SERVISFIRST BANCSHARES, INC.
The accompanying consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) and its consolidated subsidiaries, including ServisFirst Bank (the “Bank”), may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2018.2019.
All reported amounts are in thousands except share and per share data.
Cash on hand, cash items in process of collection, amounts due from banks, and federal funds sold are included in cash and cash equivalents.
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2019 | | | 2018 | | | 2019 | | | 2018 | |
| | | (In Thousands, Except Shares and Per Share Data) | |
Earnings per common share | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | 53,515,418 | | | | 53,150,142 | | | | 53,490,393 | | | | 53,116,420 | |
Net income available to common stockholders | | $ | 35,602 | | | $ | 33,509 | | | $ | 70,612 | | | $ | 66,112 | |
Basic earnings per common share | | $ | 0.67 | | | $ | 0.63 | | | $ | 1.32 | | | $ | 1.24 | |
| | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | 53,515,418 | | | | 53,150,142 | | | | 53,490,393 | | | | 53,116,420 | |
Dilutive effects of assumed conversions and exercise of stock options and warrants | | | 573,689 | | | | 1,045,881 | | | | 592,464 | | | | 1,073,326 | |
Weighted average common and dilutive potential common shares outstanding | | | 54,089,107 | | | | 54,196,023 | | | | 54,082,857 | | | | 54,189,746 | |
Net income available to common stockholders | | $ | 35,602 | | | $ | 33,509 | | | $ | 70,612 | | | $ | 66,112 | |
Diluted earnings per common share | | $ | 0.66 | | | $ | 0.62 | | | $ | 1.31 | | | $ | 1.22 | |
NOTE 4 - SECURITIES
The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2019March 31, 2020 and December 31, 20182019 are summarized as follows:
| | | Amortized Cost | | | Gross Unrealized Gain | | | Gross Unrealized Loss | | | Market Value | | | Amortized Cost | | | Gross Unrealized Gain | | | Gross Unrealized Loss | | | Fair Value | |
June 30, 2019: | | (In Thousands) | | |
Securities Available for Sale | | | | | | | | | | |
U.S. Treasury and government sponsored agencies | | $ | 74,342 | | | $ | 396 | | | $ | (31 | ) | | $ | 74,707 | | |
March 31, 2020 | | | (In Thousands) | |
Available for sale debt securities | | | | | | | | | | |
U.S. Treasury Securities | | | $ | 48,956 | | | $ | 826 | | | $ | - | | | $ | 49,782 | |
Government Agency Securities | | | 18,188 | | | 405 | | | - | | | 18,593 | |
Mortgage-backed securities | | 360,816 | | | 3,072 | | | (463 | ) | | 363,425 | | | 529,126 | | | 17,305 | | | - | | | 546,431 | |
State and municipal securities | | 83,984 | | | 387 | | | (60 | ) | | 84,311 | | | 50,989 | | | 353 | | | (14 | ) | | 51,328 | |
Corporate debt | | | 133,415 | | | | 2,130 | | | | (17 | ) | | | 135,528 | | | | 157,496 | | | | 3,652 | | | | (500 | ) | | | 160,648 | |
Total | | $ | 652,557 | | | $ | 5,985 | | | $ | (571 | ) | | $ | 657,971 | | | $ | 804,755 | | | $ | 22,541 | | | $ | (514 | ) | | $ | 826,782 | |
Securities Held to Maturity | | | | | | | | | | |
Held to maturity debt securities | | | | | | | | | | |
State and municipal securities | | | 250 | | | | - | | | | - | | | | 250 | | | $ | 250 | | | $ | - | | | $ | - | | | $ | 250 | |
Total | | $ | 250 | | | $ | - | | | $ | - | | | $ | 250 | | | $ | 250 | | | $ | - | | | $ | - | | | $ | 250 | |
| | | |
December 31, 2018: | | | | | | | | | | |
Securities Available for Sale | | | | | | | | | | |
U.S. Treasury and government sponsored agencies | | $ | 77,534 | | | $ | 78 | | | $ | (619 | ) | | $ | 76,993 | | |
December 31, 2019 | | | | | | | | | | |
Available for sale debt securities | | | | | | | | | | |
U.S. Treasury Securities | | | $ | 48,923 | | | $ | 291 | | | $ | (4 | ) | | $ | 49,210 | |
Government Agency Securities | | | 18,245 | | | 143 | | | (2 | ) | | 18,386 | |
Mortgage-backed securities | | 309,244 | | | 591 | | | (5,531 | ) | | 304,304 | | | 470,513 | | | 4,859 | | | (1,318 | ) | | 474,054 | |
State and municipal securities | | 106,465 | | | 208 | | | (679 | ) | | 105,994 | | | 56,951 | | | 335 | | | (14 | ) | | 57,272 | |
Corporate debt | | | 102,982 | | | | 668 | | | | (757 | ) | | | 102,893 | | | | 157,549 | | | | 3,098 | | | | (170 | ) | | | 160,477 | |
Total | | $ | 596,225 | | | $ | 1,545 | | | $ | (7,586 | ) | | $ | 590,184 | | | $ | 752,181 | | | $ | 8,726 | | | $ | (1,508 | ) | | $ | 759,399 | |
Held to maturity debt securities | | | | | | | | | | |
State and municipal securities | | | $ | 250 | | | $ | - | | | $ | - | | | $ | 250 | |
Total | | | $ | 250 | | | $ | - | | | $ | - | | | $ | 250 | |
The amortized cost and fair value of debt securities as of June 30, 2019March 31, 2020 and December 31, 20182019 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories along with the other categories of debt securities.
