ServisFirst Bancshares, Inc. 10-Q

sfbs20210930_10q.htm   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 SEPTEMBER 30, 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   (I.R.S. Employer Incorporation or Organization) 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 each exchange on which registered Common stock, par value $.001 per share SFBS New York Stock Exchange   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 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 October 25, 2021 Common stock, $.001 par value  54,211,147                                               TABLE OF CONTENTS   PART I. FINANCIAL INFORMATION 4 Item 1. Financial Statements 4 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 3. Quantitative and Qualitative Disclosures about Market Risk 44 Item 4. Controls and Procedures 45       PART II. OTHER INFORMATION 45 Item 1. Legal Proceedings 45 Item 1A. Risk Factors 45 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 46 Item 3. Defaults Upon Senior Securities 46 Item 4. Mine Safety Disclosures 46 Item 5. Other Information 46 Item 6. Exhibits 47   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                         3       PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS   SERVISFIRST BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)       September 30, 2021     December 31, 2020       (Unaudited)       (1)   ASSETS                 Cash and due from banks   $ 102,313     $ 93,655   Interest-bearing balances due from depository institutions     4,297,473       2,115,985   Federal funds sold     44,700       1,771   Cash and cash equivalents     4,444,486       2,211,411   Available for sale debt securities, at fair value     723,324       886,688   Held to maturity debt securities (fair value of $261,276 at September 30, 2021 and $250 at December 31, 2020)     261,276       250   Mortgage loans held for sale     578       14,425   Loans     8,812,811       8,465,688   Less allowance for credit losses     ( 108,950 )     ( 87,942 ) Loans, net     8,703,861       8,377,746   Premises and equipment, net     60,953       54,969   Accrued interest and dividends receivable     33,815       36,841   Deferred tax assets     31,533       31,072   Other real estate owned and repossessed assets     2,068       6,497   Bank owned life insurance contracts     281,399       276,387   Goodwill and other identifiable intangible assets     13,705       13,908   Other assets     45,230       22,460   Total assets   $ 14,602,228     $ 11,932,654   LIABILITIES AND STOCKHOLDERS' EQUITY                 Liabilities:                 Deposits:                 Noninterest-bearing   $ 4,366,654     $ 2,788,772   Interest-bearing     7,712,016       7,186,952   Total deposits     12,078,670       9,975,724   Federal funds purchased     1,286,756       851,545   Other borrowings     64,701       64,748   Accrued interest payable     12,697       12,321   Other liabilities     45,111       35,464   Total liabilities     13,487,935       10,939,802   Stockholders' equity:                 Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at September 30, 2021 and December 31, 2020     -       -   Common stock, par value $0.001 per share; 100,000,000 shares authorized; 54,207,147 shares issued and outstanding at September 30, 2021, and 53,943,751 shares issued and outstanding at December 31, 2020     54       54   Additional paid-in capital     225,648       223,856   Retained earnings     869,731       748,224   Accumulated other comprehensive income     18,360       20,218   Total stockholders' equity attributable to ServisFirst Bancshares, Inc.     1,113,793       992,352   Noncontrolling interest     500       500   Total stockholders' equity     1,114,293       992,852   Total liabilities and stockholders' equity   $ 14,602,228     $ 11,932,654     (1) Derived from audited financial statements.   See Notes to Consolidated Financial Statements.       4       SERVISFIRST BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020   Interest income:                                 Interest and fees on loans   $ 96,119     $ 89,564     $ 285,373     $ 268,332   Taxable securities     6,544       5,858       18,666       16,104   Nontaxable securities     62       166       255       610   Federal funds sold     4       16       11       327   Other interest and dividends     1,507       506       3,046       2,584   Total interest income     104,236       96,110       307,351       287,957   Interest expense:                                 Deposits     6,581       9,876       20,298       37,377   Borrowed funds     1,335       1,152       3,700       4,624   Total interest expense     7,916       11,028       23,998       42,001   Net interest income     96,320       85,082       283,353       245,956   Provision for credit losses     5,963       12,284       23,066       36,151   Net interest income after provision for credit losses     90,357       72,798       260,287       209,805   Noninterest income:                                 Service charges on deposit accounts     1,727       1,818       5,542       5,557   Mortgage banking     1,423       2,519       6,869       5,697   Credit card income     2,043       1,840       5,147       5,003   Securities gains     -       -       620       -   Increase in cash surrender value life insurance     1,671       1,733       5,012       4,650   Other operating income     1,162       262       2,897       972   Total noninterest income     8,026       8,172       26,087       21,879   Noninterest expenses:                                 Salaries and employee benefits     17,995       14,994       50,425       46,444   Equipment and occupancy expense     2,996       2,556       8,494       7,390   Third party processing and other services     4,144       3,281       11,506       10,360   Professional services     948       955       2,978       2,994   FDIC and other regulatory assessments     1,630       1,061       4,637       2,988   OREO expense     123       119       820       2,023   Other operating expenses     6,541       3,607       15,740       11,110   Total noninterest expenses     34,377       26,573       94,600       83,309   Income before income taxes     64,006       54,397       191,774       148,375   Provision for income taxes     11,507       11,035       37,793       29,787   Net income     52,499       43,362       153,981       118,588   Preferred stock dividends     -       -       31       31   Net income available to common stockholders   $ 52,499     $ 43,362     $ 153,950     $ 118,557                                     Basic earnings per common share   $ 0.97     $ 0.80     $ 2.84     $ 2.20   Diluted earnings per common share   $ 0.96     $ 0.80     $ 2.83     $ 2.19     See Notes to Consolidated Financial Statements.     5       SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020   Net income   $ 52,499     $ 43,362     $ 153,981     $ 118,588   Other comprehensive (loss) income, net of tax:                                 Unrealized net holding (loss) gains arising during period from securities available for sale, net of tax of $(1,798) and $(2,097) for the three and nine months ended September 30, 2021, respectively, and net of tax of $58 and $3,477 for the three and nine months ended September 30, 2020, respectively     ( 6,764 )     220       ( 7,916 )     13,082   Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax of $36 for the three and nine months ended September 30, 2021     ( 136 )     -       ( 136 )     -   Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity net of tax of $1,480 for the three and nine months ended September 30, 2021, respectively     5,705       -       5,705       -   Reclassification adjustment for net gains on call of securities, net of tax of $130 for the nine months ended September 30, 2021     -       -       490       -   Other comprehensive income (loss), net of tax     ( 1,195 )     220       ( 1,858 )     13,082   Comprehensive income   $ 51,304     $ 43,582     $ 152,123     $ 131,670     See Notes to Consolidated Financial Statements.                     6       SERVISFIRST BANCSHARES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except share amounts)(Unaudited)       Three Months Ended September 30,       Common Shares     Preferred Stock     Common Stock     Additional Paid-in Capital     Retained Earnings     Accumulated Other Comprehensive Income (Loss)     Noncontrolling interest     Total Stockholders' Equity   Balance, July 1, 2020     53,874,276     $ -     $ 54     $ 222,437     $ 672,984     $ 18,611     $ 502     $ 914,588   Common dividends declared, $0.175 per share     -       -       -       -       ( 9,422 )     -       -       ( 9,422 ) Issue restricted shares pursuant to stock incentives, net of forfeitures     3,500       -       -       -       -       -       -       -   Issue shares of common stock upon exercise of stock options     37,469       -       -       728       -       -       -       728   5,831 shares of common stock withheld in net settlement upon exercise of stock options     -       -       -       ( 225 )     -       -       -       ( 225 ) Stock-based compensation expense     -       -       -       340       -       -       -       340   Other comprehensive income, net of tax     -       -       -       -       -       220       -       220   Net income     -       -       -       -       43,362       -       ( 2 )     43,360   Balance, September 30, 2020     53,915,245     $ -     $ 54     $ 223,280     $ 706,924     $ 18,831     $ 500     $ 949,589                                                                     Balance, July 1, 2021     54,201,204     $ -     $ 54     $ 225,127     $ 828,048     $ 19,555     $ 500     $ 1,073,284   Common dividends declared, $0.20 per share     -       -       -       -       ( 10,842 )     -       -       ( 10,842 ) Dividends on nonvested restricted stock recognized as compensation expense     -       -       -       -       26       -       -       26   Issue restricted shares pursuant to stock incentives, net of forfeitures     346       -       -       -       -       -       -       -   Issue shares of common stock upon exercise of stock options     5,597       -       -       159       -       -       -       159   1,903 shares of common stock withheld in net settlement upon exercise of stock options     -       -       -       ( 99 )     -       -       -       ( 99 ) Stock-based compensation expense     -       -       -       461       -       -       -       461   Other comprehensive loss, net of tax     -       -       -       -       -       ( 1,195 )     -       ( 1,195 ) Net income     -       -       -       -       52,499       -       -       52,499   Balance, September 30, 2021     54,207,147     $ -     $ 54     $ 225,648     $ 869,731     $ 18,360     $ 500     $ 1,114,293           7         Nine Months Ended September 30,       Common Shares     Preferred Stock     Common Stock     Additional Paid-in Capital     Retained Earnings     Accumulated Other Comprehensive Income (Loss)     Noncontrolling interest     Total Stockholders' Equity   Balance, January 1, 2020     53,623,740     $ -     $ 54     $ 219,766     $ 616,611     $ 5,749     $ 502     $ 842,682   Common dividends paid, $0.35 per share     -       -       -       -       ( 18,822 )     -       -       ( 18,822 ) Common dividends declared, $0.175 per share     -       -       -       -       ( 9,422 )     -       -       ( 9,422 ) Preferred dividends paid     -       -       -       -       ( 31 )     -       -       ( 31 ) Issue restricted shares pursuant to stock incentives, net of forfeitures     29,067       -       -       -       -       -       -       -   Issue shares of common stock upon exercise of stock options     262,438       -       -       3,172       -       -       -       3,172   16,862 shares of common stock withheld in net settlement upon exercise of stock options     -       -       -       ( 627 )     -       -       -       ( 627 ) Stock-based compensation expense     -       -       -       969       -       -       -       969   Other comprehensive income, net of tax     -       -       -       -       -       13,082       -       13,082   Net income     -       -       -       -       118,588       -       ( 2 )     118,586   Balance, September 30, 2020     53,915,245     $ -     $ 54     $ 223,280     $ 706,924     $ 18,831     $ 500     $ 949,589                                                                     Balance, January 1, 2021     53,943,751     $ -     $ 54     $ 223,856     $ 748,224     $ 20,218     $ 500     $ 992,852   Common dividends paid, $0.40 per share     -       -       -       -       ( 21,678 )     -       -       ( 21,678 ) Common dividends declared, $0.20 per share     -       -       -       -       ( 10,842 )     -       -       ( 10,842 ) Preferred dividends paid     -       -       -       -       ( 31 )     -       -       ( 31 ) Dividends on nonvested restricted stock recognized as compensation expense     -       -       -       -       77       -       -       77   Issue restricted shares pursuant to stock incentives, net of forfeitures     57,570       -       -       -       -       -       -       -   Issue shares of common stock upon exercise of stock options     205,826       -       -       3,219       -       -       -       3,219   51,374 shares of common stock withheld in net settlement upon exercise of stock options     -       -       -       ( 2,737 )     -       -       -       ( 2,737 ) Stock-based compensation expense     -       -       -       1,310       -       -       -       1,310   Other comprehensive loss, net of tax     -       -       -       -       -       ( 1,858 )     -       ( 1,858 ) Net income     -       -       -       -       153,981       -       -       153,981   Balance, September 30, 2021     54,207,147     $ -     $ 54     $ 225,648     $ 869,731     $ 18,360     $ 500     $ 1,114,293     See Notes to Consolidated Financial Statements.     