UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________

FORM 10-Q

(Mark one)

	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

~~FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017~~

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to_______

Commission file number 001-36452

SERVISFIRST BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	26-0734029
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

2500 Woodcrest Place, Birmingham, Alabama	*35209*
(Address of Principal Executive Offices)	~~(Zip~~(Zip Code)

(205) 949-0302

(Registrant's Telephone Number, Including Area Code)

Title of each class	Name of exchange on which registered
Common stock, par value $.001 per share	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Class	Outstanding as of October ~~27, 2017~~25, 2018
Common stock, $.001 par value	~~52,979,310~~53,292,233

TABLE OF CONTENTS

EX-31.01 SECTION 302 CERTIFICATION OF THE CEO

EX-31.02 SECTION 302 CERTIFICATION OF THE CFO

EX-32.01 SECTION 906 CERTIFICATION OF THE CEO

EX-32.02 SECTION 906 CERTIFICATION OF THE CFO

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
	(Unaudited)			(1)			(Unaudited)			(1)
ASSETS
Cash and due from banks	$	79,431		$	56,855		$	77,692		$	86,213
Interest-bearing balances due from depository institutions		86,719			566,707			59,096			151,849
Federal funds sold		182,841			160,435			229,033			239,524
Cash and cash equivalents		348,991			783,997			365,821			477,586
Available for sale debt securities, at fair value		435,325			422,375			578,021			538,080
Held to maturity debt securities (fair value of $89,329 and $63,302 at September 30, 2017 and December 31, 2016, respectively)		87,399			62,564
Restricted equity securities		1,038			1,024
Held to maturity debt securities (fair value of $250 at September 30, 2018 and December 31, 2017)								250			250
Equity securities								889			1,034
Mortgage loans held for sale		4,971			4,675			5,277			4,459
Loans		5,628,765			4,911,770			6,363,531			5,851,261
Less allowance for loan losses		(58,459	)		(51,893	)		(66,879	)		(59,406	)
Loans, net		5,570,306			4,859,877			6,296,652			5,791,855
Premises and equipment, net		55,104			40,314			57,882			58,900
Accrued interest and dividends receivable		20,334			15,801			24,755			20,661
Deferred tax assets		26,326			27,132			12,268			13,022
Other real estate owned and repossessed assets		3,888			4,988			5,714			6,701
Bank owned life insurance contracts		126,722			114,388			129,869			127,519
Goodwill and other identifiable intangible assets		14,787			14,996			14,517			14,719
Other assets		16,912			18,317			25,918			27,598
Total assets	$	6,712,103		$	6,370,448		$	7,517,833		$	7,082,384
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing	$	1,405,965		$	1,281,605		$	1,504,447		$	1,440,326
Interest-bearing		4,390,936			4,138,706			5,000,904			4,651,348
Total deposits		5,796,901			5,420,311			6,505,351			6,091,674
Federal funds purchased		254,880			355,944			246,094			301,797
Other borrowings		54,975			55,262			64,657			64,832
Accrued interest payable		4,353			4,401			8,562			4,971
Other liabilities		10,781			11,641			11,659			11,506
Total liabilities		6,121,890			5,847,559			6,836,323			6,474,780
Stockholders' equity:
Preferred stock, Series A Senior Non-Cumulative Perpetual, par value $0.001 (liquidation preference $1,000), net of discount; no shares authorized or outstanding at September 30, 2017 and December 31, 2016		-			-
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at September 30, 2017 and December 31, 2016		-			-
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 52,970,310 shares issued and outstanding at September 30, 2017, and 52,636,896 shares issued and outstanding at December 31, 2016		53			53
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at September 30, 2018 and December 31, 2017								-			-
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 53,197,807 shares issued and outstanding at September 30, 2018, and 52,992,586 shares issued and outstanding at December 31, 2017								53			53
Additional paid-in capital		217,483			215,932			218,062			217,693
Retained earnings		371,127			307,151			472,681			389,554
Accumulated other comprehensive income		1,048			(624	)
Accumulated other comprehensive loss								(9,788	)		(198	)
Total stockholders' equity attributable to ServisFirst Bancshares, Inc.		589,711			522,512			681,008			607,102
Noncontrolling interest		502			377			502			502
Total stockholders' equity		590,213			522,889			681,510			607,604
Total liabilities and stockholders' equity	$	6,712,103		$	6,370,448		$	7,517,833		$	7,082,384

(1) Derived from audited financial statements.

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

(Unaudited)

										Three Months Ended				Nine Months Ended
	Three Months Ended September 30,				Nine Months Ended September 30,					September 30,				September 30,
	2017		2016		2017		2016			2018		2017		2018		2017
Interest income:
Interest and fees on loans	$	63,857	$	51,473	$	179,325	$	147,930		$	78,991	$	63,857	$	222,285	$	179,325
Taxable securities		2,288		1,232		6,649		3,739			3,276		2,288		9,148		6,649
Nontaxable securities		729		823		2,246		2,515			583		729		1,862		2,246
Federal funds sold		379		347		1,185		630			892		379		2,137		1,185
Other interest and dividends		388		816		1,291		1,888			316		388		1,031		1,291
Total interest income		67,641		54,691		190,696		156,702			84,058		67,641		236,463		190,696
Interest expense:
Deposits		7,574		5,358		19,877		14,352			15,210		7,574		36,545		19,877
Borrowed funds		1,671		1,415		4,804		4,362			1,985		1,671		6,097		4,804
Total interest expense		9,245		6,773		24,681		18,714			17,195		9,245		42,642		24,681
Net interest income		58,396		47,918		166,015		137,988			66,863		58,396		193,821		166,015
Provision for loan losses		4,803		3,464		14,170		9,323			6,624		4,803		14,884		14,170
Net interest income after provision for loan losses		53,593		44,454		151,845		128,665			60,239		53,593		178,937		151,845
Noninterest income:
Service charges on deposit accounts		1,467		1,367		4,203		3,980			1,595		1,467		4,833		4,203
Mortgage banking		978		1,112		2,941		2,681			789		978		2,096		2,941
Credit card income		1,149		1,114		3,517		2,159			1,838		1,149		5,172		3,517
Securities losses		-		-		-		(3	)
Securities gains											186		-		190		-
Increase in cash surrender value life insurance		825		770		2,334		2,049			787		825		2,350		2,334
Other operating income		371		428		1,146		1,207			396		371		1,278		1,146
Total noninterest income		4,790		4,791		14,141		12,073			5,591		4,790		15,919		14,141
Noninterest expenses:
Salaries and employee benefits		12,428		10,958		36,172		32,758			13,070		12,428		39,464		36,172
Equipment and occupancy expense		1,947		2,100		6,452		6,108			2,193		1,947		6,260		6,452
Professional services		805		1,182		2,384		2,919			853		805		2,582		2,384
FDIC and other regulatory assessments		810		775		2,888		2,328			675		810		2,967		2,888
OREO expense		31		178		163		668			289		31		765		163
Other operating expenses		5,476		4,969		16,580		14,175			6,070		5,476		18,634		16,580
Total noninterest expenses		21,497		20,162		64,639		58,956			23,150		21,497		70,672		64,639
Income before income taxes		36,886		29,083		101,347		81,782			42,680		36,886		124,184		101,347
Provision for income taxes		11,627		8,174		29,405		22,041			8,120		11,627		23,481		29,405
Net income		25,259		20,909		71,942		59,741			34,560		25,259		100,703		71,942
Preferred stock dividends		-		-		31		23			-		-		31		31
Net income available to common stockholders	$	25,259	$	20,909	$	71,911	$	59,718		$	34,560	$	25,259	$	100,672	$	71,911

Basic earnings per common share	$	0.48	$	0.40	$	1.36	$	1.14		$	0.65	$	0.48	$	1.89	$	1.36

Diluted earnings per common share	$	0.47	$	0.39	$	1.33	$	1.12		$	0.64	$	0.47	$	1.86	$	1.33

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income $ 25,259 $ 20,909 $ 71,942 $ 59,741
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during period from securities available for sale, net of tax of $165 and $896 for the three and nine months ended September 30, 2017, respectively, and $(415) and $844 for the three and nine months ended September 30, 2016, respectively 305 (771 ) 1,672 1,583
Reclassification adjustment for net losses on sale of securities, net of tax of $1 for the nine months ended September 30, 2016 - - - 2
Other comprehensive income, net of tax 305 (771 ) 1,672 1,585
Comprehensive income $ 25,564 $ 20,138 $ 73,614 $ 61,326
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Net income $ 34,560 $ 25,259 $ 100,703 $ 71,942
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains arising during period from securities available for sale, net of tax of $(653) and $(2,589) for the three and nine months ended September 30, 2018, respectively, and $165 and $896 for the three and nine months ended September 30, 2017, respectively (2,463 ) 305 (9,740 ) 1,672
Reclassification adjustment for gains on sale of securities, net of tax of $39 and $40 for the three and nine months ended September 30, 2018, respectively 147 - 150 -
Other comprehensive (loss) income, net of tax (2,316 ) 305 (9,590 ) 1,672
Comprehensive income $ 32,244 $ 25,564 $ 91,113 $ 73,614

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)

(Unaudited)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interest		Total Stockholders' Equity
Balance, December 31, 2015	$	52	$	211,546	$	234,124		$	3,048		$	377	$	449,147
Common dividends paid, $0.08 per share		-		-		(4,194	)		-			-		(4,194	)
Common dividends declared, $.04 per share		-		-		(2,106	)		-			-		(2,106	)
Preferred dividends paid		-		-		(23	)		-			-		(23	)
Issue 656,500 shares of common stock upon exercise of stock options		-		2,785		-			-			-		2,785
Stock based compensation expense		-		931		-			-			-		931
Other comprehensive income, net of tax		-		-		-			1,585			-		1,585
Net income		-		-		59,741			-			-		59,741
Balance, September 30, 2016	$	52	$	215,262	$	287,542		$	4,633		$	377	$	507,866
																Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling interest		Total Stockholders' Equity
Balance, December 31, 2016	$	53	$	215,932	$	307,151		$	(624	)	$	377	$	522,889		$	-	$	53	$	215,932		$	307,151		$	(624	)	$	377	$	522,889
Common dividends paid, $0.10 per share		-		-		(5,286	)		-			-		(5,286	)		-		-		-			(5,286	)		-			-		(5,286	)
Common dividends declared, $0.05 per share		-		-		(2,649	)		-			-		(2,649	)		-		-		-			(2,649	)		-			-		(2,649	)
Preferred dividends paid		-		-		(31	)		-			-		(31	)		-		-		-			(31	)		-			-		(31	)
Issue 328,214 shares of common stock upon exercise of stock options		-		635		-			-			-		635			-		-		1,784			-			-			-		1,784
30,786 shares of common stock withheld in net settlement upon exercise of stock options																	-		-		(1,149	)		-			-			-		(1,149	)
Issue 125 shares of REIT preferred stock		-		-		-			-			125		125			-		-		-			-			-			125		125
Stock based compensation expense		-		916		-			-			-		916
Stock-based compensation expense																	-		-		916			-			-			-		916
Other comprehensive income, net of tax		-		-		-			1,672			-		1,672			-		-		-			-			1,672			-		1,672
Net income		-		-		71,942			-			-		71,942			-		-		-			71,942			-			-		71,942
Balance, September 30, 2017	$	53	$	217,483	$	371,127		$	1,048		$	502	$	590,213		$	-	$	53	$	217,483		$	371,127		$	1,048		$	502	$	590,213

Balance, December 31, 2017																$	-	$	53	$	217,693		$	389,554		$	(198	)	$	502	$	607,604
Common dividends paid, $0.22 per share																	-		-		-			(11,694	)		-			-		(11,694	)
Common dividends declared, $0.11 per share																	-		-		-			(5,851	)		-			-		(5,851	)
Preferred dividends paid																	-		-		-			(31	)		-			-		(31	)
Issue 191,371 shares of common stock upon exercise of stock options																	-		-		1,325			-			-			-		1,325
39,965 shares of common stock withheld in net settlement upon exercise of stock options																	-		-		(1,640	)		-			-			-		(1,640	)
Stock-based compensation expense																	-		-		684			-			-			-		684
Other comprehensive loss, net of tax																	-		-		-			-			(9,590	)		-		(9,590	)
Net income																	-		-		-			100,703			-			-		100,703
Balance, September 30, 2018																$	-	$	53	$	218,062		$	472,681		$	(9,788	)	$	502	$	681,510

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2018			2017
OPERATING ACTIVITIES
Net income	$	71,942		$	59,741		$	100,703		$	71,942
Adjustments to reconcile net income to net cash provided by
Deferred tax		(3,099	)		350
Deferred tax expense (benefit)								754			(3,099	)
Provision for loan losses		14,170			9,323			14,884			14,170
Depreciation		2,281			2,211			2,548			2,281
Accretion on acquired loans		(374	)		(819	)		(147	)		(374	)
Amortization of core deposit intangible		209			257			202			209
Net amortization of debt securities available for sale		2,874			2,034			2,268			2,874
Increase in accrued interest and dividends receivable		(4,533	)		(950	)		(4,094	)		(4,533	)
Stock-based compensation expense		916			931			684			916
(Decrease) increase in accrued interest payable		(48	)		1,257
Increase (decrease) in accrued interest payable								3,591			(48	)
Proceeds from sale of mortgage loans held for sale		105,940			97,868			81,319			105,940
Originations of mortgage loans held for sale		(103,295	)		(92,964	)		(80,041	)		(103,295	)
Loss on sale of debt securities available for sale		-			3
Gain on sale of debt securities available for sale								(15	)		-
Gain on sale of equity securities								(175	)		-
Gain on sale of mortgage loans held for sale		(2,941	)		(2,681	)		(2,096	)		(2,941	)
Net (gain) loss on sale of other real estate owned and repossessed assets		(33	)		27
Net loss (gain) on sale of other real estate owned and repossessed assets								3			(33	)
Write down of other real estate owned and repossessed assets		5			557			488			5
Losses of tax credit partnerships		42			178
Operating losses of tax credit partnerships								128			42
Increase in cash surrender value of life insurance contracts		(2,334	)		(2,049	)		(2,350	)		(2,334	)
Net change in other assets, liabilities, and other operating activities		(551	)		(4,633	)		(2,608	)		(551	)
Net cash provided by operating activities		81,171			70,641			116,046			81,171
INVESTMENT ACTIVITIES
Purchase of debt securities available for sale		(77,567	)		(84,106	)		(122,821	)		(77,567	)
Proceeds from maturities, calls and paydowns of debt securities available for sale								63,803			65,734
Proceeds from sale of debt securities available for sale		-			6,085			5,736			-
Proceeds from maturities, calls and paydowns of debt securities available for sale		65,734			71,425
Purchase of debt securities held to maturity		(29,782	)		(627	)		-			(29,782	)
Proceeds from maturities, calls and paydowns of debt securities held to maturity		4,947			2,200			-			4,947
Purchase of equity securities		(10	)		(708	)		-			(10	)
Proceeds from sale of equity securities								305			-
Increase in loans		(724,626	)		(443,771	)		(520,610	)		(724,626	)
Purchase of premises and equipment		(17,071	)		(7,809	)		(1,530	)		(17,071	)
Purchase of bank-owned life insurance contracts		(10,000	)		(20,000	)		-			(10,000	)
Expenditures to complete construction of other real estate owned		-			(3	)
Proceeds from sale of other real estate owned and repossessed assets		1,529			1,648			1,572			1,529
Investment in tax credit partnerships		-			(2,491	)
Net cash used in investing activities		(786,846	)		(478,157	)		(573,545	)		(786,846	)
FINANCING ACTIVITIES
Net increase in non-interest-bearing deposits		124,360			216,259			64,121			124,360
Net increase in interest-bearing deposits		252,230			640,981			349,556			252,230
Net decrease in federal funds purchased		(101,064	)		(7,970	)		(55,703	)		(101,064	)
Repayment of Federal Home Loan Bank advances		(300	)		(300	)		(200	)		(300	)
Proceeds from sale of preferred stock, net		125			-			-			125
Proceeds from exercise of stock options and warrants		635			2,785
Proceeds from exercise of stock options								1,325			635
Taxes paid in net settlement of tax obligation upon exercise of stock options								(1,640	)		-
Dividends paid on common stock		(5,286	)		(4,194	)		(11,694	)		(5,286	)
Dividends paid on preferred stock		(31	)		(23	)		(31	)		(31	)
Net cash provided by financing activities		270,669			847,538			345,734			270,669
Net (decrease) increase in cash and cash equivalents		(435,006	)		440,022
Net decrease in cash and cash equivalents								(111,765	)		(435,006	)
Cash and cash equivalents at beginning of period		783,997			352,235			477,586			783,997
Cash and cash equivalents at end of period	$	348,991		$	792,257		$	365,821		$	348,991
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest	$	24,729		$	17,457		$	39,051		$	24,729
Income taxes		30,651			22,666			20,235			30,651
Income tax refund		(492	)		(929	)		(2	)		(492	)
NONCASH TRANSACTIONS
Other real estate acquired in settlement of loans	$	586		$	2,033		$	1,206		$	586
Internally financed sales of other real estate owned		185			2,161			130			185
Dividends declared		2,649			2,106			5,851			2,649

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2017~~2018

(Unaudited)

NOTE 1 - GENERAL

The accompanying consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) and its consolidated subsidiaries, including ServisFirst Bank (the “Bank”), may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, ~~2016.~~

On December 20, 2016, the Company effected a two-for-one split of its common stock in the form of a stock dividend. Except where specifically indicated otherwise, all reported amounts in this Form 10-Q have been adjusted to give effect to this stock split.2017.

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

Revenue Recognition

Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), provides guidance for reporting revenue from the entity’s contracts to provide goods or services to customers. 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.

The majority of our revenue-generating transactions are excluded from the scope of ASC 606, including revenue generated from financial instruments, such as securities and loans. Revenue-generating transactions that are within the scope of ASC 606, classified within non-interest income, 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 bank owned life insurance contracts, letter of credit fees and gains on sale of loans held for sale, none of which are within the scope of ASC 606.

NOTE 2 - CASH AND CASH EQUIVALENTS

Cash on hand, cash items in process of collection, amounts due from banks, and federal funds sold are included in cash and cash equivalents.

NOTE 3 - EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock ~~options and warrants. All reported amounts in this Form 10-Q have been adjusted to give effect to the two-for-one stock split discussed above.~~options.

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(In Thousands, Except Shares and Per Share Data)								(In Thousands, Except Shares and Per Share Data)
Earnings per common share
Weighted average common shares outstanding		52,950,644		52,554,918		52,854,332		52,557,910		53,171,144		52,950,644		53,134,861		52,854,332
Net income available to common stockholders	$	25,259	$	20,909	$	71,911	$	59,718	$	34,560	$	25,259	$	100,672	$	71,911
Basic earnings per common share	$	0.48	$	0.40	$	1.36	$	1.14	$	0.65	$	0.48	$	1.89	$	1.36

Weighted average common shares outstanding		52,950,644		52,554,918		52,854,332		52,557,910		53,171,144		52,950,644		53,134,861		52,854,332
Dilutive effects of assumed conversions and exercise of stock options and warrants		1,149,028		1,324,410		1,256,580		932,008		1,020,078		1,149,028		1,055,383		1,256,580
Weighted average common and dilutive potential common shares outstanding		54,099,672		53,879,328		54,110,912		53,489,918		54,191,222		54,099,672		54,190,244		54,110,912
Net income available to common stockholders	$	25,259	$	20,909	$	71,911	$	59,718	$	34,560	$	25,259	$	100,672	$	71,911
Diluted earnings per common share	$	0.47	$	0.39	$	1.33	$	1.12	$	0.64	$	0.47	$	1.86	$	1.33

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 are summarized as follows:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value				Gross		Gross
September 30, 2017	(In Thousands)
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	56,518	$	335	$	(75	)	$	56,778
Mortgage-backed securities		243,465		1,457		(1,179	)		243,743
State and municipal securities		133,729		1,201		(126	)		134,804
Total		433,712		2,993		(1,380	)		435,325
Securities Held to Maturity
Mortgage-backed securities		31,165		393		(179	)		31,379
State and municipal securities		5,726		300		-			6,026
Corporate debt		50,508		1,416		-			51,924
Total	$	87,399	$	2,109	$	(179	)	$	89,329
										Amortized		Unrealized		Unrealized			Market
December 31, 2016
										Cost		Gain		Loss			Value
September 30, 2018										(In Thousands)
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	45,998	$	382	$	(126	)	$	46,254	$	75,477	$	2	$	(1,201	)	$	74,278
Mortgage-backed securities		228,843		1,515		(3,168	)		227,190		308,439		407		(10,022	)		298,824
State and municipal securities		139,504		1,120		(694	)		139,930		113,613		234		(1,149	)		112,698
Corporate debt		8,985		16		-			9,001		92,916		257		(952	)		92,221
Total		423,330		3,033		(3,988	)		422,375		590,445		900		(13,324	)		578,021
Securities Held to Maturity
State and municipal securities											250		-		-			250
Total										$	250	$	-	$	-		$	250

December 31, 2017
Securities Available for Sale
U.S. Treasury and government sponsored agencies										$	55,567	$	38	$	(249	)	$	55,356
Mortgage-backed securities		19,164		321		(245	)		19,240		278,177		1,006		(2,685	)		276,498
State and municipal securities		5,888		315		(12	)		6,191		134,641		761		(553	)		134,849
Corporate debt		37,512		374		(15	)		37,871		69,996		1,416		(35	)		71,377
Total	$	62,564	$	1,010	$	(272	)	$	63,302		538,381		3,221		(3,522	)		538,080
Securities Held to Maturity
State and municipal securities											250		-		-			250
Total										$	250	$	-	$	-		$	250

The amortized cost and fair value of debt securities as of September 30, 2018 and December 31, 2017 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories along with the other categories of debt securities.