| | | June 30, 2019 | | | December 31, 2018 | | | March 31, 2020 | | | December 31, 2019 | |
| | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | |
| | | (In thousands) | | | (In thousands) | |
Debt securities available for sale | | | | | | | | | | |
Available for sale debt securities | | |
Due within one year | | $ | 38,284 | | | $ | 38,302 | | | $ | 38,343 | | | $ | 38,225 | | | $ | 59,924 | | | $ | 60,306 | | | $ | 58,722 | | | $ | 58,975 | |
Due from one to five years | | 144,968 | | | 145,841 | | | 167,873 | | | 166,380 | | | 83,414 | | | 84,963 | | | 90,034 | | | 91,005 | |
Due from five to ten years | | 103,960 | | | 105,819 | | | 77,811 | | | 78,276 | | | 130,876 | | | 133,641 | | | 129,501 | | | 131,914 | |
Due after ten years | | 4,529 | | | 4,584 | | | 2,954 | | | 2,999 | | | 1,415 | | | 1,441 | | | 3,411 | | | 3,451 | |
Mortgage-backed securities | | | 360,816 | | | | 363,425 | | | | 309,244 | | | | 304,304 | | | | 529,126 | | | | 546,431 | | | | 470,513 | | | | 474,054 | |
| | | $ | 652,557 | | | $ | 657,971 | | | $ | 596,225 | | | $ | 590,184 | | | $ | 804,755 | | | $ | 826,782 | | | $ | 752,181 | | | $ | 759,399 | |
| | | |
Debt securities held to maturity | | | | | | | | | | |
Held to maturity debt securities | | |
Due from one to five years | | $ | 250 | | | $ | 250 | | | $ | - | | | $ | - | | | $ | 250 | | | $ | 250 | | | $ | 250 | | | $ | 250 | |
| | | $ | 250 | | | $ | 250 | | | $ | - | | | $ | - | | | $ | 250 | | | $ | 250 | | | $ | 250 | | | $ | 250 | |
All mortgage-backed securities are with government-sponsored enterprises (GSEs) such as Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, and Federal Home Loan Mortgage Corporation.
The carrying value of debt securities pledged to secure public funds on deposit and for other purposes as required by law as of
June 30, 2019 9and December 31, 2018 was $334.1 million and $281.9 million, respectively.
The following table identifies, as of June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months. At June 30, 2019,March 31, 2020, 1424 of the Company’s 726678 debt securities had been in an unrealized loss position for 12 or more months. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity; accordingly, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2019.March 31, 2020. Further, the Company believes any deterioration in value of its current investment securities is attributable to changes in market interest rates and not credit quality of the issuer.
