Greetings, and welcome to the Service First Bank Show's first quarter earnings conference call. At this time, all participants are in the listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the form of presentation, and you may press star one to be placed into question queue. It's now my pleasure to turn the call over to Davis Maines, Director of Investor Relations. Davis, please go ahead.

Good afternoon, and welcome to our first quarter earnings call. We'll have Tom Broughton, our CEO, Jim Harper, our Chief Credit Officer, and David Sparacio, our CFO, covering some highlights from the quarter and then 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, and Service First assumes no duty to update them.

With that, I'll turn the call over to Tom. Davis, thank you. Good afternoon, and thank you for joining our first quarter conference call. We're really pleased with our start to the year, and I'm going to highlight a few things before I turn it over to Jim Harper to give credit update. On the loan side, we had pretty solid loan growth for the quarter. However, loan growth is usually not very robust in the first quarter, but we did see some pretty good loan growth. We are seeing loan payoffs begin to diminish compared to the last two years, which is certainly a great thing. I don't know what kind of trend we'll see in the second quarter, but on a quarter-to-date basis, we've seen some very nice growth in the first 20 days or so of the quarter. On the forward loan pipeline over 90 plus days, it's the strongest we've ever had in our history. Of course, on a 90-day loan pipeline, the closing rate is much lower than on a 30-day loan pipeline, for example. But it is great to see a long list of new relationships across all of our markets in a variety of industries on that list. On the deposit side, they grew by 8% annualized in the first quarter, which has exceeded our expectations as we typically see our deposit growth in the second half of the year. We continue to try to manage our deposit costs to improve margins. We continue to attract new clients with our strong financial condition, our profitability, and our personal service that we provide to commercial clients and correspondent banks. David will elaborate in a few minutes, but our net interest margin continues to improve. Our efficiency ratio continues to be the best in class as we dropped below 30% in the first quarter. We do have 161 producers at quarter in. We've hired over the last 12 months 32 new FTEs, and 75% of those FTEs are frontline employees, So we should see, you know, obviously some improved productivity over time and profitable growth there. Our Houston team has found an office they've leased, not ready to move into yet, but they've got 26,000 square feet to build out. We do have 18 bankers on board there today, and their pipelines are building quite nicely. We actually closed our first loan in Texas, which is a large supply chain company with long-term contracts in March. We're pleased with the start there. Now, I'm going to turn it over to Jim Harper for a credit update.

Thanks, Tom. As noted, loan growth for the quarter was solid at 7% annualized, though we definitely experienced an uptick in loan activity beginning late in the quarter, which reinforces Tom's comments about our forward pipeline. From a credit metric standpoint, net charge-offs for the first quarter were around $8.3 million, most of which was associated with the remaining balance of one credit, with the charge representing the final resolution of a loan to a long-time troubled borrower. Our allowance to total loans remained static when compared to the end of 2025, ending the quarter with an allowance compared to total loans of 125 basis points. Non-performing assets to total assets at quarter end were 100 basis points, which was slightly higher than the 97 basis points we reported at fiscal year end 25. However, we are confident in some near-term reductions in NPAs of approximately $17 million, just over 9% of our 331-26 NPAs stemming from the U.S. Coast Guard's purchase of a private university campus and the assumption of two other loans by a long-term customer. As always, we continue to actively and aggressively manage our NPAs and this portfolio. And David will be next with a discussion of our first quarter of financial performance.