September 30, 2018 December 31, 2017
Amortized
Cost Fair Value Amortized
Cost Fair Value
(In thousands)
Debt securities available for sale
Due within one year $ 49,809 $ 49,722 $ 22,122 $ 22,172
Due from one to five years 213,202 210,472 160,773 160,563
Due from five to ten years 17,141 17,106 73,362 74,684
Due after ten years 1,854 1,897 3,947 4,163
Mortgage-backed securities 308,439 298,824 278,177 276,498
$ 590,445 $ 578,021 $ 538,381 $ 538,080
Debt securities held to maturity
Due from one to five years $ 250 $ 250 $ 250 $ 250
$ 250 $ 250 $ 250 $ 250

September 30, 2017 December 31, 2016
Amortized
Cost Fair Value Amortized
Cost Fair Value
(In thousands)
Debt securities available for sale
Due within one year $ 25,961 $ 26,035 $ 28,270 $ 28,400
Due from one to five years 151,842 153,099 152,347 153,003
Due from five to ten years 12,054 12,058 13,870 13,782
Due after ten years 390 390 - -
Mortgage-backed securities 243,465 243,743 228,843 227,190
$ 433,712 $ 435,325 $ 423,330 $ 422,375

Debt securities held to maturity
Due from one to five years $ 3,250 $ 3,280 $ 250 $ 250
Due from five to ten years 48,997 50,450 34,251 34,617
Due after ten years 3,987 4,220 8,899 9,195
Mortgage-backed securities 31,165 31,379 19,164 19,240
$ 87,399 $ 89,329 $ 62,564 $ 63,302

All mortgage-backed securities are with government-sponsored enterprises (GSEs) such as Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, and Federal Home Loan Mortgage Corporation.

The following table identifies, as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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. At September 30, ~~2017, 52~~2018, 197 of the Company’s ~~807~~758 debt securities had been in an unrealized loss position for 12 or more months. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity; accordingly, the Company does not consider these securities to be other-than-temporarily impaired at September 30, ~~2017.~~2018. Further, the Company believes any deterioration in value of its current investment securities is attributable to changes in market interest rates and not credit quality of the issuer.

	Less Than Twelve Months					Twelve Months or More					Total					Less Than Twelve Months					Twelve Months or More					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross					Gross					Gross
	(In Thousands)															Unrealized					Unrealized					Unrealized
September 30, 2017
U.S. Treasury and government sponsored agencies	$	(75	)	$	9,670	$	-		$	-	$	(75	)	$	9,670
Mortgage-backed securities		(596	)		77,553		(762	)		43,721		(1,358	)		121,274
State and municipal securities		(76	)		22,069		(50	)		7,041		(126	)		29,110
Total	$	(747	)	$	109,292	$	(812	)	$	50,762	$	(1,559	)	$	160,054
																Losses			Fair Value		Losses			Fair Value		Losses			Fair Value
December 31, 2016
																(In Thousands)
September 30, 2018
U.S. Treasury and government sponsored agencies	$	(126	)	$	10,865	$	-		$	-	$	(126	)	$	10,865	$	(736	)	$	62,833	$	(465	)	$	11,311	$	(1,201	)	$	74,144
Mortgage-backed securities		(3,413	)		174,225		-			-		(3,413	)		174,225		(3,566	)		141,107		(6,456	)		144,336		(10,022	)		285,443
State and municipal securities		(698	)		64,502		(8	)		1,021		(706	)		65,523		(613	)		69,646		(536	)		20,506		(1,149	)		90,152
Corporate debt		(15	)		3,034		-			-		(15	)		3,034		(952	)		65,456		-			-		(952	)		65,456
Total	$	(4,252	)	$	252,626	$	(8	)	$	1,021	$	(4,260	)	$	253,647	$	(5,867	)	$	339,042	$	(7,457	)	$	176,153	$	(13,324	)	$	515,195

December 31, 2017
U.S. Treasury and government sponsored agencies																$	(151	)	$	33,401	$	(98	)	$	2,926	$	(249	)	$	36,327
Mortgage-backed securities																	(986	)		140,432		(1,699	)		75,903		(2,685	)		216,335
State and municipal securities																	(450	)		66,637		(103	)		6,648		(553	)		73,285
Corporate debt																	(35	)		6,955		-			-		(35	)		6,955
Total																$	(1,622	)	$	247,425	$	(1,900	)	$	85,477	$	(3,522	)	$	332,902

NOTE 5 – LOANS

The following table details the Company’s loans at September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

							September 30,			December 31,
	September 30, 2017			December 31, 2016			2018			2017
	(Dollars In Thousands)						(Dollars In Thousands)
Commercial, financial and agricultural	$	2,223,910		$	1,982,267		$	2,478,788		$	2,279,366
Real estate - construction		467,838			335,085			543,611			580,874
Real estate - mortgage:
Owner-occupied commercial		1,323,383			1,171,719			1,430,111			1,328,666
1-4 family mortgage		593,180			536,805			610,460			603,063
Other mortgage		962,690			830,683			1,236,954			997,079
Subtotal: Real estate - mortgage		2,879,253			2,539,207			3,277,525			2,928,808
Consumer		57,764			55,211			63,607			62,213
Total Loans		5,628,765			4,911,770			6,363,531			5,851,261
Less: Allowance for loan losses		(58,459	)		(51,893	)		(66,879	)		(59,406	)
Net Loans	$	5,570,306		$	4,859,877		$	6,296,652		$	5,791,855


Commercial, financial and agricultural		39.51	%		40.36	%		38.95	%		38.96	%
Real estate - construction		8.31	%		6.82	%		8.54	%		9.93	%
Real estate - mortgage:
Owner-occupied commercial		23.51	%		23.86	%		22.47	%		22.71	%
1-4 family mortgage		10.54	%		10.93	%		9.60	%		10.30	%
Other mortgage		17.10	%		16.91	%		19.44	%		17.04	%
Subtotal: Real estate - mortgage		51.15	%		51.70	%		51.51	%		50.05	%
Consumer		1.03	%		1.12	%		1.00	%		1.06	%
Total Loans		100.00	%		100.00	%		100.00	%		100.00	%

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions defined as follows:

·•

Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or obligors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

·•

Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

·•

Substandard – loans that exhibit well-defined weakness or weaknesses that currently jeopardize debt repayment. These loans are characterized by the distinct possibility that the institution will sustain some loss if the weaknesses are not corrected.

·•

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.

Loans by credit quality indicator as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:

September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Total
													Special
September 30, 2018											Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)										(In Thousands)
Commercial, financial and agricultural	$	2,144,426	$	49,079	$	30,405	$	-	$	2,223,910	$	2,413,994	$	41,656	$	23,138	$	-	$	2,478,788
Real estate - construction		457,188		7,367		3,283		-		467,838		536,789		5,400		1,422		-		543,611
Real estate - mortgage:
Owner-occupied commercial		1,305,408		11,814		6,161		-		1,323,383		1,396,503		30,101		3,507		-		1,430,111
1-4 family mortgage		587,451		1,492		4,237		-		593,180		606,509		2,600		1,351		-		610,460
Other mortgage		945,548		14,118		3,024		-		962,690		1,210,063		20,466		6,425		-		1,236,954
Total real estate mortgage		2,838,407		27,424		13,422		-		2,879,253		3,213,075		53,167		11,283		-		3,277,525
Consumer		57,672		4		88		-		57,764		63,555		3		49		-		63,607
Total	$	5,497,693	$	83,874	$	47,198	$	-	$	5,628,765	$	6,227,413	$	100,226	$	35,892	$	-	$	6,363,531

December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Total
													Special
December 31, 2017											Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)										(In Thousands)
Commercial, financial and agricultural	$	1,893,664	$	61,035	$	27,568	$	-	$	1,982,267	$	2,225,084	$	27,835	$	26,447	$	-	$	2,279,366
Real estate - construction		324,958		5,861		4,266		-		335,085		572,657		6,691		1,526		-		580,874
Real estate - mortgage:
Owner-occupied commercial		1,158,615		6,037		7,067		-		1,171,719		1,317,113		7,333		4,220		-		1,328,666
1-4 family mortgage		531,868		2,065		2,872		-		536,805		598,222		1,599		3,242		-		603,063
Other mortgage		818,724		11,224		735		-		830,683		976,348		18,122		2,609		-		997,079
Total real estate mortgage		2,509,207		19,326		10,674		-		2,539,207		2,891,683		27,054		10,071		-		2,928,808
Consumer		55,135		76		-		-		55,211		62,083		42		88		-		62,213
Total	$	4,782,964	$	86,298	$	42,508	$	-	$	4,911,770	$	5,751,507	$	61,622	$	38,132	$	-	$	5,851,261

Loans by performance status as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:

September 30, 2017	Performing		Nonperforming		Total

September 30, 2018							Performing		Nonperforming		Total
	(In Thousands)						(In Thousands)
Commercial, financial and agricultural	$	2,216,004	$	7,906	$	2,223,910	$	2,469,980	$	8,808	$	2,478,788
Real estate - construction		465,553		2,285		467,838		543,611		-		543,611
Real estate - mortgage:
Owner-occupied commercial		1,320,886		2,497		1,323,383		1,429,958		153		1,430,111
1-4 family mortgage		591,544		1,636		593,180		609,658		802		610,460
Other mortgage		962,260		430		962,690		1,231,915		5,039		1,236,954
Total real estate mortgage		2,874,690		4,563		2,879,253		3,271,531		5,994		3,277,525
Consumer		57,656		108		57,764		63,542		65		63,607
Total	$	5,613,903	$	14,862	$	5,628,765	$	6,348,664	$	14,867	$	6,363,531

December 31, 2016	Performing		Nonperforming		Total

December 31, 2017							Performing		Nonperforming		Total
	(In Thousands)						(In Thousands)
Commercial, financial and agricultural	$	1,974,975	$	7,292	$	1,982,267	$	2,269,642	$	9,724	$	2,279,366
Real estate - construction		331,817		3,268		335,085		580,874		-		580,874
Real estate - mortgage:
Owner-occupied commercial		1,165,511		6,208		1,171,719		1,328,110		556		1,328,666
1-4 family mortgage		536,731		74		536,805		602,604		459		603,063
Other mortgage		830,683		-		830,683		997,079		-		997,079
Total real estate mortgage		2,532,925		6,282		2,539,207		2,927,793		1,015		2,928,808
Consumer		55,166		45		55,211		62,127		86		62,213
Total	$	4,894,883	$	16,887	$	4,911,770	$	5,840,436	$	10,825	$	5,851,261

Loans by past due status as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:

September 30, 2017	Past Due Status (Accruing Loans)
September 30, 2018															Past Due Status (Accruing Loans)
	30-59 Days		60-89 Days		90+ Days		Total Past Due		Non-Accrual		Current		Total Loans								Total Past
															30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)														(In Thousands)
Commercial, financial and agricultural	$	5,317	$	12,081	$	2,108	$	19,506	$	5,798	$	2,198,606	$	2,223,910	$	513	$	9,147	$	309	$	9,969	$	8,499	$	2,460,320	$	2,478,788
Real estate - construction		997		618		-		1,615		2,285		463,938		467,838		538		997		-		1,535		-		542,076		543,611
Real estate - mortgage:
Owner-occupied commercial		310		3,354		-		3,664		2,497		1,317,222		1,323,383		375		3,941		-		4,316		153		1,425,642		1,430,111
1-4 family mortgage		1,132		295		328		1,755		1,308		590,117		593,180		150		970		301		1,421		501		608,538		610,460
Other mortgage		-		-		-		-		430		962,260		962,690		-		63		5,039		5,102		-		1,231,852		1,236,954
Total real estate - mortgage		1,442		3,649		328		5,419		4,235		2,869,599		2,879,253		525		4,974		5,340		10,839		654		3,266,032		3,277,525
Consumer		102		13		70		185		38		57,541		57,764		173		24		65		262		-		63,345		63,607
Total	$	7,858	$	16,361	$	2,506	$	26,725	$	12,356	$	5,589,684	$	5,628,765	$	1,749	$	15,142	$	5,714	$	22,605	$	9,153	$	6,331,773	$	6,363,531

December 31, 2016	Past Due Status (Accruing Loans)
December 31, 2017															Past Due Status (Accruing Loans)
	30-59 Days		60-89 Days		90+ Days		Total Past Due		Non-Accrual		Current		Total Loans								Total Past
															30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)														(In Thousands)
Commercial, financial and agricultural	$	710	$	40	$	10	$	760	$	7,282	$	1,974,225	$	1,982,267	$	1,410	$	5,702	$	12	$	7,124	$	9,712	$	2,262,530	$	2,279,366
Real estate - construction		59		-		-		59		3,268		331,758		335,085		56		997		-		1,053		-		579,821		580,874
Real estate - mortgage:
Owner-occupied commercial		-		-		6,208		6,208		-		1,165,511		1,171,719		-		3,664		-		3,664		556		1,324,446		1,328,666
1-4 family mortgage		160		129		-		289		74		536,442		536,805		430		850		-		1,280		459		601,324		603,063
Other mortgage		95		811		-		906		-		829,777		830,683		5,116		-		-		5,116		-		991,963		997,079
Total real estate - mortgage		255		940		6,208		7,403		74		2,531,730		2,539,207		5,546		4,514		-		10,060		1,015		2,917,733		2,928,808
Consumer		52		17		45		114		-		55,097		55,211		131		23		48		202		38		61,973		62,213
Total	$	1,076	$	997	$	6,263	$	8,336	$	10,624	$	4,892,810	$	4,911,770	$	7,143	$	11,236	$	60	$	18,439	$	10,765	$	5,822,057	$	5,851,261

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions and other risks inherent in the portfolio. Allowances for impaired loans are generally determined based on collateral values or the present value of the estimated cash flows. The allowance is increased by a provision for loan 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 allowance for losses on loans. 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.

The methodology utilized for the calculation of the allowance for loan losses is divided into four distinct categories. Those categories include allowances for non-impaired loans (ASC 450), impaired loans (ASC 310), external qualitative factors, and internal qualitative factors. A description of each category of the allowance for loan loss methodology is listed below.

Non-Impaired Loans. Non-impaired loans are grouped into homogeneous loan pools by loan type and are the following: commercial and industrial, construction and development, commercial real estate, second lien home equity lines of credit, and all other loans. Each loan pool is stratified by internal risk rating and multiplied by a loss allocation percentage derived from the loan pool historical loss rate. The historical loss rate is based on an age weighted ~~five~~5 year history of net charge-offs experienced by pool, with the most recent net charge-off experience given a greater weighting. This results in the expected loss rate per year, adjusted by a qualitative adjustment factor and a years-to-impairment factor, for each pool of loans to derive the total amount of allowance for non-impaired loans.

Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the original terms of the loan agreement. The collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or the fair value of the underlying collateral. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent. Fair value estimates for specifically impaired collateral-dependent loans are derived from appraised values based on the current market value or “as is” value of the property, normally from recently received and reviewed appraisals. Appraisals are obtained from certified and licensed appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by our credit administration department, and values are adjusted downward to reflect anticipated disposition costs. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated for each impaired loan. As subsequent events dictate and estimated net realizable values decline, required reserves may be established or further adjustments recorded.

External Qualitative Factors. The determination of the portion of the allowance for loan losses relating to external qualitative factors is based on consideration of the following factors: gross domestic product growth rate, changes in prime rate, delinquency trends, peer delinquency trends, year-over-year loan growth and state unemployment rate trends. Data for the three most recent periods is utilized in the calculation for each external qualitative component. The factors have a consistent weighted methodology to calculate the amount of allowance due to external qualitative factors.

Internal Qualitative Factors. The determination of the portion of the allowance for loan losses relating to internal qualitative factors is based on the consideration of criteria which includes the following: number of extensions and deferrals, single pay and interest only loans, current financial information, credit concentrations and risk grade accuracy. A self-assessment for each of the criteria is made with a consistent weighted methodology used to calculate the amount of allowance required for internal qualitative factors.

The following table presents an analysis of the allowance for loan losses by portfolio segment and changes in the allowance for loan losses for the three and nine months ended September 30, ~~2017~~2018 and September 30, ~~2016.~~2017. The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.

	Commercial financial and agricultural			Real estate - construction			Real estate - mortgage			Consumer			Total			Commercial,
																financial and			Real estate -			Real estate -
																agricultural			construction			mortgage			Consumer			Total
																(In Thousands)
																Three Months Ended September 30, 2018
Allowance for loan losses:
Balance at June 30, 2018																$	36,178		$	4,062		$	23,438		$	561		$	64,239
Charge-offs																	(3,923	)		-			(48	)		(76	)		(4,047	)
Recoveries																	52			4			1			6			63
Provision																	6,794			(132	)		(62	)		24			6,624
Balance at September 30, 2018																$	39,101		$	3,934		$	23,329		$	515		$	66,879
	(In Thousands)
	Three Months Ended September 30, 2017															Three Months Ended September 30, 2017
Allowance for loan losses:
Balance at June 30, 2017	$	29,127		$	5,138		$	20,392		$	402		$	55,059		$	29,127		$	5,138		$	20,392		$	402		$	55,059
Charge-offs		(924	)		(16	)		(550	)		(65	)		(1,555	)		(924	)		(16	)		(550	)		(65	)		(1,555	)
Recoveries		67			12			59			14			152			67			12			59			14			152
Provision		3,431			197			1,065			110			4,803			3,431			197			1,065			110			4,803
Balance at September 30, 2017	$	31,701		$	5,331		$	20,966		$	461		$	58,459		$	31,701		$	5,331		$	20,966		$	461		$	58,459

	Three Months Ended September 30, 2016															Nine Months Ended September 30, 2018
Allowance for loan losses:
Balance at June 30, 2016	$	23,655		$	5,279		$	17,600		$	464		$	46,998
Balance at December 31, 2017																$	32,880		$	4,989		$	21,022		$	515		$	59,406
Charge-offs		(1,270	)		(79	)		(144	)		(81	)		(1,574	)		(6,743	)		-			(869	)		(211	)		(7,823	)
Recoveries		35			9			1			-			45			229			108			44			31			412
Provision		3,560			(394	)		282			16			3,464			12,735			(1,163	)		3,132			180			14,884
Balance at September 30, 2016	$	25,980		$	4,815		$	17,739		$	399		$	48,933
Balance at September 30, 2018																$	39,101		$	3,934		$	23,329		$	515		$	66,879

	Nine Months Ended September 30, 2017															Nine Months Ended September 30, 2017
Allowance for loan losses:
Balance at December 31, 2016	$	28,872		$	5,125		$	17,504		$	392		$	51,893		$	28,872		$	5,125		$	17,504		$	392		$	51,893
Charge-offs		(6,846	)		(56	)		(922	)		(173	)		(7,997	)		(6,846	)		(56	)		(922	)		(173	)		(7,997	)
Recoveries		273			42			62			16			393			273			42			62			16			393
Provision		9,402			220			4,322			226			14,170			9,402			220			4,322			226			14,170
Balance at September 30, 2017	$	31,701		$	5,331		$	20,966		$	461		$	58,459		$	31,701		$	5,331		$	20,966		$	461		$	58,459

	Nine Months Ended September 30, 2016
Allowance for loan losses:
Balance at December 31, 2015	$	21,495		$	5,432		$	16,061		$	431		$	43,419
Charge-offs		(2,732	)		(815	)		(335	)		(130	)		(4,012	)
Recoveries		39			64			100			-			203
Provision		7,178			134			1,913			98			9,323
Balance at September 30, 2016	$	25,980		$	4,815		$	17,739		$	399		$	48,933

	As of September 30, 2017															As of September 30, 2018
Allowance for loan losses:
Individually Evaluated for Impairment	$	5,725		$	829		$	1,892		$	50		$	8,496		$	6,297		$	181		$	274		$	49		$	6,801
Collectively Evaluated for Impairment		25,976			4,502			19,074			411			49,963			32,804			3,753			23,055			466			60,078

Loans:
Ending Balance	$	2,223,910		$	467,838		$	2,879,253		$	57,764		$	5,628,765		$	2,478,788		$	543,611		$	3,277,525		$	63,607		$	6,363,531
Individually Evaluated for Impairment		30,405			3,328			15,789			88			49,610			23,138			1,463			13,083			49			37,733
Collectively Evaluated for Impairment		2,193,505			464,510			2,863,464			57,676			5,579,155			2,455,650			542,148			3,264,442			63,558			6,325,798

	As of December 31, 2016															As of December 31, 2017
Allowance for loan losses:
Individually Evaluated for Impairment	$	6,607		$	923		$	622		$	-		$	8,152		$	4,276		$	120		$	1,163		$	50		$	5,609
Collectively Evaluated for Impairment		22,265			4,202			16,882			392			43,741			28,604			4,869			19,859			465			53,797

Loans:
Ending Balance	$	1,982,267		$	335,085		$	2,539,207		$	55,211		$	4,911,770		$	2,279,366		$	580,874		$	2,928,808		$	62,213		$	5,851,261
Individually Evaluated for Impairment		27,922			4,314			13,350			3			45,589			26,447			1,571			12,404			88			40,510
Collectively Evaluated for Impairment		1,954,345			330,771			2,525,857			55,208			4,866,181			2,252,919			579,303			2,916,404			62,125			5,810,751

The following table presents details of the Company’s impaired loans as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Loans which have been fully charged off do not appear in the tables.