8       SERVISFIRST BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)       Nine Months Ended September 30,       2021     2020   OPERATING ACTIVITIES                 Net income   $ 153,981     $ 118,588   Adjustments to reconcile net income to net cash provided by                 Deferred tax (benefit)     12       ( 4,675 ) Provision for credit losses     23,066       36,151   Depreciation     3,074       2,788   Accretion on acquired loans     -       ( 100 ) Amortization of core deposit intangible     203       203   Net amortization of debt securities available for sale     7,456       3,834   Decrease (increase) in accrued interest and dividends receivable     3,026       ( 10,345 ) Stock-based compensation expense     1,310       969   Increase (decrease) in accrued interest payable     376       ( 19 ) Proceeds from sale of mortgage loans held for sale     221,548       194,558   Originations of mortgage loans held for sale     ( 200,832 )     ( 204,021 ) Gain on call of securities available for sale     ( 620 )     -   Gain on sale of mortgage loans held for sale     ( 6,869 )     ( 5,697 ) Net loss (gain) on sale of other real estate owned and repossessed assets     282       ( 8 ) Write down of other real estate owned and repossessed assets     876       1,836   Operating losses of tax credit partnerships     4       4   Increase in cash surrender value of life insurance contracts     ( 5,012 )     ( 4,650 ) Net change in other assets, liabilities, and other operating activities     ( 6,395 )     ( 11,916 ) Net cash provided by operating activities     195,486       117,500   INVESTMENT ACTIVITIES                 Purchase of debt securities available for sale     ( 298,684 )     ( 288,453 ) Proceeds from maturities, calls and paydowns of debt securities available for sale     188,559       148,206   Investment in tax credit partnership and SBIC     ( 10,546 )     ( 636 ) Increase in loans     ( 350,600 )     ( 1,269,704 ) Purchase of premises and equipment     ( 9,058 )     ( 1,565 ) Purchase of bank owned life insurance contracts     -       ( 40,000 ) Proceeds from sale of other real estate owned and repossessed assets     911       1,780   Net cash used in investing activities     ( 479,418 )     ( 1,450,372 ) FINANCING ACTIVITIES                 Net increase in non-interest-bearing deposits     1,577,882       1,012,935   Net increase in interest-bearing deposits     525,064       1,130,415   Net increase in federal funds purchased     435,211       198,601   Proceeds from exercise of stock options     3,219       3,172   Taxes paid in net settlement of tax obligation upon exercise of stock options     ( 2,737 )     ( 627 ) Dividends paid on common stock     ( 21,601 )     ( 18,822 ) Dividends paid on preferred stock     ( 31 )     ( 31 ) Net cash provided by financing activities     2,517,007       2,325,643   Net increase in cash and cash equivalents     2,233,075       992,771   Cash and cash equivalents at beginning of period     2,211,411       630,600   Cash and cash equivalents at end of period   $ 4,444,486     $ 1,623,371   SUPPLEMENTAL DISCLOSURE                 Cash paid/(received) for:                 Interest   $ 23,622     $ 42,020   Income taxes     18,148       38,593   Income tax refund     ( 3 )     ( 47 ) NONCASH TRANSACTIONS                 Other real estate acquired in settlement of loans   $ 1,419     $ 2,406   Internally financed sale of other real estate owned     3,779       -   Available-for-sale securities transferred to held-to-maturity portfolio     261,026       -   Dividends declared     10,842       9,422     See Notes to Consolidated Financial Statements.     9     SERVISFIRST BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 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 recurring nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) and its consolidated subsidiaries, including ServisFirst Bank (the “Bank”), 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.   Debt   Securities   Debt securities are classified based on the Company’s intention on the date of purchase. All debt securities classified as available-for-sale are recorded at fair value with any unrealized gains and losses reported in accumulated other comprehensive income (loss), net of the deferred income tax effects. Securities that the Company has both the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at historical cost and adjusted for amortization of premiums and accretion of discounts.   Interest and dividends on securities, including amortization of premiums and accretion of discounts calculated under the effective interest method, are included in interest income.  For certain securities, amortization of premiums and accretion of discounts is computed based on the anticipated life of the security which may be shorter than the stated life of the security.  Realized gains and losses from the sale of securities are determined using the specific identification method and are recorded on the trade date of the sale.   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 Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)  2016 - 13 ,   Financial Instruments-Credit Losses (Topic   326 ): Measurement of Credit Losses on Financial Instruments (“CECL”). As described below under “Note 9 - Recently Adopted Accounting Pronouncements ” , the Company decided to delay its adoption of ASU 2016 - 13, as provided by the CARES Act, until December 31, 2020, with an effective retrospective implementation date of January 1, 2020. Prior to January 1, 2020, as well as for quarterly periods in 2020 which were not restated, the allowance for credit losses (“ACL”) was calculated using an incurred losses methodology.   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.”     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 available to common stockholders 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.       Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020       (In Thousands, Except Shares and Per Share Data)   Earnings per common share                                 Weighted average common shares outstanding     54,205,565       53,893,753       54,143,324       53,817,928   Net income available to common stockholders   $ 52,499     $ 43,362     $ 153,950     $ 118,557   Basic earnings per common share   $ 0.97     $ 0.80     $ 2.84     $ 2.20   Weighted average common shares outstanding     54,205,565       53,893,753       54,143,324       53,817,928   Dilutive effects of assumed conversions and exercise of stock options and warrants     272,175       339,212       296,680       380,494   Weighted average common and dilutive potential common shares outstanding     54,477,740       54,232,965       54,440,004       54,198,422   Net income available to common stockholders   $ 52,499     $ 43,362     $ 153,950     $ 118,557   Diluted earnings per common share   $ 0.96     $ 0.80     $ 2.83     $ 2.19       10       NOTE 4 - SECURITIES   The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2021 and December 31, 2020 are summarized as follows:               Gross     Gross               Amortized     Unrealized     Unrealized     Market       Cost     Gain     Loss     Value   September 30, 2021   (In Thousands)   Securities Available for Sale                                 U.S. Treasury securities   $ 14,001     $ 178     $ -     $ 14,179   Government agencies     9,023       61       -       9,084   Mortgage-backed securities     294,887       4,693       ( 1,032 )     298,548   State and municipal securities     21,414       221       ( 38 )     21,597   Corporate debt     367,861       12,580       ( 525 )     379,916   Total   $ 707,186     $ 17,733     $ ( 1,595 )   $ 723,324   Securities Held to Maturity                                 Mortgage-backed securities   $ 261,026     $ -     $ -     $ 261,026   State and municipal securities     250       -       -       250   Total   $ 261,276     $ -     $ -     $ 261,276                                     December 31, 2020                                 Securities Available for Sale                                 U.S. Treasury securities   $ 13,993     $ 364     $ -     $ 14,357   Government agencies     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   Securities Held to Maturity                                 Mortgage-backed securities   $ -     $ -     $ -     $ -   State and municipal securities     250       -       -       250   Total   $ 250     $ -     $ -     $ 250     During the third quarter of 2021, the company transferred, at fair value, $ 261.3 million of mortgage-backed securities from the available-for-sale portfolio to the held-to-maturity portfolio. The related unrealized after-tax gains of $ 5.6  million remained in accumulated other comprehensive income and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities. No gains or losses were recognized at the time of the transfer.   The amortized cost and fair value of debt securities as of September 30, 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.     11         September 30, 2021     December 31, 2020       Amortized Cost     Fair Value     Amortized Cost     Fair Value       (In thousands)   Debt securities available for sale                                 Due within one year   $ 35,755     $ 36,142     $ 30,797     $ 31,060   Due from one to five years     41,797       42,745       59,828       61,481   Due from five to ten years     331,653       342,607       288,002       293,886   Due after ten years     3,094       3,282       5,122       5,152   Mortgage-backed securities     294,887       298,548       477,407       495,109       $ 707,186     $ 723,324     $ 861,156     $ 886,688                                     Debt securities held to maturity                                 Due from one to five years   $ 250     $ 250     $ 250     $ 250   Due from five to ten years     -       -       -       -   Due after ten years     -       -       -       -   Mortgage-backed securities     261,026       261,026       -       -       $ 261,276     $ 261,276     $ 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 debt securities pledged to secure public funds on deposit and for other purposes as required by law as of September 30, 2021 and December 31, 2020 was $ 536.0 million and $ 477.6 million, respectively.   The following table identifies, as of September 30, 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)   September 30, 2021                                                 Mortgage-backed securities   $ ( 1,537 )   $ 194,922     $ -     $ -     $ ( 1,537 )   $ 194,922   State and municipal securities     ( 38 )     3,954       -       -       ( 38 )     3,954   Corporate debt     ( 525 )     30,975       -       -       ( 525 )     30,975   Total   $ ( 2,100 )   $ 229,851     $ -     $ -     $ ( 2,100 )   $ 229,851                                                     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     The following table summarizes information about sales and calls of debt securities held for sale.       Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020       (In Thousands)   Sale and call proceeds   $ 12,735     $ 2,001     $ 35,532     $ 12,947   Gross realized gains   $ -     $ -     $ 620     $ -   Net realized gain    $ -     $ -     $ 620     $ -     At September 30, 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. 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.  Furthermore, the Company performed an analysis that determined that the following securities have a zero expected credit loss: U.S. Treasury Securities; and, Agency-Backed Securities, including securities issued by GNMA, FNMA, FHLB, FFCB and SBA.  All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United States Government or one of its agencies.  All debt securities in an unrealized loss position as of September 30, 2021 continue to perform as scheduled and the Company does not believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.   12       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 the 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. The American Rescue Plan Act of 2021, which was signed into law on March 21, 2021, provides additional relief for businesses, states, municipalities and individuals by, among other things, allocating additional funds for the PPP.  Effective May 28, 2021, the PPP was closed to new applications.  The Company funded approximately  7,400 loans for a total amount of $ 1.5  billion for clients under the PPP since April 2020. At September 30, 2021 and December 31, 2020,  unaccreted deferred loan origination fees, net of costs, related to PPP loans totaled $ 11.9 million and $ 17.8  million, respectively. PPP loan origination fees recorded to interest income totaled $ 5.2 million and $ 4.0 million for the  three months ended  September 30, 2021 and 2020, respectively, and totaled $ 22.3 million and $ 6.6 million for the nine months ended September 30, 2021 and 2020, respectively.  PPP loans outstanding totaled $ 387.7 million and $ 900.5 million at September 30, 2021 and December 31, 2020, respectively. PPP loans are included within the commercial, financial and agricultural loan category in the table below.    The following table details the Company’s loans at September 30, 2021 and December 31, 2020:       September 30,     December 31,       2021     2020       (Dollars In Thousands)   Commercial, financial and agricultural   $ 2,927,845     $ 3,295,900   Real estate - construction     887,938       593,614   Real estate - mortgage:                 Owner-occupied commercial     1,809,840       1,693,428   1-4 family mortgage     765,102       711,692   Other mortgage     2,357,812       2,106,184   Subtotal: Real estate - mortgage     4,932,754       4,511,304   Consumer     64,274       64,870   Total Loans     8,812,811       8,465,688   Less: Allowance for credit losses     ( 108,950 )     ( 87,942 ) Net Loans   $ 8,703,861     $ 8,377,746                     Commercial, financial and agricultural     33.22 %     38.93 % Real estate - construction     10.08 %     7.01 % Real estate - mortgage:                 Owner-occupied commercial     20.54 %     20.00 % 1-4 family mortgage     8.68 %     8.41 % Other mortgage     26.75 %     24.89 % Subtotal: Real estate - mortgage     55.97 %     53.29 % Consumer     0.73 %     0.77 % Total Loans     100.00 %     100.00 %     13       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 loan credit 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 borrower (or guarantors, 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 the Company to sufficient risk to warrant an adverse classification.     ● Substandard – loans that exhibit well-defined weakness or weaknesses that currently jeopardize debt repayment. These loans are characterized by the distinct possibility that the Company 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 September 30, 2021 :                                                       Revolving           September 30, 2021   2021     2020     2019     2018     2017     Prior     Loans     Total       (In Thousands)   Commercial, financial and agricultural                                                                 Pass   $ 743,568     $ 354,601     $ 247,276     $ 152,278     $ 120,995     $ 129,518     $ 1,082,443     $ 2,830,679   Special Mention     1,994       1,381       1,243       -       1,183       761       21,993       28,555   Substandard     133       389       10,356       1,762       1,841       9,203       44,927       68,611   Doubtful     -       -       -       -       -       -       -       -   Total Commercial, financial and agricultural   $ 745,695     $ 356,371     $ 258,875     $ 154,040     $ 124,019     $ 139,482     $ 1,149,363     $ 2,927,845   Real estate - construction                                                                 Pass   $ 358,942     $ 260,450     $ 138,146     $ 18,669     $ 13,538     $ 18,671     $ 69,693     $ 878,109   Special Mention     -       -       7,094       2,500       -       -       -       9,594   Substandard     -       -       -       -       -       235       -       235   Doubtful     -       -       -       -       -       -       -       -   Total Real estate - construction   $ 358,942     $ 260,450     $ 145,240     $ 21,169     $ 13,538     $ 18,906     $ 69,693     $ 887,938   Owner-occupied commercial                                                                 Pass   $ 270,480     $ 364,308     $ 261,258     $ 190,301     $ 173,659     $ 476,757     $ 64,069     $ 1,800,832   Special Mention     -       -       -       780       289       2,886       -       3,955   Substandard     -       -       -       -       -       5,053       -       5,053   Doubtful     -       -       -       -       -       -       -       -   Total Owner-occupied commercial   $ 270,480     $ 364,308     $ 261,258     $ 191,081     $ 173,948     $ 484,696     $ 64,069     $ 1,809,840   1-4 family mortgage                                                                 Pass   $ 204,167     $ 131,472     $ 79,542     $ 48,773     $ 39,955     $ 42,073     $ 209,286     $ 755,268   Special Mention     -       852       920       235       165       1,607       3,738       7,517   Substandard     -       150       238       122       232       620       955       2,317   Doubtful     -       -       -       -       -       -       -       -   Total 1-4 family mortgage   $ 204,167     $ 132,474     $ 80,700     $ 49,130     $ 40,352     $ 44,300     $ 213,979     $ 765,102   Other mortgage                                                                 Pass   $ 517,787     $ 451,397     $ 429,536     $ 190,584     $ 307,546     $ 380,299     $ 60,331     $ 2,337,480   Special Mention     -       -       -       -       2,739       4,691       -       7,430   Substandard     -       -       -       4,521       8,381       -       -       12,902   Doubtful     -       -       -       -       -       -       -       -   Total Other mortgage   $ 517,787     $ 451,397     $ 429,536     $ 195,105     $ 318,666     $ 384,990     $ 60,331     $ 2,357,812   Consumer                                                                 Pass   $ 13,736     $ 5,643     $ 3,211     $ 1,073     $ 1,083     $ 3,897     $ 35,605     $ 64,248   Special Mention     -       -       -       -       -       26       -       26   Substandard     -       -       -       -       -       -       -       -   Doubtful     -       -       -       -       -       -       -       -   Total Consumer   $ 13,736     $ 5,643     $ 3,211     $ 1,073     $ 1,083     $ 3,923     $ 35,605     $ 64,274   Total Loans                                                                 Pass   $ 2,108,680     $ 1,567,871     $ 1,158,969     $ 601,678     $ 656,776     $ 1,051,215     $ 1,521,427     $ 8,666,616   Special Mention     1,994       2,233       9,257       3,515       4,376       9,971       25,731       57,077   Substandard     133       539       10,594       6,405       10,454       15,111       45,882       89,118   Doubtful     -       -       -       -       -       -       -       -   Total Loans   $ 2,110,807     $ 1,570,643     $ 1,178,820     $ 611,598     $ 671,606     $ 1,076,297     $ 1,593,040     $ 8,812,811     14     The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2020:                                                       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     15     Loans by performance status as of September 30, 2021 and December 31, 2020 were as follows:   September 30, 2021   Performing     Nonperforming     Total       (In Thousands)   Commercial, financial and agricultural   $ 2,920,843     $ 7,002     $ 2,927,845   Real estate - construction     887,704       234       887,938   Real estate - mortgage:                         Owner-occupied commercial     1,808,779       1,061       1,809,840   1-4 family mortgage     763,639       1,463       765,102   Other mortgage     2,353,121       4,691       2,357,812   Total real estate mortgage     4,925,539       7,215       4,932,754   Consumer     64,254       20       64,274   Total   $ 8,798,340     $ 14,471     $ 8,812,811     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         16     Loans by past due status as of September 30, 2021 and December 31, 2020 were as follows:   September 30, 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   $ 193     $ 77     $ 36     $ 306     $ 6,966     $ 2,920,573     $ 2,927,845     $ 4,233   Real estate - construction     -       -       -       -       234       887,704       887,938       -   Real estate - mortgage:                                                                 Owner-occupied commercial     289       -       -       289       1,061       1,808,490       1,809,840       1,061   1-4 family mortgage     200       622       579       1,401       884       762,817       765,102       368   Other mortgage     -       -       4,691       4,691       -       2,353,121       2,357,812       -   Total real estate - mortgage     489       622       5,270       6,381       1,945       4,924,428       4,932,754       1,429   Consumer     56       51       20       127       -       64,147       64,274       -   Total   $ 738     $ 750     $ 5,326     $ 6,814     $ 9,145     $ 8,796,852     $ 8,812,811     $ 5,662     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 September 30, 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.   17     The Company uses a loss-rate method to estimate expected credit losses for its C&I lines of credit and credit card pools. The C&I 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 and nine months ended September 30, 2021 and September 30, 2020.       Commercial,                                       financial and     Real estate -     Real estate -                       agricultural     construction     mortgage     Consumer     Total       (In Thousands)       Three Months Ended September 30, 2021   Allowance for credit losses:                                         Balance at June 30, 2021   $ 42,433     $ 22,413     $ 38,530     $ 1,294     $ 104,670   Charge-offs     ( 1,541 )     -       ( 208 )     ( 86 )     ( 1,835 ) Recoveries     140       -       4       8       152   Provision     ( 144 )     2,124       3,681       302       5,963   Balance at September 30, 2021   $ 40,888     $ 24,537     $ 42,007     $ 1,518     $ 108,950       18         Three Months Ended September 30, 2020   Allowance for loan losses:                                         Balance at June 30, 2020   $ 47,986     $ 4,531     $ 38,399     $ 591     $ 91,507   Charge-offs     ( 11,146 )     -       ( 200 )     ( 44 )     ( 11,390 ) Recoveries     12       -       12       15       39   Provision     12,421       ( 441 )     304       -       12,284   Balance at September 30, 2020   $ 49,273     $ 4,090     $ 38,515     $ 562     $ 92,440                                                 Nine Months Ended September 30, 2021   Allowance for credit losses:                                         Balance at December 31, 2020   $ 36,370     $ 16,057     $ 33,722     $ 1,793     $ 87,942   Charge-offs     ( 2,168 )     -       ( 279 )     ( 227 )     ( 2,674 ) Recoveries     464       52       68       32       616   Provision     6,222       8,428       8,496       ( 80 )     23,066   Balance at September 30, 2021   $ 40,888     $ 24,537     $ 42,007     $ 1,518     $ 108,950                                                 Nine Months Ended September 30, 2020   Allowance for loan losses:                                         Balance at December 31, 2019   $ 43,666     $ 2,768     $ 29,653     $ 497     $ 76,584   Charge-offs     ( 15,144 )     ( 830 )     ( 4,397 )     ( 165 )     ( 20,536 ) Recoveries     158       2       26       55       241   Provision     20,593       2,150       13,233       175       36,151   Balance at September 30, 2020   $ 49,273     $ 4,090     $ 38,515     $ 562     $ 92,440     The following table details the allowance for loan losses and recorded investment in loans by impairment evaluation method as of  September 30, 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   $ 9,204     $ 201     $ 195     $ -     $ 9,600   Collectively Evaluated for Impairment     40,069       3,889       38,320       562       82,840                                             Loans:                                         Ending Balance   $ 3,466,189     $ 530,919     $ 4,453,612     $ 57,834     $ 8,508,554   Individually Evaluated for Impairment     73,800       587       19,376       -       93,763   Collectively Evaluated for Impairment     3,392,389       530,332       4,434,236       57,834       8,414,791     We maintain an allowance for credit losses on unfunded 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 $ 3.0 million at September 30, 2021 and $ 2.2 million at December 31, 2020.  The provision expense for unfunded commitments was reduced by $ 300,000 for the three months ended September 30, 2021 and was $ 800,000 for the nine months ended September 30, 2021. The provision expense for unfunded commitments was $ 0 for both corresponding periods in 2020.   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.    19     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   September 30, 2021   Real Estate     Receivable     Equipment     Other     Total     Allocation       (In Thousands)   Commercial, financial and agricultural   $ 16,299     $ 21,941     $ 16,430     $ 5,275     $ 59,945     $ 7,613   Real estate - construction     235       -       -       -       235       14   Real estate - mortgage:                                                 Owner-occupied commercial     1,059       1,002       -       -       2,061       557   1-4 family mortgage     1,804       -       -       24       1,828       66   Other mortgage     12,901       -       -       -       12,901       -   Total real estate - mortgage     15,764       1,002       -       24       16,790       623   Consumer     -       -       -       -       -       -   Total   $ 32,298     $ 22,943     $ 16,430     $ 5,299     $ 76,970     $ 8,250                 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, an 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 September 30, 2021, there were 18 loans outstanding totaling $ 2.7 million that have payment deferrals in connection with the COVID- 19 relief provided by the CARES Act. All of these remaining deferrals are  principal and interest deferrals. The CARES Act precluded all of the Company’s COVID- 19 loan modifications from being classified as a TDR as of September 30, 2021.   Troubled Debt Restructurings (“TDR”) at September 30, 2021, December 31, 2020 and September 30, 2020 totaled $‐‐2.9 million, $ 1.5 million and $ 2.7 million, respectively. The portion of those TDRs accruing interest at September 30, 2021, December 31, 2020 and September 30, 2020 totaled $ 437,000 , $ 818,000 and $ 1.8 million, respectively. The following tables present loans modified in a TDR during three and nine months ended September 30, 2021 and September 30, 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.   