ServisFirst Bancshares, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulations S-X and by Item 302 of Regulation S‑K are set forth in the pages listed below. Page Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 61 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting 63 Consolidated Balance Sheets at December 31, 2024 and 2023 64 Consolidated Statements of Income for the Years Ended December 31, 2024, 2023 and 2022 65 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024, 2023 and 2022 66 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2024, 2023 and 2022 67 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022 68 Notes to Consolidated Financial Statements 69 60 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of ServisFirst Bancshares, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of ServisFirst Bancshares, Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2025, expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses on Loans The Company’s loan portfolio and the associated allowance for credit losses (“allowance”) were $12.61 billion and $164.5 million as of December 31, 2024, respectively. As further described in Notes 1 and 3 to the consolidated financial statements, the amount of the allowance represents management’s best estimate of current expected credit losses on loans considering the characteristics of the loan portfolio and the economic environment. To calculate the allowance, loans with similar risk characteristics are collectively evaluated in pools and loans that do not share similar risk characteristics are excluded from the collective pools and evaluated on an individual basis. Management evaluates each loan pool utilizing a discounted cash flow, probability of default / loss given default or remaining life method, depending on the nature of the loan pool. Losses are predicted over a period of time determined to be reasonable and supportable, and after such period, losses are reverted to long term historical averages. The estimated credit losses for each loan pool are then adjusted for qualitative factors not inherently considered in the quantitative analyses. Consideration is given to the following factors: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions. Estimating qualitative factor adjustments requires significant judgment and can either increase or decrease the quantitative model estimation. 61 We identified the allowance for credit losses, and more specifically the qualitative factor adjustments applied in the allowance, as a critical audit matter. The principal consideration for our determination of the qualitative factor adjustments as a critical audit matter is the subjectivity of the assumptions that management utilized in determining and applying qualitative factors in the allowance model. Furthermore, certain inputs and assumptions lack observable data and, therefore, applying audit procedures required a higher degree of auditor judgment and subjectivity due to the nature and extent of audit evidence and effort required to address this matter. The primary audit procedures we performed to address this critical audit matter included: ● Evaluated the design and tested the operating effectiveness of key controls relating to the Company’s allowance, including controls over the determination of qualitative factor adjustments, the precision of management’s review and approval of the resulting estimate, and testing of the model’s performance. ● Assessed the appropriateness and reasonableness of the qualitative factor adjustment framework, including evaluating management’s judgments as to which factors and relevant assessed risks impacted the qualitative adjustments for each loan pool. ● Evaluated and tested the reasonableness and relevance of data utilized in the qualitative factor adjustments, including considering the data’s completeness and accuracy and testing the mathematical accuracy of the calculations. ● Utilized the assistance of the firm’s internal specialists to test the mathematical operation of the model and to evaluate the reasonableness of assumptions and judgments used in the forecast components. ● Analyzed the total qualitative factor adjustment applied to each loan pool, in comparison to changes in the Company’s quantitatively driven expected credit losses and loan pools and evaluated the appropriateness and level of the total qualitative factor adjustment applied in the overall allowance. /s/ Forvis Mazars, LLP We have served as the Company’s auditor since 2014. Tampa, Florida March 3, 2025 62 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors ServisFirst Bancshares, Inc. Opinion on the Internal Control over Financial Reporting We have audited ServisFirst Bancshares, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2024 and 2023, and for each of the three years in the period ended December 31, 2024, and our report dated March 3, 2025, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definitions and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. /s/ Forvis Mazars, LLP Tampa, Florida March 3, 2025 63 SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2024 December 31, 2023 ASSETS Cash and due from banks $ 116,394 $ 123,430 Interest-bearing balances due from depository institutions 2,259,195 1,907,083 Federal funds sold 1,045 100,575 Cash and cash equivalents 2,376,634 2,131,088 Available-for-sale debt securities, at fair value 1,161,400 900,183 Held-to-maturity debt securities (fair value of $ 639,496 and $ 907,191 , respectively) 714,853 982,664 Restricted equity securities 11,300 10,226 Mortgage loans held for sale 9,211 5,074 Loans 12,605,836 11,658,829 Less allowance for credit losses ( 164,458 ) ( 153,317 ) Loans, net 12,441,378 11,505,512 Premises and equipment, net 59,185 59,324 Accrued interest and dividends receivable 62,794 59,181 Deferred tax asset, net 61,748 62,918 Other real estate owned and repossessed assets 2,531 995 Bank owned life insurance contracts 299,787 292,759 Goodwill 13,615 13,615 Other assets 137,207 106,129 Total assets $ 17,351,643 $ 16,129,668 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Non-interest-bearing demand $ 2,619,687 $ 2,643,101 Interest-bearing 10,923,772 10,630,410 Total deposits 13,543,459 13,273,511 Federal funds purchased 1,993,728 1,256,724 Other borrowings 64,743 64,735 Accrued interest and dividends payable 28,026 27,545 Other liabilities 104,915 66,748 Total liabilities 15,734,871 14,689,263 Stockholders' equity: Preferred stock, par value $ 0.001 per share; 1,000,000 authorized and undesignated at December 31, 2024 and December 31, 2023 - - Common stock, par value $ 0.001 per share; 200,000,000 shares authorized: 54,569,427 shares issued and outstanding at December 31, 2024; and 54,461,580 shares issued and outstanding at December 31, 2023 54 54 Additional paid-in capital 235,781 232,605 Retained earnings 1,412,616 1,254,841 Accumulated other comprehensive loss ( 32,179 ) ( 47,595 ) Total stockholders' equity attributable to ServisFirst Bancshares, Inc. 1,616,272 1,439,905 Noncontrolling interest 500 500 Total stockholders' equity 1,616,772 1,440,405 Total liabilities and stockholders' equity $ 17,351,643 $ 16,129,668 See Notes to Consolidated Financial Statements. 64 SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Year Ended December 31, 2024 2023 2022 Interest income: Interest and fees on loans $ 788,105 $ 699,101 $ 499,691 Taxable securities 66,535 53,499 40,722 Nontaxable securities 31 65 137 Federal funds sold 1,128 2,844 1,556 Other interest and dividends 90,322 57,737 17,209 Total interest income 946,121 813,246 559,315 Interest expense: Deposits 420,650 331,740 59,396 Borrowed funds 78,812 70,569 29,027 Total interest expense 499,462 402,309 88,423 Net interest income 446,659 410,937 470,892 Provision for credit losses 21,587 18,715 37,607 Net interest income after provision for credit losses 425,072 392,222 433,285 Noninterest income: Service charges on deposit accounts 9,434 8,420 8,033 Mortgage banking 4,922 2,755 2,438 Credit card income 8,280 8,631 9,917 Securities losses - - ( 6,168 ) Bank-owned life insurance income 9,533 7,574 6,478 Other operating income 2,887 3,037 12,661 Total noninterest income 35,056 30,417 33,359 Noninterest expenses: Salaries and employee benefits 96,318 80,965 77,952 Equipment and occupancy expense 14,519 14,295 12,319 Third party processing and other services 31,181 27,872 27,333 Professional services 6,901 5,916 4,277 FDIC and other regulatory assessments 10,687 15,614 4,565 Other real estate owned expense 199 47 295 Other operating expenses 21,341 33,342 31,075 Total noninterest expenses 181,146 178,051 157,816 Income before income taxes 278,982 244,588 308,828 Provision for income taxes 51,740 37,735 57,324 Net income 227,242 206,853 251,504 Dividends on preferred stock 62 62 62 Net income available to common stockholders $ 227,180 $ 206,791 $ 251,442 Basic earnings per common share $ 4.17 $ 3.80 $ 4.63 Diluted earnings per common share $ 4.16 $ 3.79 $ 4.61 See Notes to Consolidated Financial Statements. 65 SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2024 2023 2022 Net income $ 227,242 $ 206,853 $ 251,504 Other comprehensive income (loss), net of tax: Unrealized net holding gains (losses) arising during period from securities available for sale, net of $ 7,347 , $( 1,593 ), and $( 20,982 ) for the twelve months ended December 31, 2024, 2023, and 2022, respectively 15,902 ( 4,754 ) ( 59,768 ) Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax of $( 155 ), $( 197 ), and $( 375 ) for the twelve months ended December 31, 2024, 2023, and 2022, respectively ( 486 ) ( 588 ) ( 1,414 ) Reclassification adjustment for net losses on call and sale of securities, net of tax of $ 1,295 for 2022 - - 4,873 Other comprehensive income (loss), net of tax 15,416 ( 5,342 ) ( 56,309 ) Comprehensive income $ 242,658 $ 201,511 $ 195,195 See Notes to Consolidated Financial Statements. 66 SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share amounts) Years Ended December 31, 2024, 2023 and 2022 Common Shares Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interest Total Stockholders' Equity Balance, January 1, 2022 54,227,060 $ - $ 54 $ 226,397 $ 911,008 $ 14,056 $ 500 $ 1,152,015 Common dividends paid, $ 0.69 per share - - - - ( 37,470 ) - - ( 37,470 ) Common dividends declared, $ 0.28 per share - - - - ( 15,211 ) - - ( 15,211 ) Preferred dividends paid - - - - ( 62 ) - - ( 62 ) Dividends on nonvested restricted stock recognized as compensation expense - - - - 133 - - 133 Issue restricted shares pursuant to stock incentives, net of forfeitures 42,765 - - - - - - - Issue shares of common stock upon exercise of stock options 56,702 - - 1,232 - - - 1,232 13,798 shares of common stock withheld in net settlement upon exercise of stock options (1,143 ) - - - ( 1,143 ) Stock-based compensation expense - - - 3,207 - - - 3,207 Other comprehensive loss, net of tax - - - - - ( 56,309 ) - ( 56,309 ) Net income - - - - 251,504 - - 251,504 Balance, December 31, 2022 54,326,527 $ - $ 54 $ 229,693 $ 1,109,902 $ ( 42,253 ) $ 500 $ 1,297,896 Common dividends paid, $ 0.84 per share - - - - ( 45,711 ) - - ( 45,711 ) Common dividends declared, $ 0.30 per share - - - - ( 16,338 ) - - ( 16,338 ) Preferred dividends paid - - - - ( 62 ) - - ( 62 ) Dividends on nonvested restricted stock recognized as compensation expense - - - - 197 - - 197 Issue restricted shares pursuant to stock incentives, net of forfeitures 51,881 - - - - - - - Issue shares of common stock upon exercise of stock options 83,172 - - 1,287 - - - 1,287 29,028 shares of common stock withheld in net settlement upon exercise of stock options (1,975 ) - - - ( 1,975 ) Stock-based compensation expense - - - 3,600 - - - 3,600 Other comprehensive loss, net of tax - - - - - ( 5,342 ) - ( 5,342 ) Net income - - - - 206,853 - - 206,853 Balance, December 31, 2023 54,461,580 $ - $ 54 $ 232,605 $ 1,254,841 $ ( 47,595 ) $ 500 $ 1,440,405 Impact of adoption ASU 2023-02, net of tax - - - - ( 2,269 ) - - ( 2,269 ) Adjusted balance, January 1, 2024 54,461,580 - 54 232,605 1,252,572 ( 47,595 ) 500 1,438,136 Common dividends paid, $ 0.90 per share - - - ( 49,074 ) - - ( 49,074 ) Common dividends declared, $ 0.34 per share - - - ( 18,280 ) - - ( 18,280 ) Preferred dividends paid - - - ( 62 ) - - ( 62 ) Dividends on nonvested restricted stock recognized as compensation expense - - - - 218 - - 218 Issue restricted shares pursuant to stock incentives, net of forfeitures 55,282 - - - - - - - Issue shares of common stock upon exercise of stock options 52,565 - - 916 - - - 916 24,785 shares of common stock withheld in net settlement upon exercise of stock options - ( 1,229 ) ( 1,229 ) Stock-based compensation expense - - - 3,489 - - - 3,489 Other comprehensive income, net of tax - - - - - 15,416 - 15,416 Net income - - - - 227,242 - - 227,242 Balance, December 31, 2024 54,569,427 $ - $ 54 $ 235,781 $ 1,412,616 $ ( 32,179 ) $ 500 $ 1,616,772 See Notes to Consolidated Financial Statements. 