																						For the three months					For the nine months
																						ended September 30,					ended September 30,
																September 30, 2018						2018					2018
																								Interest					Interest
	September 30, 2017						For the three months ended September 30, 2017					For the nine months ended September 30, 2017						Unpaid				Average		Income			Average		Income
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period			Average Recorded Investment		Interest Income Recognized in Period		Recorded		Principal		Related		Recorded		Recognized			Recorded		Recognized
																Investment		Balance		Allowance		Investment		in Period			Investment		in Period
	(In Thousands)															(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	4,671	$	4,671	$	-	$	4,770	$	52		$	4,998	$	164	$	4,611	$	5,502	$	-	$	4,694	$	50		$	5,259	$	162
Real estate - construction		45		48		-		48		1			49		2		466		469		-		481		7			543		21
Real estate - mortgage:
Owner-occupied commercial		2,366		2,532		-		2,551		37			2,584		113		1,800		1,982		-		2,008		16			2,311		91
1-4 family mortgage		1,752		1,752		-		1,756		22			1,781		67		501		501		-		501		(4	)		501		1
Other mortgage		732		732		-		732		10			733		32		5,039		5,039		-		5,052		62			5,083		187
Total real estate - mortgage		4,850		5,016		-		5,039		69			5,098		212		7,340		7,522		-		7,561		74			7,895		279
Consumer		38		40		-		41		1			42		2		-		-		-		-		-			-		-
Total with no allowance recorded		9,604		9,775		-		9,898		123			10,187		380		12,417		13,493		-		12,736		131			13,697		462

With an allowance recorded:
Commercial, financial and agricultural		25,734		27,719		5,725		26,129		256			27,021		800		18,527		25,946		6,297		19,041		136			19,035		478
Real estate - construction		3,283		3,283		829		3,357		14			3,369		42		997		997		181		997		14			997		42
Real estate - mortgage:
Owner-occupied commercial		8,024		8,024		1,512		8,024		75			7,873		217		3,507		3,507		34		3,507		46			3,507		142
1-4 family mortgage		2,485		2,485		328		2,485		10			2,506		56		850		850		160		850		12			850		35
Other mortgage		430		980		52		974		(4	)		984		21		1,386		1,386		80		1,386		15			1,595		51
Total real estate - mortgage		10,939		11,489		1,892		11,483		81			11,363		294		5,743		5,743		274		5,743		73			5,952		228
Consumer		50		50		50		50		1			39		2		49		49		49		49		1			49		2
Total with allowance recorded		40,006		42,541		8,496		41,019		352			41,792		1,138		25,316		32,735		6,801		25,830		224			26,033		750

Total Impaired Loans:
Commercial, financial and agricultural		30,405		32,390		5,725		30,899		308			32,019		964		23,138		31,448		6,297		23,735		186			24,294		640
Real estate - construction		3,328		3,331		829		3,405		15			3,418		44		1,463		1,466		181		1,478		21			1,540		63
Real estate - mortgage:
Owner-occupied commercial		10,390		10,556		1,512		10,575		112			10,457		330		5,307		5,489		34		5,515		62			5,818		233
1-4 family mortgage		4,237		4,237		328		4,241		32			4,287		123		1,351		1,351		160		1,351		8			1,351		36
Other mortgage		1,162		1,712		52		1,706		6			1,717		53		6,425		6,425		80		6,438		77			6,678		238
Total real estate - mortgage		15,789		16,505		1,892		16,522		150			16,461		506		13,083		13,265		274		13,304		147			13,847		507
Consumer		88		90		50		91		2			81		4		49		49		49		49		1			49		2
Total impaired loans	$	49,610	$	52,316	$	8,496	$	50,917	$	475		$	51,979	$	1,518	$	37,733	$	46,228	$	6,801	$	38,566	$	355		$	39,730	$	1,212

December 31, 2016 For the twelve months
ended December 31, 2016
Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest Income
Recognized in
Period

(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural $ 1,003 $ 1,003 $ - $ 992 $ 64
Real estate - construction 938 1,802 - 1,159 3
Real estate - mortgage:
Owner-occupied commercial 2,615 2,778 - 2,884 166
1-4 family mortgage 1,899 1,899 - 1,901 102
Other mortgage 940 940 - 965 60
Total real estate - mortgage 5,454 5,617 - 5,750 328
Consumer 3 5 - 6 -
Total with no allowance recorded 7,398 8,427 - 7,907 395

With an allowance recorded:
Commercial, financial and agricultural 26,919 31,728 6,607 26,955 1,162
Real estate - construction 3,376 3,376 923 3,577 68
Real estate - mortgage:
Owner-occupied commercial 6,924 6,924 348 6,934 362
1-4 family mortgage 972 972 274 313 19
Other mortgage - - - - -
Total real estate - mortgage 7,896 7,896 622 7,247 381
Consumer - - - - -
Total with allowance recorded 38,191 43,000 8,152 37,779 1,611

Total Impaired Loans:
Commercial, financial and agricultural 27,922 32,731 6,607 27,947 1,226
Real estate - construction 4,314 5,178 923 4,736 71
Real estate - mortgage:
Owner-occupied commercial 9,539 9,702 348 9,818 528
1-4 family mortgage 2,871 2,871 274 2,214 121
Other mortgage 940 940 - 965 60
Total real estate - mortgage 13,350 13,513 622 12,997 709
Consumer 3 5 - 6 -
Total impaired loans $ 45,589 $ 51,427 $ 8,152 $ 45,686 $ 2,006

December 31, 2017
For the twelve months
ended December 31, 2017
Unpaid Average Interest Income
Recorded Principal Related Recorded Recognized in
Investment Balance Allowance Investment Period
(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural $ 10,036 $ 16,639 $ - $ 16,417 $ 571
Real estate - construction 574 577 - 663 31
Real estate - mortgage:
Owner-occupied commercial 2,640 2,806 - 2,875 159
1-4 family mortgage 2,262 2,262 - 2,289 93
Other mortgage 746 746 - 727 44
Total real estate - mortgage 5,648 5,814 - 5,891 296
Consumer 38 39 - 42 3
Total with no allowance recorded 16,296 23,069 - 23,013 901

With an allowance recorded:
Commercial, financial and agricultural 16,411 16,992 4,276 17,912 651
Real estate - construction 997 997 120 997 56
Real estate - mortgage:
Owner-occupied commercial 3,914 3,914 601 3,801 215
1-4 family mortgage 980 980 281 1,113 54
Other mortgage 1,862 1,862 281 1,862 80
Total real estate - mortgage 6,756 6,756 1,163 6,776 349
Consumer 50 50 50 42 3
Total with allowance recorded 24,214 24,795 5,609 25,727 1,059

Total Impaired Loans:
Commercial, financial and agricultural 26,447 33,631 4,276 34,329 1,222
Real estate - construction 1,571 1,574 120 1,660 87
Real estate - mortgage:
Owner-occupied commercial 6,554 6,720 601 6,676 374
1-4 family mortgage 3,242 3,242 281 3,402 147
Other mortgage 2,608 2,608 281 2,589 124
Total real estate - mortgage 12,404 12,570 1,163 12,667 645
Consumer 88 89 50 84 6
Total impaired loans $ 40,510 $ 47,864 $ 5,609 $ 48,740 $ 1,960

Troubled Debt Restructurings (“TDR”) at September 30, ~~2017,~~2018, December 31, ~~2016~~2017 and September 30, ~~2016~~2017 totaled ~~$16.4~~$16.6 million, ~~$7.3~~$20.6 million and ~~$6.7~~$16.4 million, respectively. At September 30, ~~2017,~~2018, the Company had a related allowance for loan losses of ~~$4.0~~$3.7 million allocated to these TDRs, compared to ~~$2.3~~$4.3 million at December 31, ~~2016~~2017 and ~~$1.7~~$4.0 million at September 30, ~~2016.~~2017. TDR activity by portfolio segment for the three and nine months ended September 30, 2018 and 2017 is presented in the table below.

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Number of
Contracts Pre-
Modification
Outstanding
Recorded
Investment Post-
Modification
Outstanding
Recorded
Investment Number of
Contracts Pre-
Modification
Outstanding
Recorded
Investment Post-
Modification
Outstanding
Recorded
Investment
(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural - $ - $ - 5 $ 7,205 $ 7,205
Real estate - construction - - - 1 997 997
Real estate - mortgage:
Owner-occupied commercial - - - 2 3,664 3,664
1-4 family mortgage - - - 1 850 850
Other mortgage - - - - - -
Total real estate mortgage - - - 3 4,514 4,514
Consumer - - - - - -
- $ - $ - 9 $ 12,716 $ 12,716
18

													Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
															Pre-		Post-				Pre-		Post-
															Modification		Modification				Modification		Modification
															Outstanding		Outstanding				Outstanding		Outstanding
	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016						Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Contracts		Investment		Investment		Contracts		Investment		Investment
	(In Thousands)												(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural		-	$	-	$	-		1	$	366	$	366		6	$	7,242	$	7,242		6	$	7,242	$	7,242
Real estate - construction		-		-		-		-		-		-		1		997		997		1		997		997
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		-		-		2		3,664		3,664		2		3,664		3,664
1-4 family mortgage		-		-		-		-		-		-		1		850		850		1		850		850
Other mortgage		-		-		-		1		234		234		-		-		-		-		-		-
Total real estate mortgage		-		-		-		1		234		234		3		4,514		4,514		3		4,514		4,514
Consumer		-		-		-		-		-		-		-		-		-		-		-		-
		-	$	-	$	-		2	$	600	$	600		10	$	12,753	$	12,753		10	$	12,753	$	12,753

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Pre- Post- Pre- Post-
Modification Modification Modification Modification
Outstanding Outstanding Outstanding Outstanding
Number of Recorded Recorded Number of Recorded Recorded
Contracts Investment Investment Contracts Investment Investment
(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural - $ - $ - 5 $ 7,205 $ 7,205
Real estate - construction - - - 1 997 997
Real estate - mortgage:
Owner-occupied commercial - - - 2 3,664 3,664
1-4 family mortgage - - - 1 850 850
Other mortgage - - - - - -
Total real estate mortgage - - - 3 4,514 4,514
Consumer - - - - - -
- $ - $ - 9 $ 12,716 $ 12,716

There were no loans which were modified in the previous twelve months (i.e., twelve months prior to default) that defaulted during the three months ended September 30, 2018 and one commercial TDR loan totaling $0.3 million defaulted during the nine months ended September 30, 2018. No TDRs which were modified in the previous twelve months defaulted during the three and nine months ended September 30, ~~2017 and 2016, and which were modified in the previous twelve months (i.e., the twelve months prior to default).~~2017. For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status. As of September 30, ~~2017,~~2018, the Company’s TDRs have all resulted from term extensions, rather than from interest rate reductions or debt forgiveness.

NOTE 6 - EMPLOYEE AND DIRECTOR BENEFITS

Stock Options

At September 30, ~~2017,~~2018, the Company had stock-based compensation plans, as described below. The compensation cost that has been charged to earnings for the plans was approximately $202,000 and $684,000 for the three and nine months ended September 30, 2018 and $294,000 and $916,000 for the three and nine months ended September 30, ~~2017, respectively, and $291,000 and $931,000 for the three and nine months ended September 30, 2016, respectively.~~2017.

The Company’s 2005 Amended and Restated Stock Option Plan allows for the grant of stock options to purchase up to 6,150,000 shares of the Company’s common stock. The Company’s 2009 Amended and Restated Stock Incentive Plan authorizes the grant of up to 5,550,000 shares and allows for the issuance of Stock Appreciation Rights, Restricted Stock, Stock Options, Performance Shares or Performance Units. Both plans allow for the grant of incentive stock options and non-qualified stock options, and option awards are granted with an exercise price equal to the market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plans is ten years.

The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. ~~These assumptions are highly subjective and changes to them can materially affect the fair value estimate.~~ Expected ~~market price~~ volatility ~~and expected term of options are~~is based on historical ~~data~~volatilities of the Company’s common stock. The expected term for options granted is based on the short-cut method and ~~other factors.~~represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of grant.

	2017			2016			2018			2017
Expected volatility		29.00	%		29.00	%		24.72	%		29.00	%
Expected dividends		0.44	%		0.64	%		1.06	%		0.44	%
Expected term (in years)		6.25			6.25			6.25			6.25
Risk-free rate		2.08	%		1.86	%		2.67	%		2.08	%

The weighted average grant-date fair value of options granted during the nine months ended September 30, ~~2017~~2018 and September 30, ~~2016~~2017 was ~~$11.83~~$10.98 and ~~$5.95,~~$11.83, respectively.

The following table summarizes stock option activity during the nine months ended September 30, ~~2017~~2018 and September 30, ~~2016:~~2017:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value								Weighted
														Weighted		Average
														Average		Remaining		Aggregate
														Exercise		Contractual		Intrinsic
											Shares			Price		Term (years)		Value
																			(In Thousands)
Nine Months Ended September 30, 2018:
Outstanding at January 1, 2018												1,666,834		$	10.68		5.5	$	51,377
Granted												12,750			41.58		9.5		(31	)
Exercised												(231,336	)		4.94		3.1		7,665
Forfeited												(33,000	)		15.00		6.4		758
Outstanding at September 30, 2018												1,415,248			11.79		5.1	$	38,998

Exercisable at September 30, 2018												693,100		$	6.78		3.5	$	22,513
								(In Thousands)
Nine Months Ended September 30, 2017:
Outstanding at January 1, 2017		2,026,334		$	9.00		6.2	$	57,636			2,026,334		$	9.00		6.2	$	57,636
Granted		52,500			37.93		9.4		(35	)		52,500			37.93		9.4		(35	)
Exercised		(359,000	)		4.97		4.2		11,590			(359,000	)		4.97		4.2		11,590
Forfeited		(32,000	)		21.96		8.4		489			(32,000	)		21.96		8.4		489
Outstanding at September 30, 2017		1,687,834			10.51		5.7	$	45,136			1,687,834			10.51		5.7	$	45,136

Exercisable at September 30, 2017		810,736		$	5.22		4.2	$	25,971			810,736		$	5.22		4.2	$	25,971

Nine Months Ended September 30, 2016:
Outstanding at January 1, 2016		2,498,834		$	6.66		6.3	$	42,743
Granted		234,000			19.98		9.5		1,398
Exercised		(656,500	)		4.25		4.2		14,254
Forfeited		(13,000	)		19.41		9.0		85
Outstanding at September 30, 2016		2,063,334			8.86		6.5	$	35,277

Exercisable at September 30, 2016		594,536		$	6.45		6.0	$	13,901

As of September 30, ~~2017,~~2018, there was approximately ~~$2.1 million~~$1,514,000 of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next ~~2.7~~2.2 years.

Restricted Stock

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 September 30, ~~2017,~~2018, there was ~~$543,000~~$752,000 of total unrecognized compensation cost related to non-vested restricted stock. The cost is expected to be recognized evenly over the remaining ~~1.2~~1.9 years of the restricted stock’s vesting period.

The following table summarizes restricted stock activity during the nine months ended September 30, 2018 and 2017, ~~and September 30, 2016:~~respectively:

	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nine Months Ended September 30, 2018:
Non-vested at January 1, 2018							120,676		$	10.29
Granted							12,850			41.48
Vested							(73,700	)		5.88
Forfeited							(750	)		41.21
Non-vested at September 30, 2018							59,076			19.38

Nine Months Ended September 30, 2017:
Non-vested at January 1, 2017		118,676		$	8.88		118,676		$	8.88
Granted		7,000			38.02		7,000			38.02
Vested		(4,200	)		15.74		(4,200	)		15.74
Forfeited		(800	)		15.74		(800	)		15.74
Non-vested at September 30, 2017		120,676			10.29		120,676			10.29

Nine Months Ended September 30, 2016:
Non-vested at January 1, 2016		294,176		$	6.44
Granted		9,000			19.58
Vested		(178,500	)		5.59
Forfeited		-			-
Non-vested at September 30, 2016		124,676			8.66

NOTE 7 - DERIVATIVES

The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 were not material.

NOTE 8 – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In ~~March 2016,~~February 2018, the FASB issued ASU ~~2016-09,~~2018-02, ~~Compensation – Stock Compensation~~Income Statement - Reporting Comprehensive Income (Topic ~~718): Improvements to Employee Share-Based Payment Accounting~~ ~~(“ASU 2016-09”), which is intended to simplify several aspects~~220); Reclassification of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption was permitted. The Company elected to early adopt the provisions of this ASU during the second quarter of 2016, and retrospectively apply the changes in accounting for stock compensation back to the first quarter of 2016. Accordingly, the Company recognized a reduction in its provision for income taxes during the quarter and nine months ended September 30, 2017 of $1.4 million and $3.5 million, respectively, compared to $1.2 million and $3.5 million during the quarter and nine months ended September 30, 2016, respectively. Prior to the adoption of ASU 2016-09, such tax benefits were recorded as an increase to additional paid-in capital.

~~In March 2016, the FASB issued ASU 2016-07~~~~, Investments – Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting~~Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments ~~eliminate the requirement that when an investment qualifies for use of the equity method as~~in this ASU require a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investeereclassification from / to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income atand to / from retained earnings for stranded tax effects resulting from the ~~date~~change in the ~~investment becomes qualified for use~~newly enacted federal corporate income tax rate. Consequently, the amendments in this ASU eliminate the stranded tax effects associated with the change in the federal corporate income tax rate in the Tax Cuts and Jobs Act of ~~the equity method.~~2017. The amendments ~~became~~in this ASU are effective for all entities for fiscal years ~~and interim periods within those fiscal years,~~ beginning after December 15, ~~2016.~~2018 with early adoption allowed. The ~~amendments should be applied prospectively upon their effective date~~Bank elected to ~~increase the level~~early adopt this ASU as of ~~ownership interest or degree~~December 31, 2017. The effect of ~~influence that results in~~ the adoption of this ASU was to decrease accumulated other comprehensive income by $43,000 with the ~~equity method.~~offset to retained earnings as recorded in the statement of changes in stockholders' equity. This represents the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ~~this standard has~~ASU 2014-09 did not ~~affected~~have a material impact on the Company’s consolidated financial ~~statements.~~statements and related disclosures as the Company’s primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and credit card fees, did not change significantly from current practice.

In January ~~2017,~~2016, the FASB issued ASU ~~2017-03,~~ 2016-01, ~~Accounting Changes~~Financial Instruments Overall (Topic 825): Recognition and ~~Error Corrections~~ ~~(Topic 250) and~~ ~~Investments – Equity Method~~Measurement of Financial Assets and ~~Joint Ventures~~Financial Liabilities ~~(Topic 323)~~ ~~– Amendments to SEC Paragraphs Pursuant to Staff Announcements at~~. The amendments in ASU 2016-01: (a) require equity investments (except for those accounted for under the ~~September 22, 2016 and November 17, 2016 EITF Meetings.~~ ~~ASU 2017-03 provides amendments~~equity method of accounting or those that ~~add paragraph 250-10-S99-6 which includes the text of "SEC Staff Announcement: Disclosure~~result in consolidation of the ~~Impact That Recently Issued Accounting Standards Will Have on~~investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplify the ~~Financial Statements~~impairment assessment of equity securities without readily determinable fair values by requiring a ~~Registrant When Such Standards Are Adopted in a Future Period” (in accordance with Staff Accounting Bulletin (SAB) Topic 11.M). Registrants are required~~qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities to disclose the ~~effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably~~method and significant assumptions used to estimate the ~~impact~~fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately in other comprehensive income, the portion of the ~~adoption, then additional qualitative disclosures~~total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should ~~be considered~~evaluate the need for a valuation allowance on a deferred tax asset related to ~~assist~~available-for-sale securities in combination with the ~~reader~~entity’s other deferred tax assets. The amendments in ~~assessing~~this ASU became effective for the ~~significance~~Company on January 1, 2018. Accordingly, the calculation of fair value of the ~~standard's~~loan portfolio was refined to incorporate exit pricing, but had no material impact on ~~its financial statements. The Company has enhanced its disclosures regarding the impact recently issued accounting standards adopted in a future period will have on its accounting and~~our fair value disclosures. See Note 10 – Fair Value Measurement.

NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue From Contracts With Customers~~ (Topic 606). These amendments affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU allows for either full retrospective or modified retrospective adoption. In August 2015, the FASB issued ASU 2015-14, ~~Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date.~~ ~~This ASU defers the effective date of ASU 2014-09,~~ ~~Revenue From Contracts With Customers (Topic 606)~~, by one year. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Company’s revenue has been more significantly weighted towards net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new standard, and noninterest income has not been as significant. The Company is continuing to assess its revenue streams and reviewing its contracts with customers that are potentially affected by the new guidance including fees on deposits, gains and losses on the sale of other real estate owned, credit and debit card interchange fees, and credit card revenue, to determine the potential impact the new guidance is expected to have on the Company’s consolidated financial statements. However, the Company’s revenue recognition pattern for these revenue streams is not expected to change materially from current practice. In addition, the Company continues to follow implementation issues specific to financial institutions which are still under discussion by the FASB’s Transition Resource Group. The Company is currently planning to adopt the ASU on January 1, 2018 utilizing the modified retrospective approach.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments Overall (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities~~. The amendments in ASU 2016-1: (a) require equity investments (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplify the impairment assessment of equity securities without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. Early application of this ASU is permitted for all entities. In January 2018, the FASB issued a proposal to allow an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company ~~leases many~~has reviewed its current lessee portfolio and is assessing the impact of the new standard on its ~~banking offices under lease agreements it classifies~~financial statements, related disclosures, systems, and internal controls. The accounting changes are expected to relate primarily to its leased branches and office space which are currently accounted for as operating leases. ~~The~~Based upon leases that were outstanding as of September 30, 2018, the Company ~~is currently evaluating the impact that the new guidance will have on its consolidated financial statements. Management currently~~ anticipates recognizing a ~~right-of-use~~right of use asset and a lease liability ~~associated with its long-term~~related to substantially all the $17.4 million of operating ~~leases. Additionally,~~lease commitments summarized in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-Q. However, the ~~inclusion of these right-of-use~~ lease ~~assets in our~~commitments requiring balance sheet recognition continue to be evaluated. Management anticipates that the addition of the right of use asset will decrease the Company’s risk-based capital ratios but does not believe the impact ~~our total risk-weighted assets.~~will be material. Other aspects of the amendments are not expected to have a material impact on the Company’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is essentially the final rule on use of the so-called CECL model, or current expected credit losses. Among other things, the amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For SEC filers, the amendments in this ASU are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, with later effective dates for non-SEC registrant public companies and other organizations. Early adoption will be permitted for all organizations for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company ~~is currently evaluating~~has contracted with a third-party provider to implement enhanced modeling techniques that incorporate the ~~impact of the~~loss measurement requirements in these amendments ~~in this ASU on its consolidated financial statements, and is collecting data that will be needed to produce historical inputs into any models created~~ as ~~a result~~part of adopting ~~this~~the ASU.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The amendments in this ASU will not impact the Company’s ~~financial statements~~Consolidated Financial Statements, as it has always amortized premiums to the first call date.

In ~~May 2017,~~June 2018, the FASB issued ASU ~~No. 2017-09,~~2018-06, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. These amendments expand the scope of Topic 718, Compensation - Stock Compensation, ~~(Topic 718)~~, ~~Scope of Modification Accounting~~.which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The amendments ~~provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is~~in this ASU are effective for ~~all~~public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017.~~2018. Early adoption is permitted, ~~including~~but no earlier than a company’s adoption ~~in an interim period.~~date of Topic 606, Revenue from Contracts with Customers. The Company will adopt this ASU effective January 1, 2019. The amendments are not expected to have an impact on the Company’s Consolidated Financial Statements because it does not have any stock-based payment awards currently outstanding to nonemployees.

In July 2018, the FASB issued ASU 2018-09,Codification Improvements. The amendments represent changes to clarify, correct errors in, ~~this ASU should be applied prospectively~~or make improvements to ~~an award modified~~the Accounting Standards Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments include those made to: Subtopic 220-10, Income Statement- Reporting Comprehensive Income-Overall; Subtopic 470-50, Debt-Modifications and Extinguishments; Subtopic 480-10, Distinguishing Liabilities from Equity-Overall; Subtopic 718-740, Compensation-Stock Compensation-Income Taxes; Subtopic 805-740, Business Combinations-Income Taxes; Subtopic 815-10, Derivatives and Hedging-Overall; Subtopic 820-10, Fair Value Measurement-Overall; Subtopic 940-405, Financial Services-Brokers and Dealers-Liabilities; and Subtopic 962-325, Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The transition and effective date guidance of these amendments are based on ~~or after~~ the ~~adoption date. The Company is currently evaluating the impact~~facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. Management is reviewing each subtopic impacted by the amendments to determine their applicability and potential impact to the Company’s Consolidated Financial Statements but does not currently believe they will have a material impact.

In July 2018, the FASB issued ASU 2018-10,Codification Improvements to Topic 842, Leases (Topic 842). These amendments affect narrow aspects of the guidance issued in the amendments in ASU 2016-02, including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. Management is reviewing the amendments to determine what impact, if any, they will have beyond the impact that existing, but not-yet-adopted, amendments under Topic 842 will have on the Company’s Consolidated Financial Statements.

In July 2018, the FASB issued ASU 2018-11,Leases (Topic 842): Targeted Improvements. These amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). The amendments also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met. If the non-lease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with Topic 842. For entities that have not adopted Topic 842 before the issuance of ASU No. 2018-11, the effective date and transition requirements for the amendments related to separating components of a contract are the same as the effective date and transition requirements in ASU No. 2016-02. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in ASU No. 2018-11 must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected. Management expects to elect both transition options. The amendments are not expected to have a material impact on the Company’s Consolidated Financial Statements.

In July 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, however, entities will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. For public business entities, the amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. For all other entities, the amendments are effective for annual periods beginning after December 15, 2020, and interim periods in annual periods beginning after December 15, 2021. Early adoption is permitted. Management is reviewing these amendments with respect to its ~~consolidated financial statements.~~use of software solutions for its operations, which are fairly extensive, to determine the possible impact but does not currently believe they will have a material impact to its Consolidated Financial Statements.

NOTE 10 - FAIR VALUE MEASUREMENT

Measurement of fair value under U.S. GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value.

Debt Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on pricing services provided by independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing source regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, securities are classified in Level 3 of the hierarchy.

Impaired Loans. Impaired loans are measured and reported at fair value when full payment under the loan terms is not probable. Impaired loans 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. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. Impaired loans 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 as an impairment charge related to impaired loans that are measured at fair value on a nonrecurring basis was $4,893,000 and $8,782,000 during the three and nine months ended September 30, 2018, respectively, and $2,660,000 and $7,967,000 during the three and nine months ended September 30, 2017, ~~respectively, and $3,544,000 and $6,090,000 during the three and nine months ended September 30, 2016,~~ respectively.

Other Real Estate Owned and repossessed assets. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure and repossessed assets 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 or repossession are charged to the allowance for loan losses subsequent to ~~foreclosure.~~foreclosure or repossession. 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. These measurements are classified as Level 3 within the valuation hierarchy. A ~~gain~~loss on the sale and write-downs of OREO and repossessed assets of ~~$20,000~~$228,000 and ~~$56,000~~$581,000 was recognized for the three and nine months ended September 30, ~~2017,~~2018, respectively, and ~~a loss on the sale~~$20,000 and ~~write-downs of $148,000 and $584,000~~$56,000 for the three and nine months ended September 30, ~~2016,~~2017, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and ~~gains or~~ losses on the disposal of OREO. OREO isand repossessed assets are classified within Level 3 of the hierarchy.

~~There were no residential real estate loan foreclosures classified as OREO as of September 30, 2017, compared to $189,000 as of December 31, 2016.~~

~~One~~There was one residential real estate loan with a balance of ~~$921,000 was in the process of being~~$360,000 foreclosed and classified as OREO as of September 30, 2018 compared to none as of December 31, 2017.

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

									Fair Value Measurements at September 30, 2018 Using
									Quoted Prices in
									Active Markets		Significant Other		Significant
	Fair Value Measurements at September 30, 2017, Using								for Identical		Observable Inputs		Unobservable
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:	(In Thousands)								(In Thousands)
Available-for-sale securities:
U.S. Treasury and government sponsored agencies	$	-	$	56,778	$	-	$	56,778
Available-for-sale debt securities:
U.S. Treasury and government agencies									$	-	$	74,278	$	-	$	74,278
Mortgage-backed securities		-		243,743		-		243,743		-		298,824		-		298,824
State and municipal securities		-		134,804		-		134,804		-		112,698		-		112,698
Corporate debt										-		85,696		6,525		92,221
Total assets at fair value	$	-	$	435,325	$	-	$	435,325	$	-	$	571,496	$	6,525	$	578,021

Fair Value Measurements at December 31, 2016, Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs (Level 3) Total
Assets Measured on a Recurring Basis: (In Thousands)
Available-for-sale securities
U.S. Treasury and government sponsored agencies $ - $ 46,254 $ - $ 46,254
Mortgage-backed securities - 227,190 - 227,190
State and municipal securities - 139,930 - 139,930
Corporate debt - 9,001 - 9,001
Total assets at fair value $ - $ 422,375 $ - $ 422,375

Fair Value Measurements at December 31, 2017 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 and government agencies $ - $ 55,356 $ - $ 55,356
Mortgage-backed securities - 276,498 - 276,498
State and municipal securities - 134,849 - 134,849
Corporate debt - 64,877 6,500 71,377
Total assets at fair value $ - $ 531,580 $ 6,500 $ 538,080

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

	Fair Value Measurements at September 30, 2017, Using								Fair Value Measurements at September 30, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)								(In Thousands)
Impaired loans	$	-	$	-	$	41,114	$	41,114	$	-	$	-	$	30,932	$	30,932
Other real estate owned and repossessed assets		-		-		3,888		3,888		-		-		5,714		5,714
Total assets at fair value	$	-	$	-	$	45,002	$	45,002	$	-	$	-	$	36,646	$	36,646

	Fair Value Measurements at December 31, 2016, Using								Fair Value Measurements at December 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)								(In Thousands)
Impaired loans	$	-	$	-	$	37,437	$	37,437	$	-	$	-	$	34,901	$	34,901
Other real estate owned and repossessed assets		-		-		4,988		4,988		-		-		6,701		6,701
Total assets at fair value	$	-	$	-	$	42,425	$	42,425	$	-	$	-	$	41,602	$	41,602

The fair value of a financial instrument is the current amount that would be exchanged in a sale between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Current U.S. GAAP excludes certain financial instruments and all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

~~Cash and due from banks:~~ ~~The carrying amounts reported in the statements of financial condition approximate those assets’ fair values.~~

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 prices obtained from 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, securities are classified in Level 3 of the fair value hierarchy.

Equity securities: ~~Fair values for other investments are considered to be their cost as they are redeemed at par value.~~

~~Federal funds sold:~~The carrying ~~amounts reported~~value of Federal Home Loan Bank and Federal Reserve Bank stock approximates fair value based on the redemption provision of the investments. Within equity securities, we hold and investment in a fund that qualifies us for Community Reinvestment Act credits. This investment is classified in Level 1 of the ~~statements of financial condition approximate those assets’~~ fair ~~values.~~value hierarchy.

Mortgage loans held for sale:Loans are committed to be delivered to investors on a “best efforts delivery” basis within 30 days of origination. Due to this short turn-around time, the carrying amounts of the Company’s agreements approximate their fair values.

Bank owned life insurance contracts: The carrying amounts in the statements of financial condition approximate these assets’ fair value.

~~Loans, net:~~ For variable-rate loans that re-price frequently and with no significant change in credit risk, fair value is based on carrying amounts. The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The method of estimating fair value does not incorporate the exit-price concept of fair value as prescribed by ASC 820 and generally produces a higher value than an exit-price approach. The measurement of the fair value of loans is classified within Level 3 of the fair value hierarchy.

~~Deposits:~~ The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation using interest rates currently offered for deposits with similar remaining maturities. The fair value of the Company’s time deposits do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value. Measurements of the fair value of certificates of deposit are classified within Level 2 of the fair value hierarchy.

~~Federal funds purchased:~~ ~~The carrying amounts in the statements of condition approximate these assets’ fair value.~~

~~Other borrowings:~~ The fair values of other borrowings are estimated using a discounted cash flow analysis, based on interest rates currently being offered on the best alternative debt available at the measurement date. These measurements are classified as Level 2 in the fair value hierarchy.

~~Loan commitments:~~ The fair values of the Company’s off-balance-sheet financial instruments are based on fees currently charged to enter into similar agreements. Since the majority of the Company’s other off-balance-sheet financial instruments consists of non-fee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

The carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2017 and December 31, 2016 are presented in the following table. This table includes those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis.

									September 30, 2018				December 31, 2017
	September 30, 2017				December 31, 2016				Carrying				Carrying
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
	(In Thousands)								(In Thousands)
Financial Assets:
Level 1 inputs:
Cash and due from banks	$	166,150	$	166,150	$	623,562	$	623,562	$	136,788	$	136,788	$	238,062	$	238,062

Level 2 inputs:
Available for sale debt securities		435,325		435,325		422,375		422,375		571,496		571,496		531,580		531,580
Held to maturity debt securities		36,891		37,406		25,052		25,431
Restricted equity securities		1,038		1,038		1,024		1,024
Equity securities										889		889		1,034		1,034
Federal funds sold		182,841		182,841		160,435		160,435		229,033		229,033		239,524		239,524
Mortgage loans held for sale		4,971		5,033		4,675		4,736		5,277		5,277		4,459		4,459
Bank owned life insurance contracts		126,722		126,722		114,388		114,388
Bank-owned life insurance contracts										129,869		129,869		127,519		127,519

Level 3 inputs:
Debt securities held to maturity		50,508		51,923		37,512		37,871
Available for sale debt securities										6,525		6,525		6,500		6,500
Held to maturity debt securities										250		250		250		250
Loans, net		5,570,306		5,564,250		4,859,877		4,872,689		6,265,720		6,174,697		5,756,954		5,712,441

Financial liabilities:
Level 2 inputs:
Deposits	$	5,796,901	$	5,793,324	$	5,420,311	$	5,417,320	$	6,505,351	$	6,497,244	$	6,091,674	$	6,086,085
Federal funds purchased		254,880		254,880		355,944		355,944		246,094		246,094		301,797		301,797
Other borrowings		54,975		56,996		55,262		54,203		64,657		64,601		64,832		65,921

NOTE 11 – SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date of this filing to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of September 30, ~~2017,~~2018, and events which occurred subsequent to September 30, ~~2017~~2018 but were not recognized in the financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary, ServisFirst Bank (the “Bank”). This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements as of and for the three and nine months ended September 30, ~~2017~~2018 and September 30, ~~2016.~~2017.

Forward-Looking Statements

Statements in this document that are not historical facts, including, but not limited to, statements concerning future operations, results or performance, are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words “believe,” “expect,” “anticipate,” “project,” “plan,” “intend,” “will,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. The Company cautions that such forward-looking statements, wherever they occur in this quarterly report or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including: general economic conditions, especially in the credit markets and in the Southeast; the performance of the capital markets; changes in interest rates, yield curves and interest rate spread relationships; changes in accounting and tax principles, policies or guidelines; changes in legislation or regulatory requirements; changes in our loan portfolio and deposit base; possible changes in laws and regulations and governmental monetary and fiscal policies; the cost and other effects of legal and administrative cases and similar contingencies; possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and the value of collateral; the effect of natural disasters, such as hurricanes and tornados, in our geographic markets; and increased competition from both banks and non-banks. The foregoing list of factors is not exhaustive. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K and our other SEC filings. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained herein. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made. ServisFirst Bancshares, Inc. assumes no obligation to update or revise any forward-looking statements that are made from time to time.

Business

We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides commercial banking services through ~~nineteen~~20 full-service banking offices located in Alabama, Tampa Bay, Florida, the panhandle of Florida, the greater Atlanta, Georgia metropolitan area, Charleston, South Carolina, and Nashville, Tennessee. Through the bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.

Our principal business is to accept deposits from the public and to make loans and other investments. Our principal sources of funds for loans and investments are demand, time, savings, and other deposits. Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.

Overview

As of September 30, ~~2017,~~2018, we had consolidated total assets of ~~$6.71~~$7.52 billion, ~~an increase of $341.7~~up $435.4 million, or ~~5.4%~~6.1%, ~~from $6.37~~when compared to consolidated assets of $7.08 billion at December 31, ~~2016. This increase in total assets resulted from a $717.0 million increase in loans, offset by a $435.0 million decrease in cash and cash equivalents.~~2017. Total loans were ~~$5.63~~$6.36 billion at September 30, ~~2017,~~2018, up ~~$717.0~~$512.3 million, or ~~14.6%~~8.8%, from ~~$4.91~~$5.85 billion at December 31, ~~2016.~~2017. Total deposits were ~~$5.80~~$6.51 billion at September 30, ~~2017, an increase of $376.6~~2018, up $413.7 million, or ~~6.9%~~6.8%, from ~~$5.42~~$6.09 billion at December 31, ~~2016.~~2017.

Net income available to common stockholders for the three months ended September 30, ~~2017~~2018 was ~~$25.3~~$34.6 million, an increase of ~~$4.4~~$9.3 million, or ~~21.1%~~36.8%, from ~~$20.9~~$25.3 million for the corresponding period in ~~2016.~~2017. Basic and diluted earnings per common share were ~~$0.48~~$0.65 and ~~$0.47,~~$0.64, respectively, for the three months ended September 30, ~~2017,~~2018, compared to basic and diluted earnings per common share of ~~$0.40~~$0.48 and ~~$0.39, respectively,~~$0.47 for the corresponding period in ~~2016.~~2017.

Net income available to common stockholders for the nine months ended September 30, ~~2017~~2018 was ~~$71.9~~$100.7 million, an increase of ~~$12.2~~$28.8 million, or ~~20.4%~~40.0%, from ~~$59.7~~$71.9 million for the corresponding period in ~~2016.~~2017. Basic and diluted earnings per common share were ~~$1.36~~$1.89 and ~~$1.33,~~$1.86, respectively, for the nine months ended September 30, ~~2017,~~2018, compared to ~~$1.14~~$1.36 and ~~$1.12,~~$1.33, respectively, for the corresponding period in ~~2016.~~2017.

Critical Accounting Policies

The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, valuation of foreclosed real estate, deferred taxes, and fair value of financial instruments are particularly subject to change. Information concerning our accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017.

Financial Condition

Cash and Cash Equivalents

At September 30, ~~2017,~~2018, we had ~~$182.8~~$229.0 million in federal funds sold, compared to ~~$160.4~~$239.5 million at December 31, ~~2016.~~2017. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At September 30, ~~2017,~~2018, we had ~~$85.2~~$57.6 million in balances at the Federal Reserve, compared to ~~$565.1~~$150.3 million at December 31, ~~2016. This decrease was a result of our lower levels of excess liquidity~~2017. We disbursed funds that we would have otherwise had on deposit at the Federal Reserve to correspondent banks due to ~~loan growth and a decrease in federal funds purchased from our correspondent banks during the first nine months of 2017.~~higher interest rates paid by those banks.

Debt Securities

Debt securities available for sale totaled ~~$435.3~~$578.0 million at September 30, ~~2017~~2018 and ~~$422.4~~$538.1 million at December 31, ~~2016. Debt securities held to maturity totaled $87.4 million at September 30, 2017 and $62.6 million at December 31, 2016.~~2017. We had pay downs of ~~$37.6~~$39.4 million on mortgage-backed securities, maturities of ~~$21.1~~$14.8 million on municipal ~~agency~~ and corporate securities, and calls of ~~$11.9~~$6.4 million on municipal securities and subordinated notes during the nine months ended September 30, ~~2017.~~2018. We purchased ~~$72.0~~$70.9 million in mortgage-backed securities, ~~$13.8~~$27.6 million in municipal and corporate securities ~~$2.9~~and $22.8 million inof U.S. Treasury ~~securities~~ and ~~$16.0 million in subordinated notes~~government sponsored agency during the first nine months of ~~2017. Nine mortgage-backed securities and five subordinated notes purchased were classified as held to maturity. All other securities purchased are classified as available for sale.~~2018.