20         Three Months Ended September 30, 2021     Nine Months Ended September 30, 2021               Pre-     Post-             Pre-     Post-               Modification     Modification             Modification     Modification               Outstanding     Outstanding             Outstanding     Outstanding       Number of     Recorded     Recorded     Number of     Recorded     Recorded       Contracts     Investment     Investment     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 September 30, 2020     Nine Months Ended September 30, 2020               Pre-     Post-             Pre-     Post-               Modification     Modification             Modification     Modification               Outstanding     Outstanding             Outstanding     Outstanding       Number of     Recorded     Recorded     Number of     Recorded     Recorded       Contracts     Investment     Investment     Contracts     Investment     Investment       (In Thousands)   Troubled Debt Restructurings                                                 Commercial, financial and agricultural     1     $ 214     $ 214       2     $ 564     $ 564   Real estate - construction     1       357       357       1       357       357   Real estate - mortgage:                                                 Owner-occupied commercial     1       611       611       1       611       611   1-4 family mortgage     -       -       -       -       -       -   Other mortgage     -       -       -       -       -       -   Total real estate mortgage     1       611       611       1       611       611   Consumer     -       -       -       -       -       -         3     $ 1,182     $ 1,182       4     $ 1,532     $ 1,532     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 and nine months ended  September 30, 2021 and September 30, 2020, respectively. 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 10.2 years. At September 30, 2021, the Company had lease right-of-use assets and lease liabilities totaling $ 18.8 million and $ 19.4 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 Sheets.   Maturities of operating lease liabilities as of September 30, 2021 are as follows:       September 30, 2021       (In Thousands)   2021 (remaining)   $ 991   2022     4,013   2023     3,520   2024     2,566   2025     2,481   thereafter     7,411   Total lease payments     21,308   Less: imputed interest     ( 1,455 ) Present value of operating lease liabilities   $ 19,424       As of September 30, 2021, the weighted average remaining term of operating leases is 6.9 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.47 %.   21     Operating cash flows related to leases were $ 967,000 and $ 2.5 million for the three and nine months ended September 30, 2021, respectively, compared to $ 855,000 and $ 2.6 million for the three and nine months ended September 30, 2020, respectively.   Lease costs during the three and nine months ended September 30, 2021 and September 30, 2020 were as follows (in thousands):       Three Months Ended September 30,       2021     2020   Operating lease cost   $ 1,048     $ 876   Short-term lease cost     -       13   Variable lease cost     148       77   Sublease income     ( 24 )     ( 25 ) Net lease cost   $ 1,172     $ 941         Nine Months Ended September 30,       2021     2020   Operating lease cost   $ 2,960     $ 2,623   Short-term lease cost     -       45   Variable lease cost     346       165   Sublease income     ( 86 )     ( 70 ) Net lease cost   $ 3,220     $ 2,763       NOTE 7 - EMPLOYEE AND DIRECTOR BENEFITS   Stock Options   The Company has a stock-based compensation plan as described below. The compensation cost that has been charged to earnings for the plan was $ 461,000 and $ 1.3 million for the three and nine months ended September 30, 2021 and $ 340,000 and $ 969,000 for the three and nine months ended September 30, 2020.   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, Performance Shares or Performance Units. The plan allows for the grant of incentive stock options and non-qualified stock options, and option awards are granted with an exercise price equal to the market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plan is ten years.   The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatilities of the Company’s common stock. 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 nine months ended September 30, 2021 was $ 12.73 . There were  no  grants of stock options during the  nine  months ended  September 30, 2020 .   22     The following table summarizes stock option activity during the nine months ended September 30, 2021 and September 30, 2020:                       Weighted                       Weighted     Average                       Average     Remaining     Aggregate               Exercise     Contractual     Intrinsic       Shares     Price     Term (years)     Value                               (In Thousands)   Nine Months Ended September 30, 2021:                                 Outstanding at January 1, 2021     640,950     $ 18.14       4.6     $ 16,981   Granted     500       32.60       7.7       23   Exercised     ( 257,200 )     12.46       3.2       16,805   Forfeited     ( 9,000 )     16.57       2.1       256   Outstanding at September 30, 2021     375,250     $ 19.56       4.1     $ 22,438                                     Exercisable at September 30, 2021     281,000     $ 12.79       3.0     $ 18,565                                     Nine Months Ended September 30, 2020:                                 Outstanding at January 1, 2020     965,248     $ 15.19       4.9     $ 21,911   Granted     -       -       -       -   Exercised     ( 279,300 )     11.36       3.2       6,330   Forfeited     ( 18,000 )     30.79       6.4       58   Outstanding at September 30, 2020     667,948     $ 16.37       4.5     $ 11,720                                     Exercisable at September 30, 2020     209,200     $ 12.41       3.2     $ 4,425     As of September 30, 2021, there was $ 467,000 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 1.7 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 September 30, 2021, there was $ 3.5 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 2.4 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   Nine Months Ended September 30, 2021:                                 Non-vested at January 1, 2021     84,307     $ 34.92       -     $ -   Granted     69,295       48.92       12,437       37.05   Vested     ( 13,024 )     28.44       -       -   Forfeited     ( 11,725 )     39.59       -       -   Non-vested at September 30, 2021     128,853     $ 42.68       12,437     $ 37.05                                     Nine Months Ended September 30, 2020:                                 Non-vested at January 1, 2020     71,290     $ 31.53       -     $ -   Granted     29,067       33.20       -       -   Vested     ( 19,928 )     23.64       -       -   Forfeited     -       -       -       -   Non-vested at September 30, 2020     80,429     $ 34.09       -     $ -       23       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 September 30, 2021 the interest rate cap had a fair value of $ 314,000 and remaining term of 1.6 years.   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 September 30, 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 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.   In August 2021, the FASB issued ASU No. 2021 - 06   Presentation of Financial Statements (Topic 205 ), Financial Services — Depository and Lending (Topic 942 ), and Financial Services — Investment Companies (Topic 946 ): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33 - 10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33 - 10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.  This ASU amends and adds various SEC paragraphs to the codification pursuant to the issuance of SEC Final Rule Releases No. 33 - 10786 and No. 33 - 10835 issued to improve disclosure rules. The ASU is effective upon issuance. The adoption of this disclosure guidance did not have a material impact on the Company's consolidated financial statements     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 affected convertible debt instruments outstanding so it does not believe that the update will have an impact on its consolidated financial statements.   In July 2021, the FASB issued ASU 2021 - 05,  “ Leases (Topic 842 ) : Lessors-Certain Leases with Variable Lease Payments ”   which amends guidance so that lessors are no longer required to record a selling loss at lease commencement for a lease with any variable lease payments that do not depend on an index or rate. A lessor would classify such leases as an operating lease rather than a sales-type or direct financing lease. The update is effective for the Company for its fiscal year beginning after December 15, 2021, including interim periods within those years. The Company does not expect adoption of ASU 2021 - 05 to have an impact on its consolidated financial statements.   24       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 observed for the Company’s other similar corporate securities was 4 % as of September 30, 2021.   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 individual 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 September 30, 2021 was 0 % to 60 % and 23.8 %, 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 $ 113,000 and $ 3.4 million during the three and nine months ended September 30, 2021, respectively, and $ 11.2 million and $ 20.0 million during the three and nine months ended September 30, 2020, respectively.   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 September 30, 2021 was 8 % to 25 % and 10 %, 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 and repossessed assets of $ 115,000 and $ 1.1 million was recognized for the three and nine months ended September 30, 2021, respectively, and $ 86,000 and $ 2.5 million for the three and nine months ended September 30, 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.   25     There was one residential real estate loans with a balance of $ 72,000 foreclosed and classified as OREO as of September 30, 2021, compared to no residential real estate loan foreclosure as of December 31, 2020.   One residential real estate loan for $ 150,000 was in the process of being foreclosed as of September 30, 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 September 30, 2021 and December 31, 2020. There were no liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.       Fair Value Measurements at September 30, 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   $ -     $ 14,179     $ -     $ 14,179   Government agencies     -       9,084       -       9,084   Mortgage-backed securities     -       298,548       -       298,548   State and municipal securities     -       21,597       -       21,597   Corporate debt     -       362,898       17,018       379,916   Total available-for-sale debt securities     -       706,306       17,018       723,324   Interest rate cap derivative     -       314       -       314   Total assets at fair value   $ -     $ 706,620     $ 17,018     $ 723,638         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 agencies     -       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       26     The following table presents the Company’s financial assets carried at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020:       Fair Value Measurements at September 30, 2021               Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)     Total   Assets Measured on a Nonrecurring Basis:   (In Thousands)   Loans individually evaluated   $ -     $ -     $ 79,935     $ 79,935   Other real estate owned and repossessed assets     -       -       2,068       2,068   Total assets at fair value   $ -     $ -     $ 82,003     $ 82,003         Fair Value Measurements at December 31, 2020               Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)     Total   Assets Measured on a Nonrecurring Basis:   (In Thousands)   Loans individually evaluated   $ -     $ -     $ 80,815     $ 80,815   Other real estate owned and repossessed assets     -       -       6,497       6,497   Total assets at fair value   $ -     $ -     $ 87,312     $ 87,312     There were no liabilities measured at fair value on a non-recurring basis as of September 30, 2021 and December 31, 2020.   In the case of the investment securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been affected.  The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare.  For the nine months ended September 30, 2021, there were four transfers between Levels 1, 2 or 3.   The table below includes a rollforward of the balance sheet amounts for the three and nine months ended September 30, 2021 and September 30, 2020 ( including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology:       For the Three months ended September 30,     For the Nine months ended September 30,       2021     2020     2021     2020       Available-for-sale Securities     Available-for-sale Securities     Available-for-sale Securities     Available-for-sale Securities       (In Thousands)   Fair value, beginning of period   $ 14,994     $ 6,596     $ -     $ 6,596   Transfers into Level 3     -       -       6,000       -   Total realized gains included in income     -       -       -       -   Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end     24       ( 15 )     518       ( 15 ) Purchases     5,500       -       18,000       -   Transfers out of Level 3     ( 3,500 )     -       ( 7,500 )     -   Fair value, end of period   $ 17,018     $ 6,581     $ 17,018     $ 6,581     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.   27     The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis as of September 30, 2021 and December 31, 2020 were as follows:       September 30, 2021     December 31, 2020       Carrying             Carrying               Amount     Fair Value     Amount     Fair Value       (In Thousands)   Financial Assets:                                 Level 1 inputs:                                 Cash and due from banks   $ 4,399,786     $ 4,399,786     $ 2,209,640     $ 2,209,640                                     Level 2 inputs:                                 Federal funds sold     44,700       44,700       1,771       1,771   Held to maturity debt securities     261,026       261,026       -       -   Mortgage loans held for sale     578       574       14,425       14,497                                     Level 3 inputs:                                 Held to maturity debt securities     250       250       250       250   Loans, net     8,623,926       8,564,829       8,296,931       8,387,718                                     Financial liabilities:                                 Level 2 inputs:                                 Deposits   $ 12,078,670     $ 12,084,052     $ 9,975,724     $ 9,987,665   Federal funds purchased     1,286,756       1,286,756       851,545       851,545   Other borrowings     64,701       65,500       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. This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2021 and September 30, 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 (the “Exchange Act”) 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 as a result of our reclassification as a large financial institution by the FDIC; changes in our loan portfolio and the 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, including, but not limited to, economic stimulus initiatives and the ability of the U.S. Congress to increase the U.S. statutory debt limit as needed; 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-bank financial institutions. 