What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-10-29 compared with 2021-07-28 · 502 added, 349 removed, 1996 unchanged (30% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

June 30, 2021

September 30, 2021

December 31, 2020

6 unchanged sentences

Federal funds sold

44,700  

Cash and cash equivalents

4 unchanged sentences

886,688  

Held to maturity debt securities (fair value of $250 at June 30, 2021 and December 31, 2020)

Held to maturity debt securities (fair value of $261,276 at September 30, 2021 and $250 at December 31, 2020)

261,276  

Mortgage loans held for sale

53 unchanged sentences

Preferred stock, par value $0.001 per share;

1,000,000 authorized and undesignated at June 30, 2021 and December 31 2020

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;

54,201,204 shares issued and outstanding at June 30, 2021, and 53,943,751 shares issued and outstanding at December 31 2020

54,207,147 shares issued and outstanding at September 30, 2021, and 53,943,751 shares issued and outstanding at December 31, 2020

Additional paid-in capital

23 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Interest income:

39 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

$ 52,499  

3 unchanged sentences

Other comprehensive (loss) income, net of tax:

Unrealized net holding gains (losses) arising during period from securities available for sale, net of tax of $617 and $(300) for the three and six months ended June 30, 2021, respectively, and net of tax of $309 and $3,419 for the three and six months ended June 30, 2020, respectively

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 )  

( 7,916 )  

Reclassification adjustment for net gains on call of securities, net of tax of $130 for the three and six months ended June 30, 2021, respectively

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 )  

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

Reclassification adjustment for net gains on call of securities, net of tax of $130 for the nine months ended September 30, 2021

Other comprehensive income (loss), net of tax

1 unchanged sentence

( 1,858 )  

13,082  

Comprehensive income

7 unchanged sentences

(In thousands, except share amounts)(Unaudited)

Three Months Ended June 30,

Three Months Ended September 30,

Common Shares

5 unchanged sentences

Total Stockholders' Equity

Balance, April 1, 2020

Balance, July 1, 2020

53,874,276  

5 unchanged sentences

( 9,422 )  

Preferred dividends paid

( 31 )  

Dividends on nonvested restricted stock recognized as compensation expense

Issue restricted shares pursuant to stock incentives

10,267  

Issue restricted shares pursuant to stock incentives, net of forfeitures

Issue shares of common stock upon exercise of stock options

37,469  

5,831 shares of common stock withheld in net settlement upon exercise of stock options

( 225 )  

Stock-based compensation expense

2 unchanged sentences

43,360  

Balance, June 30, 2020

Balance, September 30, 2020

53,915,245  

3 unchanged sentences

$ 949,589  

Balance, April 1, 2021

Balance, July 1, 2021

54,201,204  

5 unchanged sentences

( 10,842 )  

Preferred dividends paid

( 31 )  

Dividends on nonvested restricted stock recognized as compensation expense

Issue restricted shares pursuant to stock incentives, net of forfeitures

14,582  

Issue shares of common stock upon exercise of stock options

48,972  

1,903 shares of common stock withheld in net settlement upon exercise of stock options

1 unchanged sentence

Stock-based compensation expense

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

( 1,195 )  

52,499  

Balance, June 30, 2021

52,499  

Balance, September 30, 2021

54,207,147  

2 unchanged sentences

$ 18,360  

See Notes to Consolidated Financial Statements.

Six Months Ended June 30,

$ 1,114,293  

Nine Months Ended September 30,

Common Shares

17 unchanged sentences

( 31 )  

Issue restricted shares pursuant to stock incentives

Issue restricted shares pursuant to stock incentives, net of forfeitures

29,067  

9 unchanged sentences

118,586  

Balance, June 30, 2020

Balance, September 30, 2020

53,915,245  

27 unchanged sentences

153,981  

Balance, June 30, 2021

Balance, September 30, 2021

54,207,147  

3 unchanged sentences

$ 1,114,293  

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

1 unchanged sentence

(In thousands) (Unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

$ 153,981  

$ 118,588  

Adjustments to reconcile net income to net cash provided by

1 unchanged sentence

Provision for credit losses

23,066  

36,151  

Accretion on acquired loans

Amortization of core deposit intangible

Net amortization of debt securities available for sale

Increase in accrued interest and dividends receivable

Decrease (increase) in accrued interest and dividends receivable

Stock-based compensation expense

Decrease in accrued interest payable

Increase (decrease) in accrued interest payable

Proceeds from sale of mortgage loans held for sale

221,548  

194,558  

Originations of mortgage loans held for sale

( 200,832 )  

Gain on call of securities available for sale

( 620 )  

Gain on sale of mortgage loans held for sale

( 6,869 )  

Net loss (gain) on sale of other real estate owned and repossessed assets

2 unchanged sentences

Increase in cash surrender value of life insurance contracts

( 5,012 )  

Net change in other assets, liabilities, and other operating activities

( 6,395 )  

Net cash provided by operating activities

195,486  

117,500  

INVESTMENT ACTIVITIES

Purchase of debt securities available for sale

( 298,684 )  

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 )  

Increase in loans

( 350,600 )  

( 1,269,704 )

