UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
(Mark one)
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______to_______
Commission file number 001-36452
SERVISFIRST BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 26-0734029 |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 2500 Woodcrest Place, Birmingham, Alabama | 35209 |
| (Address of Principal Executive Offices) | (Zip Code) |
(205) 949-0302
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of exchange on which registered |
|
Common stock, par value $.001 per share |
SFBS |
NASDAQ Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
| Class | Outstanding as of April 26, 2021 |
| Common stock, $.001 par value | 54,152,882 |
TABLE OF CONTENTS
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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EX-10.3 Form of ServisFirst Bancshares, Inc. Restricted Stock Award Agreement
EX-10.4 Form of ServisFirst Bancshares, Inc. Performance Share Award Agreement
EX-31.01 SECTION 302 CERTIFICATION OF THE CEO
EX-31.02 SECTION 302 CERTIFICATION OF THE CFO
EX-32.01 SECTION 906 CERTIFICATION OF THE CEO
EX-32.02 SECTION 906 CERTIFICATION OF THE CFO
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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SERVISFIRST BANCSHARES, INC. |
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CONSOLIDATED BALANCE SHEETS |
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(In thousands, except share and per share amounts) |
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|
March 31, 2021 |
December 31, 2020 |
|||||||
|
(Unaudited) |
(1) | |||||||
|
ASSETS |
||||||||
|
Cash and due from banks |
$ | 70,107 | $ | 93,655 | ||||
|
Interest-bearing balances due from depository institutions |
2,738,046 | 2,115,985 | ||||||
|
Federal funds sold |
1,577 | 1,771 | ||||||
|
Cash and cash equivalents |
2,809,730 | 2,211,411 | ||||||
|
Available for sale debt securities, at fair value |
961,879 | 886,688 | ||||||
|
Held to maturity debt securities (fair value of $250 at March 31, 2021 and December 31, 2020) |
250 | 250 | ||||||
|
Mortgage loans held for sale |
15,834 | 14,425 | ||||||
|
Loans |
8,504,980 | 8,465,688 | ||||||
|
Less allowance for credit losses |
(94,906 | ) | (87,942 | ) | ||||
|
Loans, net |
8,410,074 | 8,377,746 | ||||||
|
Premises and equipment, net |
56,472 | 54,969 | ||||||
|
Accrued interest and dividends receivable |
36,348 | 36,841 | ||||||
|
Deferred tax assets, net |
32,126 | 31,072 | ||||||
|
Other real estate owned and repossessed assets |
2,067 | 6,497 | ||||||
|
Bank owned life insurance contracts |
278,045 | 276,387 | ||||||
|
Goodwill and other identifiable intangible assets |
13,841 | 13,908 | ||||||
|
Other assets |
30,708 | 22,460 | ||||||
|
Total assets |
$ | 12,647,374 | $ | 11,932,654 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
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|
Liabilities: |
||||||||
|
Deposits: |
||||||||
|
Noninterest-bearing |
$ | 3,044,611 | $ | 2,788,772 | ||||
|
Interest-bearing |
7,532,999 | 7,186,952 | ||||||
|
Total deposits |
10,577,610 | 9,975,724 | ||||||
|
Federal funds purchased |
911,558 | 851,545 | ||||||
|
Other borrowings |
64,691 | 64,748 | ||||||
|
Accrued interest payable |
12,865 | 12,321 | ||||||
|
Other liabilities |
50,165 | 35,464 | ||||||
|
Total liabilities |
11,616,889 | 10,939,802 | ||||||
|
Stockholders' equity: |
||||||||
|
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at March 31, 2021 and December 31 2020 |
- | - | ||||||
|
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 54,137,650 shares issued and outstanding at March 31, 2021, and 53,943,751 shares issued and outstanding at December 31 2020 |
54 | 54 | ||||||
|
Additional paid-in capital |
224,302 | 223,856 | ||||||
|
Retained earnings |
788,875 | 748,224 | ||||||
|
Accumulated other comprehensive income |
16,754 | 20,218 | ||||||
|
Total stockholders' equity attributable to ServisFirst Bancshares, Inc. |
1,029,985 | 992,352 | ||||||
|
Noncontrolling interest |
500 | 500 | ||||||
|
Total stockholders' equity |
1,030,485 | 992,852 | ||||||
|
Total liabilities and stockholders' equity |
$ | 12,647,374 | $ | 11,932,654 | ||||
(1) derived from audited financial statements.
See Notes to Consolidated Financial Statements.
|
SERVISFIRST BANCSHARES, INC. |
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|
CONSOLIDATED STATEMENTS OF INCOME |
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|
(In thousands, except share and per share amounts) |
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|
(Unaudited) |
||||||||
|
Three Months Ended March 31, |
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|
2021 |
2020 |
|||||||
|
Interest income: |
||||||||
|
Interest and fees on loans |
$ | 93,803 | $ | 89,385 | ||||
|
Taxable securities |
5,807 | 5,154 | ||||||
|
Nontaxable securities |
107 | 233 | ||||||
|
Federal funds sold |
3 | 277 | ||||||
|
Other interest and dividends |
676 | 1,718 | ||||||
|
Total interest income |
100,396 | 96,767 | ||||||
|
Interest expense: |
||||||||
|
Deposits |
6,881 | 16,745 | ||||||
|
Borrowed funds |
1,150 | 2,382 | ||||||
|
Total interest expense |
8,031 | 19,127 | ||||||
|
Net interest income |
92,365 | 77,640 | ||||||
|
Provision for credit losses |
7,451 | 13,584 | ||||||
|
Net interest income after provision for credit losses |
84,914 | 64,056 | ||||||
|
Noninterest income: |
||||||||
|
Service charges on deposit accounts |
1,908 | 1,916 | ||||||
|
Mortgage banking |
2,747 | 1,071 | ||||||
|
Credit card income |
1,192 | 1,765 | ||||||
|
Increase in cash surrender value life insurance |
1,658 | 1,453 | ||||||
|
Other operating income |
958 | 469 | ||||||
|
Total noninterest income |
8,463 | 6,674 | ||||||
|
Noninterest expense: |
||||||||
|
Salaries and employee benefits |
15,543 | 15,658 | ||||||
|
Equipment and occupancy |
2,654 | 2,400 | ||||||
|
Third party processing and other services |
3,416 | 3,457 | ||||||
|
Professional services |
923 | 948 | ||||||
|
FDIC and other regulatory assessments |
1,582 | 1,332 | ||||||
|
Other real estate owned |
157 | 601 | ||||||
|
Other operating expense |
4,639 | 3,524 | ||||||
|
Total noninterest expense |
28,914 | 27,920 | ||||||
|
Income before income taxes |
64,463 | 42,810 | ||||||
|
Provision for income taxes |
13,008 | 8,032 | ||||||
|
Net income |
51,455 | 34,778 | ||||||
|
Dividends on preferred stock |
- | - | ||||||
|
Net income available to common stockholders |
$ | 51,455 | $ | 34,778 | ||||
|
Basic earnings per common share |
$ | 0.95 | $ | 0.65 | ||||
|
Diluted earnings per common share |
$ | 0.95 | $ | 0.64 | ||||
See Notes to Consolidated Financial Statements.
|
SERVISFIRST BANCSHARES, INC. |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
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|
(In thousands) |
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|
(Unaudited) |
||||||||
|
Three Months Ended March 31, |
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|
2021 |
2020 |
|||||||
|
Net income |
$ | 51,455 | $ | 34,778 | ||||
|
Other comprehensive (loss) income, net of tax: |
||||||||
|
Unrealized net holding (losses) gains arising during period from securities available for sale, net of tax of $(917) and $3,110 for 2021 and 2020, respectively |
(3,464 | ) | 11,699 | |||||
|
Other comprehensive (loss) income, net of tax |
(3,464 | ) | 11,699 | |||||
|
Comprehensive income |
$ | 47,991 | $ | 46,477 | ||||
See Notes to Consolidated Financial Statements.
|
SERVISFIRST BANCSHARES, INC. |
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
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(In thousands, except share amounts) |
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(Unaudited) |
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Three Months Ended March 31, |
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Accumulated |
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Additional |
Other |
Total |
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Common |
Preferred |
Common |
Paid-in |
Retained |
Comprehensive |
Noncontrolling |
Stockholders' |
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|
Shares |
Stock |
Stock |
Capital |
Earnings |
Income (loss) |
Interest |
Equity |
|||||||||||||||||||||||||
|
Balance, January 1, 2020 |
53,623,740 | $ | - | $ | 54 | $ | 219,766 | $ | 616,611 | $ | 5,749 | $ | 502 | $ | 842,682 | |||||||||||||||||
|
Common dividends declared, $0.175 per share |
- | - | - | - | (9,423 | ) | - | - | (9,423 | ) | ||||||||||||||||||||||
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Dividends on nonvested restricted stock recognized as compensation expense |
- | - | - | - | 14 | - | - | 14 | ||||||||||||||||||||||||
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Issue restricted shares pursuant to stock incentives |
15,300 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
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Issue shares of common stock upon exercise of stock options |
204,969 | - | - | 2,261 | - | - | - | 2,261 | ||||||||||||||||||||||||
|
11,031 shares of common stock withheld in net settlement upon exercise of stock options |
- | - | - | (403 | ) | - | - | - | (403 | ) | ||||||||||||||||||||||
|
Stock-based compensation expense |
- | - | - | 277 | - | - | - | 277 | ||||||||||||||||||||||||
|
Other comprehensive income, net of tax |
- | - | - | - | - | 11,699 | - | 11,699 | ||||||||||||||||||||||||
|
Net income |
- | - | - | - | 34,778 | - | - | 34,778 | ||||||||||||||||||||||||
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Balance, March 31, 2020 |
53,844,009 | $ | - | $ | 54 | $ | 221,901 | $ | 641,980 | $ | 17,448 | $ | 502 | $ | 881,885 | |||||||||||||||||
|
Balance, January 1, 2021 |
53,943,751 | - | 54 | 223,856 | 748,224 | 20,218 | 500 | 992,852 | ||||||||||||||||||||||||
|
Common dividends declared, $0.20 per share |
- | - | - | - | (10,829 | ) | - | - | (10,829 | ) | ||||||||||||||||||||||
|
Dividends on nonvested restricted stock recognized as compensation expense |
- | - | - | - | 25 | - | - | 25 | ||||||||||||||||||||||||
|
Issue restricted shares pursuant to stock incentives, net of forfeitures |
42,642 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Issue shares of common stock upon exercise of stock options |
151,257 | - | - | 1,865 | - | - | - | 1,865 | ||||||||||||||||||||||||
|
36,243 shares of common stock withheld in net settlement upon exercise of stock options |
- | - | - | (1,710 | ) | - | - | - | (1,710 | ) | ||||||||||||||||||||||
|
Stock-based compensation expense |
- | - | - | 291 | - | - | - | 291 | ||||||||||||||||||||||||
|
Other comprehensive loss, net of tax |
- | - | - | - | - | (3,464 | ) | - | (3,464 | ) | ||||||||||||||||||||||
|
Net income |
- | - | - | - | 51,455 | - | - | 51,455 | ||||||||||||||||||||||||
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Balance, March 31, 2021 |
54,137,650 | $ | - | $ | 54 | $ | 224,302 | $ | 788,875 | $ | 16,754 | $ | 500 | $ | 1,030,485 | |||||||||||||||||
See Notes to Consolidated Financial Statements.
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SERVISFIRST BANCSHARES, INC. |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(In thousands) (Unaudited) |
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Three Months Ended March 31, |
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2021 |
2020 |
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OPERATING ACTIVITIES |
||||||||
|
Net income |
$ | 51,455 | $ | 34,778 | ||||
|
Adjustments to reconcile net income to net cash provided by |
||||||||
|
Deferred tax benefit |
(137 | ) | (1,267 | ) | ||||
|
Provision for credit losses |
7,451 | 13,584 | ||||||
|
Depreciation |
1,015 | 921 | ||||||
|
Amortization of core deposit intangible |
67 | 68 | ||||||
|
Net amortization of debt securities available for sale |
1,701 | 966 | ||||||
|
Increase in accrued interest and dividends receivable |
493 | 948 | ||||||
|
Stock-based compensation expense |
291 | 277 | ||||||
|
Increase in accrued interest payable |
544 | 465 | ||||||
|
Proceeds from sale of mortgage loans held for sale |
90,227 | 36,308 | ||||||
|
Originations of mortgage loans held for sale |
(88,889 | ) | (35,672 | ) | ||||
|
Gain on sale of mortgage loans held for sale |
(2,747 | ) | (1,071 | ) | ||||
|
Net loss (gain) on sale of other real estate owned and repossessed assets |
334 | (24 | ) | |||||
|
Write down of other real estate owned and repossessed assets |
147 | 587 | ||||||
|
Operating losses of tax credit partnerships |
4 | 3 | ||||||
|
Increase in cash surrender value of life insurance contracts |
(1,658 | ) | (1,453 | ) | ||||
|
Net change in other assets, liabilities, and other operating activities |
6,462 | 2,814 | ||||||
|
Net cash provided by operating activities |
66,760 | 52,232 | ||||||
|
INVESTMENT ACTIVITIES |
||||||||
|
Purchase of debt securities available for sale |
(149,719 | ) | (80,149 | ) | ||||
|
Proceeds from maturities, calls and paydowns of debt securities |
||||||||
|
available for sale |
72,194 | 26,778 | ||||||
|
Investment in tax credit partnership and SBIC |
(56 | ) | (111 | ) | ||||
|
Increase in loans |
(40,193 | ) | (312,426 | ) | ||||
|
Purchase of premises and equipment |
(2,518 | ) | (417 | ) | ||||
|
Proceeds from sale of other real estate owned and repossessed assets |
584 | 454 | ||||||
|
Net cash used in investing activities |
(119,708 | ) | (365,871 | ) | ||||
|
FINANCING ACTIVITIES |
||||||||
|
Net increase in non-interest-bearing deposits |
255,839 | 175,747 | ||||||
|
Net increase in interest-bearing deposits |
346,047 | 126,475 | ||||||
|
Net increase in federal funds purchased |
60,013 | 72,874 | ||||||
|
Proceeds from exercise of stock options |
1,865 | 2,261 | ||||||
|
Taxes paid in net settlement of tax obligation upon exercise of stock options |
(1,710 | ) | (403 | ) | ||||
|
Dividends paid on common stock |
(10,787 | ) | (9,384 | ) | ||||
|
Net cash provided by financing activities |
651,267 | 367,570 | ||||||
|
Net increase in cash and cash equivalents |
598,319 | 53,931 | ||||||
|
Cash and cash equivalents at beginning of period |
2,211,411 | 630,600 | ||||||
|
Cash and cash equivalents at end of period |
$ | 2,809,730 | $ | 684,531 | ||||
|
SUPPLEMENTAL DISCLOSURE |
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|
Cash paid for: |
||||||||
|
Interest |
$ | 7,487 | $ | 18,662 | ||||
|
Income taxes |
4,294 | 400 | ||||||
|
NONCASH TRANSACTIONS |
||||||||
|
Other real estate acquired in settlement of loans |
$ | 364 | $ | 287 | ||||
|
Internally financed sale of other real estate owned |
3,779 | - | ||||||
|
Dividends declared |
10,829 | 9,423 | ||||||
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(Unaudited)
NOTE 1 - GENERAL
The accompanying consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2020.