| | | Less Than Twelve Months | | | Twelve Months or More | | | Total | | | Less Than Twelve Months | | | Twelve Months or More | | | Total | |
| | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross | | | | Gross | | | | Gross | | | |
| | | (In Thousands) | | | Unrealized | | | | Unrealized | | | | Unrealized | | | |
June 30, 2019 | | | | | | | | | | | | | | |
U.S. Treasury and government sponsored agencies | | $ | - | | | $ | - | | | $ | (31 | ) | | $ | 21,919 | | | $ | (31 | ) | | $ | 21,919 | | |
| | | | Losses | | | Fair Value | | | Losses | | | Fair Value | | | Losses | | | Fair Value | |
| | | | (In Thousands) | |
March 31, 2020 | | | | | | | | | | | | | | |
State and municipal securities | | | $ | (10 | ) | | $ | 3,582 | | | $ | (4 | ) | | $ | 721 | | | $ | (14 | ) | | $ | 4,303 | |
Corporate debt | | | | (500 | ) | | | 15,478 | | | | - | | | | - | | | | (500 | ) | | | 15,478 | |
Total | | | $ | (510 | ) | | $ | 19,060 | | | $ | (4 | ) | | $ | 721 | | | $ | (514 | ) | | $ | 19,781 | |
| | | |
December 31, 2019 | | | | | | | | | | | | | | |
U.S. Treasury Securities | | | $ | (4 | ) | | $ | 3,012 | | | $ | - | | | $ | - | | | $ | (4 | ) | | $ | 3,012 | |
Government Agency Securities | | | (2 | ) | | 266 | | | - | | | - | | | (2 | ) | | 266 | |
Mortgage-backed securities | | (47 | ) | | 17,778 | | | (416 | ) | | 81,383 | | | (463 | ) | | 99,161 | | | (1,206 | ) | | 153,330 | | | (112 | ) | | 24,911 | | | (1,318 | ) | | 178,241 | |
State and municipal securities | | (9 | ) | | 1,681 | | | (51 | ) | | 16,297 | | | (60 | ) | | 17,978 | | | (4 | ) | | 1,900 | | | (10 | ) | | 2,647 | | | (14 | ) | | 4,547 | |
Corporate debt | | | (17 | ) | | | 3,765 | | | | - | | | | - | | | | (17 | ) | | | 3,765 | | | | (170 | ) | | | 19,981 | | | | - | | | | - | | | | (170 | ) | | | 19,981 | |
Total | | $ | (73 | ) | | $ | 23,224 | | | $ | (498 | ) | | $ | 119,599 | | | $ | (571 | ) | | $ | 142,823 | | | $ | (1,386 | ) | | $ | 178,489 | | | $ | (122 | ) | | $ | 27,558 | | | $ | (1,508 | ) | | $ | 206,047 | |
| | | |
December 31, 2018 | | | | | | | | | | | | | | |
U.S. Treasury and government sponsored agencies | | $ | (8 | ) | | $ | 1,001 | | | $ | (611 | ) | | $ | 50,878 | | | $ | (619 | ) | | $ | 51,880 | | |
Mortgage-backed securities | | (539 | ) | | 67,721 | | | (4,992 | ) | | 204,260 | | | (5,531 | ) | | 271,981 | | |
State and municipal securities | | (101 | ) | | 20,821 | | | (578 | ) | | 52,190 | | | (679 | ) | | 73,011 | | |
Corporate debt | | | (315 | ) | | | 36,245 | | | | (442 | ) | | | 13,474 | | | | (757 | ) | | | 49,718 | | |
Total | | $ | (963 | ) | | $ | 125,788 | | | $ | (6,623 | ) | | $ | 320,802 | | | $ | (7,586 | ) | | $ | 446,590 | | |
The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $437.6 million and $389.9 million as of March 31, 2020 and December 31, 2019, respectively.
NOTE 5 – LOANS
The following table details the Company’s loans at June 30, 2019March 31, 2020 and December 31, 2018:2019:
| | | | March 31, | | December 31, | |
| | | June 30, 2019 | | | December 31, 2018 | | | 2020 | | | 2019 | |
| | | (Dollars In Thousands) | | | (Dollars In Thousands) | |
Commercial, financial and agricultural | | $ | 2,633,529 | | | $ | 2,513,225 | | | $ | 2,771,307 | | | $ | 2,696,210 | |
Real estate - construction | | 603,779 | | | 533,192 | | | 548,578 | | | 521,392 | |
Real estate - mortgage: | | | | | | | | | | |
Owner-occupied commercial | | 1,538,279 | | | 1,463,887 | | | 1,678,532 | | | 1,587,478 | |
1-4 family mortgage | | 630,963 | | | 621,634 | | | 675,870 | | | 644,188 | |
Other mortgage | | | 1,496,512 | | | | 1,337,068 | | | | 1,834,137 | | | | 1,747,394 | |
Subtotal: Real estate - mortgage | | 3,665,754 | | | 3,422,589 | | | 4,188,539 | | | 3,979,060 | |
Consumer | | | 64,824 | | | | 64,493 | | | | 60,412 | | | | 64,789 | |
Total Loans | | | 6,967,886 | | | | 6,533,499 | | | | 7,568,836 | | | | 7,261,451 | |
Less: Allowance for loan losses | | | (71,386 | ) | | | (68,600 | ) | | | (85,414 | ) | | | (76,584 | ) |
Net Loans | | $ | 6,896,500 | | | $ | 6,464,899 | | | $ | 7,483,422 | | | $ | 7,184,867 | |
| | | |
| | | |