Purchase of premises and equipment

( 9,058 )  

Purchase of bank owned life insurance contracts

Proceeds from sale of other real estate owned and repossessed assets

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

Taxes paid in net settlement of tax obligation upon exercise of stock options

( 2,737 )  

Dividends paid on common stock

( 21,601 )  

Dividends paid on preferred stock

( 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 for:

Cash paid/(received) for:

$ 23,622  

$ 42,020  

18,148  

38,593  

Income tax refund

1 unchanged sentence

Other real estate acquired in settlement of loans

$ 1,419  

$ 2,406  

Internally financed sale of other real estate owned

Available-for-sale securities transferred to held-to-maturity portfolio

261,026  

Dividends declared

10,842  

See Notes to Consolidated Financial Statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

September 30, 2021

NOTE 1 - GENERAL

9 unchanged sentences

All reported amounts are in thousands except share and per share data.

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 ASU 

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  

Measurement of Credit Losses on Financial Instruments (“CECL”). 

As described below under Recently Adopted Accounting Pronouncements, the Company decided to delay its adoption of ASU 2016 - 13, as provided by the CARES Act, until the earlier of the date on which the national emergency concerning COVID- 19 terminates or December 31, 2020, with an effective retrospective implementation date of January 1, 2020. 

Prior to January 1, 2020, except quarterly periods in 2020 which were not restated, the allowance for credit losses (“ACL”) was calculated using an incurred losses methodology.

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

3 unchanged sentences

Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In Thousands, Except Shares and Per Share Data)

1 unchanged sentence

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  

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2021 and December 31, 2020 are summarized as follows:

June 30, 2021

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:

September 30, 2021

(In Thousands)

4 unchanged sentences

Government agencies

12,026  

12,139  

Mortgage-backed securities

2 unchanged sentences

298,548  

599,092  

State and municipal securities

12 unchanged sentences

Securities Held to Maturity

Mortgage-backed securities

$ 261,026  

State and municipal securities

$ 261,276  

December 31, 2020

23 unchanged sentences

Securities Held to Maturity

Mortgage-backed securities

State and municipal securities

The amortized cost and fair value of debt securities as of June 30, 2021 and December 31, 2020 by contractual maturity are shown below.

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.

June 30, 2021

September 30, 2021

December 31, 2020

Amortized Cost

(In thousands)

27 unchanged sentences

Due from one to five years

Due from five to ten years

Due after ten years

Mortgage-backed securities

261,026  

$ 261,276  

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 June 30, 2021 and December 31, 2020 was $ 463.1 million and $ 477.6 million, respectively.

The following table identifies, as of June 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.

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

1 unchanged sentence

(In Thousands)

June 30, 2021

September 30, 2021

Mortgage-backed securities

30 unchanged sentences

$ 63,243  

The following table summarizes information about sales and calls of debt securities for sale.

Three Months Ended June 30,

Six Months Ended June 30,

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,

(In Thousands)

Sales and calls proceeds

Sale and call proceeds

$ 12,735  

$ 2,001  

$ 35,532  

$ 12,947  

Gross realized gains

Gross realized losses

Net realized gain (loss)

At June 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.

Net realized gain 

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.

Furthermore, the Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity.

The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased.

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:

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.

NOTE 5 –

21 unchanged sentences

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 program was closed to new applications. 

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 June 30, 2021 and December 31, 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.

1 unchanged sentence

three months ended 

June 30, 2021 and 2020, respectively, and totaled $ 17.1 million and $ 2.6 million for the six months ended June 30, 2021 and 2020, respectively.  PPP loans outstanding totaled $ 595.0 million and $ 900.5 million at June 30, 2021 and December 31, 2020, respectively.

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 June 30, 2021 and December 31, 2020:

The following table details the Company’s loans at September 30, 2021 and December 31, 2020:

September 30,

(Dollars In Thousands)

33 unchanged sentences

Real estate - mortgage

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 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.

2 unchanged sentences

Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date.

These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

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 institution will sustain some loss if the weaknesses are not corrected.

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 June 30, 2021 :

June 30, 2021

Commercial, financial and agricultural

The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of September 30, 2021 :

September 30, 2021

(In Thousands)  

Commercial, financial and agricultural

$ 743,568  

10 unchanged sentences

10,356  

44,927  

68,611  

Total Commercial, financial and agricultural

75 unchanged sentences

12,902  

12,966  

Total Other mortgage

48 unchanged sentences

$ 1,593,040  

$ 8,812,811  

The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2020:

December 31, 2020

Commercial, financial and agricultural

(In Thousands)  

Commercial, financial and agricultural

$ 1,260,341  

141 unchanged sentences

$ 8,465,688  

Loans by performance status as of June 30, 2021 and December 31, 2020 were as follows:

June 30, 2021

Loans by performance status as of September 30, 2021 and December 31, 2020 were as follows:

September 30, 2021

Nonperforming

53 unchanged sentences

$ 8,465,688  

Loans by past due status as of June 30, 2021 and December 31, 2020 were as follows:

June 30, 2021

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)

29 unchanged sentences

$ 5,662  

$ 5,142  

December 31, 2020

43 unchanged sentences

Consistent forecasts of the loss drivers are used across the loan segments.