67 SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2024 2023 2022 OPERATING ACTIVITIES Net income $ 227,242 $ 206,853 $ 251,504 Adjustments to reconcile net income to net cash provided by operations Deferred tax expense (benefit) ( 3,351 ) ( 1,005 ) ( 2,615 ) Provision for credit losses 21,587 18,715 37,607 Depreciation 4,785 4,436 4,100 Accretion on acquired loans 186 197 157 Amortization of core deposit intangible - - 23 Amortization of investments in tax credit partnerships 12,565 14,353 11,716 Net (accretion) amortization of debt securities ( 200 ) 49 2,581 Increase in accrued interest and dividends receivable ( 3,613 ) ( 10,759 ) ( 13,591 ) Stock-based compensation expense 3,489 3,600 3,207 Increase in accrued interest and dividends payable 481 8,930 4,996 Proceeds from sale of mortgage loans held for sale 204,404 127,702 50,922 Originations of mortgage loans held for sale ( 203,620 ) ( 128,414 ) ( 48,977 ) Gain on sale of mortgage loans held for sale ( 4,922 ) ( 2,755 ) ( 2,438 ) Gain on sale of securities available for sale - - 6,168 Net (gain) loss on sale of other real estate owned and repossessed assets ( 120 ) 28 ( 501 ) Write down of other real estate owned and repossessed assets 74 - 225 Increase in cash surrender value of life insurance contracts ( 7,028 ) ( 7,574 ) ( 6,831 ) Net change in other assets, liabilities, and other operating activities 956 ( 37,060 ) ( 25,626 ) Net cash provided by operating activities 252,915 197,296 272,627 INVESTMENT ACTIVITIES Purchases of debt securities available-for-sale ( 1,141,936 ) ( 1,001,811 ) ( 76,360 ) Proceeds from maturities, calls and paydowns of debt securities available-for-sale 904,167 746,398 115,750 Proceeds from sale of debt securities available-for-sale - - 75,036 Purchases of debt securities held-to-maturity ( 45,472 ) ( 48,723 ) ( 648,266 ) Proceeds from maturities, calls and paydowns of debt securities held-to-maturity 312,643 100,180 75,311 Purchases of restricted equity securities ( 1,074 ) ( 46,482 ) ( 423 ) Proceeds from sale of restricted equity securities - 43,990 - Investment in tax credit partnerships and SBIC ( 13,371 ) ( 9,303 ) ( 20,277 ) Return of capital from tax credit partnerships and SBIC 274 191 434 Net (increase) decrease in loans ( 963,367 ) 16,314 ( 2,164,114 ) Purchases of premises and equipment ( 4,646 ) ( 3,910 ) ( 3,650 ) Proceeds from death benefit of bank owned life insurance contracts 1,224 2,566 2,153 Proceeds from sale of other real estate owned and repossessed assets 3,024 158 2,282 Expenditures for other real estate owned - - ( 93 ) Net cash used in investing activities ( 948,534 ) ( 200,432 ) ( 2,642,217 ) FINANCING ACTIVITIES Net decrease in non-interest-bearing deposits ( 23,414 ) ( 678,246 ) ( 1,478,420 ) Net increase in interest-bearing deposits 293,362 2,404,952 572,389 Net increase (decrease) in federal funds purchased 737,004 ( 362,074 ) ( 92,979 ) FHLB advances - 300,000 - Repayment of FHLB advances - ( 300,000 ) - Proceeds from exercise of stock options 916 1,287 1,232 Taxes paid in net settlement of tax obligation upon exercise of stock options ( 1,229 ) ( 1,975 ) ( 1,143 ) Dividends paid on common stock ( 65,412 ) ( 45,711 ) ( 37,470 ) Dividends paid on preferred stock ( 62 ) ( 62 ) ( 62 ) Net cash provided by (used in) financing activities 941,165 1,318,171 ( 1,036,453 ) Net increase (decrease) in cash and cash equivalents 245,546 1,315,035 ( 3,406,043 ) Cash and cash equivalents at beginning of period 2,131,088 816,053 4,222,096 Cash and cash equivalents at end of period $ 2,376,634 $ 2,131,088 $ 816,053 SUPPLEMENTAL DISCLOSURE Cash paid for: Interest $ 498,981 $ 393,379 $ 83,427 Income taxes 44,977 53,991 68,665 Income tax refund - - ( 142 ) NONCASH TRANSACTIONS Other real estate acquired in settlement of loans $ 5,729 $ 933 $ 1,046 Internally financed sale of other real estate owned 1,215 - - Dividends on nonvested restricted stock reclassified as compensation expense 218 197 133 Dividends declared 18,280 16,338 15,211 See Notes to Consolidated Financial Statements. 68 SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations ServisFirst Bancshares, Inc. (the “Company”) was formed on August 16, 2007 and is a bank holding company whose business is conducted by its wholly owned subsidiary ServisFirst Bank (the “Bank”). The Bank is headquartered in Birmingham, Alabama, and has provided a full range of banking services to individual and corporate customers throughout the Birmingham market since opening for business in May 2005. The Bank has since expanded into Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia. The Bank owns all of the stock of SF Intermediate Holding Company, Inc., which, in turn, owns all of the stock of SF TN Realty Holdings, Inc., which, in turn, owns all of the common stock of the Company’s real estate investment trusts, SF Realty 1, Inc., SF FLA Realty, Inc., SF GA Realty, Inc. and SF TN Realty, Inc. More details about SF Intermediate Holding Company, Inc. and its subsidiaries are included in Note 11. Reclassification Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or net cash flow. Operating Segments The Company operates as a single reportable segment, with a majority of its revenues derived from the business of banking. Management, which serves as the Chief Operating Decision Maker (“CODM”), regularly reviews consolidated financial performance and allocates resources on a Bank-wide basis. As a result, the Company’s financial statements reflect one reportable segment. Basis of Presentation and Accounting Estimates To prepare consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for credit losses and the fair value of financial instruments are particularly subject to change. All numbers are in thousands except share and per share data. Basis of Consolidation The consolidated financial statements include the accounts of the Company and other entities in which it has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. 69 Cash, Due from Banks, Interest-Bearing Balances due from Financial Institutions Cash and due from banks include cash on hand, cash items in process of collection, amounts due from banks and interest bearing balances due from financial institutions. For purposes of cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Cash flows from loans, mortgage loans held for sale, federal funds sold, and deposits are reported net. Debt Securities Debt securities are classified based on the Company’s intention on the date of purchase. All debt securities classified as available-for-sale are recorded at fair value with any unrealized gains and losses reported in accumulated other comprehensive income (loss), net of the deferred income tax effects. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at historical cost and adjusted for amortization of premiums and accretion of discounts. Transfers of debt securities into the held-to-maturity category from available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security. Interest and dividends on securities, including amortization of premiums and accretion of discounts calculated under the effective interest method, are included in interest income. For certain securities, amortization of premiums and accretion of discounts is computed based on the anticipated life of the security, which may be shorter than the stated life of the security. Realized gains and losses from the sale of securities are determined using the specific identification method and are recorded on the trade date of the sale. Restricted Equity Securities Investments in restricted equity securities without a readily determinable market value are carried at cost. Mortgage Loans Held for Sale The Company classifies certain residential mortgage loans as held for sale. Typically, mortgage loans held for sale are sold to a third-party investor within a very short time period. The loans are sold without recourse and servicing is not retained. Net fees earned from this banking service are recorded in noninterest income. In the course of originating mortgage loans and selling those loans in the secondary market, the Company makes various representations and warranties to the purchaser of the mortgage loans. Each loan is underwritten using government agency guidelines. Any exceptions noted during this process are remedied prior to sale. These representations and warranties also apply to underwriting the real estate appraisal opinion of value for the collateral securing these loans. Under the representations and warranties, failure by the Company to comply with the underwriting and/or appraisal standards could result in the Company being required to repurchase the mortgage loan or to reimburse the investor for losses incurred (make whole requests) if such failure cannot be cured by the Company within the specified period following discovery. The Company continues to experience an insignificant level of investor repurchase demands. There were no expenses incurred as part of these buyback obligations for the years ended December 31, 2024 and 2023. Loans Loans are reported at unpaid principal balances, less unearned fees and the allowance for credit losses. Interest on all loans is recognized as income based upon the applicable rate applied to the daily outstanding principal balance of the loans. Interest income on nonaccrual loans is recognized on a cash basis or cost recovery basis until the loan is returned to accrual status. A loan may be returned to accrual status if the Company is reasonably assured of repayment of principal and interest and the borrower has demonstrated sustained performance for a period of at least six months. Loan fees, net of direct costs, are reflected as an adjustment to the yield of the related loan over the term of the loan. The Company does not have a concentration of loans to any one industry. The accrual of interest on loans is discontinued when there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or the principal or interest is more than 90 days past due, unless the loan is both well-collateralized and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status are reversed against current interest income. Interest collections on nonaccrual loans are generally applied as principal reductions. The Company determines past due or delinquency status of a loan based on contractual payment terms. Loan modifications are concessions granted to borrowers in the normal course of business, which would not otherwise be considered, where the borrowers are experiencing financial difficulty. The concessions granted most frequently involve reductions or delays in required payments of principal and interest for a specified time, the rescheduling of payments in accordance with a bankruptcy plan or the charge-off of a portion of the loan. 70 Allowance for Credit Losses ( “ ACL ” ) and Impairment of Debt Securities ACL – Debt Securities Held to Maturity Management uses a systematic methodology to determine its ACL for held-to-maturity debt securities. The ACL is a contra-asset valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held-to-maturity portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. Management monitors the held-to-maturity portfolio to determine whether an ACL would need to be recorded. As of December 31, 2024 and 2023, the Company had $ 714.9 million and $ 982.7 million, respectively, of held-to-maturity securities and no related ACL recorded, respectively. Impairment of Debt Securities Available for Sale For available-for-sale debt securities in an unrealized loss position, the Company will first assess whether i) it intends to sell or ii) it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. If either case is applicable, any previously recognized allowances are charged off and the debt security’s amortized cost is written down to fair value through income. If neither case is applicable, the debt security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the debt security by a rating agency and any adverse conditions specifically related to the debt security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the debt security are compared to the amortized cost basis of the debt security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount by which the fair value is less than the amortized cost basis. Any impairment that has not been recorded through allowance for credit losses is recognized in other comprehensive income, net of tax. Adjustments to the allowance are reported in the income statement as a component of credit loss expense. Debt securities are charged off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by the Company or when either of the aforementioned criteria regarding intent or requirement to sell is met specifically for available-for-sale debt securities. The Company excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on debt securities and does not record an ACL on accrued interest receivable. ACL – Loans The ACL is based on the Company’s evaluation of the loan portfolios, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The process is inherently subjective and subject to significant change as it requires material estimates. The allowance is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the ACL. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method. The historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates and gross domestic product. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic environment among other factors. The estimated credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework, which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions. Loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and credit losses are estimated on an individual basis. Individual evaluations are performed for nonaccrual loans, loans rated substandard, and modified loans. Specific allowances were estimated based on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows. 71 The Company measures expected credit losses over the contractual term of a loan, adjusted for estimated prepayments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will be executed. Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding, purchase discounts and premiums and deferred loan fees and costs. Accrued interest receivable on loans is excluded from the estimate of credit losses. ACL – Unfunded Loan Commitments The ACL is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has the unconditional right to cancel the obligation. The ACL is reported as a component of other liabilities within the Consolidated Balance Sheets. Adjustments to the ACL for unfunded commitments are reported in the Consolidated Income Statements as a component of other operating expense. Foreclosed Real Estate Foreclosed real estate includes both formally foreclosed property and in-substance foreclosed property. At the time of foreclosure, foreclosed real estate is recorded at fair value less cost to sell, which becomes the property’s new basis. Any write downs based on the asset’s fair value at date of acquisition are charged to the allowance for credit losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs incurred in maintaining foreclosed real estate and subsequent adjustments to the carrying amount of the property are included in other operating expenses. Premises and Equipment Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. Expenditures for additions and major improvements that significantly extend the useful lives of the assets are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. Assets that are disposed of are removed from the accounts and the resulting gains or losses are recorded in operations. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets ( 3 to 39.5 years). Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the improvements. Leases The Company leases certain office space and equipment under operating leases. Leases are recognized as a liability to make lease payments and as an asset representing the right to use the asset during the lease term, or “lease liability” and “right-of-use asset,” respectively. The lease liability is measured as the present value of remaining lease payments, discounted at the Company’s incremental borrowing rate. The Company reports its right-of-use assets in other assets and its lease liabilities in other liabilities within the Consolidated Balance Sheets. Certain of the leases include one or more renewal options that extend the initial lease term 1 to 5 years. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, a majority of renewals to extend lease terms are not included in the right-of-use assets and lease liabilities as they are not reasonably certain to be exercised. Renewal options are regularly evaluated and when they are reasonably certain to be exercised, are included in lease terms. None of the Company’s leases provide an implicit discount rate. The Company uses its incremental collateralized borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company does not recognize short-term leases on its Consolidated Balance Sheets. A short-term operating lease has an original term of 12 months or less and does not have a purchase option that is likely to be exercised. Bank Owned Life Insurance ( “ BOLI ” ) BOLI is comprised of long-term life insurance contracts on the lives of certain current and past employees where the insurance policy benefit and ownership are retained by the employer. Its cash surrender value is an asset that the Company uses to partially offset the future cost of employee benefits. The cash surrender value accumulation on BOLI is permanently tax deferred if the policy is held to the insured person’s death and certain other conditions are met. 72 Goodwill The Company has recorded $ 13.6 million of goodwill at December 31, 2024 in connection with the acquisition of Metro Bancshares, Inc. in 2015. The Company tests its goodwill for impairment annually unless interim events or circumstances make it more likely than not that an impairment loss has occurred. Impairment is defined as the amount by which the carrying value of a reporting unit exceeds its fair value. Impairment losses, if incurred, would be charged to operating expense. For the purposes of evaluating goodwill, the Company has determined that it operates only one reporting unit. Derivatives and Hedging Activities As part of its overall interest rate risk management, the Company uses derivative instruments, which can include interest rate swaps, caps, and floors. GAAP requires all derivative instruments to be carried at fair value on the Consolidated Balance Sheets. This accounting standard provides special accounting provisions for derivative instruments that qualify for hedge accounting. To be eligible, the Company must specifically identify a derivative as a hedging instrument and identify the risk being hedged. The derivative instrument must be shown to meet specific requirements under this accounting standard. The Company designates the derivative on the date the derivative contract is entered into as a hedge of the (1) fair value of a recognized asset or liability or of an unrecognized firm commitment (a “fair-value” hedge) or (2) a forecasted transaction of the variability of cash flows to be received or paid related to a recognized asset or liability (a “cash-flow” hedge). Changes in the fair value of a derivative that is highly effective as a fair-value hedge, and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. The changes in a derivative’s fair value that are included in the assessment of hedge effectiveness for a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the Consolidated Balance Sheets or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, as necessary, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively, as discussed below. The Company discontinues hedge accounting prospectively when: (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is dedesignated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, hedge accounting is discontinued prospectively and the derivative will continue to be carried on the balance sheet at its fair value with all changes in fair value being recorded in earnings but with no offsetting fair value adjustment being recorded on the hedged item. For a discontinued cash flow hedge the change in fair value is no longer recorded in other comprehensive income. The Company uses derivatives to hedge interest rate exposures associated with mortgage loan originations. Interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. In the normal course of business, the Company regularly extends these rate lock commitments to customers during the loan origination process. The fair values of the Company’s rate lock commitments to customers as of December 31, 2024 and 2023 were not material and have not been recorded. Revenue Recognition The Company records revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The guidance requires recognition of revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. 73 While the majority of the Company’s revenue-generating transactions are excluded from the scope of ASC 606, including revenue generated from financial instruments, such as securities and loans, the relevant revenue-generating transactions are classified within non-interest income and are described as follows: • Deposit account service charges – represent service fees for monthly activity and maintenance on customer accounts. Attributes can be transaction-based, item-based or time-based. Revenue is recognized when our performance obligation is completed, which is generally monthly for maintenance services or when a transaction is processed. Payment for such performance obligations are generally received at the time the performance obligations are satisfied. • Credit card rewards program membership fees – represent memberships in our credit card rewards program and are paid annually by our cardholders at the time they open an account and on each anniversary. Revenue is recognized ratably over the membership period. Other non-interest income primarily includes income on BOLI contracts, letter of credit fees and gains on sale of loans held for sale. Income Taxes Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. The Company follows the provisions of ASC Topic 740-10, Income Taxes (“ASC 740-10”) establishes a single model to address accounting for uncertain tax positions and prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. There is a two-step process in the evaluation of a tax position. The first step is recognition. A Company determines whether it is more likely than not that a tax position will be sustained upon examination, including a resolution of any related appeals or litigation processes, based upon the technical merits of the position. The second step is measurement. A tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Stock-Based Compensation At December 31, 2024, the Company had a stock-based compensation plan for grants of equity compensation to key employees and directors. The plan has been accounted for under the provisions of ASC Topic 718-10, Compensation – Stock Compensation with respect to employee stock options, restricted stock and performance-based stock units (“PSUs”). Specifically, awards are accounted for using the fair value-based method of accounting. Stock compensation costs are recognized prospectively for all new awards granted under the stock-based compensation plans. Compensation expense related to stock options is calculated using a method that is based on the underlying assumptions of the Black-Scholes-Merton option pricing model and is charged to expense over the requisite service period (e.g. vesting period). Compensation expense related to restricted stock awards is based upon the fair value of the awards on the date of grant and is charged to earnings over the requisite service period of the award. PSUs represent the opportunity to earn shares of the Company’s common stock after a prescribed period and based on the relative market performance of the Company’s stock, subject to the recipient’s continued employment through the end of the performance period. The actual shares earned under the PSUs generally range between zero and 150 % of the target level award, depending on the total stockholder return (“TSR”) of the Company over the performance period ranked relative to the TSR of a defined peer group of companies. A Monte Carlo simulation is used to estimate the fair value of the PSUs as of the valuation date. Compensation expense is recognized regardless of the extent to which the market condition is satisfied. Earnings per Common Share Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options and performance shares. Loan Commitments and Related Financial Instruments Financial instruments, which include credit card arrangements, commitments to make loans and standby letters of credit, are issued to meet customer financing needs. The face amount for these items represents the exposure to loss before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Instruments such as stand-by letters of credit are considered, and accounted for as, financial guarantees. The fair value of these financial guarantees is not material. 74 Fair Value of Financial Instruments Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 21. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Comprehensive Income Comprehensive income consists of net income and other comprehensive income. Accumulated comprehensive (loss) income, which is recognized as a separate component of equity, includes unrealized gains and losses on available-for-sale debt securities and amortization of unrealized gains and losses on debt securities transferred from available-for-sale to held-to-maturity at the time of transfer. Amounts reported as accumulated comprehensive income (loss) are shown net of taxes. Advertising Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2024, 2023 and 2022 was $ 951,000 , $ 768,000 and $ 447,000 , respectively. Advertising typically consists of local print media aimed at businesses that the Company targets as well as sponsorships of local events in which the Company’s clients and prospects are involved. Recent Accounting Pronouncements In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments expanded the permitted use of the proportional amortization method, which was previously only available to low-income housing tax credit investments, to other tax equity investments if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the income tax benefits received and both the amortization of the investment and the income tax benefits received are recognized as a component of income tax expense. ASU 2023-02 was adopted on a modified retrospective basis of transition or, for certain changes, a prospective basis, which resulted in a reduction to retained earnings as of January 1, 2024, of $2.3 million. In November 2023, the FASB issued ASU 2023-07, Segment Reporting — Improvements to Reportable Segment Disclosures. This amendment is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other decision makers for additional, more detailed information about a reportable segment’s expenses. The amendment applies to all public entities that are required to report segment information in accordance with Topic 280.The amendments are to be applied retrospectively to all periods presented and segment expense categories should be based on the categories identified at adoption. The Company adopted ASU 2023-07 effective December 31, 2024. Adoption of ASU 2023-07 did not have a material impact on the Company's consolidated financial statements. See Note 23 – Business Segment Information for disclosures required by ASU 2023-07. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . ASU 2023-09 requires enhanced income tax disclosures primarily related to the rate reconciliation and income taxes paid information to provide more transparency by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation table and (ii) income taxes paid, net of refunds, to be disaggregated by jurisdiction based on an established threshold. The amendments in this standard will be effective for the Company on January 1, 2025. The Company is currently evaluating the impact the amendments will have the consolidated financial statements and related disclosures. In November 2024, the FASB issued 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) . The amendments improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales and research and development). The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the impact these changes may have on our consolidated financial statements. 