Commercial, financial and agricultural | | 37.79 | % | | 38.47 | % | | 36.61 | % | | 37.13 | % |
Real estate - construction | | 8.67 | % | | 8.16 | % | | 7.25 | % | | 7.18 | % |
Real estate - mortgage: | | | | | | | | | | |
Owner-occupied commercial | | 22.08 | % | | 22.41 | % | | 22.18 | % | | 21.86 | % |
1-4 family mortgage | | 9.05 | % | | 9.51 | % | | 8.93 | % | | 8.87 | % |
Other mortgage | | | 21.48 | % | | | 20.46 | % | | | 24.23 | % | | | 24.07 | % |
Subtotal: Real estate - mortgage | | 52.61 | % | | 52.39 | % | | 55.34 | % | | 54.80 | % |
Consumer | | | 0.93 | % | | | 0.99 | % | | | 0.80 | % | | | 0.89 | % |
Total Loans | | | 100.00 | % | | | 100.00 | % | | | 100.00 | % | | | 100.00 | % |
The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions defined as follows:
| | ● | Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or obligors, if any)obligor(s) 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 currentlypresently jeopardize debt repayment. These loans are characterized by the distinct possibility that the institution will sustain some loss if the weaknessesdeficiencies are not corrected. |
| | ● | Doubtful – loans that have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. |
Loans by credit quality indicator as of June 30, 2019March 31, 2020 and December 31, 20182019 were as follows:
June 30, 2019 | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | |
| | | | | | | | | | | | | | | | | | | | | |
| | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 2,560,336 | | | $ | 53,434 | | | $ | 19,759 | | | $ | - | | | $ | 2,633,529 | |
Real estate - construction | | | 596,007 | | | | 5,802 | | | | 1,970 | | | | - | | | | 603,779 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | 1,512,146 | | | | 11,818 | | | | 14,315 | | | | - | | | | 1,538,279 | |
1-4 family mortgage | | | 627,829 | | | | 1,191 | | | | 1,943 | | | | - | | | | 630,963 | |
Other mortgage | | | 1,472,083 | | | | 17,904 | | | | 6,525 | | | | - | | | | 1,496,512 | |
Total real estate mortgage | | | 3,612,058 | | | | 30,913 | | | | 22,783 | | | | - | | | | 3,665,754 | |
Consumer | | | 64,775 | | | | 49 | | | | - | | | | - | | | | 64,824 | |
Total | | $ | 6,833,176 | | | $ | 90,198 | | | $ | 44,512 | | | $ | - | | | $ | 6,967,886 | |
December 31, 2018 | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | | |
| | | | | | Special | | | | | | | |
March 31, 2020 | | | Pass | | | Mention | | | Substandard | | | Doubtful | | | Total | |
| | | |
| | | (In Thousands) | | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 2,447,052 | | | $ | 47,754 | | | $ | 18,419 | | | $ | - | | | $ | 2,513,225 | | | $ | 2,708,845 | | | $ | 17,902 | | | $ | 44,560 | | | $ | - | | | $ | 2,771,307 | |
Real estate - construction | | 525,021 | | | 6,749 | | | 1,422 | | | - | | | 533,192 | | | 542,659 | | | 4,136 | | | 1,783 | | | - | | | 548,578 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 1,431,982 | | | 28,547 | | | 3,358 | | | - | | | 1,463,887 | | | 1,658,909 | | | 11,014 | | | 8,609 | | | - | | | 1,678,532 | |
1-4 family mortgage | | 616,884 | | | 2,703 | | | 2,047 | | | - | | | 621,634 | | | 671,407 | | | 2,080 | | | 2,383 | | | - | | | 675,870 | |
Other mortgage | | | 1,309,101 | | | | 16,506 | | | | 11,461 | | | | - | | | | 1,337,068 | | | | 1,824,825 | | | | 7,557 | | | | 1,755 | | | | - | | | | 1,834,137 | |
Total real estate mortgage | | 3,357,967 | | | 47,756 | | | 16,866 | | | - | | | 3,422,589 | | |
Total real estate - mortgage | | | 4,155,141 | | | 20,651 | | | 12,747 | | | - | | | 4,188,539 | |
Consumer | | | 64,444 | | | | - | | | | 49 | | | | - | | | | 64,493 | | | | 60,403 | | | | - | | | | 9 | | | | - | | | | 60,412 | |
Total | | $ | 6,394,484 | | | $ | 102,259 | | | $ | 36,756 | | | $ | - | | | $ | 6,533,499 | | | $ | 7,467,048 | | | $ | 42,689 | | | $ | 59,099 | | | $ | - | | | $ | 7,568,836 | |
| | | |
| | | | | | Special | | | | | | | |
December 31, 2019 | | | Pass | | | Mention | | | Substandard | | | Doubtful | | | Total | |
| | | | (In Thousands) | |
Commercial, financial and agricultural | | | $ | 2,629,487 | | | $ | 46,176 | | | $ | 20,547 | | | $ | - | | | $ | 2,696,210 | |