At June 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.

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 Company uses a loss-rate method to estimate expected credit losses for its commercial revolving lines of credit and credit card pools.

The commercial revolving lines of credit pool incorporates a probability of default (“PD”) and loss given default (“LGD”) modeling approach.

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.

29 unchanged sentences

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 six months ended June 30, 2021 and June 30, 2020.

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.

financial and

2 unchanged sentences

(In Thousands)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Allowance for credit losses:

Balance at March 31, 2021

Balance at June 30, 2021

$ 42,433  

7 unchanged sentences

( 144 )  

Balance at June 30, 2021

Balance at September 30, 2021

$ 40,888  

3 unchanged sentences

$ 108,950  

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Allowance for loan losses:

Balance at March 31, 2020

Balance at June 30, 2020

$ 47,986  

7 unchanged sentences

( 441 )  

Balance at June 30, 2020

12,284  

Balance at September 30, 2020

$ 49,273  

1 unchanged sentence

$ 38,515  

Six Months Ended June 30, 2021

$ 92,440  

Nine Months Ended September 30, 2021

Allowance for credit losses:

10 unchanged sentences

23,066  

Balance at June 30, 2021

Balance at September 30, 2021

$ 40,888  

3 unchanged sentences

$ 108,950  

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Allowance for loan losses:

10 unchanged sentences

13,233  

Balance at June 30, 2020

36,151  

Balance at September 30, 2020

$ 49,273  

1 unchanged sentence

$ 38,515  

$ 92,440  

The following table details the allowance for loan losses and recorded investment in loans by impairment evaluation method as of 

June 30, 2020, as determined in accordance with ASC 310 prior to the adoption of ASU 2016 - 13:

September 30, 2020, as determined in accordance with ASC 310 prior to the adoption of ASU 2016 - 13:

financial and

6 unchanged sentences

$ 9,600  

$ 72,160  

Collectively Evaluated for Impairment

2 unchanged sentences

82,840  

60,391  

8,243,215  

Ending Balance

7 unchanged sentences

19,376  

93,763  

Collectively Evaluated for Impairment

5 unchanged sentences

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 $ 3.3 million at June 30, 2021 and $ 2.2 million at December 31, 2020.

The provision expense for unfunded commitments for the three and six months ended June 30, 2021 was $ 500,000 and $ 1.1 million, respectively and 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.

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. 

Loans that no longer share similar risk characteristics with collectively evaluated pools are estimated on an individual basis.

1 unchanged sentence

The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows:

June 30, 2021

September 30, 2021

(In Thousands)

54 unchanged sentences

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 June 30, 2021, there were 20 loans outstanding totaling $ 3.6 million that have payment deferrals in connection with the COVID- 19 relief provided by the CARES Act.

All of these remaining deferrals were principal and interest deferrals.

The CARES Act precluded all of the Company’s COVID- 19 loan modifications from being classified as a TDR as of June 30, 2021.

Troubled Debt Restructurings (“TDR”) at June 30, 2021, December 31, 2020 and June 30, 2020 totaled $2.9 million, $ 1.5 million and $ 1.6 million, respectively.

The portion of those TDRs accruing interest at June 30, 2021, December 31, 2020 and June 30, 2020 totaled $ 441,000 , $ 818,000 and $ 975,000 , respectively.

At June 30, 2021, the Company had a related allowance for credit losses of $ 747,000 allocated to these TDRs, compared to $ 929,000 at December 31, 2020 and $ 1.8 million at June 30, 2020.

The following tables present loans modified in a TDR during three and six months ended June 30, 2021 and June 30, 2020 by portfolio segment and the financial impact of those modifications.

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.

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

(In Thousands)

3 unchanged sentences

$ 1,155  

Real estate - construction

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$ 2,146  

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

(In Thousands)

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Total real estate mortgage

$ 1,182  

$ 1,532  

There were 

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twelve  months prior to default) that defaulted during the 

three  and six months ended 

June 30, 2021 and June 30, 2020, respectively.

three and nine months ended 

September 30, 2021 and September 30, 2020, respectively.

For purposes of this disclosure, default is defined as 

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The leases have remaining terms up to 10.2 years.

At June 30, 2021, the Company had lease right-of-use assets and lease liabilities totaling $ 19.0 million and $ 19.5 million, respectively, compared to $ 10.5 million and $ 10.6 million, respectively, at December 31, 2020 which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance Sheet.

Maturities of operating lease liabilities as of June 30, 2021 are as follows:

June 30, 2021

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)

$ 1,961  

Total lease payments

3 unchanged sentences

$ 19,424  

As of June 30, 2021, the weighted average remaining term of operating leases is 7.18 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.52 %.

Operating cash flows related to leases were $ 829,000 and $ 1.6 million for the three and six months ended June 30, 2021, respectively, compared to $ 856,000 and $ 1.7 million for the three and six months ended June 30, 2020, respectively.

Lease costs during the three and six months ended June 30, 2021 and June 30, 2020 were as follows (in thousands):

Three Months Ended June 30,

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 %.

