What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-10-31 compared with 2022-07-29 · 361 added, 504 removed, 2064 unchanged (30% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

June 30, 2022

September 30, 2022

December 31, 2021

14 unchanged sentences

842,570  

Held to maturity debt securities (fair value of $ 1,003,840 at June 30, 2022 and $ 466,286 at December 31, 2021)

Held to maturity debt securities (fair value $ 942,282 at September 30, 2022 and $ 466,286 at December 31, 2021)

1,048,840  

55 unchanged sentences

Preferred stock, par value $ 0.001 per share;

1,000,000 authorized and undesignated at June 30, 2022 and December 31, 2021

1,000,000 authorized and undesignated at September 30, 2022 and December 31, 2021

Common stock, par value $ 0.001 per share;

200,000,000 shares authorized, 54,306,875 shares issued and outstanding at June 30, 2022;

200,000,000 shares authorized, 54,324,007 shares issued and outstanding at September 30, 2022;

and 100,000,000 shares authorized, 54,227,060 shares issued and outstanding at December 31, 2021

24 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Interest income:

Interest and fees on loans

$ 111,287  

$ 95,451  

$ 214,392  

$ 189,254  

Taxable securities

10,515  

18,738  

12,122  

Nontaxable securities

2 unchanged sentences

Total interest income

126,555  

102,719  

239,743  

203,115  

Interest expense:

12,270  

13,717  

Borrowed funds

Total interest expense

10,187  

17,653  

16,082  

Net interest income

116,368  

94,668  

222,090  

187,033  

Provision for credit losses

14,869  

17,103  

Net interest income after provision for credit losses

106,861  

85,016  

207,221  

169,930  

Noninterest income:

3 unchanged sentences

Securities (losses) gains

( 2,833 )  

( 6,168 )  

Increase in cash surrender value life insurance

1 unchanged sentence

Total noninterest income

17,454  

18,061  

Noninterest expenses:

Salaries and employee benefits

20,734  

16,887  

39,035  

32,430  

Equipment and occupancy expense

Third party processing and other services

11,950  

Professional services

1 unchanged sentence

Other operating expenses

15,505  

Total noninterest expenses

39,821  

31,309  

77,039  

60,223  

Income before income taxes

76,546  

63,305  

147,636  

127,768  

Provision for income taxes

14,410  

13,278  

27,887  

26,286  

62,136  

50,027  

119,749  

101,482  

Preferred stock dividends

Net income available to common stockholders

$ 62,105  

$ 49,996  

$ 119,718  

$ 101,451  

Basic earnings per common share

$ 1.14  

$ 0.92  

$ 2.21  

$ 1.87  

Diluted earnings per common share

$ 1.14  

$ 0.92  

$ 2.20  

$ 1.86  

See Notes to Consolidated Financial Statements.

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

$ 64,031  

2 unchanged sentences

$ 153,981  

Other comprehensive (loss) income, net of tax:

Unrealized net holding (losses) gains arising during period from securities available for sale, net of tax of $ (5,557) and $ (12,572) for the three and six months ended June 30, 2022, respectively, and net of tax of $ 877 and $ (40) for the three and six months ended June 30, 2021, respectively

Other comprehensive loss, net of tax:

Unrealized net holding losses arising during period from securities available for sale, net of tax of $ (5,707) and $ (18,409) for the three and nine months ended September 30, 2022, respectively, and net of tax of $ (1,798) and $ (1,844) for the three and nine months ended September 30, 2021, respectively

( 21,471 )  

( 6,764 )  

Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax of $ 100 and $ 250 for three and six months ended June 30, 2022, respectively

( 62,301 )  

Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax of $ (70) and $ (320) for three and nine months ended September 30, 2022, respectively, and net of tax of $ (36) for the three and nine months ended September 30, 2021

( 262 )  

Net losses on sales of securities, net of tax of $ 595 and $ 1,295 for three and six months ended June 30, 2022, and net (gain) on call of securities, net of tax of $ (130) for three and six months ended June 30, 2021 reclassified from other comprehensive income into net income

( 136 )  

Other comprehensive (loss) income, net of tax

( 1,208 )  

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

Net losses on sales of securities, net of tax of $ 1,425 for nine months ended September 30, 2022, and net (gain) on call of securities, net of tax of $ (130) for nine months ended September 30, 2021 reclassified from other comprehensive income into net income

Other comprehensive loss, net of tax

( 21,733 )  

( 1,195 )  

( 58,146 )  

Comprehensive income

5 unchanged sentences

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(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, 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  

Balance, April 1, 2022

$ 1,114,293  

Balance, July 1, 2022

54,306,875  

2 unchanged sentences

$ ( 22,357 )  

Common dividends declared, $ 0.23 per share

$ 1,211,918  

Preferred dividends paid

Common dividends declared, $ 0.23 per share

( 12,494 )  

1 unchanged sentence

Issue restricted shares pursuant to stock incentives, net of forfeitures

15,794  

Issue shares of common stock upon exercise of stock options

15,287  

2,213 shares of common stock withheld in net settlement upon exercise of stock options

5 unchanged sentences

64,031  

Balance, June 30, 2022

Balance, September 30, 2022

54,324,007  

3 unchanged sentences

$ 1,242,589  

Six Months Ended June 30,

Nine Months Ended September 30,

Common Shares

29 unchanged sentences

153,981  

Balance, June 30, 2021

Balance, September 30, 2021

54,207,147  

27 unchanged sentences

183,780  

Balance, June 30, 2022

Balance, September 30, 2022

54,324,007  

7 unchanged sentences

(In thousands) (Unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

12 unchanged sentences

Stock-based compensation expense

Decrease in accrued interest payable

( 104 )  

Increase in accrued interest payable

Proceeds from sale of mortgage loans held for sale

38 unchanged sentences

( 1,935 )  

Proceeds from death benefit of bank owned life insurance contracts  

Proceeds from sale of other real estate owned and repossessed assets

Expenditures for other real estate owned

( 93 )  

Net cash used in investing activities

33 unchanged sentences

$ 23,622  

55,375  

51,308  

Income tax refund

( 142 )  

Cash and cash equivalents at end of period

NONCASH TRANSACTIONS

Other real estate acquired in settlement of loans

$ 1,045  

$ 1,419  

Internally financed sale of other real estate owned

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 30, 2022

NOTE 1 - GENERAL

14 unchanged sentences

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

The difference in earnings per share under the two -class method was not significant for the three and six months ended June 30, 2022 and 2021, respectively.

Three Months Ended June 30,

Six Months Ended June 30,

The difference in earnings per share under the two -class method was not significant for the three and nine months ended September 30, 2022 and 2021, respectively.

Three Months Ended September 30,

Nine Months Ended September 30,

(In Thousands, Except Shares and Per Share Data)

41 unchanged sentences

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2022 and December 31, 2021 are summarized as follows:

June 30, 2022

The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2022 and December 31, 2021 are summarized as follows:

September 30, 2022

(In Thousands)

72 unchanged sentences

$ 466,286  

The amortized cost and fair value of debt securities as of June 30, 2022 and December 31, 2021 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 are being 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, 2022 and December 31, 2021 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, 2022

September 30, 2022

December 31, 2021

4 unchanged sentences

Due within one year

$ 24,683  

$ 24,590  

$ 32,913  

$ 33,232  

Due from one to five years

62,123  

61,391  

31,760  

32,307  

Due from five to ten years

361,346  

350,109  

338,407  

348,594  

Due after ten years

Mortgage-backed securities

308,033  

285,428  

424,372  

425,161  

$ 759,185  

$ 724,463  

$ 830,546  

$ 842,570  

Debt securities held to maturity

1 unchanged sentence

Due from one to five years

385,593  

373,926  

49,663  

49,419  

Due from five to ten years

128,432  

116,667  

102,403  

101,996  

Mortgage-backed securities

551,480  

512,998  

310,641  

314,621  

$ 1,065,755  

$ 1,003,840  

$ 462,957  

$ 466,286  

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, 2022 and December 31, 2021 was $ 666.7 million and $ 463.1 million, respectively.

The following table identifies, as of June 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021 was $ 748.3 million and $ 463.1 million, respectively.

The following table identifies, as of September 30, 2022 and December 31, 2021, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months.