75 NOTE 2. DEBT SECURITIES The amortized cost and fair values of available-for-sale and held-to-maturity debt securities at December 31, 2024 and 2023 are summarized as follows: Gross Gross Amortized Unrealized Unrealized Market Cost Gain Loss Value December 31, 2024 (In Thousands) Debt Securities Available-for-Sale U.S. Treasury Securities $ 617,350 $ 580 $ ( 444 ) $ 617,486 Mortgage-backed securities 243,435 49 ( 24,210 ) 219,274 State and municipal securities 10,516 1 ( 1,000 ) 9,517 Corporate debt 335,758 38 ( 20,673 ) 315,123 Total $ 1,207,059 $ 668 $ ( 46,327 ) $ 1,161,400 Debt Securities Held-to-Maturity U.S. Treasury Securities $ 249,403 $ - $ ( 19,632 ) $ 229,771 Mortgage-backed securities 457,365 14 ( 55,150 ) 402,229 State and municipal securities 8,085 - ( 589 ) 7,496 Total $ 714,853 $ 14 $ ( 75,371 ) $ 639,496 December 31, 2023 Debt Securities Available-for-Sale U.S. Treasury Securities $ 340,556 $ 251 $ - $ 340,807 Mortgage-backed securities 241,458 6 ( 25,979 ) 215,485 State and municipal securities 11,400 1 ( 1,178 ) 10,223 Corporate debt 375,676 - ( 42,008 ) 333,668 Total $ 969,090 $ 258 $ ( 69,165 ) $ 900,183 Debt Securities Held-to-Maturity U.S. Treasury Securities $ 508,985 $ - $ ( 24,718 ) $ 484,267 Mortgage-backed securities 465,615 3 ( 50,025 ) 415,593 State and municipal securities 8,063 - ( 732 ) 7,331 Total $ 982,664 $ 3 $ ( 75,475 ) $ 907,191 All mortgage-backed debt securities are issued by 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 deposits and for other purposes as required by law as of December 31, 2024 and 2023 was $ 1.43 billion and $ 1.49 billion, respectively. Restricted equity securities is comprised entirely of a restricted investment in Federal Home Loan Bank of Atlanta stock for membership requirement. At December 31, 2024 and 2023, there were no holdings of debt securities of any issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity. The amortized cost and fair value of debt securities as of December 31, 2024 and 2023 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties. December 31, 2024 December 31, 2023 Amortized Cost Market Value Amortized Cost Market Value (In Thousands) Debt securities available-for-sale Due within one year $ 223,145 $ 223,477 $ 350,400 $ 350,395 Due from one to five years 478,868 475,985 70,016 67,334 Due from five to ten years 258,611 240,114 304,216 264,893 Due after ten years 3,000 2,550 3,000 2,076 Mortgage-backed securities 243,435 219,274 241,458 215,485 $ 1,207,059 $ 1,161,400 $ 969,090 $ 900,183 Debt securities held-to-maturity Due within one year $ 250 $ 250 $ 260,047 $ 257,835 Due from one to five years 256,743 236,586 203,481 185,741 Due from five to ten years 495 431 53,521 48,022 Due after ten years - - - - Mortgage-backed securities 457,365 402,229 465,615 415,593 $ 714,853 $ 639,496 $ 982,664 $ 907,191 76 The following table identifies 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, as of December 31, 2024 and 2023: Less Than Twelve Months Twelve Months or More Total Gross Gross Gross Unrealized Unrealized Unrealized Losses Fair Value Losses Fair Value Losses Fair Value (In Thousands) December 31, 2024 Debt Securities available-for-sale U.S. Treasury Securities $ ( 445 ) $ 250,547 $ - $ - $ ( 445 ) $ 250,547 Government Agency Securities - - - - - - Mortgage-backed securities ( 6 ) 577 ( 24,204 ) 179,178 ( 24,210 ) 179,755 State and municipal securities - - ( 1,000 ) 9,072 ( 1,000 ) 9,072 Corporate debt ( 1,307 ) 25,596 ( 19,366 ) 284,489 ( 20,673 ) 310,085 Total $ ( 1,758 ) $ 276,720 $ ( 44,570 ) $ 472,739 $ ( 46,328 ) $ 749,459 Debt Securities held-to-maturity U.S. Treasury Securities $ - $ - $ ( 19,632 ) $ 229,771 $ ( 19,632 ) $ 229,771 Mortgage-backed securities ( 536 ) 40,115 ( 54,614 ) 356,215 ( 55,150 ) 396,330 State and municipal securities - - ( 589 ) 7,247 ( 589 ) 7,247 Total $ ( 536 ) $ 40,115 $ ( 74,835 ) $ 593,233 $ ( 75,371 ) $ 633,348 December 31, 2023 Debt Securities available-for-sale Mortgage-backed securities $ ( 6 ) $ 704 $ ( 25,973 ) $ 214,393 $ ( 25,979 ) $ 215,097 State and municipal securities - - ( 1,178 ) 9,777 ( 1,178 ) 9,777 Corporate debt ( 794 ) 15,141 ( 41,214 ) 311,666 ( 42,009 ) 326,807 Total $ ( 801 ) $ 15,845 $ ( 68,365 ) $ 535,836 $ ( 69,166 ) $ 551,681 U.S. Treasury Securities $ - $ - $ ( 24,718 ) $ 484,267 $ ( 24,718 ) $ 484,267 Mortgage-backed securities ( 1 ) 430 ( 50,024 ) 411,585 ( 50,025 ) 412,015 State and municipal securities - - ( 732 ) 7,081 ( 732 ) 7,081 Total $ ( 1 ) $ 430 $ ( 75,474 ) $ 902,933 $ ( 75,475 ) $ 903,363 At December 31, 2024 and 2023, no allowance for credit losses has been recognized on available-for-sale debt securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired. This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available-for-sale debt securities. The issuers of these debt securities continue to make timely principal and interest payments under the contractual terms of the securities. The Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Historical loss rates associated with securities having similar grades as those in our portfolio have generally not been significant. Furthermore, as of December 31, 2024 and 2023, there were no past due principal or interest payments associated with these securities. Based upon (i) the issuer’s strong bond ratings and (ii) a zero historical loss rate, no allowance for credit losses has been recorded for held-to-maturity State and municipal securities as such amount is not material at December 31, 2024 and 2023. All debt securities in an unrealized loss position as of December 31, 2024 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. 77 The following table summarizes information about sales and calls of debt securities: Years Ended December 31, 2024 2023 2022 (In Thousands) Sale and call proceeds $ - $ - $ 75,036 Gross realized gains $ - $ - $ - Gross realized losses - - ( 6,168 ) Net realized (loss) gain $ - $ - $ ( 6,168 ) NOTE 3. LOANS The loan portfolio is classified based on the underlying collateral utilized to secure each loan for financial reporting purposes. This classification is consistent with the Quarterly Report of Condition and Income filed by ServisFirst Bank with the Federal Deposit Insurance Corporation (“FDIC”). Commercial, financial and agricultural - Includes loans to business enterprises issued for commercial, industrial, agricultural production and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows. Real estate – construction – Includes loans secured by real estate to finance land development or the construction of industrial, commercial or residential buildings. Repayment is dependent upon the completion and eventual sale, refinance or operation of the related real estate project. Owner-occupied commercial real estate mortgage – Includes loans secured by nonresidential properties for which the primary source of repayment is the cash flow from the ongoing operations conducted by the party that owns the property. 1-4 family real estate mortgage – Includes loans secured by residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower. Non-owner occupied commercial real estate mortgage – Includes loans secured by nonowner-occupied properties, including office buildings, industrial buildings, warehouses, retail buildings, and multifamily residential properties. Repayment is primarily dependent on income generated from the underlying collateral. Consumer – Includes loans to individuals not secured by real estate. Repayment is dependent upon the personal cash flow of the borrower. The composition of loans at December 31, 2024 and 2023 is summarized as follows: December 31, 2024 2023 (In Thousands) Commercial, financial and agricultural $ 2,869,894 $ 2,823,986 Real estate - construction 1,489,306 1,519,619 Real estate - mortgage: Owner-occupied commercial 2,547,143 2,257,163 1-4 family mortgage 1,444,623 1,249,938 Non-owner occupied commercial 4,181,243 3,744,346 Subtotal: Real estate mortgage 8,173,009 7,251,447 Consumer 73,627 63,777 Total Loans 12,605,836 11,658,829 Less: Allowance for credit losses ( 164,458 ) ( 153,317 ) Net Loans $ 12,441,378 $ 11,505,512 Changes in the ACL during the years ended December 31, 2024, 2023 and 2022 are as follows: Years Ended December 31, 2024 2023 2022 (In Thousands) Balance, beginning of year $ 153,317 $ 146,297 $ 116,660 Loans charged off ( 13,684 ) ( 14,581 ) ( 10,137 ) Recoveries 3,272 2,886 2,167 Provision for credit losses 21,553 18,715 37,607 Balance, end of year $ 164,458 $ 153,317 $ 146,297 78 GAAP requires a current expected credit losses (“CECL”) methodology for estimating all expected losses over the life of a financial asset. Under the CECL methodology, the ACL is measured on a collective basis for pools of loans with similar risk characteristics. For loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable forecast period losses are reverted to long-term historical averages. The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The Company uses the DCF method to estimate ACL for all loan pools except for commercial and industrial (“C&I”) revolving lines of credit and credit cards. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment rate as a loss driver. The Company also utilizes and forecasts gross domestic product (“GDP”) growth as a second loss driver for its agricultural and consumer loan pools. Consistent forecasts of the loss drivers are used across the loan segments. At December 31, 2024 and 2023, 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 December 31, 2024, the Company expects the national unemployment rate to rise during the forecast period with a declining national GDP growth rate, with both economic indicators showing improvement when compared to the forecast at December 31, 2023. The Company uses a loss-rate method to estimate expected credit losses for its C&I revolving lines of credit and a remaining life methodology on credit card pools. The C&I revolving lines of credit pool incorporates a probability of default (“PD”) and loss given default (“LGD”) modeling approach. This approach involves estimating the pool average life and then using historical correlations of default and loss experience over time to calculate the lifetime PD and LGD. These two inputs are then applied to the outstanding pool balance. The credit card pool incorporates a remaining life modeling approach, which utilizes an attrition-based method to estimate the remaining life of the pool. A quarterly average loss rate is then calculated using the Company’s historical loss data. The model reduces the pool balance quarterly on a straight-line basis over the estimated life of the pool. The quarterly loss rate is multiplied by the outstanding balance at each period-end resulting in an estimated loss for each quarter. The sum of estimated loss for all quarters is the total calculated reserve for the pool. Management has applied the loss-rate method to C&I lines of credit and to credit cards due to their generally short-term nature. An expected loss ratio is applied based on internal and peer historical losses. Each loan pool is adjusted for qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework, which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions. Inherent risks in the loan portfolio will differ based on type of loan. Specific risk characteristics by loan portfolio segment are listed below: Commercial and industrial loans include risks associated with borrower’s cash flow, debt service coverage and management’s expertise. These loans are subject to the risk that the Company may have difficulty converting collateral to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation. These commercial loans may be subject to many different types of risks, including fraud, bankruptcy, economic downturn, deteriorated or non-existent collateral, and changes in interest rates. Real estate construction loans include risks associated with the borrower’s credit-worthiness, contractor’s qualifications, borrower and contractor performance, and the overall risk and complexity of the proposed project. Construction lending is also subject to risks associated with sub-market dynamics, including population, employment trends and household income. During times of economic stress, this type of loan has typically had a greater degree of risk than other loan types. Real estate mortgage loans consist of loans secured by commercial and residential real estate. Commercial real estate lending is dependent upon successful management, marketing and expense supervision necessary to maintain the property. Repayment of these loans may be adversely affected by conditions in the real estate market or the general economy. Also, commercial real estate loans typically involve relatively large loan balances to a single borrower. Residential real estate lending risks are generally less significant than those of other loans. Real estate lending risks include fluctuations in the value of real estate, bankruptcies, economic downturn and customer financial problems. 79 Consumer loans carry a moderate degree of risk compared to other loans. They are generally more risky than traditional residential real estate loans but less risky than commercial loans. Risk of default is usually determined by the well-being of the local economies. During times of economic stress, there is usually some level of job loss both nationally and locally, which directly affects the ability of the consumer to repay debt. Changes in the allowance for credit losses, segregated by loan type, during the years ended December 31, 2024 and 2023, respectively, are as follows: Commercial, Owner- Non-owner financial and Real estate - occupied 1-4 family occupied agricultural construction commercial mortgage commercial Consumer Total (In Thousands) Year Ended December 31, 2024 Allowance for credit losses: Balance at January 1, 2024 $ 52,121 $ 44,658 $ 17,702 $ 12,029 $ 25,395 $ 1,412 $ 153,317 Charge-offs ( 12,115 ) - ( 237 ) ( 761 ) - ( 571 ) ( 13,684 ) Recoveries 3,021 8 29 2 - 212 3,272 Provision for credit losses on loans 12,303 ( 6,069 ) 4,808 2,826 5,933 1,752 21,553 Balance at December 31, 2024 $ 55,330 $ 38,597 $ 22,302 $ 14,096 $ 31,328 $ 2,805 $ 164,458 Year Ended December 31, 2023 Allowance for credit losses: Balance at January 1, 2023 $ 42,830 $ 42,889 $ 16,843 $ 12,219 $ 29,590 $ 1,926 $ 146,297 Charge-offs ( 13,229 ) ( 108 ) ( 117 ) ( 54 ) - ( 1,073 ) ( 14,581 ) Recoveries 2,800 3 - - - 83 2,886 Provision 19,720 1,874 976 ( 136 ) ( 4,195 ) 476 18,715 Balance at December 31, 2023 $ 52,121 $ 44,658 $ 17,702 $ 12,029 $ 25,395 $ 1,412 $ 153,317 Year Ended December 31, 2022 Allowance for credit losses: Balance at January 1, 2022 $ 41,869 $ 26,994 $ 16,204 $ 6,978 $ 22,647 $ 1,968 $ 116,660 Charge-offs ( 9,256 ) - ( 170 ) ( 51 ) - ( 660 ) ( 10,137 ) Recoveries 2,012 - - - - 155 2,167 Provision 8,205 15,895 809 5,292 6,943 463 37,607 Balance at December 31, 2022 $ 42,830 $ 42,889 $ 16,843 $ 12,219 $ 29,590 $ 1,926 $ 146,297 Allocation of a part of the ACL to one loan type does not preclude its ability to absorb losses in other loan types. We maintain an ACL for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a drawdown on the commitment. The ACL on unfunded loan commitments is classified as a liability account on the Consolidated Balance Sheets 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 $ 608,000 and $ 575,000 at December 31, 2024 and 2023, respectively. The provision expense for unfunded commitments was $ 32,000 for the year ended December 31, 2024 and was $ 0 for the year ended December 31, 2023. The credit quality of the loan portfolio is determined no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for credit losses using historical losses adjusted for current economic conditions defined as follows: ● Pass – loans that are well protected by the current net worth and paying capacity of the obligor (or obligors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral. ● Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification. ● Substandard – loans that exhibit well-defined weakness or weaknesses that presently jeopardize debt repayment. These loans are characterized by the distinct possibility that the Company will sustain some loss if the weaknesses are not corrected. ● Doubtful – loans that have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. 