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
(Mark one)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2023
☐ 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 | |
Incorporation or Organization) | (I.R.S. Employer Identification No.) |
2500 Woodcrest Place, Birmingham, Alabama | 35209 |
(Address of Principal Executive Offices) |
(205) 949-0302
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Common stock, par value $.001 per share | SFBS | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 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”,filer,” “accelerated filer”,filer,” “smaller reporting company”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 |
Common stock, $.001 par value |
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
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SERVISFIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
SERVISFIRST BANCSHARES, INC. | SERVISFIRST BANCSHARES, INC. | |||||||||||||||
CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | |||||||||||||||
(In thousands, except share and per share amounts) | (In thousands, except share and per share amounts) | |||||||||||||||
September 30, 2017 | December 31, 2016 | March 31, 2023 | December 31, 2022 | |||||||||||||
(Unaudited) | (1) | (Unaudited) | (1) | |||||||||||||
ASSETS | ||||||||||||||||
Cash and due from banks | $ | 79,431 | $ | 56,855 | $ | 139,175 | $ | 106,317 | ||||||||
Interest-bearing balances due from depository institutions | 86,719 | 566,707 | 725,318 | 708,221 | ||||||||||||
Federal funds sold | 182,841 | 160,435 | 6,478 | 1,515 | ||||||||||||
Cash and cash equivalents | 348,991 | 783,997 | 870,971 | 816,053 | ||||||||||||
Available for sale debt securities, at fair value | 435,325 | 422,375 | 624,948 | 644,815 | ||||||||||||
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 | ||||||||||||||
Held to maturity debt securities (fair value of $937,961 at March 31, 2023 and $935,953 at December 31, 2022) | 1,021,989 | 1,034,121 | ||||||||||||||
Restricted equity securities | 1,038 | 1,024 | 7,307 | 7,734 | ||||||||||||
Mortgage loans held for sale | 4,971 | 4,675 | 1,651 | 1,607 | ||||||||||||
Loans | 5,628,765 | 4,911,770 | 11,629,802 | 11,687,968 | ||||||||||||
Less allowance for loan losses | (58,459 | ) | (51,893 | ) | ||||||||||||
Less allowance for credit losses | (148,965 | ) | (146,297 | ) | ||||||||||||
Loans, net | 5,570,306 | 4,859,877 | 11,480,837 | 11,541,671 | ||||||||||||
Premises and equipment, net | 55,104 | 40,314 | 60,093 | 59,850 | ||||||||||||
Accrued interest and dividends receivable | 20,334 | 15,801 | 50,500 | 48,422 | ||||||||||||
Deferred tax assets | 26,326 | 27,132 | ||||||||||||||
Deferred tax asset, net | 60,666 | 60,448 | ||||||||||||||
Other real estate owned and repossessed assets | 3,888 | 4,988 | 248 | 248 | ||||||||||||
Bank owned life insurance contracts | 126,722 | 114,388 | 289,374 | 287,752 | ||||||||||||
Goodwill and other identifiable intangible assets | 14,787 | 14,996 | 13,615 | 13,615 | ||||||||||||
Other assets | 16,912 | 18,317 | 84,360 | 79,417 | ||||||||||||
Total assets | $ | 6,712,103 | $ | 6,370,448 | $ | 14,566,559 | $ | 14,595,753 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Liabilities: | ||||||||||||||||
Deposits: | ||||||||||||||||
Noninterest-bearing | $ | 1,405,965 | $ | 1,281,605 | $ | 2,898,736 | $ | 3,321,347 | ||||||||
Interest-bearing | 4,390,936 | 4,138,706 | 8,716,581 | 8,225,458 | ||||||||||||
Total deposits | 5,796,901 | 5,420,311 | 11,615,317 | 11,546,805 | ||||||||||||
Federal funds purchased | 254,880 | 355,944 | 1,480,160 | 1,618,798 | ||||||||||||
Other borrowings | 54,975 | 55,262 | 65,417 | 64,726 | ||||||||||||
Accrued interest payable | 4,353 | 4,401 | 20,541 | 18,615 | ||||||||||||
Other liabilities | 10,781 | 11,641 | 45,307 | 48,913 | ||||||||||||
Total liabilities | 6,121,890 | 5,847,559 | 13,226,742 | 13,297,857 | ||||||||||||
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 March 31, 2023 and December 31, 2022 | - | - | ||||||||||||||
Common stock, par value $0.001 per share; 200,000,000 shares authorized: 54,398,025 shares issued and outstanding at March 31, 2023; and 54,326,527 shares issued and outstanding at December 31, 2022 | 54 | 54 | ||||||||||||||
Additional paid-in capital | 217,483 | 215,932 | 229,631 | 229,693 | ||||||||||||
Retained earnings | 371,127 | 307,151 | 1,152,681 | 1,109,902 | ||||||||||||
Accumulated other comprehensive income | 1,048 | (624 | ) | |||||||||||||
Accumulated other comprehensive loss | (43,049 | ) | (42,253 | ) | ||||||||||||
Total stockholders' equity attributable to ServisFirst Bancshares, Inc. | 589,711 | 522,512 | 1,339,317 | 1,297,396 | ||||||||||||
Noncontrolling interest | 502 | 377 | 500 | 500 | ||||||||||||
Total stockholders' equity | 590,213 | 522,889 | 1,339,817 | 1,297,896 | ||||||||||||
Total liabilities and stockholders' equity | $ | 6,712,103 | $ | 6,370,448 | $ | 14,566,559 | $ | 14,595,753 |
(1) Derived from audited financial statements.
See Notes to Consolidated Financial Statements.
(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 March 31, | ||||||||
2023 | 2022 | |||||||
Interest income: | ||||||||
Interest and fees on loans | $ | 163,732 | $ | 103,105 | ||||
Taxable securities | 10,895 | 8,223 | ||||||
Nontaxable securities | 21 | 43 | ||||||
Federal funds sold | 614 | 13 | ||||||
Other interest and dividends | 6,060 | 1,804 | ||||||
Total interest income | 181,322 | 113,188 | ||||||
Interest expense: | ||||||||
Deposits | 55,713 | 5,843 | ||||||
Borrowed funds | 17,308 | 1,623 | ||||||
Total interest expense | 73,021 | 7,466 | ||||||
Net interest income | 108,301 | 105,722 | ||||||
Provision for credit losses | 4,197 | 5,362 | ||||||
Net interest income after provision for credit losses | 104,104 | 100,360 | ||||||
Noninterest income: | ||||||||
Service charges on deposit accounts | 1,934 | 2,142 | ||||||
Mortgage banking | 442 | 526 | ||||||
Credit card income | 1,689 | 2,372 | ||||||
Securities losses | - | (3,335 | ) | |||||
Increase in cash surrender value life insurance | 1,621 | 1,608 | ||||||
Other operating income | 635 | 4,635 | ||||||
Total noninterest income | 6,321 | 7,948 | ||||||
Noninterest expense: | ||||||||
Salaries and employee benefits | 19,066 | 18,301 | ||||||
Equipment and occupancy | 3,435 | 2,933 | ||||||
Third party processing and other services | 7,284 | 5,605 | ||||||
Professional services | 1,654 | 992 | ||||||
FDIC and other regulatory assessments | 1,517 | 1,132 | ||||||
Other real estate owned | 6 | 3 | ||||||
Other operating expense | 6,702 | 8,252 | ||||||
Total noninterest expense | 39,664 | 37,218 | ||||||
Income before income taxes | 70,761 | 71,090 | ||||||
Provision for income taxes | 12,790 | 13,477 | ||||||
Net income | 57,971 | 57,613 | ||||||
Dividends on preferred stock | - | - | ||||||
Net income available to common stockholders | $ | 57,971 | $ | 57,613 | ||||
Basic earnings per common share | $ | 1.07 | $ | 1.06 | ||||
Diluted earnings per common share | $ | 1.06 | $ | 1.06 |
SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
See Notes to Consolidated Financial Statements. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Interest income: | ||||||||||||||||
Interest and fees on loans | $ | 63,857 | $ | 51,473 | $ | 179,325 | $ | 147,930 | ||||||||
Taxable securities | 2,288 | 1,232 | 6,649 | 3,739 | ||||||||||||
Nontaxable securities | 729 | 823 | 2,246 | 2,515 | ||||||||||||
Federal funds sold | 379 | 347 | 1,185 | 630 | ||||||||||||
Other interest and dividends | 388 | 816 | 1,291 | 1,888 | ||||||||||||
Total interest income | 67,641 | 54,691 | 190,696 | 156,702 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 7,574 | 5,358 | 19,877 | 14,352 | ||||||||||||
Borrowed funds | 1,671 | 1,415 | 4,804 | 4,362 | ||||||||||||
Total interest expense | 9,245 | 6,773 | 24,681 | 18,714 | ||||||||||||
Net interest income | 58,396 | 47,918 | 166,015 | 137,988 | ||||||||||||
Provision for loan losses | 4,803 | 3,464 | 14,170 | 9,323 | ||||||||||||
Net interest income after provision for loan losses | 53,593 | 44,454 | 151,845 | 128,665 | ||||||||||||
Noninterest income: | ||||||||||||||||
Service charges on deposit accounts | 1,467 | 1,367 | 4,203 | 3,980 | ||||||||||||
Mortgage banking | 978 | 1,112 | 2,941 | 2,681 | ||||||||||||
Credit card income | 1,149 | 1,114 | 3,517 | 2,159 | ||||||||||||
Securities losses | - | - | - | (3 | ) | |||||||||||
Increase in cash surrender value life insurance | 825 | 770 | 2,334 | 2,049 | ||||||||||||
Other operating income | 371 | 428 | 1,146 | 1,207 | ||||||||||||
Total noninterest income | 4,790 | 4,791 | 14,141 | 12,073 | ||||||||||||
Noninterest expenses: | ||||||||||||||||
Salaries and employee benefits | 12,428 | 10,958 | 36,172 | 32,758 | ||||||||||||
Equipment and occupancy expense | 1,947 | 2,100 | 6,452 | 6,108 | ||||||||||||
Professional services | 805 | 1,182 | 2,384 | 2,919 | ||||||||||||
FDIC and other regulatory assessments | 810 | 775 | 2,888 | 2,328 | ||||||||||||
OREO expense | 31 | 178 | 163 | 668 | ||||||||||||
Other operating expenses | 5,476 | 4,969 | 16,580 | 14,175 | ||||||||||||
Total noninterest expenses | 21,497 | 20,162 | 64,639 | 58,956 | ||||||||||||
Income before income taxes | 36,886 | 29,083 | 101,347 | 81,782 | ||||||||||||
Provision for income taxes | 11,627 | 8,174 | 29,405 | 22,041 | ||||||||||||
Net income | 25,259 | 20,909 | 71,942 | 59,741 | ||||||||||||
Preferred stock dividends | - | - | 31 | 23 | ||||||||||||
Net income available to common stockholders | $ | 25,259 | $ | 20,909 | $ | 71,911 | $ | 59,718 | ||||||||
Basic earnings per common share | $ | 0.48 | $ | 0.40 | $ | 1.36 | $ | 1.14 | ||||||||
Diluted earnings per common share | $ | 0.47 | $ | 0.39 | $ | 1.33 | $ | 1.12 |
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
SERVISFIRST BANCSHARES, INC. | ||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net income | $ | 57,971 | $ | 57,613 | ||||
Other comprehensive loss, net of tax: | ||||||||
Unrealized net holding losses arising during period from securities available for sale, net of tax of $(221) and $(7,004) for 2023 and 2022, respectively | (666 | ) | (26,997 | ) | ||||
Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax of $(45) and $(150) for 2023 and 2022, respectively | (129 | ) | (569 | ) | ||||
Reclassification adjustment for net losses on sales of securities, net of tax of $700 for 2022 | - | 2,635 | ||||||
Other comprehensive loss, net of tax | (796 | ) | (24,931 | ) | ||||
Comprehensive income | $ | 57,175 | $ | 32,682 |
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 |
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC. | ||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||
(In thousands, except share amounts) | ||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||
Common | Preferred | Common | Paid-in | Retained | Comprehensive | Noncontrolling | Stockholders' | |||||||||||||||||||||||||
Shares | Stock | Stock | Capital | Earnings | Income (Loss) | Interest | Equity | |||||||||||||||||||||||||
Balance, January 1, 2022 | 54,227,060 | $ | - | $ | 54 | $ | 226,397 | $ | 911,008 | $ | 14,056 | $ | 500 | $ | 1,152,015 | |||||||||||||||||
Common dividends declared, $0.23 per share | - | - | - | - | (12,485 | ) | - | - | (12,485 | ) | ||||||||||||||||||||||
Dividends on nonvested restricted stock recognized as compensation expense | - | - | - | - | 33 | - | - | 33 | ||||||||||||||||||||||||
Issue restricted shares pursuant to stock incentives, net of forfeitures | 26,974 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Issue shares of common stock upon exercise of stock options | 28,098 | - | - | 553 | - | - | - | 553 | ||||||||||||||||||||||||
8,402 shares of common stock withheld in net settlement upon exercise of stock options | - | - | - | (613 | ) | - | - | - | (613 | ) | ||||||||||||||||||||||
Stock-based compensation expense | - | - | - | 790 | - | - | - | 790 | ||||||||||||||||||||||||
Other comprehensive loss, net of tax | - | - | - | - | - | (24,931 | ) | - | (24,931 | ) | ||||||||||||||||||||||
Net income | - | - | - | - | 57,613 | - | - | 57,613 | ||||||||||||||||||||||||
Balance, March 31, 2022 | 54,282,132 | $ | - | $ | 54 | $ | 227,127 | $ | 956,169 | $ | (10,875 | ) | $ | 500 | $ | 1,172,975 | ||||||||||||||||
Balance, January 1, 2023 | 54,326,527 | - | 54 | 229,693 | 1,109,902 | (42,253 | ) | 500 | 1,297,896 | |||||||||||||||||||||||
Common dividends declared, $0.28 per share | - | - | - | - | (15,233 | ) | - | - | (15,233 | ) | ||||||||||||||||||||||
Dividends on nonvested restricted stock recognized as compensation expense | - | - | - | - | 41 | - | - | 41 | ||||||||||||||||||||||||
Issue restricted shares pursuant tostock incentives, net of forfeitures | 20,713 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Issue shares of common stock upon exercise of stock options | 50,785 | - | - | 846 | - | - | - | 846 | ||||||||||||||||||||||||
24,215 shares of common stock withheld in net settlement upon exercise of stock options | - | - | - | (1,716 | ) | - | - | - | (1,716 | ) | ||||||||||||||||||||||
Stock-based compensation expense | - | - | - | 808 | - | - | - | 808 | ||||||||||||||||||||||||
Other comprehensive loss, net of tax | - | - | - | - | - | (796 | ) | - | (796 | ) | ||||||||||||||||||||||
Net income | - | - | - | - | 57,971 | - | - | 57,971 | ||||||||||||||||||||||||
Balance, March 31, 2023 | 54,398,025 | $ | - | $ | 54 | $ | 229,631 | $ | 1,152,681 | $ | (43,049 | ) | $ | 500 | $ | 1,339,817 |
SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
See Notes to Consolidated Financial Statements. |
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 | ||||||||||||
Balance, December 31, 2016 | $ | 53 | $ | 215,932 | $ | 307,151 | $ | (624 | ) | $ | 377 | $ | 522,889 | |||||||||||
Common dividends paid, $0.10 per share | - | - | (5,286 | ) | - | - | (5,286 | ) | ||||||||||||||||
Common dividends declared, $0.05 per share | - | - | (2,649 | ) | - | - | (2,649 | ) | ||||||||||||||||
Preferred dividends paid | - | - | (31 | ) | - | - | (31 | ) | ||||||||||||||||
Issue 328,214 shares of common stock upon exercise of stock options | - | 635 | - | - | - | 635 | ||||||||||||||||||
Issue 125 shares of REIT preferred stock | - | - | - | - | 125 | 125 | ||||||||||||||||||
Stock based compensation expense | - | 916 | - | - | - | 916 | ||||||||||||||||||
Other comprehensive income, net of tax | - | - | - | 1,672 | - | 1,672 | ||||||||||||||||||
Net income | - | - | 71,942 | - | - | 71,942 | ||||||||||||||||||
Balance, September 30, 2017 | $ | 53 | $ | 217,483 | $ | 371,127 | $ | 1,048 | $ | 502 | $ | 590,213 |
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(In thousands) (Unaudited) | ||||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 57,971 | $ | 57,613 | ||||
Adjustments to reconcile net income to net cash provided by | ||||||||
Deferred tax | 49 | (5,257 | ) | |||||
Provision for credit losses | 4,197 | 5,362 | ||||||
Depreciation | 1,071 | 1,058 | ||||||
Accretion on acquired loans | 49 | 32 | ||||||
Amortization of core deposit intangible | - | 23 | ||||||
Amortization of investments in tax credit partnerships | 3,345 | 2,927 | ||||||
Net amortization of debt securities available for sale | 128 | 1,376 | ||||||
(Increase) decrease in accrued interest and dividends receivable | (2,078 | ) | 443 | |||||
Stock-based compensation expense | 808 | 790 | ||||||
Increase in accrued interest and dividends payable | 1,926 | 566 | ||||||
Proceeds from sale of mortgage loans held for sale | 16,320 | 8,955 | ||||||
Originations of mortgage loans held for sale | (15,922 | ) | (7,718 | ) | ||||
Loss on sale of securities available for sale | - | 3,335 | ||||||
Gain on sale of mortgage loans held for sale | (442 | ) | (526 | ) | ||||
Net gain on sale of other real estate owned and repossessed assets | - | (1 | ) | |||||
Write down of other real estate owned and repossessed assets | - | 6 | ||||||
Increase in cash surrender value of life insurance contracts | (1,621 | ) | (1,608 | ) | ||||
Net change in other assets, liabilities, and other operating activities | (10,652 | ) | 1,889 | |||||
Net cash provided by operating activities | 55,149 | 69,265 | ||||||
INVESTMENT ACTIVITIES | ||||||||
Purchases of debt securities available for sale | - | (52,500 | ) | |||||
Proceeds from maturities, calls and paydowns of debt securities available for sale | 18,853 | 29,627 | ||||||
Proceeds from sale of debt securities available for sale | - | 45,394 | ||||||
Purchases of debt securities held to maturity | - | (392,622 | ) | |||||
Proceeds from maturities, calls and paydowns of debt securities held to maturity | 11,960 | 21,554 | ||||||
Purchases of restricted equity securities | (12,750 | ) | (423 | ) | ||||
Proceeds from sale of restricted equity securities | 13,177 | - | ||||||
Investment in tax credit partnerships and SBIC | (538 | ) | (65 | ) | ||||
Return of capital from tax credit partnerships and SBIC | - | 249 | ||||||
Decrease (increase) in loans | 56,588 | (369,412 | ) | |||||
Purchases of premises and equipment | (1,314 | ) | (666 | ) | ||||
Proceeds from sale of other real estate owned and repossessed assets | - | 44 | ||||||
Net cash provided by (used in) investing activities | 85,976 | (718,820 | ) | |||||
FINANCING ACTIVITIES | ||||||||
Net (decrease) increase in non-interest-bearing deposits | (422,611 | ) | 89,728 | |||||
Net increase (decrease) in interest-bearing deposits | 491,123 | (133,809 | ) | |||||
Net decrease in federal funds purchased | (138,638 | ) | (72,539 | ) | ||||
FHLB advances | 300,000 | - | ||||||
Repayment of FHLB advances | (300,000 | ) | - | |||||
Proceeds from exercise of stock options | 846 | 553 | ||||||
Taxes paid in net settlement of tax obligation upon exercise of stock options | (1,716 | ) | (613 | ) | ||||
Dividends paid on common stock | (15,211 | ) | (12,472 | ) | ||||
Net cash used in financing activities | (86,207 | ) | (129,152 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 54,918 | (778,707 | ) | |||||
Cash and cash equivalents at beginning of period | 816,053 | 4,222,096 | ||||||
Cash and cash equivalents at end of period | $ | 870,971 | $ | 3,443,389 | ||||
SUPPLEMENTAL DISCLOSURE | ||||||||
Cash paid for: | ||||||||
Interest | $ | 71,095 | $ | 6,900 | ||||
Income taxes | 1,920 | 591 | ||||||
Income tax refund | - | (142 | ) | |||||
NONCASH TRANSACTIONS | ||||||||
Other real estate acquired in settlement of loans | $ | - | $ | 830 | ||||
Dividends on nonvested restricted stock reclassified as compensation expense | 41 | 33 | ||||||
Dividends declared | 15,233 | 12,485 |
SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
See Notes to Consolidated Financial Statements. |
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 71,942 | $ | 59,741 | ||||
Adjustments to reconcile net income to net cash provided by | ||||||||
Deferred tax | (3,099 | ) | 350 | |||||
Provision for loan losses | 14,170 | 9,323 | ||||||
Depreciation | 2,281 | 2,211 | ||||||
Accretion on acquired loans | (374 | ) | (819 | ) | ||||
Amortization of core deposit intangible | 209 | 257 | ||||||
Net amortization of debt securities available for sale | 2,874 | 2,034 | ||||||
Increase in accrued interest and dividends receivable | (4,533 | ) | (950 | ) | ||||
Stock-based compensation expense | 916 | 931 | ||||||
(Decrease) increase in accrued interest payable | (48 | ) | 1,257 | |||||
Proceeds from sale of mortgage loans held for sale | 105,940 | 97,868 | ||||||
Originations of mortgage loans held for sale | (103,295 | ) | (92,964 | ) | ||||
Loss on sale of debt securities available for sale | - | 3 | ||||||
Gain on sale of mortgage loans held for sale | (2,941 | ) | (2,681 | ) | ||||
Net (gain) loss on sale of other real estate owned and repossessed assets | (33 | ) | 27 | |||||
Write down of other real estate owned and repossessed assets | 5 | 557 | ||||||
Losses of tax credit partnerships | 42 | 178 | ||||||
Increase in cash surrender value of life insurance contracts | (2,334 | ) | (2,049 | ) | ||||
Net change in other assets, liabilities, and other operating activities | (551 | ) | (4,633 | ) | ||||
Net cash provided by operating activities | 81,171 | 70,641 | ||||||
INVESTMENT ACTIVITIES | ||||||||
Purchase of debt securities available for sale | (77,567 | ) | (84,106 | ) | ||||
Proceeds from sale of debt securities available for sale | - | 6,085 | ||||||
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 | ) | ||||
Proceeds from maturities, calls and paydowns of debt securities held to maturity | 4,947 | 2,200 | ||||||
Purchase of equity securities | (10 | ) | (708 | ) | ||||
Increase in loans | (724,626 | ) | (443,771 | ) | ||||
Purchase of premises and equipment | (17,071 | ) | (7,809 | ) | ||||
Purchase of bank-owned life insurance contracts | (10,000 | ) | (20,000 | ) | ||||
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 | ||||||
Investment in tax credit partnerships | - | (2,491 | ) | |||||
Net cash used in investing activities | (786,846 | ) | (478,157 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net increase in non-interest-bearing deposits | 124,360 | 216,259 | ||||||
Net increase in interest-bearing deposits | 252,230 | 640,981 | ||||||
Net decrease in federal funds purchased | (101,064 | ) | (7,970 | ) | ||||
Repayment of Federal Home Loan Bank advances | (300 | ) | (300 | ) | ||||
Proceeds from sale of preferred stock, net | 125 | - | ||||||
Proceeds from exercise of stock options and warrants | 635 | 2,785 | ||||||
Dividends paid on common stock | (5,286 | ) | (4,194 | ) | ||||
Dividends paid on preferred stock | (31 | ) | (23 | ) | ||||
Net cash provided by financing activities | 270,669 | 847,538 | ||||||
Net (decrease) increase in cash and cash equivalents | (435,006 | ) | 440,022 | |||||
Cash and cash equivalents at beginning of period | 783,997 | 352,235 | ||||||
Cash and cash equivalents at end of period | $ | 348,991 | $ | 792,257 | ||||
SUPPLEMENTAL DISCLOSURE | ||||||||
Cash paid for: | ||||||||
Interest | $ | 24,729 | $ | 17,457 | ||||
Income taxes | 30,651 | 22,666 | ||||||
Income tax refund | (492 | ) | (929 | ) | ||||
NONCASH TRANSACTIONS | ||||||||
Other real estate acquired in settlement of loans | $ | 586 | $ | 2,033 | ||||
Internally financed sales of other real estate owned | 185 | 2,161 | ||||||
Dividends declared | 2,649 | 2,106 |
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017March 31, 2023
(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-XS-X and the instructions for Form 10-Q,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 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-K10-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.2022.