Less Than Twelve Months

Twelve Months or More

June 30, 2022

September 30, 2022

(In Thousands)

1 unchanged sentence

Treasury Securities

$ ( 38 )  

$ 5,966  

$ ( 38 )  

$ 5,966  

Government Agency Securities

Mortgage-backed securities

( 20,147 )  

261,595  

( 2,501 )  

22,005  

( 22,648 )  

283,600  

State and municipal securities

( 1,112 )  

11,613  

( 59 )  

( 1,171 )  

12,023  

Corporate debt

( 11,366 )  

327,226  

( 165 )  

( 11,531 )  

328,561  

$ ( 32,664 )  

$ 606,400  

$ ( 2,724 )  

$ 23,751  

$ ( 35,388 )  

$ 630,151  

Debt Securities held to maturity

Treasury Securities

$ ( 22,750 )  

$ 483,496  

$ ( 22,750 )  

$ 483,496  

Mortgage-backed securities

( 34,900 )  

481,201  

( 3,639 )  

21,918  

( 38,538 )  

503,119  

State and municipal securities

( 683 )  

$ ( 58,333 )  

$ 971,794  

$ ( 3,639 )  

$ 21,918  

$ ( 61,971 )  

$ 993,712  

December 31, 2021

1 unchanged sentence

Mortgage-backed securities

$ ( 2,685 )  

$ 303,297  

$ ( 2,685 )  

$ 303,297  

State and municipal securities

( 61 )  

( 70 )  

Corporate debt

( 647 )  

61,677  

( 647 )  

61,677  

$ ( 3,393 )  

$ 370,172  

$ ( 9 )  

$ ( 3,402 )  

$ 370,400  

Debt Securities held to maturity

Treasury Securities

$ ( 668 )  

$ 123,698  

$ ( 668 )  

$ 123,698  

Mortgage-backed securities

( 1,271 )  

134,192  

( 1,271 )  

134,192  

State and municipal securities

( 10 )  

$ ( 1,950 )  

$ 258,372  

$ ( 1,949 )  

$ 258,372  

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In Thousands)

Sale and call proceeds

$ 33,425  

$ 6,272  

$ 75,036  

$ 6,272  

Gross realized gains

Gross realized losses

( 2,833 )  

( 6,168 )  

Net realized gain (loss)

$ ( 2,833 )  

$ ( 6,168 )  

At June 30, 2022, 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 (loss) gain

At September 30, 2022, 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.

7 unchanged sentences

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 June 30, 2022, 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.

All debt securities in an unrealized loss position as of September 30, 2022, 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.

Restricted equity securities are comprised entirely of a restricted investment in Federal Home Loan Bank of Atlanta stock for membership requirement.

20 unchanged sentences

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provided for Paycheck Protection Program (“PPP”) loans made by banks to employers with less than 

500  employees if they continued 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.

500  employees if they continued to employ their existing workers. The American Rescue Plan Act of 2021, which was signed into law on March 21, 2021, provided additional relief for businesses, states, municipalities and individuals by, among other things, allocating additional funds for the PPP.

Effective May 28, 2021, the PPP was closed to new applications.

1 unchanged sentence

7,400 loans for a total amount of $ 1.5  billion for clients under the PPP since April 2020.

At June 30, 2022 and December 31, 2021, 

At September 30, 2022 and December 31, 2021, 

unaccreted deferred loan origination fees, net of costs, related to PPP loans were $ 138,000 and $ 7.2  million, respectively.

PPP loan origination fees recorded to interest income totaled $ 2.8 million and $ 8.0 million for the 

PPP loan fees recorded to interest income totaled $ 400,000 and $ 5.2 million for the 

three months ended 

June 30, 2022 and 2021, respectively, and totaled $ 7.2 million and $ 17.1 million for the six months ended June 30, 2022 and 2021, respectively.

PPP loans outstanding totaled $ 23.0 million and $ 595.0 million at June 30, 2022 and December 31, 2021, respectively.

September 30, 2022 and 2021, respectively, and totaled $ 7.6 million and $ 22.3 million for the nine months ended September 30, 2022 and 2021, respectively.

PPP loans outstanding totaled $ 7.2 million and $ 230.2 million at September 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021:

The following table details the Company’s loans at September 30, 2022 and December 31, 2021:

September 30,

(Dollars In Thousands)

42 unchanged sentences

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, 2022 :

June 30, 2022

The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of September 30, 2022:

September 30, 2022

(In thousands)

92 unchanged sentences

12,212  

12,701  

Total Other mortgage

46 unchanged sentences

$ 1,280,308  

$ 1,753,668  

$ 11,278,614  

The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2021:

142 unchanged sentences

$ 9,532,934  

Loans by performance status as of June 30, 2022 and December 31, 2021 were as follows:

June 30, 2022

Loans by performance status as of September 30, 2022 and December 31, 2021 were as follows:

September 30, 2022

Nonperforming

25 unchanged sentences

$ 11,278,614  

$ 10,617,320  

December 31, 2021

26 unchanged sentences

$ 9,532,934  

Loans by past due status as of June 30, 2022 and December 31, 2021 were as follows:

June 30, 2022

Loans by past due status as of September 30, 2022 and December 31, 2021 were as follows:

September 30, 2022

Past Due Status (Accruing Loans)

32 unchanged sentences

$ 2,840  

$ 8,212  

December 31, 2021

38 unchanged sentences

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

At June 30, 2022 and December 31, 2021, 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 the national unemployment to rise during the forecast period with a declining national GDP growth rate compared to December 31, 2021.

At September 30, 2022 and December 31, 2021, 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. At September 30, 2022, the Company expects the national unemployment to rise during the forecast period with a declining national GDP growth rate compared to December 31, 2021.

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

33 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, segregated by loan type, for the three and six months ended June 30, 2022 and June 30, 2021.

The following table presents changes in the allowance for credit losses, segregated by loan type, for the three and nine months ended September 30, 2022 and September 30, 2021.

financial and

2 unchanged sentences

(In Thousands)

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Allowance for credit losses:

Balance at March 1, 2022

Balance at June 30, 2022

$ 41,610  

6 unchanged sentences

( 260 )  

Balance at June 30, 2022

15,603  

Balance at September 30, 2022

$ 42,834  

2 unchanged sentences

$ 2,074  

Three Months Ended March June 30, 2021

$ 140,967  

Three Months Ended March September 30, 2021

Allowance for credit losses:

Balance at March 1, 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  

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Allowance for credit losses:

Balance at January 1, 2022

Balance at December 31, 2021

$ 41,869  

7 unchanged sentences

13,022  

Balance at June 30, 2022

10,435  

30,472  

Balance at September 30, 2022

$ 42,834  

1 unchanged sentence

$ 56,043  

Six Months Ended June 30, 2021

$ 2,074  

$ 140,967  

Nine Months Ended September 30, 2021

Allowance for credit losses:

Balance at January 1, 2021

Balance at December 31, 2020

$ 36,370  

8 unchanged sentences

23,066  

Balance at June 30, 2021

Balance at September 30, 2021

$ 40,888  

6 unchanged sentences

The allowance for credit losses on unfunded loan commitments is classified as a liability account on the Consolidated 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 $ 1.6 million at June 30, 2022 and $ 1.3 million at December 31, 2021.

The provision expense for unfunded commitments was $ 0 and $ 300,000 for the three and six months ended June 30, 2022, respectively, and was $ 600,000 and $ 1.1 million for the three and six months ended June 30, 2021, respectively.

The allowance for credit losses on unfunded commitments was $ 1.9 million at September 30, 2022 and $ 1.3 million at December 31, 2021.

The provision expense for unfunded commitments was $ 329,000 and $ 629,000 for the three and nine months ended September 30, 2022, respectively, and was $( 300,000 ) and $ 800,000 for the three and nine months ended September 30, 2021.

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, 2022

September 30, 2022

(In Thousands)

47 unchanged sentences

$ 11,292  

Troubled Debt Restructuring (“TDR”) at June 30, 2022, December 31, 2021 and June 30, 2021 totaled $‐‐2.4 million, $ 2.6 million and $ 2.9 million, respectively.

The portion of those TDRs accruing interest at June 30, 2022, December 31, 2021 and June 30, 2021 totaled $ 421,000 , $ 431,000 and $ 441,000 , respectively.

There were no modifications made to new TDRs or renewals of existing TDRs for the three and six months ended June 30, 2022.

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

Troubled Debt Restructuring (“TDR”) at September 30, 2022, December 31, 2021 and September 30, 2021 totaled $‐‐2.0 million, $ 2.6 million and $ 2.9 million, respectively.

The portion of those TDRs accruing interest at September 30, 2022, December 31, 2021 and September 30, 2021 totaled $ 236,000 , $ 431,000 and $ 437,000 , respectively.

There were no modifications made to new TDRs or renewals of existing TDRs for the three and nine ended September 30, 2022.

The following tables present loans modified in a TDR during three and nine months ended September 30, 2021 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, 2022

Six Months Ended June 30, 2022

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

(In Thousands)

19 unchanged sentences

twelve  months prior to default) that defaulted during the 

three and six months ended 

June 30, 2022 and June 30, 2021, respectively.

three and nine months ended 

September 30, 2022 and September 30, 2021, respectively.