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,

Operating lease cost

6 unchanged sentences

$ 1,172  

Six Months Ended June 30,

Nine Months Ended September 30,

Operating lease cost

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The Company has a stock-based compensation plan as described below.

The compensation cost that has been charged to earnings for the plan was $ 558,000 and $ 849,000 for the three and six months ended June 30, 2021 and $ 353,000 and $ 629,000 for the three and six months ended June 30, 2020.

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.

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Risk-free rate

The weighted average grant-date fair value of options granted during the 

six  months ended 

June 30, 2021 

was $ 12.73 .

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 

six  months ended 

June 30, 2020 .

The following table summarizes stock option activity during the six months ended June 30, 2021 and June 30, 2020:

nine  months ended 

September 30, 2020 .

The following table summarizes stock option activity during the nine months ended September 30, 2021 and September 30, 2020:

(In Thousands)

Six Months Ended June 30, 2021:

Nine Months Ended September 30, 2021:

Outstanding at January 1, 2021

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( 9,000 )  

Outstanding at June 30, 2021

Outstanding at September 30, 2021

375,250  

$ 19.56  

Exercisable at June 30, 2021

$ 22,438  

Exercisable at September 30, 2021

281,000  

$ 12.79  

Six Months Ended June 30, 2020:

$ 18,565  

Nine Months Ended September 30, 2020:

Outstanding at January 1, 2020

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( 18,000 )  

Outstanding at June 30, 2020

Outstanding at September 30, 2020

667,948  

$ 16.37  

Exercisable at June 30, 2020

$ 11,720  

Exercisable at September 30, 2020

209,200  

$ 12.41  

As of June 30, 2021, there was $ 539,000 of total unrecognized compensation cost related to non-vested stock options.

$ 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.

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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 June 30, 2021, there was $ 3.7 million of total unrecognized compensation cost related to non-vested time-based restricted stock.

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.

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Performance Shares

Average Grant

Six Months Ended June 30, 2021:

Weighted Average Grant Date Fair Value

Nine Months Ended September 30, 2021:

Non-vested at January 1, 2021

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( 11,725 )  

Non-vested at June 30, 2021

Non-vested at September 30, 2021

128,853  

$ 42.68  

Six Months Ended June 30, 2020:

12,437  

$ 37.05  

Nine Months Ended September 30, 2020:

Non-vested at January 1, 2020

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( 19,928 )  

Non-vested at June 30, 2020

Non-vested at September 30, 2020

80,429  

$ 34.09  

NOTE 8 - DERIVATIVES

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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 June 30, 2021 the interest rate cap had a fair value of $ 412,000 and remaining term of 1.8 years.

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”

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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 June 30, 2021 and December 31, 2020 were not material.

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 –

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The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, gave financial institutions the option to delay adoption of CECL.

The Company elected to delay its adoption of the update until the earlier of the date the national emergency concerning COVID- 19 terminates or December 31, 2020, with an effective retrospective adoption date of January 1, 2020.

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.

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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

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Early adoption will be permitted.

The Company does not currently have any convertible debt instruments outstanding so does not believe that the update will have an impact on its financial statements.

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.

NOTE 11 - FAIR VALUE MEASUREMENT

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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:

Quotes prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

         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.

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The Company uses average observable prices of similar corporate securities owned by the Company to value such securities and are classified in Level 3 of the hierarchy. 

The weighted average value as of June 30, 2021 was 4% observed for the Company’s other similar corporate securities.

The weighted average value observed for the Company’s other similar corporate securities was 4 % as of September 30, 2021.

Derivative instruments.

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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 June 30, 2021 was 0 % to 64 % and 24.02 %, 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 $ 1.4 million and $ 3.3 million during the three and six months ended June 30, 2021, respectively, and $ 3.8 million and $ 8.8 million during the three and six months ended June 30, 2020, respectively.

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 .

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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 June 30, 2021 was 10 % to 25 % and 15.5 %, respectively.

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 $ 540,000 and $ 697,000 was recognized for the three and six months ended June 30, 2021, respectively, and $ 1.3 million and $ 1.9 million for the three and six months ended June 30, 2020, respectively.

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.

There were two residential real estate loans with a balance of $ 222,000 foreclosed and classified as OREO as of June 30, 2021, compared to one residential real estate loan foreclosure for $ 209,000 as of December 31, 2020.

One residential real estate loan for $ 111,000 was in the process of being foreclosed as of June 30, 2021.

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 June 30, 2021 and December 31, 2020.

There were no liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020.

Fair Value Measurements at June 30, 2021 Using

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

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$ 14,179  

Government agency securities

12,139  

Government agencies

Mortgage-backed securities

31 unchanged sentences

$ 14,357  

Government agency securities

Government agencies

15,458  

16 unchanged sentences

$ 886,827  

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 2020:

Fair Value Measurements at June 30, 2021

Quoted Prices in

Active Markets for

Identical Assets

Significant Other

Observable Inputs

Inputs (Level 3)

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)

Assets Measured on a Nonrecurring Basis:

8 unchanged sentences

Fair Value Measurements at December 31, 2020

Quoted Prices in

Active Markets for

Identical Assets

Significant Other

Observable Inputs

Inputs (Level 3)

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets Measured on a Nonrecurring Basis:

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$ 87,312  

In the case of the investment securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been effected. 