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, our Quarterly Reports on Form 10-Q for fiscal year 2021 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 contained herein. 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 business and personal financial services through 21 full-service banking offices located in Birmingham, Huntsville, Mobile, Montgomery and Dothan, Alabama, Northwest Florida, West Central Florida, Nashville, Tennessee, Atlanta, Georgia, and Charleston, South Carolina. 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.   28     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 of Quarter and Year-to-Date Results   As of September 30, 2021, we had consolidated total assets of $14.60 billion, up $2.67 billion, or 22.4%, from total assets of $11.93 billion at December 31, 2020. Total loans were $8.81 billion at September 30, 2021, up $347.1 million, or 4.1%, from $8.47 billion at December 31, 2020. Total deposits were $12.08 billion at September 30, 2021, up $2.10 billion, or 21.1%, from $9.98 billion at December 31, 2020.   Net income available to common stockholders for the three months ended September 30, 2021 was $52.5 million, up $9.1 million, or 21.0%, from $43.4 million for the three months ended September 30, 2020. Basic and diluted earnings per common share were $0.97 and $0.96 for the three months ended September 30, 2021, compared to $0.80 and $0.80, respectively, for the corresponding period in 2020.   Net income available to common stockholders for the nine months ended September 30, 2021 was $154.0 million, up $35.4 million, or 29.9%, from $118.6 million for the corresponding period in 2020. Basic and diluted earnings per common share were $2.84 and $2.83, respectively, for the nine months ended September 30, 2021, compared to $2.20 and $2.19, respectively, for the corresponding period in 2020.   Critical Accounting Policies   The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. GAAP, 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 and income taxes 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 September 30, 2021, we had $44.7 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 September 30, 2021, we had $4.21 billion in balances at the Federal Reserve, compared to $1.92 billion at December 31, 2020. The increase in balances kept at the Federal Reserve in 2021 result from federal stimulus funds on deposit with us by our customers stemming from the COVID-19 pandemic.   Debt Securities   Debt securities available for sale totaled $723.3 million at September 30, 2021 and $886.7 million at December 31, 2020. Investment securities held to maturity totaled $261.2 million at September 30, 2021 and $250,000 at December 31, 2020. During the third quarter of 2021, we transferred, at fair value, $261.3 million of mortgage-backed securities from the available for sale portfolio to the held to maturity portfolio. The unrealized after-tax gain of $5.6 million associated with these securities remained in accumulated other comprehensive income and will be amortized over their remaining life, offsetting the related amortization of discount on the transferred securities. We had paydowns of $143.9 million on mortgage-backed securities and government agencies, maturities of $44.0 million on municipal bonds, corporate securities and treasury securities, and calls of $35.1 million on U.S. government agencies and municipal securities during the nine months ended September 30, 2021. We recognized a $620,000 gain on the call of a corporate bond during the second quarter of 2021. We purchased $218.7 million in mortgage-backed securities and $80.0 million in corporate securities during the first nine months of 2021. For a tabular presentation of debt securities available for sale and held to maturity at September 30, 2021 and December 31, 2020, see “Note 4 – Securities” in our Notes to Consolidated Financial Statements.   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 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.   29     The Company does not invest in collateralized debt obligations (“CDOs”). At September 30, 2021, we had $379.4 million of bank holding company subordinated notes. If rated, all of these notes were rated BBB or better by Kroll Bond Rating Agency at the time of our investment. 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 at September 30, 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 was $536.0 million and $477.6 million as of September 30, 2021 and December 31, 2020, respectively.   Loans   We had total loans of $8.81 billion at September 30, 2021, an increase of $347.1 million, or 4.1%, compared to $8.47 billion at December 31, 2020. Excluding the impact of PPP loan origination and forgiveness, we grew our loans by $859.9 million, or 11.4% from December 31, 2020 to September 30, 2021. We originated approximately 7,400 PPP loans totaling $1.5 billion during the Covid-19 pandemic. Over 6,300 of these loans had a balance of less than $350,000.   As of September 30, 2021, there are 18 loans outstanding totaling $2.7 million that have payment deferrals in connection with the COVID-19 relief provided by the CARES Act. All of these payment deferrals were principal and interest deferrals. The amount of accrued interest related to payment deferrals provided by the CARES Act on all loans originated to date totaled $4.1 million at September 30, 2021. These deferrals were not considered troubled debt restructurings based on interagency guidance issued in March 2020.   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 the 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 September 30, 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 our Notes to Consolidated Financial Statements.   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.   30     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     As of and for the Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020       (Dollars in thousands)   Total loans outstanding, net of unearned income   $ 8,812,811     $ 8,508,554     $ 8,812,811     $ 8,508,554   Average loans outstanding, net of unearned income   $ 8,680,174     $ 8,365,155     $ 8,613,172     $ 8,021,262   Allowance for credit losses at beginning of period     104,670       -       87,942           Allowance for loan losses at beginning of period     -       91,507       -       76,584   Charge-offs:                                 Commercial, financial and agricultural loans     1,541       11,146       2,168       15,144   Real estate - construction     -       -       -       830   Real estate - mortgage     208       200       279       4,397   Consumer loans     86       44       227       165   Total charge-offs     1,835       11,390       2,674       20,536   Recoveries:                                 Commercial, financial and agricultural loans     140       12       464       158   Real estate - construction     -       -       52       2   Real estate - mortgage     4       12       68       26   Consumer loans     8       15       32       55   Total recoveries     152       39       616       241   Net charge-offs     1,683       11,351       2,058       20,295   Provision for credit losses     5,963       12,284       23,066       36,151   Allowance for credit losses at period end   $ 108,950     $ -     $ 108,950     $ -   Allowance for loan losses at period end   $ -     $ 92,440     $ -     $ 92,440   Allowance for credit losses to period end loans     1.24 %     - %     1.24 %     - % Allowance for loan losses to period end loans     - %     1.09 %     - %     1.09 % Net charge-offs to average loans     0.08 %     0.54 %     0.03 %     0.34 %               Percentage of loans               in each category   September 30, 2021   Amount     to total loans       (In Thousands)   Commercial, financial and agricultural   $ 40,888       33.22 % Real estate - construction     24,537       10.08 % Real estate - mortgage     42,007       55.97 % Consumer     1,518       0.73 % Total   $ 108,950       100.00 %                               Percentage of loans               in each category   December 31, 2020   Amount     to 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 %   31     Nonperforming Assets   Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to $14.5 million at September 30, 2021, compared to $19.0 million at December 31, 2020. Of this total, nonaccrual loans of $9.1 million at September 30, 2021 represented a net decrease of $4.9 million from nonaccrual loans at December 31, 2020. Excluding credit card accounts, there were five loans 90 or more days past due and still accruing totaling $5.3 million at September 30, 2021, compared to one loan totaling $4.9 million at December 31, 2020. Troubled Debt Restructurings (“TDR”) at September 30, 2021 and December 31, 2020 were $2.9 million and $1.4 million, respectively.   OREO and repossessed assets decreased to $2.1 million at September 30, 2021, from $6.5 million at December 31, 2020. The following table summarizes OREO and repossessed asset activity for the nine months ended September 30, 2021 and 2020:       Nine Months Ended September 30,       2021     2020       (In thousands)   Balance at beginning of period   $ 6,497     $ 8,178   Transfers from loans and capitalized expenses     1,419       2,406   Proceeds from sales     (911 )     (1,780 ) Internally financed sales     (3,779 )     -   Write-downs / net gain (loss) on sales     (1,158 )     (1,828 ) Balance at end of period   $ 2,068     $ 6,976     The following table summarizes our nonperforming assets and TDRs at September 30, 2021 and December 31, 2020:       September 30, 2021     December 31, 2020               Number of             Number of       Balance     Loans     Balance     Loans       (Dollar Amounts In Thousands)   Nonaccrual loans:                                 Commercial, financial and agricultural   $ 6,966       23     $ 11,709       22   Real estate - construction     234       1       234       1   Real estate - mortgage:                                 Owner-occupied commercial     1,061       2       1,259       4   1-4 family mortgage     884       9       771       7   Other mortgage     -       -       -       -   Total real estate - mortgage     1,945       11       2,030       11   Consumer     -       -       -       -   Total Nonaccrual loans:   $ 9,145       35     $ 13,973       34                                     90+ days past due and accruing:                                 Commercial, financial and agricultural   $ 36       5     $ 11       2   Real estate - construction     -       -       -       -   Real estate - mortgage:                                 Owner-occupied commercial     -       -       -       -   1-4 family mortgage     579       4       104       1   Other mortgage     4,691       1       4,805       1   Total real estate - mortgage     5,270       5       4,909       2   Consumer     20       17       61       25   Total 90+ days past due and accruing:   $ 5,326       27     $ 4,981       29                                     Total Nonperforming Loans:   $ 14,471       62     $ 18,954       63                                     Plus: Other real estate owned and repossessions     2,068       7       6,497       11   Total Nonperforming Assets   $ 16,539       69     $ 25,451       74                                     Restructured accruing loans:                                 Commercial, financial and agricultural   $ 437       2     $ 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:   $ 437       2     $ 818       3                                     Total Nonperforming assets and restructured accruing loans   $ 16,976       71     $ 26,269       77                                     Ratios:                                 Nonperforming loans to total loans     0.16 %             0.22 %         Nonperforming assets to total loans plus other real estate owned and repossessions     0.19 %             0.30 %         Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions     0.19 %             0.31 %           32     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 if management believes that the collection of interest is not 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 September 30, 2021, the Company carries $4.1 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 were $12.08 billion at September 30, 2021, an increase of $2.10 billion, or 21.1%, over $9.98 billion at December 31, 2020. Increased growth rates during 2020 and 2021 have been the result of PPP lending in which our borrowers have retained portions of their proceeds in the Bank. We believe that these increased deposit balances will be temporary in nature. 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 Balance Sheets and Net Interest Analysis on a Fully Taxable-Equivalent Basis” under the subheading “Net Interest Income.”   