The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure. In doing so, we balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs. The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting. The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer term securities purchased to generate level income for us over periods of interest rate fluctuations.

Each quarter, management assesses whether there have been events or economic circumstances indicating that a security on which there is an unrealized loss is other-than-temporarily impaired. Management considers several factors, including the amount and duration of the impairment; the intent and ability of the Company to hold the security for a period sufficient for a recovery in value; and known recent events specific to the issuer or its industry. In analyzing an issuer’s financial condition, management considers whether the securities are issued by agencies of the federal government, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports, among other things. As we currently do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, which may be at maturity, and impairment positions at September 30, ~~2017~~2018 are interest-rate driven, no declines are deemed to be other than temporary. We will continue to evaluate our investment securities for possible other-than-temporary impairment, which could result in non-cash charges to earnings in one or more future periods.

All securities held are traded in liquid markets. As of September 30, ~~2017,~~2018, we owned restricted securities of First National Bankers Bank with an aggregate book value and market value of $0.4 million, securities of a fund that invests in Community Reinvestment Act-qualifying real estate with a book value and market value of $0.5 million, and securities of a bank holding company in Georgia with a book value and market value of $0.1 million. Upon termination of our membership in the Federal Home Loan Bank of Atlanta during the fourth quarter of 2016, we redeemed all but approximately $30,000 of our FHLB stock. This remaining restricted stock in the FHLB is a required holding as long as our principal reducing advances are outstanding. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity.

The Bank does not invest in collateralized debt obligations (“CDOs”). We have ~~$50.5~~$92.2 million of bank holding company subordinated notes. All of these notes were rated BBB or better by Kroll Bond Rating Agency at the time of our investment in them. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at September 30, ~~2017~~2018 has a combined average credit rating of AA.

The carrying value of investment securities pledged to secure public funds on deposit and for other purposes ~~as required by law~~ was ~~$240.5~~$307.1 million and ~~$223.7~~$284.2 million as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Loans

We had total loans of ~~$5.63~~$6.36 billion at September 30, ~~2017,~~2018, an increase of ~~$717.0~~$512.3 million, or ~~14.6%~~8.8%, compared to ~~$4.91~~$5.85 billion at December 31, ~~2016.~~2017. At September 30, ~~2017,~~2018, the percentage of our loans in each of our regions were as follows:

	Percentage of Total Loans in MSA
Birmingham-Hoover, AL MSA		~~42.9~~41.8	%
Dothan, AL MSA		~~9.9~~9.6	%
Huntsville, AL MSA		~~9.7~~9.2	%
Mobile, AL MSA		6.5	%
Montgomery, AL MSA		~~6.9~~	%
~~Mobile, AL MSA~~		~~6.1~~5.9	%
Total Alabama MSAs		~~75.5~~73.0	%
Pensacola-Ferry Pass-Brent, FL MSA		~~6.3~~6.1	%
Tampa-St. Petersburg-Clearwater, FL MSA		~~1.9~~2.9	%
Total Florida MSAs		~~8.2~~9.0	%
Atlanta-Sandy Springs-Roswell, GA MSA		~~4.4~~4.8	%
Nashville-Davidson-Murfreesboro-Franklin, TN MSA		~~8.7~~9.4	%
Charleston-North Charleston, SC MSA		~~3.2~~3.7	%

~~Premises and Equipment, Net~~

Premises and equipment increased $14.8 million to $55.1 million at September 30, 2017 compared to $40.3 million at December 31, 2016. This increase is primarily the result of our construction of a new headquarters building in Birmingham, Alabama. Construction began in the first quarter of 2016 and it was placed in service in September 2017. Total cost of the building and contents is approximately $31.0 million.

Asset Quality

The allowance for loan losses is established and maintained at levels management deems adequate to absorb anticipated credit losses from identified and otherwise inherent risks in the loan portfolio as of the balance sheet date. In assessing the adequacy of the allowance for loan losses, management considers its evaluation of the loan portfolio, past due loan experience, collateral values, current economic conditions and other factors considered necessary to maintain the allowance at an adequate level. Our management believes that the allowance was adequate at September 30, ~~2017.~~2018.

The following table presents the allocation of the allowance for loan losses for each respective loan category with the corresponding percentage of loans in each category to total loans. Management believes that the comprehensive allowance analysis developed by our credit administration group is in compliance with all current regulatory guidelines.

September 30, 2017 Amount Percentage of loans
in each category
to total loans
(In Thousands)
Commercial, financial and agricultural $ 31,701 39.51 %
Real estate - construction 5,331 8.31 %
Real estate - mortgage 20,966 51.15 %
Consumer 461 1.03 %
Total $ 58,459 100.00 %
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December 31, 2016 Amount Percentage of loans
in each category
to total loans
(In Thousands)
Commercial, financial and agricultural $ 28,872 40.36 %
Real estate - construction 5,125 6.82 %
Real estate - mortgage 17,504 51.70 %
Consumer 392 1.12 %
Total $ 51,893 100.00 %
Percentage of loans
in each category
September 30, 2018 Amount to total loans
(In Thousands)
Commercial, financial and agricultural $ 39,101 38.95 %
Real estate - construction 3,934 8.54 %
Real estate - mortgage 23,329 51.51 %
Consumer 515 1.00 %
Total $ 66,879 100.00 %

Percentage of loans
in each category
December 31, 2017 Amount to total loans
(In Thousands)
Commercial, financial and agricultural $ 32,880 38.96 %
Real estate - construction 4,989 9.93 %
Real estate - mortgage 21,022 50.05 %
Consumer 515 1.06 %
Total $ 59,406 100.00 %

Nonperforming Assets

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, ~~decreased $2.0~~increased $4.1 million to $14.9 million at September 30, ~~2017,~~2018, compared to ~~$16.9~~$10.8 million at December 31, ~~2016.~~2017. Of this total, nonaccrual loans ~~were $12.4~~of $9.2 million at September 30, ~~2017, compared to $10.6~~2018, represented a net decrease of $1.6 million from nonaccrual loans at December 31, ~~2016, an increase of $1.8 million.~~2017. Excluding credit card accounts, there were ~~three~~five loans 90 or more days past due and still accruing totaling ~~$2.4~~$5.6 million, compared to ~~two~~no loans ~~totaling $6.2 million~~90 or more days past due and still accruing at December 31, ~~2016.~~2017. This increase primarily relates to one commercial real estate mortgage loan totaling $5.0 million which is well-collateralized and is actively in the process of collection. Troubled Debt Restructurings (“TDR”) at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 were ~~$16.4~~$16.6 million and ~~$7.3~~$20.6 million, respectively. There ~~were no loans~~was one loan newly classified as TDR ~~for the three months ended September 30, 2017~~totaling $0.1 million and ~~one relationship~~nine renewals of existing TDRs totaling $12.7 million ~~which includes nine loans of various types, was newly classified as TDR for the nine months ended September 30, 2017. There were no loans newly classified as TDR~~ for the three and nine months ended September 30, ~~2016. There were no renewals~~2018. One relationship totaling $12.7 million consisting of ~~existing TDRs for~~nine loans, was newly classified as TDR during the ~~three months ended September 30, 2016 and two renewals~~second quarter of ~~existing TDRs totaling $600,000 for the nine months ended September 30, 2016.~~2017. These TDRs are the result of term extensions rather than interest rate reductions or forgiveness of debt.

OREO and repossessed assets decreased to ~~$3.9~~$5.7 million at September 30, ~~2017,~~2018, from ~~$5.0~~$6.7 million at December 31, ~~2016.~~2017. The total number of OREO and repossessed asset accounts ~~decreased~~increased to ~~nine~~13 at September 30, ~~2017,~~2018, compared to 12 at December 31, ~~2016.~~2017. The following table summarizes OREO and repossessed asset activity for the nine months ended September 30, ~~2017~~2018 and ~~2016:~~2017:

Nine months ended September 30, Nine Months Ended September 30,
2017 2016 2018 2017
(In thousands) (In thousands)
Balance at beginning of period $ 4,988 $ 5,392 $ 6,701 $ 4,988
Transfers from loans and capitalized expenses 586 2,036 1,206 586
Proceeds from sales (1,529 ) (1,648 ) (1,572 ) (1,529 )
Internally financed sales (185 ) (2,161 ) (130 ) (185 )
Write-downs / net gain (loss) on sales 28 (584 ) (491 ) 28
Balance at end of period $ 3,888 $ 3,035 $ 5,714 $ 3,888

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The following table summarizes our nonperforming assets and TDRs at September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

September 30, 2018 December 31, 2017
September 30, 2017 December 31, 2016 Number of Number of
Balance Number of
Loans Balance Number of
Loans Balance Loans Balance Loans
(Dollar Amounts In Thousands) (Dollar Amounts In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural $ 5,798 16 $ 7,282 13 $ 8,499 17 $ 9,712 18
Real estate - construction 2,285 3 3,268 5 - - - -
Real estate - mortgage:
Owner-occupied commercial 2,497 3 - - 153 2 556 2
1-4 family mortgage 1,308 3 74 1 501 2 459 2
Other mortgage 430 3 - - - - - -
Total real estate - mortgage 4,235 9 74 1 654 4 1,015 4
Consumer 38 1 - - - - 38 1
Total Nonaccrual loans: $ 12,356 29 $ 10,624 19 $ 9,153 21 $ 10,765 23

90+ days past due and accruing:
Commercial, financial and agricultural $ 2,108 3 $ 10 1 $ 309 9 $ 12 3
Real estate - construction - - - - - - - -
Real estate - mortgage:
Owner-occupied commercial - - 6,208 1 - - - -
1-4 family mortgage - - - - 301 3 - -
Other mortgage 328 1 - - 5,039 1 - -
Total real estate - mortgage 328 1 6,208 1 5,340 4 - -
Consumer 70 27 45 10 65 18 48 24
Total 90+ days past due and accruing: $ 2,506 31 $ 6,263 12 $ 5,714 31 $ 60 27

Total Nonperforming Loans: $ 14,862 60 $ 16,887 31 $ 14,867 52 $ 10,825 50

Plus: Other real estate owned and repossessions 3,888 9 4,988 12 5,714 13 6,701 12
Total Nonperforming Assets $ 18,750 69 $ 21,875 43 $ 20,581 65 $ 17,526 62

Restructured accruing loans:
Commercial, financial and agricultural $ 7,189 5 $ 354 1 $ 9,984 7 $ 11,438 6
Real estate - construction 997 1 - - 997 1 997 1
Real estate - mortgage:
Owner-occupied commercial 3,664 2 - - 3,664 2 3,664 2
1-4 family mortgage 850 1 - - 850 1 850 1
Other mortgage - - 204 1 - - - -
Total real estate - mortgage 4,514 3 204 1 4,514 3 4,514 3
Consumer - - - - - - - -
Total restructured accruing loans: $ 12,700 9 $ 558 2 $ 15,495 11 $ 16,949 10

Total Nonperforming assets and restructured accruing loans $ 31,450 78 $ 22,433 45 $ 36,076 76 $ 34,475 72

Ratios:
Nonperforming loans to total loans 0.26 % 0.34 % 0.23 % 0.19 %
Nonperforming assets to total loans plus other real estate owned and repossessions 0.33 % 0.44 % 0.32 % 0.30 %
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions 0.56 % 0.46 % 0.57 % 0.59 %

The balance of nonperforming assets can fluctuate due to changes in economic conditions. We have established a policy to discontinue accruing interest on a loan (i.e., place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. Interest income on nonaccrual loans is recognized only as received. If we believe that a loan will not be collected in full, we will increase the allowance for loan losses to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal.

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Impaired Loans and Allowance for Loan Losses

As of September 30, ~~2017,~~2018, we had impaired loans of ~~$49.6~~$37.7 million, inclusive of nonaccrual loans, ~~an increase~~a decrease of ~~$4.0~~$2.8 million from ~~$45.6~~$40.5 million as of December 31, 2016. This increase is attributable to $15.0 million of loans newly classified as specifically impaired, partially offset by charge-offs totaling $5.6 million, net pay downs of $4.1 million, loan classification upgrades of $0.7 million and OREO transfers and repossessions of $0.6 million.2017. We allocated ~~$8.5~~$6.8 million of our allowance for loan losses at September 30, ~~2017~~2018 to these impaired loans, an increase of ~~$0.3~~$1.2 million compared to ~~$8.2~~$5.6 million as of December 31, ~~2016.~~2017. A loan is considered impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the original loan agreement. Impairment does not always indicate credit loss, but provides an indication of collateral exposure based on prevailing market conditions and third-party valuations. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent. The amount of impairment, if any, and subsequent changes are included in the allowance for loan losses. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Our credit administration group performs verification and testing to ensure appropriate identification of impaired loans and that proper reserves are held on these loans.

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Of the ~~$49.6~~$37.7 million of impaired loans reported as of September 30, ~~2017, $30.4~~2018, $23.1 million were commercial, financial and agricultural loans, ~~$3.3~~$1.5 million were real estate construction loans, ~~$15.8~~$13.1 million were real estate mortgage loans and ~~$0.1 million~~$49,000 were consumer loans.

Deposits

Total deposits ~~increased $376.6 million, or 6.9%, to $5.80~~were $6.51 billion at September 30, ~~2017 compared to $5.42~~2018, an increase of $413.7 million, or 6.8%, over $6.09 billion at December 31, ~~2016. While we have experienced somewhat slower growth in our deposits so far in 2017, we~~2017. We anticipate long-term sustainable growth in deposits through continued development of market share in our ~~regions.~~less mature markets and through organic growth in our mature markets.

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

Other Borrowings

Our borrowings consist of federal funds purchased and subordinated notes ~~payable and Federal Home Loan Bank advances.~~payable. We had ~~$254.9~~$246.1 million and ~~$355.9~~$301.8 million at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. ~~Like us, our correspondent bank clients have experienced slower growth in deposits in 2017.~~ The average rate paid on these borrowings was ~~1.34%~~2.09% for the quarter ended September 30, ~~2017, which has increased during the past three quarters due to increases in the FRB’s targeted federal funds rate.~~2018. Other borrowings consist of the following:

· ~~$20.0 million of 5.50% Subordinated Notes due November 9, 2022, which were issued in a private placement in November 2012,~~
· ~~$34.75 million of 5% Subordinated Notes due July 15, 2025, which were issued in a private placement in July 2015, and~~
· $300,000 of principal reducing advances from the Federal Home Loan Bank of Atlanta, which have an interest rate of 0.75% and require quarterly principal payments of $100,000 until maturity on May 22, 2018.
$34.75 million of 5% Subordinated Notes due July 15, 2025, which were issued in a private placement in July 2015 and pay interest semi-annually; and
$30.0 million of 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually.

Liquidity

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

The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity were to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding. At September 30, ~~2017,~~2018, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled ~~$628.1~~$692.7 million. Additionally, the Bank had additional borrowing availability of approximately ~~$485.0~~$522.0 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements. We believe these sources of funding are adequate to meet ~~immediate~~our anticipated funding needs. Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, correspondent banking relationships and related federal funds purchased, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. In addition, we have issued debt as described above under “Other Borrowings”.

We are subject to general FDIC guidelines that require a minimum level of liquidity. Management believes our liquidity ratios meet or exceed these guidelines. Our management is not currently aware of any trends or demands that are reasonably likely to result in liquidity materially increasing or decreasing.

We are a legal entity separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole shareholder. Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders. The requirement that a bank holding company must serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength. Our ability to pay dividends is also subject to the provisions of Delaware corporate law.
The Alabama Banking Department also regulates the Bank’s dividend payments. Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the bank’s surplus is equal to at least 20% of its capital (our Bank’s surplus currently exceeds 20% of its capital). Moreover, our Bank is also required by Alabama law to obtain the prior approval of the Superintendent of Banks (“Superintendent”) for its payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (i) the bank’s net earnings (as defined by statute) for that year, plus (ii) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends, withdrawals or transfers may be made from the Bank’s surplus without the prior written approval of the Superintendent.
32

The following table reflects the contractual maturities of our term liabilities as of September 30, ~~2017.~~2018. The amounts shown do not reflect any early withdrawal or prepayment assumptions.

Payments due by Period
Payments due by Period Over 1 - 3 Over 3 - 5
Total 1 year or less Over 1 - 3
years Over 3 - 5
years Over 5 years Total 1 year or less years years Over 5 years
(In Thousands) (In Thousands)
Contractual Obligations (1)

Deposits without a stated maturity $ 5,235,403 $ - $ - $ - $ - $ 5,849,136 $ - $ - $ - $ -
Certificates of deposit (2) 561,498 324,179 152,527 83,161 1,631 656,215 381,981 170,170 104,013 51
Federal funds purchased 254,880 254,880 - - - 246,094 246,094 - - -
Subordinated debentures 54,975 300 - - 54,675 64,657 - - - 64,657
Operating lease commitments 16,180 3,101 5,365 3,870 3,844 17,191 2,945 5,604 4,631 4,011
Total $ 6,122,936 $ 582,460 $ 157,892 $ 87,031 $ 60,150 $ 6,833,293 $ 631,020 $ 175,774 $ 108,644 $ 68,719

~~(1)  Excludes interest.~~
(2)  Certificates of deposit give customers the right to early withdrawal.  Early withdrawals may be subject to penalties.  The penalty amount depends on the remaining time to maturity at the time of early withdrawal.
(1) Excludes interest.
(2) Certificates of deposit give customers the right to early withdrawal.  Early withdrawals may be subject to penalties.  The penalty amount depends on the remaining time to maturity at the time of early withdrawal.

Capital Adequacy

As of September 30, ~~2017,~~2018, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, we must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ~~ratios as disclosed in~~ratios.
The final rules implementing the ~~table below. Our management believes that we are well-capitalized~~Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective January 1, 2015, subject to a phase-in period for certain aspects of the new rules. In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the ~~prompt corrective action provisions as~~new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of ~~September 30, 2017.~~common equity Tier 1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer is being phased in incrementally over time, beginning January 1, 2016 and becoming fully effective on January 1, 2019, and will ultimately consist of an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets.
33

The following table sets forth (i) the capital ratios required by the FDIC and the Alabama Banking Department’s leverage ratio requirement and (ii) our actual ratios, not including the capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of September 30, ~~2017,~~2018, December 31, ~~2016~~2017 and September 30, ~~2016:~~2017:

Actual For Capital Adequacy
Purposes To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2017: (Dollars in thousands)
CET 1 Capital to Risk-Weighted Assets:
Consolidated $ 574,296 9.60 % $ 269,204 4.50 % N/A N/A
ServisFirst Bank 629,146 10.52 % 269,172 4.50 % $ 388,803 6.50 %
Tier 1 Capital to Risk-Weighted Assets:
Consolidated 574,798 9.61 % 358,938 6.00 % N/A N/A
ServisFirst Bank 629,648 10.53 % 358,896 6.00 % 478,527 8.00 %
Total Capital to Risk-Weighted Assets:
Consolidated 688,432 11.51 % 478,584 8.00 % N/A N/A
ServisFirst Bank 688,607 11.51 % 478,527 8.00 % 598,159 10.00
Tier 1 Capital to Average Assets:
Consolidated 574,798 8.91 % 257,939 4.00 % N/A N/A
ServisFirst Bank 629,648 9.76 % 258,498 4.00 % 323,123 5.00 %

As of December 31, 2016:
CET 1 Capital to Risk-Weighted Assets:
Consolidated $ 508,982 9.78 % $ 234,262 4.50 % N/A N/A
ServisFirst Bank 560,731 10.77 % 234,232 4.50 % $ 338,335 6.50 %
Tier 1 Capital to Risk-Weighted Assets:
Consolidated 509,359 9.78 % 312,350 6.00 % N/A N/A
ServisFirst Bank 561,108 10.78 % 312,309 6.00 % 416,413 8.00 %
Total Capital to Risk-Weighted Assets:
Consolidated 616,415 11.84 % 416,467 8.00 % N/A N/A
ServisFirst Bank 613,501 11.79 % 416,413 8.00 % 520,516 10.00 %
Tier 1 Capital to Average Assets:
Consolidated 509,359 8.22 % 247,777 4.00 % N/A N/A
ServisFirst Bank 561,108 9.06 % 247,760 4.00 % 309,700 5.00 %

As of September 30, 2016:
CET 1 Capital to Risk-Weighted Assets:
Consolidated $ 488,673 9.91 % $ 221,937 4.50 % N/A N/A
ServisFirst Bank 540,233 10.96 % 221,902 4.50 % $ 320,525 6.50 %
Tier 1 Capital to Risk-Weighted Assets:
Consolidated 489,050 9.92 % 295,916 6.00 % N/A N/A
ServisFirst Bank 540,610 10.96 % 295,869 6.00 % 394,493 8.00 %
Total Capital to Risk-Weighted Assets:
Consolidated 593,140 12.03 % 394,554 8.00 % N/A N/A
ServisFirst Bank 590,043 11.97 % 394,493 8.00 % 493,116 10.00 %
Tier 1 Capital to Average Assets:
Consolidated 489,050 8.20 % 238,594 4.00 % N/A N/A
ServisFirst Bank 540,610 9.06 % 238,583 4.00 % 298,228 5.00 %
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2018: (Dollars in thousands)
CET 1 Capital to Risk-Weighted Assets:
Consolidated $ 676,506 10.08 % $ 302,011 4.50 % N/A N/A
ServisFirst Bank 740,140 11.03 % 301,997 4.50 % $ 436,219 6.50 %
Tier 1 Capital to Risk-Weighted Assets:
Consolidated 677,008 10.09 % 402,682 6.00 % N/A N/A
ServisFirst Bank 740,642 11.04 % 402,663 6.00 % 536,884 8.00 %
Total Capital to Risk-Weighted Assets:
Consolidated 809,044 12.05 % 536,909 8.00 % N/A N/A
ServisFirst Bank 808,021 12.04 % 536,884 8.00 % 671,105 10.00
Tier 1 Capital to Average Assets:
Consolidated 677,008 9.28 % 291,724 4.00 % N/A �� N/A
ServisFirst Bank 740,642 10.16 % 291,709 4.00 % 364,637 5.00 %

As of December 31, 2017:
CET 1 Capital to Risk-Weighted Assets:
Consolidated $ 593,111 9.51 % $ 280,553 4.50 % N/A N/A
ServisFirst Bank 651,201 10.45 % 280,523 4.50 % $ 405,199 6.50 %
Tier 1 Capital to Risk-Weighted Assets:
Consolidated 593,613 9.52 % 374,070 6.00 % N/A N/A
ServisFirst Bank 651,703 10.45 % 374,030 6.00 % 498,707 8.00 %
Total Capital to Risk-Weighted Assets:
Consolidated 718,151 11.52 % 498,760 8.00 % N/A N/A
ServisFirst Bank 711,609 11.42 % 498,707 8.00 % 623,384 10.00 %
Tier 1 Capital to Average Assets:
Consolidated 593,613 8.51 % 278,970 4.00 % N/A N/A
ServisFirst Bank 651,703 9.35 % 278,954 4.00 % 348,693 5.00 %

As of September 30, 2017:
CET 1 Capital to Risk-Weighted Assets:
Consolidated $ 574,296 9.60 % $ 269,204 4.50 % N/A N/A
ServisFirst Bank 629,146 10.52 % 269,172 4.50 % $ 388,803 6.50 %
Tier 1 Capital to Risk-Weighted Assets:
Consolidated 574,798 9.61 % 358,938 6.00 % N/A N/A
ServisFirst Bank 629,648 10.53 % 358,896 6.00 % 478,527 8.00 %
Total Capital to Risk-Weighted Assets:
Consolidated 688,432 11.51 % 478,584 8.00 % N/A N/A
ServisFirst Bank 688,607 11.51 % 478,527 8.00 % 598,159 10.00 %
Tier 1 Capital to Average Assets:
Consolidated 574,798 8.91 % 257,939 4.00 % N/A N/A
ServisFirst Bank 629,648 9.76 % 258,498 4.00 % 323,123 5.00 %

33 34

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in our balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial instruments.