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 six months ended June 30, 2021, there were two transfers between Levels 1, 2 or 3.

The table below includes a rollforward of the balance sheet amounts for the three and six months ended June 30, 2021 and June 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 (in thousands):

For the Three months ended June 30,

For the Six months ended June 30,

Available-for-sale

Available-for-

sale Securities

Available-for-

sale Securities

Available-for-

sale Securities

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,

Available-for-sale Securities

(In Thousands)

Fair value, beginning of period

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Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis as of June 30, 2021 and December 31, 2020 were as follows:

June 30, 2021

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

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Federal funds sold

44,700  

Held to maturity debt securities  

261,026  

Mortgage loans held for sale

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(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 six months ended June 30, 2021 and June 30, 2020.

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

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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:

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changes in legislation or regulatory requirements;

changes in our loan portfolio and deposit base;

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;

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;

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the effect of natural disasters, such as hurricanes and tornados, in our geographic markets;

and increased competition from both banks and non-banks. 

and increased competition from both banks and non-bank financial institutions.

The foregoing list of factors is not exhaustive.

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Overview of Quarter and Year-to-Date Results

As of June 30, 2021, we had consolidated total assets of $13.21 billion, up $1.27 billion, or 10.7%, when compared to consolidated assets of $11.93 billion at December 31, 2020.

Total loans were $8.65 billion at June 30, 2021, up $184.0 million, or 2.2%, from $8.47 billion at December 31, 2020.

Total deposits were $10.96 billion at June 30, 2021, up $982.5 million, or 9.8%, from $9.98 billion at December 31, 2020.

Net income available to common stockholders for the three months ended June 30, 2021 was $50.0 million, an increase of $9.6 million, or 23.7%, from $40.4 million for the corresponding period in 2020.

Basic and diluted earnings per common share were $0.92 for the three months ended June 30, 2021, compared to basic and diluted earnings per common share of $0.75 for the corresponding period in 2020.

Net income available to common stockholders for the six months ended June 30, 2021 was $101.5 million, an increase of $26.3 million, or 35.0%, from $75.2 million for the corresponding period in 2020.

Basic and diluted earnings per common share were $1.87 and $1.86, respectively, for the six months ended June 30, 2021, compared to $1.40 and $1.39, respectively, for the corresponding period in 2020.

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

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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,”

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Cash and Cash Equivalents

At June 30, 2021, we had $7.5 million in federal funds sold, compared to $1.8 million at December 31, 2020.

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 June 30, 2021, we had $2.97 billion in balances at the Federal Reserve, compared to $1.92 billion at December 31, 2020.

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 $1.01 billion at June 30, 2021 and $886.7 million at December 31, 2020.

Investment securities held to maturity totaled $250,000 at June 30, 2021 and December 31, 2020.

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 six months ended June 30, 2021.

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 $203.9 million in mortgage-backed securities and $50.0 million in corporate securities during the first six months of 2021.

For a tabular presentation of debt securities available for sale and held to maturity at June 30, 2021 and December 31, 2020, see “Note 4 –

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”

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The Company does not invest in collateralized debt obligations (“CDOs”).

At June 30, 2021, we had $361.8 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 June 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 $463.1 million and $477.6 million as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, there are 20 loans outstanding totaling $3.6 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 $5.0 million at June 30, 2021. 

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.

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.

We had total loans of $8.65 billion at June 30, 2021, an increase of $184.0 million, or 2.2%, compared to $8.47 billion at December 31, 2020.

We originated approximately 7,400 PPP loans totaling $1.5 billion as of June 30, 2021.

Over 6,300 of these loans have a balance of less than $350,000.

The percentage of our loans in each of our regions were as follows:

Percentage of Total

Loans in Market

Birmingham, AL

Huntsville, AL

Montgomery, AL

Total Alabama MSAs

Northwest Florida (1)

West Central Florida (2)

Total Florida MSAs

Nashville, TN

Charleston, SC

(1) comprised of Fort Walton Beach and Pensacola, Florida

(2) comprised of Orlando, Tampa Bay, Sarasota, and Venice, Florida

Asset Quality

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Consistent forecasts of the loss drivers are used across the loan segments.

At June 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.

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.

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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 included in Item 1.

Consolidated Financial Statements elsewhere in this report.

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.

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As of and for the Three Months Ended

As of and for the Six Months Ended

As of and for the Nine Months Ended

September 30,

(Dollars in thousands)

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in each category

June 30, 2021

September 30, 2021

to total loans

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Nonperforming Assets

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to $17.2 million at June 30, 2021, compared to $19.0 million at December 31, 2020.

Of this total, nonaccrual loans of $12.3 million at June 30, 2021 represented a net decrease of $1.7 million from nonaccrual loans at December 31, 2020.

Excluding credit card accounts, there were two loans 90 or more days past due and still accruing totaling $4.8 million at June 30, 2021, compared to one loan totaling $4.9 million at December 31, 2020.

Troubled Debt Restructurings (“TDR”) at June 30, 2021 and December 31, 2020 were $2.9 million and $2.4 million, respectively.