Thank you, Jim, and good afternoon, everyone. I will walk you through the financial details of our first quarter and I am pleased to report a strong start to 2026 across virtually every metric we track. The headline numbers reflect continued expansion in the net interest margin, disciplined expense control, solid loan and deposit growth, and a meaningful year-over-year improvement in operating leverage, all of which speak to the durability of the Service First model. The first quarter of 2026, we reported net income of $83 million or $1.52 per diluted share or $1.54 on a normalized basis. To put that in context, we earned $1.16 per diluted share in the first quarter of 2025. So we are up 33% year over year on earnings per share. On a linked quarter basis, EPS stepped back from the $1.58 we reported in the fourth quarter of 25, and I want to briefly explain why. Fourth quarter included a $4.3 million non-recurring Bowie death benefit that flowed through non-interest income, and fourth quarter also had more calendar days to earn net interest and fee income. During the first quarter, we also had a prior period adjustment to BOLI income of $1 million, which was a headwind. Excluding those items, the core earnings trajectory is clearly upward. Our return on average assets was 1.89% for the quarter, which was essentially in line with the fourth quarter and well above the 1.45% we delivered one year ago. Return on average common equity was 17.91%. These are strong, industry-leading returns and they reflect the operating leverage inherent in our model when loan growth, deposit repricing, and expense discipline all move together in the right direction. In net interest income for the first quarter, it was $148.2 million, which is up from $146.5 million in the fourth quarter and up from $123.6 million a year ago. The net interest margin expanded to 3.53 percent, 15 basis points better than linked quarter, and 61 basis points better than the same quarter last year. That progression reflects two drivers working in tandem, continued repricing of our low fixed rate loan portfolio and a full quarterly impact of the Fed rate cuts from the fourth quarter. As we have mentioned in previous quarters, we continue to see opportunities on loan repricing. For the next 12 months, we have about a $2 billion opportunity for low fixed-rate loans renewing, normal payment cash flows, covenant violations, and modifications. In fact, we have about $2.9 billion in fixed-rate loans maturing in the next three years at a price below our current going-on rate for loans. On the deposit side, average interest-bearing deposit costs fell at 2.79 percent, down 22 basis points from fourth quarter and 61 basis points from over a year ago. That repricing is still working through the book, and we continue to expect meaningful benefit as higher rate time deposits mature and renew at current market rates. On the asset side, loan yields were 6.18 percent, percent, an 11 basis point step down from quarter four that reflects the normal variability in the declining rate environment, and it does not represent any systemic pricing pressure. Investment yields of 3.78 percent were essentially flat versus fourth quarter and up meaningfully from a year ago. I would also note that during the fourth quarter, we redeemed $30 million in 4.5% subordinated notes due in November of 2027, which was a cleanup item that removed an above-market funding cost as we entered 2026. From the non-interest income perspective, our income was $10.8 million for the quarter, compared to $15.7 million in fourth quarter. The length quarter decline is explained almost entirely by a $4.3 million non-recurring Bowie death benefit that boosted the fourth quarter. Stripping that out and the negative adjustment this quarter to Bowie, non-interest income was essentially up 4% versus fourth quarter and continues to show solid organic growth year over year. Service charges were $3.3 million, which is flat versus linked quarters despite fewer days, and up 29% year over year, fully reflecting the service charge rate increases we implemented in July of 2025. Mortgage banking revenue was $1.9 million, a 14% increase on a late quarter basis, driven by higher secondary market volumes. Net credit card income grew 12% year-over-year to $2.2 million, and underlying bowling income was up $2.8 million, up 32% from a year ago, which is in line with the growth in our portfolio assets. These fee lines reflect genuine relationship deepening across our markets. From a non-interest expense perspective, the total was $47.4 million in the first quarter, which is up modestly from $46.7 million in the fourth quarter and up 2.8% versus a quarter a year ago. We are very pleased that the efficiency ratio came in at 29.81%. percent the second consecutive quarter below 30 percent this is a benchmark that very few banks our size can claim and it reflects the fundamental scalability of the service first model primary driver of the salary increase up 13 on the length quarter basis and up 17 year over year is the combination of the continued build out of our texas banking team and the seasonally higher payroll taxes in the first quarter. We are investing intentionally in Texas and expect the revenue contribution to more than justify the cost over time. Offsetting this, other operating expenses fell 37% year-over-year to $4.3 million, and third-party processing costs were modestly lower, keeping overall expense growth a fraction of our revenue growth rate. Our effective tax rate for first quarter was 17.83%, down considerably from 19.72% in fourth quarter, and 20.06% a year ago. This reduction reflects the purchase of investment tax credits during the quarter, a tax planning strategy that delivers immediate recognized benefit and fits well within our capital deployment framework. We continue to evaluate similar opportunities selectively and expect a full-year effective rate to remain modestly below our peers. Our capital position continued to strengthen in the first quarter. Common equity Tier 1 capital to risk-weighted assets reached 11.86% on a preliminary basis, up 21 basis points from year-end and up 38 basis points from one year ago. Total capital to risk-weighted assets was 13.13%. Our Tier 1 leverage ratio was 10.71%. Intangible common equity to total tangible assets stood at 10.46%. We are building capital organically while supporting balance sheet growth, and we believe the current capital trajectory is highly sustainable. Book value per share was $34.99 at quarter end, reflecting annualized growth of 13.4% from year end and 14.5% year-over-year growth. Tangible book value per share was $34.74. Shareholders are seeing real compounding growth in intrinsic value. On liquidity, we ended the quarter with $1.84 billion in cash, approximately 10% of total assets. We have no FHLB advances. We have no broker deposits. Our funding base is entirely core and relationship-driven, which we believe positions us well to support continued organic growth, especially as we build out our Texas market. In summary, the first quarter was a quarter that demonstrated the strength and consistency of the Service First franchise. Net interest margin continues to expand. The efficiency ratio came in below 30% for the second consecutive quarter. Normalized earnings per share are up 33% year over year. Capital is building, and our liquidity position remains strong. We remain focused on what we control, deepening relationships, building the Texas franchise, and sustaining the operational discipline that has driven these results. Now, I'll turn it back over to the operator to begin the question and answer session.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. Our first question today is coming from Steven Scowton