All reported amounts are in thousands except share and per share data.
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 options. The difference in earnings per share under the two-class method was not significant for the three month period ended March 31, 2023 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.2022, respectively.
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
(In Thousands, Except Shares and Per Share Data) | ||||||||
Earnings per common share | ||||||||
Weighted average common shares outstanding | 54,360,253 | 54,263,143 | ||||||
Net income available to common stockholders | $ | 57,971 | $ | 57,613 | ||||
Basic earnings per common share | $ | 1.07 | $ | 1.06 | ||||
Weighted average common shares outstanding | 54,360,253 | 54,263,143 | ||||||
Dilutive effects of assumed conversions and exercise of stock options and warrants | 174,229 | 258,899 | ||||||
Weighted average common and dilutive potential common shares outstanding | 54,534,482 | 54,522,042 | ||||||
Net income available to common stockholders | $ | 57,971 | $ | 57,613 | ||||
Diluted earnings per common share | $ | 1.06 | $ | 1.06 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(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 | ||||||||||||
Net income available to common stockholders | $ | 25,259 | $ | 20,909 | $ | 71,911 | $ | 59,718 | ||||||||
Basic earnings per common share | $ | 0.48 | $ | 0.40 | $ | 1.36 | $ | 1.14 | ||||||||
Weighted average common shares outstanding | 52,950,644 | 52,554,918 | 52,854,332 | 52,557,910 | ||||||||||||
Dilutive effects of assumed conversions and exercise of stock options and warrants | 1,149,028 | 1,324,410 | 1,256,580 | 932,008 | ||||||||||||
Weighted average common and dilutive potential common shares outstanding | 54,099,672 | 53,879,328 | 54,110,912 | 53,489,918 | ||||||||||||
Net income available to common stockholders | $ | 25,259 | $ | 20,909 | $ | 71,911 | $ | 59,718 | ||||||||
Diluted earnings per common share | $ | 0.47 | $ | 0.39 | $ | 1.33 | $ | 1.12 |
NOTE 4 - SECURITIES
The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2017 March 31, 2023 and December 31, 2016 2022 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 | ||||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||||||||||||||||||
Cost | Gain | Loss | Value | |||||||||||||||||||||||||||||
March 31, 2023 | (In Thousands) | |||||||||||||||||||||||||||||||
Debt Securities Available for Sale | ||||||||||||||||||||||||||||||||
U.S. Treasury Securities | $ | 3,001 | $ | - | $ | (11 | ) | $ | 2,990 | |||||||||||||||||||||||
Government Agency Securities | 4 | - | - | 4 | ||||||||||||||||||||||||||||
Mortgage-backed securities | 31,165 | 393 | (179 | ) | 31,379 | 272,070 | 7 | (29,046 | ) | 243,031 | ||||||||||||||||||||||
State and municipal securities | 5,726 | 300 | - | 6,026 | 14,646 | 2 | (1,337 | ) | 13,311 | |||||||||||||||||||||||
Corporate debt | 50,508 | 1,416 | - | 51,924 | 398,676 | 3 | (33,067 | ) | 365,612 | |||||||||||||||||||||||
Total | $ | 87,399 | $ | 2,109 | $ | (179 | ) | $ | 89,329 | $ | 688,397 | $ | 12 | $ | (63,461 | ) | $ | 624,948 | ||||||||||||||
Debt Securities Held to Maturity | ||||||||||||||||||||||||||||||||
U.S. Treasury Securities | $ | 507,601 | $ | - | $ | (30,021 | ) | $ | 477,580 | |||||||||||||||||||||||
Mortgage-backed securities | 506,342 | 10 | (53,190 | ) | 453,162 | |||||||||||||||||||||||||||
State and municipal securities | 8,046 | - | (827 | ) | 7,219 | |||||||||||||||||||||||||||
Total | $ | 1,021,989 | $ | 10 | $ | (84,038 | ) | $ | 937,961 | |||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||
Securities Available for Sale | ||||||||||||||||||||||||||||||||
U.S. Treasury and government sponsored agencies | $ | 45,998 | $ | 382 | $ | (126 | ) | $ | 46,254 | |||||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||||||||
Debt Securities Available for Sale | ||||||||||||||||||||||||||||||||
U.S. Treasury Securities | $ | 3,002 | $ | - | $ | (33 | ) | $ | 2,969 | |||||||||||||||||||||||
Government Agency Securities | 9 | - | - | 9 | ||||||||||||||||||||||||||||
Mortgage-backed securities | 228,843 | 1,515 | (3,168 | ) | 227,190 | 282,480 | 5 | (32,782 | ) | 249,703 | ||||||||||||||||||||||
State and municipal securities | 139,504 | 1,120 | (694 | ) | 139,930 | 15,205 | 1 | (1,597 | ) | 13,609 | ||||||||||||||||||||||
Corporate debt | 8,985 | 16 | - | 9,001 | 406,680 | - | (28,155 | ) | 378,525 | |||||||||||||||||||||||
Total | 423,330 | 3,033 | (3,988 | ) | 422,375 | $ | 707,376 | $ | 6 | $ | (62,567 | ) | $ | 644,815 | ||||||||||||||||||
Securities Held to Maturity | ||||||||||||||||||||||||||||||||
Debt Securities Held to Maturity | ||||||||||||||||||||||||||||||||
U.S. Treasury Securities | $ | 507,151 | $ | - | $ | (36,197 | ) | $ | 470,954 | |||||||||||||||||||||||
Mortgage-backed securities | 19,164 | 321 | (245 | ) | 19,240 | 518,929 | 7 | (60,960 | ) | 457,976 | ||||||||||||||||||||||
State and municipal securities | 5,888 | 315 | (12 | ) | 6,191 | 8,041 | - | (1,018 | ) | 7,023 | ||||||||||||||||||||||
Corporate debt | 37,512 | 374 | (15 | ) | 37,871 | |||||||||||||||||||||||||||
Total | $ | 62,564 | $ | 1,010 | $ | (272 | ) | $ | 63,302 | $ | 1,034,121 | $ | 7 | $ | (98,175 | ) | $ | 935,953 |
The amortized cost and fair value of debt securities as of September 30, 2017 March 31, 2023 and December 31, 2022 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, 2017 | December 31, 2016 | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Market Value | Amortized Cost | Market Value | |||||||||||||||||||||||||
(In thousands) | (In Thousands) | |||||||||||||||||||||||||||||||
Debt securities available for sale | ||||||||||||||||||||||||||||||||
Due within one year | $ | 25,961 | $ | 26,035 | $ | 28,270 | $ | 28,400 | $ | 24,422 | $ | 24,042 | $ | 24,712 | $ | 24,432 | ||||||||||||||||
Due from one to five years | 151,842 | 153,099 | 152,347 | 153,003 | 59,243 | 57,178 | 58,554 | 57,092 | ||||||||||||||||||||||||
Due from five to ten years | 12,054 | 12,058 | 13,870 | 13,782 | 329,662 | 298,353 | 338,630 | 311,100 | ||||||||||||||||||||||||
Due after ten years | 390 | 390 | - | - | 3,000 | 2,344 | 3,000 | 2,488 | ||||||||||||||||||||||||
Mortgage-backed securities | 243,465 | 243,743 | 228,843 | 227,190 | 272,070 | 243,031 | 282,480 | 249,703 | ||||||||||||||||||||||||
$ | 433,712 | $ | 435,325 | $ | 423,330 | $ | 422,375 | $ | 688,397 | $ | 624,948 | $ | 707,376 | $ | 644,815 | |||||||||||||||||
Debt securities held to maturity | ||||||||||||||||||||||||||||||||
Due within one year | $ | 250 | $ | 250 | $ | 250 | $ | 250 | ||||||||||||||||||||||||
Due from one to five years | $ | 3,250 | $ | 3,280 | $ | 250 | $ | 250 | 386,897 | 370,166 | 386,465 | 366,095 | ||||||||||||||||||||
Due from five to ten years | 48,997 | 50,450 | 34,251 | 34,617 | 128,500 | 114,383 | 128,477 | 111,632 | ||||||||||||||||||||||||
Due after ten years | 3,987 | 4,220 | 8,899 | 9,195 | - | - | - | - | ||||||||||||||||||||||||
Mortgage-backed securities | 31,165 | 31,379 | 19,164 | 19,240 | 506,342 | 453,162 | 518,929 | 457,976 | ||||||||||||||||||||||||
$ | 87,399 | $ | 89,329 | $ | 62,564 | $ | 63,302 | $ | 1,021,989 | $ | 937,961 | $ | 1,034,121 | $ | 935,953 |
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.
Restricted equity securities are comprised entirely of restricted investment in Federal Home Loan Bank stock for membership requirements.
The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $834.9 million and $789.3 million as of March 31, 2023 and December 31, 2022, respectively.
The following table identifies, as of September 30, 2017 March 31, 2023 and December 31, 2016, 2022, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months.
Less Than Twelve Months | Twelve Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Losses | Fair Value | Losses | Fair Value | Losses | Fair Value | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
March 31, 2023 | ||||||||||||||||||||||||
Debt Securities available for sale | ||||||||||||||||||||||||
U.S. Treasury Securities | $ | - | $ | - | $ | (11 | ) | $ | 2,990 | $ | (11 | ) | $ | 2,990 | ||||||||||
Government Agency Securities | - | 4 | - | - | - | 4 | ||||||||||||||||||
Mortgage-backed securities | (364 | ) | 8,468 | (28,682 | ) | 233,956 | (29,046 | ) | 242,424 | |||||||||||||||
State and municipal securities | (27 | ) | 3,328 | (1,310 | ) | 9,202 | (1,337 | ) | 12,530 | |||||||||||||||
Corporate debt | (8,809 | ) | 163,363 | (24,258 | ) | 189,931 | (33,067 | ) | 353,294 | |||||||||||||||
Total | $ | (9,200 | ) | $ | 175,163 | $ | (54,261 | ) | $ | 436,079 | $ | (63,461 | ) | $ | 611,242 | |||||||||
Debt Securities held to maturity | ||||||||||||||||||||||||
U.S. Treasury Securities | $ | (2,678 | ) | $ | 130,640 | $ | (27,343 | ) | $ | 346,939 | $ | (30,021 | ) | $ | 477,579 | |||||||||
Mortgage-backed securities | (1,645 | ) | 31,827 | (51,545 | ) | 416,994 | (53,190 | ) | 448,821 | |||||||||||||||
State and municipal securities | - | - | (827 | ) | 6,969 | (827 | ) | 6,969 | ||||||||||||||||
Total | $ | (4,323 | ) | $ | 162,467 | $ | (79,715 | ) | $ | 770,902 | $ | (84,038 | ) | $ | 933,369 | |||||||||
December 31, 2022 | ||||||||||||||||||||||||
Debt Securities available for sale | ||||||||||||||||||||||||
U.S. Treasury Securities | $ | (33 | ) | $ | 2,969 | $ | - | $ | - | $ | (33 | ) | $ | 2,969 | ||||||||||
Government Agency Securities | - | 9 | - | - | - | 9 | ||||||||||||||||||
Mortgage-backed securities | $ | (3,473 | ) | $ | 60,234 | $ | (29,309 | ) | $ | 189,109 | $ | (32,782 | ) | $ | 249,343 | |||||||||
State and municipal securities | (186 | ) | 5,283 | (1,411 | ) | 7,880 | (1,597 | ) | 13,163 | |||||||||||||||
Corporate debt | (18,566 | ) | 304,254 | (9,589 | ) | 63,411 | (28,155 | ) | 367,666 | |||||||||||||||
Total | $ | (22,258 | ) | $ | 372,749 | $ | (40,309 | ) | $ | 260,400 | $ | (62,567 | ) | $ | 633,149 | |||||||||
U.S. Treasury Securities | $ | (12,662 | ) | $ | 295,383 | $ | (23,537 | ) | $ | 175,570 | $ | (36,197 | ) | $ | 470,953 | |||||||||
Mortgage-backed securities | (31,367 | ) | 278,746 | (29,592 | ) | 174,842 | (60,960 | ) | 453,588 | |||||||||||||||
State and municipal securities | (544 | ) | 4,443 | (474 | ) | 2,330 | (1,018 | ) | 6,773 | |||||||||||||||
Total | $ | (44,573 | ) | $ | 578,572 | $ | (53,603 | ) | $ | 352,742 | $ | (98,175 | ) | $ | 931,314 |
At September 30, 2017, 52 of the Company’s 807March 31, 2023 and 2022, no allowance for credit losses has been recognized on available for sale debt securities had been in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired. This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available for 12 or more months.sale debt securities. The issuers of these debt securities continue to make timely principal and interest payments under the contractual terms of the securities. The Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be maturity; accordingly, the Company does not consider these securitiesat maturity. The unrealized losses are due to be other-than-temporarily impaired at September 30, 2017. Further, the Company believes any deterioration in value of its current investment securities is attributable to changesincreases in market interest rates over the yields available at the time the debt securities were purchased. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and notconsiders historical credit qualityloss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the issuer.securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Historical loss rates associated with securities having similar grades as those in our portfolio have generally not been significant. Furthermore, as of March 31, 2023 and 2022, there were no past due principal or interest payments associated with these securities. Based upon (i) the issuer’s strong bond ratings and (ii) a zero historical loss rate, no allowance for credit losses has been recorded for held-to-maturity State and Municipal Securities as such amount is not material at March 31, 2023 and 2022. All debt securities in an unrealized loss position as of March 31, 2023 continue to perform as scheduled and the Company does not believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.
Less Than Twelve Months | Twelve Months or More | Total | ||||||||||||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
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 | |||||||||
December 31, 2016 | ||||||||||||||||||||||||
U.S. Treasury and government sponsored agencies | $ | (126 | ) | $ | 10,865 | $ | - | $ | - | $ | (126 | ) | $ | 10,865 | ||||||||||
Mortgage-backed securities | (3,413 | ) | 174,225 | - | - | (3,413 | ) | 174,225 | ||||||||||||||||
State and municipal securities | (698 | ) | 64,502 | (8 | ) | 1,021 | (706 | ) | 65,523 | |||||||||||||||
Corporate debt | (15 | ) | 3,034 | - | - | (15 | ) | 3,034 | ||||||||||||||||
Total | $ | (4,252 | ) | $ | 252,626 | $ | (8 | ) | $ | 1,021 | $ | (4,260 | ) | $ | 253,647 |
The following table summarizes information about sales of debt securities.
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
(In Thousands) | ||||||||
Sale proceeds | $ | - | $ | 45,394 | ||||
Gross realized gains | $ | - | $ | - | ||||
Gross realized losses | - | (3,335 | ) | |||||
Net realized losses | $ | - | $ | (3,335 | ) |
NOTE 5– LOANS
NOTE 5 The loan portfolio is classified based on the underlying collateral utilized to secure each loan for financial reporting purposes. This classification is consistent with the Quarterly Report of Condition and Income filed by ServisFirst Bank with the Federal Deposit Insurance Corporation (FDIC).
Commercial, financial and agricultural - Includes loans to business enterprises issued for commercial, industrial, agricultural production and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.
Real estate – construction – LOANSIncludes loans secured by real estate to finance land development or the construction of industrial, commercial or residential buildings. Repayment is dependent upon the completion and eventual sale, refinance or operation of the related real estate project.
Owner-occupied commercial real estate mortgage – Includes loans secured by nonfarm nonresidential properties for which the primary source of repayment is the cash flow from the ongoing operations conducted by the party that owns the property.
1-4 family real estate mortgage – Includes loans secured by residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.
Other real estate mortgage – Includes loans secured by nonowner-occupied properties, including office buildings, industrial buildings, warehouses, retail buildings, multifamily residential properties and farmland. Repayment is primarily dependent on income generated from the underlying collateral.
Consumer – Includes loans to individuals not secured by real estate. Repayment is dependent upon the personal cash flow of the borrower.