For purposes of this disclosure, default is defined as 

3 unchanged sentences

The leases have remaining terms up to 9.1 years.

At June 30, 2022, the Company had lease right-of-use assets and lease liabilities totaling $ 16.3 million and $ 17.0 million, respectively, compared to $ 17.9 million and $ 18.5 million, respectively, at December 31, 2021 which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance Sheets.

Maturities of operating lease liabilities as of June 30, 2022 are as follows:

June 30, 2022

At September 30, 2022, the Company had lease right-of-use assets and lease liabilities totaling $ 16.8 million and $ 17.5 million, respectively, compared to $ 17.9 million and $ 18.5 million, respectively, at December 31, 2021 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, 2022 are as follows:

September 30, 2022

(In Thousands)

6 unchanged sentences

$ 17,472  

As of June 30, 2022, the weighted average remaining term of operating leases is 6.5 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.39 %.

Operating cash flows related to leases were $ 1.1 million and $ 2.1 million for the three and six months ended June 30, 2022, respectively, compared to $ 829,000 and $ 1.6 million for the three and six months ended June 30, 2021, respectively.

Lease costs during the three and six months ended June 30, 2022 and June 30, 2021 were as follows (in thousands):

Three Months Ended June 30,

As of September 30, 2022, the weighted average remaining term of operating leases is 6.4 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.48 %.

Operating cash flows related to leases were $ 1.1 million and $ 3.1 million for the three and nine months ended September 30, 2022, respectively, compared to $ 967,000 and $ 2.5 million for the three and nine months ended September 30, 2021, respectively.

Lease costs during the three and nine months ended September 30, 2022 and September 30, 2021 were as follows (in thousands):

Three Months Ended September 30,

Operating lease cost

7 unchanged sentences

$ 1,172  

Six Months Ended June 30,

Nine Months Ended September 30,

Operating lease cost

11 unchanged sentences

The Company has a stock incentive plan as described below.

The compensation cost that has been charged to earnings for the plan was approximately $ 797,000 and $ 1.6 million for the three and six months ended June 30, 2022, respectively, and $ 558,000 and $ 849,000 for the three and six months ended June 30, 2021, respectively.

The compensation cost that has been charged to earnings for the plan was approximately $ 804,000 and $ 2.4 million for the three and nine months ended September 30, 2022, respectively, and $ 461,000 and $ 1.3 million for the three and nine months ended September 30, 2021, respectively.

The Company’s 2009 Amended and Restated Stock Incentive Plan authorizes the grant of up to 5,550,000 shares and allows for the issuance of Stock Appreciation Rights, Restricted Stock, Stock Options, Non-stock Share Equivalents, Performance Shares or Performance Units.

10 unchanged sentences

Risk-free rate

There were no grants of stock options during the six months ended June 30, 2022.

The weighted average grant-date fair value of options granted during the six months ended June 30, 2021 was $ 12.73 .

The following table summarizes stock option activity during the six months ended June 30, 2022 and June 30, 2021:

There were no grants of stock options during the nine months ended September 30, 2022.

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2021 was $ 12.73 .

The following table summarizes stock option activity during the nine months ended September 30, 2022 and September 30, 2021:

(In Thousands)

Six Months Ended June 30, 2022:

Nine Months Ended September 30, 2022:

Outstanding at January 1, 2022

3 unchanged sentences

( 65,500 )  

Outstanding at June 30, 2022

( 1,500 )  

Outstanding at September 30, 2022

286,250  

Exercisable at June 30, 2022

$ 18,431  

Exercisable at September 30, 2022

225,500  

$ 14.89  

Six Months Ended June 30, 2021:

$ 14,990  

Nine Months Ended September 30, 2021:

Outstanding at January 1, 2021

5 unchanged sentences

( 9,000 )  

Outstanding at June 30, 2021

Outstanding at September 30, 2021

375,250  

1 unchanged sentence

$ 22,438  

Exercisable at June 30, 2021

Exercisable at September 30, 2021

281,000  

1 unchanged sentence

$ 18,565  

As of June 30, 2022, there was $ 296,000 of total unrecognized compensation cost related to non-vested stock options.

As of September 30, 2022, there was $ 246,000 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 1.4 years.

3 unchanged sentences

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, 2022, there was $ 5.3 million of total unrecognized compensation cost related to non-vested time-based restricted stock.

As of September 30, 2022, there was $ 5.0 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 2.5 years of the restricted stock’s vesting period.

3 unchanged sentences

The fair value of the performance shares is determined using a Monte Carlo simulation model on the grant date.

As of June 30, 2022, there was $ 809,000 of total unrecognized compensation cost related to non-vested performance shares.

As of June 30, 2022, non-vested performance shares had a weighted average remaining time to vest of 2.0 years.

As of September 30, 2022, there was $ 907,000 of total unrecognized compensation cost related to non-vested performance shares.

As of September 30, 2022, non-vested performance shares had a weighted average remaining time to vest of 2.0 years.

Restricted Stock

Performance Shares

Weighted Average Grant Date Fair Value

Six Months Ended June 30, 2022:

Average Grant

Nine Months Ended September 30, 2022:

Non-vested at January 1, 2022

6 unchanged sentences

( 26,563 )  

Non-vested at June 30, 2022

( 8,206 )  

Non-vested at September 30, 2022

145,652  

1 unchanged sentence

23,852  

Six Months Ended June 30, 2021:

$ 54.16  

Nine Months Ended September 30, 2021:

Non-vested at January 1, 2021

5 unchanged sentences

( 11,725 )  

Non-vested at June 30, 2021

Non-vested at September 30, 2021

128,853  

8 unchanged sentences

The fair value of the interest rate cap is carried on the Consolidated Balance Sheet in other assets and the change in fair value is recognized in noninterest income each quarter.

At June 30, 2022 the interest rate cap had a fair value of $ 6.5 million and remaining term of 0.8 years.

At September 30, 2022, the interest rate cap had a fair value of $ 6.5 million and remaining term of 0.5 years.

If LIBOR is deemed unrepresentative at any time, the reference rate for the cap would be governed by the fallback protocol where LIBOR will be adjusted to the Secured Overnight Financing Rate (“SOFR”) plus the five -year median spread.

4 unchanged sentences

Interest rate lock commitments with customers related to loans that are originated for later sale are classified as derivatives.

The fair values of the Company’s rate lock commitments to customers as of June 30, 2022 and December 31, 2021 were not material.

The fair values of the Company’s rate lock commitments to customers as of September 30, 2022 and December 31, 2021 were not material.

NOTE 9 –

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

July 2021, 

14 unchanged sentences

Troubled Debt Restructurings and Vintage Disclosures.

The update eliminates the TDR recognition and measurement guidance and, instead, requires that an entity evaluates whether all modifications represent a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

The update eliminates the TDR recognition and measurement guidance and, instead, requires that an entity evaluate whether all modifications represent a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of loans made to borrowers experiencing financial difficulty.

These amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326 - 20.

6 unchanged sentences

The Company is assessing the impact of adopting the update on its financial statements and disclosures and is currently planning to adopt effective January 1, 2023.

June 2022, 

The FASB issued ASU 2022 - 03, Fair Value Measurement (Topic 820 ):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

The update clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

This update is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted.

The Company is assessing the impact of adopting the update on its financial statements and disclosures.

NOTE 11 - FAIR VALUE MEASUREMENT

30 unchanged sentences

Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows.

This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820 - 10 and would generally result in a higher value than the exit-price approach.

For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates and market comparables, adjusted for estimated costs to sell.

5 unchanged sentences

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, 2022 was 0 % to 75 % and 21.2 %, respectively.

The range of fair value adjustments and weighted average adjustment as of September 30, 2022 was 0 % to 100 % and 18.7 %, respectively.

The range of fair value adjustments and weighted average adjustment as of December 31, 2021 was 0 % to 75 % and 24.1 % 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 $ 1.2 million and $ 1.8 million during the three and six months ended June 30, 2022, respectively, and $ 1.4 million and $ 3.3 million during the three and six months ended June 30, 2021, respectively.

The amount recognized to write-down individually evaluated loans that are measured at fair value on a nonrecurring basis was $ 1.4 million and $ 3.2 million during the three and nine months ended September 30, 2022, respectively, and $ 113,000 and $ 3.4 million during the three and nine months ended September 30, 2021, respectively.

Other Real Estate Owned .

5 unchanged sentences

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, 2022 was 10 % to 100 % and 57 %, respectively.

The range of fair value adjustments and weighted average adjustment as of September 30, 2022 was 0 % to 53 % and 44.2 %, respectively.

The range of fair value adjustments and weighted average adjustment as of December 31, 2021 was 0 % to 100 % and 40.6 %, 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 $ 125,000 and $ 119,000 was recognized for the three and six months ended June 30, 2022, respectively, and $ 540,000 and $ 697,000 for the three and six months ended June 30, 2021, respectively.