Our exposure to credit loss in the event of non-performance by the other party to such financial instruments is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. As of September 30, ~~2017,~~2018, we have reserved $500,000 for losses on such off-balance sheet arrangements consistent with guidance in the FRB’s Interagency Policy Statement SR 06-17.

As part of our mortgage operations, we originate and sell certain loans to investors in the secondary market. We continue to experience a manageable level of investor repurchase demands. For loans sold, we have an obligation to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations and warranties made by the Bank at the time of the sale. Representations and warranties typically include those made regarding loans that had missing or insufficient file documentation or loans obtained through fraud by borrowers or other third parties such as appraisers. We had a reserve of ~~$368,000~~$0.4 million as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 for the settlement of any repurchase demands by investors.

Financial instruments whose contract amounts represent credit risk at September 30, ~~2017~~2018 are as follows:

September 30, 2017 September 30, 2018
(In Thousands) (In Thousands)
Commitments to extend credit $ 1,873,412 $ 1,936,656
Credit card arrangements 82,684 181,929
Standby letters of credit 49,894 33,265
$ 2,005,990 $ 2,151,850

Commitments to extend credit beyond current funded amounts are agreements to lend to a customer as long as there is no violation of any condition established in the applicable loan agreement. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by us upon extension of credit is based on our management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

35
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. All letters of credit are due within one year or less of the original commitment date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
34

Federal funds lines of credit are uncommitted lines issued to downstream correspondent banks for the purpose of providing liquidity to them. The lines are unsecured, and we have no obligation to sell federal funds to the correspondent, nor does the correspondent have any obligation to request or accept purchases of federal funds from us.

Results of Operations

Summary of Net Income

Net income and net income available to common stockholders for the three months ended September 30, ~~2017~~2018 was ~~$25.3~~$34.6 million compared to net income and net income available to common stockholders of ~~$20.9~~$25.3 million, respectively, for the three months ended September 30, ~~2016.~~2017. Net income and net income available to common stockholders for the nine months ended September 30, ~~2017~~2018 was ~~$71.9~~$100.7 million compared to net income and net income available to common stockholders of ~~$59.7~~$71.9 million for the nine months ended September 30, ~~2016.~~2017. The increase in net income for the three months ended September 30, ~~2017~~2018 over the same period in ~~2016~~2017 was primarily attributable to a ~~$10.5~~$8.5 million increase in net interest income resulting from growth in earning assets, ~~partially offset by~~ a ~~$3.4~~$0.8 million increase in ~~tax provision.~~non-interest income, led by increased credit card income, and a $3.5 million decrease in provision for income taxes resulting from the passage of the Tax Cuts and Jobs Act in December 2017. The same key drivers contributed to the increase in net income for the nine months ended September 30, ~~2017~~2018 compared to ~~2016 was primarily the result of~~2017 resulting in a ~~$28.0~~$27.8 million increase in net interest income, ~~resulting from growth in average earning assets and~~ a ~~$2.0~~$1.8 million increase in non-interest income ~~led by increased credit card income. Non-interest expenses increased by $1.3~~and a $5.9 million decrease in provision for income taxes. Increases in non-interest expense of $1.6 million and ~~$5.6~~$6.0 million, respectively, for the three and nine months ended September 30, ~~2017~~2018 compared to ~~2016.~~2017 partially offset increases in income.

Basic and diluted net income per common share were ~~$0.48~~$0.65 and ~~$0.47,~~$0.64, respectively, for the three months ended September 30, ~~2017,~~2018, compared to ~~$0.40~~$0.48 and ~~$0.39,~~$0.47, respectively, for the corresponding period in ~~2016.~~2017. Basic and diluted net income per common share were ~~$1.36~~$1.89 and ~~$1.33,~~$1.86, respectively, for the nine months ended September 30, ~~2017,~~2018, compared to ~~$1.14~~$1.36 and ~~$1.12,~~$1.33, respectively, for the corresponding period in ~~2016.~~2017. Return on average assets for the three and nine months ended September 30, ~~2017~~2018 was ~~1.55%~~1.87% and ~~1.52%~~1.90%, respectively, compared to ~~1.39%~~1.55% and ~~1.43%~~1.52%, respectively, for the corresponding periods in ~~2016.~~2017. Return on average common stockholders’ equity for the three and nine months ended September 30, ~~2017~~2018 was 20.42% and 20.88% compared to 17.28% and 17.24% ~~compared to 16.66% and 16.60%~~, respectively, for the corresponding periods in ~~2016.~~
Dividend payout ratio for the three and nine months ended September 30, 2017 was 10.71% and 11.29% compared to 10.26% and 10.62%, respectively, for the corresponding periods in 2016. Stockholders’ equity to total assets as of September 30, 2017 and 2016 was 8.79% and 8.46%, respectively.2017.

Net Interest Income

Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets. The major factors which affect net interest income are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings.

Taxable-equivalent net interest income increased ~~$8.5~~$8.1 million, or ~~17.6%~~13.7%, to ~~$56.9~~$67.0 million for the three months ended September 30, ~~2017~~2018 compared to ~~$48.4~~$58.9 million for the corresponding period in ~~2016,~~2017, and increased ~~$28.0~~$30.5 million, or ~~20.1%~~18.2%, to ~~$167.5~~$194.2 million for the nine months ended September 30, ~~2017~~2018 compared to ~~$139.5~~$167.5 million for the corresponding period in ~~2016.~~2017. This increase was primarily attributable to growth in average earning assets, which increased ~~$435.8~~$858.4 million, or ~~7.6%~~13.9%, from the third quarter of ~~2016~~2017 to the third quarter of ~~2017,~~2018, and ~~$699.2~~$771.8 million, or ~~13.0%~~12.7%, from the nine months ended September 30, ~~2016~~2017 to the same period in ~~2017.~~2018. The taxable-equivalent yield on interest-earning assets increased to ~~4.37%~~4.74% for the three months ended September 30, ~~2017~~2018 from ~~3.81%~~4.37% for the corresponding period in ~~2016,~~2017, and increased to ~~4.23%~~4.63% for the nine months ended September 30, ~~2017~~2018 from ~~3.93%~~4.23% for the corresponding period in ~~2016.~~2017. The yield on loans for the three months ended September 30, ~~2017~~2018 was ~~4.66%~~5.03% compared to ~~4.47%~~4.66% for the corresponding period in ~~2016,~~2017, and ~~4.58%~~4.92% compared to ~~4.47%~~4.58% for the nine months ended September 30, ~~2017~~2018 and September 30, ~~2016,~~2017, respectively. The cost of total interest-bearing liabilities increased to ~~0.81%~~1.33% for the three months ended September 30, ~~2017~~2018 compared to ~~0.64%~~0.81% for the corresponding period in ~~2016,~~2017, and increased to ~~0.74%~~1.14% for the nine months ended September 30, ~~2017~~2018 from ~~0.63%~~0.74% for the corresponding period in ~~2016.~~2017. Net interest margin for the three months ended September 30, ~~2017~~2018 was 3.77% compared to ~~3.35%~~3.77% for the corresponding period in ~~2016,~~2017, and ~~3.69%~~3.80% for the nine months ended September 30, ~~2017~~2018 compared to ~~3.47%~~3.69% for the corresponding period in ~~2016.~~2017.

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The following tables show, for the three and nine months ended September 30, ~~2017~~2018 and September 30, ~~2016,~~2017, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue. The accompanying tables reflect changes in our net interest margin as a result of changes in the volume and rate of our interest-earning assets and interest-bearing liabilities for the same periods. Changes as a result of mix or the number of days in the periods have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. The tables are presented on a taxable-equivalent basis where applicable:

Average Balance Sheets and Net Interest Analysis
On a Fully Taxable-Equivalent Basis
For the Three Months Ended September 30,
(In thousands, except Average Yields and Rates)

2018 2017
Interest Average Interest Average
2017 2016 Average Earned / Yield / Average Earned / Yield /
Average
Balance Interest
Earned /
Paid Average
Yield /
Rate Average
Balance Interest
Earned /
Paid Average
Yield /
Rate Balance Paid Rate Balance Paid Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)
Taxable $ 5,407,109 $ 63,519 4.66 % $ 4,554,900 $ 51,233 4.47 % $ 6,203,372 $ 78,702 5.03 % $ 5,407,109 $ 63,519 4.66 %
Tax-exempt (3) 33,357 435 5.17 21,939 241 4.37 30,005 298 3.94 33,357 435 5.17
Total loans, net of unearned income 5,440,466 63,954 4.66 4,576,839 51,474 4.47 6,233,377 79,000 5.03 5,440,466 63,954 4.66
Mortgage loans held for sale 4,862 43 3.51 6,724 64 3.79 3,538 37 4.15 4,862 43 3.51
Investment securities:
Taxable 385,431 2,287 2.37 224,825 1,232 2.19 482,571 3,276 2.72 385,431 2,287 2.37
Tax-exempt (3) 131,478 1,097 3.34 135,272 1,262 3.73 105,592 646 2.45 131,478 1,097 3.34
Total investment securities (4) 516,909 3,384 2.62 360,097 2,494 2.77 588,163 3,922 2.67 516,909 3,384 2.62
Federal funds sold 111,175 378 1.35 217,158 347 0.64 163,453 892 2.17 111,175 378 1.35
Restricted equity securities 1,030 9 3.47 5,658 57 4.01
Equity securities 993 7 2.80 1,030 9 3.47
Interest-bearing balances with banks 118,510 379 1.27 590,675 759 0.51 61,867 309 1.98 118,510 379 1.27
Total interest-earning assets $ 6,192,952 $ 68,147 4.37 % $ 5,757,151 $ 55,195 3.81 % $ 7,051,391 $ 84,167 4.74 % $ 6,192,952 $ 68,147 4.37 %
Non-interest-earning assets:
Cash and due from banks 65,457 58,809 76,800 65,457
Net fixed assets and equipment 54,727 25,000 58,873 54,727
Allowance for loan losses, accrued interest and other assets 151,786 145,804 127,850 151,786
Total assets $ 6,464,922 5,986,764 $ 7,314,914 6,464,922

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits $ 800,437 $ 849 0.42 % $ 696,100 $ 644 0.37 % $ 819,807 $ 1,378 0.67 % $ 800,437 $ 849 0.42 %
Savings deposits 48,313 37 0.30 43,569 33 0.30 53,835 70 0.52 48,313 37 0.30
Money market accounts 2,774,061 5,170 0.74 2,471,829 3,387 0.55 3,305,293 11,087 1.33 2,774,061 5,170 0.74
Time deposits (5) 546,020 1,518 1.10 519,653 1,294 0.99
Time deposits 643,260 2,675 1.65 546,020 1,518 1.10
Total interest-bearing deposits 4,168,831 7,574 0.72 3,731,151 5,358 0.57 4,822,195 15,210 1.25 4,168,831 7,574 0.72
Federal funds purchased 282,806 954 1.34 436,415 698 0.64 229,016 1,204 2.09 282,806 954 1.34
Other borrowings 55,034 717 5.17 55,410 717 5.15 64,652 781 4.79 55,034 717 5.17
Total interest-bearing liabilities $ 4,506,671 $ 9,245 0.81 % $ 4,222,976 $ 6,773 0.64 % $ 5,115,863 $ 17,195 1.33 % $ 4,506,671 $ 9,245 0.81 %
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits 1,363,207 1,250,139 1,511,410 1,363,207
Other liabilities 15,070 14,376 16,333 15,070
Stockholders' equity 578,626 494,248 678,839 578,626
Unrealized gains on securities and derivatives 1,348 5,025
Accumulated other comprehensive (loss) income (7,531 ) 1,348
Total liabilities and stockholders' equity $ 6,464,922 $ 5,986,764 $ 7,314,914 $ 6,464,922
Net interest income $ 58,902 $ 48,422 $ 66,972 $ 58,902
Net interest spread 3.56 % 3.17 % 3.41 % 3.56 %
Net interest margin 3.77 % 3.35 % 3.77 % 3.77 %

(1) Non-accrual loans are included in average loan balances in all periods.  Loan fees of ~~$749,000~~$985 and ~~$653,000~~$749 are included in interest income in ~~2017~~the third quarter of 2018 and ~~2016,~~2017, respectively.
(2) Accretion on acquired loan discounts of ~~$107,000~~$22 and ~~$194,000~~$107 are included in interest income in ~~2017~~the third quarter of 2018 and ~~2016,~~2017, respectively.
(3) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21% for the third quarter of 2018 and 35%. for the second quarter of 2017.
(4) Unrealized (losses) gains of ~~$2,072,000~~$(9,590) and ~~$7,730,000~~$2,072 are excluded from the yield calculation in ~~2017~~the third quarter of 2018 and ~~2016,~~2017, respectively.
~~(5)~~ ~~Accretion on acquired CD premiums of $0 and $48,000 are included in interest in 2017 and 2016, respectively.~~
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For the Three Months Ended September 30, For the Three Months Ended September 30,
2017 Compared to 2016 Increase (Decrease) in Interest
Income and Expense Due to Changes in: 2018 Compared to 2017 Increase (Decrease) in Interest
Income and Expense Due to Changes in:
Volume Rate Total Volume Rate Total
(In Thousands) (In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable $ 10,054 $ 2,232 $ 12,286 $ 9,839 $ 5,344 $ 15,183
Tax-exempt 144 50 194 (41 ) (96 ) (137 )
Total loans, net of unearned income 10,198 2,282 12,480 9,798 5,248 15,046
Mortgages held for sale (16 ) (5 ) (21 ) (13 ) 7 (6 )
Debt securities:
Taxable 949 106 1,055 629 360 989
Tax-exempt (34 ) (131 ) (165 ) (191 ) (260 ) (451 )
Total debt securities 915 (25 ) 890 438 100 538
Federal funds sold (227 ) 258 31 225 289 514
Restricted equity securities (41 ) (7 ) (48 )
Equity securities - (2 ) (2 )
Interest-bearing balances with banks (923 ) 543 (380 ) (228 ) 158 (70 )
Total interest-earning assets 9,906 3,046 12,952 10,220 5,800 16,020

Interest-bearing liabilities:
Interest-bearing demand deposits 105 100 205 21 508 529
Savings 4 - 4 4 29 33
Money market accounts 455 1,328 1,783 1,143 4,774 5,917
Time deposits 69 155 224 305 852 1,157
Total interest-bearing deposits 633 1,583 2,216 1,473 6,163 7,636
Federal funds purchased (311 ) 567 256 (207 ) 457 250
Other borrowed funds (4 ) 4 - 119 (55 ) 64
Total interest-bearing liabilities 318 2,154 2,472 1,385 6,565 7,950
Increase in net interest income $ 9,588 $ 892 $ 10,480 $ 8,835 $ (765 ) $ 8,070

~~Our~~Increases in average rates paid on interest-bearing deposits drive unfavorable rate component change while growth in loans, non-interest bearing deposits and average equity continues to drive favorable volume component change and overall change. Also, the recent increases in the Federal Reserve Bank’s target federal funds rate has contributed to a favorable variance relating to the interest rate component because yields on loans have increased more than rates paid on deposits. More recently, increases in rates paid on deposits has contributed an unfavorable rate variance when compared to prior quarters in 2017. Management continues to closely monitor pricing of deposit accounts in an effort to control interest expense.