The following table details the Company’s loans at September 30, 2017 March 31, 2023 and December 31, 2016:2022:
March 31, | December 31, | |||||||||||||||
September 30, 2017 | December 31, 2016 | 2023 | 2022 | |||||||||||||
(Dollars In Thousands) | (Dollars In Thousands) | |||||||||||||||
Commercial, financial and agricultural | $ | 2,223,910 | $ | 1,982,267 | $ | 3,081,926 | $ | 3,145,317 | ||||||||
Real estate - construction | 467,838 | 335,085 | 1,469,670 | 1,532,388 | ||||||||||||
Real estate - mortgage: | ||||||||||||||||
Owner-occupied commercial | 1,323,383 | 1,171,719 | 2,243,436 | 2,199,280 | ||||||||||||
1-4 family mortgage | 593,180 | 536,805 | 1,138,645 | 1,146,831 | ||||||||||||
Other mortgage | 962,690 | 830,683 | 3,624,071 | 3,597,750 | ||||||||||||
Subtotal: Real estate - mortgage | 2,879,253 | 2,539,207 | 7,006,152 | 6,943,861 | ||||||||||||
Consumer | 57,764 | 55,211 | 72,054 | 66,402 | ||||||||||||
Total Loans | 5,628,765 | 4,911,770 | 11,629,802 | 11,687,968 | ||||||||||||
Less: Allowance for loan losses | (58,459 | ) | (51,893 | ) | ||||||||||||
Less: Allowance for credit losses | (148,965 | ) | (146,297 | ) | ||||||||||||
Net Loans | $ | 5,570,306 | $ | 4,859,877 | $ | 11,480,837 | $ | 11,541,671 | ||||||||
Commercial, financial and agricultural | 39.51 | % | 40.36 | % | 26.50 | % | 26.91 | % | ||||||||
Real estate - construction | 8.31 | % | 6.82 | % | 12.64 | % | 13.11 | % | ||||||||
Real estate - mortgage: | ||||||||||||||||
Owner-occupied commercial | 23.51 | % | 23.86 | % | 19.29 | % | 18.82 | % | ||||||||
1-4 family mortgage | 10.54 | % | 10.93 | % | 9.79 | % | 9.81 | % | ||||||||
Other mortgage | 17.10 | % | 16.91 | % | 31.16 | % | 30.78 | % | ||||||||
Subtotal: Real estate - mortgage | 51.15 | % | 51.70 | % | 60.24 | % | 59.41 | % | ||||||||
Consumer | 1.03 | % | 1.12 | % | 0.62 | % | 0.57 | % | ||||||||
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 loancredit loss portfolio segments and classes. These categories are utilized to develop the associated allowance for loancredit 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 |
Doubtful – loans that have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. |
The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of March 31, 2023:
2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving lines of credit converted to term loans | Total | ||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||||||
Commercial, financial and agricultural | ||||||||||||||||||||||||||||||||||||
(1-55) Pass | $ | 160,551 | $ | 540,101 | $ | 471,521 | $ | 208,825 | $ | 136,657 | $ | 192,509 | $ | 1,252,905 | $ | 699 | $ | 2,963,768 | ||||||||||||||||||
(6) Special Mention | - | 8,870 | 5,850 | 1,953 | 1,877 | 4,151 | 40,868 | 18 | 63,588 | |||||||||||||||||||||||||||
(7) Substandard - accruing | - | 291 | 1,244 | 376 | 9,501 | 28,933 | 7,007 | - | 47,352 | |||||||||||||||||||||||||||
(7) Substandard -Non-accrual | - | 697 | 146 | - | - | 3,345 | 3,030 | - | 7,219 | |||||||||||||||||||||||||||
Total Commercial, financial and agricultural | $ | 160,551 | $ | 549,959 | $ | 478,760 | $ | 211,154 | $ | 148,035 | $ | 228,938 | $ | 1,303,811 | $ | 717 | $ | 3,081,926 | ||||||||||||||||||
Current-period gross charge-offs | - | 616 | - | - | - | 428 | 212 | - | 1,257 | |||||||||||||||||||||||||||
Real estate - construction | �� | |||||||||||||||||||||||||||||||||||
(1-55) Pass | $ | 37,212 | $ | 661,294 | $ | 556,953 | $ | 105,265 | $ | 4,761 | $ | 21,591 | $ | 77,837 | $ | - | $ | 1,464,913 | ||||||||||||||||||
(6) Special Mention | - | 2,500 | - | - | - | - | - | 201 | 2,701 | |||||||||||||||||||||||||||
(7) Substandard - accruing | - | - | - | - | - | 2,057 | - | - | 2,057 | |||||||||||||||||||||||||||
Total Real estate - construction | $ | 37,212 | $ | 663,794 | $ | 556,953 | $ | 105,265 | $ | 4,761 | $ | 23,647 | $ | 77,837 | $ | 201 | $ | 1,469,670 | ||||||||||||||||||
Owner-occupied commercial | ||||||||||||||||||||||||||||||||||||
(1-55) Pass | $ | 28,219 | $ | 441,407 | $ | 536,773 | $ | 353,489 | $ | 187,145 | $ | 600,679 | $ | 63,267 | $ | 874 | $ | 2,211,853 | ||||||||||||||||||
(6) Special Mention | 1,496 | 2,349 | 856 | - | 7,909 | 6,391 | 1,601 | - | 20,601 | |||||||||||||||||||||||||||
(7) Substandard - accruing | - | - | - | - | 2,358 | 5,237 | - | - | 7,595 | |||||||||||||||||||||||||||
(7) Substandard -Non-accrual | - | - | - | - | 48 | 3,340 | - | - | 3,388 | |||||||||||||||||||||||||||
Total Owner-occupied commercial | $ | 29,715 | $ | 443,756 | $ | 537,629 | $ | 353,489 | $ | 197,461 | $ | 615,647 | $ | 64,867 | $ | 874 | $ | 2,243,436 | ||||||||||||||||||
Current-period gross charge-offs | - | - | - | - | 26 | - | - | - | 26 | |||||||||||||||||||||||||||
1-4 family mortgage | ||||||||||||||||||||||||||||||||||||
(1-55) Pass | $ | 40,954 | $ | 383,389 | $ | 253,519 | $ | 91,609 | $ | 51,728 | $ | 80,635 | $ | 222,966 | $ | - | $ | 1,124,800 | ||||||||||||||||||
(6) Special Mention | - | 414 | 365 | 808 | 261 | 1,576 | 7,469 | - | 10,893 | |||||||||||||||||||||||||||
(7) Substandard - accruing | - | - | - | - | 139 | 516 | 253 | - | 908 | |||||||||||||||||||||||||||
(7) Substandard -Non-accrual | - | - | 423 | 405 | 540 | 622 | 54 | - | 2,044 | |||||||||||||||||||||||||||
Total 1-4 family mortgage | $ | 40,954 | $ | 383,803 | $ | 254,307 | $ | 92,822 | $ | 52,668 | $ | 83,349 | $ | 230,742 | $ | - | $ | 1,138,645 | ||||||||||||||||||
Other mortgage | ||||||||||||||||||||||||||||||||||||
(1-55) Pass | $ | 31,821 | $ | 1,075,262 | $ | 1,011,383 | $ | 515,230 | $ | 316,995 | $ | 581,406 | $ | 75,148 | $ | 246 | $ | 3,607,491 | ||||||||||||||||||
(6) Special Mention | - | - | - | - | - | 4,456 | - | - | 4,456 | |||||||||||||||||||||||||||
(7) Substandard - accruing | - | 233 | - | - | - | 11,385 | - | - | 11,618 | |||||||||||||||||||||||||||
(7) Substandard -Non-accrual | - | - | - | - | 130 | 376 | - | - | 506 | |||||||||||||||||||||||||||
Total Other mortgage | $ | 31,821 | $ | 1,075,495 | $ | 1,011,383 | $ | 515,230 | $ | 317,125 | $ | 597,623 | $ | 75,148 | $ | 246 | $ | 3,624,071 | ||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||
(1-55) Pass | $ | 23,355 | $ | 6,607 | $ | 5,542 | $ | 2,697 | $ | 1,644 | $ | 3,190 | $ | 29,007 | $ | - | $ | 72,042 | ||||||||||||||||||
(6) Special Mention | - | - | - | - | - | 12 | - | - | 12 | |||||||||||||||||||||||||||
(7) Substandard - accruing | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total Consumer | $ | 23,355 | $ | 6,607 | $ | 5,542 | $ | 2,697 | $ | 1,644 | $ | 3,202 | $ | 29,007 | $ | - | $ | 72,054 | ||||||||||||||||||
Current-period gross charge-offs | - | - | - | - | - | - | 391 | - | 391 | |||||||||||||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||||||
(1-55) Pass | $ | 322,112 | $ | 3,108,059 | $ | 2,835,691 | $ | 1,277,114 | $ | 698,931 | $ | 1,480,009 | $ | 1,721,129 | $ | 1,819 | $ | 11,444,866 | ||||||||||||||||||
(6) Special Mention | 1,496 | 14,133 | 7,070 | 2,761 | 10,047 | 16,586 | 49,938 | 219 | 102,250 | |||||||||||||||||||||||||||
(7) Substandard - accruing | - | 524 | 1,244 | 376 | 11,998 | 48,128 | 7,260 | - | 69,530 | |||||||||||||||||||||||||||
(7) Substandard -Non-accrual | - | 697 | 570 | 405 | 718 | 7,683 | 3,084 | - | 13,157 | |||||||||||||||||||||||||||
Total Loans | $ | 323,608 | $ | 3,123,414 | $ | 2,844,575 | $ | 1,280,656 | $ | 721,694 | $ | 1,552,406 | $ | 1,781,412 | $ | 2,038 | $ | 11,629,802 | ||||||||||||||||||
Current-period gross charge-offs | $ | - | $ | 616 | $ | - | $ | - | $ | 26 | $ | 428 | $ | 603 | $ | - | $ | 1,673 |
Loans by credit quality indicator, loan type and based on year of origination as of September 30, 2017 and December 31, 2016 2022 were as follows:
September 30, 2017 | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||||||||||||||||||||||||||||||||||
Revolving | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2020 | 2019 | 2018 | Prior | Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,144,426 | $ | 49,079 | $ | 30,405 | $ | - | $ | 2,223,910 | Commercial, financial and agricultural | |||||||||||||||||||||||||||||||||||||||||
Pass | $ | 691,817 | $ | 502,648 | $ | 223,096 | $ | 144,587 | $ | 78,477 | $ | 134,893 | $ | 1,267,333 | $ | 3,042,851 | ||||||||||||||||||||||||||||||||||||
Special Mention | 6,906 | 3,737 | 1,101 | 1,748 | 570 | 898 | 29,516 | 44,476 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | 200 | - | 379 | 9,501 | 16,329 | 16,595 | 14,986 | 57,990 | ||||||||||||||||||||||||||||||||||||||||||||
Total Commercial, financial and agricultural | $ | 698,923 | $ | 506,385 | $ | 224,576 | $ | 155,836 | $ | 95,376 | $ | 152,386 | $ | 1,311,835 | $ | 3,145,317 | ||||||||||||||||||||||||||||||||||||
Real estate - construction | 457,188 | 7,367 | 3,283 | - | 467,838 | |||||||||||||||||||||||||||||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 618,578 | $ | 638,126 | $ | 156,834 | $ | 15,197 | $ | 12,063 | $ | 14,847 | $ | 72,172 | $ | 1,527,817 | ||||||||||||||||||||||||||||||||||||
Special Mention | 2,500 | - | - | - | - | 873 | - | 3,373 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | - | - | - | - | 1,198 | - | - | 1,198 | ||||||||||||||||||||||||||||||||||||||||||||
Total Real estate - construction | $ | 621,078 | $ | 638,126 | $ | 156,834 | $ | 15,197 | $ | 13,261 | $ | 15,720 | $ | 72,172 | $ | 1,532,388 | ||||||||||||||||||||||||||||||||||||
Owner-occupied commercial | 1,305,408 | 11,814 | 6,161 | - | 1,323,383 | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 424,321 | $ | 496,298 | $ | 352,375 | $ | 199,987 | $ | 157,204 | $ | 477,926 | $ | 64,152 | $ | 2,172,263 | ||||||||||||||||||||||||||||||||||||
Special Mention | 2,362 | - | - | 2,723 | 4,682 | 6,917 | 1,687 | 18,371 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | - | - | - | 73 | - | 8,573 | - | 8,646 | ||||||||||||||||||||||||||||||||||||||||||||
Total Owner-occupied commercial | $ | 426,683 | $ | 496,298 | $ | 352,375 | $ | 202,783 | $ | 161,886 | $ | 493,416 | $ | 65,839 | $ | 2,199,280 | ||||||||||||||||||||||||||||||||||||
1-4 family mortgage | 587,451 | 1,492 | 4,237 | - | 593,180 | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 388,778 | $ | 273,515 | $ | 93,272 | $ | 52,209 | $ | 28,999 | $ | 57,512 | $ | 243,302 | $ | 1,137,587 | ||||||||||||||||||||||||||||||||||||
Special Mention | 315 | 445 | 816 | 375 | 294 | 881 | 2,854 | 5,980 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | - | 279 | 404 | 648 | 346 | 1,224 | 363 | 3,264 | ||||||||||||||||||||||||||||||||||||||||||||
Total 1-4 family mortgage | $ | 389,093 | $ | 274,239 | $ | 94,492 | $ | 53,232 | $ | 29,639 | $ | 59,617 | $ | 246,519 | $ | 1,146,831 | ||||||||||||||||||||||||||||||||||||
Other mortgage | 945,548 | 14,118 | 3,024 | - | 962,690 | |||||||||||||||||||||||||||||||||||||||||||||||
Total real estate mortgage | 2,838,407 | 27,424 | 13,422 | - | 2,879,253 | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 1,027,747 | $ | 976,208 | $ | 517,392 | $ | 380,104 | $ | 130,228 | $ | 470,699 | $ | 75,669 | $ | 3,578,047 | ||||||||||||||||||||||||||||||||||||
Special Mention | 231 | - | - | - | - | 7,161 | - | 7,392 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | - | - | - | 130 | 4,569 | 7,612 | - | 12,311 | ||||||||||||||||||||||||||||||||||||||||||||
Total Other mortgage | $ | 1,027,978 | $ | 976,208 | $ | 517,392 | $ | 380,234 | $ | 134,797 | $ | 485,472 | $ | 75,669 | $ | 3,597,750 | ||||||||||||||||||||||||||||||||||||
Consumer | 57,672 | 4 | 88 | - | 57,764 | |||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 5,497,693 | $ | 83,874 | $ | 47,198 | $ | - | $ | 5,628,765 | ||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 21,132 | $ | 5,845 | $ | 4,203 | $ | 1,759 | $ | 440 | $ | 2,988 | $ | 30,021 | $ | 66,388 | ||||||||||||||||||||||||||||||||||||
Special Mention | - | - | - | - | - | 14 | - | 14 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Total Consumer | $ | 21,132 | $ | 5,845 | $ | 4,203 | $ | 1,759 | $ | 440 | $ | 3,002 | $ | 30,021 | $ | 66,402 | ||||||||||||||||||||||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 3,172,373 | $ | 2,892,640 | $ | 1,347,172 | $ | 793,843 | $ | 407,411 | $ | 1,158,865 | $ | 1,752,649 | $ | 11,524,953 | ||||||||||||||||||||||||||||||||||||
Special Mention | 12,314 | 4,182 | 1,917 | 4,846 | 5,546 | 16,744 | 34,057 | 79,606 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | 200 | 279 | 783 | 10,352 | 22,442 | 34,004 | 15,349 | 83,409 | ||||||||||||||||||||||||||||||||||||||||||||
Total Loans | $ | 3,184,887 | $ | 2,897,101 | $ | 1,349,872 | $ | 809,041 | $ | 435,399 | $ | 1,209,613 | $ | 1,802,055 | $ | 11,687,968 |
December 31, 2016 | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
(In Thousands) | ||||||||||||||||||||
Commercial, financial and agricultural | $ | 1,893,664 | $ | 61,035 | $ | 27,568 | $ | - | $ | 1,982,267 | ||||||||||
Real estate - construction | 324,958 | 5,861 | 4,266 | - | 335,085 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Owner-occupied commercial | 1,158,615 | 6,037 | 7,067 | - | 1,171,719 | |||||||||||||||
1-4 family mortgage | 531,868 | 2,065 | 2,872 | - | 536,805 | |||||||||||||||
Other mortgage | 818,724 | 11,224 | 735 | - | 830,683 | |||||||||||||||
Total real estate mortgage | 2,509,207 | 19,326 | 10,674 | - | 2,539,207 | |||||||||||||||
Consumer | 55,135 | 76 | - | - | 55,211 | |||||||||||||||
Total | $ | 4,782,964 | $ | 86,298 | $ | 42,508 | $ | - | $ | 4,911,770 |
Loans by performance status as of September 30, 2017 March 31, 2023 and December 31, 2016 2022 were as follows:
September 30, 2017 | Performing | Nonperforming | Total | |||||||||||||||||||||
March 31, 2023 | Performing | Nonperforming | Total | |||||||||||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,216,004 | $ | 7,906 | $ | 2,223,910 | $ | 3,074,568 | $ | 7,358 | $ | 3,081,926 | ||||||||||||
Real estate - construction | 465,553 | 2,285 | 467,838 | 1,469,670 | - | 1,469,670 | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Owner-occupied commercial | 1,320,886 | 2,497 | 1,323,383 | 2,240,048 | 3,388 | 2,243,436 | ||||||||||||||||||
1-4 family mortgage | 591,544 | 1,636 | 593,180 | 1,136,601 | 2,044 | 1,138,645 | ||||||||||||||||||
Other mortgage | 962,260 | 430 | 962,690 | 3,619,109 | 4,962 | 3,624,071 | ||||||||||||||||||
Total real estate mortgage | 2,874,690 | 4,563 | 2,879,253 | |||||||||||||||||||||
Total real estate - mortgage | 6,995,758 | 10,394 | 7,006,152 | |||||||||||||||||||||
Consumer | 57,656 | 108 | 57,764 | 71,973 | 81 | 72,054 | ||||||||||||||||||
Total | $ | 5,613,903 | $ | 14,862 | $ | 5,628,765 | $ | 11,611,969 | $ | 17,833 | $ | 11,629,802 | ||||||||||||
December 31, 2016 | Performing | Nonperforming | Total | |||||||||
(In Thousands) | ||||||||||||
Commercial, financial and agricultural | $ | 1,974,975 | $ | 7,292 | $ | 1,982,267 | ||||||
Real estate - construction | 331,817 | 3,268 | 335,085 | |||||||||
Real estate - mortgage: | ||||||||||||
Owner-occupied commercial | 1,165,511 | 6,208 | 1,171,719 | |||||||||
1-4 family mortgage | 536,731 | 74 | 536,805 | |||||||||
Other mortgage | 830,683 | - | 830,683 | |||||||||
Total real estate mortgage | 2,532,925 | 6,282 | 2,539,207 | |||||||||
Consumer | 55,166 | 45 | 55,211 | |||||||||
Total | $ | 4,894,883 | $ | 16,887 | $ | 4,911,770 |
December 31, 2022 | Performing | Nonperforming | Total | |||||||||
(In Thousands) | ||||||||||||
Commercial, financial and agricultural | $ | 3,138,014 | $ | 7,303 | $ | 3,145,317 | ||||||
Real estate - construction | 1,532,388 | - | 1,532,388 | |||||||||
Real estate - mortgage: | ||||||||||||
Owner-occupied commercial | 2,195,968 | 3,312 | 2,199,280 | |||||||||
1-4 family mortgage | 1,144,713 | 2,118 | 1,146,831 | |||||||||
Other mortgage | 3,592,732 | 5,018 | 3,597,750 | |||||||||
Total real estate - mortgage | 6,933,413 | 10,448 | 6,943,861 | |||||||||
Consumer | 66,312 | 90 | 66,402 | |||||||||
Total | $ | 11,670,127 | $ | 17,841 | $ | 11,687,968 |
Loans by past due status as of September 30, 2017 March 31, 2023 and December 31, 2016 2022 were as follows:
September 30, 2017 | Past Due Status (Accruing Loans) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2023 | Past Due Status (Accruing Loans) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Total Past Due | Non-Accrual | Current | Total Loans | Total Past | Total | Nonaccrual | |||||||||||||||||||||||||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Due | Nonaccrual | Current | Total Loans | With No ACL | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 5,317 | $ | 12,081 | $ | 2,108 | $ | 19,506 | $ | 5,798 | $ | 2,198,606 | $ | 2,223,910 | $ | 1,023 | $ | 1,153 | $ | 139 | $ | 2,315 | $ | 7,219 | $ | 3,072,392 | $ | 3,081,926 | $ | 1,014 | ||||||||||||||||||||||||||||||
Real estate - construction | 997 | 618 | - | 1,615 | 2,285 | 463,938 | 467,838 | - | - | - | - | - | 1,469,670 | 1,469,670 | - | |||||||||||||||||||||||||||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Owner-occupied commercial | 310 | 3,354 | - | 3,664 | 2,497 | 1,317,222 | 1,323,383 | 3,030 | 370 | - | 3,400 | 3,388 | 2,236,648 | 2,243,436 | 3,222 | |||||||||||||||||||||||||||||||||||||||||||||
1-4 family mortgage | 1,132 | 295 | 328 | 1,755 | 1,308 | 590,117 | 593,180 | 5,998 | 558 | - | 6,556 | 2,044 | 1,130,045 | 1,138,645 | 177 | |||||||||||||||||||||||||||||||||||||||||||||
Other mortgage | - | - | - | - | 430 | 962,260 | 962,690 | - | - | 4,456 | 4,456 | 506 | 3,619,109 | 3,624,071 | 506 | |||||||||||||||||||||||||||||||||||||||||||||
Total real estate - mortgage | 1,442 | 3,649 | 328 | 5,419 | 4,235 | 2,869,599 | 2,879,253 | 9,028 | 928 | 4,456 | 14,412 | 5,938 | 6,985,802 | 7,006,152 | 3,905 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer | 102 | 13 | 70 | 185 | 38 | 57,541 | 57,764 | 94 | 64 | 81 | 239 | - | 71,815 | 72,054 | - | |||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 7,858 | $ | 16,361 | $ | 2,506 | $ | 26,725 | $ | 12,356 | $ | 5,589,684 | $ | 5,628,765 | $ | 10,145 | $ | 2,145 | $ | 4,676 | $ | 16,966 | $ | 13,157 | $ | 11,599,679 | $ | 11,629,802 | $ | 4,919 | ||||||||||||||||||||||||||||||
December 31, 2016 | Past Due Status (Accruing Loans) | |||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Total Past Due | Non-Accrual | Current | Total Loans | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 710 | $ | 40 | $ | 10 | $ | 760 | $ | 7,282 | $ | 1,974,225 | $ | 1,982,267 | ||||||||||||||
Real estate - construction | 59 | - | - | 59 | 3,268 | 331,758 | 335,085 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | - | - | 6,208 | 6,208 | - | 1,165,511 | 1,171,719 | |||||||||||||||||||||
1-4 family mortgage | 160 | 129 | - | 289 | 74 | 536,442 | 536,805 | |||||||||||||||||||||
Other mortgage | 95 | 811 | - | 906 | - | 829,777 | 830,683 | |||||||||||||||||||||
Total real estate - mortgage | 255 | 940 | 6,208 | 7,403 | 74 | 2,531,730 | 2,539,207 | |||||||||||||||||||||
Consumer | 52 | 17 | 45 | 114 | - | 55,097 | 55,211 | |||||||||||||||||||||
Total | $ | 1,076 | $ | 997 | $ | 6,263 | $ | 8,336 | $ | 10,624 | $ | 4,892,810 | $ | 4,911,770 |
December 31, 2022 | Past Due Status (Accruing Loans) | |||||||||||||||||||||||||||||||
Total Past | Total | Nonaccrual | ||||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Due | Nonaccrual | Current | Total Loans | With No ACL | |||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 1,075 | $ | 409 | $ | 195 | $ | 1,679 | $ | 7,108 | $ | 3,136,530 | 3,145,317 | $ | 3,238 | |||||||||||||||||
Real estate - construction | - | 711 | - | 711 | - | 1,531,677 | 1,532,388 | - | ||||||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||||||
Owner-occupied commercial | 83 | 452 | - | 535 | 3,312 | 2,195,433 | 2,199,280 | 57 | ||||||||||||||||||||||||
1-4 family mortgage | 405 | 580 | 594 | 1,579 | 1,524 | 1,143,728 | 1,146,831 | 491 | ||||||||||||||||||||||||
Other mortgage | 231 | - | 4,512 | 4,743 | 506 | 3,592,501 | 3,597,750 | - | ||||||||||||||||||||||||
Total real estate - mortgage | 719 | 1,032 | 5,106 | 6,857 | 5,342 | 6,931,662 | 6,943,861 | 548 | ||||||||||||||||||||||||
Consumer | 174 | 128 | 90 | 392 | - | 66,010 | 66,402 | 621 | ||||||||||||||||||||||||
Total | $ | 1,968 | $ | 2,280 | $ | 5,391 | $ | 9,639 | $ | 12,450 | $ | 11,665,879 | 11,687,968 | $ | 4,407 |
Under the current expected credit losses (“CECL”) methodology, the ACL is measured on a collective basis for pools of loans with similar risk characteristics. For loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable forecast period losses are reverted to long-term historical averages. The allowance forestimated loan losses is maintained at a level which,for all loan segments are adjusted for changes in management’s judgment, is adequate to absorb credit losses inherentqualitative factors not inherently considered 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.quantitative analyses.