OREO and repossessed assets decreased to $2.0 million at June 30, 2021, from $6.5 million at December 31, 2020.

The following table summarizes OREO and repossessed asset activity for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

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,

(In thousands)

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Balance at end of period

The following table summarizes our nonperforming assets and TDRs at June 30, 2021 and December 31, 2020:

June 30, 2021

The following table summarizes our nonperforming assets and TDRs at September 30, 2021 and December 31, 2020:

September 30, 2021

December 31, 2020

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We have established a policy to discontinue accruing interest on a loan (i.e., place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection.

In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected.

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.

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In such a scenario, interest income in future periods could be negatively impacted.

As of June 30, 2021, the Company carries $5.0 million of accrued interest income on deferrals made to COVID-19 affected borrowers compared to $5.8 million at December 31, 2020.

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.

Total deposits were $10.96 billion at June 30, 2021, an increase of $982.5 million, or 9.8%, over $9.98 billion at December 31, 2020. 

Increased growth rates during 2020 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. 

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.

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under the subheading “Net Interest Income.”

The following table summarizes balances of our deposits and the percentage of each type to the total at June 30, 2021 and December 31, 2020:

June 30, 2021

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

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Brokered time deposits

The following table presents the maturities of our certificates of deposit as of June 30, 2021 and December 30, 2020.

At June 30, 2021

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

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Our borrowings consist of federal funds purchased and subordinated notes payable.

We had $1.06 billion and $851.5 million at June 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 0.22% for the quarter ended June 30, 2021. 

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:

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These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding.

At June 30, 2021, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $3.72 billion.

At June 30, 2021, the Bank had borrowing availability of approximately $986 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements.

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.

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However, uncertainties brought about by the COVID-19 pandemic may adversely affect our ability to obtain funding or may increase the cost of funding.

The following table reflects the contractual maturities of our term liabilities as of June 30, 2021.

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

1 year or less

Less than 1 year

(In Thousands)

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Total stockholders’

equity attributable to us at June 30, 2021 was $1.07 billion, or 8.13% of total assets.

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.

As of June 30, 2021, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action.

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.

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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 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.

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 June 30, 2021, December 31, 2020 and June 30, 2020:

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

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Action Provisions

As of June 30, 2021

As of September 30, 2021

(Dollars in Thousands)

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ServisFirst Bank

As of June 30, 2020

As of September 30, 2020

CET 1 Capital to Risk-Weighted Assets:

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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 June 30, 2021 and December 31, 2020 are as follows:

June 30, 2021

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

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Summary of Net Income

Net income and net income available to common stockholders for the three months ended June 30, 2021 was $50.0 million compared to net income and net income available to common stockholders of $40.4 million for the three months ended June 30, 2020. 

Net income and net income available to common stockholders for the six months ended June 30, 2021 was $101.5 million compared to net income and net income available to common stockholders of $75.2 million for the six months ended June 30, 2020.

For the three months ended June 30, 2021 compared to 2020 net interest income increased $11.4 million, and non-interest income increased $2.6 million.

The increase in net interest income is primarily attributable to growth in average earning assets and non-interest-bearing deposit balances.

The same key drivers contributed to the increase in net income for the six months ended June 30, 2021 compared to 2020 resulting in a $26.2 million increase in net interest income, and a $4.4 million increase in non-interest income. 

Decreases in provision for credit losses of $631,000 and $6.8 million, increases in non-interest expense of $2.5 million and $3.5 million and increases in income tax expense of $2.5 million and $7.5 million, respectively, for the three and six months ended June 30, 2021 compared to 2020 partially offset increases in income.

Basic and diluted net income per common share were $0.92 for the three months ended June 30, 2021, compared to $0.75 for the corresponding period in 2020. 

Basic and diluted net income per common share were $1.87 and $1.86, respectively, for the six months ended June 30, 2021, compared to $1.40 and $1.39, respectively, for the corresponding period in 2020. 

Return on average assets for the three and six months ended June 30, 2021 was 1.56% and 1.63% compared to 1.55% and 1.54%, respectively, for the corresponding periods in 2020. 

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 six months ended June 30, 2021 was 18.98% and 19.73%, respectively, compared to 18.40% and 17.31%, respectively, for the corresponding periods in 2020.

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

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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 $11.4 million, or 13.7%, to $94.7 million for the three months ended June 30, 2021 compared to $83.3 million for the corresponding period in 2020, and increased $26.1 million, or 16.2%, to $187.2 million for the six months ended June 30, 2021 compared to $161.0 million for the corresponding period in 2020.

This increase was primarily attributable to growth in average earning assets, which increased $2.33 billion, or 23.1%, from the second quarter of 2020 to the second quarter of 2021, and $2.65 billion, or 28.2%, from the six months ended June 30, 2020 to the same period in 2021.

The taxable-equivalent yield on interest-earning assets decreased to 3.32% for the three months ended June 30, 2021 from 3.80% for the corresponding period in 2020, and decreased to 3.41% for the six months ended June 30, 2021 from 4.10% for the corresponding period in 2020.