A gain on the sale and write-downs of OREO and repossessed assets of $ 232,000 was recognized for the nine months ended September 30, 2022, and a loss of $ 115,000 and $ 1.1 million for the three and nine months ended September 30, 2021, respectively.

These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO.

OREO is classified within Level 3 of the hierarchy.

There was one residential real estate loan with a balance of $ 60,000 foreclosed and classified as OREO as of June 30, 2022, compared to one residential real estate loan foreclosure for $ 50,000 as of December 31, 2021.

Two residential real estate loans for $ 212,000 was in the process of being foreclosed as of June 30, 2022.

There were one residential real estate loan for $ 299,000 in process of foreclosure as of December 31, 2021.

The following table presents the Company’s financial assets carried at fair value on a recurring basis as of June 30, 2022 and December 31, 2021.

There were no liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021.

Fair Value Measurements at June 30, 2022 Using

There were two residential real estate loans with a balance of $ 287,000 foreclosed and classified as OREO as of September 30, 2022, compared to one residential real estate loan foreclosure for $ 50,000 as of December 31, 2021.

There were no residential real estate loans in the process of being foreclosed as of September 30, 2022.

There was one residential real estate loan for $ 299,000 in process of foreclosure as of December 31, 2021.

The following table presents the Company’s financial assets carried at fair value on a recurring basis as of September 30, 2022 and December 31, 2021.

There were no liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021.

Fair Value Measurements at September 30, 2022 Using

Quoted Prices in

65 unchanged sentences

$ 843,722  

The following table presents the Company’s financial assets carried at fair value on a nonrecurring basis as of June 30, 2022 and December 31, 2021:

Fair Value Measurements at June 30, 2022

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

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

The following table presents the Company’s financial assets carried at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021.

There were no liabilities measured at fair value on a non-recurring basis as of September 30, 2022, and December 31, 2021.

Fair Value Measurements at September 30, 2022

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Significant Other

Observable Inputs

Inputs (Level 3)

Assets Measured on a Nonrecurring Basis:

8 unchanged sentences

Fair Value Measurements at December 31, 2021

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

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Significant Other

Observable Inputs

Inputs (Level 3)

Assets Measured on a Nonrecurring Basis:

7 unchanged sentences

$ 74,381  

There were no liabilities measured at fair value on a non-recurring basis as of June 30, 2022, and December 31, 2021.

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

In the case of the investment securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels are required. 

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, 2022, there was three 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, 2022 and June 30, 2021 ( 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 June 30,

For the six months ended June 30,

Available-for-sale Securities

For the nine months ended September 30, 2022, there were three 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, 2022 and September 30, 2021 ( 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

Available-for-

sale Securities

Available-for-

sale Securities

Available-for-

sale Securities

(In Thousands)

8 unchanged sentences

18,000  

12,500  

Transfers out of Level 3

1 unchanged sentence

( 10,187 )  

Fair value, end of period

11 unchanged sentences

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, 2022 and December 31, 2021 were as follows:

June 30, 2022

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, 2022 and December 31, 2021 were as follows:

September 30, 2022

December 31, 2021

19 unchanged sentences

Mortgage loans held for sale

Restricted equity securities  

Level 3 inputs:

23 unchanged sentences

The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc.

(the “Company”) and its wholly-owned subsidiary, ServisFirst Bank.

This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements as of and for the three and six months ended June 30, 2022 and June 30, 2021.

(the “Company”) and its wholly-owned subsidiary, ServisFirst Bank (the “Bank”).

This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2022 and September 30, 2021.

Forward-Looking Statements

39 unchanged sentences

We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama.

Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides commercial banking services through full-service banking offices located in Alabama, Florida, Georgia, North and South Carolina, and Tennessee.

We also operate loan production offices in Florida.

We also operate loan production offices in Florida and North Carolina.

Through the Bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.

3 unchanged sentences

Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.

Second quarter highlights

Diluted earnings per common share of $1.14 for the second quarter of 2022, an increase of 24%, from the second quarter 2021.

Average loans of $10.2 billion for the second quarter of 2022 increased $1.54 billion, or 18%, from a year ago.

Average deposits of $12.04 billion for the second quarter of 2022 increased $1.31 billion, or 12%, from a year ago.

Net interest income of $116.4 million for the second quarter of 2022, an increase $21.7 million, or 23%, from the second quarter of 2021.

Net interest margin of 3.26% for the second quarter of 2022 increased 20 bps from 3.06% in the second quarter of 2021.

Third quarter highlights

Diluted earnings per common share of $1.17 for the third quarter of 2022, an increase of 22%, from the third quarter 2021.

Average loans of $10.92 billion for the third quarter of 2022 increased $2.24 billion, or 26%, from a year ago.

Net interest income of $126.4 million for the third quarter of 2022, an increase of $30.1 million, or 31%, from the third quarter of 2021.

Net interest margin of 3.64% for the third quarter of 2022 increased 79 basis points from 2.85% in the third quarter of 2021.

The increase primarily resulted from increased yields in 2022 and increases in average non-interest-bearing deposits and equity.

As of June 30, 2022, we had consolidated total assets of $14.49 billion, down $95.4 million, or 6.2%, from total assets of $15.45 billion at December 31, 2021.

Total loans were $10.62 billion at June 30, 2022, up $1.08 billion, or 11.4%, from $9.53 billion at December 31, 2021.

Total deposits were $11.77 billion at June 30, 2022, down $680.50 million, or 5.5%, from $12.45 billion at December 31, 2021.

Net income available to common stockholders for the three months ended June 30, 2022 was $62.1 million, up $12.1 million, or 24.2%, from $50.0 million for the three months ended June 30, 2021.

Basic and diluted earnings per common share were both $1.14 for the three months ended June 30, 2022, compared to $0.92 for both in the corresponding period in 2021.

Net income available to common stockholders for the six months ended June 30, 2022 was $119.7 million, up $18.3 million, or 18.0%, from $101.5 million for the corresponding period in 2021.

Basic and diluted earnings per common share were $2.21 and $2.20, respectively, for the six months ended June 30, 2022, compared to $1.87 and $1.86, respectively, for the corresponding period in 2021.

As of September 30, 2022, we had consolidated total assets of $13.89 billion, down $1.6 billion, or 10.1%, from total assets of $15.45 billion at December 31, 2021. 

Total loans were $11.28 billion at September 30, 2022, up $1.75 billion, or 18.3%, from $9.53 billion at December 31, 2021.

Total deposits were $11.05 billion at September 30, 2022, down $1.40 billion, or 11.3%, from $12.45 billion at December 31, 2021.

Net income available to common stockholders for the three months ended September 30, 2022 was $64.0 million, up 

$11.5 million, or 22.0%, from $52.5 million for the three months ended September 30, 2021. 

Basic and diluted earnings per common share were $1.18 and $1.17, respectively, for the three months ended September 30, 2022, compared to $0.97 and $0.96, respectively, in the corresponding period in 2021. 

Net income available to common stockholders for the nine months ended September 30, 2022 was $183.7 million, up $29.8 million, or 19.4%, from $154.0 million for the corresponding period in 2021. 

Basic and diluted earnings per common share were $3.38 and $3.37, respectively, for the nine months ended September 30, 2022, compared to $2.84 and $2.83, respectively, for the corresponding period in 2021.

Performance Ratios

The following table presents selected ratios of our results of operations for the three and six months ended June 30, 2022, and 2021.

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents selected ratios of our results of operations for the three and nine ended September 30, 2022, and 2021.

Three Months Ended September 30,

Nine Months Ended September 30,

Return on average assets

4 unchanged sentences

Average stockholders' equity to average total assets

(1) Net interest margin in the net yield on interest earning assets and is the difference between the interest yield earned on

 interest-earning assets and interest rate paid on interest-bearing liabilities, divided by average earning assets.

(2) Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income.

(1) Net interest margin in the net yield on interest earning assets and is the difference between the interest yield earned on interest-earning assets and interest rate paid on interest-bearing liabilities, divided by average earning assets.

(2) Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income.

Financial Condition

Cash and Cash Equivalents

At June 30, 2022, we had $101.4 million in federal funds sold, compared to $58.4 million at December 31, 2021.

We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest.

At June 30, 2022, we had $1.32 billion in balances at the Federal Reserve, compared to $4.07 billion at December 31, 2021.

At September 30, 2022, we had $82.3 million in federal funds sold, compared to $58.4 million at December 31, 2021. 

We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. 

At September 30, 2022, we had $145.3 million in balances at the Federal Reserve, compared to $4.07 billion at December 31, 2021.

This decrease in balances at the Federal Reserve is the result of loan growth and decreases in deposits.