37 38

Average ~~Consolidated~~ Balance Sheets and Net Interest Analysis
On a Fully Taxable-Equivalent Basis
For the Nine Months Ended September 30,
(In thousands, except Average Yields and Rates)
2017 2016
Average
Balance Interest
Earned /
Paid Average
Yield / Rate Average
Balance Interest
Earned /
Paid Average
Yield / Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)
Taxable $ 5,193,860 $ 178,311 4.59 % $ 4,398,894 $ 147,328 4.47 %
Tax-exempt (3) 33,963 1,257 4.93 16,200 573 4.72
Total loans, net of unearned income 5,227,823 179,568 4.58 4,415,094 147,901 4.47
Mortgage loans held for sale 5,483 158 3.85 6,710 200 3.98
Investment securities:
Taxable 381,157 6,646 2.32 216,947 3,739 2.30
Tax-exempt (3) 132,545 3,373 3.39 136,326 3,845 3.76
Total investment securities (4) 513,702 10,019 2.60 353,273 7,584 2.86
Federal funds sold 147,626 1,185 1.07 136,879 630 0.61
Restricted equity securities 1,030 39 5.06 5,427 154 3.79
Interest-bearing balances with banks 174,040 1,252 0.96 453,087 1,734 0.51
Total interest-earning assets $ 6,069,704 $ 192,221 4.23 % $ 5,370,470 $ 158,203 3.93 %
Non-interest-earning assets:
Cash and due from banks 64,704 61,906
Net fixed assets and equipment 49,796 23,095
Allowance for loan losses, accrued interest and other assets 144,499 133,357
Total assets $ 6,328,703 $ 5,588,828

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits $ 789,916 $ 2,348 0.40 % $ 684,348 $ 1,838 0.36 %
Savings deposits 48,967 113 0.31 42,062 95 0.30
Money market accounts 2,678,993 13,143 0.66 2,186,703 8,612 0.53
Time deposits (5) 537,806 4,273 1.06 508,510 3,807 1.00
Total interest-bearing deposits 4,055,682 19,877 0.66 3,421,623 14,352 0.56
Federal funds purchased 326,017 2,653 1.09 460,844 2,210 0.64
Other borrowings 55,134 2,150 5.21 55,520 2,152 5.18
Total interest-bearing liabilities $ 4,436,833 $ 24,680 0.74 % $ 3,937,987 $ 18,714 0.63 %
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits 1,319,695 1,157,106
Other liabilities 14,637 13,250
Stockholders' equity 556,952 475,905
Unrealized gains on securities and derivatives 586 4,580
Total liabilities and stockholders' equity $ 6,328,703 $ 5,588,828
Net interest income $ 167,541 $ 139,489
Net interest spread 3.49 % 3.30 %
Net interest margin 3.69 % 3.47 %
2018 2017
Interest Interest
Average Earned / Average Average Earned / Average
Balance Paid Yield / Rate Balance Paid Yield / Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)
Taxable $ 6,004,367 $ 221,350 4.93 % $ 5,193,860 $ 178,311 4.59 %
Tax-exempt (3) 32,180 960 3.98 33,963 1,257 4.93
Total loans, net of unearned income 6,036,547 222,310 4.92 5,227,823 179,568 4.58
Mortgage loans held for sale 3,668 118 4.30 5,483 158 3.85
Investment securities:
Taxable 464,870 9,146 2.62 381,157 6,646 2.32
Tax-exempt (3) 112,615 2,148 2.54 132,545 3,373 3.39
Total investment securities (4) 577,485 11,294 2.61 513,702 10,019 2.60
Federal funds sold 145,730 2,137 1.96 147,626 1,185 1.07
Equity securities 1,015 14 1.84 1,030 39 5.06
Interest-bearing balances with banks 77,073 1,018 1.77 174,040 1,252 0.96
Total interest-earning assets $ 6,841,518 $ 236,891 4.63 % $ 6,069,704 $ 192,221 4.23 %
Non-interest-earning assets:
Cash and due from banks 71,131 64,704
Net fixed assets and equipment 59,278 49,796
Allowance for loan losses, accrued interest and other assets 132,656 144,499
Total assets $ 7,104,583 $ 6,328,703

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits $ 848,595 $ 3,668 0.58 % $ 789,916 $ 2,348 0.40 %
Savings deposits 53,984 158 0.39 48,967 113 0.31
Money market accounts 3,141,707 26,297 1.12 2,678,993 13,143 0.66
Time deposits (5) 605,765 6,422 1.42 537,806 4,273 1.06
Total interest-bearing deposits 4,650,051 36,545 1.05 4,055,682 19,877 0.66
Federal funds purchased 273,543 3,754 1.83 326,017 2,653 1.09
Other borrowings 64,718 2,343 4.84 55,134 2,150 5.21
Total interest-bearing liabilities $ 4,988,312 $ 42,642 1.14 % $ 4,436,833 $ 24,680 0.74 %
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits 1,457,054 1,319,695
Other liabilities 14,696 14,637
Stockholders' equity 650,527 556,952
Accumulated other comprehensive (loss) income (6,006 ) 586
Total liabilities and stockholders' equity $ 7,104,583 $ 6,328,703
Net interest income $ 194,249 $ 167,541
Net interest spread 3.49 % 3.49 %
Net interest margin 3.80 % 3.69 %

(1) Non-accrual loans are included in average loan balances in all periods.  Loan fees of ~~$2,376,000~~$2,725 and ~~$1,574,000~~$2,376 are included in interest income in ~~2017~~2018 and ~~2016,~~2017, respectively.
(2) Accretion on acquired loan discounts of ~~$374,000~~$147 and ~~$819,000~~$374 are included in interest income in ~~2017~~2018 and ~~2016,~~2017, respectively.
(3) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21% in 2018 and 35%. in 2017.
(4) Unrealized (losses) gains of ~~$304,000~~$(7,658) and ~~$6,694,000~~$304 are excluded from the yield calculation in ~~2017~~2018 and ~~2016,~~2017, respectively.
(5) Accretion on acquired CD premiums of ~~$32,000 and $189,000~~$32 are included in interest expense in ~~2017 and 2016, respectively.~~2017.

38 39

For the Nine Months Ended September 30, For the Nine Months Ended September 30,
2017 Compared to 2016 Increase (Decrease) in Interest
Income and Expense Due to Changes in: 2018 Compared to 2017 Increase (Decrease) in Interest
Income and Expense Due to Changes in:
Volume Rate Total Volume Rate Total
(In Thousands) (In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable $ 26,839 $ 4,144 $ 30,983 $ 29,220 $ 13,819 $ 43,039
Tax-exempt 655 29 684 (63 ) (234 ) (297 )
Total loans, net of unearned income 27,494 4,173 31,667 29,157 13,585 42,742
Mortgages held for sale (36 ) (6 ) (42 ) (56 ) 16 (40 )
Debt securities:
Taxable 2,852 55 2,907 1,578 922 2,500
Tax-exempt (106 ) (366 ) (472 ) (459 ) (766 ) (1,225 )
Total debt securities 2,746 (311 ) 2,435 1,119 156 1,275
Federal funds sold 52 503 555 (15 ) 967 952
Restricted equity securities (154 ) 39 (115 )
Equity securities (1 ) (24 ) (25 )
Interest-bearing balances with banks (1,454 ) 972 (482 ) (931 ) 697 (234 )
Total interest-earning assets 28,648 5,370 34,018 29,273 15,397 44,670

Interest-bearing liabilities:
Interest-bearing demand deposits 298 212 510 185 1,135 1,320
Savings 16 2 18 13 32 45
Money market accounts 2,150 2,381 4,531 2,585 10,569 13,154
Time deposits 220 246 466 589 1,560 2,149
Total interest-bearing deposits 2,684 2,841 5,525 3,372 13,296 16,668
Federal funds purchased (780 ) 1,223 443 (483 ) 1,584 1,101
Other borrowed funds (18 ) 16 (2 ) 355 (162 ) 193
Total interest-bearing liabilities 1,886 4,080 5,966 3,244 14,718 17,962
Increase in net interest income $ 26,762 $ 1,290 $ 28,052 $ 26,029 $ 679 $ 26,708

~~Our~~Increases in the average rate paid on interest-bearing deposits drive unfavorable rate component change while growth in loans, non-interest bearing deposits and average equity continues to drive favorable volume component change and overall change. Also, the recent increases in the Federal Reserve Bank’s target federal funds rate has contributed to a favorable variance relating to the interest rate component because yields on loans have increased more than rates paid on deposits.

Provision for Loan Losses

The provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan losses at a level capable of absorbing inherent losses in the loan portfolio. Our management reviews the adequacy of the allowance for loan losses on a quarterly basis. The allowance for loan losses calculation is segregated into various segments that include classified loans, loans with specific allocations and pass rated loans. A pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss. Loans are rated using a nine-point risk grade scale with loan officers having the primary responsibility for assigning risk grades and for the timely reporting of changes in the risk grades. Based on these processes, and the assigned risk grades, the criticized and classified loans in the portfolio are segregated into the following regulatory classifications: Special Mention, Substandard, Doubtful or Loss, with some general allocation of reserve based on these grades. At September 30, ~~2017,~~2018, total loans rated Special Mention, Substandard, and Doubtful were ~~$131.1~~$136.1 million, or ~~2.3%~~2.1% of total loans, compared to ~~$128.8~~$99.8 million, or ~~2.6%~~1.7% of total loans, at December 31, ~~2016.~~2017. Impaired loans are reviewed specifically and separately to determine the appropriate reserve allocation. Our management compares the investment in an impaired loan with the present value of expected future cash flow discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral, if the loan is collateral-dependent, to determine the specific reserve allowance. Reserve percentages assigned to non-impaired loans are based on historical charge-off experience adjusted for other risk factors. To evaluate the overall adequacy of the allowance to absorb losses inherent in our loan portfolio, our management considers historical loss experience based on volume and types of loans, trends in classifications, volume and trends in delinquencies and nonaccruals, economic conditions and other pertinent information. Based on future evaluations, additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level.

The provision for loan losses was $6.6 million for the three months ended September 30, 2018, an increase of $1.8 million from $4.8 million for the three months ended September 30, 2017, ~~an increase of $1.3 million from $3.5~~and was $14.9 million for the ~~three~~nine months ended September 30, ~~2016, and was~~2018, a $0.7 million increase compared to $14.2 million for the nine months ended September 30, ~~2017, a $4.9 million increase~~2017. Net credit charge-offs to quarter-to-date average loans increased 15 basis points to 0.25% for the third quarter of 2018 compared to ~~$9.3 million~~0.10% for the corresponding period in 2017 and decreased 3 basis points to 0.16% for the nine months ended September 30, ~~2016.~~2018 compared to 0.19% for the corresponding period in 2017. Nonperforming loans ~~decreased~~increased to $14.9 million, or 0.23% of total loans, at September 30, 2018 from $10.8 million, or 0.19% of total loans, at December 31, 2017, and were $14.9 million, or 0.26% of total loans, at September 30, ~~2017 from $16.9~~2017. Impaired loans decreased to $37.7 million, or ~~0.34%~~0.59% of total loans, at September 30, 2018, compared to $40.5 million, or 0.69% of total loans, at December 31, 2016, but were higher than $6.7 million, or 0.14% of total loans, at September 30, 2016. Impaired loans increased to $49.6 million, or 0.88% of total loans, at September 30, 2017, compared to $45.6 million, or 0.93% of total loans, at December 31, 2016.2017. The allowance for loan losses totaled ~~$58.5~~$66.9 million, or ~~1.04%~~1.05% of total loans, net of unearned income, at September 30, ~~2017,~~2018, compared to ~~$51.9~~$59.4 million, or ~~1.06%~~1.02% of loans, net of unearned income, at December 31, ~~2016.~~2017.

39 40

Noninterest Income

Noninterest income ~~was flat at $4.8~~totaled $5.6 million for the three months ended September 30, ~~2017~~2018, an increase of $801,000, or 16.7%, compared to the corresponding period in ~~2016,~~2017, and totaled ~~$14.1~~$15.9 million for the nine months ended September 30, ~~2017,~~2018, an increase of ~~$2.0~~$1.8 million, or ~~16.5%~~12.6%, compared to the corresponding period in ~~2016.~~2017. Mortgage banking income decreased ~~$0.1 million,~~$189,000, or ~~9.1%~~19.3%, to ~~$1.0~~$789,000 for the three months ended September 30, 2018 compared to $978,000 for the same period in 2017, and decreased $845,000, or 28.7%, to $2.1 million for the nine months ended September 30, 2018 compared to $2.9 million for the same period in 2017. The number of loans originated during the third quarter of 2018 decreased approximately 5% when compared to the same quarter in 2017 due to slower refinance activity. Credit card income increased $689,000 to $1.8 million for the three months ended September 30, ~~2017~~2018 compared to $1.1 million for the same period in ~~2016,~~2017, and increased ~~$0.2~~$1.7 million ~~or 7.4%,~~ to ~~$2.9~~$5.2 million for the nine months ended September 30, ~~2017~~2018 compared to ~~$2.7~~$3.5 million for the same period in ~~2016. Credit card income was flat at $1.1 million for the three months ended September 30, 2017 compared to the same period in 2016, and~~2017. The amount of purchases on cards increased $1.3 million, or 59.1%, to $3.5 million for the nine months ended September 30, 2017 compared to $2.2 million for the same period in 2016. Flat credit card income for the comparative quarters was the result of higher accruals for rebates and awards on credit card accountsby approximately 21% during the third quarter of ~~2017. The number of credit card accounts increased 35.7% from September 30, 2016 to September 30, 2017 and the volume of purchases on cards increased 58.5% from the quarter ended September 30, 2016~~2018 compared to the third quarter ~~ended September 30,~~of 2017.

Noninterest Expense

Noninterest expense totaled ~~$21.5~~$23.2 million for the three months ended September 30, ~~2017,~~2018, an increase of ~~$1.3~~$1.7 million, or ~~6.4%~~7.7%, compared to ~~$20.2~~$21.5 million for the same period in ~~2016,~~2017, and totaled ~~$64.6~~$70.7 million for the nine months ended September 30, ~~2017,~~2018, an increase of ~~$5.6~~$6.0 million, or ~~9.5%~~9.3%, compared to ~~$59.0~~$64.6 million for the same period in ~~2016.~~2017.

Details of expenses are as follows:

· Salary and benefit expense increased $1.5 million, or 13.4%, to $12.4 million for the three months ended September 30, 2017 from $11.0 million for the same period in 2016, and increased $3.4 million, or 10.4%, to $36.2 million for the nine months ended September 30, 2017 from $32.8 million for the same period in 2016. Total employees increased from 416 as of September 30, 2016 to 438 as of September 30, 2017, or 5.3%. Merit increases, cost of living adjustments, and medical benefit cost increases also contributed to the 2017 overall increased salary and benefits expense.
Salary and benefit expense increased $642,000, or 5.2%, to $13.1 million for the three months ended September 30, 2018 from $12.4 million for the same period in 2017, and increased $3.3 million, or 9.1%, to $39.5 million for the nine months ended September 30, 2018 from $36.2 million for the same period in 2017. Total employees increased from 438 as of September 30, 2017 to 460 as of September 30, 2018, or 5.0%.

· Occupancy expense decreased $0.2 million, or 7.3%, to $1.9 million for the three months ended September 30, 2017 from $2.1 million for the corresponding period in 2016, and increased $0.3 million, or 5.6%, to $6.4 million during the nine months ended September 30, 2017 from $6.1 million during the corresponding period in 2016. We leased a new main office building in our Tampa Bay, Florida region starting in early 2017 which was a replacement of our previous loan production office in Pasco County. We also leased a new main office in our Mobile, Alabama region, a replacement of a previous smaller location with less visibility.
Equipment and occupancy expense increased $246,000, or 12.6%, to $2.2 million for the three months ended September 30, 2018 from $1.9 million for the corresponding period in 2017, and decreased $192,000, or 3.0%, to $6.3 million from $6.5 million for the nine months ended September 30, 2018 compared to the corresponding period in 2017. A decrease in rental payments more than offset increased depreciation expense resulting from our fourth quarter 2017 move from our previous headquarters building, which was leased, to our new headquarters building, which is owned.

· Professional services expense decreased $0.4 million, or 31.9%, to $0.8 million for the three months ended September 30, 2017 from $1.2 million for the corresponding period in 2016, and decreased $0.5 million, or 18.3%, to $2.4 million from $2.9 million for the nine months ended September 30, 2017. Legal fees related to pending litigation during 2016 drove higher expenses in the previous year’s comparative periods.
Professional services expense increased $48,000 to $853,000 for the three months ended September 30, 2018 compared to the same period in 2017, and increased $198,000 to $2.6 million for the nine months ended September 30, 2018 compared to the same period in 2017. Increases were primarily the result of increased internal audit fees and asset/liability consulting.

· Federal deposit insurance and other regulatory assessments were flat at $0.8 million for the three months ended September 30, 2017 compared to the same period in 2016, and increased $0.6 million to $2.9 million for the nine months ended September 30, 2017 compared to the same period in 2016. The increase in the nine-month comparative periods is driven by asset growth and a change in the assessment rate calculation enacted by the FDIC starting in the third quarter of 2016.
FDIC and other regulatory assessments decreased $135,000 to $675,000 for the three months ended September 30, 2018 compared to the same period in 2017, and increased $79,000 to $3.0 million for the nine months ended September 30, 2018 compared to the same period in 2017. Our assessment rates have come down during the past few quarters as the bank insurance fund (“BIF”) balance of the FDIC nears its targeted levels.

· OREO expenses decreased to $31,000 for the three months ended September 30, 2017 from $0.2 million for the corresponding period in 2016, and decreased $0.5 million, or 75.6%, to $0.2 million from $0.7 million for the nine months ended September 30, 2017. Fewer properties in OREO and less activity lead to the drop in expenses. We continue to actively manage and maintain our OREO properties to minimize potential losses until they are sold.
OREO expense increased to $289,000 for the three months ended September 30, 2018 compared to only $31,000 for the same period in 2017, and increased to $765,000 for the nine months ended September 30, 2018 compared to $163,000 for the same period in 2017. We incurred some costs to excavate raw land in our Atlanta market in preparation to sell it and also wrote down the value of a commercial building in Birmingham based on a recent appraisal.

· Other operating expenses increased $0.5 million to $5.5 million for the three months ended September 30, 2017 compared to the same period in 2016, and increased $2.4 million to $16.6 million for the nine months ended September 30, 2017 compared to the same period in 2016. State sales taxes paid for the construction of our new headquarters building in Birmingham, Alabama and higher credit card processing expenses each contributed $0.4 million of the increase for the nine month comparative periods. Increased transaction volume drove increased loan expenses ($0.6 million), increased bank service charges ($0.1 million) and increased travel expenses ($0.1 million). We incurred a $0.2 million increase in non-credit losses during the nine months ended September 30, 2017 compared to the same period in 2016.
Other operating expenses increased $594,000 to $6.1 million for the three months ended September 30, 2018 compared to the same period in 2017, and increased $2.1 million to $18.6 million for the nine months ended September 30, 2018 compared to the same period in 2017. Increases in data processing costs, credit card processing expenses and increases in bank service charges related to our correspondent banking activities contributed to the increase in other operating expenses.

40 41

The following table presents our non-interest income and non-interest expense for the three and nine month periods ending September 30, ~~2017~~2018 compared to the same periods in ~~2016.~~2017.

Three Months Ended
September 30, Nine Months Ended
September 30, Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 $ change % change 2017 2016 $ change % change 2018 2017 $ change % change 2018 2017 $ change % change
Non-interest income:
Service charges on deposit accounts $ 1,467 $ 1,367 $ 100 7.3 % $ 4,203 $ 3,980 $ 223 5.6 % $ 1,595 $ 1,467 $ 128 8.7 % $ 4,833 $ 4,203 $ 630 15.0 %
Mortgage banking 978 1,112 (134 ) (12.1 )% 2,941 2,681 260 9.7 % 789 978 (189 ) (19.3 )% 2,096 2,941 (845 ) (28.7 )%
Credit card income 1,149 1,116 33 3.0 % 3,517 2,159 1,358 62.9 % 1,838 1,149 689 60.0 % 5,172 3,517 1,655 47.1 %
Securities gains - - - NM - (3 ) 3 NM 186 - 186 NM 190 - 190 NM
Increase in cash surrender value life insurance 825 770 55 7.1 % 2,334 2,049 285 13.9 % 787 825 (38 ) (4.6 )% 2,350 2,334 16 0.7 %
Other operating income 371 426 (55 ) (12.9 )% 1,146 1,207 (61 ) (5.1 )% 396 371 25 6.7 % 1,278 1,146 132 11.5 %
Total non-interest income $ 4,790 $ 4,791 $ (1 ) - % $ 14,141 $ 12,073 $ 2,068 17.1 % $ 5,591 $ 4,790 $ 801 16.7 % $ 15,919 $ 14,141 $ 1,778 12.6 %

Non-interest expense:
Salaries and employee benefits 12,428 10,958 1,470 13.4 % 36,172 32,758 3,414 10.4 % $ 13,070 $ 12,428 $ 642 5.2 % $ 39,464 $ 36,172 $ 3,292 9.1 %
Equipment and occupancy expense 1,947 2,100 (153 ) (7.3 )% 6,452 6,108 344 5.6 % 2,193 1,947 246 12.6 % 6,260 6,452 (192 ) (3.0 )%
Professional services 805 1,182 (377 ) (31.9 )% 2,384 2,919 (535 ) (18.3 )% 853 805 48 6.0 % 2,582 2,384 198 8.3 %
FDIC and other regulatory assessments 810 775 35 4.5 % 2,888 2,328 560 24.1 % 675 810 (135 ) (16.7 )% 2,967 2,888 79 2.7 %
OREO expense 31 178 (147 ) (82.6 )% 163 668 (505 ) (75.6 )% 289 31 258 832.3 % 765 163 602 369.3 %
Other operating expense 5,476 4,969 507 10.2 % 16,580 14,175 2,405 17.0 % 6,070 5,476 594 10.8 % 18,634 16,580 2,054 12.4 %
Total non-interest expense $ 21,497 $ 20,162 $ 1,335 6.6 % $ 64,639 $ 58,956 $ 5,683 9.6 % $ 23,150 $ 21,497 $ 1,653 7.7 % $ 70,672 $ 64,639 $ 6,033 9.3 %

Income Tax Expense

Income tax expense was ~~$11.6~~$8.1 million for the three months ended September 30, ~~2017 compared to $8.2~~2018 versus $11.6 million for the same period in ~~2016,~~2017, and was ~~$29.4~~$23.5 million for the nine months ended September 30, ~~2017~~2018 compared to ~~$22.0~~$29.4 million for the same period in ~~2016.~~2017. Lower corporate income tax rates resulting from the passage of the Tax Cuts and Jobs Act in December 2017 has resulted in lower effective tax rates. Our effective tax rate for the three and nine months ended September 30, ~~2017~~2018 was ~~31.5%~~19.0% and ~~29.0%~~18.9%, respectively, compared to ~~28.1%~~31.5% and ~~27.0%~~29.0% for the corresponding periods in ~~2016,~~2017, respectively. We recognized ~~a reduction in provision for income taxes resulting from~~ excess tax benefits as a credit to our income tax expense from the exercise and vesting of stock options and restricted stock during the three and nine months ended September 30, ~~2017~~2018 of ~~$0.8 million~~$539,000 and ~~$4.3~~$2.4 million, respectively, compared to ~~$1.2 million~~$757,000 and ~~$4.7~~$4.3 million during the three and nine months ended September 30, ~~2016,~~2017, respectively. Lower excess tax benefits from the exercise of stock options and lower Alabama state sales taxes, which we can deduct from our Alabama corporate income taxes, during the third quarter of 2017 contributed to the higher effective tax rate when compared to the same quarter in 2016. Our primary permanent differences are related to tax exempt income on securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance.