80 The tables below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2024 and 2023: December 31, 2024 2024 2023 2022 2021 2020 Prior Revolving Revolving lines of credit converted to term loans Total (In Thousands) Commercial, financial, and agricultural Pass $ 529,002 $ 171,139 $ 331,476 $ 273,304 $ 120,088 $ 195,011 $ 1,121,196 $ 248 $ 2,741,464 Special Mention 1,767 666 12,260 2,442 3,254 10,001 21,647 - 52,037 Substandard - Accruing 1,064 - 987 349 364 25,620 22,317 - 50,701 Substandard -Non-accrual - 1,177 2,049 8,201 271 8,513 5,481 - 25,692 Total Commercial, financial and agricultural $ 531,833 $ 172,982 $ 346,772 $ 284,296 $ 123,977 $ 239,145 $ 1,170,641 $ 248 $ 2,869,894 Current-period gross write-offs $ 36 $ 1,002 $ - $ 52 $ 675 $ 4,327 $ 2,851 $ 3,172 $ 12,115 Real estate - construction Pass $ 367,275 $ 292,379 $ 506,542 $ 150,307 $ 32,330 $ 16,083 $ 72,793 $ - $ 1,437,710 Special Mention 259 3,100 28,224 16,477 - - - - 48,060 Substandard - Accruing - 590 2,000 - - 946 - - 3,536 Substandard -Non-accrual - - - - - - - - - Total Real estate - construction $ 367,534 $ 296,069 $ 536,766 $ 166,784 $ 32,330 $ 17,029 $ 72,793 $ - $ 1,489,306 Current-period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Owner-occupied commercial Pass $ 377,351 $ 168,561 $ 503,351 $ 467,790 $ 276,795 $ 594,794 $ 65,269 $ 802 $ 2,454,713 Special Mention 10,148 6,410 1,373 22,087 5,441 16,912 4,961 - 67,332 Substandard - Accruing 3,562 417 1,147 6,681 2,169 2,378 - - 16,354 Substandard -Non-accrual - - 2,886 - 79 5,779 - - 8,744 Total Owner-occupied commercial $ 391,061 $ 175,388 $ 508,757 $ 496,558 $ 284,484 $ 619,863 $ 70,230 $ 802 $ 2,547,143 Current-period gross write-offs $ - $ - $ - $ 100 $ - $ 137 $ - $ - $ 237 1-4 family mortgage Pass $ 294,602 $ 126,953 $ 319,472 $ 188,104 $ 65,673 $ 78,629 $ 351,240 $ - $ 1,424,673 Special Mention - 469 2,523 2,943 1,124 6,628 2,428 - 16,115 Substandard - Accruing - - - - - 403 381 - 784 Substandard -Non-accrual - 265 646 855 405 380 500 - 3,051 Total 1-4 family mortgage $ 294,602 $ 127,687 $ 322,641 $ 191,902 $ 67,202 $ 86,040 $ 354,549 $ - $ 1,444,623 Current-period gross write-offs $ - $ 28 $ 61 $ 62 $ - $ 129 $ 481 $ - $ 761 Non-owner occupied commercial Pass $ 479,275 $ 174,415 $ 1,449,886 $ 888,829 $ 367,100 $ 670,317 $ 70,161 $ 246 $ 4,100,229 Special Mention - - 8,304 53,926 - 3,376 - - 65,606 Substandard - Accruing - - 4,584 - - 9,565 - - 14,149 Substandard -Non-accrual - - 384 875 - - - - 1,259 Total Non-owner occupied commercial $ 479,275 $ 174,415 $ 1,463,158 $ 943,630 $ 367,100 $ 683,258 $ 70,161 $ 246 $ 4,181,243 Current-period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Consumer Pass $ 33,004 $ 2,941 $ 2,462 $ 1,346 $ 1,234 $ 2,505 $ 29,335 $ - $ 72,827 Special Mention - - - - - - 45 - 45 Substandard - Accruing - - - - - - - - - Substandard -Non-accrual - - - - - 755 - - 755 Total Consumer $ 33,004 $ 2,941 $ 2,462 $ 1,346 $ 1,234 $ 3,260 $ 29,380 $ - $ 73,627 Current-period gross write-offs $ 19 $ 8 $ - $ - $ - $ 75 $ 469 $ - $ 571 Total Loans Pass $ 2,080,509 $ 936,388 $ 3,113,189 $ 1,969,680 $ 863,220 $ 1,557,340 $ 1,709,994 $ 1,296 $ 12,231,616 Special Mention 12,174 10,645 52,684 97,875 9,819 36,917 29,081 - 249,195 Substandard - Accruing 4,626 1,007 8,718 7,030 2,533 38,912 22,698 - 85,524 Substandard -Non-accrual - 1,442 5,965 9,931 755 15,427 5,981 - 39,501 Total Loans $ 2,097,309 $ 949,482 $ 3,180,556 $ 2,084,516 $ 876,327 $ 1,648,596 $ 1,767,754 $ 1,296 $ 12,605,836 Current-period gross write-offs $ 55 $ 1,038 $ 61 $ 214 $ 675 $ 4,668 $ 3,801 $ 3,172 $ 13,684 81 December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Revolving lines of credit converted to term loans Total (In Thousands) Commercial, financial, and agricultural Pass $ 341,335 $ 455,281 $ 354,034 $ 162,543 $ 100,032 $ 151,527 $ 1,161,324 $ 491 $ 2,726,567 Special Mention 4,275 1,982 5,105 5,765 1,320 3,549 21,769 7 43,772 Substandard - Accruing 1,410 - 2,830 368 9,501 27,962 4,360 - 46,431 Substandard -Non-accrual - 2 767 206 - 3,336 2,905 - 7,216 Total Commercial, financial and agricultural $ 347,020 $ 457,265 $ 362,736 $ 168,882 $ 110,853 $ 186,374 $ 1,190,358 $ 498 $ 2,823,986 Current-period gross write-offs $ 1,213 $ 4,690 $ 2,531 $ 779 $ 4 $ 2,014 $ 1,998 $ - $ 13,229 Real estate - construction Pass $ 216,745 $ 874,903 $ 283,012 $ 49,668 $ 4,866 $ 16,558 $ 72,156 $ - $ 1,517,908 Special Mention 589 - - - - - - - 589 Substandard - Accruing - 33 - - - 978 - - 1,011 Substandard -Non-accrual - - - - - - - 111 111 Total Real estate - construction $ 217,334 $ 874,936 $ 283,012 $ 49,668 $ 4,866 $ 17,536 $ 72,156 $ 111 $ 1,519,619 Current-period gross write-offs $ - $ - $ 19 $ - $ - $ - $ - $ 89 $ 108 Owner-occupied commercial Pass $ 148,915 $ 478,364 $ 517,667 $ 300,978 $ 181,864 $ 512,752 $ 64,170 $ 844 $ 2,205,554 Special Mention 5,369 1,411 7,705 8,317 8,530 7,539 - - 38,871 Substandard - Accruing 1,358 - - - - 4,292 - - 5,650 Substandard -Non-accrual - - - - 2,329 4,759 - - 7,088 Total Owner-occupied commercial $ 155,642 $ 479,775 $ 525,372 $ 309,295 $ 192,723 $ 529,342 $ 64,170 $ 844 $ 2,257,163 Current-period gross write-offs $ - $ - $ - $ - $ 117 $ - $ - $ - $ 117 1-4 family mortgage Pass $ 166,927 $ 376,964 $ 228,183 $ 75,104 $ 40,697 $ 61,046 $ 286,066 $ - $ 1,234,987 Special Mention 574 721 2,504 1,009 3,865 439 727 - 9,839 Substandard - Accruing - - - - - 425 261 - 686 Substandard -Non-accrual 155 380 741 572 877 901 800 - 4,426 Total 1-4 family mortgage $ 167,656 $ 378,065 $ 231,428 $ 76,685 $ 45,439 $ 62,811 $ 287,854 $ - $ 1,249,938 Current-period gross write-offs $ - $ 40 $ - $ - $ - $ 14 $ - $ - $ 54 Non-owner occupied commercial Pass $ 162,418 $ 1,119,609 $ 1,106,055 $ 448,781 $ 249,059 $ 540,325 $ 100,516 $ 247 $ 3,727,010 Special Mention - - - - - - 850 - 850 Substandard - Accruing - 4,975 - - - 11,005 - - 15,980 Substandard -Non-accrual - - - - 130 376 - - 506 Total Non-owner occupied commercial $ 162,418 $ 1,124,584 $ 1,106,055 $ 448,781 $ 249,189 $ 551,706 $ 101,366 $ 247 $ 3,744,346 Current-period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Consumer Pass $ 22,227 $ 3,890 $ 4,542 $ 1,794 $ 1,295 $ 2,687 $ 27,342 $ - $ 63,777 Special Mention - - - - - - - - - Substandard - Accruing - - - - - - - - - Substandard -Non-accrual - - - - - - - - - Total Consumer $ 22,227 $ 3,890 $ 4,542 $ 1,794 $ 1,295 $ 2,687 $ 27,342 $ - $ 63,777 Current-period gross write-offs $ - $ - $ - $ - $ 4 $ 49 $ 1,020 $ - $ 1,073 Total Loans Pass $ 1,058,567 $ 3,309,011 $ 2,493,493 $ 1,038,868 $ 577,813 $ 1,284,895 $ 1,711,574 $ 1,582 $ 11,475,803 Special Mention 10,807 4,114 15,314 15,091 13,715 11,527 23,346 7 93,921 Substandard - Accruing 2,768 5,008 2,830 368 9,501 44,662 4,621 - 69,758 Substandard -Non-accrual 155 382 1,508 778 3,336 9,372 3,705 111 19,347 Total Loans $ 1,072,297 $ 3,318,515 $ 2,513,145 $ 1,055,105 $ 604,365 $ 1,350,456 $ 1,743,246 $ 1,700 $ 11,658,829 Current-period gross write-offs $ 1,213 $ 4,730 $ 2,550 $ 779 $ 125 $ 2,077 $ 3,018 $ 89 $ 14,581 82 Nonperforming loans include nonaccrual loans and loans 90 or more days past due and still accruing. Loans by performance status as of December 31, 2024 and 2023 are as follows: December 31, 2024 Performing Nonperforming Total (In Thousands) Commercial, financial and agricultural $ 2,844,164 $ 25,730 $ 2,869,894 Real estate - construction 1,488,645 661 1,489,306 Real estate - mortgage: Owner-occupied commercial 2,538,399 8,744 2,547,143 1-4 family mortgage 1,439,332 5,291 1,444,623 Non-owner occupied commercial 4,179,984 1,259 4,181,243 Total real estate - mortgage 8,157,715 15,294 8,173,009 Consumer 72,846 781 73,627 Total $ 12,563,370 $ 42,466 $ 12,605,836 December 31, 2023 Performing Nonperforming Total (In Thousands) Commercial, financial and agricultural $ 2,816,599 $ 7,387 $ 2,823,986 Real estate - construction 1,519,508 111 1,519,619 Real estate - mortgage: Owner-occupied commercial 2,250,074 7,089 2,257,163 1-4 family mortgage 1,243,603 6,335 1,249,938 Non-owner occupied commercial 3,743,840 506 3,744,346 Total real estate - mortgage 7,237,517 13,930 7,251,447 Consumer 63,672 105 63,777 Total $ 11,637,296 $ 21,533 $ 11,658,829 Loans by past due status as of December 31, 2024 and 2023 are as follows: December 31, 202 Past Due Status (Accruing Loans) Total Past Total Nonaccrual 30-59 Days 60-89 Days 90+ Days Due Nonaccrual Current Total Loans With No ACL (In Thousands) Commercial, financial and agricultural $ 9,218 $ 8,469 $ 38 $ 17,725 $ 25,692 $ 2,826,477 $ 2,869,894 $ 22,266 Real estate - construction 6,046 15,898 661 22,605 - 1,466,701 1,489,306 - Real estate - mortgage: Owner-occupied commercial 9,494 2,478 - 11,972 8,744 2,526,427 2,547,143 8,644 1-4 family mortgage 1,157 3,111 2,240 6,508 3,051 1,435,064 1,444,623 2,787 Non-owner occupied commercial 4,432 - - 4,432 1,259 4,175,552 4,181,243 729 Total real estate -mortgage 15,083 5,589 2,240 22,912 13,054 8,137,043 8,173,009 12,160 Consumer 83 34 26 143 755 72,729 73,627 - Total $ 30,430 $ 29,990 $ 2,965 $ 63,385 $ 39,501 $ 12,502,950 $ 12,605,836 $ 34,426 83 December 31, 2023 Past Due Status (Accruing Loans) Total Past Total Nonaccrual 30-59 Days 60-89 Days 90+ Days Due Nonaccrual Current Total Loans With No ACL (In Thousands) Commercial, financial and agricultural $ 3,418 $ 3,718 $ 170 $ 7,306 $ 7,217 $ 2,809,463 2,823,986 $ 5,028 Real estate - construction - 34 - 34 111 1,519,474 1,519,619 - Real estate - mortgage: Owner-occupied commercial - - - - 7,089 2,250,074 2,257,163 7,089 1-4 family mortgage 540 4,920 1,909 7,369 4,426 1,238,143 1,249,938 1,224 Non-owner occupied commercial 676 10,703 - 11,379 506 3,732,461 3,744,346 506 Total real estate -mortgage 1,216 15,623 1,909 18,748 12,021 7,220,678 7,251,447 8,819 Consumer 58 31 105 194 - 63,583 63,777 - Total $ 4,692 $ 19,406 $ 2,184 $ 26,282 $ 19,349 $ 11,613,198 11,658,829 $ 13,847 There was no interest earned on nonaccrual loans for the years ended December 31, 2024 and 2023. Loans that no longer share similar risk characteristics with the collectively evaluated pools are estimated on an individual basis. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows: Accounts ACL December 31, 2024 Real Estate Receivable Equipment Other Total Allocation (In Thousands) Commercial, financial and agricultural $ 18,901 $ 1,721 $ 7,449 $ 42,684 $ 70,755 $ 17,615 Real estate - construction 2,590 - - 946 3,536 - Real estate - mortgage: Owner-occupied commercial 24,935 - - 78 25,013 2,890 1-4 family mortgage 3,719 - 109 - 3,828 287 Non-owner occupied commercial 14,533 - - 875 15,408 2,081 Total real estate - mortgage 43,187 - 109 953 44,249 5,258 Consumer - - - 755 755 755 Total $ 64,678 $ 1,721 $ 7,558 $ 45,338 $ 119,295 $ 23,628 Accounts ACL December 31, 2023 Real Estate Receivable Equipment Other Total Allocation (In Thousands) Commercial, financial and agricultural $ 20,266 $ 7,240 $ 2,126 $ 24,016 $ 53,648 $ 16,189 Real estate - construction 145 - - 978 1,123 1 Real estate - mortgage: Owner-occupied commercial 12,038 - - 698 12,736 475 1-4 family mortgage 15,694 - - - 15,694 1,058 Non-owner occupied commercial 5,862 - - - 5,862 603 Total real estate - mortgage 33,594 - - 698 34,291 2,136 Total $ 54,005 $ 7,240 $ 2,126 $ 25,692 $ 89,063 $ 18,326 84 The table below details the amortized cost basis at the end of the reporting period for loans made to borrowers experiencing financial difficulty that were modified during the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 Payment Deferral Term and Term New Percentage of Extensions Extensions Origination Total Total Loans (In Thousands) Commercial, financial and agricultural $ 248 $ 12,354 $ - $ 12,602 0.10 % Owner-occupied commercial 3,562 5,827 - 9,389 0.07 % 1-4 family mortgage 175 174 96 445 - % Total $ 3,985 $ 18,355 $ 96 $ 22,436 0.17 % Year Ended December 31, 2023 Payment Deferral Term and Term New Percentage of Extensions Extensions Origination Total Total Loans (In Thousands) Commercial, financial and agricultural $ 28,363 $ - $ - $ 28,363 0.24 % Owner-occupied commercial 3,021 - - 3,021 0.03 % Non-owner occupied commercial 10,932 303 - 11,234 0.10 % Total $ 42,315 $ 303 $ - $ 42,618 0.37 % The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the year ended December 31, 2024: Year Ended December 31, 2024 Total Payment Term Extensions Deferral (In months) (In Thousands) Commercial, financial and agricultural 4 to 95 $ 1,403 Real estate - construction - - Owner-occupied commercial 5 to 60 16 1-4 family mortgage 3 to 121 9 Non-owner occupied commercial - - Year Ended December 31, 2023 Total Payment Term Extensions Deferral (In months) (In Thousands) Commercial, financial and agricultural 1 to 65 $ - Real estate - construction - - Owner-occupied commercial 3 to 60 49 1-4 family mortgage - - Non-owner occupied commercial 2 to 36 59 There were no loans that were modified in the previous twelve months (i.e., the twelve months prior to default) that defaulted during the years ended December 31, 2024 and December 31, 2023, respectively. For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status. 