Investment Securities

Debt securities available for sale totaled $724.5 million at June 30, 2022 and $842.6 million at December 31, 2021.

Investment securities held to maturity totaled $1.07 billion at June 30, 2022 and $463.0 million at December 31, 2021.

Debt securities available for sale totaled $665.8 million at September 30, 2022 and 

$842.6 million at December 31, 2021.

Investment securities held to maturity totaled $1.05 billion at September 30, 2022 and $463.0 million at December 31, 2021.

We had paydowns of $107.4 million on mortgage-backed securities and government agencies, maturities of $25.9 million on municipal bonds, corporate securities and treasury securities, and calls of $24.5 million on U.S.

government agencies and municipal securities during the six months ended June 30, 2022.

We recognized a $2.8 million loss on the sale of available for sale debt securities during the second quarter of 2022.

We sold seven debt securities available for sale for $33.4 million that were yielding less than 1.00%.

We purchased $360.5 million in US Treasuries, $286.7 million in mortgage-backed securities, and $76.4 million in corporate securities during the six months ended June 30, 2022.

For a tabular presentation of debt securities available for sale and held to maturity at June 30, 2022 and December 31, 2021, see “Note 4 –

government agencies and municipal securities during the nine months ended September 30, 2022.

We recognized a $6.2 million loss on the sale of available for sale debt securities during the nine months ended September 30, 2022.

We sold sixteen debt securities available for sale for $75.0 million that were yielding less than 1.00%.

We purchased $361.6 million in US Treasuries, $286.7 million in mortgage-backed securities, and $76.4 million in corporate securities during the nine months ended September 30, 2022. 

For a tabular presentation of debt securities available for sale and held to maturity at September 30, 2022 and December 31, 2021, see “Note 4 –

Securities”

in our Notes to Consolidated Financial Statements.

The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure.

In doing so, we balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs.

The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities.

The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting.

The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. 

The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting. 

The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer-term securities purchased to generate level income for us over periods of interest rate fluctuations.

All investment securities in an unrealized loss position as of June 30, 2022 continue to perform as scheduled.

We have evaluated the securities and have determined that the decline in fair value, relative to its amortized cost, is not due to credit-related factors.

All investment securities in an unrealized loss position as of September 30, 2022 continue to perform as scheduled.

We have evaluated the securities and have determined that the decline in fair value, relative to their amortized cost, is not due to credit-related factors.

In addition, we have the ability to hold these securities within the portfolio until maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery.

We continue to monitor all of our securities with a high degree of scrutiny.

There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

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

As of June 30, 2022, we had $416.8 million of bank holding company subordinated notes.

As of September 30, 2022, we had $410.7 billion of bank holding company subordinated notes.

If rated, all such bonds were rated BBB or better by Kroll Bond Rating Agency at the time of our initial 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 has a combined average credit rating of AA as of June 30, 2022.

The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $666.7 million and $481.3 million as of June 30, 2022 and December 31, 2021, respectively.

We had total loans of $10.62 billion at June 30, 2022, up $1.08 billion, or 11.4%, compared to $9.53 billion at December 31, 2021.

Municipal investments have a combined average credit rating of AA as of September 30, 2022.

The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $748.3 million and $463.1 million as of September 30, 2022 and December 31, 2021, respectively.

We had total loans of $11.28 billion at September 30, 2022, up $1.75 billion, or 18.3%, compared to $9.53 billion at December 31, 2021.

We originated approximately 7,400 PPP loans totaling $1.5 billion during the COVID-19 pandemic.

Total remaining PPP loans outstanding were $23.0 million and $230.2 million at June 30, 2022 and December 31, 2021, respectively.

Total remaining PPP loans outstanding were $7.2 million and $230.2 million at September 30, 2022 and December 31, 2021, respectively.

Asset Quality

22 unchanged sentences

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)

19 unchanged sentences

in each category

June 30, 2022

September 30, 2022

to total loans

12 unchanged sentences

Nonperforming Assets

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, increased to $15.5 million at June 30, 2022, compared to $12.1 million at December 31, 2021.

Of this total, nonaccrual loans of $10.5 million at June 30, 2022 represented a net increase of $3.7 million from nonaccrual loans at December 31, 2021.

Excluding credit card accounts, there were three loans 90 or more days past due and still accruing totaling $4.9 million at June 30, 2022, compared to four loans totaling $5.3 million at December 31, 2021.

TDRs at June 30, 2022 and December 31, 2021 were $2.4 million and $2.6 million, respectively.

There were no loans newly classified as TDR or renewals of existing TDRs for the three months ended June 30, 2022 and 2021.

The following table summarizes our nonperforming assets and TDRs at June 30, 2022 and December 31, 2021:

June 30, 2022

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, increased to $16.5 million at September 30, 2022, compared to $12.1 million at December 31, 2021.

Of this total, nonaccrual loans of $11.7 million at September 30, 2022 represented a net increase of $4.9 million from nonaccrual loans at December 31, 2021.

Excluding credit card accounts, there were two loans 90 or more days past due and still accruing totaling $4.8 million at September 30, 2022, compared to four loans totaling $5.3 million at December 31, 2021.

TDRs at September 30, 2022 and December 31, 2021 were $2.0 million and $2.6 million, respectively.

The following table summarizes our nonperforming assets and TDRs at September 30, 2022 and December 31, 2021:

September 30, 2022

December 31, 2021

34 unchanged sentences

Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions

OREO and repossessed assets remained unchanged at $1.2 million at June 30, 2022, from December 31, 2021.

The following table summarizes OREO and repossessed asset activity for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

OREO and repossessed assets remained unchanged at $1.2 million at September 30, 2022, from December 31, 2021.

The following table summarizes OREO and repossessed asset activity for the nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

(In thousands)

15 unchanged sentences

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

As of June 30, 2022, the Company carries $3.2 million of accrued interest income on deferrals made to COVID-19 affected borrowers compared to $4.0 million at December 31, 2021.

As of September 30, 2022, the Company carries $2.5 million of accrued interest income on deferrals made to COVID-19 affected borrowers compared to $4.0 million at December 31, 2021.

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’

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We have promoted electronic banking services by providing them without charge and by offering in-bank customer training.

Total deposits were $11.77 billion at June 30, 2022, a decrease of $680.50 million, or 5.5%, from $12.45 billion at December 31, 2021.

Total deposits were $11.05 billion at September 30, 2022, a decrease of $1.40 billion, or 11.3%, from $12.45 billion at December 31, 2021.

We saw some run-off in correspondent deposits during the third quarter of 2022, while the non-correspondent deposits were stable during the quarter.

It was to be expected that our correspondent banks would engage in lending, security purchases, and funding their balance sheet;

however, the volume may be slightly higher than we anticipated.

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.

A significant amount of federal and state stimulus money resulting from the COVID-19 pandemic remains on deposit at our bank.

We are currently taking measures to deploy these excess funds out of cash into higher-earning assets.

For amounts and rates of our deposits by category, see the table “Average Balance Sheets and Net Interest Analysis on a Fully Taxable-Equivalent Basis”

under the subheading “Net Interest Income.”

The following table summarizes balances of our deposits and the percentage of each type to the total at June 30, 2022 and December 31, 2021:

June 30, 2022

The following table summarizes balances of our deposits and the percentage of each type to the total at September 30, 2022 and December 31, 2021:

September 30, 2022

December 31, 2021

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Brokered time deposits

At June 30, 2022 and December 31, 2021, we estimate that we had approximately $9.62 billion and $10.65 billion, respectively, in uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit.

The following table presents the maturities of our time deposits in excess of insurance limit as of June 30, 2022.

Portion of time deposits in excess of insurance limit

June 30, 2022

At September 30, 2022 and December 31, 2021, we estimate that we had approximately $8.58 billion and $10.65 billion, respectively, in uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit.

The following table presents the maturities of our time deposits in excess of FDIC insurance limits as of September 30, 2022.

Portion of time deposits in excess of

insurance limit

September 30, 2022

Time deposits otherwise uninsured with a maturity of:

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

We had $1.39 billion and $1.71 billion at June 30, 2022 and December 31, 2021, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit.

The average rate paid on these borrowings was 0.79% for the quarter ended June 30, 2022.

We had $1.47 billion and $1.71 billion at September 30, 2022 and December 31, 2021, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit.

The average rate paid on these borrowings was 2.27% for the quarter ended September 30, 2022. 

Other borrowings consist of the following:

$34.75 million of the Company’s 4% Subordinated Notes due October 21, 2030, which were issued in a private placement in October 2020 and pay interest semi-annually.

The Notes may not be prepaid by the Company prior to October 21, 2025.

The Notes may not be prepaid by the Company prior to October 21, 2025.

$30.0 million of 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually.