All reported amounts are in thousands except share and per share data.
Allowance for Credit Losses
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed on March 27, 2020 and provided financial institutions with the option to delay adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”). As described below under Recently Adopted Accounting Pronouncements, the Company decided to delay its adoption of ASU 2016-13, as provided by the CARES Act, until the earlier of the date on which the national emergency concerning COVID-19 terminates or December 31, 2020, with an effective retrospective implementation date of January 1, 2020. Prior to January 1, 2020, except quarterly periods in 2020 which were not restated, the allowance for credit losses was calculated using an incurred losses methodology.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash on hand, cash items in process of collection, amounts due from banks, and federal funds sold are included in cash and cash equivalents.
NOTE 3 - EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options.
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Three Months Ended March 31, |
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2021 |
2020 |
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|
(In Thousands, Except Shares and Per Share Data) |
||||||||
|
Earnings per common share |
||||||||
|
Weighted average common shares outstanding |
54,050,670 | 53,704,224 | ||||||
|
Net income available to common stockholders |
$ | 51,455 | $ | 34,778 | ||||
|
Basic earnings per common share |
$ | 0.95 | $ | 0.65 | ||||
|
Weighted average common shares outstanding |
54,050,670 | 53,704,224 | ||||||
|
Dilutive effects of assumed conversions and exercise of stock options and warrants |
331,321 | 463,190 | ||||||
|
Weighted average common and dilutive potential common shares outstanding |
54,381,991 | 54,167,414 | ||||||
|
Net income available to common stockholders |
$ | 51,455 | $ | 34,778 | ||||
|
Diluted earnings per common share |
$ | 0.95 | $ | 0.64 | ||||
NOTE 4 - SECURITIES
The amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2021 and December 31, 2020 are summarized as follows:
|
Amortized Cost |
Gross Unrealized Gain |
Gross Unrealized Loss |
Allowance For Credit Losses |
Fair Value |
||||||||||||||||
|
March 31, 2021 |
(In Thousands) |
|||||||||||||||||||
|
Available for sale debt securities |
||||||||||||||||||||
|
U.S. Treasury Securities |
$ | 13,995 | $ | 301 | $ | - | $ | - | $ | 14,296 | ||||||||||
|
Government Agency Securities |
12,020 | 170 | - | - | 12,190 | |||||||||||||||
|
Mortgage-backed securities |
558,985 | 13,352 | (2,795 | ) | - | 569,542 | ||||||||||||||
|
State and municipal securities |
33,408 | 303 | (189 | ) | - | 33,522 | ||||||||||||||
|
Corporate debt |
322,320 | 10,288 | (279 | ) | - | 332,329 | ||||||||||||||
|
Total |
$ | 940,728 | $ | 24,414 | $ | (3,263 | ) | $ | - | $ | 961,879 | |||||||||
|
Held to maturity debt securities |
||||||||||||||||||||
|
State and municipal securities |
$ | 250 | $ | - | $ | - | $ | - | $ | 250 | ||||||||||
|
Total |
$ | 250 | $ | - | $ | - | $ | - | $ | 250 | ||||||||||
|
December 31, 2020 |
||||||||||||||||||||
|
Available for sale debt securities |
||||||||||||||||||||
|
U.S. Treasury Securities |
$ | 13,993 | $ | 364 | $ | - | $ | - | $ | 14,357 | ||||||||||
|
Government Agency Securities |
15,228 | 230 | - | - | 15,458 | |||||||||||||||
|
Mortgage-backed securities |
477,407 | 17,720 | (18 | ) | - | 495,109 | ||||||||||||||
|
State and municipal securities |
37,671 | 444 | - | - | 38,115 | |||||||||||||||
|
Corporate debt |
316,857 | 7,296 | (504 | ) | - | 323,649 | ||||||||||||||
|
Total |
$ | 861,156 | $ | 26,054 | $ | (522 | ) | $ | - | $ | 886,688 | |||||||||
|
Held to maturity debt securities |
||||||||||||||||||||
|
State and municipal securities |
$ | 250 | $ | - | $ | - | $ | - | $ | 250 | ||||||||||
|
Total |
$ | 250 | $ | - | $ | - | $ | - | $ | 250 | ||||||||||
The amortized cost and fair value of debt securities as of March 31, 2021 and December 31, 2020 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories along with the other categories of debt securities. Corporate debt is primarily comprised of subordinated notes payable issued by financial institutions. Most of these corporate securities have a contractual maturity of ten years but may be called at the end of their fifth year.
|
March 31, 2021 |
December 31, 2020 |
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|
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
|||||||||||||
|
(In thousands) |
||||||||||||||||
|
Available for sale debt securities |
||||||||||||||||
|
Due within one year |
$ | 32,331 | $ | 32,623 | $ | 30,797 | $ | 31,060 | ||||||||
|
Due from one to five years |
51,309 | 52,954 | 59,828 | 61,481 | ||||||||||||
|
Due from five to ten years |
293,965 | 302,644 | 288,002 | 293,886 | ||||||||||||
|
Due after ten years |
4,138 | 4,116 | 5,122 | 5,152 | ||||||||||||
|
Mortgage-backed securities |
558,985 | 569,542 | 477,407 | 495,109 | ||||||||||||
| $ | 940,728 | $ | 961,879 | $ | 861,156 | $ | 886,688 | |||||||||
|
Held to maturity debt securities |
||||||||||||||||
|
Due from one to five years |
$ | 250 | $ | 250 | $ | 250 | $ | 250 | ||||||||
| $ | 250 | $ | 250 | $ | 250 | $ | 250 | |||||||||
All mortgage-backed securities are with government-sponsored enterprises (GSEs) such as Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, and Federal Home Loan Mortgage Corporation.
The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $468.7 million and $477.6 million as of March 31, 2021 and December 31, 2020, respectively.
The following table identifies, as of March 31, 2021 and December 31, 2020, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months.
|
Less Than Twelve Months |
Twelve Months or More |
Total |
||||||||||||||||||||||
|
Gross |
Gross |
Gross |
||||||||||||||||||||||
|
Unrealized |
Unrealized |
Unrealized |
||||||||||||||||||||||
|
Losses |
Fair Value |
Losses |
Fair Value |
Losses |
Fair Value |
|||||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||||||
|
March 31, 2021 |
||||||||||||||||||||||||
|
Mortgage-backed securities |
$ | (2,795 | ) | $ | 191,402 | $ | - | $ | - | $ | (2,795 | ) | $ | 191,402 | ||||||||||
|
State and municipal securities |
(189 | ) | 5,467 | - | - | (189 | ) | 5,467 | ||||||||||||||||
|
Corporate debt |
(234 | ) | 29,836 | (45 | ) | 1,990 | (279 | ) | 31,826 | |||||||||||||||
|
Total |
$ | (3,218 | ) | $ | 226,705 | $ | (45 | ) | $ | 1,990 | $ | (3,263 | ) | $ | 228,694 | |||||||||
|
December 31, 2020 |
||||||||||||||||||||||||
|
Mortgage-backed securities |
$ | (18 | ) | $ | 3,667 | $ | - | $ | - | $ | (18 | ) | $ | 3,667 | ||||||||||
|
Corporate debt |
(504 | ) | 59,576 | - | - | (504 | ) | 59,576 | ||||||||||||||||
|
Total |
$ | (522 | ) | $ | 63,243 | $ | - | $ | - | $ | (522 | ) | $ | 63,243 | ||||||||||
At March 31, 2021, no allowance for credit losses has been recognized on available for sale debt securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired. This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available for sale debt securities. The issuers of these debt securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, the Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased.
NOTE 5 – LOANS
The loan portfolio is classified based on the underlying collateral utilized to secure each loan for financial reporting purposes. This classification is consistent with the Quarterly Report of Condition and Income filed by ServisFirst Bank with the Federal Deposit Insurance Corporation (FDIC).
Commercial, financial and agricultural - Includes loans to business enterprises issued for commercial, industrial, agricultural production and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.
Real estate – construction – Includes loans secured by real estate to finance land development or the construction of industrial, commercial or residential buildings. Repayment is dependent upon the completion and eventual sale, refinance or operation of the related real estate project.
Owner-occupied commercial real estate mortgage – Includes loans secured by nonfarm nonresidential properties for which the primary source of repayment is the cash flow from the ongoing operations conducted by the party that owns the property.
1-4 family real estate mortgage – Includes loans secured by residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.
Other real estate mortgage – Includes loans secured by nonowner-occupied properties, including office buildings, industrial buildings, warehouses, retail buildings, multifamily residential properties and farmland. Repayment is primarily dependent on income generated from the underlying collateral.
Consumer – Includes loans to individuals not secured by real estate. Repayment is dependent upon the personal cash flow of the borrower.
In light of the U.S. and global economic crisis brought about by the COVID-19 pandemic, the Company has prioritized assisting its clients through this troubled time. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides for Paycheck Protection Program (“PPP”) loans to be made by banks to employers with less than 500 employees if they continue to employ their existing workers. As of March 31, 2021, the Company has funded approximately 7,100 loans for a total amount of $1.47 billion for clients under the PPP since April 2020, and management expects to continue to participate in any extensions of the PPP by the Treasury Department. At March 31, 2021 and December 31, 2020, unaccreted deferred loan origination fees, net of costs, related to PPP loans totaled $20.4 million and $17.8 million, respectively. PPP loan origination fees recorded to interest income for the three months ended March 31, 2021 and 2020 were $9.1 million and $0, respectively. PPP loans outstanding totaled $967.7 million and $900.5 million at March 31, 2021 and December 31, 2020, respectively. PPP loans are included within the Commercial, financial and agricultural loan category in the table below. No allowance for credit losses has been recorded for PPP loans as they are fully guaranteed by the SBA (“Small Business Administration”).
The following table details the Company’s loans at March 31, 2021 and December 31, 2020:
|
March 31, |
December 31, |
|||||||
|
2021 |
2020 |
|||||||
|
(Dollars In Thousands) |
||||||||
|
Commercial, financial and agricultural |
$ | 3,323,093 | $ | 3,295,900 | ||||
|
Real estate - construction |
666,592 | 593,614 | ||||||
|
Real estate - mortgage: |
||||||||
|
Owner-occupied commercial |
1,698,695 | 1,693,428 | ||||||
|
1-4 family mortgage |
685,840 | 711,692 | ||||||
|
Other mortgage |
2,068,560 | 2,106,184 | ||||||
|
Subtotal: Real estate - mortgage |
4,453,095 | 4,511,304 | ||||||
|
Consumer |
62,200 | 64,870 | ||||||
|
Total Loans |
8,504,980 | 8,465,688 | ||||||
|
Less: Allowance for credit losses |
(94,906 | ) | (87,942 | ) | ||||
|
Net Loans |
$ | 8,410,074 | $ | 8,377,746 | ||||
|
Commercial, financial and agricultural |
39.07 |
% |
38.93 |
% |
||||
|
Real estate - construction |
7.84 |
% |
7.01 |
% |
||||
|
Real estate - mortgage: |
||||||||
|
Owner-occupied commercial |
19.97 |
% |
20.00 |
% |
||||
|
1-4 family mortgage |
8.07 |
% |
8.41 |
% |
||||
|
Other mortgage |
24.32 |
% |
24.88 |
% |
||||
|
Subtotal: Real estate - mortgage |
52.36 |
% |
53.29 |
% |
||||
|
Consumer |
0.73 |
% |
0.77 |
% |
||||
|
Total Loans |
100.00 |
% |
100.00 |
% |
||||
The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the credit loss portfolio segments and classes. These categories are utilized to develop the associated allowance for credit losses using historical losses adjusted for current economic conditions defined as follows:
|
● |
Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or obligors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral. |
|
● |
Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification. |
|
● |
Substandard – loans that exhibit well-defined weakness or weaknesses that presently jeopardize debt repayment. These loans are characterized by the distinct possibility that the institution will sustain some loss if the weaknesses are not corrected. |
|
● |
Doubtful – loans that have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. |
The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of March 31, 2021:
|
Revolving |
||||||||||||||||||||||||||||||||
|
March 31, 2021 |
2021 |
2020 |
2019 |
2018 |
2017 |
Prior |
Loans |
Total |
||||||||||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||||||||||||||
|
Commercial, financial and agricultural |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 451,136 | $ | 942,305 | $ | 305,491 | $ | 202,837 | $ | 153,959 | $ | 196,657 | $ | 993,613 | $ | 3,245,998 | ||||||||||||||||
|
Special Mention |
557 | 1,430 | 227 | 9 | 1,386 | 384 | 10,814 | 14,807 | ||||||||||||||||||||||||
|
Substandard |
- | 559 | 10,570 | 567 | 3,741 | 2,570 | 44,281 | 62,288 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Commercial, financial and agricultural |