The methodology utilizedCompany uses the discounted cash flow (“DCF”) method to estimate ACL 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 homogeneousall loan pools by loan type and are the following:except for commercial and industrial, construction and development, commercial real estate, second lien home equityrevolving lines of credit and credit cards. For all other loans. loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment rate as a loss driver. The Company also utilizes and forecasts GDP growth as a second loss driver for its agricultural and consumer loan pools. Consistent forecasts of the loss drivers are used across the loan segments. At March 31, 2023 and December 31, 2022, the Company utilized a reasonable and supportable forecast period of twelve months followed by a six-month straight-line reversion to long term averages. The Company leveraged economic projections from reputable and independent sources to inform its loss driver forecasts. The Company expects national unemployment to be generally unchanged and national GDP growth rate to improve compared to the December 31, 2022 forecast.
The Company uses a loss-rate method to estimate expected credit losses for its commercial revolving lines of credit and credit card pools. The commercial revolving lines of credit pool incorporates a probability of default (“PD”) and loss given default (“LGD”) modeling approach. This approach involves estimating the pool average life and then using historical correlations of default and loss experience over time to calculate the lifetime PD and LGD. These two inputs are then applied to the outstanding pool balance. The credit card pool incorporates a remaining life modeling approach, which utilizes an attrition-based method to estimate the remaining life of the pool. A quarterly average loss rate is then calculated using the Company’s historical loss data. The model reduces the pool balance quarterly on a straight-line basis over the estimated life of the pool. The quarterly loss rate is multiplied by the outstanding balance at each period-end resulting in an estimated loss for each quarter. The sum of estimated loss for all quarters is the total calculated reserve for the pool. Management has also applied the loss-rate method to C&I lines of credit and to credit cards due to their generally short-term nature. An expected loss ratio is applied based on internal and peer historical losses.
Each loan pool is 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 year history of net charge-offs experienced by pool, with the most recent net charge-off experience given a greater weighting. This resultsadjusted for qualitative factors not inherently considered in the expected loss rate per year, adjusted by aquantitative analyses. The qualitative adjustment factoradjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and a years-to-impairment factor, for each poolvolume of loans, to derive the total amountstaff experience, changes in volume and trends of allowance for non-impaired loans.problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.
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 scheduledInherent risks in the loan agreement. Impaired loans are measuredportfolio will differ based on the present valuetype 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, reducedloan. Specific risk characteristics by costs to sell on a discounted basis, is used if a loan is collateral-dependent. Fair value estimates for specifically impaired collateral-dependent loansportfolio segment 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.listed below:
External Qualitative FactorsCommercial and industrial. The determinationloans include risks associated with borrower’s cash flow, debt service coverage and management’s expertise. These loans are subject to the risk that the Company may have difficulty converting collateral to a liquid asset if necessary, as well as risks associated with degree of the portionspecialization, mobility and general collectability in a default situation. These commercial loans may be subject to many different types of the allowance for loan losses relating to external qualitative factors is based on consideration of the following factors: gross domestic product growth rate,risks, including fraud, bankruptcy, economic downturn, deteriorated or non-existent collateral, and 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.interest rates.
Internal Qualitative FactorsReal estate construction. The determinationloans include risks associated with the borrower’s credit-worthiness, contractor’s qualifications, borrower and contractor performance, and the overall risk and complexity of the portionproposed project. Construction lending is also subject to risks associated with sub-market dynamics, including population, employment trends and household income. During times of economic stress, this type of loan has typically had a greater degree of risk than other loan types.
Real estate mortgageloans consist of loans secured by commercial and residential real estate. Commercial real estate lending is dependent upon successful management, marketing and expense supervision necessary to maintain the property. Repayment of these loans may be adversely affected by conditions in the real estate market or the general economy. Also, commercial real estate loans typically involve relatively large loan balances to a single borrower. Residential real estate lending risks are generally less significant than those of other loans. Real estate lending risks include fluctuations in the value of real estate, bankruptcies, economic downturn and customer financial problems.
Consumer loans carry a moderate degree of risk compared to other loans. They are generally more risky than traditional residential real estate loans but less risky than commercial loans. Risk of default is usually determined by the well-being of the allowance for loan losses relating to internal qualitative factorslocal economies. During times of economic stress, there is based onusually some level of job loss both nationally and locally, which directly affects 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 eachability of the criteria is made with a consistent weighted methodology usedconsumer to calculate the amount of allowance required for internal qualitative factors.repay debt.
The following table presents an analysis of the allowance for loan losses by portfolio segment and changes in the allowanceACL, segregated by loan type, for the three months ended March 31, 2023 and March 31, 2022.
Commercial, | ||||||||||||||||||||
financial and | Real estate - | Real estate - | ||||||||||||||||||
agricultural | construction | mortgage | Consumer | Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Three Months Ended March 31, 2023 | ||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||
Balance at January 1, 2023 | $ | 42,830 | $ | 42,889 | $ | 58,652 | $ | 1,926 | $ | 146,297 | ||||||||||
Charge-offs | (1,257 | ) | - | (26 | ) | (390 | ) | (1,673 | ) | |||||||||||
Recoveries | 128 | 3 | 1 | 11 | 143 | |||||||||||||||
Provision | 1,193 | (2,409 | ) | 4,530 | 883 | 4,197 | ||||||||||||||
Balance at March 31, 2023 | $ | 42,895 | $ | 40,483 | $ | 63,157 | $ | 2,430 | $ | 148,965 |
Three Months Ended March 31, 2022 | ||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||
Balance at January 1, 2022 | $ | 41,869 | $ | 26,994 | $ | 45,829 | $ | 1,968 | $ | 116,660 | ||||||||||
Charge-offs | (2,574 | ) | - | (27 | ) | (75 | ) | (2,676 | ) | |||||||||||
Recoveries | 105 | - | 12 | - | 117 | |||||||||||||||
Provision | 2,017 | 827 | 2,734 | (216 | ) | 5,362 | ||||||||||||||
Balance at March 31, 2022 | $ | 41,417 | $ | 27,821 | $ | 48,548 | $ | 1,677 | $ | 119,463 |
We maintain an ACL on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The ACL is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a drawdown on the commitment. The ACL on unfunded loan commitments is classified as a liability account on the Consolidated Balance Sheets within other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The ACL on unfunded commitments was $575,000 at March 31, 2023 and $575,000 at December 31, 2022. The provision expense for unfunded commitments for the three months ended March 31, 2023 and 2022 was zero and $300,000, respectively.
Loans that no longer share similar risk characteristics with collectively evaluated pools are estimated on an individual basis. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows:
Accounts | ACL | |||||||||||||||||||||||
March 31, 2023 | Real Estate | Receivable | Equipment | Other | Total | Allocation | ||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 21,757 | $ | 7,468 | $ | 831 | $ | 24,524 | $ | 54,580 | $ | 10,558 | ||||||||||||
Real estate - construction | 872 | - | - | 1,184 | 2,056 | 5 | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Owner-occupied commercial | 10,935 | - | - | 48 | 10,983 | 207 | ||||||||||||||||||
1-4 family mortgage | 3,746 | - | - | - | 3,746 | 291 | ||||||||||||||||||
Other mortgage | 11,258 | - | - | - | 11,258 | 76 | ||||||||||||||||||
Total real estate - mortgage | 25,939 | - | - | 48 | 25,987 | 574 | ||||||||||||||||||
Consumer | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | 48,568 | $ | 7,468 | $ | 831 | $ | 25,756 | $ | 82,623 | $ | 11,137 |
Accounts | ACL | |||||||||||||||||||||||
December 31, 2022 | Real Estate | Receivable | Equipment | Other | Total | Allocation | ||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 20,061 | $ | 12,092 | $ | 837 | $ | 24,998 | $ | 57,988 | $ | 9,910 | ||||||||||||
Real estate - construction | - | - | - | 1,198 | 1,198 | 7 | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Owner-occupied commercial | 8,573 | - | - | 74 | 8,647 | 154 | ||||||||||||||||||
1-4 family mortgage | 3,260 | - | - | - | 3,260 | 316 | ||||||||||||||||||
Other mortgage | 12,311 | - | - | - | 12,311 | - | ||||||||||||||||||
Total real estate - mortgage | 24,144 | - | - | 74 | 24,218 | 470 | ||||||||||||||||||
Consumer | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | 44,205 | $ | 12,092 | $ | 837 | $ | 26,270 | $ | 83,404 | $ | 10,387 |
On March 22, 2020, an Interagency Statement was issued by banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a Troubled Debt Restructuring (“TDR”) as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act 2021, which extended the period established by Section 4013 of the CARES Act to the earlier of January 1, 2022 or the date that is 60 days after the date on which the national COVID-19 emergency terminates. In accordance with such guidance, the Bank offered short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.
The Bank adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of TDRs and enhanced disclosures for loan lossesmodifications to borrowers experiencing financial difficulty.
The table below details the amortized cost basis at the end of the reporting period for loans made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2017 and September 30, 2016. The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.March 31,2023:
Commercial financial and agricultural | Real estate - construction | Real estate - mortgage | Consumer | Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Three Months Ended September 30, 2017 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at June 30, 2017 | $ | 29,127 | $ | 5,138 | $ | 20,392 | $ | 402 | $ | 55,059 | ||||||||||
Charge-offs | (924 | ) | (16 | ) | (550 | ) | (65 | ) | (1,555 | ) | ||||||||||
Recoveries | 67 | 12 | 59 | 14 | 152 | |||||||||||||||
Provision | 3,431 | 197 | 1,065 | 110 | 4,803 | |||||||||||||||
Balance at September 30, 2017 | $ | 31,701 | $ | 5,331 | $ | 20,966 | $ | 461 | $ | 58,459 | ||||||||||
Three Months Ended September 30, 2016 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at June 30, 2016 | $ | 23,655 | $ | 5,279 | $ | 17,600 | $ | 464 | $ | 46,998 | ||||||||||
Charge-offs | (1,270 | ) | (79 | ) | (144 | ) | (81 | ) | (1,574 | ) | ||||||||||
Recoveries | 35 | 9 | 1 | - | 45 | |||||||||||||||
Provision | 3,560 | (394 | ) | 282 | 16 | 3,464 | ||||||||||||||
Balance at September 30, 2016 | $ | 25,980 | $ | 4,815 | $ | 17,739 | $ | 399 | $ | 48,933 | ||||||||||
Nine Months Ended September 30, 2017 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at December 31, 2016 | $ | 28,872 | $ | 5,125 | $ | 17,504 | $ | 392 | $ | 51,893 | ||||||||||
Charge-offs | (6,846 | ) | (56 | ) | (922 | ) | (173 | ) | (7,997 | ) | ||||||||||
Recoveries | 273 | 42 | 62 | 16 | 393 | |||||||||||||||
Provision | 9,402 | 220 | 4,322 | 226 | 14,170 | |||||||||||||||
Balance at September 30, 2017 | $ | 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 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Individually Evaluated for Impairment | $ | 5,725 | $ | 829 | $ | 1,892 | $ | 50 | $ | 8,496 | ||||||||||
Collectively Evaluated for Impairment | 25,976 | 4,502 | 19,074 | 411 | 49,963 | |||||||||||||||
Loans: | ||||||||||||||||||||
Ending Balance | $ | 2,223,910 | $ | 467,838 | $ | 2,879,253 | $ | 57,764 | $ | 5,628,765 | ||||||||||
Individually Evaluated for Impairment | 30,405 | 3,328 | 15,789 | 88 | 49,610 | |||||||||||||||
Collectively Evaluated for Impairment | 2,193,505 | 464,510 | 2,863,464 | 57,676 | 5,579,155 | |||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Individually Evaluated for Impairment | $ | 6,607 | $ | 923 | $ | 622 | $ | - | $ | 8,152 | ||||||||||
Collectively Evaluated for Impairment | 22,265 | 4,202 | 16,882 | 392 | 43,741 | |||||||||||||||
Loans: | ||||||||||||||||||||
Ending Balance | $ | 1,982,267 | $ | 335,085 | $ | 2,539,207 | $ | 55,211 | $ | 4,911,770 | ||||||||||
Individually Evaluated for Impairment | 27,922 | 4,314 | 13,350 | 3 | 45,589 | |||||||||||||||
Collectively Evaluated for Impairment | 1,954,345 | 330,771 | 2,525,857 | 55,208 | 4,866,181 |
Payment Deferral | ||||||||||||||||
Term | and Term | Percentage of | ||||||||||||||
Extensions | Extensions | Total | Total Loans | |||||||||||||
(In Thousands) | ||||||||||||||||
Commercial, financial and agricultural | $ | 39,978 | $ | - | $ | 39,978 | 0.34 | % | ||||||||
Real estate - construction | 200 | - | 200 | - | % | |||||||||||
Owner-occupied commercial | 9,215 | 701 | 9,916 | 0.09 | % | |||||||||||
1-4 family mortgage | 214 | - | 214 | - | % | |||||||||||
Other mortgage | 11,254 | 359 | 11,613 | 0.10 | % | |||||||||||
Total | $ | 60,861 | $ | 1,060 | $ | 61,921 | 0.53 | % |
The following table presents detailssummarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the Company’s impairedthree months ended March 31, 2023:
Term | Total Payment | |||||||
Extensions | Deferral | |||||||
(In months) | (In Thousands) | |||||||
Commercial, financial and agricultural | 3 | to | 12 | $ | - | |||
Real estate - construction | 6 | - | ||||||
Owner-occupied commercial | 3 | to | 18 | 49 | ||||
1-4 family mortgage | 3 | - | ||||||
Other mortgage | 3 | to | 36 | 59 |
No loans modified on or after January 1, 2023, the date the Company adopted ASU 2022-02, were past due greater than 30 days or on non-accrual as of September 30, 2017 and DecemberMarch 31, 2016, respectively. Loans which have been fully charged off do not appear2023. As of March 31, 2023, we had commitments to lend $17.7 million in additional funds to borrowers experiencing financial difficulty that were modified during the tables.first quarter of 2023.
September 30, 2017 | For the three months ended September 30, 2017 | For the nine months ended September 30, 2017 | ||||||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized in Period | Average Recorded Investment | Interest Income Recognized in Period | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
With no allowance recorded: | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 4,671 | $ | 4,671 | $ | - | $ | 4,770 | $ | 52 | $ | 4,998 | $ | 164 | ||||||||||||||
Real estate - construction | 45 | 48 | - | 48 | 1 | 49 | 2 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 2,366 | 2,532 | - | 2,551 | 37 | 2,584 | 113 | |||||||||||||||||||||
1-4 family mortgage | 1,752 | 1,752 | - | 1,756 | 22 | 1,781 | 67 | |||||||||||||||||||||
Other mortgage | 732 | 732 | - | 732 | 10 | 733 | 32 | |||||||||||||||||||||
Total real estate - mortgage | 4,850 | 5,016 | - | 5,039 | 69 | 5,098 | 212 | |||||||||||||||||||||
Consumer | 38 | 40 | - | 41 | 1 | 42 | 2 | |||||||||||||||||||||
Total with no allowance recorded | 9,604 | 9,775 | - | 9,898 | 123 | 10,187 | 380 | |||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | 25,734 | 27,719 | 5,725 | 26,129 | 256 | 27,021 | 800 | |||||||||||||||||||||
Real estate - construction | 3,283 | 3,283 | 829 | 3,357 | 14 | 3,369 | 42 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 8,024 | 8,024 | 1,512 | 8,024 | 75 | 7,873 | 217 | |||||||||||||||||||||
1-4 family mortgage | 2,485 | 2,485 | 328 | 2,485 | 10 | 2,506 | 56 | |||||||||||||||||||||
Other mortgage | 430 | 980 | 52 | 974 | (4 | ) | 984 | 21 | ||||||||||||||||||||
Total real estate - mortgage | 10,939 | 11,489 | 1,892 | 11,483 | 81 | 11,363 | 294 | |||||||||||||||||||||
Consumer | 50 | 50 | 50 | 50 | 1 | 39 | 2 | |||||||||||||||||||||
Total with allowance recorded | 40,006 | 42,541 | 8,496 | 41,019 | 352 | 41,792 | 1,138 | |||||||||||||||||||||
Total Impaired Loans: | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | 30,405 | 32,390 | 5,725 | 30,899 | 308 | 32,019 | 964 | |||||||||||||||||||||
Real estate - construction | 3,328 | 3,331 | 829 | 3,405 | 15 | 3,418 | 44 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 10,390 | 10,556 | 1,512 | 10,575 | 112 | 10,457 | 330 | |||||||||||||||||||||
1-4 family mortgage | 4,237 | 4,237 | 328 | 4,241 | 32 | 4,287 | 123 | |||||||||||||||||||||
Other mortgage | 1,162 | 1,712 | 52 | 1,706 | 6 | 1,717 | 53 | |||||||||||||||||||||
Total real estate - mortgage | 15,789 | 16,505 | 1,892 | 16,522 | 150 | 16,461 | 506 | |||||||||||||||||||||
Consumer | 88 | 90 | 50 | 91 | 2 | 81 | 4 | |||||||||||||||||||||
Total impaired loans | $ | 49,610 | $ | 52,316 | $ | 8,496 | $ | 50,917 | $ | 475 | $ | 51,979 | $ | 1,518 |
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 |
Troubled Debt Restructurings (“TDR”) at September 30, 2017, DecemberAs of March 31, 2016 and September 30, 2016 totaled $16.4 million, $7.3 million and $6.7 million, respectively. At September 30, 2017, 2023, the Company had a related allowance for loan losses of $4.0 million allocateddid not have any loans made to these TDRs, compared to $2.3 million at December 31, 2016 and $1.7 million at September 30, 2016. TDR activity by portfolio segment for the three and nine months ended September 30, 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 |
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
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 | - | $ | - | $ | - | 1 | $ | 366 | $ | 366 | ||||||||||||||
Real estate - construction | - | - | - | - | - | - | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Owner-occupied commercial | - | - | - | - | - | - | ||||||||||||||||||
1-4 family mortgage | - | - | - | - | - | - | ||||||||||||||||||
Other mortgage | - | - | - | 1 | 234 | 234 | ||||||||||||||||||
Total real estate mortgage | - | - | - | 1 | 234 | 234 | ||||||||||||||||||
Consumer | - | - | - | - | - | - | ||||||||||||||||||
- | $ | - | $ | - | 2 | $ | 600 | $ | 600 |
Thereborrowers experiencing financial difficulty that were no TDRs which defaultedmodified 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).first quarter of 2023 that subsequently defaulted. 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, the Company’s TDRs have all resulted from term extensions, rather than from interest rate reductions or debt forgiveness.
TDRs at December 31, 2022 and March 31, 2022 totaled $2.5 million and $2.5 million, respectively. The portion of those TDRs accruing interest at December 31, 2022 and March 31, 2022 totaled $431,000 and $426,000, respectively. There were no modifications made to new TDRs or renewals of existing TDRs for the three months ended March 31, 2022
NOTE 6– LEASES
The Company leases space under non-cancelable operating leases for several of its banking offices and certain office equipment. The leases have remaining terms up to 9 years. At March 31, 2023, the Company had lease right-of-use assets and lease liabilities totaling $19.8 million and $20.7 million, respectively, compared to $18.8 million and $19.6 million, respectively at December 31, 2022 which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance Sheets.
Maturities of operating lease liabilities are as follows:
March 31, 2023 | ||||
(In Thousands) | ||||
2023 (remaining) | $ | 3,864 | ||
2024 | 3,768 | |||
2025 | 3,672 | |||
2026 | 3,066 | |||
2027 | 2,588 | |||
thereafter | 6,079 | |||
Total lease payments | 23,037 | |||
Less: imputed interest | (2,339 | ) | ||
Present value of operating lease liabilities | $ | 20,698 |
As of March 31, 2023, the weighted average remaining term of operating leases was 6.3 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.95%.
Operating cash flows related to leases were $1.2 million and $1.0 million for the three months ended March 31, 2023 and 2022, respectively.
Lease costs during the three months ended March 31, 2023 and 2022 were as follows (in thousands):
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating lease cost | $ | 1,230 | $ | 1,043 | ||||
Variable lease cost | 191 | 148 | ||||||
Sublease income | (8 | ) | (24 | ) | ||||
Net lease cost | $ | 1,413 | $ | 1,167 |
NOTE 7 - EMPLOYEE AND DIRECTOR BENEFITS
Stock OptionsIncentive Plan
At September 30, 2017, March 31, 2023, the Company had stock-based compensation plans,a stock incentive plan as described below. The compensation cost that has been charged to earnings for the plansplan was approximately $294,000$808,000 and $916,000$790,000 for the three and nine months ended September 30, 2017, respectively, March 31, 2023 and $291,000 and $931,000 for the three and nine months ended September 30, 2016,2022, respectively.