The Notes may not be prepaid by the Company prior to November 8, 2022.

Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, and other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.

The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position.

If our liquidity were to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions.

Our current deposit levels are sufficient to maintain liquidity needs but if our liquidity were to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions.

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

At June 30, 2022, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $2.87 billion.

At June 30, 2022, the Bank had borrowing availability of approximately $1.04 billion in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements.

At September 30, 2022, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $1.57 billion. 

At September 30, 2022, the Bank had borrowing availability of approximately $963.0 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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At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals.

Our regular sources of funding are from the growth of our deposit base, correspondent banking relationships and related federal funds purchased, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. 

In addition, we have issued debt as described above under “Other Borrowings”.

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Management believes our liquidity ratios meet or exceed these guidelines.

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

However, uncertainties brought about by the increasing interest rates and inflation may adversely affect our ability to obtain funding or may increase the cost of funding.

The following table illustrates, during the periods presented, the mix of our funding sources and the assets in which those funds are invested as a percentage of our average total assets for the period indicated.

Average assets totaled $14.96 billion and $15.01 billion for the three and six months ended June 30, 2022 and 2021, respectively

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Average assets totaled $14.39 billion and $15.00 billion for the three and nine months ended September 30, 2022 and 2021, respectively.

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Sources of Funds:

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Total stockholders’

equity attributable to us at June 30, 2022 was $1.21 billion, or 8.36% of total assets.

equity attributable to us at September 30, 2022 was $1.24 billion, or 8.94% of total assets.

At December 31, 2021, total stockholders’

equity attributable to us was $1.15 billion, or 7.45% of total assets.

As of June 30, 2022, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action.

As of September 30, 2022, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action.

To remain categorized as well-capitalized, we must maintain minimum common equity Tier 1, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as disclosed in the table below.

Our management believes that we are well-capitalized under the prompt corrective action provisions as of June 30, 2022.

Based on the recommendation of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the federal banking agencies issued final rules ("Basel III Final Rules") establishing a comprehensive regulatory capital framework.

The Basel III Final Rules require the Company to maintain a capital conservation buffer of 2.5% designed to absorb losses during economic downturns.

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 applicable 2.5% capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of June 30, 2022, December 31, 2021 and June 30, 2021:

Our management believes that we are well-capitalized under the prompt corrective action provisions and that we meet leverage ratio requirements inclusive of the applicable 2.5% capital conservation buffer as of September 30, 2022

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 applicable 2.5% capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of September 30, 2022, December 31, 2021 and September 30, 2021:

To Be Well Capitalized

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Action Provisions

As of June 30, 2022

As of September 30, 2022

(Dollars in Thousands)

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ServisFirst Bank

As of June 30, 2021

As of September 30, 2021

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, 2022 are as follows:

June 30, 2022

Financial instruments whose contract amounts represent credit risk at September 30, 2022 are as follows:

September 30, 2022

(In Thousands)

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Summary of Net Income

Net income and net income available to common stockholders for the three months ended June 30, 2022 was $62.1 million compared to net income and net income available to common stockholders of $50 million for the three months ended June 30, 2021.

Net income and net income available to common stockholders for the six months ended June 30, 2022 was $119.7 million compared to net income and net income available to common stockholders of $101.5 million for the six months ended June 30, 2021.

For the three and six months ended June 30, 2022 compared to 2021 net interest income increased $21.7 million, and $35.1 million, respectively.

The increase in net interest income for the three and six-month periods is primarily attributable to growth in average earning assets and non-interest-bearing deposit balances.

Increases in non-interest expense of $8.5 million and $16.8 million and increases in income tax expense of $1.1 million and $1.6 million, respectively, for the three and six months ended June 30, 2022 compared to 2021 partially offset increases in net interest income.

Basic and diluted earnings per common share were both $1.14, for the three months ended June 30, 2022, compared to $0.92 for the corresponding period in 2021.

Return on average assets for the three and six months ended June 30, 2022 was 1.67% and 1.60% compared to 1.56% and 1.63%, respectively, for the corresponding periods in 2021.

Net income and net income available to common stockholders for the three months ended September 30, 2022 was $64.0 million compared to net income and net income available to common stockholders of $52.5 million for the three months ended September 30, 2021. 

Net income and net income available to common stockholders for the nine months ended September 30, 2022 was $183.8 million and $183.7 million, respectively, compared to net income and net income available to common stockholders of $154.0 million for the nine months ended September 30, 2021. 

For the three and nine months ended September 30, 2022 compared to 2021 net interest income increased $30.1 million, and $65.2 million, respectively.

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.

Increases in non-interest expense of $8.3 million and $25.1 million and increases in income tax expense of $1.5 million and $3.1 million, respectively, for the three and nine months ended September 30, 2022 compared to 2021 partially offset increases in net interest income.

Basic and diluted earnings per common share were $1.18 and $1.17, respectively, for the three months ended September 30, 2022, compared to $0.97 and $0.96, respectively, for the corresponding period in 2021. 

Return on average assets for the three and nine months ended September 30, 2022 was 1.77% and 1.64% compared to 1.50% and 1.63%, respectively, for the corresponding periods in 2021. 

Return on average common stockholders’

equity for the three and six months ended June 30, 2022 was 20.93% and 20.52%, respectively, compared to 18.98% and 19.73%, respectively, for the corresponding periods in 2021.

equity for the three and nine months ended September 30, 2022 was 20.49% and 20.44%, respectively, compared to 18.93% and 19.73%, respectively, for the corresponding periods in 2021.

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 $21.8 million, or 23.0%, to $116.5 million for the three months ended June 30, 2022 compared to $94.7 million for the corresponding period in 2021, and increased $35.2 million, or 18.8%, to $222.3 million for the six months ended June 30, 2022 compared to $187.2 million for the corresponding period in 2021.

This increase was primarily attributable to growth in average earning assets, which increased $1.93 billion, or 15.6%, from the second quarter of 2021 to the second quarter of 2022, and $2.53 billion, or 21.0%, from the six months ended June 30, 2021 to the same period in 2022.

The taxable-equivalent yield on interest-earning assets increased to 3.54% for the three months ended June 30, 2022 from 3.32% for the corresponding period in 2021, and decreased to 3.32% for the six months ended June 30, 2022 from 3.41% for the corresponding period in 2021.

The yield on loans for the three months ended June 30, 2022 was 4.38% compared to 4.43% for the corresponding period in 2021, and 4.36% compared to 4.46% for the six months ended June 30, 2022 and June 30, 2021, respectively.

The cost of total interest-bearing liabilities increased to 0.46% for the three months ended June 30, 2022 compared to 0.37% for the corresponding period in 2021, and increased to 0.40% for the six months ended June 30, 2022 from 0.39% for the corresponding period in 2021.

Net interest margin for the three months ended June 30, 2022 was 3.26% compared to 3.06% for the corresponding period in 2021, and 3.07% for the six months ended June 30, 2022 compared to 3.14% for the corresponding period in 2021.

On June 17, 2022 the Federal Reserve Bank increased their targeted federal funds rate from 0.75 –

1.00% to 1.50 - 1.75%.

Taxable-equivalent net interest income increased $30.1 million, or 31.2%, to $126.5 million for the three months ended September 30, 2022 compared to $96.4 million for the corresponding period in 2021, and increased $65.1 million, or 23.0%, to $348.7 million for the nine months ended September 30, 2022 compared to $283.6 million for the corresponding period in 2021. 

This increase was primarily attributable to growth in average earning assets, which increased $341.7 million, or 2.5%, from the third quarter of 2021 to the third quarter of 2022, and $1.79 billion, or 14.3%, from the nine months ended September 30, 2021 to the same period in 2022.

The taxable-equivalent yield on interest-earning assets increased to 4.30% for the three months ended September 30, 2022 from 3.08% for the corresponding period in 2021, and increased to 3.63% for the nine months ended September 30, 2022 from 3.28% for the corresponding period in 2021. 

The yield on loans for the three months ended September 30, 2022 was 4.77% compared to 4.39% for the corresponding period in 2021, and 4.51% compared to 4.43% for the nine months ended September 30, 2022 and September 30, 2021, respectively. 

The cost of total interest-bearing liabilities increased to 1.05% for the three months ended September 30, 2022 compared to 0.35% for the corresponding period in 2021, and increased to 0.61% for the nine months ended September 30, 2022 from 0.37% for the corresponding period in 2021. 

Net interest margin for the three months ended September 30, 2022 was 3.64% compared to 2.85% for the corresponding period in 2021, and 3.26% for the nine months ended September 30, 2022 compared to 3.03% for the corresponding period in 2021.

During the third quarter of 2022, the Federal Reserve Bank increased their targeted federal funds rate from 1.50 - 1.75% 

to 3.00 –

We believe our net interest income will benefit from this and future rate increases as we anticipate a lag in deposit pricing increases to loan pricing increases.

