportunities because of some of the consolidation that's going on in your markets. If you can just sort of point to what are the main driving forces for that loan growth? Yeah, I don't really know. I'm giving you a guess, but I think it's probably half and half, probably half is new hires and half is projects from existing customers that people put projects on hold, obviously, during the pandemic, and we didn't want them to do anything, and they didn't want to do anything. Now they're moving forward with new projects, a lot of commercial real estate. The loan demand is not that good in the commercial industrial sector. Our loans declined in the last quarter in the C&I book just because of strong profitability and continued stimulus, unprecedented stimulus, and strong corporate profitability. Supply chain woes and hiring issues. That's giving you a guess, Kevin. We haven't broken it down. Yeah. You've mentioned that a few times, and obviously that's a big issue for everyone, the supply chain disruption, the employee shortages that are out there affecting different companies. When you're looking at that, is that something that in your mind is just preventing a more healthy pace of C&I growth and/or is it something that is starting to get on your radar in terms of credit, in terms of getting concerned and watching things like that more carefully? Thanks. We don't have any credit concerns, but yes, we think that supply chains getting, if they ever do get fixed, which we don't think is going to be anytime soon, that certainly we'll see more inventory, higher inventories. There is a tremendous lack of supply, and there's unprecedented demand that we've seen today. We hear it from every customer that we have. The only place where we're getting a little pickup in demand is steel prices have gone up and our customers in the, for example, in the steel fabrication business, they've had to increase inventories, and some of our scrap dealers are borrowing a little bit more money today. It's not been an overwhelming change in the numbers there. Okay. Great. One last one for me is just that you mentioned capital, how you went from this position of having a lot of excess capital, and it was a good thing to have, and you put it to use, and where you sit now, though, and there's a lot of uncertainty in terms of what happens to this excess funds. How do you feel about your capital levels now? If you have this kind of loan growth still going forward and we don't have a major change in the balance sheet, is it something that you might look at to getting more capital? Thanks. Yeah. Kevin, we've talked to our regulators where our Tier 1 leverage was 8.25% at the end of the quarter. We'll just reassess it in the fourth quarter and see. I think that 8% is the magical number, but I think we would have leeway in that, and it would be monitored. The thing that really has driven it down, like we grew over $1 billion in deposits in the third quarter. It's spikes like that that really caused the issues, and I think the regulators understand that. I think we could probably get by without doing a capital raise or sub-debt or something like that, as long as that's a short-term issue. We think we will. I mean, Bud's done some projections, and we think we're fine there. We think we have more than adequate capital, Kevin. Also, again, when the risk weighting on the $4.6 billion at the Fed is zero, right? We don't have a risk-weighted capital issue with that much cash on the. Right Fed Reserve. We think we're just absolutely no problems at all. We're glad we have that extra capital. Yeah, no. Definitely, and I guess part of the reason I ask the question is you're also sitting with a very strong currency, so I guess that's a variable, too, to look at where you're at in the market and your willingness, if there's capital to be had, whether, weighing all those different variables about whether you should do it or wait. That was my point. Okay. Thanks very much, guys. Thank you. Thank you. Thank you. The next question will come from William Wallace with Raymond James. Please go ahead. Hey, good afternoon, guys. Maybe just kind of following along with Kevin's kind of line of questioning. I mean, the liquidity from a capital perspective, you're saying it's a liquidity pressure, not a loan growth perspective. Your liquidity has been building now since really pre-COVID, I think. $4.6 billion is massive liquidity. One, Tom, I guess during your prepared remarks, I might have missed if you gave the timeframe, but I believe you said your correspondent channel balances have doubled from $500 million to $1 billion. Did I get that correct, and is that year-over-year, or was that in the quarter? No. Go ahead, Rodney. Yeah, this is Rodney Rushing, and you heard him correct. Since year-end, our correspondent DDA balances went from just over $400 million to over $1 billion. Total correspondent balances were just shy of $2 billion at the beginning of the year, and they're at $3.6 billion. What makes that up are the DDA balances, where our downstream correspondent banks keep money in the DDA to pay their compensating balances. We're the settlement point at the Fed for them for their cash letter. Anything over that, we sweep into Federal funds or a money market account. Right now, our largest category is by far our DDA balances, but that growth has come from new correspondent relationships, mainly in Florida. Last month alone, we opened over 20-something correspondent accounts in the state of Florida. This month, we opened another six correspondent accounts. In addition to those new accounts, our downstream correspondence liquidity is higher than it's ever been. They have a lot more cash, just like we do. We're taking this year, like, the spike I didn't predict, and I don't think it'll continue, but that's where it came from. Yeah. Of course, We're seeing a flattening, as I mentioned. We're seeing a flattening, Wally, in all the other regions, for the most part, in deposit growth. I don't know where your question's leading, do you do a capital raise to support cash on at the Federal Reserve where you have a negative carry? I don't think so. If you figure out some other solution to the problem, there are solutions to the problem. We have a way to offload some deposits in a third-party arrangement if we need to. That would probably be the solution rather than a capital raise, Wally. You might not