85 In the ordinary course of business, the Company has granted loans to certain related parties, including directors, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the years ended December 31, 2024 and 2023 are as follows: Years Ended December 31, 2024 2023 (In Thousands) Balance, beginning of year $ 39,831 $ 52,608 Advances 32,740 67,106 Repayments ( 29,585 ) ( 79,883 ) Removal ( 559 ) - Balance, end of year $ 42,427 $ 39,831 NOTE 4. FORECLOSED PROPERTIES Other real estate and certain other assets acquired in foreclosure are carried at the lower of the recorded investment in the loan or fair value less estimated costs to sell the property. An analysis of foreclosed properties for the years ended December 31, 2024, 2023 and 2022 follows: 2024 2023 2022 (In Thousands) Balance at beginning of year $ 995 $ 248 $ 1,208 Transfers from loans and capitalized expenses 4,514 933 1,046 Foreclosed properties sold ( 3,024 ) ( 158 ) ( 2,282 ) Write downs and partial liquidations 46 ( 28 ) 276 Balance at end of year $ 2,531 $ 995 $ 248 NOTE 5. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows: December 31, 2024 2023 (In Thousands) Land $ 7,497 $ 5,809 Building 34,037 37,578 Furniture and equipment 40,771 34,976 Leasehold improvements 14,669 16,512 Construction in progress 1,798 1,300 Total premises and equipment, cost 98,772 96,175 Accumulated depreciation ( 39,587 ) ( 36,851 ) Total premises and equipment, net $ 59,185 $ 59,324 The provisions for depreciation charged to occupancy and equipment expense for the years ended December 31, 2024, 2023 and 2022 were $ 4.8 million, $ 4.4 million and $ 4.1 million, respectively. NOTE 6. LEASES The Company leases space under non-cancelable operating leases for several of its banking offices and certain office equipment. The Company reports its right-of-use asset in other assets and its lease liabilities in other liabilities in its Consolidated Balance Sheets. Supplemental balance sheet information related to operating leases is as follows: December 31, 2024 December 31, 2023 Right-of-use assets $ 26,059 $ 26,451 Lease liabilities $ 27,053 $ 27,435 Weighted average remaining lease term 7.8 8.2 Weighted average discount rate 3.8 % 3.7 % 86 Lease costs during the years ended December 31, 2024 and 2023 were as follows (in thousands): 2024 2023 Operating lease cost $ 5,706 $ 5,202 Short-term lease cost 75 - Variable lease cost 852 803 Sublease income ( 19 ) ( 21 ) Net lease cost $ 6,614 $ 5,984 The following table reconciles future undiscounted lease payments due under non-cancelable leases to the aggregate lease liability as of December 31, 2024: (In Thousands) 2024 $ 5,651 2025 4,808 2026 4,206 2027 3,362 2028 2,795 Thereafter 10,961 Total lease payments $ 31,783 Less: imputed interest ( 4,730 ) Present value of operating lease liabilities $ 27,053 NOTE 7. VARIABLE INTEREST ENTITIES ( “ VIEs ” ) The Company utilizes special purpose entities (“SPEs”) that constitute investments in limited partnerships that undertake certain development projects to achieve federal and state tax credits. These SPEs are typically structured as VIEs and are thus subject to consolidation by the reporting enterprise that absorbs the majority of the economic risks and rewards of the VIE. To determine whether it must consolidate a VIE, the Company analyzes the design of the VIE to identify the sources of variability within the VIE, including an assessment of the nature of risks created by the assets and other contractual obligations of the VIE, and determines whether it will both absorb a majority of that variability and has the power to direct the activities that most significantly impact the economic performance of the entity. See Note 17, Commitments and Contingencies, for additional disclosures related to the Company’s VIEs. NOTE 8. DEPOSITS Deposits at December 31, 2024 and 2023 were as follows: December 31, 2024 2023 (In Thousands) Noninterest-bearing demand $ 2,619,687 $ 2,643,101 Interest-bearing checking 9,511,161 9,367,841 Savings 102,088 107,227 Time deposits, $250,000 and under 367,216 313,015 Time deposits, over $250,000 943,307 842,327 $ 13,543,459 $ 13,273,511 87 The scheduled maturities of time deposits at December 31, 2024 were as follows: (In Thousands) 2025 $ 1,202,297 2026 90,199 2027 6,296 2028 2,390 2029 9,341 Total $ 1,310,523 At December 31, 2024 and 2023, overdraft deposits reclassified to loans were $ 10.7 million and $ 1.1 million, respectively. NOTE 9. FEDERAL FUNDS PURCHASED At December 31, 2024, the Company had $ 1.91 billion in federal funds purchased from its correspondent banks that are clients of its correspondent banking unit, compared to $ 1.26 billion at December 31, 2023. Rates paid on these funds were between 4.42 % and 4.50 % as of December 31, 2024 and 5.40 % and 5.50 % as of December 31, 2023. At December 31, 2024, the Company had available lines of credit totaling approximately $ 537.0 million with various financial institutions for borrowing on a short-term basis, compared to $ 880.0 million at December 31, 2023. The Company had $ 80.0 million outstanding borrowings from these lines at December 31, 2024, compared to no outstanding borrowings from these lines at December 31, 2023. NOTE 10. OTHER BORROWINGS Other borrowings are comprised of: ● $ 30.0 million on the Company’s 4.5 % Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually. The Notes may be prepaid by the Company. ● $ 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. Debt is reported net of unamortized issuance costs of $ 7,000 and $ 15,000 as of December 31, 2024 and 2023, respectively. NOTE 11. SF INTERMEDIATE HOLDING COMPANY, INC., SF HOLDING 1, INC., SF TN REALTY HOLDINGS, INC., SF REALTY 1, INC., SF FLA REALTY, INC., SF GA REALTY, INC. AND SF TN REALTY, INC. In January 2012, the Company formed SF Holding 1, Inc., an Alabama corporation, and its subsidiary, SF Realty 1, Inc., an Alabama corporation. In September 2013, the Company formed SF FLA Realty, Inc., an Alabama corporation and a subsidiary of SF Holding 1, Inc. In May 2014, the Company formed SF GA Realty, Inc., an Alabama corporation and a subsidiary of SF Holding 1, Inc. In February 2016, the Company formed SF TN Realty, Inc., an Alabama corporation and a subsidiary of SF Holding 1, Inc. Also in February 2016, the Company formed SF Intermediate Holding Company, Inc., an Alabama corporation. Immediately following the formation of SF Intermediate Holding Company, Inc., ServisFirst Bank assigned all of the outstanding capital stock of SF Holding 1, Inc. to SF Intermediate Holding Company, Inc., such that SF Holding 1, Inc. became a wholly-owned first tier subsidiary of SF Intermediate Holding Company, Inc. In November 2022, SF Intermediate Holding Company, Inc. formed SF TN Realty Holdings, Inc., a Delaware corporation. In December 2022, SF Holding 1, Inc. merged with and into SF TN Realty Holdings, Inc., with SF TN Realty Holdings, Inc being the surviving entity. Following the merger, SF Realty 1, SF FLA Realty, SF GA Realty and SF TN Realty are all subsidiaries of SF TN Realty Holdings, Inc. SF Realty 1, SF FLA Realty, SF GA Realty and SF TN Realty all hold and manage participations in residential mortgages and commercial real estate loans originated by ServisFirst Bank and have elected to be treated as real estate investment trusts (“REIT”) for U.S. income tax purposes. SF Intermediate Holding Company, Inc., SF TN Realty Holdings, Inc., SF Realty 1, Inc., SF FLA Realty, Inc., SF GA Realty, Inc. and SF TN Realty, Inc. are all consolidated into the Company. 88 NOTE 12. DERIVATIVES The Company has entered into forward loan sale commitments with secondary market investors to deliver loans on a “best efforts delivery” basis, which do not meet the definition of a derivative instrument. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer’s loan for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of December 31, 2024 and 2023 were not material. NOTE 13. EMPLOYEE AND DIRECTOR BENEFITS The Company has a stock incentive plan, which is described below. The compensation cost that has been charged against income for the plan was approximately $ 3.5 million, $ 3.6 million and $ 3.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. Stock Incentive Plan On March 23, 2009, the Company’s Board of Directors adopted the 2009 Stock Incentive Plan (the “Plan”), which was effective upon approval by the stockholders at the 2009 Annual Meeting of Stockholders. The 2009 Plan originally permitted the grant of up to 2,550,000 shares of common stock. With stockholder approval during 2014, the Plan was amended in order to allow the Company to grant up to 5,550,000 shares of common stock. The Plan authorizes the grant of stock appreciation rights, restricted stock, incentive stock options, non-qualified stock options, non-stock share equivalents, performance shares or performance units and other equity-based awards. Option awards are generally granted with an exercise price equal to the fair market value of the Company’s stock at the date of grant. As of December 31, 2024, there are a total of 3,031,065 shares available to be granted under the Plan. Stock-based compensation expense for stock-based awards is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes-Merton valuation model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. The fair value of each option granted is estimated on the date of grant using the Black-Scholes-Merton model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate and expected life of options granted. There were no grants of stock options during the years ended December 31, 2024 and 2023. The following tables summarize stock option activity: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In Thousands) Year Ended December 31, 2024: Outstanding at beginning of year 165,300 $ 24.35 2.9 $ 7,211 Exercised ( 77,350 ) 23.71 2.0 57,618 Forfeited ( 7,500 ) 6.92 - - Outstanding at end of year 80,450 $ 26.03 1.9 $ 4,723 Exercisable at December 31, 2024: 80,450 $ 26.03 1.9 $ 4,723 Year Ended December 31, 2023: Outstanding at beginning of year 280,000 $ 19.43 3.0 $ 14,088 Exercised ( 112,200 ) 11.84 0.7 6,148 Forfeited ( 2,500 ) 35.47 4.8 78 Outstanding at end of year 165,300 $ 24.35 2.9 $ 7,211 Exercisable at December 31, 2023: 143,300 $ 21.84 2.2 $ 6,419 Year Ended December 31, 2022: Outstanding at beginning of year 353,250 $ 19.28 3.8 $ 23,525 Exercised ( 70,500 ) 17.96 2.2 3,592 Forfeited ( 2,750 ) 37.94 5.4 85 Outstanding at end of year 280,000 $ 19.43 3.0 $ 14,088 Exercisable at December 31, 2022: 220,500 $ 14.37 2.0 $ 12,279 89 Exercisable options at December 31, 2024 were as follows: Range of Exercise Price Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In Thousands) $ 14.00 - 15.00 2,000 14.32 1.7 141 15.00 - 16.00 12,250 15.76 0.1 845 17.00 - 18.00 13,500 17.17 0.3 912 18.00 - 19.00 4,000 18.44 0.8 265 19.00 - 20.00 12,000 19.16 1.1 787 34.00 - 35.00 2,000 34.09 4.1 101 35.00 - 36.00 26,500 35.63 3.8 1,301 38.00 - 39.00 5,700 38.26 2.1 265 41.00 - 42.00 1,000 41.21 3.1 45 43.00 - 44.00 1,500 43.80 3.5 61 80,450 $ 26.03 1.9 $ 4,723 As of December 31, 2024, there were no non-vested stock options. Restricted Stock and Performance Shares The Company periodically grants restricted stock awards that vest upon service conditions. Dividend payments are made during the vesting period. The value of restricted stock is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period. As of December 31, 2024, there was $ 4.8 million of total unrecognized compensation cost related to non-vested restricted stock. As of December 31, 2024, non-vested restricted stock had a weighted average remaining time to vest of 2.1 years. The Company periodically grants PSUs that give plan participants the opportunity to earn stock between 0 % and 150 % of the number of PSUs granted based on achieving certain performance metrics. The number of stock earned upon vesting of PSUs is determined by reference to the Company’s total shareholder return relative to a peer group of other publicly traded banks and bank holding companies during the performance period. The performance period is generally three years starting on the grant date. The fair value of PSUs is determined using a Monte Carlo simulation model on the grant date. As of December 31, 2024, there was $ 900,000 of total unrecognized compensation cost related to non-vested PSUs. As of December 31, 2024, non-vested performance stock had a weighted average remaining time to vest of 1.3 years. The following table summarizes restricted stock and PSU activity: Restricted Stock PSU Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Year Ended December 31, 2024: Non-vested at beginning of year 158,298 $ 58.08 31,944 $ 58.25 Granted 54,794 68.95 20,469 59.07 Vested ( 49,090 ) 46.04 ( 18,653 ) 37.05 Forfeited ( 18,165 ) 56.98 ( 3,695 ) 70.58 Non-vested at end of year 145,837 $ 66.35 30,065 $ 70.45 Year Ended December 31, 2023: Non-vested at beginning of year 141,580 $ 56.39 23,852 $ 54.16 Granted 64,880 58.45 8,092 70.29 Vested ( 35,163 ) 49.85 - - Forfeited ( 12,999 ) 63.78 - - Non-vested at end of year 158,298 $ 58.08 31,944 $ 58.25 Year Ended December 31, 2022: Non-vested at beginning of year 126,975 $ 42.28 12,437 $ 37.05 Granted 53,974 83.24 11,415 72.81 Vested ( 28,160 ) 43.27 - - Forfeited ( 11,209 ) 58.82 - - Non-vested at end of year 141,580 $ 56.39 23,852 $ 54.16 90 Retirement Plans The Company has a retirement savings 401(k) and profit-sharing plan in which all employees 21 years of age and older may participate after completion of one year of service. The Company matches employees’ contributions based on a percentage of salary contributed by participants and may make additional discretionary profit-sharing contributions. The Company’s expense for the plan was $ 2.3 million, $ 2.1 million and $ 1.8 million for 2024, 2023 and 2022, respectively. NOTE 14. REGULATORY MATTERS The Bank is subject to dividend restrictions set forth in the Alabama Banking Code and by the Alabama State Banking Department. Under such restrictions, the Bank may not, without the prior approval of the Alabama State Banking Department, declare dividends in excess of the sum of the current year’s earnings plus the retained earnings from the prior two years. Based on these restrictions, the Bank would be limited to paying $ 548.7 million in dividends as of December 31, 2024. The Bank is subject to various regulatory capital requirements administered by the state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank and the financial statements. Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of common equity Tier 1 capital, total risk-based capital and Tier 1 capital to risk-weighted assets (as defined in the regulations), and Tier 1 capital to adjusted total assets (as defined). Management believes, as of December 31, 2024, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2024, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum CET1, total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. Management believes that it is well capitalized under the prompt corrective action provisions as of December 31, 2024. The Company’s and Bank’s actual capital amounts and ratios are presented in the following table: Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2024: CET I Capital to Risk Weighted Assets: Consolidated $ 1,634,837 11.42 % $ 644,441 4.50 % N/A N/A ServisFirst Bank 1,694,412 11.83 % 644,402 4.50 % $ 930,803 6.50 % Tier I Capital to Risk Weighted Assets: Consolidated 1,635,337 11.42 % 859,255 6.00 % N/A N/A ServisFirst Bank 1,694,912 11.84 % 859,203 6.00 % 1,145,604 8.00 % Total Capital to Risk Weighted Assets: Consolidated 1,847,146 12.90 % 1,145,673 8.00 % N/A N/A ServisFirst Bank 1,859,978 12.99 % 1,145,604 8.00 % 1,432,005 10.00 % Tier I Capital to Average Assets: Consolidated 1,635,337 9.59 % 682,238 4.00 % N/A N/A ServisFirst Bank 1,694,912 9.94 % 682,223 4.00 % 852,779 5.00 % As of December 31, 2023: CET I Capital to Risk Weighted Assets: Consolidated $ 1,473,831 10.91 % $ 607,690 4.50 % N/A N/A ServisFirst Bank 1,535,757 11.37 % 607,665 4.50 % $ 877,738 6.50 % Tier I Capital to Risk Weighted Assets: Consolidated 1,474,331 10.92 % 810,253 6.00 % N/A N/A ServisFirst Bank 1,536,257 11.38 % 810,220 6.00 % 1,080,293 8.00 % Total Capital to Risk Weighted Assets: Consolidated 1,680,974 12.45 % 1,080,338 8.00 % N/A N/A ServisFirst Bank 1,690,149 12.52 % 1,080,293 8.00 % 1,350,366 10.00 % Tier I Capital to Average Assets: Consolidated 1,474,331 9.12 % 646,710 4.00 % N/A N/A ServisFirst Bank 1,536,257 9.50 % 646,675 4.00 % 808,343 5.00 % 91 NOTE 15. OTHER OPERATING INCOME AND EXPENSES The major components of other operating income and expense included in noninterest income and noninterest expense are as follows: Years Ended December 31, 2024 2023 2022 (In Thousands) Other Operating Income ATM fee income $ 632 $ ( 200 ) $ 618 Mark to market interest rate cap derivative - 48 6,960 Gain (loss) on sale of ORE 120 ( 28 ) 501 Death benefit of bank owned life insurance contracts(1) - - 2,153 Loss on sale of fixed assets ( 91 ) - ( 12 ) Merchant services fees 2,278 2,214 1,765 Other ( 52 ) 1,003 676 Total other operating income $ 2,887 $ 3,037 $ 12,661 Other Operating Expenses Other loan expenses $ 2,754 $ 2,794 $ 2,226 Customer and public relations 3,338 2,971 2,354 Sales and use tax 779 771 636 Write-down investment in tax credit partnerships 1,396 12,053 9,998 Telephone 564 597 568 Donations and contributions 658 651 749 Marketing 951 768 446 Supplies 701 705 612 Fraud and forgery losses 2,139 1,435 1,988 Directors fees 807 797 730 Postage 352 361 366 Other operational losses 270 449 2,777 Core processing deconversion expense - 134 939 Privilege tax expense 1,767 4,300 1,869 Other 4,864 4,556 4,817 Total other operating expenses $ 21,341 $ 33,342 $ 31,075 (1) For the years ended December 31, 2024 and 2023, death benefit amounts were included in Bank-owned life insurance income. 92 NOTE 16. INCOME TAXES The components of income tax expense are as follows: Year Ended December 31, 2024 2023 2022 (In Thousands) Current tax expense: Federal $ 51,897 $ 35,124 $ 56,318 State 3,194 3,616 3,621 Total current tax expense 55,091 38,740 59,939 Deferred tax (benefit) expense: Federal ( 2,227 ) ( 1,057 ) ( 4,110 ) State ( 1,124 ) 52 1,495 Total deferred tax (benefit) ( 3,351 ) ( 1,005 ) ( 2,615 ) Total income tax expense $ 51,740 $ 37,735 $ 57,324 The Company’s total income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows: Year Ended December 31, 2024 Amount % of Pre-tax Earnings (In Thousands) Income tax at statutory federal rate $ 58,585 21.00 % Effect on rate of: State income tax, net of federal tax effect 1,787 0.64 % Tax-exempt income, net of expenses ( 14 ) ( 0.01 )% Bank-owned life insurance contracts ( 2,002 ) ( 0.72 )% Excess tax benefit from stock compensation ( 1,117 ) ( 0.40 )% Federal tax credits, net of related amortization ( 6,297 ) ( 2.26 )% Other 798 0.36 % Effective income tax and rate $ 51,740 18.61 % Year Ended December 31, 2023 Amount % of Pre-tax Earnings (In Thousands) Income tax at statutory federal rate $ 51,363 21.00 % Effect on rate of: State income tax, net of federal tax effect 3,339 1.37 % Tax-exempt income, net of expenses ( 92 ) ( 0.04 )% Bank-owned life insurance contracts ( 1,591 ) ( 0.65 )% Excess tax benefit from stock compensation ( 1,242 ) ( 0.51 )% Federal tax credits, net of related amortization ( 16,002 ) ( 6.54 )% Other 1,960 0.80 % Effective income tax and rate $ 37,735 15.43 % Year Ended December 31, 2022 Amount % of Pre-tax Earnings (In Thousands) Income tax at statutory federal rate $ 64,796 21.00 % Effect on rate of: State income tax, net of federal tax effect 7,247 2.35 % Tax-exempt income, net of expenses ( 188 ) ( 0.06 )% Bank-owned life insurance contracts ( 1,812 ) ( 0.59 )% Excess tax benefit from stock compensation ( 1,091 ) ( 0.35 )% Federal tax credits, net of related amortization ( 11,131 ) ( 3.61 )% Other ( 497 ) ( 0.16 )% Effective income tax and rate $ 57,324 18.58 % 93 The components of net deferred tax asset are as follows: December 31, 2024 2023 (In Thousands) Deferred tax assets: Allowance for credit losses $ 41,431 $ 38,483 Other real estate owned 255 253 Nonqualified equity awards 1,375 1,354 Nonaccrual interest 814 327 State tax credits carryforward 2,195 2,011 Deferred loan fees 4,074 3,806 Reserve for unfunded commitments - 144 Accrued bonus 3,910 3,052 Capital loss carryforward 1,716 1,648 Lease liability 6,790 6,886 Deferred revenue - 8 Net unrealized loss on securities available for sale 10,937 18,129 Other deferred tax assets 1,996 2,323 Total deferred tax assets 75,493 78,424 Deferred tax liabilities: Depreciation 4,138 4,289 Prepaid expenses 781 735 Investments 950 1,484 Right-of-use assets and other leasing transactions 6,541 6,639 Other deferred tax liabilities 1,335 2,359 Total deferred tax liabilities 13,745 15,506 Net deferred tax assets $ 61,748 $ 62,918 The Company believes its net deferred tax asset is recoverable as of December 31, 2024 and 2023 based on the expectation of future taxable income and other relevant considerations. Pursuant to ASC 740-10-30-2 Income Taxes , deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company and its subsidiaries file a consolidated U.S. Federal income tax return and various consolidated and separate company state income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2022 through 2024. The Company is also currently open to audit by several state departments of revenue for the years ended December 31, 2022 through 2024. The audit periods differ depending on the date the Company began business activities in each state. Accrued interest and penalties on unrecognized income tax benefits totaled $ 495,000 and $ 450,000 as of December 31, 2024 and 2023, respectively. Interest and penalties related to unrecognized income tax benefits are recorded in the provision for income taxes. The Company has $ 1,511,000 of unrecognized tax benefits (net of the federal benefit on state income tax issues) recorded as of December 31, 2024. Unrecognized income tax benefits as of December 31, 2024, and December 31, 2023, that, if recognized, would impact the effective income tax rate totaled $ 1,511,000 and $ 1,653,000 (net of the federal benefit on state income tax issues), respectively. The following table presents a summary of the changes during 2024, 2023 and 2022 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets: 2024 2023 2022 (In Thousands) Balance, beginning of year $ 2,092 $ - $ 3,659 Increases related to prior year tax positions - 1,285 - Decreases related to prior year tax positions ( 854 ) - ( 2,860 ) Increases related to current year tax positions 675 807 - Lapse of statute - - ( 799 ) Balance, end of year $ 1,913 $ 2,092 $ - 94 NOTE 17. COMMITMENTS AND CONTINGENCIES Loan Commitments The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, credit card arrangements, and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. A summary of the Company’s approximate commitments and contingent liabilities is as follows: 2024 2023 2022 (In Thousands) Commitments to extend credit $ 3,552,958 $ 3,410,283 $ 4,230,485 Credit card arrangements 366,843 381,524 368,749 Standby letters of credit and financial guarantees 125,147 86,065 67,285 Total $ 4,044,948 $ 3,877,872 $ 4,666,519 Commitments to extend credit, credit card arrangements, commercial letters of credit and standby letters of credit all include exposure to some credit loss in the event of nonperformance of the customer. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Company. The Company invests in certain affordable housing projects throughout its market area as a means of supporting local communities. The Company receives tax credits related to these investments, for which it typically acts as a limited partner and therefore does not exert control over the operating or financial policies of the partnerships. The Company typically provides financing during the construction and development of the properties. Tax credits are subject to recapture by taxing authorities based on compliance features required to be met at the project level. The Company’s maximum potential exposure to losses relative to investments in VIEs is generally limited to the sum of the outstanding balance, future funding commitments and any related loans to the entity, exclusive of any potential tax recapture associated with the investments. Loans to these entities are underwritten in substantially the same manner as the Company’s other loans and are generally secured. The Company invests as a limited partner in certain projects through the New Market Tax Credit program, which is a Federal financial program aimed to stimulate business and real estate investment in underserved communities via a federal tax credit. The Company has investments in and future funding commitments related to private equity and certain other equity method investments. The risk exposure relating to such commitments is generally limited to the amount of investments and future funding commitments made. The following table summarizes certain tax credit and certain equity investments. December 31, Balance Sheet Location 2024 2023 (In Thousands) Investments in affordable housing projects and other qualified tax credits: Carrying amount Other assets $ 75,705 $ 42,832 Amount of future funding commitments including in carrying amount Other liabilities 39,502 - Lending exposures Loans 88,207 84,652 SBIC and certain other equity method investments: Carrying amount Other assets 4,642 2,071 Amount of future funding commitments not included in carrying amount N/A 12,308 14,879 The following table presents a summary of tax credits and amortization expense associated with those investments accounted for using the proportional amortization method for the period indicated. Income Statement Location 2024 (In Thousands) Income tax credits and other income tax benefits Income tax expense $ ( 13,392 ) Amortization expense Income tax expense 11,162 NOTE 18. CONCENTRATIONS OF CREDIT The Company originates primarily commercial, residential, and consumer loans to customers in the Company’s market area. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in the market area. The Company’s loan portfolio is concentrated primarily in loans secured by real estate, principally secured by real estate in the Company’s primary market areas. In addition, a substantial portion of the other real estate owned is located in that same market. Accordingly, the ultimate collectability of the loan portfolio and the recovery of the carrying amount of other real estate owned are susceptible to changes in market conditions in the Company’s primary market area. 95 NOTE 19. EARNINGS PER COMMON SHARE Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable pursuant to the exercise of stock options and vesting of performance shares. The difference in earnings per share under the two-class method was not significant at December 31, 2024, 2023 and 2022. Year Ended December 31, 2024 2023 2022 (Dollar Amounts In Thousands Except Per Share Amounts) Earnings Per Share Weighted average common shares outstanding 54,528,302 54,411,171 54,300,366 Net income available to common stockholders $ 227,180 $ 206,791 $ 251,442 Basic earnings per common share $ 4.17 $ 3.80 $ 4.63 Weighted average common shares outstanding 54,528,302 54,411,171 54,300,366 Dilutive effects of assumed exercise of stock options and vesting of performance shares 95,932 124,144 234,408 Weighted average common and dilutive potential common shares outstanding 54,624,234 54,535,315 54,534,774 Net income available to common stockholders $ 227,180 $ 206,791 $ 251,442 Diluted earnings per common share $ 4.16 $ 3.79 $ 4.61 NOTE 20. RELATED PARTY TRANSACTIONS As more fully described in Note 3 “ Loans, ” the Company had outstanding loan balances, as made in the ordinary course of business, to related parties as of December 31, 2024 and 2023 in the amount of $ 42.4 million and $ 39.8 million, respectively. Deposits of related parties are also accepted in the ordinary course of business. The aggregate balances of related party deposits are insignificant as of December 31, 2024 and 2023, respectively. NOTE 21. FAIR VALUE MEASUREMENT Measurement of fair value under GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value. Debt Securities . Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on pricing services provided by independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing service regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, as in the case of certain corporate securities, these securities are classified in Level 3 of the hierarchy. Derivative Instruments . The fair values of derivatives are determined based on a valuation pricing model using readily available observable market parameters such as interest rate curves, adjusted for counterparty credit risk. These measurements are classified as Level 2 within the valuation hierarchy. Loans Individually Evaluated. Loans individually evaluated are measured and reported at fair value when full payment under the loan terms is not probable. Loans individually evaluated are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Loans individually evaluated are subject to nonrecurring fair value adjustment upon initial recognition or subsequent individual evaluation. A portion of the allowance for credit losses is allocated to loans individually evaluated if the value of such loans is deemed to be less than the unpaid balance. The range of fair value adjustments and weighted average adjustments as of December 31, 2024 was 0 % to 75 % and 25.5 %, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2023 was 0 % to 66 % and 25 %, 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 $ 18.3 million and $ 16.6 million during the years ended December 31, 2024 and 2023, respectively. 96 Other Real Estate Owned and Repossessed Assets . Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for credit losses subsequent to foreclosure. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. Appraisals are performed by certified and licensed appraisers. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the new cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals. The range of fair value adjustments and weighted average adjustment as of December 31, 2024 was 19 % to 47 % and 22.7 %, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2023 was 25 % to 100 % and 38.3 % respectively. These measurements are classified as Level 3 within the valuation hierarchy. Net losses on the sale and write-downs of OREO of $ 132,000 and $ 7,000 was recognized during the years ended December 31, 2024 and 2023, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO is classified within Level 3 of the hierarchy. There were three residential real estate loan foreclosures for $ 852,400 classified as OREO as of December 31, 2024, compared to three residential real estate loan foreclosures for $ 360,000 as of December 31, 2023. There was one residential real estate loan for $ 82,000 that was in the process of being foreclosed as of December 31, 2024. There were three residential real estate loans for $ 292,000 that were in the process of being foreclosed as of December 31, 2023. The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of December 31, 2024 and 2023. There were no liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023. Fair Value Measurements at December 31, 2024 Using Quoted Prices in Active Markets Significant Other Significant for Identical Observable Inputs Unobservable Assets (Level 1) (Level 2) Inputs (Level 3) Total Assets Measured on a Recurring Basis: (In Thousands) Available-for-sale debt securities: U.S. Treasury securities $ 617,486 $ - $ - $ 617,486 Mortgage-backed securities - 219,274 - 219,274 State and municipal securities - 9,517 - 9,517 Corporate debt - 315,123 - 315,123 Total available-for-sale debt securities 617,486 543,914 - 1,161,400 Total assets at fair value $ 617,486 $ 543,914 $ - $ 1,161,400 Fair Value Measurements at December 31, 2023 Using Quoted Prices in Active Markets Significant Other Significant for Identical Observable Inputs Unobservable Assets (Level 1) (Level 2) Inputs (Level 3) Total Assets Measured on a Recurring Basis: (In Thousands) Available-for-sale debt securities: U.S. Treasury securities $ 340,807 $ - $ - $ 340,807 Mortgage-backed securities - 215,485 - 215,485 State and municipal securities - 10,223 - 10,223 Corporate debt - 326,808 6,860 333,668 Total available-for-sale debt securities 340,807 552,516 6,860 900,183 Total assets at fair value $ 340,807 $ 552,516 $ 6,860 $ 900,183 97 The carrying amount and estimated fair value of the Company’s financial instruments measured on a nonrecurring basis were as follows: Fair Value Measurements at December 31, 2024 Using Quoted Prices in Active Markets Significant Other Significant for Identical Observable Unobservable Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Total Assets Measured on a Nonrecurring Basis: (In Thousands) Loans individually evaluated $ - $ - $ 95,667 $ 95,667 Other real estate owned and repossessed assets - - 2,531 2,531 Total assets at fair value $ - $ - $ 98,198 $ 98,198 Fair Value Measurements at December 31, 2023 Using Quoted Prices in Active Markets Significant Other Significant for Identical Observable Unobservable Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Total Assets Measured on a Nonrecurring Basis: (In Thousands) Loans individually evaluated $ - $ - $ 70,735 $ 70,735 Other real estate owned and repossessed assets - - 995 995 Total assets at fair value $ - $ - $ 71,730 $ 71,730 There were no liabilities measured at fair value on a non-recurring basis as of December 31, 2024 and 2023. In the case of the debt securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the year ended December 31, 2024, there was two transfers from Level 3 to Level 2 for $ 5,531 . The table below includes a rollforward of the balance sheet amounts for the years ended December 31, 2024 and 2023 (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 year ended December 31, 2024 2023 Available-for-sale Securities Available-for-sale Securities (In Thousands) Fair value, beginning of period $ 6,860 $ 10,860 Transfers into Level 3 - - Total realized gains included in income - - Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end ( 1,329 ) 160 Purchases - - Transfers out of Level 3 ( 5,531 ) ( 4,160 ) Fair value, end of period $ - $ 6,860 The fair value of a financial instrument is the current amount that would be exchanged in a sale between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Current GAAP excludes certain financial instruments and all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. 98 December 31, 2024 Carrying / Notional Amount Estimated Fair Value Quoted Market Prices in an Active Market (Level 1) Models with Significant Observable Market Parameters (Level 2) Models with Significant Unobservable Market Parameters (Level 3) (In Thousands) Financial Assets: Cash and cash equivalents $ 2,375,589 $ 2,375,589 $ 2,375,589 $ - $ - Held to maturity U.S. Treasury securities 249,403 229,771 229,771 - - Federal funds sold 1,045 1,045 - 1,045 - Held to maturity debt securities 465,200 409,475 - 409,475 - Mortgage loans held for sale 9,211 9,211 - 9,211 - Restricted equity securities 11,300 11,300 - 11,300 - Held to maturity debt securities 250 250 - - 250 Loans, net 12,441,378 12,013,721 - - 12,013,721 Financial Liabilities: Deposits $ 13,543,459 $ 13,540,438 $ - $ 13,540,438 $ - Federal funds purchased 1,993,728 1,993,728 - 1,993,728 - Other borrowings 64,743 59,130 - 59,130 - December 31, 2023 Carrying / Notional Amount Estimated Fair Value Quoted Market Prices in an Active Market (Level 1) Models with Significant Observable Market Parameters (Level 2) Models with Significant Unobservable Market Parameters (Level 3) (In Thousands) Financial Assets: Cash and cash equivalents $ 2,030,513 $ 2,030,513 $ 2,030,513 $ - $ - Held to maturity U.S. Treasury securities 508,985 484,267 484,267 - - Federal funds sold 100,575 100,575 - 100,575 - Held to maturity debt securities 473,679 422,924 - 422,924 - Mortgage loans held for sale 5,071 5,071 - 5,071 - Restricted equity securities 10,226 10,226 - 10,226 - Held to maturity debt securities 250 250 - - 250 Loans, net 11,505,512 11,032,819 - - 11,032,819 Financial Liabilities: Deposits $ 13,273,511 $ 13,266,640 $ - $ 13,266,640 $ - Federal funds purchased 1,256,724 1,256,724 - 1,256,724 - Other borrowings 64,735 58,083 - 58,083 - 99 NOTE 22. PARENT COMPANY FINANCIAL INFORMATION The following information presents the condensed balance sheet of the Company as of December 31, 2024 and 2023 and the condensed statements of income and cash flows for the years ended December 31, 2024, 2023 and 2022. CONDENSED BALANCE SHEETS (In Thousands) December 31, 2024 December 31, 2023 ASSETS Cash and due from banks $ 22,584 $ 20,014 Investment in subsidiary 1,675,847 1,501,777 Other assets 864 557 Total assets $ 1,699,295 $ 1,522,348 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Other borrowings $ 64,743 $ 64,735 Other liabilities 18,280 17,708 Total liabilities 83,023 82,443 Stockholders' equity: Preferred stock, par value $ 0.001 per share; 1,000,000 authorized and undesignated at December 31, 2024 and December 31, 2023 - - Common stock, par value $ 0.001 per share; 200,000,000 shares authorized: 54,569,427 shares issued and outstanding at December 31, 2024; and 54,461,580 shares issued and outstanding at December 31, 2023 at December 31, 2021 54 54 Additional paid-in capital 235,781 232,605 Retained earnings 1,412,616 1,254,841 Accumulated other comprehensive loss ( 32,179 ) ( 47,595 ) Total stockholders' equity 1,616,272 1,439,905 Total liabilities and stockholders' equity $ 1,699,295 $ 1,522,348 CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2024, 2023, and 2022. (In Thousands) 2024 2023 2022 Income: Dividends received from subsidiary $ 71,887 $ 62,500 $ 57,500 Other income 92 44 - Total income 71,979 62,544 57,500 Expense: Other expenses 2,683 2,829 2,822 Total expenses 2,683 2,829 2,822 Equity in undistributed earnings of subsidiary 157,884 147,076 196,764 Net income 227,180 206,791 251,442 Dividends on preferred stock - - - Net income available to common stockholders $ 227,180 $ 206,791 $ 251,442 STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 2024, 2023, and 2022. (In Thousands) 2024 2023 2022 Operating activities Net income $ 227,180 $ 206,791 $ 251,442 Adjustments to reconcile net income to net cash provided by operating activities: Other ( 1,374 ) 2,227 ( 290 ) Equity in undistributed earnings of subsidiary ( 157,887 ) ( 147,076 ) ( 197,221 ) Net cash provided by operating activities 67,919 61,942 53,931 Investing activities Other - ( 300 ) 750 Net cash used in investing activities - ( 300 ) 750 Financing activities Proceeds from issuance of subordinated notes - - - Redemption of subordinated notes - - - Dividends paid on common stock ( 65,412 ) ( 60,923 ) ( 49,942 ) Net cash used in financing activities ( 65,412 ) ( 60,923 ) ( 49,942 ) Net change in cash and cash equivalents 2,570 722 4,739 Cash and cash equivalents at beginning of year 20,014 19,292 14,553 Cash and cash equivalents at end of year $ 22,521 $ 20,014 $ 19,292 100 NOTE 23. SEGMENT REPORTING The Bank’s revenue is primarily derived from the business of banking. The Bank’s financial performance is monitored on consolidated basis by senior management, which is considered to be the Bank’s CODM. Senior Management includes the following officers of the Company: Chairman of the Board and Chief Executive Officer; President; Executive Vice President, Chief Financial Officer; Executive Vice President, Chief Operating Officer. All of the Bank’s financial results are similar and considered by management to be aggregated into one reportable operating segment. While the Company has assigned certain management responsibilities by region and business line, the Bank’s CODM evaluates financial performance on a Bank-wide basis. The majority of the Bank’s revenue is from the business of banking, and the Bank’s regions have similar economic characteristics, products, services and customers. Accordingly, all of the Bank’s operations are considered by management to be aggregated in one reportable operating segment. Financial performance is reported to the CODM monthly, and the primary measure of performance is net income, net interest income, non-interest income, and key operating expenses. The allocation of resources throughout the Bank is based on consolidated profitability. The presentation of financial performance to the CODM is consistent with amounts and financial statement line items shown in the Bank’s consolidated balance sheets and consolidated statements of income. Additionally, the Bank’s significant expenses are adequately segmented by category and amount in the consolidated statements of income to include all significant items when considering both qualitative and quantitative factors. Significant expenses of the Company include salaries and employee benefits, equipment and occupancy expense, third-party processing and other services, and professional services. Because we report on a single segment basis, our segment information may not be directly comparable to financial institutions that present multiple reportable segments. Should future organizational changes in our management structure or business model necessitate more detailed segment disclosures, we will revise our segment reporting accordingly. As of the date of these consolidated financial statements, no such changes have occurred, and management continues to evaluate performance on a consolidated entity basis. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There were no disagreements with accountants regarding accounting and financial disclosure matters during the year ended December 31, 2024.