$ | 451,693 | $ | 944,294 | $ | 316,288 | $ | 203,413 | $ | 159,086 | $ | 199,611 | $ | 1,048,708 | $ | 3,323,093 | ||||||||||||||||
|
Real estate - construction |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 40,168 | $ | 250,260 | $ | 238,486 | $ | 54,129 | $ | 15,879 | $ | 19,009 | $ | 48,426 | $ | 666,357 | ||||||||||||||||
|
Special Mention |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Substandard |
- | - | - | - | - | 235 | - | 235 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Real estate - construction |
$ | 40,168 | $ | 250,260 | $ | 238,486 | $ | 54,129 | $ | 15,879 | $ | 19,244 | $ | 48,426 | $ | 666,592 | ||||||||||||||||
|
Owner-occupied commercial |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 51,008 | $ | 364,982 | $ | 263,789 | $ | 207,599 | $ | 199,276 | $ | 551,086 | $ | 55,790 | $ | 1,693,530 | ||||||||||||||||
|
Special Mention |
- | - | - | - | 289 | 1,941 | 200 | 2,430 | ||||||||||||||||||||||||
|
Substandard |
- | - | - | - | 780 | 1,716 | 239 | 2,735 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Owner-occupied commercial |
$ | 51,008 | $ | 364,982 | $ | 263,789 | $ | 207,599 | $ | 200,345 | $ | 554,743 | $ | 56,229 | $ | 1,698,695 | ||||||||||||||||
|
1-4 family mortgage |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 34,862 | $ | 170,574 | $ | 99,727 | $ | 65,064 | $ | 50,130 | $ | 61,073 | $ | 199,658 | $ | 681,088 | ||||||||||||||||
|
Special Mention |
- | 680 | 433 | 129 | 104 | 481 | 1,111 | 2,938 | ||||||||||||||||||||||||
|
Substandard |
- | 150 | 367 | - | 233 | 217 | 847 | 1,814 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total 1-4 family mortgage |
$ | 34,862 | $ | 171,404 | $ | 100,527 | $ | 65,193 | $ | 50,467 | $ | 61,771 | $ | 201,616 | $ | 685,840 | ||||||||||||||||
|
Other mortgage |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 90,376 | $ | 458,320 | $ | 442,499 | $ | 216,211 | $ | 333,266 | $ | 431,485 | $ | 71,610 | $ | 2,043,767 | ||||||||||||||||
|
Special Mention |
- | - | - | - | 2,775 | 8,989 | - | 11,764 | ||||||||||||||||||||||||
|
Substandard |
- | - | - | 4,567 | 8,462 | - | - | 13,029 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Other mortgage |
$ | 90,376 | $ | 458,320 | $ | 442,499 | $ | 220,778 | $ | 344,503 | $ | 440,474 | $ | 71,610 | $ | 2,068,560 | ||||||||||||||||
|
Consumer |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 3,588 | $ | 16,111 | $ | 3,990 | $ | 1,332 | $ | 1,311 | $ | 4,373 | $ | 31,451 | $ | 62,156 | ||||||||||||||||
|
Special Mention |
- | - | - | 13 | - | 31 | - | 44 | ||||||||||||||||||||||||
|
Substandard |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Consumer |
$ | 3,588 | $ | 16,111 | $ | 3,990 | $ | 1,345 | $ | 1,311 | $ | 4,404 | $ | 31,451 | $ | 62,200 | ||||||||||||||||
|
Total Loans |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 671,138 | $ | 2,202,552 | $ | 1,353,982 | $ | 747,172 | $ | 753,821 | $ | 1,263,683 | $ | 1,400,548 | $ | 8,392,896 | ||||||||||||||||
|
Special Mention |
557 | 2,110 | 660 | 151 | 4,554 | 11,826 | 12,125 | 31,983 | ||||||||||||||||||||||||
|
Substandard |
- | 709 | 10,937 | 5,134 | 13,216 | 4,738 | 45,367 | 80,101 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Loans |
$ | 671,695 | $ | 2,205,371 | $ | 1,365,579 | $ | 752,457 | $ | 771,591 | $ | 1,280,247 | $ | 1,458,040 | $ | 8,504,980 | ||||||||||||||||
Loans by credit quality indicator, loan type and based on year of origination as of December 31, 2020 were as follows:
|
Revolving |
||||||||||||||||||||||||||||||||
|
December 31, 2020 |
2020 |
2019 |
2018 |
2017 |
2016 |
Prior |
Loans |
Total |
||||||||||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||||||||||||||
|
Commercial, financial and agricultural |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 1,260,341 | $ | 332,690 | $ | 229,838 | $ | 169,616 | $ | 89,893 | $ | 137,021 | $ | 988,093 | $ | 3,207,492 | ||||||||||||||||
|
Special Mention |
2,551 | 1,404 | 10 | 253 | 163 | 281 | 14,948 | 19,610 | ||||||||||||||||||||||||
|
Substandard |
569 | 10,639 | 617 | 5,447 | 963 | 2,038 | 48,525 | 68,798 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Commercial, financial and agricultural |
$ | 1,263,461 | $ | 344,733 | $ | 230,465 | $ | 175,316 | $ | 91,019 | $ | 139,340 | $ | 1,051,566 | $ | 3,295,900 | ||||||||||||||||
|
Real estate - construction |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 230,931 | $ | 222,357 | $ | 53,981 | $ | 16,361 | $ | 7,677 | $ | 13,816 | $ | 48,256 | $ | 593,379 | ||||||||||||||||
|
Special Mention |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Substandard |
- | - | - | - | - | 235 | - | 235 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Real estate - construction |
$ | 230,931 | $ | 222,357 | $ | 53,981 | $ | 16,361 | $ | 7,677 | $ | 14,051 | $ | 48,256 | $ | 593,614 | ||||||||||||||||
|
Owner-occupied commercial |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 351,808 | $ | 271,645 | $ | 221,513 | $ | 198,935 | $ | 158,531 | $ | 417,743 | $ | 61,119 | $ | 1,681,294 | ||||||||||||||||
|
Special Mention |
- | - | - | 6,524 | 543 | 1,873 | 200 | 9,140 | ||||||||||||||||||||||||
|
Substandard |
- | - | 12 | 780 | - | 1,962 | 240 | 2,994 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Owner-occupied commercial |
$ | 351,808 | $ | 271,645 | $ | 221,525 | $ | 206,239 | $ | 159,074 | $ | 421,578 | $ | 61,559 | $ | 1,693,428 | ||||||||||||||||
|
1-4 family mortgage |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 179,314 | $ | 111,016 | $ | 70,381 | $ | 60,774 | $ | 27,985 | $ | 44,111 | $ | 212,616 | $ | 706,197 | ||||||||||||||||
|
Special Mention |
508 | - | - | 105 | 481 | - | 1,112 | 2,206 | ||||||||||||||||||||||||
|
Substandard |
350 | 126 | - | 235 | 218 | - | 2,360 | 3,289 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total 1-4 family mortgage |
$ | 180,172 | $ | 111,142 | $ | 70,381 | $ | 61,114 | $ | 28,684 | $ | 44,111 | $ | 216,088 | $ | 711,692 | ||||||||||||||||
|
Other mortgage |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 470,086 | $ | 470,092 | $ | 250,945 | $ | 368,283 | $ | 180,244 | $ | 272,722 | $ | 68,721 | $ | 2,081,093 | ||||||||||||||||
|
Special Mention |
- | - | - | 2,793 | 541 | 8,566 | - | 11,900 | ||||||||||||||||||||||||
|
Substandard |
- | 50 | 4,589 | 8,552 | - | - | - | 13,191 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Other mortgage |
$ | 470,086 | $ | 470,142 | $ | 255,534 | $ | 379,628 | $ | 180,785 | $ | 281,288 | $ | 68,721 | $ | 2,106,184 | ||||||||||||||||
|
Consumer |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 20,410 | $ | 4,421 | $ | 1,551 | $ | 1,671 | $ | 1,031 | $ | 3,615 | $ | 32,125 | $ | 64,824 | ||||||||||||||||
|
Special Mention |
- | - | 15 | - | 31 | - | - | 46 | ||||||||||||||||||||||||
|
Substandard |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Consumer |
$ | 20,410 | $ | 4,421 | $ | 1,566 | $ | 1,671 | $ | 1,062 | $ | 3,615 | $ | 32,125 | $ | 64,870 | ||||||||||||||||
|
Total Loans |
||||||||||||||||||||||||||||||||
|
Pass |
$ | 2,512,890 | $ | 1,412,221 | $ | 828,209 | $ | 815,640 | $ | 465,361 | $ | 889,028 | $ | 1,410,930 | $ | 8,334,279 | ||||||||||||||||
|
Special Mention |
3,059 | 1,404 | 25 | 9,675 | 1,759 | 10,720 | 16,260 | 42,902 | ||||||||||||||||||||||||
|
Substandard |
919 | 10,815 | 5,218 | 15,014 | 1,181 | 4,235 | 51,125 | 88,507 | ||||||||||||||||||||||||
|
Doubtful |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total Loans |
$ | 2,516,868 | $ | 1,424,440 | $ | 833,452 | $ | 840,329 | $ | 468,301 | $ | 903,983 | $ | 1,478,315 | $ | 8,465,688 | ||||||||||||||||
Loans by performance status as of March 31, 2021 and December 31, 2020 were as follows:
|
March 31, 2021 |
Performing |
Nonperforming |
Total |
|||||||||
|
(In Thousands) |
||||||||||||
|
Commercial, financial and agricultural |
$ | 3,313,167 | $ | 9,926 | $ | 3,323,093 | ||||||
|
Real estate - construction |
666,358 | 234 | 666,592 | |||||||||
|
Real estate - mortgage: |
||||||||||||
|
Owner-occupied commercial |
1,696,686 | 2,009 | 1,698,695 | |||||||||
|
1-4 family mortgage |
684,917 | 923 | 685,840 | |||||||||
|
Other mortgage |
2,063,799 | 4,761 | 2,068,560 | |||||||||
|
Total real estate - mortgage |
4,445,402 | 7,693 | 4,453,095 | |||||||||
|
Consumer |
62,161 | 39 | 62,200 | |||||||||
|
Total |
$ | 8,487,088 | $ | 17,892 | $ | 8,504,980 | ||||||
|
December 31, 2020 |
Performing |
Nonperforming |
Total |
|||||||||
|
(In Thousands) |
||||||||||||
|
Commercial, financial and agricultural |
$ | 3,284,180 | $ | 11,720 | $ | 3,295,900 | ||||||
|
Real estate - construction |
593,380 | 234 | 593,614 | |||||||||
|
Real estate - mortgage: |
||||||||||||
|
Owner-occupied commercial |
1,692,169 | 1,259 | 1,693,428 | |||||||||
|
1-4 family mortgage |
710,817 | 875 | 711,692 | |||||||||
|
Other mortgage |
2,101,379 | 4,805 | 2,106,184 | |||||||||
|
Total real estate - mortgage |
4,504,365 | 6,939 | 4,511,304 | |||||||||
|
Consumer |
64,809 | 61 | 64,870 | |||||||||
|
Total |
$ | 8,446,734 | $ | 18,954 | $ | 8,465,688 | ||||||
Loans by past due status as of March 31, 2021 and December 31, 2020 were as follows:
|
March 31, 2021 |
Past Due Status (Accruing Loans) |
|||||||||||||||||||||||||||||||
|
Total Past |
Total |
Nonaccrual |
||||||||||||||||||||||||||||||
|
30-59 Days |
60-89 Days |
90+ Days |
Due |
Nonaccrual |
Current |
Total Loans |
With No ACL |
|||||||||||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||||||||||||||
|
Commercial, financial and agricultural |
$ | 119 | $ | - | $ | 4 | $ | 123 | $ | 9,922 | $ | 3,313,048 | $ | 3,323,093 | $ | 6,946 | ||||||||||||||||
|
Real estate - construction |
- | - | - | - | 234 | 666,358 | 666,592 | - | ||||||||||||||||||||||||
|
Real estate - mortgage: |
||||||||||||||||||||||||||||||||
|
Owner-occupied commercial |
- | - | - | - | 2,009 | 1,696,686 | 1,698,695 | 1,229 | ||||||||||||||||||||||||
|
1-4 family mortgage |
782 | 178 | - | 960 | 923 | 683,957 | 685,840 | 327 | ||||||||||||||||||||||||
|
Other mortgage |
15 | - | 4,761 | 4,776 | - | 2,063,784 | 2,068,560 | - | ||||||||||||||||||||||||
|
Total real estate - mortgage |
797 | 178 | 4,761 | 5,736 | 2,932 | 4,444,427 | 4,453,095 | 1,556 | ||||||||||||||||||||||||
|
Consumer |
89 | 10 | 39 | 138 | - | 62,062 | 62,200 | - | ||||||||||||||||||||||||
|
Total |
$ | 1,005 | $ | 188 | $ | 4,804 | $ | 5,997 | $ | 13,088 | $ | 8,485,895 | $ | 8,504,980 | $ | 8,502 | ||||||||||||||||
|
December 31, 2020 |
Past Due Status (Accruing Loans) |
|||||||||||||||||||||||||||||||
|
Total Past |
Total |
Nonaccrual |
||||||||||||||||||||||||||||||
|
30-59 Days |
60-89 Days |
90+ Days |
Due |
Nonaccrual |
Current |
Total Loans |
With No ACL |
|||||||||||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||||||||||||||
|
Commercial, financial and agricultural |
$ | 92 | $ | 1,738 | $ | 11 | $ | 1,841 | $ | 11,709 | $ | 3,282,350 | $ | 3,295,900 | $ | 5,101 | ||||||||||||||||
|
Real estate - construction |
- | - | - | - | 234 | 593,380 | 593,614 | - | ||||||||||||||||||||||||
|
Real estate - mortgage: |
||||||||||||||||||||||||||||||||
|
Owner-occupied commercial |
- | 995 | - | 995 | 1,259 | 1,691,174 | 1,693,428 | 467 | ||||||||||||||||||||||||
|
1-4 family mortgage |
61 | 1,073 | 104 | 1,238 | 771 | 709,683 | 711,692 | 512 | ||||||||||||||||||||||||
|
Other mortgage |
18 | - | 4,805 | 4,823 | - | 2,101,361 | 2,106,184 | - | ||||||||||||||||||||||||
|
Total real estate - mortgage |
79 | 2,068 | 4,909 | 7,056 | 2,030 | 4,502,218 | 4,511,304 | 979 | ||||||||||||||||||||||||
|
Consumer |
64 | 13 | 61 | 138 | - | 64,732 | 64,870 | - | ||||||||||||||||||||||||
|
Total |
$ | 235 | $ | 3,819 | $ | 4,981 | $ | 9,035 | $ | 13,973 | $ | 8,442,680 | $ | 8,465,688 | $ | 6,080 | ||||||||||||||||
As described in Note 9 - Recently Adopted Accounting Pronouncements, the Company adopted ASU 2016-13 on January 1, 2020, which introduced the CECL methodology for estimating all expected losses over the life of a financial asset. Under the CECL methodology, the allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics. For loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable forecast period losses are reverted to long term historical averages. The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.
The Company uses the discounted cash flow (“DCF”) method to estimate ACL for all loan pools except for commercial revolving lines of credit and credit cards. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment rate as a loss driver. The Company also utilizes and forecasts GDP growth as a second loss driver for its agricultural and consumer loan pools. Consistent forecasts of the loss drivers are used across the loan segments. At March 31, 2021 and December 31, 2020, the Company utilized a reasonable and supportable forecast period of twelve months followed by a six-month straight-line reversion to long term averages. The Company leveraged economic projections from reputable and independent sources to inform its loss driver forecasts. The Company expects national unemployment to remain above pre-pandemic levels over the forecast period with an improved national GDP growth rate as the economy comes back on-line over the next year.