from Piper Sandler. Your line is now live. Hey, good afternoon, everyone. Appreciate the time. Tom, it sounds like you're pretty encouraged about the trends you're seeing around loan and deposit growth for the remainder of the year. What would you anticipate that that could translate to and maybe getting specific on it? How much have you seen out of the new Texas team now that they've kind of started booking loans? I know you mentioned first loan closing in March. Just How do you feel about the potential of that team now that you know a little bit more about their potential within the franchise?

Yeah, I think they have a robust pipeline. I don't know exactly what the closing percentages would be on that, Stephen, but it's a lot of names. It's a lot of new deals with people they've worked with over the years. So we are optimistic that they'll end on a, you know, it takes time to build a pipeline, but towards the end of the year, we think we'll certainly see some success in closing and help, you know, help if we fall short in our pipeline of where we think we are already, we think it'll certainly help push us to, you know, to a more optimistic tone of loan growth for the whole year. You know, I don't, loan growth's not great. I mean, I'd give it a B plus if I had to rate it. It's not easy and there's a lot of, you know, a fair amount of, you know, price and credit term competition that we try not to take part in. You know, if the competitor is happy with a 10% return on equity, you're trying to get a 20% return on equity, he's probably going to beat you on some terms and rates. So that's certainly still the case today. And we're seeing it, you know, today probably more than you'd think we would, given that, you know, the economy is pretty good and things are progressing nicely. So, I mean, I guess the, you know, the wild card on everything with the consumer is, of course, going to be, you know, gas prices. So, I don't, I think that could trickle into the whole economy if we don't see, you know, some moderation in gas, gasoline prices, you know, in the next, you know, 60, 90 days. But that's far afield from your question, Stephen. Did I answer your question?

Yeah, you did. That's helpful, directionally, for sure. And then if I can think about maybe the kind of what you would expect from average earning assets this year relative to maybe the loan book, you know, the past year you saw really nice loan growth, but, you know, average assets were kind of flat and average earning assets, you know, trended down a little bit over the course of the year. So I'm curious if this year you think maybe that average earning asset growth can more closely match the growth in loans that you expect to see?

Yeah, I would agree with that, Stephen. This is David. And, you know, I mean, we're going to continue to see growth in our assets. We saw about 8% in loan growth year over year. And so, you know, we continue to look at investments, and, you know, we have good deposit growth, which is going to obviously drive the asset growth. So, we are looking at investments with the offset that the loan demand is not there, and so we can continue to do that. So, I would expect average assets to rise in line with loan growth.

Okay, great. And then maybe just last thing for me, I was curious on the expense side of things. Obviously, continue to be best in class there. There was a particularly large move. I think you guys called out in a release on the other non-nish expense. Just curious if you can give any detail on that and if this is kind of a good run rate to think about into the second quarter or beyond.