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, Non-stock Share Equivalents, Performance Shares or Performance Units. Both plans allowThe plan allows for the grant of incentive stock options and non-qualified stock options, and option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plansplan is ten years.
The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model that useswhich incorporates 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 optionsvolatilities are based on historical datathe Company’s trading price history. 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.U.S. Treasury yield curve in effect at the time of grant.
2017 | 2016 | |||||||
Expected volatility | 29.00 | % | 29.00 | % | ||||
Expected dividends | 0.44 | % | 0.64 | % | ||||
Expected term (in years) | 6.25 | 6.25 | ||||||
Risk-free rate | 2.08 | % | 1.86 | % |
The weighted average grant-date fair valueThere were no grants of stock options granted during the nine months ended September 30, 2017first quarters of 2023 and September 30, 2016 was $11.83 and $5.95, respectively.2022.
The following table summarizes stock option activity during the ninethree months ended September 30, 2017 March 31, 2023 and September 30, 2016:2022:
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Nine Months Ended September 30, 2017: | ||||||||||||||||
Outstanding at January 1, 2017 | 2,026,334 | $ | 9.00 | 6.2 | $ | 57,636 | ||||||||||
Granted | 52,500 | 37.93 | 9.4 | (35 | ) | |||||||||||
Exercised | (359,000 | ) | 4.97 | 4.2 | 11,590 | |||||||||||
Forfeited | (32,000 | ) | 21.96 | 8.4 | 489 | |||||||||||
Outstanding at September 30, 2017 | 1,687,834 | 10.51 | 5.7 | $ | 45,136 | |||||||||||
Exercisable at September 30, 2017 | 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 |
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | |||||||||||||||
Exercise | Contractual | Aggregate | ||||||||||||||
Shares | Price | Term (years) | Intrinsic Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Three Months Ended March 31, 2023: | ||||||||||||||||
Outstanding January 1, 2023 | 280,000 | $ | 19.43 | 3.0 | $ | 14,088 | ||||||||||
Exercised | (75,000 | ) | 10.80 | 0.9 | 3,288 | |||||||||||
Outstanding March 31, 2023 | 205,000 | $ | 22.59 | 3.4 | $ | 7,428 | ||||||||||
Exercisable March 31, 2023 | 152,000 | $ | 17.28 | 2.2 | $ | 5,859 | ||||||||||
Three Months Ended March 31, 2022: | ||||||||||||||||
Outstanding January 1, 2022 | 353,250 | $ | 19.28 | 3.8 | $ | 23,525 | ||||||||||
Exercised | (36,500 | ) | 18.65 | 3.1 | 2,677 | |||||||||||
Outstanding March 31, 2022 | 316,750 | $ | 19.35 | 3.7 | $ | 24,446 | ||||||||||
Exercisable March 31, 2022 | 255,000 | $ | 14.79 | 2.8 | $ | 20,056 |
As of September 30, 2017, March 31, 2023, there was approximately $2.1 million$159,000 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 years.1.0 year.
Restricted Stock and Performance Shares
The Company periodically grants restricted stock awards that vest upon time-based service conditions. Dividend payments are made during the vesting period. The value of restricted stock is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period. As of September 30, 2017, March 31, 2023, there was $543,000$5.3 million of total unrecognized compensation cost related to non-vested time-based restricted stock. The cost is expected to be recognized evenly over the remaining 1.22.2 years of the restricted stock’s vesting period.
The Company periodically grants performance shares that give plan participants the opportunity to earn between 0% and 150% of the number of performance shares granted based on achieving certain performance metrics. The number of performance shares earned is determined by reference to the Company’s total shareholder return relative to a peer group of other publicly traded banks and bank holding companies during the performance period. The performance period is generally three years beginning on January 1st of the year of the grant. The fair value of performance shares is determined using a Monte Carlo simulation model on the grant date. As of March 31, 2023, there was $1.2 million of total unrecognized compensation cost related to non-vested performance shares. As of March 31, 2023, non-vested performance shares had a weighted average remaining time to vest of 1.8 years.
Restricted Stock | Performance Shares | |||||||||||||||
Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||
Three Months Ended March 31, 2023: | ||||||||||||||||
Non-vested at January 1, 2023 | 141,580 | $ | 56.39 | 23,852 | $ | 54.16 | ||||||||||
Granted | 27,258 | 69.83 | 8,091 | 70.29 | ||||||||||||
Vested | (17,521 | ) | 48.32 | - | - | |||||||||||
Forfeited | (6,545 | ) | 69.90 | - | - | |||||||||||
Non-vested at March 31, 2023 | 144,772 | $ | 59.29 | 31,943 | $ | 58.25 | ||||||||||
Three Months Ended March 31, 2022: | ||||||||||||||||
Non-vested at January 1, 2022 | 127,602 | $ | 42.27 | 12,437 | $ | 37.05 | ||||||||||
Granted | 27,851 | 84.67 | 6,557 | 74.52 | ||||||||||||
Vested | (9,612 | ) | 42.23 | - | - | |||||||||||
Forfeited | (877 | ) | 40.72 | - | - | |||||||||||
Non-vested at March 31, 2022 | 144,964 | $ | 50.43 | 18,994 | $ | 49.99 |
NOTE 8 - DERIVATIVES
The following table summarizes restricted stock activity duringCompany periodically enters into derivative contracts to manage exposures to movements in interest rates. The Company purchased an interest rate cap in Mayof2020 to limit exposures to increases in interest rates. The interest rate cap is not designated as a hedging instrument but rather as a stand-alone derivative. The interest rate cap has an original term of 3 years, a notional amount of $300 million and is tied to the nine months ended September 30, 2017one-month LIBOR rate with a strike rate of 0.50%. The fair value of the interest rate cap is carried on the consolidated balance sheet in other assets and September 30, 2016:
Shares | Weighted Average Grant Date Fair Value | |||||||
Nine Months Ended September 30, 2017: | ||||||||
Non-vested at January 1, 2017 | 118,676 | $ | 8.88 | |||||
Granted | 7,000 | 38.02 | ||||||
Vested | (4,200 | ) | 15.74 | |||||
Forfeited | (800 | ) | 15.74 | |||||
Non-vested at September 30, 2017 | 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 - DERIVATIVESthe change in fair value is recognized in noninterest income each quarter. At March 31, 2023 the interest rate cap had a fair value of $1.2 million and remaining term of one month.
The Company has entered into agreementsforward loan sale commitments with secondary market investors to deliver loans on a “best efforts delivery” basis.basis, which do not meet the definition of a derivative instrument. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day30-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 March 31, 2023 and December 31, 2016 2022 were not material.
NOTE 8 9– RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02,Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments eliminate the accounting guidance for TDR recognition in Subtopic 310-40,Receivables – Trouble Debt Restructurings by Creditors by entities that have adopted ASU 2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For public business entities, the amendments require disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis. Adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
NOTE 10– RECENT ACCOUNTING PRONOUNCEMENTS
In March 2023, the FASB issued ASU 2016-09,2023-02, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects 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 – EquityInvestments-Equity Method and Joint Ventures (Topic 323), Simplifying323): Accounting for Investments in Tax Credit Structures Using the TransitionProportional Amortization Method. These amendments allow entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the Equity Methodrelated income tax credits. The ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of Accounting. The amendments eliminate the requirement that when an investment qualifies for usecapital with a better understanding of the equity method as 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 periodsreturns from investments that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee 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 qualifiedare made primarily for the equity methodpurpose of accounting recognize through earnings the unrealized holding gain or loss in accumulatedreceiving income tax credits and other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments became effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increase the level of ownership interest or degree of influence that results in the adoption of the equity method. Adoption of this standard has not affected the consolidated financial statements.
In January 2017, the FASB issuedtax benefits. ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323) – Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. ASU 2017-03 provides amendments that add paragraph 250-10-S99-6 which includes the text of "SEC Staff Announcement: Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of a Registrant When Such Standards Are Adopted in a Future Period” (in accordance with Staff Accounting Bulletin (SAB) Topic 11.M). Registrants are required 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 estimate the impact of the adoption, then additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard's 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 disclosures.
NOTE 9 2023- 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 guidance02 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, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company is evaluatingassessing its tax credit investments for whether they qualify for proportional amortization treatment and plans to adopt the provisions of this ASU to determineamendments soon after. The Company does not currently believe the potential impact the new standardamendments will have a material impact on the Company’sits 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. The Company leases many of its banking offices under lease agreements it classifies as operating leases. 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 asset and a lease liability associated with its long-term operating leases. Additionally, the inclusion of these right-of-use lease assets in our balance sheet will impact our total risk-weighted assets.
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 the impact of the 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 of adopting this 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 as it has always amortized premiums to the first call date.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting. 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 effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact of the amendments in the ASU on the its consolidated financial statements.
NOTE 1011 - 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.
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 SecuritiesSecurities. . 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 sourceservice regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, as in the case of certain corporate securities, these securities are classified in Level 3 of the hierarchy.
Impaired Derivative instruments. The fair values of derivatives are determined based on a valuation pricing model using readily available observable market parameters such as interest rate curves, adjusted for counterparty credit risk. These measurements are classified as level 2 within the valuation hierarchy.
Loans Individually Evaluated. . Impaired loansLoans individually evaluated are measured and reported at fair value when full payment under the loan terms is not probable. Impaired loansLoans individually evaluated are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10820-10 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 loansLoans individually evaluated are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment.individually evaluation. A portion of the allowance for loan lossesACL is allocated to impaired loans individually evaluated if the value of such loans is deemed to be less than the unpaid balance. Impaired loansThe range of fair value adjustments and weighted average adjustment as of March 31, 2023 was 0% to 90% and 14.9%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2022 was 0% to 82% and 19.5% respectively. Loans individually evaluated are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized as an impairment charge related to impairedwrite-down individually evaluated loans that are measured at fair value on a nonrecurring basis was $2,660,000 and $7,967,000$-.- million during the three and nine months ended September 30, 2017, respectively, March 31, 2023, and $3,544,000 and $6,090,000$3.0 million during the three and nine months ended September 30, 2016, respectively.March 31, 2022.
Other Real Estate Owned. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for loan lossesACL subsequent to foreclosure. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. Appraisals are performed by certified and licensed appraisers. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the new cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals. The range of fair value adjustments and weighted average adjustment as of March 31, 2023 was 0% to 100% and 53.3%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2022 was 0% to 100% and 53.3%, respectively. These measurements are classified as Level 3 within the valuation hierarchy. A gain on the sale of OREO of $20,000 and $56,000 was recognized for the three and nine months ended September 30, 2017, respectively, and a lossThere were no losses on the sale and write-downs of $148,000 and $584,000 forOREO during the three and nine months ended September 30, 2016, respectively. March 31, 2023, compared to $6,000 during the three months ended March 31, 2022. These charges were for write-downs in the value of OREO subsequent to foreclosure and gains or losses on the disposal of OREO. OREO is classified within Level 3 of the hierarchy.
There were two residential real estate loans with an aggregate balance of $248,000 foreclosed and classified as OREO as of March 31, 2023 and December 31, 2022.
Two residential real estate loans for $190,000 were in the process of foreclosure as of March 31, 2023. 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 residential real estate loan with a balance of $921,000that was in the process of being foreclosed as of September 30, 2017.December 31, 2022.
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 March 31, 2023 and December 31, 2016:2022. There were no liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022.
Fair Value Measurements at March 31, 2023 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 securities | $ | 2,990 | $ | - | $ | - | $ | 2,990 | ||||||||||||||||||||||||
Government agency securities | - | 4 | - | 4 | ||||||||||||||||||||||||||||
Mortgage-backed securities | - | 243,743 | - | 243,743 | - | 243,031 | - | 243,031 | ||||||||||||||||||||||||
State and municipal securities | - | 134,804 | - | 134,804 | - | 13,311 | - | 13,311 | ||||||||||||||||||||||||
Corporate debt | - | 358,752 | 6,860 | 365,612 | ||||||||||||||||||||||||||||
Total available-for-sale debt securities | 2,990 | 615,098 | 6,860 | 624,948 | ||||||||||||||||||||||||||||
Interest rate cap derivative | - | 1,181 | - | 1,181 | ||||||||||||||||||||||||||||
Total assets at fair value | $ | - | $ | 435,325 | $ | - | $ | 435,325 | $ | 2,990 | $ | 616,279 | $ | 6,860 | $ | 626,129 |
Fair Value Measurements at December 31, 2022 Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
Assets (Level 1) | (Level 2) | Inputs (Level 3) | Total | |||||||||||||
Assets Measured on a Recurring Basis: | (In Thousands) | |||||||||||||||
Available for sale debt securities: | ||||||||||||||||
U.S. Treasury securities | $ | 2,969 | $ | - | $ | - | $ | 2,969 | ||||||||
Government agency securities | - | 9 | - | 9 | ||||||||||||
Mortgage-backed securities | - | 249,703 | - | 249,703 | ||||||||||||
State and municipal securities | - | 13,609 | - | 13,609 | ||||||||||||
Corporate debt | - | 367,665 | 10,860 | 378,525 | ||||||||||||
Total available-for-sale debt securities | 2,969 | 630,986 | 10,860 | 644,815 | ||||||||||||
Interest rate cap derivative | - | 4,201 | - | 4,201 | ||||||||||||
Total assets at fair value | $ | 2,969 | $ | 635,187 | $ | 10,860 | $ | 649,016 |
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 |
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 March 31, 2023 and December 31, 2016:2022. There were no liabilities measured at fair value on a nonrecurring basis as of March 31, 2023 and December 31, 2022.
Fair Value Measurements at March 31, 2023 Using | ||||||||||||||||||||||||||||||||
Quoted Prices in | ||||||||||||||||||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||||||||||||||||||
Fair Value Measurements at September 30, 2017, Using | for Identical | Observable | 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) | Inputs (Level 2) | Inputs (Level 3) | Total | |||||||||||||||||||||||||
Assets Measured on a Nonrecurring Basis: | (In Thousands) | (In Thousands) | ||||||||||||||||||||||||||||||
Impaired loans | $ | - | $ | - | $ | 41,114 | $ | 41,114 | ||||||||||||||||||||||||
Loans individually evaluated | $ | - | $ | - | $ | 71,486 | $ | 71,486 | ||||||||||||||||||||||||
Other real estate owned and repossessed assets | - | - | 3,888 | 3,888 | - | - | 248 | 248 | ||||||||||||||||||||||||
Total assets at fair value | $ | - | $ | - | $ | 45,002 | $ | 45,002 | $ | - | $ | - | $ | 71,734 | $ | 71,734 |
Fair Value Measurements at December 31, 2022 Using | ||||||||||||||||||||||||||||||||
Quoted Prices in | ||||||||||||||||||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||||||||||||||||||
Fair Value Measurements at December 31, 2016, Using | for Identical | Observable | 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) | Inputs (Level 2) | Inputs (Level 3) | Total | |||||||||||||||||||||||||
Assets Measured on a Nonrecurring Basis: | (In Thousands) | (In Thousands) | ||||||||||||||||||||||||||||||
Impaired loans | $ | - | $ | - | $ | 37,437 | $ | 37,437 | ||||||||||||||||||||||||
Other real estate owned and repossessed assets | - | - | 4,988 | 4,988 | ||||||||||||||||||||||||||||
Loans individually evaluated | $ | - | $ | - | $ | 73,017 | $ | 73,017 | ||||||||||||||||||||||||
Other real estate owned | - | - | 248 | 248 | ||||||||||||||||||||||||||||
Total assets at fair value | $ | - | $ | - | $ | 42,425 | $ | 42,425 | $ | - | $ | - | $ | 73,265 | $ | 73,265 |
There were no liabilities measured at fair value on a non-recurring basis as of March 31, 2023 and December 31, 2022.
In the case of the debt securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been affected. For the three months ended March 31, 2023, there was one transfer out of level 3 into level 2.
The table below includes a rollforward of the balance sheet amounts for the period ended March 31, 2023 and March 31, 2022 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology:
For the period ended March 31, | ||||||||
2023 | 2022 | |||||||
Available-for-sale Securities | Available-for-sale Securities | |||||||
(In Thousands) | ||||||||
Fair value, beginning of period | $ | 10,860 | $ | 16,992 | ||||
Transfers into Level 3 | - | - | ||||||
Total realized gains included in income | - | - | ||||||
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end | 160 | (343 | ) | |||||
Purchases | - | - | ||||||
Transfers out of Level 3 | (4,160 | ) | (5,149 | ) | ||||
Fair value, end of period | $ | 6,860 | $ | 11,500 |
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 in the statements of financial condition approximate those assets’ fair values.
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 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 or non-recurring basis or nonrecurring basis.as of March 31, 2023 and December 31, 2022 were as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Financial Assets: | ||||||||||||||||
Level 1 inputs: | ||||||||||||||||
Cash and due from banks | $ | 166,150 | $ | 166,150 | $ | 623,562 | $ | 623,562 | ||||||||
Level 2 inputs: | ||||||||||||||||
Available for sale debt securities | 435,325 | 435,325 | 422,375 | 422,375 | ||||||||||||
Held to maturity debt securities | 36,891 | 37,406 | 25,052 | 25,431 | ||||||||||||
Restricted equity securities | 1,038 | 1,038 | 1,024 | 1,024 | ||||||||||||
Federal funds sold | 182,841 | 182,841 | 160,435 | 160,435 | ||||||||||||
Mortgage loans held for sale | 4,971 | 5,033 | 4,675 | 4,736 | ||||||||||||
Bank owned life insurance contracts | 126,722 | 126,722 | 114,388 | 114,388 | ||||||||||||
Level 3 inputs: | ||||||||||||||||
Debt securities held to maturity | 50,508 | 51,923 | 37,512 | 37,871 | ||||||||||||
Loans, net | 5,570,306 | 5,564,250 | 4,859,877 | 4,872,689 | ||||||||||||
Financial liabilities: | ||||||||||||||||
Level 2 inputs: | ||||||||||||||||
Deposits | $ | 5,796,901 | $ | 5,793,324 | $ | 5,420,311 | $ | 5,417,320 | ||||||||
Federal funds purchased | 254,880 | 254,880 | 355,944 | 355,944 | ||||||||||||
Other borrowings | 54,975 | 56,996 | 55,262 | 54,203 |
March 31, 2023 | December 31, 2022 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Financial Assets: | ||||||||||||||||
Level 1 Inputs: | ||||||||||||||||
Cash and cash equivalents | $ | 864,493 | $ | 864,493 | $ | 814,538 | $ | 814,538 | ||||||||
Held to maturity U.S. Treasury securities | 507,601 | 477,580 | 507,601 | 470,954 | ||||||||||||
Level 2 Inputs: | ||||||||||||||||
Federal funds sold | 6,478 | 6,478 | 1,515 | 1,515 | ||||||||||||
Held to maturity debt securites | 506,342 | 453,162 | 526,720 | 464,749 | ||||||||||||
Mortgage loans held for sale | 1,651 | 1,642 | 1,607 | 1,604 | ||||||||||||
Restricted equity securities | 7,307 | 7,307 | 7,734 | 7,734 | ||||||||||||
Level 3 Inputs: | ||||||||||||||||
Held to maturity debt securites | 250 | 250 | 250 | 250 | ||||||||||||
Loans, net | 11,480,837 | 11,145,529 | 11,541,671 | 11,265,517 | ||||||||||||
Financial Liabilities: | ||||||||||||||||
Level 2 Inputs: | ||||||||||||||||
Deposits | $ | 11,615,317 | $ | 11,602,610 | $ | 11,546,805 | $ | 11,529,647 | ||||||||
Federal funds purchased | 1,480,160 | 1,480,160 | 1,618,798 | 1,618,798 | ||||||||||||
Other borrowings | 65,417 | 57,340 | 64,726 | 57,101 |
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, and events which occurred subsequent to September 30, 2017 but were not recognized in the financial statements.
ITEM 2. MANAGEMENT’SMANAGEMENT’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-ownedwholly owned subsidiary, ServisFirst Bank (the “Bank”). This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statementsbalance sheets as of March 31, 2023 and December 31, 2022 and consolidated statements of income for the three and nine months ended September 30, 2017March 31, 2023 and September 30, 2016.March 31, 2022.
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,” “could,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. The Company cautions that such forward-looking statements, wherever they occur in this quarterly report or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including:including, but not limited to: the global health and economic crisis precipitated by the COVID-19 outbreak; general economic conditions, especially in the credit markets and in the Southeast; the performance of the capital markets; changes in interest rates, yield curves and interest rate spread relationships;relationships, including in light of the continuing high rate of domestic inflation; changes in accounting and tax principles, policies or guidelines; changes in legislation or regulatory requirements; changes in our loan portfolio and deposit base; economic crisis and associated credit issues in industries most impacted by the COVID-19 outbreak; 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.statements. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made. ServisFirst Bancshares, Inc.The Company assumes no obligation to update or revise any forward-looking statements that are made from time to time.
Business
We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides commercial banking services through nineteen full-service banking offices located in Alabama, Tampa Bay, Florida, the panhandle of Florida, the greater Atlanta, Georgia, metropolitan area, Charleston,North and South Carolina, and Nashville, Tennessee. We also operate loan production offices in Florida. 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.