Real estate - construction | | | 512,373 | | | 4,731 | | | 4,288 | | | - | | | 521,392 | |
Real estate - mortgage: | | | | | | | | | | | | |
Owner-occupied commercial | | | 1,555,283 | | | 18,240 | | | 13,955 | | | - | | | 1,587,478 | |
1-4 family mortgage | | | 639,959 | | | 2,787 | | | 1,442 | | | - | | | 644,188 | |
Other mortgage | | | | 1,735,869 | | | | 10,018 | | | | 1,507 | | | | - | | | | 1,747,394 | |
Total real estate - mortgage | | | 3,931,111 | | | 31,045 | | | 16,904 | | | - | | | 3,979,060 | |
Consumer | | | | 64,789 | | | | - | | | | - | | | | - | | | | 64,789 | |
Total | | | $ | 7,137,760 | | | $ | 81,952 | | | $ | 41,739 | | | $ | - | | | $ | 7,261,451 | |
Loans by performance status as of June 30, 2019March 31, 2020 and December 31, 20182019 were as follows:
June 30, 2019 | | Performing | | | Nonperforming | | | Total | |
| | | | | | | | | | | | | |
| | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 2,617,692 | | | $ | 15,837 | | | $ | 2,633,529 | |
Real estate - construction | | | 603,541 | | | | 238 | | | | 603,779 | |
Real estate - mortgage: | | | | | | | | | | | | |
Owner-occupied commercial | | | 1,534,721 | | | | 3,558 | | | | 1,538,279 | |
1-4 family mortgage | | | 628,494 | | | | 2,469 | | | | 630,963 | |
Other mortgage | | | 1,486,500 | | | | 10,012 | | | | 1,496,512 | |
Total real estate mortgage | | | 3,649,715 | | | | 16,039 | | | | 3,665,754 | |
Consumer | | | 64,799 | | | | 25 | | | | 64,824 | |
Total | | $ | 6,935,747 | | | $ | 32,139 | | | $ | 6,967,886 | |
December 31, 2018 | | Performing | | | Nonperforming | | | Total | | |
| | | | | | | | | |
March 31, 2020 | | | Performing | | | Nonperforming | | | Total | |
| | | (In Thousands) | | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 2,502,117 | | | $ | 11,108 | | | $ | 2,513,225 | | | $ | 2,756,132 | | | $ | 15,175 | | | $ | 2,771,307 | |
Real estate - construction | | 532,195 | | | 997 | | | 533,192 | | | 546,774 | | | 1,804 | | | 548,578 | |
Real estate - mortgage: | | | | | | | | | | | | | | |
Owner-occupied commercial | | 1,460,529 | | | 3,358 | | | 1,463,887 | | | 1,668,297 | | | 10,235 | | | 1,678,532 | |
1-4 family mortgage | | 619,465 | | | 2,169 | | | 621,634 | | | 674,134 | | | 1,736 | | | 675,870 | |
Other mortgage | | | 1,327,038 | | | | 10,030 | | | | 1,337,068 | | | | 1,829,244 | | | | 4,893 | | | | 1,834,137 | |
Total real estate mortgage | | 3,407,032 | | | 15,557 | | | 3,422,589 | | |
Total real estate - mortgage | | | 4,171,675 | | | 16,864 | | | 4,188,539 | |
Consumer | | | 64,385 | | | | 108 | | | | 64,493 | | | | 60,387 | | | | 25 | | | | 60,412 | |
Total | | $ | 6,505,729 | | | $ | 27,770 | | | $ | 6,533,499 | | | $ | 7,534,968 | | | $ | 33,868 | | | $ | 7,568,836 | |
| | | |
December 31, 2019 | | | Performing | | | Nonperforming | | | Total | |
| | | | (In Thousands) | |
Commercial, financial | | | | | | | | |
and agricultural | | | $ | 2,681,280 | | | $ | 14,930 | | | $ | 2,696,210 | |
Real estate - construction | | | 519,803 | | | 1,589 | | | 521,392 | |
Real estate - mortgage: | | | | | | | | |
Owner-occupied commercial | | | 1,576,652 | | | 10,826 | | | 1,587,478 | |
1-4 family mortgage | | | 641,875 | | | 2,313 | | | 644,188 | |
Other mortgage | | | | 1,740,963 | | | | 6,431 | | | | 1,747,394 | |
Total real estate - mortgage | | | 3,959,490 | | | 19,570 | | | 3,979,060 | |
Consumer | | | | 64,766 | | | | 23 | | | | 64,789 | |
Total | | | $ | 7,225,339 | | | $ | 36,112 | | | $ | 7,261,451 | |
Loans by past due status as of June 30, 2019March 31, 2020 and December 31, 20182019 were as follows:
June 30, 2019 | | Past Due Status (Accruing Loans) | | | | | | | | | |
March 31, 2020 | | | Past Due Status (Accruing Loans) | | | | | | | | |
| | | 30-59 Days | | | 60-89 Days | | | 90+ Days | | | Total Past Due | | | Non-Accrual | | | Current | | | Total Loans | | | | | | | | | Total Past | | | | | | | |
| | | | 30-59 Days | | | 60-89 Days | | | 90+ Days | | | Due | | | Non-Accrual | | | Current | | | Total Loans | |