Yeah, so there were two things that were going on in other operating expense. If you recall, first quarter of 2025, we had a pretty large operational loss. It was about $1.8 million, so that inflates first quarter of 2025, other operating expense. And in this quarter, we saw, which I think I've seen other banks come out in their releases as well and noted, was a reduction in the special assessment from the FDIC from the spring of 2023 crisis, and so we saw a $1.2 million benefit from that. And so I would advise you not to use the 4.4 number as another operating expense kind of a go-forward model. I think it's, you know, closer to a 5.5 number.

That's extremely helpful, David. Thank you guys for the color, and congrats on the quarter.

Thank you. Thank you. Next question today is coming from Steve Moss from Raymond James. The line is now live.

Good afternoon, guys. Maybe just following up. Hey, Tom, maybe just following up on expenses here and the efficiency ratio. You know, you guys came in, you know, sub 30. I hear you have a little bit of extra benefit from the FDIC expense here. But, you know, going forward, you know, you talked about margin expansion, loan growth, and, you know, just kind of curious, seems like you guys can run around 30 or maybe a little bit below. You know, just how do you guys think about the expense trajectory for the remainder of the year as you make investments?

Yeah, so I know we talked to you in Chicago last year and told you that you are aggressive on our efficiency ratio, right? And, you know, I mean, 30, dropping below 30, I think, is kind of a flattening point, right? I mean, we're going to continue to grow as an organization, you know, built into that. We have a fairly sizable complement of the Texas franchise, right, and they're not producing revenue. So as they produce revenue, as the year goes on and they build out their book of business, that's going to help us. But, you know, I mean, we don't have any major investments to do in the back office side. But as we continue to grow, there will be, you know, increases in expenses. I mean, our biggest expenses are employees. We're not on a one cycle for merit increases. And you'll see each month, you'll see employees get merit increases, and that'll drive the salary and benefit expense up. So, I think if you're using that 30% mark, you know, we're not going to dip too much lower than where we are at a high 29 efficiency ratio today.

Right. And just kind of thinking about expense growth for the year, like high single digits to low double digits is kind of a fair assumption based on what you see.

Yeah, I would say mid to high single digits. I wouldn't put it in the double digit and expense growth.

Appreciate that. And then on the margin here, I guess just a couple of questions. You know, David, in your comments, you said continue to see core margin expansion, kind of curious, you know, how much additional margin expansion you expect. And also on the $2 billion in loans repricing, maturing, cash flows, you name it, Just kind of curious as to, you know, what that incremental pickup is versus on the roll-off yields versus the roll-on yields.

Yeah, absolutely, Steve. So, you know, I stand by my comments that I've made for a while now in that I expect the margin to expand seven to nine basis points given a flat rate environment, right? Obviously, in fourth quarter, we had a few rate cuts, and we had the full impact of the September rate cut in the fourth quarter as well. So we saw a pretty dramatic decrease in our deposit costs. And even this quarter, you know, the last rate cut was, I think it was December 10th. And so we didn't get much of an impact of that in fourth quarter, but we saw it this quarter. And, you know, nobody obviously knows what the Fed's going to do with rates, right? I mean, the latest projection that the Fed released, it was in early March, mid-March. and they, you know, it was a prediction that they're going to raise, I'm sorry, they're going to lower 25 basis points one time this year. I don't know if that's going to hold true today or not. I mean, that's, you know, as Tom's point, I mean, that was before the war in the Mideast and the gasoline prices started to rise. And so, you know, not sure what the Fed is going to do on the rates side. If they do reduce rates once, we're going to aggressively drop our rates as well on deposits, and we'll see a significant benefit given the beta that we realized in the fourth quarter. On the asset side, you talked about the $2 billion we have. And yes, I mean, for instance, we have $1.2 billion in loan maturities that are fixed rate, low fixed rate loan maturities in the next 12 months. And their weighted average yield is 5.19 today. our going on rate for new loan activity is 6.5. So, we have substantial pickup. I'm not saying we're going to get, you know, 131 basis points on every single loan that we reprice, but we're going to see some decent size pickup on that loan repricing. And so, we continue for that to happen for the next 12 months. So, that's kind of what we're seeing on the margin side, Steve.