First quarter highlights
● | Diluted earnings per common share of $1.06 for the first quarter of 2023. |
● | Return on assets increased from 1.53% to 1.63% year-over-year. |
● | Book value per share grew from $21.61 to $24.63, or 14%, year-over-year. |
● | Deposit balances grew $69 million during the first quarter of 2023 while the deposit pipeline increased by $244 million, or 51%. |
● | Bank level Tier 1 capital to average assets increased from 8.08% to 9.91% year-over-year. |
Overview
As of September 30, 2017,March 31, 2023, we had consolidated total assets of $6.71$14.57 billion, an increase of $341.7down $29.2 million, or 5.4%0.2%, from $6.37total assets of $14.60 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.2022. Total loans were $5.63$11.63 billion at September 30, 2017, up $717.0March 31, 2023, down $58.2 million, or 14.6%0.5%, from $4.91$11.69 billion at December 31, 2016.2022. Total deposits were $5.80$11.62 billion at September 30, 2017, an increase of $376.6March 31, 2023, up $68.5 million, or 6.9%0.6%, from $5.42$11.55 billion at December 31, 2016.2022.
Net income available to common stockholders for the three months ended September 30, 2017March 31, 2023 was $25.3$58.0 million, an increase of $4.4 million,up $358,000, or 21.1%0.6%, from $20.9$57.6 million for the corresponding period in 2016.three months ended March 31, 2022. Basic and diluted earnings per common share were $0.48$1.07 and $0.47,$1.06, respectively, for the three months ended September 30, 2017,March 31, 2023, compared to basic and diluted earnings per common share of $0.40 and $0.39, respectively,$1.06 for both in the corresponding period in 2016.2022. Changes in income and expenses are more fully explained in “Results of Operations” below.
Net income available to common stockholders for the nine months ended September 30, 2017 was $71.9 million, an increase of $12.2 million, or 20.4%, from $59.7 million for the corresponding period in 2016. Basic and diluted earnings per common share were $1.36 and $1.33, respectively, for the nine months ended September 30, 2017, compared to $1.14 and $1.12, respectively, for the corresponding period in 2016.
Critical Accounting PoliciesPerformance Ratios
The accounting and financial policiesfollowing table presents selected ratios 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 futureour 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-Koperations for the fiscal yearthree months ended DecemberMarch 31, 2016.2023, and 2022.
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Return on average assets | 1.63 | % | 1.53 | % | ||||
Return on average stockholders' equity | 17.83 | % | 20.09 | % | ||||
Dividend payout ratio | 26.34 | % | 21.77 | % | ||||
Net interest margin (1) | 3.15 | % | 2.89 | % | ||||
Efficiency ratio (2) | 34.60 | % | 32.74 | % | ||||
Average stockholders' equity to average total assets | 9.16 | % | 7.61 | % |
(1) Net interest margin in the net yield on interest earning assets and is the difference between the interest yield earned on interest-earning assets and interest rate paid on interest-bearing liabilities, divided by average earning assets. | |||||||||
(2) Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income. |
Financial Condition
Cash and Cash Equivalents
At September 30, 2017,March 31, 2023, we had $182.8$6.5 million in federal funds sold, compared to $160.4$1.5 million at December 31, 2016.2022. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At September 30, 2017,March 31, 2023, we had $85.2$713.6 million in balances at the Federal Reserve, compared to $565.1$693.8 million at December 31, 2016. This decrease was a result of our lower levels of excess liquidity due to loan growth and a decrease in federal funds purchased from our correspondent banks during the first nine months of 2017.2022.
DebtInvestment Securities
Debt securities available for sale totaled $435.3$624.9 million at September 30, 2017March 31, 2023 and $422.4$644.8 million at December 31, 2016. Debt2022. Investment securities held to maturity totaled $87.4 million$1.02 billion at September 30, 2017March 31, 2023 and $62.6 million$1.03 billion at December 31, 2016.2022. We had pay downspaydowns of $37.6$22.3 million on mortgage-backed securities, maturities of $21.1$3.6 million on U.S. government agencies, mortgage-backed securities, municipal agencybonds, corporate securities, and corporateTreasury securities, and calls of $11.9$5.0 million on municipalcorporate securities and subordinated notes during the ninethree months ended September 30, 2017.March 31, 2023. We recognized a $3.3 million loss on the sale of $45.4 million in available for sale debt securities during the first quarter of 2022. We purchased $72.0$190.6 million in mortgage-backed securities, $13.8$52.5 million in municipalcorporate securities, $2.9and $197.1 million in U.S.US Treasury securities and $16.0 million in subordinated notes during the first ninethree months of 2017. Nine mortgage-backed2022. For a tabular presentation of debt securities available for sale and five subordinated notes purchased were classified as held to maturity. All other securities purchased are classified as available for sale.maturity at March 31, 2023 and December 31, 2022, see “Note 4 – Securities” in our Notes to Consolidated Financial Statements.
The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure. In doing so, we seek to 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 termlonger-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 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, 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 BankCompany does not invest in collateralized debt obligations (“CDOs”). We have $50.5As of March 31, 2023, we had $398.7 million of bank holding company subordinated notes. All of these notesIf rated, all such bonds were rated BBB or better by Kroll Bond Rating Agency at the time of our investment in them.initial investment. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at September 30, 2017 has a combined average credit rating of AA.AA as of March 31, 2023.
The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $240.5$834.9 million and $223.7$789.3 million as of September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively.
Loans
We had total loans of $5.63$11.63 billion at September 30, 2017, an increase of $717.0March 31, 2023, down $58.2 million, or 14.6%0.5%, compared to $4.91$11.69 billion at December 31, 2016. At September 30, 2017, the percentage of our loans in each of our regions were as follows:2022.
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 lossesCompany assesses the adequacy of its ACL at the end of each calendar quarter. The level of ACL is establishedbased on the Company’s evaluation of historical default and maintained at levels management deems adequate to absorb anticipated credit losses from identifiedloss experience, current and otherwiseprojected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, portfolio asthe estimated value of the balance sheet date. In assessing the adequacy of the allowance for loan losses, management considers its evaluationany underlying collateral, composition of the loan portfolio past due loanand other relevant factors. The ACL is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. We believe the ACL is adequate to absorb all expected future losses to be recognized over the contractual life of the loans in the portfolio.
Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method. The historical loss experience collateral values,estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates and gross domestic product. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic conditions andenvironment among other factors considered necessaryfactors. See “Note 1 – General” in the Notes to maintain the allowance at an adequate level. Our management believes that the allowance was adequate at September 30, 2017.Consolidated Financial Statements included in Item 1. Consolidated Financial Statements elsewhere in this report.
The following table presents the allocation of the allowance for loanexpected credit losses for each respective loan categorypool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.
Expected credit losses for loans that no longer share similar risk characteristics with the corresponding percentagecollectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis. Individual evaluations are performed for nonaccrual loans, loans rated substandard, modified loans, and for periods prior to the adoption of ASU 2022-02 modified loans in each category to total loans. Management believes thatclassified as TDRs. Specific allocations of the comprehensive allowance analysis developed by ourACL for credit administration group is in compliance with all current regulatory guidelines.losses are estimated on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.
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 | % |
As of and for the Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
(Dollars in thousands) | ||||||||
Total loans outstanding, net of unearned income | $ | 11,629,802 | $ | 9,898,957 | ||||
Average loans outstanding, net of unearned income | $ | 11,651,417 | $ | 9,646,679 | ||||
Allowance for credit losses at beginning of period | 146,297 | 116,660 | ||||||
Charge-offs: | ||||||||
Commercial, financial and agricultural loans | 1,257 | 2,574 | ||||||
Real estate - construction | - | - | ||||||
Real estate - mortgage | 26 | 27 | ||||||
Consumer loans | 390 | 75 | ||||||
Total charge-offs | 1,673 | 2,676 | ||||||
Recoveries: | ||||||||
Commercial, financial and agricultural loans | 128 | 105 | ||||||
Real estate - construction | 3 | - | ||||||
Real estate - mortgage | 1 | - | ||||||
Consumer loans | 11 | 12 | ||||||
Total recoveries | 143 | 117 | ||||||
Net charge-offs | 1,530 | 2,559 | ||||||
Provision for credit losses | 4,197 | 5,362 | ||||||
Allowance for credit losses at period end | $ | 148,965 | $ | 119,463 | ||||
Allowance for credit losses to period end loans | 1.28 | % | 1.21 | % | ||||
Net charge-offs to average loans | 0.05 | % | 0.11 | % |
December 31, 2016 | Amount | Percentage of loans in each category to total loans | ||||||||||||||
Percentage | ||||||||||||||||
of loans in | ||||||||||||||||
each | ||||||||||||||||
category to | ||||||||||||||||
March 31, 2023 | Amount | total loans | ||||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||
Commercial, financial and agricultural | $ | 28,872 | 40.36 | % | $ | 42,895 | 26.50 | % | ||||||||
Real estate - construction | 5,125 | 6.82 | % | 40,483 | 12.64 | % | ||||||||||
Real estate - mortgage | 17,504 | 51.70 | % | 63,157 | 60.24 | % | ||||||||||
Consumer | 392 | 1.12 | % | 2,430 | 0.62 | % | ||||||||||
Total | $ | 51,893 | 100.00 | % | $ | 148,965 | 100.00 | % |
Percentage | ||||||||
of loans in | ||||||||
each | ||||||||
category to | ||||||||
December 31, 2022 | Amount | total loans | ||||||
(In Thousands) | ||||||||
Commercial, financial and agricultural | $ | 42,830 | 26.91 | % | ||||
Real estate - construction | 42,889 | 13.11 | % | |||||
Real estate - mortgage | 58,652 | 59.42 | % | |||||
Consumer | 1,926 | 0.57 | % | |||||
Total | $ | 146,297 | 100.01 | % |
Nonperforming Assets
Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased $2.0 million to $14.9remained flat at $17.8 million at September 30, 2017, compared to $16.9 million atMarch 31, 2023 and December 31, 2016.2022, respectively. Of this total, nonaccrual loans were $12.4of $13.2 million at September 30, 2017, compared to $10.6 millionMarch 31, 2023 represented a net increase of $707,000 from nonaccrual loans at December 31, 2016, an increase of $1.8 million.2022. Excluding credit card accounts, there were threesix loans 90 or more days past due and still accruing totaling $2.4$5.1 million at March 31, 2023, compared to twoone loans totaling $6.2$4.6 million at December 31, 2016. Troubled Debt Restructurings (“TDR”) at September 30, 2017 and December 31, 20162022. Loans made to borrowers experiencing financial difficulty that were $16.4 million and $7.3 million, respectively. There were no loans newly classified as TDR formodified during the three months ended September 30, 2017March 31, 2023 were $61.9 million. TDRs at December 31, 2022, and one relationship totaling $12.7March 31, 2022 were $2.5 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 of existing TDRs for the three months ended September 30, 2016 and two renewals of existing TDRs totaling $600,000 for the nine months ended September 30, 2016. These TDRs are the result of term extensions rather than interest rate reductions or forgiveness of debt.$2.1 million, respectively.
OREO and repossessed assets decreased to $3.9 million$248,000 at September 30, 2017,March 31, 2023, from $5.0$2.0 million at December 31, 2016. The total number of OREO and repossessed asset accounts decreased to nine at September 30, 2017, compared to 12 at December 31, 2016.2022. The following table summarizes OREO and repossessed asset activity for the ninethree months September 30, 2017ended March 31, 2023 and 2016:2022:
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
(In thousands) | ||||||||
Balance at beginning of period | $ | 4,988 | $ | 5,392 | ||||
Transfers from loans and capitalized expenses | 586 | 2,036 | ||||||
Proceeds from sales | (1,529 | ) | (1,648 | ) | ||||
Internally financed sales | (185 | ) | (2,161 | ) | ||||
Write-downs / net gain (loss) on sales | 28 | (584 | ) | |||||
Balance at end of period | $ | 3,888 | $ | 3,035 |
Three months ended March 31, | ||||||||
2023 | 2022 | |||||||
(In thousands) | ||||||||
Balance at beginning of period | $ | 248 | $ | 1,208 | ||||
Transfers from loans and capitalized expenses | - | 830 | ||||||
Proceeds from sales | - | (44 | ) | |||||
Write-downs / net gain (loss) on sales | - | (5 | ) | |||||
Balance at end of period | $ | 248 | $ | 1,989 |
The following table summarizes our nonperforming assets and TDRs at September 30, 2017March 31, 2023 and December 31, 2016:2022:
March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
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 | $ | 7,219 | 22 | $ | 7,108 | 18 | ||||||||||||||||||||
Real estate - construction | 2,285 | 3 | 3,268 | 5 | - | - | - | - | ||||||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||||||
Owner-occupied commercial | 2,497 | 3 | - | - | 3,388 | 3 | 3,312 | 3 | ||||||||||||||||||||||||
1-4 family mortgage | 1,308 | 3 | 74 | 1 | 2,044 | 20 | 1,524 | 16 | ||||||||||||||||||||||||
Other mortgage | 430 | 3 | - | - | 506 | 2 | 506 | 2 | ||||||||||||||||||||||||
Total real estate - mortgage | 4,235 | 9 | 74 | 1 | 5,938 | 25 | 5,342 | 21 | ||||||||||||||||||||||||
Consumer | 38 | 1 | - | - | - | - | - | - | ||||||||||||||||||||||||
Total Nonaccrual loans: | $ | 12,356 | 29 | $ | 10,624 | 19 | $ | 13,157 | 47 | $ | 12,450 | 39 | ||||||||||||||||||||
90+ days past due and accruing: | ||||||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,108 | 3 | $ | 10 | 1 | $ | 146 | 22 | $ | 195 | 26 | ||||||||||||||||||||
Real estate - construction | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||||||
Owner-occupied commercial | - | - | 6,208 | 1 | - | - | - | - | ||||||||||||||||||||||||
1-4 family mortgage | - | - | - | - | - | 5 | 594 | 5 | ||||||||||||||||||||||||
Other mortgage | 328 | 1 | - | - | 4,456 | 1 | 4,512 | 1 | ||||||||||||||||||||||||
Total real estate - mortgage | 328 | 1 | 6,208 | 1 | 4,456 | 6 | 5,106 | 6 | ||||||||||||||||||||||||
Consumer | 70 | 27 | 45 | 10 | 81 | 31 | 90 | 44 | ||||||||||||||||||||||||
Total 90+ days past due and accruing: | $ | 2,506 | 31 | $ | 6,263 | 12 | $ | 4,683 | 59 | $ | 5,391 | 76 | ||||||||||||||||||||
Total Nonperforming Loans: | $ | 14,862 | 60 | $ | 16,887 | 31 | $ | 17,840 | 106 | $ | 17,841 | 115 | ||||||||||||||||||||
Plus: Other real estate owned and repossessions | 3,888 | 9 | 4,988 | 12 | 248 | 2 | 248 | 2 | ||||||||||||||||||||||||
Total Nonperforming Assets | $ | 18,750 | 69 | $ | 21,875 | 43 | $ | 18,089 | 108 | $ | 18,089 | 117 | ||||||||||||||||||||
Restructured accruing loans: | ||||||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 7,189 | 5 | $ | 354 | 1 | $ | - | - | $ | 2,480 | 5 | ||||||||||||||||||||
Real estate - construction | 997 | 1 | - | - | - | - | - | - | ||||||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||||||
Owner-occupied commercial | 3,664 | 2 | - | - | - | - | - | - | ||||||||||||||||||||||||
1-4 family mortgage | 850 | 1 | - | - | - | - | - | - | ||||||||||||||||||||||||
Other mortgage | - | - | 204 | 1 | - | - | - | - | ||||||||||||||||||||||||
Total real estate - mortgage | 4,514 | 3 | 204 | 1 | - | - | - | - | ||||||||||||||||||||||||
Consumer | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total restructured accruing loans: | $ | 12,700 | 9 | $ | 558 | 2 | $ | - | - | $ | 2,480 | 5 | ||||||||||||||||||||
Total Nonperforming assets and restructured accruing loans | $ | 31,450 | 78 | $ | 22,433 | 45 | $ | 18,089 | 108 | $ | 20,569 | 122 | ||||||||||||||||||||
Ratios: | ||||||||||||||||||||||||||||||||
Nonperforming loans to total loans | 0.26 | % | 0.34 | % | 0.15 | % | 0.15 | % | ||||||||||||||||||||||||
Nonperforming assets to total loans plus other real estate owned and repossessions | 0.33 | % | 0.44 | % | 0.16 | % | 0.15 | % | ||||||||||||||||||||||||
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions | 0.56 | % | 0.46 | % | 0.16 | % | 0.18 | % |
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 lossesACL to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal.
Impaired LoansIn keeping with this guidance from regulators, the bank offered short-term modifications made in response to COVID-19 to borrowers who were current and Allowance for Loan Losses
otherwise not past due. Should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As of September 30, 2017,March 31, 2023, we had impaired loanscarried $2.4 million of $49.6accrued interest income on deferrals made to COVID-19 affected borrowers compared to $2.4 million inclusive of nonaccrual loans, an increase of $4.0 million from $45.6 million as ofat 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. We allocated $8.5 million of our allowance for loan losses at September 30, 2017 to these impaired loans, an increase of $0.3 million compared to $8.2 million as of December 31, 2016. 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.
Of the $49.6 million of impaired loans reported as of September 30, 2017, $30.4 million were commercial, financial and agricultural loans, $3.3 million were real estate construction loans, $15.8 million were real estate mortgage loans and $0.1 million were consumer loans.2022.
Deposits
TotalWe rely on increasing our deposit base to fund loan and other asset growth. Each of our markets is highly competitive. We compete for local deposits by offering attractive products with competitive rates. We expect to have a higher average cost of funds for local deposits than competitor banks due to our lack of an extensive branch network. Our management’s strategy is to offset the higher cost of funding with a lower level of operating expense and firm pricing discipline for loan products. We have promoted electronic banking services by providing them without charge and by offering in-bank customer training. Despite a decrease in non-interest bearing deposits, our total deposits increased $376.6by $68.5 million or 6.9%, to $5.80$11.62 billion at September 30, 2017March 31, 2023 compared to $5.42$11.55 billion at December 31, 2016. While we have experienced somewhat slower growth in our deposits so far in 2017, we2022. 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 Basis” under the subheading “Net Interest Income.”Income” below.
Other The following table summarizes balances of our deposits and the percentage of each type to the total at March 31, 2023 and December 31, 2022.
March 31, 2023 | December 31, 2022 | |||||||||||||||
Non-interest-bearing demand | $ | 2,898,736 | 24.96 | % | $ | 3,321,347 | 28.76 | % | ||||||||
Interest-bearing demand | 1,762,583 | 15.17 | % | 1,861,496 | 16.12 | % | ||||||||||
Money market | 5,998,057 | 51.64 | % | 5,362,705 | 46.44 | % | ||||||||||
Savings | 131,016 | 1.13 | % | 138,450 | 1.20 | % | ||||||||||
Time deposits, $250,000 and under | 261,118 | 2.25 | % | 239,772 | 2.08 | % | ||||||||||
Time deposits, over $250,000 | 563,807 | 4.85 | % | 573,035 | 4.96 | % | ||||||||||
Brokered time deposits | - | - | % | 50,000 | 0.43 | % | ||||||||||
$ | 11,615,317 | 100.00 | % | $ | 11,546,805 | 100.00 | % |
At March 31, 2023 and December 31, 2022, we estimate that we had approximately $6.9 billion and $7.0 billion, respectively, in uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit.
The following table presents the maturities of our time deposits in excess of insurance limit as of March 31, 2023.
Portion of time deposits in excess of insurance limit | ||||
March 31, 2023 | ||||
Time deposits otherwise uninsured with a maturity of: | (In Thousands) | |||
3 months or less | $ | 75,443 | ||
Over 3 months through 6 months | 57,907 | |||
Over 6 months through 12 months | 83,621 | |||
Over 12 months | 110,666 | |||
Total | $ | 327,637 |
The uninsured deposit data for 2023 and 2022 reflect the deposit insurance impact of “combined ownership segregation” of escrow and other accounts at an aggregate level but do not reflect an evaluation of all of the account styling distinctions that would determine the availability of deposit insurance to individual accounts based on FDIC regulations.
Borrowings
Our borrowings consist of federal funds purchased and subordinated notes payable and Federal Home Loan Bank advances.payable. We had $254.9 million$1.48 billion and $355.9 million$1.64 billion at September 30, 2017March 31, 2023 and December 31, 2016,2022, 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%4.67% 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.March 31, 2023. Other borrowings consist of the following:
● | $ |
● | $34.75 million of |
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 werewas 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,March 31, 2023, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $628.1 million.$2.0 billion. The Bank had loans pledged the FHLB which provided approximately $1.4 billion in available funding. The Bank has additional unpledged CRE loans that would provide an approximate additional $1.7 billion in available funding through the FHLB for a total of $3.1 billion in available funding from the FHLB. The Bank’s policy limits on brokered deposits would allow for up to $3.6 billion in available funding for brokered deposits. Additionally, the Bank had borrowing availability of approximately $485.0$698.0 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 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”.“Borrowings” and has various other sources of liquidity as discussed herein. We believe these sources of funding are adequate to meet both our immediate (within the next 12 months) and our longer term anticipated funding needs. However, we may need additional funding if we are able to maintain our current growth rate into the future.
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.
The following table reflectsillustrates, during the contractual maturitiesperiods presented, the mix of our term liabilitiesfunding sources and the assets in which those funds are invested as a percentage of September 30, 2017. The amounts shown do not reflect any early withdrawal or prepayment assumptions.our average total assets for the period indicated. Average assets totaled $14.4 billion and $15.3 billion for the quarters ended March 31, 2023 and 2022, respectively.