| | | (In Thousands) | | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 69 | | | $ | 75 | | | $ | 4,756 | | | $ | 4,900 | | | $ | 11,081 | | | $ | 2,617,548 | | | $ | 2,633,529 | | | $ | 1,859 | | | $ | 211 | | | $ | 45 | | | $ | 2,115 | | | $ | 15,130 | | | $ | 2,754,062 | | | $ | 2,771,307 | |
Real estate - construction | | - | | | - | | | - | | | - | | | 238 | | | 603,541 | | | 603,779 | | | - | | | - | | | - | | | - | | | 1,804 | | | 546,774 | | | 548,578 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 15,350 | | | 929 | | | - | | | 16,279 | | | 3,558 | | | 1,518,442 | | | 1,538,279 | | | 2,389 | | | 1,778 | | | - | | | 4,167 | | | 10,235 | | | 1,664,130 | | | 1,678,532 | |
1-4 family mortgage | | 549 | | | 125 | | | 528 | | | 1,202 | | | 1,941 | | | 627,820 | | | 630,963 | | | 2,191 | | | - | | | - | | | 2,191 | | | 1,736 | | | 671,943 | | | 675,870 | |
Other mortgage | | | 1,543 | | | | - | | | | 4,990 | | | | 6,533 | | | | 5,022 | | | | 1,484,957 | | | | 1,496,512 | | | | - | | | | - | | | | 4,893 | | | | 4,893 | | | | - | | | | 1,829,244 | | | | 1,834,137 | |
Total real estate - mortgage | | 17,442 | | | 1,054 | | | 5,518 | | | 24,014 | | | 10,521 | | | 3,631,219 | | | 3,665,754 | | | 4,580 | | | 1,778 | | | 4,893 | | | 11,251 | | | 11,971 | | | 4,165,317 | | | 4,188,539 | |
Consumer | | | 24 | | | | 4 | | | | 25 | | | | 53 | | | | - | | | | 64,771 | | | | 64,824 | | | | 83 | | | | 31 | | | | 16 | | | | 130 | | | | 9 | | | | 60,273 | | | | 60,412 | |
Total | | $ | 17,535 | | | $ | 1,133 | | | $ | 10,299 | | | $ | 28,967 | | | $ | 21,840 | | | $ | 6,917,079 | | | $ | 6,967,886 | | | $ | 6,522 | | | $ | 2,020 | | | $ | 4,954 | | | $ | 13,496 | | | $ | 28,914 | | | $ | 7,526,426 | | | $ | 7,568,836 | |
December 31, 2018 | | Past Due Status (Accruing Loans) | | | | | | | | | |
December 31, 2019 | | | Past Due Status (Accruing Loans) | | | | | | | | |
| | | 30-59 Days | | | 60-89 Days | | | 90+ Days | | | Total Past Due | | | Non-Accrual | | | Current | | | Total Loans | | | | | | | | | Total Past | | | | | | | |
| | | | 30-59 Days | | | 60-89 Days | | | 90+ Days | | | Due | | | Non-Accrual | | | Current | | | Total Loans | |
| | | (In Thousands) | | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 1,222 | | | $ | 48 | | | $ | 605 | | | $ | 1,875 | | | $ | 10,503 | | | $ | 2,500,847 | | | $ | 2,513,225 | | | $ | 3,135 | | | $ | 344 | | | $ | 201 | | | $ | 3,680 | | | $ | 14,729 | | | $ | 2,677,801 | | | $ | 2,696,210 | |
Real estate - construction | | - | | | 1,352 | | | - | | | 1,352 | | | 997 | | | 530,843 | | | 533,192 | | | 830 | | | - | | | - | | | 830 | | | 1,589 | | | 518,973 | | | 521,392 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 412 | | | - | | | - | | | 412 | | | 3,358 | | | 1,460,117 | | | 1,463,887 | | | 917 | | | 7,242 | | | - | | | 8,159 | | | 10,826 | | | 1,568,493 | | | 1,587,478 | |
1-4 family mortgage | | 534 | | | 235 | | | 123 | | | 892 | | | 2,046 | | | 618,696 | | | 621,634 | | | 1,638 | | | 567 | | | 873 | | | 3,078 | | | 1,440 | | | 639,670 | | | 644,188 | |
Other mortgage | | | 1,174 | | | | - | | | | 5,008 | | | | 6,182 | | | | 5,022 | | | | 1,325,864 | | | | 1,337,068 | | | | - | | | | - | | | | 4,924 | | | | 4,924 | | | | 1,507 | | | | 1,740,963 | | | | 1,747,394 | |
Total real estate - mortgage | | 2,120 | | | 235 | | | 5,131 | | | 7,486 | | | 10,426 | | | 3,404,677 | | | 3,422,589 | | | 2,555 | | | 7,809 | | | 5,797 | | | 16,161 | | | 13,773 | | | 3,949,126 | | | 3,979,060 | |
Consumer | | | 58 | | | | 123 | | | | 108 | | | | 289 | | | | - | | | | 64,204 | | | | 64,493 | | | | 35 | | | | 25 | | | | 23 | | | | 83 | | | | - | | | | 64,706 | | | | 64,789 | |
Total | | $ | 3,400 | | | $ | 1,758 | | | $ | 5,844 | | | $ | 11,002 | | | $ | 21,926 | | | $ | 6,500,571 | | | $ | 6,533,499 | | | $ | 6,555 | | | $ | 8,178 | | | $ | 6,021 | | | $ | 20,754 | | | $ | 30,091 | | | $ | 7,210,606 | | | $ | 7,261,451 | |
The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions, and other risks inherent in the portfolio. Allowances for impaired loans are generally determined based on collateral values or the present value of the estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for losses on loans. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.