The yield on loans for the three months ended June 30, 2021 was 4.43% compared to 4.31% for the corresponding period in 2020, and 4.46% compared to 4.58% for the six months ended June 30, 2021 and June 30, 2020, respectively.

The cost of total interest-bearing liabilities decreased to 0.37% for the three months ended June 30, 2021 compared to 0.69% for the corresponding period in 2020, and decreased to 0.39% for the six months ended June 30, 2021 from 0.94% for the corresponding period in 2020.

Net interest margin for the three months ended June 30, 2021 was 3.06% compared to 3.32% for the corresponding period in 2020, and 3.14% for the six months ended June 30, 2021 compared to 3.44% for the corresponding period in 2020.

The following tables show, for the three and six months ended June 30, 2021 and June 30, 2020, the average balances of each principal category of our assets, liabilities and stockholders’

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.

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.

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On a Fully Taxable-Equivalent Basis

For the Three Months Ended June 30,

For the Three Months Ended September 30,

(In thousands, except Average Yields and Rates)

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Stockholders' equity

Accumulated other comprehensive loss

Accumulated other comprehensive income

Total liabilities and stockholders' equity

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Non-accrual loans are included in average loan balances in all periods.

Loan fees of $9,915 and $3,650 are included in interest income in the second quarter of 2021 and 2020, respectively.

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.

Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.

Unrealized gains of $23,614 and $133 are excluded from the yield calculation in the second quarter of 2021 and 2020, respectively.

For the Three Months Ended June 30,

Unrealized gains of $26,709 and $23,418 are excluded from the yield calculation in the third quarter of 2021 and 2020, respectively.

For the Three Months Ended September 30,

2021 Compared to 2020 Increase (Decrease) in Interest Income and Expense Due to Changes in:

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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 June 30, 2021 compared to the same period in 2020.

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.

Average Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(In thousands, except Average Yields and Rates)

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Stockholders' equity

Accumulated other comprehensive (loss)

Accumulated other comprehensive income

Total liabilities and stockholders' equity

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Non-accrual loans are included in average loan balances in all periods.

Loan fees of $20,316, $4,930 are included in interest income in 2021 and 2020, respectively.

Accretion on acquired loan discounts of $100, $90 and $163 are included in interest income in 2021 and 2020 respectively.

Loan fees of $27,519 and $10,123 are included in interest income in 2021 and 2020, respectively.

Accretion on acquired loan discounts of $100 is included in interest income in 2020.

Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.

Unrealized gains of $25,276 and $18,955 are excluded from the yield calculation in 2021 and 2020, respectively.

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

2021 Compared to 2020 Increase (Decrease) in Interest Income and Expense Due to Changes in:

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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 six months ended June 30, 2021 compared to the same period in 2020.

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 $9.7 million for the three months ended June 30, 2021, a decrease of $0.6 million from $10.3 million for the three months ended June 30, 2020, and was $17.1 million for the six months ended June 30, 2021, a $6.8 million decrease compared to $23.9 million for the six months ended June 30, 2020.

The ACL for June 30, 2021 and December 31, 2020 was calculated under the current expected credit losses (“CECL”) methodology and totaled $104.7 million and $87.9 million, or 1.21% and 1.04% of loans, net of unearned income, respectively.

The allowance for loan losses totaled $91.5 million, or 1.10% of loans, net of unearned income, at June 30, 2020 and was calculated under the incurred loss methodology. 

The increase in the ACL as a percent of total loans at June 30, 2021 from December 31, 2020 is largely the result of a net decrease in PPP loans totaling $373 million, which were excluded from the ACL, and $517 million in net loan growth, excluding PPP loans, during the second quarter of 2021. 

We also added a new qualitative environmental factor this quarter to address the recent 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 increased the ACL $3.5 million at June 30, 2021. 

Annualized net credit recoveries to quarter-to-date average loans were 0.01% for the second quarter of 2021, compared to annualized net credit charge-offs to quarter-to-date average loans of 0.20% for the corresponding period in 2020. 

Annualized net credit charge-offs to year-to-date average loans were 0.01% for the six months ended June 30, 2021, compared to 0.23% for the corresponding period in 2020. 

Nonperforming loans decreased to $17.2 million, or 0.20% of total loans, at June 30, 2021 from $19.0 million, or 0.22% of total loans, at December 31, 2020, and were $22.0 million, or 0.26% of total loans, at June 30, 2020.

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”

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Noninterest Income

Noninterest income totaled $9.6 million for the three months ended June 30, 2021, an increase of $2.6 million, or 36.5%, compared to the corresponding period in 2020, and totaled $18.1 million for the six months ended June 30, 2021, an increase of $4.4 million, or 31.8%, compared to the corresponding period in 2020.

Mortgage banking income increased $592,000, or 28.1%, to $2.7 million for the three months ended June 30, 2021 compared to $2.1 million for the same period in 2020, and increased $2.3 million, or 71.4%, to $5.4 million for the six months ended June 30, 2021 compared to $3.2 million for the same period in 2020.

Margin pricing on mortgage loans was increased in the third quarter of 2020, increasing the per-loan revenue by approximately 18%.

Credit card income increased $514,000 to $1.9 million for the three months ended June 30, 2021 compared to the same period in 2020, and decreased $59,000 to $3.1 million for the six months ended June 30, 2021 compared to the same period in 2020.