The Company uses a loss-rate method to estimate expected credit losses for its commercial revolving lines of credit and credit card pools. The commercial revolving lines of credit pool incorporates a probability of default (“PD”) and loss given default (“LGD”) modeling approach. This approach involves estimating the pool average life and then using historical correlations of default and loss experience over time to calculate the lifetime PD and LGD. These two inputs are then applied to the outstanding pool balance. The credit card pool incorporates a remaining life modeling approach, which utilizes an attrition-based method to estimate the remaining life of the pool. A quarterly average loss rate is then calculated using the Company’s historical loss data. The model reduces the pool balance quarterly on a straight-line basis over the estimated life of the pool. The quarterly loss rate is multiplied by the outstanding balance at each period-end resulting in an estimated loss for each quarter. The sum of estimated loss for all quarters is the total calculated reserve for the pool. Management has applied the loss-rate method to C&I lines of credit and to credit cards due to their generally short-term nature. An expected loss ratio is applied based on internal and peer historical losses.
Each loan pool is adjusted for qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.
Inherent risks in the loan portfolio will differ based on type of loan. Specific risk characteristics by loan portfolio segment are listed below:
Commercial and industrial loans include risks associated with borrower’s cash flow, debt service coverage and management’s expertise. These loans are subject to the risk that the Company may have difficulty converting collateral to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation. These commercial loans may be subject to many different types of risks, including fraud, bankruptcy, economic downturn, deteriorated or non-existent collateral, and changes in interest rates.
Real estate construction loans include risks associated with the borrower’s credit-worthiness, contractor’s qualifications, borrower and contractor performance, and the overall risk and complexity of the proposed project. Construction lending is also subject to risks associated with sub-market dynamics, including population, employment trends and household income. During times of economic stress, this type of loan has typically had a greater degree of risk than other loan types.
Real estate mortgage loans consist of loans secured by commercial and residential real estate. Commercial real estate lending is dependent upon successful management, marketing and expense supervision necessary to maintain the property. Repayment of these loans may be adversely affected by conditions in the real estate market or the general economy. Also, commercial real estate loans typically involve relatively large loan balances to a single borrower. Residential real estate lending risks are generally less significant than those of other loans. Real estate lending risks include fluctuations in the value of real estate, bankruptcies, economic downturn and customer financial problems.
Consumer loans carry a moderate degree of risk compared to other loans. They are generally more risky than traditional residential real estate loans but less risky than commercial loans. Risk of default is usually determined by the well-being of the local economies. During times of economic stress, there is usually some level of job loss both nationally and locally, which directly affects the ability of the consumer to repay debt.
The following table presents changes in the allowance for credit losses, and allowance for loan losses, segregated by loan type, for the three months ended March 31, 2021 and March 31, 2020.
|
Commercial, |
||||||||||||||||||||
|
financial and |
Real estate - |
Real estate - |
||||||||||||||||||
|
agricultural |
construction |
mortgage |
Consumer |
Total |
||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||
|
Three Months Ended March 31, 2021 |
||||||||||||||||||||
|
Allowance for credit losses: |
||||||||||||||||||||
|
Balance at December 31, 2020 |
$ | 36,370 | $ | 16,057 | $ | 33,722 | $ | 1,793 | $ | 87,942 | ||||||||||
|
Charge-offs |
(477 | ) | - | (12 | ) | (87 | ) | (576 | ) | |||||||||||
|
Recoveries |
26 | 50 | 1 | 12 | 89 | |||||||||||||||
|
Provision |
2,313 | 3,284 | 1,896 | (42 | ) | 7,451 | ||||||||||||||
|
Balance at March 31, 2021 |
$ | 38,232 | $ | 19,391 | $ | 35,607 | $ | 1,676 | $ | 94,906 | ||||||||||
|
Three Months Ended March 31, 2020 |
||||||||||||||||||||
|
Allowance for loan losses: |
||||||||||||||||||||
|
Balance at December 31, 2019 |
$ | 43,666 | $ | 2,768 | $ | 29,653 | $ | 497 | $ | 76,584 | ||||||||||
|
Charge-offs |
(2,640 | ) | (454 | ) | (1,678 | ) | (58 | ) | (4,830 | ) | ||||||||||
|
Recoveries |
62 | 1 | 1 | 12 | 76 | |||||||||||||||
|
Provision |
7,692 | 1,442 | 4,384 | 66 | 13,584 | |||||||||||||||
|
Balance at March 31, 2020 |
$ | 48,780 | $ | 3,757 | $ | 32,360 | $ | 517 | $ | 85,414 | ||||||||||
The following table details the allowance for loan losses and recorded investment in loans by impairment evaluation method as of March 31, 2020, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:
|
Commercial, |
||||||||||||||||||||
|
financial and |
Real estate - |
Real estate - |
||||||||||||||||||
|
agricultural |
construction |
mortgage |
Consumer |
Total |
||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||
|
Allowance for loan losses: |
||||||||||||||||||||
|
Individually Evaluated for Impairment |
$ | 8,840 | $ | 351 | $ | 931 | $ | - | $ | 10,122 | ||||||||||
|
Collectively Evaluated for Impairment |
39,940 | 3,406 | 31,429 | 517 | 75,292 | |||||||||||||||
|
Loans: |
||||||||||||||||||||
|
Ending Balance |
$ | 2,771,307 | $ | 548,578 | $ | 4,188,539 | $ | 60,412 | $ | 7,568,836 | ||||||||||
|
Individually Evaluated for Impairment |
44,868 | 1,834 | 13,815 | 9 | 60,526 | |||||||||||||||
|
Collectively Evaluated for Impairment |
2,726,439 | 546,744 | 4,174,724 | 60,403 | 7,508,310 | |||||||||||||||
We maintain an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded commitments was $2.8 million at March 31, 2021 and $2.2 million at December 31, 2020. The provision expense for unfunded commitments for the three months ended March 31, 2021 and March 31, 2020 was $600,000 and $0, respectively. Prior to January 1, 2020, except quarterly periods in 2020 which were not restated, the allowance for losses on unfunded loan commitments was calculated using an incurred losses methodology.
Loans that no longer share similar risk characteristics with collectively evaluated pools are estimated on an individual basis. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows:
|
Accounts |
ACL |
|||||||||||||||||||||||
|
March 31, 2021 |
Real Estate |
Receivable |
Equipment |
Other |
Total |
Allocation |
||||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||||||
|
Commercial, financial and agricultural |
$ | 13,987 | $ | 24,957 | $ | 17,742 | $ | 5,603 | $ | 62,289 | $ | 8,675 | ||||||||||||
|
Real estate - construction |
235 | - | - | - | 235 | 1 | ||||||||||||||||||
|
Real estate - mortgage: |
||||||||||||||||||||||||
|
Owner-occupied commercial |
2,007 | 729 | - | - | 2,736 | 497 | ||||||||||||||||||
|
1-4 family mortgage |
1,738 | - | - | 25 | 1,763 | - | ||||||||||||||||||
|
Other mortgage |
13,079 | - | - | - | 13,079 | - | ||||||||||||||||||
|
Total real estate - mortgage |
16,824 | 729 | - | 25 | 17,578 | 497 | ||||||||||||||||||
|
Consumer |
- | - | - | - | - | - | ||||||||||||||||||
|
Total |
$ | 31,046 | $ | 25,686 | $ | 17,742 | $ | 5,628 | $ | 80,102 | $ | 9,173 | ||||||||||||
|
Accounts |
ACL |
|||||||||||||||||||||||
|
December 31, 2020 |
Real Estate |
Receivable |
Equipment |
Other |
Total |
Allocation |
||||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||||||
|
Commercial, financial and agricultural |
$ | 19,373 | $ | 27,952 | $ | 16,877 | $ | 4,594 | $ | 68,796 | $ | 7,142 | ||||||||||||
|
Real estate - construction |
235 | - | - | - | 235 | 1 | ||||||||||||||||||
|
Real estate - mortgage: |
||||||||||||||||||||||||
|
Owner-occupied commercial |
2,012 | 971 | - | 12 | 2,995 | 499 | ||||||||||||||||||
|
1-4 family mortgage |
3,264 | - | - | 24 | 3,288 | 48 | ||||||||||||||||||
|
Other mortgage |
13,191 | - | - | - | 13,191 | - | ||||||||||||||||||
|
Total real estate - mortgage |
18,467 | 971 | - | 36 | 19,474 | 547 | ||||||||||||||||||
|
Consumer |
- | - | - | - | - | - | ||||||||||||||||||
|
Total |
$ | 38,075 | $ | 28,923 | $ | 16,877 | $ | 4,630 | $ | 88,505 | $ | 7,690 | ||||||||||||
On March 22, 2020, the Interagency Statement was issued by banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act 2021, which extended the period established by Section 4013 of the CARES Act to the earlier of January 1, 2022 or the date that is 60 days after the date on which the national COVID-19 emergency terminates. In accordance with such guidance, the Bank is offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. As of March 31, 2021, there were 29 loans outstanding totaling $6.2 million that have payment deferrals in connection with the COVID-19 relief provided by the CARES Act. All of these remaining deferrals were principal and interest deferrals. The CARES Act precluded all of the ServisFirst COVID-19 loan modifications from being classified as a TDR as of March 31, 2021.
Troubled Debt Restructurings (“TDR”) at March 31, 2021, December 31, 2020 and March 31, 2020 totaled $3.5 million, $1.5 million and $2.4 million, respectively. The portion of those TDRs accruing interest at March 31, 2021, December 31, 2020 and March 31, 2020 totaled $794,000, $818,000 and $975,000, respectively. The following tables present loans modified in a TDR during the periods ended March 31, 2021 and March 31, 2020 by portfolio segment and the financial impact of those modifications. The tables include modifications made to new TDRs, as well as renewals of existing TDRs.
|
Three Months Ended March 31, 2021 |
||||||||||||
|
Pre- |
Post- |
|||||||||||
|
Modification |
Modification |
|||||||||||
|
Outstanding |
Outstanding |
|||||||||||
|
Number of |
Recorded |
Recorded |
||||||||||
|
Contracts |
Investment |
Investment |
||||||||||
|
(In Thousands) |
||||||||||||
|
Troubled Debt Restructurings |
||||||||||||
|
Commercial, financial and agricultural |
2 | $ | 1,155 | $ | 1,155 | |||||||
|
Real estate - construction |
- | - | - | |||||||||
|
Real estate - mortgage: |
||||||||||||
|
Owner-occupied commercial |
1 | 991 | 991 | |||||||||
|
1-4 family mortgage |
- | - | - | |||||||||
|
Other mortgage |
- | - | - | |||||||||
|
Total real estate mortgage |
1 | 991 | 991 | |||||||||
|
Consumer |
- | - | - | |||||||||
| 3 | $ | 2,146 | $ | 2,146 | ||||||||
|
Three Months Ended March 31, 2020 |
||||||||||||
|
Pre- |
Post- |
|||||||||||
|
Modification |
Modification |
|||||||||||
|
Outstanding |
Outstanding |
|||||||||||
|
Number of |
Recorded |
Recorded |
||||||||||
|
Contracts |
Investment |
Investment |
||||||||||
|
(In Thousands) |
||||||||||||
|
Troubled Debt Restructurings |
||||||||||||
|
Commercial, financial and agricultural |
1 | $ | 350 | $ | 350 | |||||||
|
Real estate - construction |
- | - | - | |||||||||
|
Real estate - mortgage: |
||||||||||||
|
Owner-occupied commercial |
- | - | - | |||||||||
|
1-4 family mortgage |
- | - | - | |||||||||
|
Other mortgage |
- | - | - | |||||||||
|
Total real estate mortgage |
- | - | - | |||||||||
|
Consumer |
- | - | - | |||||||||
| 1 | $ | 350 | $ | 350 | ||||||||
There were no loans which were modified in the previous twelve months (i.e., the twelve months prior to default) that defaulted during the three months ended March 31, 2021 and March 31, 2020. For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status.
NOTE 6 – LEASES
The Company leases space under non-cancelable operating leases for several of its banking offices and certain office equipment. The leases have remaining terms up to 10 years. At March 31, 2021, the Company had lease right-of-use assets and lease liabilities totaling $18.5 million and $18.8 million, respectively, compared to $10.5 million and $10.6 million, respectively at December 31, 2020 which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance Sheet.
Maturities of operating lease liabilities as of March 31, 2021 are as follows:
|
March 31, 2021 |
||||
|
(In Thousands) |
||||
|
2021 (remaining) |
$ | 3,055 | ||
|
2022 |
3,423 | |||
|
2023 |
3,061 | |||
|
2024 |
2,189 | |||
|
2025 |
2,157 | |||
|
thereafter |
6,974 | |||
|
Total lease payments |
20,859 | |||
|
Less: imputed interest |
(2,078 | ) | ||
|
Present value of operating lease liabilities |
$ | 18,782 | ||
As of March 31, 2021, the weighted average remaining term of operating leases was 7.06 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.21%.
Operating cash flows related to leases were $747,000 and $852,000 for the three months ended March 31, 2021 and 2020, respectively.
Lease costs during the three months ended March 31, 2021 and 2020 were as follows (in thousands):
|
Three Months Ended March 31, |
||||||||
|
2021 |
2020 |
|||||||
|
Operating lease cost |
$ | 899 | $ | 873 | ||||
|
Short-term lease cost |
- | 16 | ||||||
|
Variable lease cost |
81 | 44 | ||||||
|
Sublease income |
(19 | ) | (16 | ) | ||||
|
Net lease cost |
$ | 961 | $ | 917 | ||||
NOTE 7 - EMPLOYEE AND DIRECTOR BENEFITS
Stock Options
At March 31, 2021, the Company had stock incentive plans as described below. The compensation cost that has been charged to earnings for the plans was approximately $291,000 and $276,000 for the three months ended March 31, 2021 and 2020, respectively.
The Company’s 2009 Amended and Restated Stock Incentive Plan authorizes the grant of up to 5,550,000 shares and allows for the issuance of Stock Appreciation Rights, Restricted Stock, Stock Options, Non-stock Share Equivalents, Performance Shares or Performance Units. Both plans allow for the grant of incentive stock options and non-qualified stock options, and option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plans is ten years.
The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model which incorporates the assumptions noted in the following table. Expected volatilities are based on an index of southeastern United States publicly traded banks. The expected term for options granted is based on the short-cut method and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of grant.
|
2021 |
||||
|
Expected volatility |
40.00 |
% |
||
|
Expected dividends |
1.78 |
% |
||
|
Expected term (in years) |
7.5 | |||
|
Risk-free rate |
2.43 |
% |
||
The weighted average grant-date fair value of options granted during the three months ended March 31, 2021 was $12.73. There were no grants of stock options during the three months ended March 31, 2020.
The following table summarizes stock option activity during the three months ended March 31, 2021 and 2020:
|
Weighted |
||||||||||||||||
|
Weighted |
Average |
|||||||||||||||
|
Average |
Remaining |
|||||||||||||||
|
Exercise |
Contractual |
Aggregate |
||||||||||||||
|
Shares |
Price |
Term (years) |
Intrinsic Value |
|||||||||||||
|
(In Thousands) |
||||||||||||||||
|
Three Months Ended March 31, 2021: |
||||||||||||||||
|
Outstanding January 1, 2021 |
640,950 | $ | 18.14 | 4.6 | $ | 16,981 | ||||||||||
|
Granted |
500 | 32.60 | 8.2 | 14 | ||||||||||||
|
Exercised |
(187,500 | ) | 9.92 | 3.3 | 9,639 | |||||||||||
|
Forfeited |
(6,000 | ) | 5.82 | 0.8 | 79 | |||||||||||
|
Outstanding March 31, 2021 |
447,950 | 19.64 | 4.6 | $ | 14,859 | |||||||||||
|
Exercisable March 31, 2021 |
329,700 | $ | 13.57 | 3.7 | $ | 15,962 | ||||||||||
|
Three Months Ended March 31, 2020: |
||||||||||||||||
|
Outstanding January 1, 2020 |
965,248 | $ | 15.19 | 4.9 | $ | 21,911 | ||||||||||
|
Granted |
- | - | - | - | ||||||||||||
|
Exercised |
(216,000 | ) | 10.47 | 3.3 | 4,072 | |||||||||||
|
Forfeited |
(18,000 | ) | 30.79 | 6.9 | 26 | |||||||||||
|
Outstanding March 31, 2020 |
731,248 | 17.68 | 5.4 | $ | 12,969 | |||||||||||
|
Exercisable March 31, 2020 |
210,500 | $ | 16.54 | 5.0 | $ | 7,146 | ||||||||||
As of March 31, 2021, there was $604,000 of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next 2.0 years.
Restricted Stock and Performance Shares
The Company periodically grants restricted stock awards that vest upon time-based service conditions. Dividend payments are made during the vesting period. The value of restricted stock is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period. As of March 31, 2021, there was $3.2 million of total unrecognized compensation cost related to non-vested time-based restricted stock. The cost is expected to be recognized evenly over the remaining 2.7 years of the restricted stock’s vesting period.
The Company periodically grants performance shares that give plan participants the opportunity to earn between 0% and 150% of the number of performance shares granted based on achieving certain performance metrics. The number of performance shares earned is determined by reference to the Company’s total shareholder return relative to a peer group of other publicly traded banks and bank holding companies during the performance period. The performance period is generally three years starting on the grant date. The fair value of the performance shares is determined using a Monte Carlo simulation model on the grant date.
|
Restricted Stock |
Performance Shares |
|||||||||||||||
|
Shares |
Weighted Average Grant Date Fair Value |
Shares |
Weighted Average Grant Date Fair Value |
|||||||||||||
|
Three Months Ended March 31, 2021: |
||||||||||||||||
|
Non-vested at January 1, 2021 |
84,307 | $ | 34.92 | - | $ | - | ||||||||||
|
Granted |
48,217 | 42.07 | 12,437 | 37.05 | ||||||||||||
|
Vested |
(5,158 | ) | 22.72 | - | - | |||||||||||
|
Forfeited |
(5,575 | ) | 38.96 | - | - | |||||||||||
|
Non-vested at March 31, 2021 |
121,791 | 38.08 | 12,437 | 37.05 | ||||||||||||
|
Three Months Ended March 31, 2020: |
||||||||||||||||
|
Non-vested at January 1, 2020 |
71,290 | $ | 31.53 | - | $ | - | ||||||||||
|
Granted |
15,300 | 39.45 | - | - | ||||||||||||
|
Vested |
(8,376 | ) | 18.64 | - | - | |||||||||||
|
Forfeited |
- | - | - | - | ||||||||||||
|
Non-vested at March 31, 2020 |
78,214 | 34.46 | - | - | ||||||||||||
NOTE 8 - DERIVATIVES
The Company periodically enters into derivative contracts to manage exposures to movements in interest rates. The Company purchased an interest rate cap in May of 2020 to limit exposures to increases in interest rates. The interest rate cap is not designated as a hedging instrument but rather as a stand-alone derivative. The interest rate cap has an original term of 3 years, a notional amount of $300 million and is tied to the one-month LIBOR rate with a strike rate of 0.50%. The fair value of the interest rate cap is carried on the balance sheet in other assets and the change in fair value is recognized in noninterest income each quarter. At March 31, 2021 the interest rate cap had a fair value of $414,000 and remaining term of 2.1 years. If LIBOR is deemed unrepresentative at any time, the reference rate for the cap would be governed by the fallback protocol where LIBOR will be adjusted to the Secured Overnight Financing Rate (“SOFR”) plus the five-year median spread.
The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of March 31, 2021 and December 31, 2020 were not material.
NOTE 9 – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is essentially the final rule on use of the so-called CECL model, or current expected credit losses. Among other things, ASC 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, gave financial institutions the option to delay adoption of CECL. The Company elected to delay its adoption of the update until the earlier of the date the national emergency concerning COVID-19 terminates or December 31, 2020, with an effective retrospective adoption date of January 1, 2020. Amounts reported for periods beginning on or after January 1, 2020 are presented under ASC 326, except quarterly periods in 2020, which were not restated under CECL and all prior period information is presented in accordance with previously applicable GAAP. Based on prevailing economic conditions and forecasts as of January 1, 2020, the Company recognized a cumulative net increase to retained earnings of $1.1 million, net of tax, attributable to a decrease in the allowance for credit losses of $2.0 million, an increase in the allowance for off balance sheet credit exposures of $0.5 million, and a decrease in deferred tax assets of $0.4 million. This was the result of implementing a more quantitative methodology. The commercial, financial, and agricultural loan category decreased $8.2 million due to the portfolio primarily consisting of loans with generally short contractual maturities. This was partially offset by an increase of $6.2 million in the real estate – construction loan category due to the application of peer loss rates within the discounted cash flow pool reserve methodology. Peer historical loss rates were utilized to better align with loss expectations given the Company’s low historical loss experience in this category.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be effective for a limited time, starting March 12, 2020 through December 31, 2022. The Company has identified a replacement reference rate established by the American Financial Exchange. This rate is based on an active market of daily fund trading among participant banks. The Company will apply the guidance provided by this ASU in transitioning to the new reference rate.
NOTE 10 – RECENT ACCOUNTING PRONOUNCEMENTS
In August 2020, FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Topic 815): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is intended to simplify accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The update removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The update also simplifies the diluted earnings per share calculation in certain areas. The update is effective for the Company for its fiscal year beginning after December 15, 2021, including interim periods within those years. Early adoption will be permitted. The Company does not currently have any convertible debt instruments outstanding so does not believe that the update will have an impact on its financial statements.
NOTE 11 - FAIR VALUE MEASUREMENT
Measurement of fair value under U.S. GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below:
|
Level 1: |
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
|
Level 2: |
Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. |
|
Level 3: |
Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value.
Debt Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on pricing services provided by independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing source regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. The Company periodically buys corporate debt securities in private placement transactions. Level 2 inputs are not available for these securities. The Company uses average observable prices of similar corporate securities owned by the Company to value such securities and are classified in Level 3 of the hierarchy. The weighted average value as of March 31, 2021 was 3% observed for the Company’s other similar corporate securities.
Derivative instruments. The fair values of derivatives are determined based on a valuation pricing model using readily available observable market parameters such as interest rate curves, adjusted for counterparty credit risk. These measurements are classified as level 2 within the valuation hierarchy.
Loans Individually Evaluated. Loans individually evaluated are measured and reported at fair value when full payment under the loan terms is not probable. Loans individually evaluated are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Loans individually evaluated are subject to nonrecurring fair value adjustment upon initial recognition or subsequent individually evaluation. A portion of the allowance for credit losses is allocated to loans individually evaluated if the value of such loans is deemed to be less than the unpaid balance. The range of fair value adjustments and weighted average adjustment as of March 31, 2021 was 0% to 64% and 25.6%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2020 was 0% to 56% and 22.3% respectively. Loans individually evaluated are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized to write-down individually evaluated loans that are measured at fair value on a nonrecurring basis was $2.0 million during the three months ended March 31, 2021, and $5.0 million during the three months ended March 31, 2020.
Other Real Estate Owned. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for credit losses subsequent to foreclosure. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. Appraisals are performed by certified and licensed appraisers. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the new cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals. The range of fair value adjustments and weighted average adjustment as of March 31, 2021 was 5% to 25% and 15.9%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2020 was 5% to 27% and 12.5%, respectively. These measurements are classified as Level 3 within the valuation hierarchy. A loss on the sale and write-downs of OREO of $432,000 and $563,000 was recognized during the three months ended March 31, 2021 and 2020, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO is classified within Level 3 of the hierarchy.
There was one residential real estate loan with a balance of $150,000 foreclosed and classified as OREO as of March 31, 2021, compared to one residential real estate loan foreclosure for $209,000 as of December 31, 2020.
One residential real estate loan for $928,000 was in the process of being foreclosed as of March 31, 2021. There were no residential real estate loans in process of foreclosure as of December 31, 2020.
The following table presents the Company’s financial assets carried at fair value on a recurring basis as of March 31, 2021 and December 31, 2020. There were no liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.
|
Fair Value Measurements at March 31, 2021 Using |
||||||||||||||||
|
Quoted Prices in |
||||||||||||||||
|
Active Markets |
Significant Other |
Significant |
||||||||||||||
|
for Identical |
Observable Inputs |
Unobservable |
||||||||||||||
|
Assets (Level 1) |
(Level 2) |
Inputs (Level 3) |
Total |
|||||||||||||
|
Assets Measured on a Recurring Basis: |
(In Thousands) |
|||||||||||||||
|
Available for sale debt securities: |
||||||||||||||||
|
U.S. Treasury securities |
$ | - | $ | 14,296 | $ | - | $ | 14,296 | ||||||||
|
Government agency securities |
- | 12,190 | - | 12,190 | ||||||||||||
|
Mortgage-backed securities |
- | 569,542 | - | 569,542 | ||||||||||||
|
State and municipal securities |
- | 33,522 | - | 33,522 | ||||||||||||
|
Corporate debt |
- | 322,028 | 10,301 | 332,329 | ||||||||||||
|
Total available-for-sale debt securities |
- | 951,578 | 10,301 | 961,879 | ||||||||||||
|
Interest rate cap derivative |
- | 414 | - | 414 | ||||||||||||
|
Total assets at fair value |
$ | - | $ | 951,992 | $ | 10,301 | $ | 962,293 | ||||||||
|
Fair Value Measurements at December 31, 2020 Using |
||||||||||||||||
|
Quoted Prices in |
||||||||||||||||
|
Active Markets |
Significant Other |
Significant |
||||||||||||||
|
for Identical |
Observable Inputs |
Unobservable |
||||||||||||||
|
Assets (Level 1) |
(Level 2) |
Inputs (Level 3) |
Total |
|||||||||||||
|
Assets Measured on a Recurring Basis: |
(In Thousands) |
|||||||||||||||
|
Available for sale debt securities: |
||||||||||||||||
|
U.S. Treasury securities |
$ | - | $ | 14,357 | $ | - | $ | 14,357 | ||||||||
|
Government agency securities |
- | 15,458 | - | 15,458 | ||||||||||||
|
Mortgage-backed securities |
- | 495,109 | - | 495,109 | ||||||||||||
|
State and municipal securities |
- | 38,115 | - | 38,115 | ||||||||||||
|
Corporate debt |
- | 323,649 | - | 323,649 | ||||||||||||
|
Total available-for-sale debt securities |
- | 886,688 | - | 886,688 | ||||||||||||
|
Interest rate cap derivative |
- | 139 | - | 139 | ||||||||||||
|
Total assets at fair value |
$ | - | $ | 886,827 | $ | - | $ | 886,827 | ||||||||
During the three months ended March 31, 2021, two securities with a fair value of $6.2 million were transferred to level 3 in the hierarchy and one security with a fair value of $4.1 million was purchased.
The following table presents the Company’s financial assets carried at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020. There were no liabilities measured at fair value on a non-recurring basis as of March 31, 2021 and December 31, 2020.
|
Fair Value Measurements at March 31, 2021 Using |
||||||||||||||||
|
Quoted Prices in |
||||||||||||||||
|
Active Markets |
Significant Other |
Significant |
||||||||||||||
|
for Identical |
Observable |
Unobservable |
||||||||||||||
|
Assets (Level 1) |
Inputs (Level 2) |
Inputs (Level 3) |
Total |
|||||||||||||
|
Assets Measured on a Nonrecurring Basis: |
(In Thousands) |
|||||||||||||||
|
Loans individually evaluated |
$ | - | $ | - | $ | 70,929 | $ | 70,929 | ||||||||
|
Other real estate owned and repossessed assets |
- | - | 2,067 | 2,067 | ||||||||||||
|
Total assets at fair value |
$ | - | $ | - | $ | 72,996 | $ | 72,996 | ||||||||
|
Fair Value Measurements at December 31, 2020 Using |
||||||||||||||||
|
Quoted Prices in |
||||||||||||||||
|
Active Markets |
Significant Other |
Significant |
||||||||||||||
|
for Identical |
Observable |
Unobservable |
||||||||||||||
|
Assets (Level 1) |
Inputs (Level 2) |
Inputs (Level 3) |
Total |
|||||||||||||
|
Assets Measured on a Nonrecurring Basis: |
(In Thousands) |
|||||||||||||||
|
Loans individually evaluated |
$ | - | $ | - | $ | 80,817 | $ | 80,817 | ||||||||
|
Other real estate owned |
- | - | 6,497 | 6,497 | ||||||||||||
|
Total assets at fair value |
$ | - | $ | - | $ | 87,314 | $ | 87,314 | ||||||||
The fair value of a financial instrument is the current amount that would be exchanged in a sale between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Current U.S. GAAP excludes certain financial instruments and all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis as of March 31, 2021 and December 31, 2020 were as follows:
|
March 31, 2021 |
December 31, 2020 |
|||||||||||||||
|
Carrying |
Carrying |
|||||||||||||||
|
Amount |
Fair Value |
Amount |
Fair Value |
|||||||||||||
|
(In Thousands) |
||||||||||||||||
|
Financial Assets: |
||||||||||||||||
|
Level 1 inputs: |
||||||||||||||||
|
Cash and cash equivalents |
$ | 2,808,153 | $ | 2,808,153 | $ | 2,209,640 | $ | 2,209,640 | ||||||||
|
Level 2 inputs: |
||||||||||||||||
|
Federal funds sold |
1,577 | 1,577 | 1,771 | 1,771 | ||||||||||||
|
Mortgage loans held for sale |
15,834 | 15,551 | 14,425 | 14,497 | ||||||||||||
|
Level 3 Inputs: |
||||||||||||||||
|
Held to maturity debt securities |
250 | 250 | 250 | 250 | ||||||||||||
|
Loans, net |
8,410,074 | 8,428,969 | 8,377,746 | 8,387,718 | ||||||||||||
|
Financial Liabilities: |
||||||||||||||||
|
Level 2 inputs: |
||||||||||||||||
|
Deposits |
$ | 10,577,610 | $ | 10,587,038 | $ | 9,975,724 | $ | 9,987,665 | ||||||||
|
Federal funds purchased |
911,558 | 911,558 | 851,545 | 851,545 | ||||||||||||
|
Other borrowings |
64,691 | 65,548 | 64,748 | 65,560 | ||||||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc. (the “Company”) and its wholly owned subsidiary, ServisFirst Bank (the “Bank”). This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated balance sheets as of March 31, 2021 and December 31, 2020 and consolidated statements of income for the three months ended March 31, 2021 and March 31, 2020.