The methodology utilized for the calculation of the allowance for loan losses is divided into four distinct categories. Those categories include allowances for non-impaired loans (ASC 450), impaired loans (ASC 310), external qualitative factors, and internal qualitative factors. A description of each category of the allowance for loan loss methodology is listed below.
Non-Impaired Loans. Non-impaired loans are grouped into the following homogeneous loan pools by loan type: commercial and industrial, construction and development, commercial real estate, second lien home equity lines of credit, and all other loans. Each loan pool is stratified by internal risk rating and multiplied by a loss allocation percentage derived from the loan pool historical loss rate. The historical loss rate is based on an age weighted 5five year history of net charge-offs experienced by pool, with the most recent net charge-off experience given a greater weighting. This results in the expected loss rate per year, adjusted by a qualitative adjustment factor and a years-to-impairment factor, for each pool of loans to derive the total amount of allowance for non-impaired loans.
Impaired Loans. Loans are considered impaired, when based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the originalcontractual terms of the loan agreement. The collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the rate implicit in the original loan agreement, at the loan’s observable market price or the fair value of the underlying collateral. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent. Fair value estimates for specifically impaired collateral-dependent loans are derived from appraised values based on the current market value or “as is” value of the property, normally from recently received and reviewed appraisals. Appraisals are obtained from certified and licensed appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by our credit administration department, and values are adjusted downward to reflect anticipated disposition costs. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated for each impaired loan. As subsequent events dictate and estimated net realizable values decline, required reserves may be established or further adjustments recorded.
External Qualitative Factors. The determination of the portion of the allowance for loan losses relating to external qualitative factors is based on consideration of the following factors: gross domestic product growth rate, changes in prime rate, delinquency trends, peer delinquency trends, year over year loan growth and state unemployment rate trends. Data for the three most recent periods is utilized in the calculation for each external qualitative component. The factors have a consistent weighted methodology to calculate the amount of allowance due to external qualitative factors. Overall macroeconomic conditions and uncertainty due to COVID-19 resulted in an increased provision for loans losses related to external qualitative factors of $6.7 million at March 31, 2020.
Internal Qualitative Factors. The determination of the portion of the allowance for loan losses relating to internal qualitative factors is based on the consideration of criteria which includes the following: number of extensions and deferrals, single pay and interest only loans, current financial information, credit concentrations and risk grade accuracy. A self-assessment for each of the criteria is made with a consistent weighted methodology used to calculate the amount of allowance required for internal qualitative factors.
The following table presents an analysis of the allowance for loan losses by portfolio segment and changes in the allowance for loan losses for the three and sixmonths ended June 30, 2019March 31, 2020 and June 30, 2018.March 31, 2019. The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.