The number of credit card accounts increased approximately 36% and the aggregate amount of spend on all credit card accounts increased 47% during the second quarter of 2021 compared to the second quarter of 2020.

We recognized a $620,000 gain on securities during the second quarter of 2021 resulting from the redemption of a corporate bond.

Cash surrender value of life insurance increased $219,000, or 15.0%, to $1.7 million during the three months ended June 30, 2021, compared to the corresponding period in 2020, and increased $424,000, or 14.5%, to $3.3 million for the six months ended June 30, 2021 compared to $2.9 million for the same period in 2020.

Other income increased $536,000, or 222.4%, to $777,000 for the three months ended June 30, 2021 compared to $241,000 for the same period in 2020, and increased $1.0 million, or 144.4%, to $1.7 million for the six months ended June 30, 2021 compared to $710,000 for the same period in 2020.

We wrote down the value of our interest rate cap by $252,000 during the second quarter of 2020 through other income.

Merchant service revenue increased $155,000 or 115.3%, to $289,000 for the three months ended June 30, 2021 compared to $134,000 for the same period in 2020, and increased $246,000, or 105%, to $480,000 for the six months ended June 30, 2021 compared to $234,000 for the same period in 2020.

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 $31.3 million for the three months ended June 30, 2021, an increase of $2.5 million, or 8.7%, compared to $28.8 million for the same period in 2020, and totaled $60.2 million for the six months ended June 30, 2021, an increase of $3.5 million, or 6.1%, compared to $56.7 million for the same period in 2020.

Salary and benefit expense increased $1.1 million, or 6.9%, to $16.9 million for the three months ended June 30, 2021 from $15.8 million for the same period in 2020, and increased $980,000, or 3.1%, to $32.4 million for the six months ended June 30, 2021 from $31.5 million for the same period in 2020. 

Total employees increased from 492 as of June 30, 2020 to 527 as of June 30, 2021, or 7.1%. 

 Equipment and occupancy expense increased $410,000, or 16.8%, to $2.8 million for the three months ended June 30, 2021 from $2.4 million for the corresponding period in 2020, and increased $664,000, or 13.7%, to $5.5 million from $4.8 million for the six months ended June 30, 2021 compared to the corresponding period in 2020. 

Third party processing and other services increased $324,000, or 8.9%, to $3.9 million for the three months ended June 30, 2021 from $3.6 million for the corresponding period in 2020, and increased $283,000, or 4.0%, to $7.4 million from $7.1 million for the six months ended June 30, 2021 compared to the corresponding period in 2020.

Professional services expense increased $16,000, or 1.5%, to $1.1 million for the three months ended June 30, 2021 compared to the same period in 2020, and decreased $9,000, or 0.4%, to $2.0 million for the six months ended June 30, 2021 compared to the same period in 2020.

FDIC and other regulatory assessments increased $830,000 to $1.4 million for the three months ended June 30, 2021 compared to the same period in 2020, and increased $1.1 million to $3.0 million for the six months ended June 30, 2021 compared to the same period in 2020.

Our assessment base increased by 34.5% year-over-year.

OREO expense decreased $763,000, or 58.6%, to $540,000 for the three months ended June 30, 2021 compared to the same period in 2020, and decreased $1.2 million, or 63.4%, to $697,000 for the six months ended June 30, 2021 compared to the same period in 2020. 

The second quarter 2020 amount included write-downs in value of two foreclosed properties in our Birmingham region and the second quarter of 2021 included a write-down of one property in our Nashville region. 

Other operating expenses increased $581,000, or 14.6%, to $4.6 million for the three months ended June 30, 2021 compared to the same period in 2020, and increased $1.7 million, or 22.6%, to $9.2 million for the six months ended June 30, 2021 compared to the same period in 2020.

We increased our reserve for credit losses on unfunded loan commitments by $500,000 in the second quarter of 2021 with a charge to other operating expenses.

The following table presents our non-interest income and non-interest expense for the three and six month periods ending June 30, 2021 compared to the same periods in 2020.

Three Months Ended June 30,

Six Months Ended June 30,

Non-interest income:

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.

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,

Noninterest income:

Service charges on deposit accounts

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Total non-interest income

Non-interest expense:

Noninterest expense:

Salaries and employee benefits

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Income Tax Expense

Income tax expense was $13.3 million for the three months ended June 30, 2021 compared to $10.7 million for the same period in 2020, and was $26.3 million for the six months ended June 30, 2021 compared to $18.8 million for the same period in 2020.

Our effective tax rate for the three and six months ended June 30, 2021 was 21.0% and 20.6%, respectively, compared to 21.0% and 20.0% for the corresponding periods in 2020, respectively.

We recognized excess tax benefits as a credit to our income tax expense from the exercise and vesting of stock options and restricted stock during the three and six months ended June 30, 2021 of $724,000 and $2.4 million, respectively, compared to $136,000 and $1.2 million during the three and six months ended June 30, 2020, respectively.

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 wholly-owned subsidiaries of a trust holding company, which in turn is an indirect wholly-owned subsidiary of 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.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements