KBRA Affirms Ratings for ServisFirst Bancshares, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Birmingham, Alabama based ServisFirst Bancshares, Inc. (NYSE: SFBS) (“ServisFirst” or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, ServisFirst Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

SFBS’ ratings continue to be supported by its stronger-than-peer earnings profile – one that has been acutely tested over the past two years in the backdrop of a distinctly rising rate environment. In this regard, as a traditionally liability sensitive institution (a function of a rate sensitive deposit base featuring large, sophisticated commercial customers), SFBS’ earnings have reset lower since their cyclical peak in 2022 (FY22 ROA of 1.71%), largely due to a contracting NIM and declining net interest income. However, given the company’s comparatively high starting point, recent earnings performance has remained better than peer by a significant margin (SFBS 9M24 ROA of 1.34% vs. rating category average of 0.85%). We view this relatively strong earnings performance favorably, noting that it occurred during the most volatile interest rate environment since the Volker era. Such performance in a challenging environment gives us a degree of comfort with the company’s admittedly narrow business model, which is heavily spread reliant and lacks meaningful amounts of fee income.

We also view the improvement in SFBS’ capital profile favorably. As a reminder, strong loan growth during 2020 – 2022 resulted in a notable decline in the company’s capital metrics, with the CET1 ratio troughing at 9.4% in 3Q22 and representing a level we considered a relative “floor” for SFBS’ maintenance of its ratings. Since that time, SFBS has undergone a multi-year effort to improve its core capital metrics, and as of 3Q24, the company’s CET1 ratio has risen 180+ bps from its 2022 low point to 11.2%. With that said, risk-weighted core capital ratios remain modestly below peers in the rating category. While a modest degree of negative risk rating migration has been evidenced at SFBS through 9M24 (a trend hardly dissimilar to peers), the company’s asset quality, as measured by NCOs and NPAs, remains rather strong. Furthermore, we believe the 3Q24 climb in the company’s criticized and classified loan ratio (+70 bps QoQ to 2.7%) is largely temporary in nature and related to delayed payments due to Hurricane Helene. We add that developments with these credits since quarter-end have been positive, with one of the loans paid off in its entirety ($10 million), and the developer has returned to current payment status on seven of the eight remaining loans.

Rating Sensitivities

The Stable Outlook reflects KBRA’s view that a rating change is not expected over the medium term. Considering capital ratios that are currently below peer, a more aggressive capital management strategy could have negative rating implications. While not expected, material deterioration in credit quality or the company’s liquidity profile would also be viewed negatively.

To access ratings and relevant documents, click here.

Methodologies