Payments due by Period | ||||||||||||||||||||
Total | 1 year or less | Over 1 - 3 years | Over 3 - 5 years | Over 5 years | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Contractual Obligations (1) | ||||||||||||||||||||
Deposits without a stated maturity | $ | 5,235,403 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Certificates of deposit (2) | 561,498 | 324,179 | 152,527 | 83,161 | 1,631 | |||||||||||||||
Federal funds purchased | 254,880 | 254,880 | - | - | - | |||||||||||||||
Subordinated debentures | 54,975 | 300 | - | - | 54,675 | |||||||||||||||
Operating lease commitments | 16,180 | 3,101 | 5,365 | 3,870 | 3,844 | |||||||||||||||
Total | $ | 6,122,936 | $ | 582,460 | $ | 157,892 | $ | 87,031 | $ | 60,150 |
(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.
For the Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Sources of Funds: | ||||||||
Deposits: | ||||||||
Non-interest-bearing | 21.4 | % | 31.9 | % | ||||
Interest-bearing | 58.3 | 49.1 | ||||||
Federal funds purchased | 9.6 | 10.6 | ||||||
Long term debt and other borrowings | 0.8 | 0.4 | ||||||
Other liabilities | 0.5 | 0.4 | ||||||
Equity capital | 9.4 | 7.6 | ||||||
Total sources | 100.0 | % | 100.0 | % | ||||
Uses of Funds: | ||||||||
Loans | 81.0 | % | 63.1 | % | ||||
Securities | 12.0 | 10.0 | ||||||
Interest-bearing balances with banks | 3.5 | 23.8 | ||||||
Federal funds sold | 0.4 | 0.1 | ||||||
Other assets | 3.1 | 3.0 | ||||||
Total uses | 100.0 | % | 100.0 | % |
Capital Adequacy
Total stockholders’ equity attributable to us at March 31, 2023 was $1.34 billion, or 9.19% of total assets. At December 31, 2022, total stockholders’ equity attributable to us was $1.30 billion, or 8.89% of total assets.
As of September 30, 2017,March 31, 2023, 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 totalcommon equity Tier 1, Tier 1 risk-based, Tier 1total risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of September 30, 2017.March 31, 2023.
The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective January 1, 2015, subject to a phase-in period for certain aspects of the new rules. In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of common equity Tier 1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer became fully effective on January 1, 2019. As of January 1, 2019, an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets is required for compliance with the capital conservation buffer. The ratios for the Company and the Bank are currently sufficient to satisfy the fully phased-in conservation buffer.
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 of capital to total regulatory or risk-weighted assets, as of September 30, 2017,March 31, 2023, December 31, 20162022 and September 30, 2016:March 31, 2022:
Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||||||||||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||||||||||
As of September 30, 2017: | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
As of March 31, 2023: | ||||||||||||||||||||||||||||||||||||||||||||||||
CET 1 Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 574,296 | 9.60 | % | $ | 269,204 | 4.50 | % | N/A | N/A | $ | 1,368,751 | 10.01 | % | $ | 615,176 | 4.50 | % | N/A | N/A | ||||||||||||||||||||||||||||
ServisFirst Bank | 629,146 | 10.52 | % | 269,172 | 4.50 | % | $ | 388,803 | 6.50 | % | 1,428,371 | 10.45 | % | 615,120 | 4.50 | % | $ | 888,506 | 6.50 | % | ||||||||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Tier 1 Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 574,798 | 9.61 | % | 358,938 | 6.00 | % | N/A | N/A | 1,369,251 | 10.02 | % | 820,235 | 6.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 629,648 | 10.53 | % | 358,896 | 6.00 | % | 478,527 | 8.00 | % | 1,428,871 | 10.45 | % | 820,160 | 6.00 | % | 1,093,546 | 8.00 | % | ||||||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 688,432 | 11.51 | % | 478,584 | 8.00 | % | N/A | N/A | 1,578,208 | 11.54 | % | 1,093,647 | 8.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 688,607 | 11.51 | % | 478,527 | 8.00 | % | 598,159 | 10.00 | 1,578,411 | 11.55 | % | 1,093,546 | 8.00 | % | 1,366,933 | 10.00 | % | |||||||||||||||||||||||||||||||
Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 574,798 | 8.91 | % | 257,939 | 4.00 | % | N/A | N/A | 1,369,251 | 9.49 | % | 576,964 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 629,648 | 9.76 | % | 258,498 | 4.00 | % | 323,123 | 5.00 | % | 1,428,871 | 9.91 | % | 576,969 | 4.00 | % | 721,211 | 5.00 | % | ||||||||||||||||||||||||||||||
As of December 31, 2016: | ||||||||||||||||||||||||||||||||||||||||||||||||
CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2022: | ||||||||||||||||||||||||||||||||||||||||||||||||
CET 1 Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 508,982 | 9.78 | % | $ | 234,262 | 4.50 | % | N/A | N/A | $ | 1,326,035 | 9.55 | % | $ | 624,986 | 4.50 | % | N/A | N/A | ||||||||||||||||||||||||||||
ServisFirst Bank | 560,731 | 10.77 | % | 234,232 | 4.50 | % | $ | 338,335 | 6.50 | % | 1,385,697 | 9.98 | % | 624,942 | 4.50 | % | $ | 902,694 | 6.50 | % | ||||||||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Tier 1 Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 509,359 | 9.78 | % | 312,350 | 6.00 | % | N/A | N/A | 1,326,535 | 9.55 | % | 833,315 | 6.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 561,108 | 10.78 | % | 312,309 | 6.00 | % | 416,413 | 8.00 | % | 1,386,197 | 9.98 | % | 833,256 | 6.00 | % | 1,111,008 | 8.00 | % | ||||||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 616,415 | 11.84 | % | 416,467 | 8.00 | % | N/A | N/A | 1,532,134 | 11.03 | % | 1,111,086 | 8.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 613,501 | 11.79 | % | 416,413 | 8.00 | % | 520,516 | 10.00 | % | 1,533,069 | 11.04 | % | 1,111,008 | 8.00 | % | 1,388,760 | 10.00 | % | ||||||||||||||||||||||||||||||
Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 509,359 | 8.22 | % | 247,777 | 4.00 | % | N/A | N/A | 1,326,535 | 9.29 | % | 570,960 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 561,108 | 9.06 | % | 247,760 | 4.00 | % | 309,700 | 5.00 | % | 1,386,197 | 9.71 | % | 570,924 | 4.00 | % | 713,656 | 5.00 | % | ||||||||||||||||||||||||||||||
As of September 30, 2016: | ||||||||||||||||||||||||||||||||||||||||||||||||
CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
As of March 31, 2022: | ||||||||||||||||||||||||||||||||||||||||||||||||
CET 1 Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 488,673 | 9.91 | % | $ | 221,937 | 4.50 | % | N/A | N/A | $ | 1,169,735 | 9.86 | % | $ | 533,769 | 4.50 | % | N/A | N/A | ||||||||||||||||||||||||||||
ServisFirst Bank | 540,233 | 10.96 | % | 221,902 | 4.50 | % | $ | 320,525 | 6.50 | % | 1,232,198 | 10.39 | % | 533,698 | 4.50 | % | $ | 770,897 | 6.50 | % | ||||||||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Tier 1 Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 489,050 | 9.92 | % | 295,916 | 6.00 | % | N/A | N/A | 1,170,235 | 9.87 | % | 711,691 | 6.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 540,610 | 10.96 | % | 295,869 | 6.00 | % | 394,493 | 8.00 | % | 1,232,698 | 10.39 | % | 711,598 | 6.00 | % | 948,797 | 8.00 | % | ||||||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Capital to Risk Weighted Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 593,140 | 12.03 | % | 394,554 | 8.00 | % | N/A | N/A | 1,356,009 | 11.43 | % | 948,922 | 8.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 590,043 | 11.97 | % | 394,493 | 8.00 | % | 493,116 | 10.00 | % | 1,353,761 | 11.41 | % | 948,797 | 8.00 | % | 1,185,996 | 10.00 | % | ||||||||||||||||||||||||||||||
Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | 489,050 | 8.20 | % | 238,594 | 4.00 | % | N/A | N/A | 1,170,235 | 7.67 | % | 610,638 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||
ServisFirst Bank | 540,610 | 9.06 | % | 238,583 | 4.00 | % | 298,228 | 5.00 | % | 1,232,698 | 8.08 | % | 610,538 | 4.00 | % | 763,172 | 5.00 | % |
We are a legal entity separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole shareholder. Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders. The requirement that a bank holding company must serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a Bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength. Our ability to pay dividends is also subject to the provisions of Delaware corporate law.
The Alabama Banking Department also regulates the Bank’s dividend payments. Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the Bank’s surplus is equal to at least 20% of its capital (our Bank’s surplus currently exceeds 20% of its capital). Moreover, our Bank is also required by Alabama law to obtain the prior approval of the Superintendent of Banks (“Superintendent”) for its payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (i) the Bank’s net earnings (as defined by statute) for that year, plus (ii) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends, withdrawals or transfers may be made from the Bank’s surplus without the prior written approval of the Superintendent.
The Bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividends if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. If, in the opinion of the federal banking regulators, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulators could require, after notice and a hearing, that the Bank stop or refrain from engaging in the questioned practice.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to financial instrumentscredit arrangements with off-balance sheet risk to meet the financing needs of our customers. These financial instrumentscredit arrangements include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit and financial guarantees. Those instrumentscredit arrangements involve, to varying degrees, elements of credit risk in excess of the amount recognized in ourthe balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial instruments.credit arrangements. All such credit arrangements bear interest at variable rates and we have no such credit arrangements which bear interest at fixed rates.
Our exposure to credit loss in the event of non-performance by the other party to suchthe financial instrumentsinstrument for commitments to extend credit, credit card arrangements and standby letters of credit 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, 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 as of September 30, 2017 and December 31, 2016 for the settlement of any repurchase demands by investors.
Financial instruments whose contract amounts represent credit risk at September 30, 2017March 31, 2023 are as follows:
September 30, 2017 | March 31, 2023 | |||||||
(In Thousands) | (In Thousands) | |||||||
Commitments to extend credit | $ | 1,873,412 | $ | 3,958,312 | ||||
Credit card arrangements | 82,684 | 362,347 | ||||||
Standby letters of credit | 49,894 | 60,666 | ||||||
$ | 2,005,990 | $ | 4,381,325 |
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.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. All letters of credit are due within one year or less of the original commitment date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Federal funds lines of credit are uncommitted lines issued to downstream correspondent banks for the purpose of providing liquidity to them. The lines are unsecured, and we have no obligation to sell federal funds to the correspondent, nor does the correspondent have any obligation to request or accept purchases of federal funds from us.
Results of Operations
Summary of Net Income
Net income and net income available to common stockholders for the three months ended September 30, 2017March 31, 2023 was $25.3$58.0 million compared to net income and net income available to common stockholders of $20.9$57.6 million for the three months ended September 30, 2016. Net income and net income available to common stockholders for the nine months ended September 30, 2017 was $71.9 million compared to net income and net income available to common stockholders of $59.7 million for the nine months ended September 30, 2016.March 31, 2022. The increase in net income for the three months ended September 30, 2017 over the same period in 2016 was primarily attributable to a $10.5$2.6 million increase in net interest income resulting from growth in earning assets, partially offset by a $3.4 million increase in tax provision. The increase in net income forduring the ninethree months ended September 30, 2017March 31, 2023 to $108.3 million, compared to 2016 was primarily$105.7 million during the result of a $28.0 millionsame period in 2022. The increase in net interest income resulting fromis primarily attributable to growth in average earning assets and a $2.0 million increase inloans, which increased by $2.00 billion. Total non-interest income leddecreased by increased credit card income. Non-interest$1.6 million to $6.3 million during the three months ended March 31, 2023 compared to $7.9 million during the same period in 2022. Total non-interest expenses increased by $1.3$2.4 million and $5.6to $39.7 million respectively, forduring the three and nine months ended September 30, 2017March 31, 2023 compared to 2016.$37.2 million during the same period in 2022.
Basic and diluted net income per common share were $0.48$1.07 and $0.47,$1.06, respectively, for the three months ended September 30, 2017,March 31, 2023, compared to $0.40 and $0.39, respectively,$1.06 for both for the corresponding period in 2016. Basic and diluted net income per common share were $1.36 and $1.33, respectively, for the nine months ended September 30, 2017, compared to $1.14 and $1.12, respectively, for the corresponding period in 2016.2022. Return on average assets for the three and nine months ended September 30, 2017March 31, 2023 was 1.55% and 1.52%, respectively,1.63% compared to 1.39% and 1.43%, respectively,1.53% for the corresponding periodsperiod in 2016. Return2022, and return on average common stockholders’ equity for the three and nine months ended September 30, 2017March 31, 2023 was 17.28% and 17.24%17.83% compared to 16.66% and 16.60%, respectively,20.09% for the corresponding periodsperiod in 2016.2022.
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.
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$2.5 million, or 17.6%2.4%, to $56.9$108.4 million for the three months ended September 30, 2017March 31, 2023 compared to $48.4$105.8 million for the corresponding period in 2016, and increased $28.0 million, or 20.1%, to $167.5 million for the nine months ended September 30, 2017 compared to $139.5 million for the corresponding period in 2016.2022. This increase was primarily attributable to growtha $2.00 billion increase in average earning assets, which increased $435.8 million,loans, or 7.6%20.8%, from the third quarter of 2016 to the third quarter of 2017, and $699.2 million, or 13.0%, from the nine months ended September 30, 2016 to the same period in 2017.year-over-year. Average interest-bearing balances with banks decreased by $3.13 billion. The taxable-equivalent yield on interest-earning assets increased from 3.10% to 4.37% for5.27% year-over-year, primarily a result of the three months ended September 30, 2017 from 3.81% for the corresponding period in 2016, and increased to 4.23% for the nine months ended September 30, 2017 from 3.93% for the corresponding period in 2016.Federal Reserve increasing market interest rates during 2022. The yield on loans for the three months ended September 30, 2017March 31, 2023 was 4.66%5.70% compared to 4.47%4.34% for the corresponding period in 2016, and 4.58% compared to 4.47% for the nine months ended September 30, 2017 and September 30, 2016, respectively.2022. The cost of total interest-bearing liabilities increased to 0.81%2.98% for the three months ended September 30, 2017 compared to 0.64%March 31, 2023 from 0.33% for the corresponding period in 2016, and increased to 0.74% for the nine months ended September 30, 2017 from 0.63% for the corresponding period in 2016.2022. Net interest margin for the three months ended September 30, 2017 was 3.77% comparedMarch 31, 2023 increased 26 basis points to 3.35%3.15% from 2.89% for the corresponding period in 2016, and 3.69% for the nine months ended September 30, 2017 compared to 3.47% for the corresponding period in 2016.2022.
Beginning in March of 2022, the Federal Reserve Bank increased their targeted federal funds rate from 0 – 0.25% to its current range of 4.75 – 5.00%. Our cost of funding has increased as a result of deposit pricing pressures resulting from these rate increases. We believe our net interest income will benefit over a short period of time following the Federal Reserve Bank’s ceasing these rate increases.
The following tables show,table shows, for the three and nine months ended September 30, 2017March 31, 2023 and September 30, 2016,March 31, 2022, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue. The accompanying tables reflecttable reflects 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. TheBoth tables are presented on a taxable-equivalent basis where applicable:
Average Consolidated Balance Sheets and Net Interest Analysis
| |||||||||||||||||||||||
On a Fully Taxable-Equivalent Basis | |||||||||||||||||||||||
For the Three Months Ended March 31, | |||||||||||||||||||||||
(Dollar Amounts In Thousands) |
2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
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) | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans, net of unearned income (1)(2): | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | $ | 5,407,109 | $ | 63,519 | 4.66 | % | $ | 4,554,900 | $ | 51,233 | 4.47 | % | $ | 11,632,439 | $ | 163,576 | 5.70 | % | $ | 9,621,484 | $ | 102,891 | 4.34 | % | ||||||||||||||||||||||||
Tax-exempt (3) | 33,357 | 435 | 5.17 | 21,939 | 241 | 4.37 | 18,978 | 157 | 3.36 | 25,195 | 254 | 4.09 | ||||||||||||||||||||||||||||||||||||
Total loans, net of unearned income | 5,440,466 | 63,954 | 4.66 | 4,576,839 | 51,474 | 4.47 | 11,651,417 | 163,733 | 5.70 | 9,646,679 | 103,145 | 4.34 | ||||||||||||||||||||||||||||||||||||
Mortgage loans held for sale | 4,862 | 43 | 3.51 | 6,724 | 64 | 3.79 | 1,522 | 24 | 6.40 | 927 | 4 | 1.75 | ||||||||||||||||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 385,431 | 2,287 | 2.37 | 224,825 | 1,232 | 2.19 | 1,724,523 | 10,939 | 2.54 | 1,518,572 | 8,222 | 2.17 | ||||||||||||||||||||||||||||||||||||
Tax-exempt (3) | 131,478 | 1,097 | 3.34 | 135,272 | 1,262 | 3.73 | 3,781 | 23 | 2.43 | 8,812 | 51 | 2.32 | ||||||||||||||||||||||||||||||||||||
Total investment securities (4) | 516,909 | 3,384 | 2.62 | 360,097 | 2,494 | 2.77 | ||||||||||||||||||||||||||||||||||||||||||
Total debt securities (4) | 1,728,304 | 10,962 | 2.54 | 1,527,384 | 8,273 | 2.17 | ||||||||||||||||||||||||||||||||||||||||||
Federal funds sold | 111,175 | 378 | 1.35 | 217,158 | 347 | 0.64 | 50,526 | 614 | 4.93 | 16,639 | 13 | 0.32 | ||||||||||||||||||||||||||||||||||||
Restricted equity securities | 1,030 | 9 | 3.47 | 5,658 | 57 | 4.01 | 9,919 | 188 | 7.69 | 7,371 | 68 | 4 | ||||||||||||||||||||||||||||||||||||
Interest-bearing balances with banks | 118,510 | 379 | 1.27 | 590,675 | 759 | 0.51 | 510,021 | 5,873 | 4.67 | 3,637,882 | 1,804 | 0.20 | ||||||||||||||||||||||||||||||||||||
Total interest-earning assets | $ | 6,192,952 | $ | 68,147 | 4.37 | % | $ | 5,757,151 | $ | 55,195 | 3.81 | % | $ | 13,951,709 | $ | 181,394 | 5.27 | % | $ | 14,836,882 | $ | 113,307 | 3.10 | % | ||||||||||||||||||||||||
Non-interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | 65,457 | 58,809 | 106,448 | 74,534 | ||||||||||||||||||||||||||||||||||||||||||||
Net fixed assets and equipment | 54,727 | 25,000 | ||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses, accrued interest and other assets | 151,786 | 145,804 | ||||||||||||||||||||||||||||||||||||||||||||||
Net premises and equipment | 60,617 | 61,209 | ||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses, accrued interest and other assets | 279,775 | 313,560 | ||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 6,464,922 | 5,986,764 | $ | 14,398,549 | $ | 15,286,185 | |||||||||||||||||||||||||||||||||||||||||
Liabilities and stockholders' equity: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 800,437 | $ | 849 | 0.42 | % | $ | 696,100 | $ | 644 | 0.37 | % | $ | 1,675,355 | $ | 5,151 | 1.25 | % | $ | 1,594,645 | $ | 778 | 0.20 | % | ||||||||||||||||||||||||
Savings deposits | 48,313 | 37 | 0.30 | 43,569 | 33 | 0.30 | 134,671 | 312 | 0.94 | 135,545 | 59 | 0.18 | ||||||||||||||||||||||||||||||||||||
Money market accounts | 2,774,061 | 5,170 | 0.74 | 2,471,829 | 3,387 | 0.55 | 5,756,642 | 44,978 | 3.17 | 4,985,224 | 3,204 | 0.26 | ||||||||||||||||||||||||||||||||||||
Time deposits (5) | 546,020 | 1,518 | 1.10 | 519,653 | 1,294 | 0.99 | ||||||||||||||||||||||||||||||||||||||||||
Time deposits | 850,639 | 5,272 | 2.51 | 792,930 | 1,803 | 0.92 | ||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing deposits | 4,168,831 | 7,574 | 0.72 | 3,731,151 | 5,358 | 0.57 | 8,417,307 | 55,713 | 2.68 | 7,508,344 | 5,844 | 0.32 | ||||||||||||||||||||||||||||||||||||
Federal funds purchased | 282,806 | 954 | 1.34 | 436,415 | 698 | 0.64 | 1,389,217 | 16,003 | 4.67 | 1,620,012 | 932 | 0.23 | ||||||||||||||||||||||||||||||||||||
Other borrowings | 55,034 | 717 | 5.17 | 55,410 | 717 | 5.15 | 114,726 | 1,305 | 4.61 | 64,708 | 690 | 4.32 | ||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | $ | 4,506,671 | $ | 9,245 | 0.81 | % | $ | 4,222,976 | $ | 6,773 | 0.64 | % | $ | 9,921,250 | $ | 73,021 | 2.98 | % | $ | 9,193,064 | $ | 7,466 | 0.33 | % | ||||||||||||||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-bearing demand deposits | 1,363,207 | 1,250,139 | 3,086,774 | 4,870,701 | ||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 15,070 | 14,376 | 72,121 | 59,619 | ||||||||||||||||||||||||||||||||||||||||||||
Stockholders' equity | 578,626 | 494,248 | 1,358,587 | 1,156,186 | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains on securities and derivatives | 1,348 | 5,025 | ||||||||||||||||||||||||||||||||||||||||||||||
Accumulated other comprehensive (loss) income | (40,183 | ) | 6,615 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 6,464,922 | $ | 5,986,764 | $ | 14,398,549 | $ | 15,286,185 | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 58,902 | $ | 48,422 | $ | 108,373 | $ | 105,841 | ||||||||||||||||||||||||||||||||||||||||
Net interest spread | 3.56 | % | 3.17 | % | 2.29 | % | 2.77 | % | ||||||||||||||||||||||||||||||||||||||||
Net interest margin | 3.77 | % | 3.35 | % | 3.15 | % | 2.89 | % |
(1) | Non-accrual loans are included in average loan balances in all periods. Loan fees of | ||||||||||||||
(2) | Amortization of acquired loan | ||||||||||||||
(3) | Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of | ||||||||||||||
For the Three Months Ended March 31, | ||||||||||||
2023 Compared to 2022 Increase (Decrease) in Interest Income and Expense Due to Changes in: | ||||||||||||
Volume | Rate | Total | ||||||||||
(In Thousands) | ||||||||||||
Interest-earning assets: | ||||||||||||
Loans, net of unearned income | ||||||||||||
Taxable | $ | 24,207 | $ | 36,478 | $ | 60,685 | ||||||
Tax-exempt | (56 | ) | (41 | ) | (97 | ) | ||||||
Total loans, net of unearned income | 24,151 | 36,437 | 60,588 | |||||||||
Mortgages held for sale | 4 | 16 | 20 | |||||||||
Debt securities: | ||||||||||||
Taxable | 1,199 | 1,518 | 2,717 | |||||||||
Tax-exempt | (31 | ) | 3 | (28 | ) | |||||||
Total debt securities | 1,168 | 1,521 | 2,689 | |||||||||
Federal funds sold | 73 | 528 | 601 | |||||||||
Restricted equity securities | 48 | 140 | 120 | |||||||||
Interest-bearing balances with banks | (2,835 | ) | 6,904 | 4,069 | ||||||||
Total interest-earning assets | 22,609 | 45,546 | 68,087 | |||||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing demand deposits | 41 | 4,332 | 4,373 | |||||||||
Savings | - | 252 | 252 | |||||||||
Money market accounts | 572 | 41,202 | 41,774 | |||||||||
Time deposits | 140 | 3,329 | 3,469 | |||||||||
Total interest-bearing deposits | 753 | 49,115 | 49,868 | |||||||||
Federal funds purchased | (152 | ) | 15,223 | 15,071 | ||||||||
Other borrowed funds | 566 | 49 | 615 | |||||||||
Total interest-bearing liabilities | 1,167 | 64,387 | 65,554 | |||||||||
Increase in net interest income | $ | 21,442 | $ | (18,841 | ) | $ | 2,533 |
For the Three Months Ended September 30, | ||||||||||||
2017 Compared to 2016 Increase (Decrease) in Interest Income and Expense Due to Changes in: | ||||||||||||
Volume | Rate | Total | ||||||||||
(In Thousands) | ||||||||||||
Interest-earning assets: | ||||||||||||
Loans, net of unearned income | ||||||||||||
Taxable | $ | 10,054 | $ | 2,232 | $ | 12,286 | ||||||
Tax-exempt | 144 | 50 | 194 | |||||||||
Total loans, net of unearned income | 10,198 | 2,282 | 12,480 | |||||||||
Mortgages held for sale | (16 | ) | (5 | ) | (21 | ) | ||||||
Debt securities: | ||||||||||||
Taxable | 949 | 106 | 1,055 | |||||||||
Tax-exempt | (34 | ) | (131 | ) | (165 | ) | ||||||
Total debt securities | 915 | (25 | ) | 890 | ||||||||
Federal funds sold | (227 | ) | 258 | 31 | ||||||||
Restricted equity securities | (41 | ) | (7 | ) | (48 | ) | ||||||
Interest-bearing balances with banks | (923 | ) | 543 | (380 | ) | |||||||
Total interest-earning assets | 9,906 | 3,046 | 12,952 | |||||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing demand deposits | 105 | 100 | 205 | |||||||||
Savings | 4 | - | 4 | |||||||||
Money market accounts | 455 | 1,328 | 1,783 | |||||||||
Time deposits | 69 | 155 | 224 | |||||||||
Total interest-bearing deposits | 633 | 1,583 | 2,216 | |||||||||
Federal funds purchased | (311 | ) | 567 | 256 | ||||||||
Other borrowed funds | (4 | ) | 4 | - | ||||||||
Total interest-bearing liabilities | 318 | 2,154 | 2,472 | |||||||||
Increase in net interest income | $ | 9,588 | $ | 892 | $ | 10,480 |
Our growth in loans non-interest bearing deposits and average equity continues to drive favorable volume component change and overall change. Also, the recent increasesThe rate component was unfavorable as average rates paid on interest-bearing liabilities increased 265 basis points while loan yields increased only 136 basis points. An increase in the Federal Reserve Bank’s target federal funds rate hasaverage equity 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.