Okay. Appreciate that color there. And then just on credit here, just kind of curious, you know, with regard to the large borrower, you know, $100 million borrower, just kind of curious as to what the status of that workhead is. I know you guys mentioned last time it's going to take a lot longer, you know, believe they may have filed for bankruptcy. So just kind of, you know, curious as to, is it still a couple quarters to get to resolution or how that could play out?

So, just keeping in mind that there are literally dozens of special purpose entities within that family of borrowers, none of our borrowers to date have filed bankruptcy, so just an important distinction. So far, so good on that front. We're continuing to proactively work with the borrower and related entities to try to find the best path forward on all eight of the lines that we have. And, you know, slow and steady is probably the way I characterize it. Tom or Rodney may have a different approach, but, you know, we're working on it as diligently as we can, trying to produce the best outcome we can.

We think we'll see good progress in the next two quarters. You know, probably six months.

Okay, great. Well, appreciate all the color here, and nice corn. I'll step back in the queue. Thank you very much, guys.

Thank you, Steve. Thank you. Next question today is coming from David Bishop from Polter Group. Your line is now live.

Hey, good evening, gentlemen. Tom, quick question. Circling back to the Texas market expansion, you know, you hired some pretty, you know, senior lenders out of their former franchise. When you ring fence it, you know, looking out a couple years, is the opportunity set in terms of growth and the hundreds of millions going to approach the billions of dollars? Just curious how big you think that Texas market could get for you over time.

Over what time period, Dave?

Let's say over, you know, three to four year period.

One year? Three to four. Oh, three to four. Oh, yeah. I would think, you know, it would be more like a B instead of an M on the number, you know, in terms of opportunity in that time frame.

And the types of loans that the team's going to provide, is it more C&I in nature versus CRE? I'm just curious how you see that mix coming out of that franchise.

It's virtually all C&I at this point.

Got it. Have you started to see any deposit relationships migrate yet or is it still too old?

Yeah, it's C&I deposit relationships as well.

And then a couple quarters, the other thing, Tom, you mentioned in terms of the loan payoffs, I think it was like 50 cents for every dollars of new loans. Is that still trending down in terms of loan payoffs versus originations?

It's trending down. It's more like 30 cents. And we think we'll see it continue to moderate from there, Dave. So that's helpful to us. First quarter is just kind of slow, I mean, right? We're seeing much better moderation in loan. Probably 30% is too high. It's probably 20%, 25% of bookings. So it's not the old 50% payoff day.

Got it. And then, Christopher, Dave, you talked about some of the impacts. and puts and takes on the operating spend side. And then you mentioned the Boldy headwind. I think it was about a million. Does that apply, like, a 3.8 million is a good run rate for the Boldy line moving forward?

Yeah, that's correct, David, because we had, like I said, a $1 million headwind related to the fourth quarter prior to the adjustment. So 3.8 would be a more realistic trend going forward.

Got it. And then from a credit perspective, you noted the charge-offs there. Just curious if there was any significant sort of new non-accrual inflows or backfills on the non-accrual side that you could point out.

One or two relatively small ones, but to be honest with you, I wouldn't classify any of them as terribly material. They were both pretty small in the quarter.

I think I heard in the preamble, you expect about a near-term $17 million reduction in NPAs, if I heard you're right.

That's right. We've got some really good visibility into three assets that will be paid off or taken out by a better quality borrower here.

Maybe one final question for Dave on the margin outlook. If I'm looking at the supplemental information deck, it looks like deposit costs are pretty much on top of the average for the quarter. Is most of the expected margin expansion predicated more on the earning asset side or a combination of earning asset and funding costs going lower?

I mean, it's predominantly on the earning assets. You know, we do have about a $1.3 billion book in time deposits that are going to reprice, right? I mean, and those are maturing, I think there's like a five-month remaining duration on those. So they're going to reprice in the next couple of quarters, and, you know, they may reduce funding costs a little bit, but it's not going to be significant enough to really move the needle on deposit costs. It's going to come from the asset side.

Thank you. We reached out of our question and answer session. And, ladies and gentlemen, that does conclude today's teleconference and webcast. you may disconnect your lives at this time and have a wonderful day we thank you for your participation today