Forward-Looking Statements
Statements in this document that are not historical facts, including, but not limited to, statements concerning future operations, results or performance, are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words “believe,” “expect,” “anticipate,” “project,” “plan,” “intend,” “will,” “could,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. The Company cautions that such forward-looking statements, wherever they occur in this quarterly report or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including, but not limited to: the global health and economic crisis precipitated by the COVID-19 outbreak; general economic conditions, especially in the credit markets and in the Southeast; the performance of the capital markets; changes in interest rates, yield curves and interest rate spread relationships; changes in accounting and tax principles, policies or guidelines; changes in legislation or regulatory requirements; changes in our loan portfolio and deposit base; economic crisis and associated credit issues in industries most impacted by the COVID-19 outbreak, including but not limited to, the restaurant, hospitality and retail sectors; possible changes in laws and regulations and governmental monetary and fiscal policies; the cost and other effects of legal and administrative cases and similar contingencies; possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and the value of collateral; the effect of natural disasters, such as hurricanes and tornados, in our geographic markets; and increased competition from both banks and non-banks. The foregoing list of factors is not exhaustive. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K and our other SEC filings. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made. The Company assumes no obligation to update or revise any forward-looking statements that are made from time to time.
Business
We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides commercial banking services through 23 full-service banking offices located in Alabama, Tampa Bay, Florida, the panhandle of Florida, the greater Atlanta, Georgia metropolitan area, Charleston, South Carolina, and Nashville, Tennessee. We also operate a loan production office in Columbus, Georgia. Through the bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.
Our principal business is to accept deposits from the public and to make loans and other investments. Our principal sources of funds for loans and investments are demand, time, savings, and other deposits. Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.
Overview
As of March 31, 2021, we had consolidated total assets of $12.65 billion, up $714.7 million, or 6.0%, from total assets of $11.93 billion at December 31, 2020. Total loans were $8.50 billion at March 31, 2021, up $39.3 million, or 0.5%, from $8.47 billion at December 31, 2020. Total deposits were $10.58 billion at March 31, 2021, up $601.9 million, or 6.0%, from $9.98 billion at December 31, 2020.
Net income available to common stockholders for the three months ended March 31, 2021 was $51.5 million, up $16.7 million, or 48.0%, from $34.8 million for the three months ended March 31, 2020. Basic and diluted earnings per common share were $0.95 for the three months ended March 31, 2021, compared to $0.65 and $0.64, respectively, for the corresponding period in 2020. An increase in net interest income of $14.7 million for the comparative periods contributed to the increase in net income. Partially offsetting the increase in net interest income were increases in salary expenses, other operating expenses, and provision for income taxes. Changes in income and expenses are more fully explained in “Results of Operations” below.
Critical Accounting Policies
The accounting and financial policies of the Company conform to U.S. GAAP and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for credit losses, valuation of foreclosed real estate, deferred taxes, and fair value of financial instruments are particularly subject to change. Information concerning our accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Financial Condition
Cash and Cash Equivalents
At March 31, 2021, we had $1.6 million in federal funds sold, compared to $1.8 million at December 31, 2020. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At March 31, 2021, we had $67.4 million in balances at the Federal Reserve, compared to $61.9 million at December 31, 2020. Our increase in federal funds sold were the result of an increase in funds sold on the American Financial Exchange during the first quarter of 2021.
Investment Securities
Debt securities available for sale totaled $961.9 million at March 31, 2021 and $886.7 million at December 31, 2020. Investment securities held to maturity totaled $250,000 at March 31, 2021 and December 31, 2020, respectively. We had pay downs of $53.7 million on mortgage-backed securities and calls and maturities of $1.8 million and $2.5 million on municipal securities and certificates of deposit, respectively during the first three months of 2021. We had two bonds with an aggregate book balance of $7.5 million to be called during the first three months of 2021. We bought $136.7 million of mortgage-backed securities and $13.0 million of corporate bonds during the first three months of 2021.
The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure. In doing so, we seek to balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs. The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting. The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer-term securities purchased to generate level income for us over periods of interest rate fluctuations.
The Company does not invest in collateralized debt obligations (“CDOs”). We have $320.9 million of bank holding company subordinated notes. If rated, all such bonds were rated BBB or better by Kroll Bond Rating Agency at the time of our investment in them. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio as of March 31, 2021 has a combined average credit rating of AA.
The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $468.7 million and $477.6 million as of March 31, 2021 and December 31, 2020, respectively.
Loans
Section 1102 of the CARES Act created the Paycheck Protection Program (“PPP”), a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. The Company has participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for the first six months of the loan term. The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020. No collateral or personal guarantees are required. Neither the government nor lenders are permitted to charge the recipients any fees.
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act (“CAA”). The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. The Company is participating in the CAA’s second round of PPP lending. Additionally, section 541 of the CAA extends the relief provided by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to January 1, 2022. As of March 31, 2021, the Company had originated over 7,100 loans with balances in excess of $1.47 billion to new and existing customers through the PPP. To the extent the PPP loans are forgiven, this represents outside funds to our borrowers; and, especially with respect to vulnerable industries, we believe these capital injections are going to be instrumental in assisting our borrowers in navigating through the pandemic. This capital injection, along with the level of capital each borrower had just prior to COVID-19 impacting them, are critical factors in determining the staying power of our borrowers. Upon receipt of interim financial results from our borrowers, we will use that information to update our understanding of the underlying strengths or weaknesses in each individual relationship and take actions, as appropriate. As of March 31, 2021, we have received payment from the SBA on just over 2,350 of our loans totaling $505.1 million.
We had total loans of $8.50 billion at March 31, 2021, up $39.3 million, or 0.5%, compared to $8.47 billion at December 31, 2020. At March 31, 2021, the percentage of our total loans in each of our markets was as follows:
Asset Quality
The Company assesses the adequacy of its allowance for credit losses at the end of each calendar quarter. The level of allowance is based on the Company’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio and other relevant factors. The allowance is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. The allowance for credit losses is believed adequate to absorb all expected future losses to be recognized over the contractual life of the loans in the portfolio.
Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment rate as a loss driver. The Company also utilizes and forecasts GDP growth as a second loss driver for its agricultural and consumer loan pools. Consistent forecasts of the loss drivers are used across the loan segments. At March 31, 2021 and December 31, 2020, the Company utilized a reasonable and supportable forecast period of twelve months followed by a six-month straight-line reversion to long term averages. The Company leveraged economic projections from reputable and independent sources to inform its loss driver forecasts. The Company expects national unemployment to remain above pre-pandemic levels over the forecast period with an improved national GDP growth rate as the economy comes back on-line over the next year.
The historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates and gross domestic product. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic environment among other factors. See Note 5 – Loans in the notes to consolidated financial statements included in Item 1. Consolidated Financial Statements elsewhere in this report.
The expected credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.
Expected credit losses for loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis. Individual evaluations are performed for nonaccrual loans, loans rated substandard, and modified loans classified as troubled debt restructurings. Specific allocations of the allowance for credit losses are estimated on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.
Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the allowance for loan losses represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. The allowance for losses on loans included allowance allocations calculated in accordance with FASB Accounting Standards Codification (“ASC”) Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”
|
As of and for the Three Months Ended |
||||||||
|
March 31, |
||||||||
|
2021 |
2020 |
|||||||
|
(Dollars in thousands) |
||||||||
|
Total loans outstanding, net of unearned income |
$ | 8,504,980 | $ | 7,568,836 | ||||
|
Average loans outstanding, net of unearned income |
$ | 8,512,506 | $ | 7,361,149 | ||||
|
Allowance for credit losses at beginning of period |
87,942 | - | ||||||
|
Allowance for loan losses at beginning of period |
- | 76,584 | ||||||
|
Charge-offs: |
||||||||
|
Commercial, financial and agricultural loans |
477 | 2,640 | ||||||
|
Real estate - construction |
- | 454 | ||||||
|
Real estate - mortgage |
12 | 1,678 | ||||||
|
Consumer loans |
87 | 58 | ||||||
|
Total charge-offs |
576 | 4,830 | ||||||
|
Recoveries: |
||||||||
|
Commercial, financial and agricultural loans |
26 | 62 | ||||||
|
Real estate - construction |
50 | 1 | ||||||
|
Real estate - mortgage |
2 | 1 | ||||||
|
Consumer loans |
11 | 12 | ||||||
|
Total recoveries |
89 | 76 | ||||||
|
Net charge-offs |
487 | 4,754 | ||||||
|
Provision for credit losses |
7,451 | 13,584 | ||||||
|
Allowance for credit losses at period end |
$ | 94,906 | $ | - | ||||
|
Allowance for loan losses at period end |
$ | - | $ | 85,414 | ||||
|
Allowance for credit losses to period end loans |
1.12 |
% |
- | |||||
|
Allowance for loan losses to period end loans |
- | 1.13 |
% |
|||||
|
Net charge-offs to average loans |
0.02 |
% |
0.26 |
% |
||||
|
Percentage |
||||||||
|
of loans in |
||||||||
|
each |
||||||||
|
category to |
||||||||
|
March 31, 2021 |
Amount |
total loans |
||||||
|
(In Thousands) |
||||||||
|
Commercial, financial and agricultural |
$ | 38,232 | 39.07 |
% |
||||
|
Real estate - construction |
19,391 | 7.84 |
% |
|||||
|
Real estate - mortgage |
35,607 | 52.36 |
% |
|||||
|
Consumer |
1,676 | 0.73 |
% |
|||||
|
Total |
$ | 94,906 | 100.00 |
% |
||||
|
Percentage |
||||||||
|
of loans in |
||||||||
|
each |
||||||||
|
category to |
||||||||
|
December 31, 2020 |
Amount |
total loans |
||||||
|
(In Thousands) |
||||||||
|
Commercial, financial and agricultural |
$ | 36,370 | 38.93 |
% |
||||
|
Real estate - construction |
16,057 | 7.01 |
% |
|||||
|
Real estate - mortgage |
33,722 | 53.29 |
% |
|||||
|
Consumer |
1,793 | 0.77 |
% |
|||||
|
Total |
$ | 87,942 | 100.00 |
% |
||||
Nonperforming Assets
Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to $17.9 million at March 31, 2021 compared to $19.0 million at December 31, 2020. Of this total, nonaccrual loans of $13.1 million at March 31, 2021 represented a net decrease of $0.9 million from nonaccrual loans at December 31, 2020. Excluding credit card accounts, there was one loan 90 or more days past due and still accruing totaling $4.8 million at March 31, 2021, compared to one loan totaling $4.9 million at December 31, 2020. Troubled Debt Restructurings (“TDR”) at March 31, 2021 and December 31, 2020 were $3.5 million and $2.4 million, respectively. There were three loans newly classified as TDR totaling $2.1 million and no renewals of existing TDRs for the three months ended March 31, 2021. There was one loan newly classified as a TDR totaling $350,000 and no renewals of existing TDRs for the three months ended March 31, 2020.
OREO and repossessed assets decreased to $2.1 million at March 31, 2021, from $6.5 million at December 31, 2020. The following table summarizes OREO and repossessed asset activity for the three months ended March 31, 2021 and 2020:
|
Three months ended March 31, |
||||||||
|
2021 |
2020 |
|||||||
|
(In thousands) |
||||||||
|
Balance at beginning of period |
$ | 6,497 | $ | 8,178 | ||||
|
Transfers from loans and capitalized expenses |
414 | 287 | ||||||
|
Proceeds from sales |
(584 | ) | (454 | ) | ||||
|
Internally financed sales |
(3,779 | ) | - | |||||
|
Write-downs / net gain (loss) on sales |
(482 | ) | (563 | ) | ||||
|
Balance at end of period |
$ | 2,066 | $ | 7,448 | ||||
The following table summarizes our nonperforming assets and TDRs at March 31, 2021 and December 31, 2020:
|
March 31, 2021 |
December 31, 2020 |
|||||||||||||||
|
Number of |
Number of |
|||||||||||||||
|
Balance |
Loans |
Balance |
Loans |
|||||||||||||
|
(Dollar Amounts In Thousands) |
||||||||||||||||
|
Nonaccrual loans: |
||||||||||||||||
|
Commercial, financial and agricultural |
$ | 9,922 | 22 | $ | 11,709 | 22 | ||||||||||
|
Real estate - construction |
234 | 1 | 234 | 1 | ||||||||||||
|
Real estate - mortgage: |
||||||||||||||||
|
Owner-occupied commercial |
2,009 | 3 | 1,259 | 4 | ||||||||||||
|
1-4 family mortgage |
923 | 9 | 771 | 7 | ||||||||||||
|
Other mortgage |
- | - | - | - | ||||||||||||
|
Total real estate - mortgage |
2,932 | 12 | 2,030 | 11 | ||||||||||||
|
Consumer |
- | 1 | - | - | ||||||||||||
|
Total Nonaccrual loans: |
$ | 13,088 | 36 | $ | 13,973 | 34 | ||||||||||
|
90+ days past due and accruing: |
||||||||||||||||
|
Commercial, financial and agricultural |
$ | 4 | 1 | $ | 11 | 2 | ||||||||||
|
Real estate - construction |
- | - | - | - | ||||||||||||
|
Real estate - mortgage: |
||||||||||||||||
|
Owner-occupied commercial |
- | - | - | - | ||||||||||||
|
1-4 family mortgage |
- | - | 104 | 1 | ||||||||||||
|
Other mortgage |
4,761 | 1 | 4,805 | 1 | ||||||||||||
|
Total real estate - mortgage |
4,761 | 1 | 4,909 | 2 | ||||||||||||
|
Consumer |
39 | 17 | 61 | 25 | ||||||||||||
|
Total 90+ days past due and accruing: |
$ | 4,804 | 19 | $ | 4,981 | 29 | ||||||||||
|
Total Nonperforming Loans: |
$ | 17,892 | 55 | $ | 18,954 | 63 | ||||||||||
|
Plus: Other real estate owned and repossessions |
2,067 | 5 | 6,497 | 11 | ||||||||||||
|
Total Nonperforming Assets |
$ | 19,959 | 60 | $ | 25,451 | 74 | ||||||||||
|
Restructured accruing loans: |
||||||||||||||||
|
Commercial, financial and agricultural |
$ | 794 | 3 | $ | 818 | 3 | ||||||||||
|
Real estate - construction |
- | - | - | - | ||||||||||||
|
Real estate - mortgage: |
||||||||||||||||
|
Owner-occupied commercial |
- | - | - | - | ||||||||||||
|
1-4 family mortgage |
- | - | - | - | ||||||||||||
|
Other mortgage |
- | - | - | - | ||||||||||||
|
Total real estate - mortgage |
- | - | - | - | ||||||||||||
|
Consumer |
- | - | - | - | ||||||||||||
|
Total restructured accruing loans: |
$ | 794 | 3 | $ | 818 | 3 | ||||||||||
|
Total Nonperforming assets and restructured accruing loans |
$ | 20,753 | 63 | $ | 26,269 | 77 | ||||||||||
|
Ratios: |
||||||||||||||||
|
Nonperforming loans to total loans |
0.21 |
% |
0.22 |
% |
||||||||||||
|
Nonperforming assets to total loans plus other real estate owned and repossessions |
0.23 |
% |
0.30 |
% |
||||||||||||
|
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions |
0.24 |
% |
0.31 |
% |
||||||||||||
The balance of nonperforming assets can fluctuate due to changes in economic conditions. We have established a policy to discontinue accruing interest on a loan (i.e., place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. Interest income on nonaccrual loans is recognized only as received. If we believe that a loan will not be collected in full, we will increase the allowance for credit losses to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal.