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 | % |
For the Nine Months Ended September 30, | ||||||||||||
2017 Compared to 2016 Increase (Decrease) in Interest Income and Expense Due to Changes in: | ||||||||||||
Volume | Rate | Total | ||||||||||
(In Thousands) | ||||||||||||
Interest-earning assets: | ||||||||||||
Loans, net of unearned income | ||||||||||||
Taxable | $ | 26,839 | $ | 4,144 | $ | 30,983 | ||||||
Tax-exempt | 655 | 29 | 684 | |||||||||
Total loans, net of unearned income | 27,494 | 4,173 | 31,667 | |||||||||
Mortgages held for sale | (36 | ) | (6 | ) | (42 | ) | ||||||
Debt securities: | ||||||||||||
Taxable | 2,852 | 55 | 2,907 | |||||||||
Tax-exempt | (106 | ) | (366 | ) | (472 | ) | ||||||
Total debt securities | 2,746 | (311 | ) | 2,435 | ||||||||
Federal funds sold | 52 | 503 | 555 | |||||||||
Restricted equity securities | (154 | ) | 39 | (115 | ) | |||||||
Interest-bearing balances with banks | (1,454 | ) | 972 | (482 | ) | |||||||
Total interest-earning assets | 28,648 | 5,370 | 34,018 | |||||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing demand deposits | 298 | 212 | 510 | |||||||||
Savings | 16 | 2 | 18 | |||||||||
Money market accounts | 2,150 | 2,381 | 4,531 | |||||||||
Time deposits | 220 | 246 | 466 | |||||||||
Total interest-bearing deposits | 2,684 | 2,841 | 5,525 | |||||||||
Federal funds purchased | (780 | ) | 1,223 | 443 | ||||||||
Other borrowed funds | (18 | ) | 16 | (2 | ) | |||||||
Total interest-bearing liabilities | 1,886 | 4,080 | 5,966 | |||||||||
Increase in net interest income | $ | 26,762 | $ | 1,290 | $ | 28,052 |
Our growth in loans, non-interest bearing deposits and average equity continues to drive favorable volume component, change and overall change. Also, the recent increasesbut was partially offset by a decrease 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 onaverage non-interest-bearing deposits.
Provision for LoanCredit 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, total loans rated Special Mention, Substandard, and Doubtful were $131.1 million, or 2.3% of total loans, compared to $128.8 million, or 2.6% of total loans, at December 31, 2016. 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 loancredit losses was $4.8$4.2 million for the three months ended September 30, 2017, an increaseMarch 31, 2023, a decrease of $1.3$1.2 million from $3.5$5.4 million for the three months ended September 30, 2016,March 31, 2022. The decrease in provision expense is primarily the result of improvement in the economic projections used to inform loss driver forecasts within the ACL model. The ACL for March 31, 2023, December 31, 2022 and was $14.2March 31, 2022 totaled $149.0 million, for the nine months ended September 30, 2017, a $4.9$146.0 million, increase compared to $9.3 million for the nine months ended September 30, 2016. Nonperforming loans decreased to $14.9and $119.0 million, or 0.26% of total loans, at September 30, 2017 from $16.9 million, or 0.34% 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. The allowance for loan losses totaled $58.5 million, or 1.04% of total loans, net of unearned income, at September 30, 2017, compared to $51.9 million, or 1.06%1.28%, 1.25%, and 1.21% of loans, net of unearned income, respectively. Annualized net credit charge-offs to quarter-to-date average loans were 0.05% for the first quarter of 2023, a six basis point decrease compared to 0.11% for the first quarter of 2022. Nonperforming loans were flat at $17.8 million, or 0.15% of total loans, at March 31, 2023 from the same amounts at December 31, 2016.2022, and decreased compared to $19.4 million, or 0.20% of total loans, at March 31, 2022.
Noninterest Income
Noninterest income was flat at $4.8totaled $6.3 million for the three months ended September 30, 2017March 31, 2023, a decrease of $1.6 million compared to the corresponding period in 2016, and totaled $14.1 million for the nine months ended September 30, 2017, an increase of $2.0 million,2022. Service charges on deposit accounts decreased $208,000, or 16.5%, compared to the corresponding period in 2016. Mortgage banking income decreased $0.1 million, or 9.1%9.71%, to $1.0$1.9 million for the three months ended September 30, 2017March 31, 2023, compared to $1.1$2.1 million forin the samecorresponding period in 2016, and increased $0.2 million,2022. Mortgage banking revenue decreased $84,000, or 7.4%15.97%, to $2.9 million for the nine months ended September 30, 2017 compared to $2.7 million for the same period in 2016. Credit card income was flat at $1.1 million$442,000 for the three months ended September 30, 2017March 31, 2023, compared to $526,000 in the samecorresponding period in 2016, and increased $1.3 million,2022. Interest rate increases have negatively impacted the housing market, which contributed to the decrease in mortgage banking revenue. Net credit card revenue decreased $683,000, or 59.1%28.79%, to $3.5$1.7 million forduring the ninethree months ended September 30, 2017March 31, 2023, compared to $2.2$2.4 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 accounts during the third quarter of 2017.three months ended March 31, 2022. The number of credit card accounts increased 35.7% from September 30, 2016 to September 30, 2017approximately 8.2% and the volumeaggregate amount of purchasesspend on cardsall credit card accounts increased 58.5% from14.7% during the quarterthree months ended September 30, 2016March 31, 2023 compared to the three months ended March 31, 2022. Other income for the three months ended March 31, 2023, decreased $4.0 million, or 86.3%, to $635,000 when compared to the corresponding period in 2022. We did not recognize any income on the interest rate cap during the first quarter ended September 30, 2017.of 2023, compared to $3.4 million during the first quarter of 2022. Merchant service revenue increased by $118,000, or 35.2%, to $455,000, during the first quarter of 2023 compared to $336,000 during the corresponding period in 2022.
Changes in our non-interest income, including percentage changes, are detailed in the following table:
Three Months Ended March 31, | ||||||||||||||||
2023 | 2022 | $ change | % change | |||||||||||||
(Dollars In Thousands) | ||||||||||||||||
Noninterest income: | ||||||||||||||||
Service charges on deposit accounts | $ | 1,934 | $ | 2,142 | $ | (208 | ) | (9.7 | )% | |||||||
Mortgage banking | 442 | 526 | (84 | ) | (16.0 | )% | ||||||||||
Credit cards | 1,689 | 2,372 | (683 | ) | (28.8 | )% | ||||||||||
Securities gains | - | (3,335 | ) | NM | NM | |||||||||||
Increase in cash surrender value life insurance | 1,621 | 1,608 | 13 | 0.8 | % | |||||||||||
Other operating income | 635 | 4,635 | (4,000 | ) | (86.3 | )% | ||||||||||
Total noninterest income | $ | 6,321 | $ | 7,948 | $ | (1,627 | ) | (20.5 | )% |
Noninterest Expense
Noninterest expense totaled $21.5$39.7 million for the three months ended September 30, 2017,March 31, 2023, an increase of $1.3$2.4 million, or 6.4%6.6%, compared to $20.2$37.2 million for the same period in 2016,2022. Salary and totaled $64.6benefit expense increased $765,000, or 4.2%, to $19.1 million for the ninethree months ended September 30, 2017, an increase of $5.6 million, or 9.5%, compared to $59.0March 31, 2023, from $18.3 million for the same period in 2016.
Details2022. Total FTE employees increased from 511 as of expenses areMarch 31, 2022, to 573 as follows:
The following table presents our non-interest income and non-interest expense for the three months ended March 31, 2023 from $2.9 million for the corresponding period in 2022.We opened new offices in Charlotte and nine month periods ending September 30, 2017 comparedAsheville, North Carolina during the second and third quarters of 2022, which contributed to the increase in equipment and occupancy expense. Third party processing and other services increased $1.7 million, or 30.0%, to $7.3 million for the three months ended March 31, 2023, from $5.6 million for the corresponding period in 2022. The increase year-over-year in third party processing also includes Federal Reserve Bank charges related to correspondent bank settlement activities. Professional services increased $662,000, or 66.7%, to $1.7 million for the three months ended March 31, 2023, from $992,000 for the same periodsperiod in 2016.2022. FDIC and other regulatory assessments increased $385,000, or 34.0%, to $1.5 million for the three months ended March 31, 2023 from $1.1 million for the corresponding period in 2022. OREO expense increased $3,000, or 100.0%, to $6,000 for the three months ended March 31, 2023 from $3,000 for the corresponding period in 2022. Other operating expenses decreased $1.6 million, or 18.8%, to $6.7 million for the three months ended March 31, 2023, from $8.3 million for the corresponding period in 2022. We recognized $874,000 of expenses during the three months ended March 31, 2022, associated with the conversion to a new core operating system scheduled to take place within the year. We wrote down investments in new market tax credit entities by $2.5 million during the three months ended March 31, 2022. We increased our ACL on unfunded loan commitments by $300,000 in the first quarter of 2022.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | $ change | % change | 2017 | 2016 | $ change | % change | |||||||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||||||
Service charges on deposit accounts | $ | 1,467 | $ | 1,367 | $ | 100 | 7.3 | % | $ | 4,203 | $ | 3,980 | $ | 223 | 5.6 | % | ||||||||||||||||
Mortgage banking | 978 | 1,112 | (134 | ) | (12.1 | )% | 2,941 | 2,681 | 260 | 9.7 | % | |||||||||||||||||||||
Credit card income | 1,149 | 1,116 | 33 | 3.0 | % | 3,517 | 2,159 | 1,358 | 62.9 | % | ||||||||||||||||||||||
Securities gains | - | - | - | NM | - | (3 | ) | 3 | NM | |||||||||||||||||||||||
Increase in cash surrender value life insurance | 825 | 770 | 55 | 7.1 | % | 2,334 | 2,049 | 285 | 13.9 | % | ||||||||||||||||||||||
Other operating income | 371 | 426 | (55 | ) | (12.9 | )% | 1,146 | 1,207 | (61 | ) | (5.1 | )% | ||||||||||||||||||||
Total non-interest income | $ | 4,790 | $ | 4,791 | $ | (1 | ) | - | % | $ | 14,141 | $ | 12,073 | $ | 2,068 | 17.1 | % | |||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||||||
Salaries and employee benefits | 12,428 | 10,958 | 1,470 | 13.4 | % | 36,172 | 32,758 | 3,414 | 10.4 | % | ||||||||||||||||||||||
Equipment and occupancy expense | 1,947 | 2,100 | (153 | ) | (7.3 | )% | 6,452 | 6,108 | 344 | 5.6 | % | |||||||||||||||||||||
Professional services | 805 | 1,182 | (377 | ) | (31.9 | )% | 2,384 | 2,919 | (535 | ) | (18.3 | )% | ||||||||||||||||||||
FDIC and other regulatory assessments | 810 | 775 | 35 | 4.5 | % | 2,888 | 2,328 | 560 | 24.1 | % | ||||||||||||||||||||||
OREO expense | 31 | 178 | (147 | ) | (82.6 | )% | 163 | 668 | (505 | ) | (75.6 | )% | ||||||||||||||||||||
Other operating expense | 5,476 | 4,969 | 507 | 10.2 | % | 16,580 | 14,175 | 2,405 | 17.0 | % | ||||||||||||||||||||||
Total non-interest expense | $ | 21,497 | $ | 20,162 | $ | 1,335 | 6.6 | % | $ | 64,639 | $ | 58,956 | $ | 5,683 | 9.6 | % |
Changes in our non-interest expenses, including percentage changes, are detailed in the following table:
Three Months Ended March 31, | ||||||||||||||||
2023 | 2022 | $ change | % change | |||||||||||||
(Dollars In Thousands) | ||||||||||||||||
Noninterest expense: | ||||||||||||||||
Salaries and employee benefits | $ | 19,066 | $ | 18,301 | $ | 765 | 4.2 | % | ||||||||
Equipment and occupancy | 3,435 | 2,933 | 502 | 17.1 | % | |||||||||||
Third party processing and other services | 7,284 | 5,605 | 1,679 | 30.0 | % | |||||||||||
Professional services | 1,654 | 992 | 662 | 66.7 | % | |||||||||||
FDIC and other regulatory assessments | 1,517 | 1,132 | 385 | 34.0 | % | |||||||||||
Other real estate owned | 6 | 3 | 3 | 100.0 | % | |||||||||||
Other operating expense | 6,702 | 8,252 | (1,550 | ) | (18.8 | )% | ||||||||||
Total noninterest expense | $ | 39,664 | $ | 37,218 | $ | 2,446 | 6.6 | % |
Income Tax Expense
Income tax expense was $11.6$12.8 million for the three months ended September 30, 2017 compared to $8.2March 31, 2023 versus $13.5 million for the same period in 2016, and was $29.4 million for the nine months ended September 30, 2017 compared to $22.0 million for the same period in 2016.2022. Our effective tax rate for the three and nine months ended September 30, 2017March 31, 2023 was 31.5% and 29.0%18.07%, respectively, compared to 28.1% and 27.0%18.96% for the corresponding periodsperiod in 2016, respectively.2022. We recognized a reductiontax credits during the three months ended March 31, 2023 of $3.9 million, compared to $3.3 million for the corresponding period in provision for income taxes resulting from2022. We recognized excess tax benefits from the exercise and vesting of stock options and restricted stock during the three and nine months ended September 30, 2017 of $0.8 million and $4.3 million, respectively, comparedas a credit to $1.2 million and $4.7 million during the three and nine months ended September 30, 2016, respectively. Lower excessour income tax benefitsexpense from the exercise of stock options and lower Alabama state sales taxes, which we can deduct from our Alabama corporate income taxes, duringvesting of restricted stock of $1.1 million in the thirdfirst quarter of 2017 contributed to the higher effective tax rate when2023, compared to $571,000 in the samefirst quarter in 2016.of 2022. Our primary permanent differences are related to tax exempttax-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.
Critical Accounting Estimates
The accounting and financial policies of the Company conform to U.S. GAAP and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. generally accepted accounting principles, 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 ACL, valuation of impaired loans and 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, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Like all financial institutions, we are subject to market risk from changes in interest rates. Interest rate risk is inherent in the balance sheet due to the mismatch between the maturities of rate-sensitive assets and rate-sensitive liabilities. If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities is greater than the level of rate-sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short-term rates may be rising while longer-term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.
To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall or remain the same. Our asset-liability committee (“ALCO”) 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 ofrisks that our balance sheet.sheet is exposed to. Our annual budget reflects the anticipated rate environment for the next 12 months.
The asset-liability committeeALCO employs modeling techniques such as net interest income simulations and economic value of equity simulations to determine what amount of the Bank’s net interest income is at risk given different movements in market interest rates. Simulations assume gradual and instantaneous (shocks) movements in market interest rates of up and down 100, 200, 300 and 400 basis points, when practicable. A set of Benchmark and optional scenarios are ran and results are compared to base model results to measure sensitivity to movements in market interest rates. The ALCO establishes limits for the amount of negative change in net interest margin in the first year, second year and two-year cumulative time horizon. Current policy limits for the 100 and 200 basis point shock and ramp scenarios in the first and second year range from -4% to -17%. The ALCO conducts a quarterly analysis of the rate sensitivity position, reviews established limits, and reports its results to our board of directors.
The asset-liability committee thoroughly analyzes the maturities As 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. ThereMarch 31, 2023, there have been no changes to our policies or procedures for analyzing our interest rate risk since December 31, 2016, and there are no significant changes to our sensitivity to changes in interest rates since December 31, 2016 as disclosed2022. We could experience an increase in the cost of funding our Annual Reportbalance sheet. In response to increased inflationary pressures the Federal Reserve increased their targeted federal funds rate from 0 – 0.25% to 4.75 – 5.00% since March of 2022. Such rate increases could lead to us further increasing rates on Form 10-K.our deposits and short-term borrowings. We could also experience increased pricing competition for our existing loans or future borrower prospects, which could decrease rates earned on our earning assets.
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.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'sSEC’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"“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.March 31, 2023. Based upon the Evaluation, our CEO and CFO have concluded that, as of September 30, 2017,March 31, 2023, 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.
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.
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.proceedings except as disclosed in Item 3, “Legal Proceedings”, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and there has been no material change in any matter described therein.
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, 2016,2022, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard toin the Company’s risk factors previouslyfrom those disclosed in the Company’s Annual Report on 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.10-K for the year ended December 31, 2022.
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.
None.
(a) Exhibit:
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. | |
Inline XBRL Instance Document | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
Inline XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
Inline XBRL | ||
Cover Page Interactive Data File (formatted as Inline XBRL |
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: May 2, 2023 | |||
By | /s/ Thomas A. Broughton III | ||
Thomas A. Broughton III | |||
President and Chief Executive Officer | |||
Date: | By | /s/ William M. Foshee | |
William M. Foshee | |||
Chief Financial Officer |
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