The following tables show, for the three and six months ended June 30, 2022 and June 30, 2021, the average balances of each principal category of our assets, liabilities and stockholders’

The following tables show, for the three and nine months ended September 30, 2022 and September 30, 2021, 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)

Interest-earning assets:

Loans, net of unearned income (1)

Loans, net of unearned

Tax-exempt (3)

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Tax-exempt (3)

Total investment securities (3)

Federal funds sold

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

Loan fees of $3,303 and $9,915 are included in interest income in the second quarter of 2022 and 2021, respectively.

Loan fees of $3,849 and $7,203 are included in interest income in the third quarter of 2022 and 2021, respectively.

Loan fees include accretion of PPP loan fees.

Amortization of acquired loan premiums of $38 and $21 is included in interest income in 2022 and 2021, respectively.

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

Unrealized (losses) gains of $(25,730) and $23,614 are excluded from the yield calculation in the second quarter of 2022 and 2021, respectively.

For the Three Months Ended June 30,

2022 Compared to 2021 Increase (Decrease) in Interest Income and Expense Due to Changes in:

Unrealized (losses) gains of $(36,817) and $26,709 are excluded from the yield calculation in the third quarter of 2022 and 2021, respectively.

For the Three Months Ended September 30,

2022 Compared to 2021 Increase (Decrease) in Interest

Income and Expense Due to Changes in:

(In Thousands)

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Our growth in loans continues to drive favorable volume component change and overall change.

The rate component was unfavorable as loan yields decreased five basis points and average rates paid on interest-bearing liabilities increased nine 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, 2022 compared to the same period in 2021.

The rate component was unfavorable as loan yields increased 38 basis points and average rates paid on interest-bearing liabilities increased 70 basis points.

Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the three months ended September 30, 2022 compared to the same period in 2021.

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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Net interest margin

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

Loan fees of $12,126, $20,316 are included in interest income in 2022 and 2021, respectively.

Accretion on acquired loan discounts of $70 and $100 is included in interest income in 2022 and 2021, respectively.

Non-accrual loans are included in average loan balances in all periods. Loan fees include accretion of PPP loan fees of $15,975 and $27,519 are included in interest income in 2022 and 2021, respectively.

Amortization of acquired loan premiums of $108 and $43 is included in interest income in 2022 and 2021, respectively.

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

Unrealized (losses) gains of $(6,411) and $24,547 are excluded from the yield calculation in 2022 and 2021, respectively.

For the Six Months Ended June 30,

Unrealized (losses) gains of $(14,920) and $25,276 are excluded from the yield calculation in 2022 and 2021, respectively.

For the Nine Months Ended September 30,

2022 Compared to 2021 Increase (Decrease) in Interest Income and Expense Due to Changes in:

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Our growth in loans continues to drive favorable volume component change and overall change.

The rate component was unfavorable as loan yields decreased 10 basis points while average rates paid on interest-bearing liabilities increased one basis point.

Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the six months ended June 30, 2022 compared to the same period in 2021.

The rate component was unfavorable as loan yields increased 8 basis points while average rates paid on interest-bearing liabilities increased 24 basis point. 

Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the nine months ended September 30, 2022 compared to the same period in 2021.

Provision for Credit Losses

The provision for credit losses was $9.5 million for the three months ended June 30, 2022, a decrease of $145,000 from $9.7 million for the three months ended June 30, 2021, and was $14.9 million for the six months ended June 30, 2022, a $2.2 million decrease compared to $17.1 million for the six months ended June 30, 2021.

The decrease in provision expense is primarily the result of improvement in economic projections used to inform loss driver forecasts within the ACL model.

The ACL for June 30, 2022 and December 31, 2021 was $128.4 million and $116.7 million, or 1.21% and 1.22% of loans, net of unearned income, respectively.

Annualized net credit charge-offs to quarter-to-date average loans were 0.02% for the three months ended June 30, 2022, compared to annualized net credit recoveries to quarter-to-date average loans of 0.01% for the same period in 2021.

Annualized net credit charge-offs to year-to-date average loans were 0.04% for the six months ended June 30, 2022, compared to 0.01% for the corresponding period in 2021.

Nonperforming loans increased to $15.5 million, or 0.15% of total loans, at June 30, 2022 from $12.1 million, or 0.13% of total loans, at December 31, 2021, and were $17.2 million, or 0.20% of total loans, at June 30, 2021.

The provision for credit losses was $15.6 million for the three months ended September 30, 2022, an increase of $9.6 million from $5.9 million for the three months ended September 30, 2021, and was $30.5 million for the nine months ended September 30, 2022, a $7.4 million increase compared to $23.1 million for the nine months ended September 30, 2021.

The increase in provision expense is primarily the result of deterioration in the economic projections used to inform loss driver forecasts within the ACL model.

The ACL for September 30, 2022 and December 31, 2021 was $141.0 million and $116.7 million, or 1.25% and 1.22% of loans, net of unearned income, respectively.

Annualized net credit charge-offs to quarter-to-date average loans were 0.11% for the three months ended September 30, 2022, compared to 0.08% for the same period in 2021.

Annualized net credit charge-offs to year-to-date average loans were 0.08% for the nine months ended September 30, 2022, compared to 0.03% for the corresponding period in 2021. 

Nonperforming loans increased to $16.5 million, or 0.15% of total loans, at September 30, 2022 from $12.1 million, or 0.13% of total loans, at December 31, 2021, and were $14.5 million, or 0.16% of total loans, at September 30, 2021.

See the section captioned “Asset Quality”

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Noninterest Income

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Noninterest income:

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Total non-interest income

Noninterest income totaled $9.5 million for the three months ended June 30, 2022, a decrease of $92,000 compared to the corresponding period in 2021, and totaled $17.5 million for the six months ended June 30, 2022, a decrease of $607,000, or 3.4%, compared to the corresponding period in 2021.

Mortgage banking income decreased $2.1 million, or 77.3%, to $614,000 for the three months ended June 30, 2022 compared to $2.7 million for the same period in 2021, and decreased $4.3 million, or 79.1%, to $1.1 million for the six months ended June 30, 2022 compared to $5.4 million for the same period in 2021.

We started retaining our mortgage loans in the second quarter of 2021 to increase earning assets and use excess liquidity.

As of June 30, 2022, we had retained a total of 405 1-4 family mortgages for an aggregate balance of $151.1 million.

Net credit card income increased $760,000 to $2.7 million for the three months ended June 30, 2022 compared to the same period in 2021, and increased $1.9 million to $5.0 million for the six months ended June 30, 2022 compared to the same period in 2021.

The number of credit card accounts increased approximately 20.2% and the aggregate amount of spend on all credit card accounts increased 33.4% during the second quarter of 2022 compared to the second quarter of 2021.

Increase in cash surrender value of life insurance decreased $50,000, or 3.0%, to $1.6 million during the three months ended June 30, 2022, compared to the corresponding period in 2021, and decreased $100,000, or 3.0%, to $3.2 million for the six months ended June 30, 2022 compared to $3.3 million for the same period in 2021.

Other income increased $4.5 million, or 580.4%, to $5.3 million for the three months ended June 30, 2022 compared to $777,000 for the same period in 2021, and increased $8.2 million, or 471.9%, to $9.9 million for the six months ended June 30, 2022 compared to $1.7 million for the same period in 2021.

We wrote up the value of our interest rate cap by $1.9 million during the second quarter of 2022 and $5.3 million year-to-date 2022 compared to a write down of $2,000 during the second quarter of 2021 and a write-up of $273,000 year-to-date 2021.

Merchant service revenue increased from $289,000 during the second quarter of 2021 to $471,000, or 63%, during the second quarter of 2022.

We recognized a $2.1 million death benefit related to a former employee in our bank-owned life insurance (“BOLI”) program during the second quarter of 2022.

We recognized a $2.8 million loss on the sale of available for sale debt securities during the second quarter of 2022 and $6.2 million during the six months ended June 30, 2022, compared to a $620,000 gain on the call of a corporate bond during the three and six month periods ended June 30, 2021.

During 2022 we sold available for sale debt securities that were yielding less than 1.00%.

Noninterest income totaled $8.9 million for the three months ended September 30, 2022, an increase of $913,000 compared to the corresponding period in 2021, and totaled $26.4 million for the nine months ended September 30, 2022, an increase of 

$306,000, or 1.2%, compared to the corresponding period in 2021.

Mortgage banking income decreased 

$639,000, or 44.9%, to 

$784,000 for the three months ended September 30, 2022 compared to $1.4 million for the same period in 2021, and decreased $4.9 million, or 72.0%, to $1.9 million for the nine months ended September 30, 2022 compared to $6.9 million for the same period in 2021.

The decrease in mortgage revenue was predominantly driven by rising borrowing costs and slowing housing sales.

Net credit card income increased $569,000 to $2.6 million for the three months ended September 30, 2022 compared to the same period in 2021, and increased $2.5 million to $7.7 million for the nine months ended September 30, 2022 compared to the same period in 2021.

The aggregate amount of spend on all credit card accounts increased 27.2% during the third quarter of 2022 compared to the third quarter of 2021.

Increase in cash surrender value of life insurance decreased $34,000, or 2.0%, to $1.6 million during the three months ended September 30, 2022, compared to the corresponding period in 2021, and decreased $134,000, or 2.7%, to $4.9 million for the nine months ended September 30, 2022 compared to $5 million for the same period in 2021.

Other income increased 

$852,000, or 73.3%, to $2.0 million for the three months ended September 30, 2022 compared to $1.2 million for the same period in 2021, and increased $9.0 million, or 312.0%, to $11.9 million for the nine months ended September 30, 2022 compared to $2.9 million for the same period in 2021.

We recognized $1.3 million of income related to our interest rate cap during the third quarter 2022 and $6.5 million year-to-date 2022 compared to a write down of $98,000 during the third quarter of 2021 and a write-up of $174,000 year-to-date 2021.

Merchant service revenue increased from $375,000 during the third quarter of 2021 to $468,000, or 25%, during the third quarter of 2022.

Noninterest Expense

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Noninterest expense:

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Total non-interest expense

Noninterest expense totaled $39.8 million for the three months ended June 30, 2022, an increase of $8.5 million, or 27.2%, compared to $31.3 million for the same period in 2021, and totaled $77.0 million for the six months ended June 30, 2022, an increase of $16.8 million, or 27.9%, compared to $60.2 million for the same period in 2021.

Details of expense are as follows:

Salary and benefit expense increased $3.8 million, or 22.8%, to $20.7 million for the three months ended June 30, 2022, from $16.9 million for the same period in 2021, and increased $6.6 million, or 20.4%, to $39 million for the six months ended June 30, 2022 from $32.4 million for the same period in 2021.

Total employees increased from 527 as of June 30, 2021, to 540 as of June 30, 2022.

We accrued an additional $1.8 million in our annual incentive program during the second quarter of 2022 based on loan growth and entry into new markets.

Equipment and occupancy expense increased $139,000, or 4.9%, to $3.0 million for the three months ended June 30, 2022 from $2.8 million for the corresponding period in 2021, and increased $418,000, or 7.6%, to $5.9 million for the six months ended June 30, 2022 compared to $5.5 million for the corresponding period in 2021.

Third party processing and other services increased $2.4 million, or 60.8%, to $6.3 million for the three months ended June 30, 2022, from $3.9 million for the corresponding period in 2021, and increased $4.6 million, or 62.3%, to $12 million for the six months ended June 30, 2022 compared to $7.4 million for the corresponding period in 2021.

Noninterest expense totaled $42.7 million for the three months ended September 30, 2022, an increase of $8.3 million, or 24.2%, compared to $34.4 million for the same period in 2021, and totaled $119.7 million for the nine months ended September 30, 2022, an increase of $25.1 million, or 26.6%, compared to $94.6 million for the same period in 2021.

Details of more significant expense fluctuations are as follows:

Salary and benefit expense increased $1.7 million, or 9.4%, to $19.7 million for the three months ended September 30, 2022, from $18.0 million for the same period in 2021, and increased $8.3 million, or 16.5%, to $58.7 million for the nine months ended September 30, 2022 from $50.4 million for the same period in 2021.

The increase is primarily due to an increase in the number of employees, adding 13 bankers during the third quarter of 2022, and 15 bankers during the second quarter of 2022.

Total employees increased from 518 as of September 30, 2021, to 558 as of September 30, 2022.

Third party processing and other services increased $3.1 million, or 74.1%, to $7.2 million for the three months ended September 30, 2022, from $4.1 million for the corresponding period in 2021, and increased $7.7 million, or 66.5%, to $19.2 million for the nine months ended September 30, 2022 compared to $11.5 million for the corresponding period in 2021.

This increase in third party processing includes Federal Reserve Bank charges related to correspondent bank settlement activities.

These charges increased by $1.7 million year-over-year to $2.3 million during the second quarter of 2022.

FDIC and other regulatory assessments decreased $278,000, or 19.5%, to $1.1 million for the three months ended June 30, 2022 from $1.4 million for the corresponding period in 2021, and decreased $728,000, or 24.2%, to $2.3 million for the six months ended June 30, 2022 compared to $3.0 million for the corresponding period in 2021.

OREO expense decreased $508,000, or 94.1%, to $32,000 for the three months ended June 30, 2022 from $540,000 for the corresponding period in 2021, and decreased $662,000, or 95.0%, to $35,000 from $697,000 for the six months ended June 30, 2022 compared to the corresponding period in 2021.

Other operating expenses increased $2.7 million, or 59.1%, to $7.3 million for the three months ended June 30, 2022, from $4.6 million for the corresponding period in 2021, and increased $6.3 million, or 68.6%, to $15.5 million from $9.2 million for the six months ended June 30, 2022 compared to the corresponding period in 2021.

We accrued $250,000 for potential uninsured check fraud losses during the second quarter of 2022 and $750,000 year-to-date.

We recognized core system deconversion expenses of $3.0 million during the fourth quarter of 2021 and $873,000 during the first quarter of 2022 through other operating expenses.

These charges increased by $3.0 million year-over-year to $3.7 million during the third quarter of 2022.

FDIC and other regulatory assessments decreased $655,000, or 40.2%, to $975,000.0 for the three months ended September 30, 2022 from $1.6 million for the corresponding period in 2021, and decreased $1 million, or 29.8%, to $3.3 million for the nine months ended September 30, 2022 compared to $4.6 million for the corresponding period in 2021.

OREO expense decreased $102,000, or 82.9%, to $21,000 for the three months ended September 30, 2022 from 

$123,000 for the corresponding period in 2021, and decreased 

$764,000, or 93.2%, to 

$56,000 from 

$820,000 for the nine months ended September 30, 2022 compared to the corresponding period in 2021.

The decrease in OREO expense was largely due to decreases in our OREO balances between September 30, 2021 and September 30, 2022.

Other operating expenses increased $4.1 million, or 62.3%, to $10.6 million for the three months ended September 30, 2022, from $6.5 million for the corresponding period in 2021, and increased $10.4 million, or 65.9%, to $26.1 million from $15.7 million for the nine months ended September 30, 2022 compared to the corresponding period in 2021.

During the third quarter of 2022 we reached a preliminary settlement on a lawsuit and wrote down the value of a private investment resulting together in charges of $3.1 million, or $2.4 million net of income tax.

Income Tax Expense

Income tax expense was $14.4 million for the three months ended June 30, 2022 compared to $13.3 million for the same period in 2021, and was $27.9 million for the six months ended June 30, 2022, compared to $26.3 million for the same period in 2021.

Our effective tax rate for the three and six months ended June 30, 2022 was 18.83% and 18.89%, respectively, compared to 20.97% and 20.57% for the corresponding periods in 2021, respectively.

We recognized $3.1 million and $6.3 million in federal new markets tax credits during the three and six months ended June 30, 2022, respectively, compared to $141,000 and $281,000 during the same periods in 2021, respectively.

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 six months ended June 30, 2022 of $352,000 and $924,000, respectively, compared to $724,000 and $2.4 million during the three and six months ended June 30, 2021, respectively.

Income tax expense was $13.0 million for the three months ended September 30, 2022 compared to $11.5 million for the same period in 2021, and was $40.9 million for the nine months ended September 30, 2022, compared to $37.8 million for the same period in 2021.

Our effective tax rate for the three and nine months ended September 30, 2022 was 16.92% and 18.21%, respectively, compared to 17.98% and 19.71% for the corresponding periods in 2021, respectively. 

We recognized $3.1 million and $9.4 million related to investments in tax credit partnerships during the three and nine months ended September 30, 2022, respectively, compared to $3.3 million and $3.6 million during the same periods in 2021, respectively.

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, 2022 of $370,000 and $1.3 million, respectively, compared to $78,000 and $2.4 million during the three and nine months ended September 30, 2021, 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.

10 unchanged sentences

In management’s opinion, certain accounting policies have a more significant impact than others on the Company’s financial reporting.

The allowance for credit losses and income taxes are particularly significant for the Company’s financial reporting. 

Information concerning our accounting policies and critical accounting estimates with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

There were no changes to the accounting policies for the allowance for credit losses or income taxes during the three and six months ended June 30, 2022.

There were no changes to the accounting policies for the allowance for credit losses or income taxes during the three and nine months ended September 30, 2022.

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