The following table summarizes balances of our deposits and the percentage of each type to the total at September 30, 2021 and December 31, 2020:       September 30, 2021     December 31, 2020   Noninterest-bearing demand   $ 4,366,655       36.15 %   $ 2,788,772       27.96 % Interest-bearing demand     6,780,830       56.14 %     6,276,910       62.92 % Savings     121,626       1.01 %     89,418       0.90 % Time deposits , $250,000 and under     259,585       2.15 %     273,301       2.74 % Time deposits, over $250,000     499,974       4.14 %     497,323       4.99 % Brokered time deposits     50,000       0.41 %     50,000       0.50 %     $ 12,078,670       100.00 %   $ 9,975,724       100.00 %       33     The following table presents the maturities of our time deposits as of September 30, 2021 and December 30, 2020.   At September 30, 2021   $100,000 and greater     Less than $100,000     Total   Maturity   (In Thousands)   Three months or less   $ 181,832     $ 22,295     $ 204,127   Over three through six months     167,216       26,307       193,523   Over six months through one year     324,548       35,799       360,347   Over one year     1,500       50,062       51,562   Total   $ 675,096     $ 134,463     $ 809,559                             At December 31, 2020   $100,000 and greater     Less than $100,000     Total   Maturity   (In Thousands)   Three months or less   $ 117,505     $ 18,996     $ 136,501   Over three through six months     132,828       18,866       151,694   Over six months through one year     215,578       23,116       238,694   Over one year     216,617       74,119       290,736   Total   $ 682,528     $ 135,097     $ 817,625     Other Borrowings   Our borrowings consist of federal funds purchased and subordinated notes payable. We had $1.29 billion and $851.5 million at September 30, 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 0.21% for the quarter ended September 30, 2021. Other borrowings consist of the following:     ● $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.     ● $30.0 million of 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually.   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 were 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 September 30, 2021, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $5.03 billion. At September 30, 2021, the Bank had borrowing availability of approximately $986.0 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 our anticipated funding needs.   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, correspondent banking relationships and related federal funds purchased, 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 “Other 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. Our management is not currently aware of any trends or demands that are reasonably likely to result in liquidity materially increasing or decreasing. However, uncertainties brought about by the COVID-19 pandemic may adversely affect our ability to obtain funding or may increase the cost of funding.   34     The following table reflects the contractual maturities of our term liabilities as of September 30, 2021. The amounts shown do not reflect any early withdrawal or prepayment assumptions.       Payments due by Period                       Over 1 - 3     Over 3 - 5               Total     Less than 1 year     years     years     Over 5 years       (In Thousands)   Contractual Obligations (1)                                                                                   Deposits without a stated maturity   $ 11,269,111     $ -     $ -     $ -     $ -   Certificates of deposit (2)     759,559       577,599       157,063       24,897       -   Brokered certificates of deposit     50,000       -       50,000       -       -   Federal funds purchased     1,286,756       1,286,756       -       -       -   Subordinated debentures     64,750       -       -       -       64,750   Operating lease commitments     19,424       874       6,826       4,639       7,085   Total   $ 13,449,600     $ 1,865,499     $ 213,789     $ 29,469     $ 71,732     (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   Total stockholders’ equity attributable to us at September 30, 2021 was $1.11 billion, or 7.63% of total assets.  At December 31, 2020, total stockholders’ equity attributable to us was $992.4 million, or 8.32% of total assets. The decline in the ratio of capital to assets is the result of increased deposits during 2021.  We believe a large portion of these increased deposits to be temporary in nature, although we cannot project when they might be withdrawn.   As of September 30, 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 total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios.   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 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.   35     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, not including the capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of September 30, 2021, December 31, 2020 and September 30, 2020:                                       To Be Well Capitalized                       For Capital Adequacy     Under Prompt Corrective       Actual     Purposes     Action Provisions       Amount     Ratio     Amount     Ratio     Amount     Ratio   As of September 30, 2021   (Dollars in Thousands)   CET 1 Capital to Risk-Weighted Assets:                                                 Consolidated   $ 1,081,750       10.46 %   $ 465,322       4.50 %     N/A       N/A   ServisFirst Bank     1,143,936       11.06 %     465,264       4.50 %   $ 672,047       6.50 % Tier 1 Capital to Risk-Weighted Assets:                                                 Consolidated     1,082,250       10.47 %     620,429       6.00 %     N/A       N/A   ServisFirst Bank     1,144,436       11.07 %     620,352       6.00 %     827,135       8.00 % Total Capital to Risk-Weighted Assets:                                                 Consolidated     1,258,901       12.17 %     827,239       8.00 %     N/A       N/A   ServisFirst Bank     1,256,386       12.15 %     827,135       8.00 %     1,033,919       10.00   Tier 1 Capital to Average Assets:                                                 Consolidated     1,082,250       7.80 %     554,910       4.00 %     N/A       N/A   ServisFirst Bank     1,144,436       8.25 %     554,858       4.00 %     693,572       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 September 30, 2020                                                 CET 1 Capital to Risk-Weighted Assets:                                                 Consolidated   $ 916,373       11.24 %   $ 366,802       4.50 %     N/A       N/A   ServisFirst Bank     978,584       12.01 %     366,724       4.50 %   $ 529,712       6.50 % Tier 1 Capital to Risk-Weighted Assets:                                                 Consolidated     916,873       11.25 %     489,070       6.00 %     N/A       N/A   ServisFirst Bank     979,084       12.01 %     488,965       6.00 %     651,953       8.00 % Total Capital to Risk-Weighted Assets:                                                 Consolidated     1,067,583       13.10 %     652,093       8.00 %     N/A       N/A   ServisFirst Bank     1,072,024       13.15 %     651,953       8.00 %     814,941       10.00 % Tier 1 Capital to Average Assets:                                                 Consolidated     916,873       8.22 %     446,428       4.00 %     N/A       N/A   ServisFirst Bank     979,084       8.78 %     446,243       4.00 %     557,804       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.   36     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 instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in our balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial 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 such financial instrument for commitments to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount of these 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 September 30, 2021 and December 31, 2020 are as follows:       September 30, 2021     December 31, 2020       (In Thousands)   Commitments to extend credit   $ 3,332,764     $ 2,606,258   Credit card arrangements     350,929       286,128   Standby letters of credit     56,077       66,208       $ 3,739,770     $ 2,958,594     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.   37     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 September 30, 2021 was $52.5 million compared to net income and net income available to common stockholders of $43.4 million for the three months ended September 30, 2020. Net income and net income available to common stockholders for the nine months ended September 30, 2021 was $154.0 million compared to net income and net income available to common stockholders of $118.6 million for the nine months ended September 30, 2020. For the three months ended September 30, 2021 compared to 2020 net interest income increased $11.2 million. The increase in net interest income for the three and nine-month periods is primarily attributable to growth in average earning assets and non-interest-bearing deposit balances. Decreases in provision for credit losses of $6.3 million and $13.1 million for the three and nine-month periods also contributed to the increase in net income for the comparative periods.  Non-interest income also contributed to the increased net income in the nine-month period, increasing $4.2 million, or 19.2%, to $26.1 million. Increases in non-interest expense of $7.8 million and $11.3 million and increases in income tax expense of $472,000 and $8.0 million, respectively, for the three and nine months ended September 30, 2021 compared to 2020 partially offset increases in income.   Basic and diluted net income per common share were $0.97 and $0.96, respectively, for the three months ended September 30, 2021, compared to $0.80 for the corresponding period in 2020. Basic and diluted net income per common share were $2.84 and $2.83, respectively, for the nine months ended September 30, 2021, compared to $2.20 and $2.19, respectively, for the corresponding period in 2020. Return on average assets for the three and nine months ended September 30, 2021 was 1.50% and 1.58% compared to 1.54%, respectively, for the corresponding periods in 2020. Return on average common stockholders’ equity for the three and nine months ended September 30, 2021 was 18.93% and 19.45%, respectively, compared to 18.43% and 17.73%, respectively, for the corresponding periods in 2020.   Net Interest Income and Net Interest Margin Analysis   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 $11.2 million, or 13.2%, to $96.4 million for the three months ended September 30, 2021 compared to $85.2 million for the corresponding period in 2020, and increased $37.4 million, or 15.2%, to $283.6 million for the nine months ended September 30, 2021 compared to $246.2 million for the corresponding period in 2020.  This increase was primarily attributable to growth in average earning assets, which increased $2.66 billion, or 24.7%, from the third quarter of 2020 to the third quarter of 2021, and $2.65 billion, or 26.9%, from the nine months ended September 30, 2020 to the same period in 2021. The taxable-equivalent yield on interest-earning assets decreased to 3.08% for the three months ended September 30, 2021 from 3.55% for the corresponding period in 2020, and decreased to 3.28% for the nine months ended September 30, 2021 from 3.90% for the corresponding period in 2020.  The yield on loans for the three months ended September 30, 2021 was 4.39% compared to 4.26% for the corresponding period in 2020, and 4.43% compared to 4.47% for the nine months ended September 30, 2021 and September 30, 2020, respectively.  The cost of total interest-bearing liabilities decreased to 0.35% for the three months ended September 30, 2021 compared to 0.59% for the corresponding period in 2020, and decreased to 0.37% for the nine months ended September 30, 2021 from 0.81% for the corresponding period in 2020.  Net interest margin for the three months ended September 30, 2021 was 2.85% compared to 3.14% for the corresponding period in 2020, and 3.03% for the nine months ended September 30, 2021 compared to 3.33% for the corresponding period in 2020.  The Federal Open Market Committee of the Federal Reserve Bank has recently signaled that it would discontinue buying assets in the open market and possibly start raising interest rates in an effort to control inflation.  Higher interest rates could benefit our loan interest income in the future.   