be going there, though. No, that's precisely where I was going is, we've seen the channel grow. You've added a few billion dollars of liquidity from that channel alone over the past couple of years, I'm just wondering, at what point do you start to maybe try to figure out ways to sweep some of that liquidity off the balance sheet so you don't have to answer questions from the regulators about a leverage ratio sub 8%, et cetera. Are you there? Well, this is Rodney again, and what Tom alluded to was, we do have that ability. Right now, we're buying all these funds. Obviously, what goes into DDA is a deposit. What we purchase as Federal funds, we are purchasing as principal. If we want to, we can sell that money off to another bank, or we can actually place it at the Fed. We would have to do that in an agent relationship, which we have the capability. We've just chosen not to do that up until now. We're buying it all as principal, and we'll see if we can put it to work. Okay. Are we at the point where you are starting to make those decisions? I'm assuming the answer is yes, if you're going to start putting $100 million to work a month in securities and trying to figure out other ways to turn it into a positive carry. That's where we are today? Well, that's more of a question for Bud and Tom. This is Rodney again, but I'll let them chime in. Well, you know. As Tom said, it's leveled off. We want the correspondent channel to grow because there are other aspects. A, there are loan participations that we purchase. We make them direct loans. Also, we're growing our credit card outstandings through the correspondent agent, credit card agent program. There are a lot of other things other than just deposits that lead to profits through our correspondent relationships. We think we have a pretty good chance to be a reasonably good market share in the Southeast U.S., and as well, we're seeing a national credit card program today. Okay. Thank you. Bud, it looks like you moved about $260 million into Held to maturity this quarter. Can you just give us a kind of brief overview of the nature of those securities? Yeah. That was all mortgage-backed securities that we moved. Net unrealized gain was about $5.6 million, and that'll just be amortized over the remaining life. We get to keep that $5.6 million in our unrealized gain total. Really, I think a lot of banks are looking at doing this. Really, you don't have a negative impact from that $253 million down the road if rates go up 300 basis points, I guess. Yeah. It helps your book value by moving that to Held to maturity. Yep, exactly. What's the duration on those average? About five years. Okay, on credit, you highlighted in the prepared remarks really just how strong credit is overall, yet you decided to increase the reserves, the reserves to loans, I guess if you take PPP out of the equation, it's really just kind of holding flat on a reserve to loan basis. At what point do you, in your models, make the qualitative adjustments that would bring the reserves back down? Or do you think you're where you need to be? This is Tom. We look at it on a quarterly basis. 2 basis points of charge-offs on a year-to-date basis is not reality. You and I both know that. There's a loss somewhere in our portfolio. We just don't know where it is. I've been a president of a bank for 36 years. I've never seen losses this low in my career other than on one-off basis, but never as low as 2. Good banks, you and I both know, a good commercial bank, during good times, the charge-offs are 10-15 basis points, and during bad times, they're probably 25-30, and a little bit higher if your credit quality is not where it should be. We just want to be prepared for when that happens, Wally. We think that we'll see some charge-offs. We're in the banking business. There are going to be charge-offs. We'd rather be prepared than unprepared for that. Okay. I appreciate that. My last question, just you've got your $100 million monthly loan production target that you have been exceeding. Has production itself been accelerating or are payoffs also declining, so you're kind of getting a double benefit? Payoffs are so lumpy, I can't even answer the question, Wally. The production was lower in the third quarter than the second quarter, but we didn't have any significant payoffs. I think a lot of the people that wanted to sell their properties or companies and worried about increase in potential capital gains taxes and other taxes have already done so. People started doing it last year. We had customers selling assets last year to be prepared for higher tax rates. It's very hard to predict, Wally. Usually fourth quarter is a good production time for us. It's the highest of the year, typically. Yeah. Okay. Thank you very much for answering my question. I appreciate it, guys. Thank you, Wally. The next question will come from Dave Bishop with Seaport Global Securities. Please go ahead. Yeah. Good evening, gentlemen. How are you? Hey, Dave. Hey, Dave. Hey. How should we think about operating expenses here? You mentioned the New Markets Tax initiative. Should we think about this as sort of a good run rate? Conversely, the tax rates remaining around that 18% moving forward with the tax credit investments? Maybe a little bit higher, but somewhere in the 19%-20% range. Yeah. The New Markets, the tax credits, all of them you have to look at the end of the period, you have a capital gain or a capital loss. The New Market that we purchased in the third quarter was there to offset. It'll have a capital loss that's offsetting a capital gain. That's really where some of these tax credit deals come into play, because you want to make sure that you're matched off as well as you can on the capital gains or losses. That definitely impacted our non-interest expenses for the quarter. Got it. It seems like that could be a little bit of a giveback moving forward here. Probably maybe $1 or $2 million or so heading into fourth quarter. No, the write-down will still be there. It's about $2.8 million each quarter that we'll have in write-down. You'll have the $3.3 million in tax reductions. Is that what you mean? Okay. Yeah. That's a good run rate moving forward. Yeah. Got it. Okay, great. That's all I had. Thank you. This concludes our question and answer session, as well as our conference call today. Thank you for attending today's presentation. You may now disconnect.