We own real estate investment trusts for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank. The trusts are wholly-owned subsidiaries of a trust holding company, which in turn is an indirect wholly-owned subsidiary of the Bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities. They pay their net earnings, in the form of dividends, to the Bank, which receives a deduction for state income taxes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Like all financial institutions, we are subject to market risk from changes in interest rates. Interest rate risk is inherent in the balance sheet due to the mismatch between the maturities of rate-sensitive assets and rate-sensitive liabilities. If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities is greater than the level of rate-sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short-term rates may be rising while longer-term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.

41
To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall or remain the same. Our asset-liability committee develops its view of future rate trends and strives to manage rate risk within a targeted range by monitoring economic indicators, examining the views of economists and other experts, and understanding the current status of our balance sheet. Our annual budget reflects the anticipated rate environment for the next 12 months. The asset-liability committee conducts a quarterly analysis of the rate sensitivity position and reports its results to our board of directors.
42

The asset-liability committee thoroughly analyzes the maturities of rate-sensitive assets and liabilities. This analysis measures the “gap”, which is defined as the difference between the dollar amount of rate-sensitive assets repricing during a period and the volume of rate-sensitive liabilities repricing during the same period. The gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities. If the ratio is greater than one, the dollar value of assets exceeds the dollar value of liabilities; the balance sheet is “asset-sensitive.” Conversely, if the value of liabilities exceeds the value of assets, the ratio is less than one and the balance sheet is “liability-sensitive.” Our internal policy requires management to maintain the gap such that net interest margins will not change more than 10% if interest rates change 100 basis points or more than 15% if interest rates change 200 basis points. There have been no changes to our policies or procedures for analyzing our interest rate risk since December 31, ~~2016,~~2017, and there ~~are~~have been no ~~significant~~material changes to our sensitivity to changes in interest rates since December 31, ~~2016~~2017, as disclosed in our Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

CEO and CFO Certification.

Appearing as exhibits to this report are Certifications of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”). The Certifications are required to be made by Rule 13a-14 or Rule 15d-14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This item contains the information about the evaluation that is referred to in the Certifications, and the information set forth below in this Item 4 should be read in conjunction with the Certifications for a more complete understanding of the Certifications.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

We conducted an evaluation (the "Evaluation") of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and CFO, as of September 30, ~~2017.~~2018. Based upon the Evaluation, our CEO and CFO have concluded that, as of September 30, ~~2017,~~2018, our disclosure controls and procedures are effective to ensure that material information relating to ServisFirst Bancshares, Inc. and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.
Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we may be a party to various legal proceedings arising in the ordinary course of business. Management does not believe the Company or the Bank is currently a party to any material legal proceedings.

ITEM 1A. RISK FACTORS

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2017, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in the Form 10-K. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see “Forward-Looking Statements” under Part 1, Item 2 above.

42 43

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit: Description
10.01 Second Amendment to the ServisFirst Bancshares, Inc. Amended and Restated 2009 Stock Incentive Plan, which was filed as exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 17, 2018
31.01 Certification of principal executive officer pursuant to Rule 13a-14(a).
31.02 Certification of principal financial officer pursuant to Rule 13a-14(a).
32.01 Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.
32.02 Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SERVISFIRST BANCSHARES, INC.

Date: October ~~31, 2017~~30, 2018 By /s/ Thomas A. Broughton III

Thomas A. Broughton III

President and Chief Executive Officer

Date: October ~~31, 2017~~30, 2018 By /s/ William M. Foshee

William M. Foshee

Chief Financial Officer

43
44

PART I. FINANCIAL INFORMATION			3
	Item 1.	Financial Statements	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4142
	Item 4.	Controls and Procedures	4243

PART II. OTHER INFORMATION			4243
	Item 1 1.	Legal Proceedings	4243
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4344
	Item 3.	Defaults Upon Senior Securities	4344
	Item 4.	Mine Safety Disclosures	4344
	Item 5.	Other Information	4344
	Item 6.	Exhibits	4344

	December 31, 2016						For the twelve months ended December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period

	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	1,003	$	1,003	$	-	$	992	$	64
Real estate - construction		938		1,802		-		1,159		3
Real estate - mortgage:
Owner-occupied commercial		2,615		2,778		-		2,884		166
1-4 family mortgage		1,899		1,899		-		1,901		102
Other mortgage		940		940		-		965		60
Total real estate - mortgage		5,454		5,617		-		5,750		328
Consumer		3		5		-		6		-
Total with no allowance recorded		7,398		8,427		-		7,907		395

With an allowance recorded:
Commercial, financial and agricultural		26,919		31,728		6,607		26,955		1,162
Real estate - construction		3,376		3,376		923		3,577		68
Real estate - mortgage:
Owner-occupied commercial		6,924		6,924		348		6,934		362
1-4 family mortgage		972		972		274		313		19
Other mortgage		-		-		-		-		-
Total real estate - mortgage		7,896		7,896		622		7,247		381
Consumer		-		-		-		-		-
Total with allowance recorded		38,191		43,000		8,152		37,779		1,611

Total Impaired Loans:
Commercial, financial and agricultural		27,922		32,731		6,607		27,947		1,226
Real estate - construction		4,314		5,178		923		4,736		71
Real estate - mortgage:
Owner-occupied commercial		9,539		9,702		348		9,818		528
1-4 family mortgage		2,871		2,871		274		2,214		121
Other mortgage		940		940		-		965		60
Total real estate - mortgage		13,350		13,513		622		12,997		709
Consumer		3		5		-		6		-
Total impaired loans	$	45,589	$	51,427	$	8,152	$	45,686	$	2,006

December 31, 2017
							For the twelve months
							ended December 31, 2017
			Unpaid				Average		Interest Income
	Recorded		Principal		Related		Recorded		Recognized in
	Investment		Balance		Allowance		Investment		Period
	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	10,036	$	16,639	$	-	$	16,417	$	571
Real estate - construction		574		577		-		663		31
Real estate - mortgage:
Owner-occupied commercial		2,640		2,806		-		2,875		159
1-4 family mortgage		2,262		2,262		-		2,289		93
Other mortgage		746		746		-		727		44
Total real estate - mortgage		5,648		5,814		-		5,891		296
Consumer		38		39		-		42		3
Total with no allowance recorded		16,296		23,069		-		23,013		901

With an allowance recorded:
Commercial, financial and agricultural		16,411		16,992		4,276		17,912		651
Real estate - construction		997		997		120		997		56
Real estate - mortgage:
Owner-occupied commercial		3,914		3,914		601		3,801		215
1-4 family mortgage		980		980		281		1,113		54
Other mortgage		1,862		1,862		281		1,862		80
Total real estate - mortgage		6,756		6,756		1,163		6,776		349
Consumer		50		50		50		42		3
Total with allowance recorded		24,214		24,795		5,609		25,727		1,059

Total Impaired Loans:
Commercial, financial and agricultural		26,447		33,631		4,276		34,329		1,222
Real estate - construction		1,571		1,574		120		1,660		87
Real estate - mortgage:
Owner-occupied commercial		6,554		6,720		601		6,676		374
1-4 family mortgage		3,242		3,242		281		3,402		147
Other mortgage		2,608		2,608		281		2,589		124
Total real estate - mortgage		12,404		12,570		1,163		12,667		645
Consumer		88		89		50		84		6
Total impaired loans	$	40,510	$	47,864	$	5,609	$	48,740	$	1,960

September 30, 2017	Amount		Percentage of loans in each category to total loans
	(In Thousands)
Commercial, financial and agricultural	$	31,701		39.51	%
Real estate - construction		5,331		8.31	%
Real estate - mortgage		20,966		51.15	%
Consumer		461		1.03	%
Total	$	58,459		100.00	%

			Percentage of loans
			in each category
September 30, 2018	Amount		to total loans
	(In Thousands)
Commercial, financial and agricultural	$	39,101		38.95	%
Real estate - construction		3,934		8.54	%
Real estate - mortgage		23,329		51.51	%
Consumer		515		1.00	%
Total	$	66,879		100.00	%

											Payments due by Period
	Payments due by Period														Over 1 - 3		Over 3 - 5
	Total		1 year or less		Over 1 - 3 years		Over 3 - 5 years		Over 5 years		Total		1 year or less		years		years		Over 5 years
	(In Thousands)										(In Thousands)
Contractual Obligations (1)

Deposits without a stated maturity	$	5,235,403	$	-	$	-	$	-	$	-	$	5,849,136	$	-	$	-	$	-	$	-
Certificates of deposit (2)		561,498		324,179		152,527		83,161		1,631		656,215		381,981		170,170		104,013		51
Federal funds purchased		254,880		254,880		-		-		-		246,094		246,094		-		-		-
Subordinated debentures		54,975		300		-		-		54,675		64,657		-		-		-		64,657
Operating lease commitments		16,180		3,101		5,365		3,870		3,844		17,191		2,945		5,604		4,631		4,011
Total	$	6,122,936	$	582,460	$	157,892	$	87,031	$	60,150	$	6,833,293	$	631,020	$	175,774	$	108,644	$	68,719

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2017:	(Dollars in thousands)
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	574,296		9.60	%	$	269,204		4.50	%		N/A		N/A
ServisFirst Bank		629,146		10.52	%		269,172		4.50	%	$	388,803		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		574,798		9.61	%		358,938		6.00	%		N/A		N/A
ServisFirst Bank		629,648		10.53	%		358,896		6.00	%		478,527		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		688,432		11.51	%		478,584		8.00	%		N/A		N/A
ServisFirst Bank		688,607		11.51	%		478,527		8.00	%		598,159		10.00
Tier 1 Capital to Average Assets:
Consolidated		574,798		8.91	%		257,939		4.00	%		N/A		N/A
ServisFirst Bank		629,648		9.76	%		258,498		4.00	%		323,123		5.00	%

As of December 31, 2016:
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	508,982		9.78	%	$	234,262		4.50	%		N/A		N/A
ServisFirst Bank		560,731		10.77	%		234,232		4.50	%	$	338,335		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		509,359		9.78	%		312,350		6.00	%		N/A		N/A
ServisFirst Bank		561,108		10.78	%		312,309		6.00	%		416,413		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		616,415		11.84	%		416,467		8.00	%		N/A		N/A
ServisFirst Bank		613,501		11.79	%		416,413		8.00	%		520,516		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		509,359		8.22	%		247,777		4.00	%		N/A		N/A
ServisFirst Bank		561,108		9.06	%		247,760		4.00	%		309,700		5.00	%

As of September 30, 2016:
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	488,673		9.91	%	$	221,937		4.50	%		N/A		N/A
ServisFirst Bank		540,233		10.96	%		221,902		4.50	%	$	320,525		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		489,050		9.92	%		295,916		6.00	%		N/A		N/A
ServisFirst Bank		540,610		10.96	%		295,869		6.00	%		394,493		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		593,140		12.03	%		394,554		8.00	%		N/A		N/A
ServisFirst Bank		590,043		11.97	%		394,493		8.00	%		493,116		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		489,050		8.20	%		238,594		4.00	%		N/A		N/A
ServisFirst Bank		540,610		9.06	%		238,583		4.00	%		298,228		5.00	%

											To Be Well Capitalized
						For Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2018:	(Dollars in thousands)
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	676,506		10.08	%	$	302,011		4.50	%		N/A		N/A
ServisFirst Bank		740,140		11.03	%		301,997		4.50	%	$	436,219		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		677,008		10.09	%		402,682		6.00	%		N/A		N/A
ServisFirst Bank		740,642		11.04	%		402,663		6.00	%		536,884		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		809,044		12.05	%		536,909		8.00	%		N/A		N/A
ServisFirst Bank		808,021		12.04	%		536,884		8.00	%		671,105		10.00
Tier 1 Capital to Average Assets:
Consolidated		677,008		9.28	%		291,724		4.00	%		N/A	��	N/A
ServisFirst Bank		740,642		10.16	%		291,709		4.00	%		364,637		5.00	%

As of December 31, 2017:
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	593,111		9.51	%	$	280,553		4.50	%		N/A		N/A
ServisFirst Bank		651,201		10.45	%		280,523		4.50	%	$	405,199		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		593,613		9.52	%		374,070		6.00	%		N/A		N/A
ServisFirst Bank		651,703		10.45	%		374,030		6.00	%		498,707		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		718,151		11.52	%		498,760		8.00	%		N/A		N/A
ServisFirst Bank		711,609		11.42	%		498,707		8.00	%		623,384		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		593,613		8.51	%		278,970		4.00	%		N/A		N/A
ServisFirst Bank		651,703		9.35	%		278,954		4.00	%		348,693		5.00	%

As of September 30, 2017:
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	574,296		9.60	%	$	269,204		4.50	%		N/A		N/A
ServisFirst Bank		629,146		10.52	%		269,172		4.50	%	$	388,803		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		574,798		9.61	%		358,938		6.00	%		N/A		N/A
ServisFirst Bank		629,648		10.53	%		358,896		6.00	%		478,527		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		688,432		11.51	%		478,584		8.00	%		N/A		N/A
ServisFirst Bank		688,607		11.51	%		478,527		8.00	%		598,159		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		574,798		8.91	%		257,939		4.00	%		N/A		N/A
ServisFirst Bank		629,648		9.76	%		258,498		4.00	%		323,123		5.00	%

(4)		Unrealized (losses) gains of ~~$2,072,000~~$(9,590) and ~~$7,730,000~~$2,072 are excluded from the yield calculation in ~~2017~~the third quarter of 2018 and ~~2016,~~2017, respectively.
~~(5)~~	~~Accretion on acquired CD premiums of $0 and $48,000 are included in interest in 2017 and 2016, respectively.~~

	For the Three Months Ended September 30,									For the Three Months Ended September 30,
	2017 Compared to 2016 Increase (Decrease) in Interest Income and Expense Due to Changes in:									2018 Compared to 2017 Increase (Decrease) in Interest Income and Expense Due to Changes in:
	Volume			Rate			Total			Volume			Rate			Total
	(In Thousands)									(In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable	$	10,054		$	2,232		$	12,286		$	9,839		$	5,344		$	15,183
Tax-exempt		144			50			194			(41	)		(96	)		(137	)
Total loans, net of unearned income		10,198			2,282			12,480			9,798			5,248			15,046
Mortgages held for sale		(16	)		(5	)		(21	)		(13	)		7			(6	)
Debt securities:
Taxable		949			106			1,055			629			360			989
Tax-exempt		(34	)		(131	)		(165	)		(191	)		(260	)		(451	)
Total debt securities		915			(25	)		890			438			100			538
Federal funds sold		(227	)		258			31			225			289			514
Restricted equity securities		(41	)		(7	)		(48	)
Equity securities											-			(2	)		(2	)
Interest-bearing balances with banks		(923	)		543			(380	)		(228	)		158			(70	)
Total interest-earning assets		9,906			3,046			12,952			10,220			5,800			16,020

Interest-bearing liabilities:
Interest-bearing demand deposits		105			100			205			21			508			529
Savings		4			-			4			4			29			33
Money market accounts		455			1,328			1,783			1,143			4,774			5,917
Time deposits		69			155			224			305			852			1,157
Total interest-bearing deposits		633			1,583			2,216			1,473			6,163			7,636
Federal funds purchased		(311	)		567			256			(207	)		457			250
Other borrowed funds		(4	)		4			-			119			(55	)		64
Total interest-bearing liabilities		318			2,154			2,472			1,385			6,565			7,950
Increase in net interest income	$	9,588		$	892		$	10,480		$	8,835		$	(765	)	$	8,070

	2017							2016
	Average Balance		Interest Earned / Paid		Average Yield / Rate			Average Balance		Interest Earned / Paid		Average Yield / Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)
Taxable	$	5,193,860	$	178,311		4.59	%	$	4,398,894	$	147,328		4.47	%
Tax-exempt (3)		33,963		1,257		4.93			16,200		573		4.72
Total loans, net of unearned income		5,227,823		179,568		4.58			4,415,094		147,901		4.47
Mortgage loans held for sale		5,483		158		3.85			6,710		200		3.98
Investment securities:
Taxable		381,157		6,646		2.32			216,947		3,739		2.30
Tax-exempt (3)		132,545		3,373		3.39			136,326		3,845		3.76
Total investment securities (4)		513,702		10,019		2.60			353,273		7,584		2.86
Federal funds sold		147,626		1,185		1.07			136,879		630		0.61
Restricted equity securities		1,030		39		5.06			5,427		154		3.79
Interest-bearing balances with banks		174,040		1,252		0.96			453,087		1,734		0.51
Total interest-earning assets	$	6,069,704	$	192,221		4.23	%	$	5,370,470	$	158,203		3.93	%
Non-interest-earning assets:
Cash and due from banks		64,704							61,906
Net fixed assets and equipment		49,796							23,095
Allowance for loan losses, accrued interest and other assets		144,499							133,357
Total assets	$	6,328,703						$	5,588,828

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	789,916	$	2,348		0.40	%	$	684,348	$	1,838		0.36	%
Savings deposits		48,967		113		0.31			42,062		95		0.30
Money market accounts		2,678,993		13,143		0.66			2,186,703		8,612		0.53
Time deposits (5)		537,806		4,273		1.06			508,510		3,807		1.00
Total interest-bearing deposits		4,055,682		19,877		0.66			3,421,623		14,352		0.56
Federal funds purchased		326,017		2,653		1.09			460,844		2,210		0.64
Other borrowings		55,134		2,150		5.21			55,520		2,152		5.18
Total interest-bearing liabilities	$	4,436,833	$	24,680		0.74	%	$	3,937,987	$	18,714		0.63	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		1,319,695							1,157,106
Other liabilities		14,637							13,250
Stockholders' equity		556,952							475,905
Unrealized gains on securities and derivatives		586							4,580
Total liabilities and stockholders' equity	$	6,328,703						$	5,588,828
Net interest income			$	167,541						$	139,489
Net interest spread						3.49	%						3.30	%
Net interest margin						3.69	%						3.47	%

	For the Nine Months Ended September 30,									For the Nine Months Ended September 30,
	2017 Compared to 2016 Increase (Decrease) in Interest Income and Expense Due to Changes in:									2018 Compared to 2017 Increase (Decrease) in Interest Income and Expense Due to Changes in:
	Volume			Rate			Total			Volume			Rate			Total
	(In Thousands)									(In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable	$	26,839		$	4,144		$	30,983		$	29,220		$	13,819		$	43,039
Tax-exempt		655			29			684			(63	)		(234	)		(297	)
Total loans, net of unearned income		27,494			4,173			31,667			29,157			13,585			42,742
Mortgages held for sale		(36	)		(6	)		(42	)		(56	)		16			(40	)
Debt securities:
Taxable		2,852			55			2,907			1,578			922			2,500
Tax-exempt		(106	)		(366	)		(472	)		(459	)		(766	)		(1,225	)
Total debt securities		2,746			(311	)		2,435			1,119			156			1,275
Federal funds sold		52			503			555			(15	)		967			952
Restricted equity securities		(154	)		39			(115	)
Equity securities											(1	)		(24	)		(25	)
Interest-bearing balances with banks		(1,454	)		972			(482	)		(931	)		697			(234	)
Total interest-earning assets		28,648			5,370			34,018			29,273			15,397			44,670

Interest-bearing liabilities:
Interest-bearing demand deposits		298			212			510			185			1,135			1,320
Savings		16			2			18			13			32			45
Money market accounts		2,150			2,381			4,531			2,585			10,569			13,154
Time deposits		220			246			466			589			1,560			2,149
Total interest-bearing deposits		2,684			2,841			5,525			3,372			13,296			16,668
Federal funds purchased		(780	)		1,223			443			(483	)		1,584			1,101
Other borrowed funds		(18	)		16			(2	)		355			(162	)		193
Total interest-bearing liabilities		1,886			4,080			5,966			3,244			14,718			17,962
Increase in net interest income	$	26,762		$	1,290		$	28,052		$	26,029		$	679		$	26,708

Exhibit:		Description
10.01		Second Amendment to the ServisFirst Bancshares, Inc. Amended and Restated 2009 Stock Incentive Plan, which was filed as exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 17, 2018
31.01		Certification of principal executive officer pursuant to Rule 13a-14(a).
31.02		Certification of principal financial officer pursuant to Rule 13a-14(a).
32.01		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.
32.02		Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document

	SERVISFIRST BANCSHARES, INC.



Date: October ~~31, 2017~~30, 2018	By	/s/ Thomas A. Broughton III

	Thomas A. Broughton III

	President and Chief Executive Officer


Date: October ~~31, 2017~~30, 2018	By	/s/ William M. Foshee

	William M. Foshee

	Chief Financial Officer