38     The following tables show, for the three and nine months ended September 30, 2021 and September 30, 2020, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue. The accompanying tables reflect 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. The tables are presented on a taxable-equivalent basis where applicable:   Average Balance Sheets and Net Interest Analysis On a Fully Taxable-Equivalent Basis For the Three Months Ended September 30, (In thousands, except Average Yields and Rates)       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)                                                 Taxable   $ 8,653,632     $ 95,870       4.40 %   $ 8,335,087     $ 89,236       4.26 % Tax-exempt (2)     26,542       271       4.05       30,068       313       4.14   Total loans, net of unearned income     8,680,174       96,141       4.39       8,365,155       89,549       4.26   Mortgage loans held for sale     7,050       30       1.69       20,053       71       1.41   Investment securities:                                                 Taxable     969,715       6,544       2.70       820,526       5,858       2.86   Tax-exempt (2)     12,382       74       2.39       31,880       200       2.51   Total investment securities (3)     982,097       6,618       2.70       852,406       6,058       2.84   Federal funds sold     8,551       4       0.19       41,884       16       0.15   Interest-bearing balances with banks     3,761,652       1,507       0.16       1,500,563       506       0.13   Total interest-earning assets   $ 13,439,524     $ 104,300       3.08     $ 10,780,061     $ 96,200       3.55   Non-interest-earning assets:                                                 Cash and due from banks     90,034                       75,065                   Net fixed assets and equipment     62,845                       56,799                   Allowance for credit losses, accrued interest and other assets     315,178                       281,196                   Total assets   $ 13,907,581                     $ 11,193,121                                                                     Liabilities and stockholders' equity:                                           Interest-bearing liabilities:                                                 Interest-bearing demand deposits   $ 1,431,420     $ 694       0.19 %   $ 1,077,595     $ 840       0.31 % Savings deposits     122,579       54       0.17       82,671       75       0.36   Money market accounts     5,328,291       3,492       0.26       4,739,566       5,188       0.44   Time deposits     806,108       2,341       1.15       841,378       3,773       1.78   Total interest-bearing deposits     7,688,398       6,581       0.34       6,741,210       9,876       0.58   Federal funds purchased     1,205,327       643       0.21       682,971       375       0.22   Other borrowings     64,694       692       4.23       64,717       777       4.78   Total interest-bearing liabilities   $ 8,958,419     $ 7,916       0.35 %   $ 7,488,898     $ 11,028       0.59 % Non-interest-bearing liabilities:                                                 Non-interest-bearing demand deposits     3,800,972                       2,728,513                   Other liabilities     48,060                       39,537                   Stockholders' equity     1,078,987                       917,626                   Accumulated other comprehensive income     21,143                       18,547                   Total liabilities and stockholders' equity   $ 13,907,581                     $ 11,193,121                   Net interest income           $ 96,384                     $ 85,172           Net interest spread                     2.73 %                     2.96 % Net interest margin                     2.85 %                     3.14 %   (1) Non-accrual loans are included in average loan balances in all periods. Loan fees of $7,203 and $5,193 are included in interest income in the third quarter of 2021 and 2020, respectively. Loan fees 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 $26,709 and $23,418 are excluded from the yield calculation in the third quarter of 2021 and 2020, respectively.     39         For the Three Months Ended September 30,       2021 Compared to 2020 Increase (Decrease) in Interest Income and Expense Due to Changes in:       Volume     Rate     Total       (In Thousands)   Interest-earning assets:                         Loans, net of unearned income                         Taxable   $ 3,613     $ 3,021     $ 6,634   Tax-exempt     (35 )     (7 )     (42 ) Total loans, net of unearned income     3,578       3,014       6,592   Mortgages held for sale     (53 )     12       (41 ) Debt securities:                         Taxable     1,034       (348 )     686   Tax-exempt     (117 )     (9 )     (126 ) Total debt securities     917       (357 )     560   Federal funds sold     (15 )     3       (12 ) Interest-bearing balances with banks     892       109       1,001   Total interest-earning assets   $ 5,319     $ 2,781     $ 8,100                             Interest-bearing liabilities:                         Interest-bearing demand deposits   $ 229     $ (375 )   $ (146 ) Savings     27       (48 )     (21 ) Money market accounts     588       (2,284 )     (1,696 ) Time deposits     (152 )     (1,280 )     (1,432 ) Total interest-bearing deposits     692       (3,987 )     (3,295 ) Federal funds purchased     280       (12 )     268   Other borrowed funds     -       (85 )     (85 ) Total interest-bearing liabilities     972       (4,084 )     (3,112 ) Increase in net interest income   $ 4,347     $ 6,865     $ 11,212     Our growth in loans continues to drive favorable volume component change and overall change. The rate component was favorable as loan yields increased 13 basis points and average rates paid on interest-bearing liabilities decreased 24 basis points. Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the three months ended September 30, 2021 compared to the same period in 2020.             40     Average Balance Sheets and Net Interest Analysis On a Fully Taxable-Equivalent Basis For the Nine Months Ended September 30, (In thousands, except Average Yields and Rates)       2021     2020               Interest                     Interest               Average     Earned /     Average     Average     Earned /     Average       Balance     Paid     Yield / Rate     Balance     Paid     Yield / Rate   Assets:                                                 Interest-earning assets:                                                 Loans, net of unearned income (1)(2)                                                 Taxable   $ 8,586,180     $ 284,548       4.43 %   $ 7,989,750     $ 267,354       4.47 % Tax-exempt (3)     26,992       834       4.13       31,512       968       4.10   Total loans, net of unearned income     8,613,172       285,382       4.43       8,021,262       268,322       4.47   Mortgage loans held for sale     10,683       150       1.88       12,565       164       1.74   Investment securities:                                                 Taxable     928,567       18,666       2.69       777,662       16,104       2.77   Tax-exempt (3)     16,748       315       2.51       38,014       709       2.49   Total investment securities (4)     945,315       18,981       2.68       815,676       16,813       2.75   Federal funds sold     9,558       11       0.15       76,733       327       0.57   Interest-bearing balances with banks     2,943,629       3,046       0.14       941,817       2,584       0.37   Total interest-earning assets   $ 12,522,357     $ 307,570       3.28 %   $ 9,868,053     $ 288,210       3.90 % Non-interest-earning assets:                                                 Cash and due from banks     127,963                       72,482                   Net fixed assets and equipment     60,448                       57,435                   Allowance for credit losses, accrued interest and other assets     318,745                       258,263                   Total assets   $ 13,029,513                     $ 10,256,233                                                                     Liabilities and stockholders' equity:                                                 Interest-bearing liabilities:                                                 Interest-bearing demand deposits   $ 1,359,212     $ 1,954       0.19 %   $ 1,009,332     $ 3,061       0.41 % Savings deposits     106,853       142       0.18       74,095       233       0.42   Money market accounts     5,236,809       10,348       0.26       4,363,630       21,871       0.67   Time deposits     805,523       7,854       1.30       841,583       12,212       1.94   Total interest-bearing deposits     7,508,397       20,298       0.36       6,288,640       37,377       0.79   Federal funds purchased     1,009,905       1,630       0.22       583,232       2,286       0.52   Other borrowings     64,691       2,070       4.28       64,712       2,338       4.83   Total interest-bearing liabilities   $ 8,582,993     $ 23,998       0.37 %   $ 6,936,584     $ 42,001       0.81 % Non-interest-bearing liabilities:                                                 Non-interest-bearing demand deposits     3,295,530                       2,376,029                   Other liabilities     92,641                       50,328                   Stockholders' equity     1,038,336                       878,271                   Accumulated other comprehensive income     20,013                       15,021                   Total liabilities and stockholders' equity   $ 13,029,513                     $ 10,256,233                   Net interest income           $ 283,572                     $ 246,209           Net interest spread                     2.91 %                     3.09 % Net interest margin                     3.03 %                     3.33 %   (1) Non-accrual loans are included in average loan balances in all periods. Loan fees of $27,519 and $10,123 are included in interest income in 2021 and 2020, respectively. (2) Accretion on acquired loan discounts of $100 is included in interest income in 2020. (3) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%. (4) Unrealized gains of $25,276 and $18,955 are excluded from the yield calculation in 2021 and 2020, respectively.   41         For the Nine Months Ended September 30,       2021 Compared to 2020 Increase (Decrease) in Interest Income and Expense Due to Changes in:       Volume     Rate     Total       (In Thousands)   Interest-earning assets:                         Loans, net of unearned income                         Taxable   $ 19,564     $ (2,370 )   $ 17,194   Tax-exempt     (141 )     7       (134 ) Total loans, net of unearned income     19,423       (2,363 )     17,060   Mortgages held for sale     (26 )     12       (14 ) Debt securities:                         Taxable     3,032       (470 )     2,562   Tax-exempt     (401 )     7       (394 ) Total debt securities     2,631       (463 )     2,168   Federal funds sold     (172 )     (144 )     (316 ) Interest-bearing balances with banks     2,843       (2,381 )     462   Total interest-earning assets   $ 24,699     $ (5,339 )   $ 19,360                             Interest-bearing liabilities:                         Interest-bearing demand deposits   $ 837     $ (1,944 )   $ (1,107 ) Savings     77       (168 )     (91 ) Money market accounts     3,709       (15,232 )     (11,523 ) Time deposits     (504 )     (3,854 )     (4,358 ) Total interest-bearing deposits     4,119       (21,198 )     (17,079 ) Federal funds purchased     1,125       (1,781 )     (656 ) Other borrowed funds     (1 )     (267 )     (268 ) Total interest-bearing liabilities     5,243       (23,246 )     (18,003 ) Increase in net interest income   $ 19,456     $ 17,907     $ 37,363     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 44 basis points while loan yields decreased 4 basis points. Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the nine months ended September 30, 2021 compared to the same period in 2020.   Provision for Credit Losses   The provision for credit losses was $6.0 million for the three months ended September 30, 2021, a decrease of $6.3 million from $12.3 million for the three months ended September 30, 2020, and was $23.1 million for the nine months ended September 30, 2021, a $13.1 million decrease compared to $36.2 million for the nine months ended September 30, 2020. The ACL for September 30, 2021 and December 31, 2020 was calculated under the current expected credit losses (“CECL”) methodology and totaled $109.0 million and $87.9 million, or 1.24% and 1.04% of loans, net of unearned income, respectively. The allowance for loan losses totaled $92.4 million, or 1.09% of loans, net of unearned income, at September 30, 2020 and was calculated under the incurred loss methodology.  Excluding PPP loans, the allowance for credit losses as a percentage of total loans under the CECL methodology at September 30, 2021 and June 30, 2021 was 1.29% and 1.30%, respectively, compared to 1.24% at September 30, 2020, under the incurred loss model. The increase in the ACL as a percent of total loans at September 30, 2021 from December 31, 2020 is largely the result of a net decrease in PPP loans totaling $513 million, which were excluded from the ACL, and $860 million in net loan growth, excluding PPP loans, during 2021.  This loan growth was primarily within our real estate – mortgage and real estate – construction loan categories which have increased $421 million and $294 million, respectively.  We added a new qualitative environmental factor to address the termination of the PPP for the effect it could have on various businesses that will need to be self-sustaining without the assistance of PPP as well as potential risk of nonpayment from SBA due to fraud within PPP loans.  This new qualitative factor totaled $3.5 million at June 30, 2021 and totaled $2.8 million at September 30, 2021.  Additionally, we allocated ACL totaling $1.7 million to address the risk associated with a newly downgraded commercial relationship at September 30, 2021.  Annualized net credit charge-offs to quarter-to-date average loans were 0.08% for the third quarter of 2021, compared to 0.54% for the corresponding period in 2020.  Annualized net credit charge-offs to year-to-date average loans were 0.03% for the nine months ended September 30, 2021, compared to 0.34% for the corresponding period in 2020.  Nonperforming loans decreased to $14.5 million, or 0.16% of total loans, at September 30, 2021 from $19.0 million, or 0.22% of total loans, at December 31, 2020, and were $26.6 million, or 0.31% of total loans, at September 30, 2020. See the section captioned “Asset Quality” located elsewhere in this item for additional discussion related to provision for credit losses.   