In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments and interest. While interest continues to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As of March 31, 2021, the Company carries $5.1 million of accrued interest income on deferrals made to COVID-19 affected borrowers compared to $5.8 million at December 31, 2020. At this time, the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.
Deposits
Total deposits increased by $600 million to $10.58 billion at March 31, 2021 compared to $9.98 billion at December 31, 2020. We anticipate long-term sustainable growth in deposits through continued development of market share in our less mature markets and through organic growth in our mature markets.
For amounts and rates of our deposits by category, see the table “Average Consolidated Balance Sheets and Net Interest Analysis on a Fully Taxable-equivalent Basis” under the subheading “Net Interest Income” below.
The following table summarizes balances of our deposits and the percentage of each type to the total at March 31, 2021 and December 31, 2020.
|
March 31, 2021 |
December 31, 2020 |
|||||||||||||||
|
Non-interest-bearing demand |
$ | 3,044,611 | 28.78 |
% |
$ | 2,788,772 | 27.96 |
% |
||||||||
|
Interest-bearing |
6,626,953 | 62.65 |
% |
6,276,910 | 62.92 |
% |
||||||||||
|
Savings |
97,946 | 0.93 |
% |
89,418 | 0.90 |
% |
||||||||||
|
Time deposits, $250,000 and under |
267,164 | 2.53 |
% |
273,301 | 2.74 |
% |
||||||||||
|
Time deposits, over $250,000 |
490,936 | 4.64 |
% |
497,323 | 4.99 |
% |
||||||||||
|
Brokered time deposits |
50,000 | 0.47 | 50,000 | 0.50 | ||||||||||||
| $ | 10,577,610 | 100.00 |
% |
$ | 9,975,724 | 100.00 |
% |
|||||||||
Borrowings
Our borrowings consist of federal funds purchased and subordinated notes payable. We had $911.6 million and $851.5 million at March 31, 2021 and December 31, 2020, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was 0.22% for the quarter ended March 31, 2021. Other borrowings consist of the following:
|
● |
$30.0 million on the Company’s 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually. The Notes may not be prepaid by the Company prior to November 8, 2022. |
|
● |
$34.75 million of the Company’s 4% Subordinated Notes due October 21, 2030, which were issued in a private placement in October 2020 and pay interest semi-annually. The Notes may not be prepaid by the Company prior to October 21, 2025. |
Liquidity
Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, and other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.
The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity was to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding. At March 31, 2021, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $3.3 billion. Additionally, the Bank had borrowing availability of approximately $923 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements. We believe these sources of funding are adequate to meet immediate anticipated funding needs, but we may need additional funding if we are able to maintain our current growth rate into the future.
Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. In addition, we have issued debt as described above under “Borrowings.”
We are subject to general FDIC guidelines that require a minimum level of liquidity. Management believes our liquidity ratios meet or exceed these guidelines. However, uncertainties brought about by the COVID-19 pandemic may adversely affect our ability to obtain funding or may increase the cost of funding.
The following table reflects the contractual maturities of our term liabilities as of March 31, 2021. The amounts shown do not reflect any early withdrawal or prepayment assumptions.
|
Payments due by Period |
||||||||||||||||||||
|
Total |
1 year or less |
1 - 3 years |
3 - 5 years |
Over 5 years |
||||||||||||||||
|
(In Thousands) |
||||||||||||||||||||
|
Contractual Obligations (1) |
||||||||||||||||||||
|
Deposits without a stated maturity |
$ | 9,769,510 | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
Certificates of deposit (2) |
808,100 | 318,734 | 344,991 | 144,300 | 75 | |||||||||||||||
|
Federal funds purchased |
911,558 | 911,558 | - | - | - | |||||||||||||||
|
Subordinated notes payable |
64,707 | - | - | - | 64,707 | |||||||||||||||
|
Operating lease commitments |
20,859 | 3,055 | 6,484 | 4,346 | 6,974 | |||||||||||||||
|
Total |
$ | 11,574,734 | $ | 1,233,347 | $ | 351,475 | $ | 148,646 | $ | 71,756 | ||||||||||
|
(1) Excludes interest. |
|
(2) Certificates of deposit give customers the right to early withdrawal. Early withdrawals may be subject to penalties. The penalty amount depends on the remaining time to maturity at the time of early withdrawal. |
Capital Adequacy
As of March 31, 2021, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, we must maintain minimum common equity Tier 1, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of March 31, 2021.
The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective January 1, 2015, subject to a phase-in period for certain aspects of the new rules. In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of common equity Tier 1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer was phased in incrementally over time, beginning January 1, 2016 and became fully effective on January 1, 2019. As of January 1, 2019, an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets is required for compliance with the capital conservation buffer. The ratios for the Company and the Bank are currently sufficient to satisfy the fully phased-in conservation buffer.
The following table sets forth (i) the capital ratios required by the FDIC and the Alabama Banking Department’s leverage ratio requirement and (ii) our actual ratios of capital to total regulatory or risk-weighted assets, as of March 31, 2021, December 31, 2020 and March 31, 2020:
|
Actual |
For Capital Adequacy Purposes |
To Be Well Capitalized Under Prompt Corrective Action Provisions |
||||||||||||||||||||||
|
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
|||||||||||||||||||
|
As of March 31, 2021: |
||||||||||||||||||||||||
|
CET 1 Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
$ | 999,447 | 10.73 |
% |
$ | 419,190 | 4.50 |
% |
N/A | N/A | ||||||||||||||
|
ServisFirst Bank |
1,061,620 | 11.40 |
% |
419,127 | 4.50 |
% |
$ | 605,405 | 6.50 |
% |
||||||||||||||
|
Tier 1 Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
999,947 | 10.73 |
% |
558,920 | 6.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
1,062,120 | 11.40 |
% |
558,836 | 6.00 |
% |
745,114 | 8.00 |
% |
|||||||||||||||
|
Total Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
1,162,344 | 12.48 |
% |
745,227 | 8.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
1,159,826 | 12.45 |
% |
745,114 | 8.00 |
% |
931,393 | 10.00 |
% |
|||||||||||||||
|
Tier 1 Capital to Average Assets: |
||||||||||||||||||||||||
|
Consolidated |
999,947 | 8.25 |
% |
484,571 | 4.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
1,062,120 | 8.77 |
% |
484,521 | 4.00 |
% |
605,651 | 5.00 |
% |
|||||||||||||||
|
As of December 31, 2020: |
||||||||||||||||||||||||
|
CET 1 Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
$ | 958,300 | 10.50 |
% |
$ | 410,816 | 4.50 |
% |
N/A | N/A | ||||||||||||||
|
ServisFirst Bank |
1,018,031 | 11.15 |
% |
410,766 | 4.50 |
% |
$ | 593,328 | 6.50 |
% |
||||||||||||||
|
Tier 1 Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
958,800 | 10.50 |
% |
547,755 | 6.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
1,018,531 | 11.16 |
% |
547,688 | 6.00 |
% |
730,250 | 8.00 |
% |
|||||||||||||||
|
Total Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
1,113,690 | 12.20 |
% |
730,340 | 8.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
1,108,673 | 12.15 |
% |
730,250 | 8.00 |
% |
912,813 | 10.00 |
% |
|||||||||||||||
|
Tier 1 Capital to Average Assets: |
||||||||||||||||||||||||
|
Consolidated |
958,800 | 8.23 |
% |
465,980 | 4.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
1,018,531 | 8.75 |
% |
465,448 | 4.00 |
% |
581,810 | 5.00 |
% |
|||||||||||||||
|
As of March 31, 2020: |
||||||||||||||||||||||||
|
CET 1 Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
$ | 849,949 | 10.46 |
% |
$ | 365,531 | 4.50 |
% |
N/A | N/A | ||||||||||||||
|
ServisFirst Bank |
912,858 | 11.24 |
% |
365,460 | 4.50 |
% |
$ | 527,886 | 6.50 |
% |
||||||||||||||
|
Tier 1 Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
850,451 | 10.47 |
% |
487,375 | 6.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
913,360 | 11.25 |
% |
487,280 | 6.00 |
% |
649,706 | 8.00 |
% |
|||||||||||||||
|
Total Capital to Risk Weighted Assets: |
||||||||||||||||||||||||
|
Consolidated |
1,001,072 | 12.32 |
% |
649,833 | 8.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
999,274 | 12.30 |
% |
649,706 | 8.00 |
% |
812,133 | 10.00 |
% |
|||||||||||||||
|
Tier 1 Capital to Average Assets: |
||||||||||||||||||||||||
|
Consolidated |
850,451 | 9.37 |
% |
363,121 | 4.00 |
% |
N/A | N/A | ||||||||||||||||
|
ServisFirst Bank |
913,360 | 10.06 |
% |
363,065 | 4.00 |
% |
453,831 | 5.00 |
% |
|||||||||||||||
We are a legal entity separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole shareholder. Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders. The requirement that a bank holding company must serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the Bank holding company’s ability to serve as such a source of strength. Our ability to pay dividends is also subject to the provisions of Delaware corporate law.
The Alabama Banking Department also regulates the Bank’s dividend payments. Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the Bank’s surplus is equal to at least 20% of its capital (our Bank’s surplus currently exceeds 20% of its capital). Moreover, our Bank is also required by Alabama law to obtain the prior approval of the Superintendent of Banks (“Superintendent”) for its payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (i) the Bank’s net earnings (as defined by statute) for that year, plus (ii) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends, withdrawals or transfers may be made from the Bank’s surplus without the prior written approval of the Superintendent.
The Bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividends if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. If, in the opinion of the federal banking regulators, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulators could require, after notice and a hearing, that the Bank stop or refrain from engaging in the questioned practice.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to financial credit arrangements with off-balance sheet risk to meet the financing needs of our customers. These financial credit arrangements include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit and financial guarantees. Those credit arrangements involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial credit arrangements. All such credit arrangements bear interest at variable rates and we have no such credit arrangements which bear interest at fixed rates.
Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
As part of our mortgage operations, we originate and sell certain loans to investors in the secondary market. We continue to experience a manageable level of investor repurchase demands. For loans sold, we have an obligation to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations and warranties made by the Bank at the time of the sale. Representations and warranties typically include those made regarding loans that had missing or insufficient file documentation or loans obtained through fraud by borrowers or other third parties such as appraisers.
Financial instruments whose contract amounts represent credit risk at March 31, 2021 are as follows:
|
March 31, 2021 |
||||
|
(In Thousands) |
||||
|
Commitments to extend credit |
$ | 2,932,352 | ||
|
Credit card arrangements |
312,443 | |||
|
Standby letters of credit |
60,435 | |||
| $ | 3,305,230 | |||
Commitments to extend credit beyond current funded amounts are agreements to lend to a customer as long as there is no violation of any condition established in the applicable loan agreement. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by us upon extension of credit is based on our management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. All letters of credit are due within one year or less of the original commitment date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Federal funds lines of credit are uncommitted lines issued to downstream correspondent banks for the purpose of providing liquidity to them. The lines are unsecured, and we have no obligation to sell federal funds to the correspondent, nor does the correspondent have any obligation to request or accept purchases of federal funds from us.
Results of Operations
Summary of Net Income
Net income and net income available to common stockholders for the three months ended March 31, 2021 was $51.5 million compared to $34.8 million for the three months ended March 31, 2020. The increase in net income was primarily attributable to a $14.7 million increase in net interest income during the three months ended March 31, 2021 to $92.4 million, compared to $77.6 million during the same period in 2020. The increase in net interest income is primarily attributable to growth in average earning assets and non-interest-bearing deposit balances. Total non-interest income increased by $1.8 million to $8.5 million during the three months ended March 31, 2021 compared to $6.7 million during the same period in 2020. Total non-interest expenses increased by $1.0 million to $28.9 million during the three months ended March 31, 2021 compared to $27.9 million during the same period in 2020.
Basic and diluted net income per common share were $0.95 for the three months ended March 31, 2021, compared to $0.65 and $0.64, for the corresponding period in 2020. Return on average assets for the three months ended March 31, 2021 was 1.72% compared to 1.54% for the corresponding period in 2020, and return on average stockholders’ equity for the three months ended March 31, 2021 was 19.83% compared to 16.23% for the corresponding period in 2020.
Net Interest Income
Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets. The major factors which affect net interest income are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings.
Taxable-equivalent net interest income increased $14.7 million, or 18.9%, to $92.4 million for the three months ended March 31, 2021 compared to $77.7 million for the corresponding period in 2020. This increase was primarily attributable to a $2.96 billion increase in average earning assets, or 34%, year over year. The taxable-equivalent yield on interest-earning assets decreased from 4.46% to 3.48% year over year. The yield on loans for the three months ended March 31, 2021 was 4.47% compared to 4.88% for the corresponding period in 2020. The cost of total interest-bearing liabilities decreased to 0.40% for the three months ended March 31, 2021 from 1.19% for the corresponding period in 2020. Net interest margin for the three months ended March 31, 2021 decreased 38 basis points to 3.20% from 3.58% for the corresponding period in 2020.
The following table shows, for the three months ended March 31, 2021 and March 31, 2020, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue. The accompanying table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-earning assets and interest-bearing liabilities for the same periods. Changes as a result of mix or the number of days in the periods have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. Both tables are presented on a taxable-equivalent basis where applicable:
|
Average Consolidated Balance Sheets and Net Interest Analysis |
||||||||||||
|
On a Fully Taxable-Equivalent Basis |
||||||||||||
|
For the Three Months Ended March 31, |
||||||||||||
|
(Dollar Amounts In Thousands) |
|
2021 |
2020 |
|||||||||||||||||||||||
|
Interest |
Average |
Interest |
Average |
|||||||||||||||||||||
|
Average |
Earned / |
Yield / |
Average |
Earned / |
Yield / |
|||||||||||||||||||
|
Balance |
Paid |
Rate |
Balance |
Paid |
Rate |
|||||||||||||||||||
|
Assets: |
||||||||||||||||||||||||
|
Interest-earning assets: |
||||||||||||||||||||||||
|
Loans, net of unearned income (1) (2) |
||||||||||||||||||||||||
|
Taxable |
$ | 8,484,914 | $ | 93,503 | 4.47 |
% |
$ | 7,328,594 | $ | 89,076 | 4.89 |
% |
||||||||||||
|
Tax-exempt (3) |
27,592 | 284 | 4.17 | 32,555 | 327 | 4.04 | ||||||||||||||||||
|
Total loans, net of unearned income |
8,512,506 | 93,787 | 4.47 | 7,361,149 | 89,403 | 4.88 | ||||||||||||||||||
|
Mortgage loans held for sale |
13,601 | 65 | 1.94 | 4,282 | 23 | 2.16 | ||||||||||||||||||
|
Investment securities: |
||||||||||||||||||||||||
|
Taxable |
878,118 | 5,807 | 2.65 | 750,413 | 5,154 | 2.75 | ||||||||||||||||||
|
Tax-exempt (3) |
21,084 | 128 | 2.43 | 44,029 | 257 | 2.33 | ||||||||||||||||||
|
Total investment securities (4) |
899,202 | 5,935 | 2.64 | 794,442 | 5,411 | 2.72 | ||||||||||||||||||
|
Federal funds sold |
11,935 | 3 | 0.10 | 105,423 | 277 | 1.06 | ||||||||||||||||||
|
Interest-bearing balances with banks |
2,262,233 | 676 | 0.12 | 469,199 | 1,718 | 1.47 | ||||||||||||||||||
|
Total interest-earning assets |
$ | 11,699,477 | $ | 100,466 | 3.48 |
% |
$ | 8,734,495 | $ | 96,832 | 4.46 |
% |
||||||||||||
|
Non-interest-earning assets: |
||||||||||||||||||||||||
|
Cash and due from banks |
71,166 | 66,140 | ||||||||||||||||||||||
|
Net premises and equipment |
57,198 | 58,066 | ||||||||||||||||||||||
|
Allowance for credit losses, accrued interest and other assets |
320,407 | 241,479 | ||||||||||||||||||||||
|
Total assets |
$ | 12,148,248 | $ | 9,100,180 | ||||||||||||||||||||
|
Liabilities and stockholders' equity: |
||||||||||||||||||||||||
|
Interest-bearing liabilities: |
||||||||||||||||||||||||
|
Interest-bearing demand deposits |
$ | 1,294,614 | $ | 621 | 0.19 |
% |
$ | 956,803 | $ | 1,346 | 0.57 |
% |
||||||||||||
|
Savings deposits |
93,375 | 41 | 0.18 | 67,380 | 84 | 0.50 | ||||||||||||||||||
|
Money market accounts |
5,057,828 | 3,358 | 0.27 | 4,061,286 | 11,127 | 1.10 | ||||||||||||||||||
|
Time deposits |
808,561 | 2,861 | 1.44 | 805,924 | 4,188 | 2.09 | ||||||||||||||||||
|
Total interest-bearing deposits |
7,254,378 | 6,881 | 0.38 | 5,891,393 | 16,745 | 1.14 | ||||||||||||||||||
|
Federal funds purchased |
849,772 | 460 | 0.22 | 492,638 | 1,601 | 1.31 | ||||||||||||||||||
|
Other borrowings |
64,689 | 690 | 4.33 | 64,707 | 781 | 4.85 | ||||||||||||||||||
|
Total interest-bearing liabilities |
$ | 8,168,839 | $ | 8,031 | 0.40 |
% |
$ | 6,448,738 | $ | 19,127 | 1.19 |
% |
||||||||||||
|
Non-interest-bearing liabilities: |
||||||||||||||||||||||||
|
Non-interest-bearing demand deposits |
2,923,041 | 1,749,671 | ||||||||||||||||||||||
|
Other liabilities |
39,442 | 39,801 | ||||||||||||||||||||||
|
Stockholders' equity |
996,741 | 853,800 | ||||||||||||||||||||||
|
Accumulated other comprehensive income |
20,185 | 8,170 | ||||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ | 12,148,248 | $ | 9,100,180 | ||||||||||||||||||||
|
Net interest income |
$ | 92,435 | $ | 77,705 | ||||||||||||||||||||
|
Net interest spread |
3.08 |
% |
3.27 |
% |
||||||||||||||||||||
|
Net interest margin |
3.20 |
% |
3.58 |
% |
||||||||||||||||||||
|
(1) |
Non-accrual loans are included in average loan balances in all periods. Loan fees of $10,400 and $1,281 are included in interest income in the first quarter of 2021 and 2020, respectively. Loan fees in 2021 include accretion of PPP loan fees. |
||||||||||||||
|
(2) |
Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%. |
||||||||||||||
|
(3) |
Unrealized gains of $22,027 and $10,282 are excluded from the yield calculation in the first quarter of 2021 and 2020, respectively. |
||||||||||||||
Our growth in loans continues to drive favorable volume component change and overall change. The rate component was favorable as average rates paid on interest-bearing liabilities decreased 79 basis points while loan yields decreased 41 basis points. Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the three months ended March 31, 2021 compared to the same period in 2020.
Provision for Credit losses
The provision for credit losses was $7.5 million for the three months ended March 31, 2021, a decrease of $6.1 million from $13.6 million for the three months ended March 31, 2020. The ACL for March 31, 2021 and December 31, 2020 was calculated under the current expected credit losses (“CECL”) methodology and totaled $94.9 million and 87.9 million, or 1.12% and 1.04% of loans, net of unearned income, respectively. The allowance totaled $85.4 million, or 1.13% of loans, net of unearned income, at March 31, 2020 and was calculated under the incurred loss methodology. Annualized net credit charge-offs to quarter-to-date average loans were 0.02% for the first quarter of 2021, a 24 basis point decrease compared to 0.26% for the first quarter of 2020. Nonperforming loans decreased to $17.9 million, or 0.21% of total loans, at March 31, 2021 from $19.0 million, or 0.22% of total loans, at December 31, 2020, and were lower than $33.9 million, or 0.45% of total loans, at March 31, 2020. See the section captioned “Asset Quality” located elsewhere in this item for additional discussion related to provision for credit losses.
Noninterest Income
Noninterest income totaled $8.5 million for the three months ended March 31, 2021, an increase of $1.8 million compared to the corresponding period in 2020. Mortgage banking revenue increased $1.7 million, or 157%, to $2.7 million from the first quarter of 2020 to the first quarter of 2021. Mortgage loan sales increased approximately 106% during the first quarter of 2021 when compared to the same period in 2020. Net credit card revenue decreased $573,000, or 33%, to $1.2 million during the three months ended March 31, 2021, compared to $1.8 million during the three months ended March 31, 2020. This decrease was primarily attributable to additional accruals for awards obligations taken in the first quarter of 2021. The number of credit card accounts increased approximately 28% and the aggregate amount of spend on all credit card accounts increased 16% during the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Cash surrender value of life insurance increased $205,000, or 14%, to $1.7 million during the three months ended March 31, 2021, compared to $1.5 million during the three months ended March 31, 2020. We purchased $60 million of additional life insurance contracts during the second half of 2020.
Noninterest Expense
Noninterest expense totaled $28.9 million for the three months ended March 31, 2021, an increase of $1.0 million compared to $27.9 million for the corresponding period in 2020. Salary and employee benefit expense decreased $115,000 to $15.5 million for the three months ended March 31, 2021 from $15.6 million for the corresponding period in 2020. The number of FTE employees decreased to 491 at March 31, 2021 compared to 492 at March 31, 2020. Equipment and occupancy expense increased $254,000 to $2.7 million for the three months ended March 31, 2021 from $2.4 million for the corresponding period in 2020. Third party processing and other services decreased $41,000 to $3.4 million for the three months ended March 31, 2021 compared to the corresponding period in 2020. Professional services decreased $25,000 to $923,000 for the three months ended March 31, 2021 from $948,000 for the corresponding period in 2020. FDIC insurance assessments increased $250,000 to $1.6 million for the three months ended March 31, 2021 from $1.3 million for the corresponding period in 2020. Our assessment base increased by 31% year-over-year. Expenses related to other real estate owned decreased $444,000 to $157,000 for the three months ended March 31, 2021 from $601,000 for the corresponding period in 2020. First quarter 2020 included write-downs in value of property based on updated appraisals related to one foreclosed loan relationship. Other operating expenses increased $1.1 million to $4.6 million for the three months ended March 31, 2021 from $3.5 million for the corresponding period in 2020. We increased our allowance for credit losses on unfunded loan commitments by $600,000 in the first quarter of 2021 with a charge to other operating expenses.
Changes in our non-interest income and expenses, including percentage changes, are detailed in the following table:
|
Three Months Ended March 31, |
||||||||||||||||
|
2021 |
2020 |
$ change |
% change |
|||||||||||||
|
(Dollars In Thousands) |
||||||||||||||||
|
Noninterest income: |
||||||||||||||||
|
Service charges on deposit accounts |
$ | 1,908 | $ | 1,916 | $ | (8 | ) | (0.4 |
%) |
|||||||
|
Mortgage banking |
2,747 | 1,071 | 1,676 | 156.5 |
% |
|||||||||||
|
Credit cards |
1,192 | 1,765 | (573 | ) | (32.5 |
%) |
||||||||||
|
Increase in cash surrender value life insurance |
1,658 | 1,453 | 205 | 14.1 |
% |
|||||||||||
|
Other operating income |
958 | 469 | 489 | 104.3 |
% |
|||||||||||
|
Total noninterest income |
$ | 8,463 | $ | 6,674 | $ | 1,789 | 26.8 |
% |
||||||||
|
Noninterest expense: |
||||||||||||||||
|
Salaries and employee benefits |
$ | 15,543 | $ | 15,658 | $ | (115 | ) | (0.7 |
%) |
|||||||
|
Equipment and occupancy |
2,654 | 2,400 | 254 | 10.6 |
% |
|||||||||||
|
Third party processing and other services |
3,416 | 3,457 | (41 | ) | (1.2 |
%) |
||||||||||
|
Professional services |
923 | 948 | (25 | ) | (2.6 |
%) |
||||||||||
|
FDIC and other regulatory assessments |
1,582 | 1,332 | 250 | 18.8 |
% |
|||||||||||
|
Other real estate owned |
157 | 601 | (444 | ) | (73.9 |
%) |
||||||||||
|
Other operating expense |
4,639 | 3,524 | 1,115 | 31.6 |
% |
|||||||||||
|
Total noninterest expense |
$ | 28,914 | $ | 27,920 | $ | 994 | 3.6 |
% |
||||||||
Income Tax Expense
Income tax expense was $13.0 million for the three months ended March 31, 2021 versus $8.0 million for the same period in 2020. Our effective tax rate for the three months ended March 31, 2021 was 20.18%, compared to 18.76% for the corresponding period in 2020. We recognized excess tax benefits as a credit to our income tax expense from the exercise of stock options and vesting of restricted stock of $1.6 million in the first quarter of 2021, compared to $1.1 million in the first quarter of 2020. Our primary permanent differences are related to tax-exempt income on securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance.
We own real estate investment trusts for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank. The trusts are wholly-owned subsidiaries of a trust holding company, which in turn is an indirect wholly-owned subsidiary of the Bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities. They pay their net earnings, in the form of dividends, to the Bank, which receives a deduction for state income taxes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Like all financial institutions, we are subject to market risk from changes in interest rates. Interest rate risk is inherent in the balance sheet due to the mismatch between the maturities of rate-sensitive assets and rate-sensitive liabilities. If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities is greater than the level of rate-sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short-term rates may be rising while longer-term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.
To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall or remain the same. Our asset-liability committee (“ALCO”) develops its view of future rate trends and strives to manage rate risk within a targeted range by monitoring economic indicators, examining the views of economists and other experts, and understanding the current risks that our balance sheet is exposed to. Our annual budget reflects the anticipated rate environment for the next 12 months.
The ALCO employs modeling techniques such as net interest income simulations and economic value of equity simulations to determine what amount of the Bank’s net interest income is at risk given different movements in market interest rates. Simulations assume gradual and instantaneous (shocks) movements in market interest rates of up and down 100, 200, 300 and 400 basis points, when practicable. A set of Benchmark and optional scenarios are ran and results are compared to base model results to measure sensitivity to movements in market interest rates. The ALCO establishes limits for the amount of negative change in net interest margin in the first year, second year and two-year cumulative time horizon. Current policy limits for the 100 and 200 basis point scenarios in the first and second year is -10% and -15%, respectively, and for the two-year cumulative is -15%. The ALCO conducts a quarterly analysis of the rate sensitivity position, reviews established limits, and reports its results to our board of directors. As of March 31, 2021, there have been no significant changes to our sensitivity to changes in interest rates since December 31, 2020. However, market disruptions brought about by the COVID-19 pandemic may adversely affect our sensitivity to market interest rates. We could experience an increase in the cost of funding our balance sheet. We could also experience increased pricing competition for our existing loans or future borrower prospects, which could decrease rates earned on our earning assets.
CEO and CFO Certification.
Appearing as exhibits to this report are Certifications of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”). The Certifications are required to be made by Rule 13a-14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This item contains the information about the evaluation that is referred to in the Certifications, and the information set forth below in this Item 4 should be read in conjunction with the Certifications for a more complete understanding of the Certifications.
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We conducted an evaluation (the “Evaluation”) of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and CFO, as of March 31, 2021. Based upon the Evaluation, our CEO and CFO have concluded that, as of March 31, 2021, our disclosure controls and procedures are effective to ensure that material information relating to ServisFirst Bancshares, Inc. and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time we may be a party to various legal proceedings arising in the ordinary course of business. Management does not believe the Company or the Bank is currently a party to any material legal proceedings except as disclosed in Item 3, “Legal Proceedings”, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and there has been no material change in any matter described therein.
Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
(a) Exhibit:
*denotes compensatory plan or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SERVISFIRST BANCSHARES, INC. | |||
| Date: April 29, 2021 | By | /s/ Thomas A. Broughton III | |
| Thomas A. Broughton III | |||
| President and Chief Executive Officer | |||
| Date: April 29, 2021 | By | /s/ William M. Foshee | |
| William M. Foshee | |||
| Chief Financial Officer | |||