42     Noninterest Income   Noninterest income totaled $8.0 million for the three months ended September 30, 2021, a decrease of $146,000 compared to the corresponding period in 2020, and totaled $26.1 million for the nine months ended September 30, 2021, an increase of $4.2 million, or 19.2%, compared to the corresponding period in 2020. Mortgage banking income decreased $1.1 million, or 43.5%, to $1.4 million for the three months ended September 30, 2021 compared to $2.5 million for the same period in 2020, and increased $1.2 million, or 20.6%, to $6.9 million for the nine months ended September 30, 2021 compared to $5.7 million for the same period in 2020.The number of mortgage loans originated during the third quarter of 2021 fell to 208 from 325 during the same quarter in 2020, and increased to 755  during the nine months ended September 30, 2021 compared to 734 mortgage loans originated during the same period in 2020 . Credit card income increased $203,000 to $2.0 million for the three months ended September 30, 2021 compared to the same period in 2020, and increased $144,000 to $5.1 million for the nine months ended September 30, 2021 compared to the same period in 2020. The number of credit card accounts increased approximately 31% and the aggregate amount of spend on all credit card accounts increased 43% during the third quarter of 2021 compared to the third quarter of 2020. Increase in cash surrender value of life insurance decreased $62,000, or 3.6%, to $1.7 million during the three months ended September 30, 2021, compared to the corresponding period in 2020, and increased $362,000, or 7.8%, to $5.0 million for the nine months ended September 30, 2021 compared to $4.7 million for the same period in 2020.The quarter-to-date decrease is the result of a decrease in crediting rates on existing policies while the year-to-date increase is the result of $40.0 million in new policies purchased in July 2020. Other income increased $900,000, or 343.5%, to $1.2 million for the three months ended September 30, 2021 compared to $262,000 for the same period in 2020, and increased $1.9 million, or 198.0%, to $2.9 million for the nine months ended September 30, 2021 compared to $972,000 for the same period in 2020. We wrote down the value of our interest rate cap by $98,000 during the third quarter of 2021 through other income compared to a write down of $343,000 during the third quarter of 2020. Merchant service revenue increased from $163,000 during the third quarter of 2020 to $375,000, or 30.1%, during the third quarter of 2021.   Noninterest Expense   Noninterest expense totaled $34.4 million for the three months ended September 30, 2021, an increase of $7.8 million, or 29.4%, compared to $26.6 million for the same period in 2020, and totaled $94.6 million for the nine months ended September 30, 2021, an increase of $11.3 million, or 13.6%, compared to $83.3 million for the same period in 2020.   Details of expense are as follows:     ● Salary and benefit expense increased $3.0 million, or 20.0%, to $18.0 million for the three months ended September 30, 2021, from $15.0 million for the same period in 2020, and increased $4.0 million, or 8.6%, to $50.4 million for the nine months ended September 30, 2021 from $46.4 million for the same period in 2020. Total employees increased from 496 as of September 30, 2020, to 518 as of September 30, 2021, or 4.4%. Accruals for annual incentives increased $2.2 million from the third quarter of 2020 to the third quarter of 2021, primarily due to recent increases in loan originations.   ● Equipment and occupancy expense increased $440,000, or 17.2%, to $3.0 million for the three months ended September 30, 2021 from $2.6 million for the corresponding period in 2020, and increased $1.1 million, or 14.9%, to $8.5 million for the nine months ended September 30, 2021 compared to $7.4 million for the corresponding period in 2020. We moved our Nashville, Tennessee office in early 2021 to expand our space and improve visibility and we opened new offices in Orlando, Florida and Columbus, Georgia during 2021.   ● Third party processing and other services increased $863,000, or 26.3%, to $4.1 million for the three months ended September 30, 2021, from $3.3 million for the corresponding period in 2020, and increased$1.1 million, or 11.1%, to $11.5 million for the nine months ended September 30, 2021 compared to $10.4 million for the corresponding period in 2020. We increased the number of correspondent banks for which we are processing transactions through the Federal Reserve Bank.   ● FDIC and other regulatory assessments increased $569,000, or 53.6%, to $1.6 million for the three months ended September 30, 2021 from $1.1 million for the corresponding period in 2020, and increased $1.6 million, or 55.2%, to $4.6 million for the nine months ended September 30, 2021 compared to $3.0 million for the corresponding period in 2020. Growth in total assets has increased our assessments. The Bank was reclassified as a large financial institution by the FDIC as of September 30, 2021.   ● OREO expense increased $4,000, or 3.4%, to $123,000 for the three months ended September 30, 2021, from $119,000 for the corresponding period in 2020, and decreased $1.2 million, or 59.5%, to $820,000 from $2.0 million for the nine months ended September 30, 2021 compared to the corresponding period in 2020. The third quarter of 2021 included a write-down in value of a property in our Atlanta region.   ● Other operating expenses increased $2.9 million, or 81.3%, to $6.5 million for the three months ended September 30, 2021, from $3.6 million for the corresponding period in 2020, and increased $4.6 million, or 41.7%, to $15.7 million from $11.1 million for the nine months ended September 30, 2021, compared to the corresponding period in 2020. We invested in federal new market tax credits in July 2021 and wrote down the investment by $2.8 million during the third quarter of 2021 with a charge to other operating expenses. We decreased our reserve for credit losses on unfunded loan commitments by $300,000 in the third quarter of 2021.   43     The following table presents our non-interest income and non-interest expense for the three-and-nine-month periods ending September 30, 2021, compared to the same periods in 2020.       Three Months Ended September 30,                     Nine Months Ended September 30,                       2021     2020     $ change     % change     2021     2020     $ change     % change   Noninterest income:                                                                 Service charges on deposit accounts   $ 1,727     $ 1,818     $ (91 )     (5.0) %   $ 5,542     $ 5,557     $ (15 )     (0.3) % Mortgage banking     1,423       2,519       (1,096 )     (43.5) %     6,869       5,697       1,172       20.6 % Credit card income     2,043       1,840       203       11.0 %     5,147       5,003       144       2.9 % Securities gains     -       -       -       - %     620       -       620       NM % Increase in cash surrender value life insurance     1,671       1,733       (62 )     (3.6) %     5,012       4,650       362       7.8 % Other operating income     1,162       262       900       343.5 %     2,897       972       1,925       198.0 % Total non-interest income   $ 8,026     $ 8,172     $ (146 )     (1.8) %   $ 26,087     $ 21,879     $ 4,208       19.2 %                                                                   Noninterest expense:                                                                 Salaries and employee benefits   $ 17,995     $ 14,994     $ 3,001       20.0 %   $ 50,425     $ 46,444     $ 3,981       8.6 % Equipment and occupancy expense     2,996       2,556       440       17.2 %     8,494       7,390       1,104       14.9 % Third party processing and other services     4,144       3,281       863       26.3 %     11,506       10,360       1,146       11.1 % Professional services     948       955       (7 )     (0.7) %     2,978       2,994       (16 )     (0.5) % FDIC and other regulatory assessments     1,630       1,061       569       53.6 %     4,637       2,988       1,649       55.2 % OREO expense     123       119       4       3.4 %     820       2,023       (1,203 )     (59.5) % Other operating expense     6,541       3,607       2,934       81.3 %     15,740       11,110       4,630       41.7 % Total non-interest expense   $ 34,377     $ 26,573     $ 7,804       29.4 %   $ 94,600     $ 83,309     $ 11,291       13.6 %   Income Tax Expense   Income tax expense was $11.5 million for the three months ended September 30, 2021, compared to $11.0 million for the same period in 2020, and was $37.8 million for the nine months ended September 30, 2021, compared to $29.8 million for the same period in 2020. Our effective tax rate for the three and nine months ended September 30, 2021 was 17.98% and 19.71%, respectively, compared to 20.29% and 20.08% for the corresponding periods in 2020, respectively.  We recognized $3.2 million in credits during the third quarter of 2021 related to the investment in federal new market tax credits in July 2021.  We recognized excess tax benefits as an income tax credit to our income tax expense from the exercise and vesting of stock options and restricted stock during the three and nine months ended September 30, 2021 of $78,000 and $2.4 million, respectively, compared to $180,000 and $1.4 million during the three and nine months ended September 30, 2020, respectively.  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 whollyowned 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 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 status of our balance sheet. Our annual budget reflects the anticipated rate environment for the next 12 months. The asset-liability committee conducts a quarterly analysis of the rate sensitivity position and reports its results to our board of directors.   44     The asset-liability committee thoroughly analyzes the maturities of rate-sensitive assets and liabilities. This analysis measures the “gap”, which is defined as the difference between the dollar amount of rate-sensitive assets repricing during a period and the volume of rate-sensitive liabilities repricing during the same period. The gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities. If the ratio is greater than one, the dollar value of assets exceeds the dollar value of liabilities; the balance sheet is “asset-sensitive.” Conversely, if the value of liabilities exceeds the value of assets, the ratio is less than one and the balance sheet is “liability-sensitive.” Our internal policy requires management to maintain the gap such that net interest margins will not change more than 10% if interest rates change 100 basis points or more than 15% if interest rates change 200 basis points. There have been no changes to our policies or procedures for analyzing our interest rate risk since December 31, 2020, and there have been no material changes to our sensitivity to changes in interest rates since December 31, 2020, as disclosed in our Annual Report on Form 10-K.   ITEM 4. CONTROLS AND PROCEDURES   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 or Rule 15d-14 under the Securities Exchange Act of 1934. 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 September 30, 2021. Based upon the Evaluation, our CEO and CFO have concluded that, as of September 30, 2021, our disclosure controls and procedures are effective to ensure that material information relating to the Company. and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.   Changes in Internal Control Over Financial Reporting   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.   PART II. OTHER INFORMATION   ITEM 1. LEGAL PROCEEDINGS   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.   ITEM 1A. RISK FACTORS   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.     45     Our operations and financial performance could be adversely affected by natural disasters, and climate change can increase those risks while adding regulatory, compliance, reputational and other risks.   Natural disasters could have a material adverse effect on our financial position and results of operations. Natural disasters, such as hurricanes, tornados, earthquakes and similar unpredictable weather events, could affect us directly (by interrupting our systems, damaging our offices or otherwise preventing us from operating our business in the ordinary course) or indirectly (by damaging or destroying the businesses or properties of our customers or otherwise impairing our customers’ ability to make loan payments on a timely basis or destroying property pledged as collateral for loans).   Climate change may result in new or increased regulatory burdens, which could materially affect our results of operations by requiring us to implement costly measures to comply with any new laws and regulations related to climate change. Changes to regulations or market shifts in response to climate change may also impact the businesses of some of our customers, which may require us to adjust our lending portfolios and business strategies with respect to such customers.   In addition, the investing public is increasingly focused on the financial services industry’s ability to manage environmental impact. We recently have adopted an Environmental, Social and Governance (“ESG”) Policy in an effort to refine and track our compliance efforts; however, failure to appropriately manage our environmental impact could have a material adverse effect on our reputation and harm our ability to attract and retain customers and employees.   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.   ITEM 5. OTHER INFORMATION   None.                   46     ITEM 6. EXHIBITS   Exhibit: Description 31.01 Certification of principal executive officer pursuant to Rule 13a-14(a). 31.02 Certification of principal financial officer pursuant to Rule 13a-14(a). 32.01 Certification of principal executive officer pursuant to 18 U.S.C. Section 1350. 32.02 Certification of principal financial officer pursuant to 18 U.S.C. Section 1350. 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH  Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)                                   47     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: October 29, 2021  By /s/ Thomas A. Broughton III       Thomas A. Broughton III       President and Chief Executive Officer           Date: October 29, 2021   By /s/ William M. Foshee       William M. Foshee       Chief Financial Officer                                                                                                     48