| | | | Commercial, | | | | | | | | | |
| | | Commercial, financial and agricultural | | | Real estate - construction | | | Real estate - mortgage | | | Consumer | | | Total | | | financial and | | Real estate - | | Real estate - | | | | | |
| | | | agricultural | | | construction | | | mortgage | | | Consumer | | | Total | |
| | | (In Thousands) | | | (In Thousands) | |
| | | Three Months Ended June 30, 2019 | | | Three Months Ended March 31, 2020 | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2019 | | $ | 39,459 | | | $ | 3,595 | | | $ | 26,711 | | | $ | 442 | | | $ | 70,207 | | |
Balance at December 31, 2019 | | | $ | 43,666 | | | $ | 2,768 | | | $ | 29,653 | | | $ | 497 | | | $ | 76,584 | |
Charge-offs | | (3,610 | ) | | - | | | (169 | ) | | (63 | ) | | (3,842 | ) | | (2,640 | ) | | (454 | ) | | (1,678 | ) | | (58 | ) | | (4,830 | ) |
Recoveries | | 117 | | | - | | | 4 | | | 16 | | | 137 | | | 62 | | | 1 | | | 1 | | | 12 | | | 76 | |
Provision | | | 2,743 | | | | (176 | ) | | | 2,237 | | | | 80 | | | | 4,884 | | | | 7,692 | | | | 1,442 | | | | 4,384 | | | | 66 | | | | 13,584 | |
Balance at June 30, 2019 | | $ | 38,709 | | | $ | 3,419 | | | $ | 28,783 | | | $ | 475 | | | $ | 71,386 | | |
| | | |
| | | Three Months Ended June 30, 2018 | | |
Allowance for loan losses: | | | | | | | | | | | | |
Balance at March 31, 2018 | | $ | 35,787 | | | $ | 4,138 | | | $ | 21,606 | | | $ | 519 | | | $ | 62,050 | | |
Charge-offs | | (1,732 | ) | | - | | | (440 | ) | | (47 | ) | | (2,219 | ) | |
Recoveries | | 173 | | | 97 | | | 2 | | | 15 | | | 287 | | |
Provision | | | 1,950 | | | | (173 | ) | | | 2,270 | | | | 74 | | | | 4,121 | | |
Balance at June 30, 2018 | | $ | 36,178 | | | $ | 4,062 | | | $ | 23,438 | | | $ | 561 | | | $ | 64,239 | | |
Balance at March 31, 2020 | | | $ | 48,780 | | | $ | 3,757 | | | $ | 32,360 | | | $ | 517 | | | $ | 85,414 | |
| | | |
| | | Six Months Ended June 30, 2019 | | | Three Months Ended March 31, 2019 | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | | $ | 39,016 | | | $ | 3,522 | | | $ | 25,508 | | | $ | 554 | | | $ | 68,600 | | | $ | 39,016 | | | $ | 3,522 | | | $ | 25,508 | | | $ | 554 | | | $ | 68,600 | |
Charge-offs | | (6,647 | ) | | - | | | (219 | ) | | (281 | ) | | (7,147 | ) | | (3,037 | ) | | - | | | (50 | ) | | (218 | ) | | (3,305 | ) |
Recoveries | | 129 | | | 1 | | | 11 | | | 23 | | | 164 | | | 12 | | | 1 | | | 7 | | | 7 | | | 27 | |
Provision | | | 6,211 | | | | (104 | ) | | | 3,483 | | | | 179 | | | | 9,769 | | | | 3,468 | | | | 72 | | | | 1,246 | | | | 99 | | | | 4,885 | |
Balance at June 30, 2019 | | $ | 38,709 | | | $ | 3,419 | | | $ | 28,783 | | | $ | 475 | | | $ | 71,386 | | |
| | | |
| | | Six Months Ended June 30, 2018 | | |
Allowance for loan losses: | | | | | | | | | | | | |
Balance at December 31, 2017 | | $ | 32,880 | | | $ | 4,989 | | | $ | 21,022 | | | $ | 515 | | | $ | 59,406 | | |
Charge-offs | | (2,820 | ) | | - | | | (821 | ) | | (135 | ) | | (3,776 | ) | |
Recoveries | | 177 | | | 104 | | | 44 | | | 24 | | | 349 | | |
Provision | | | 5,941 | | | | (1,031 | ) | | | 3,193 | | | | 157 | | | | 8,260 | | |
Balance at June 30, 2018 | | $ | 36,178 | | | $ | 4,062 | | | $ | 23,438 | | | $ | 561 | | | $ | 64,239 | | |
Balance at March 31, 2019 | | | $ | 39,459 | | | $ | 3,595 | | | $ | 26,711 | | | $ | 442 | | | $ | 70,207 | |
| | | |
| | | As of June 30, 2019 | | | As of March 31, 2020 | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | |
Individually Evaluated for Impairment | | $ | 5,201 | | | $ | 110 | | | $ | 4,805 | | | $ | - | | | $ | 10,116 | | | $ | 8,840 | | | $ | 351 | | | $ | 931 | | | $ | - | | | $ | 10,122 | |
Collectively Evaluated for Impairment | | 33,508 | | | 3,309 | | | 23,978 | | | 475 | | | 61,270 | | | 39,940 | | | 3,406 | | | 31,429 | | | 517 | | | 75,292 | |
| | | |
Loans: | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 2,633,529 | | | $ | 603,779 | | | $ | 3,665,754 | | | $ | 64,824 | | | $ | 6,967,886 | | | $ | 2,771,307 | | | $ | 548,578 | | | $ | 4,188,539 | | | $ | 60,412 | | | $ | 7,568,836 | |
Individually Evaluated for Impairment | | 19,783 | | | 2,004 | | | 23,903 | | | - | | | 45,690 | | | 44,868 | | | 1,834 | | | 13,815 | | | 9 | | | 60,526 | |
Collectively Evaluated for Impairment | | 2,613,746 | | | 601,775 | | | 3,641,851 | | | 64,824 | | | 6,922,196 | | | 2,726,439 | | | 546,744 | | | 4,174,724 | | | 60,403 | | | 7,508,310 | |
| | | |
| | | | As of December 31, 2019 | |
Allowance for loan losses: | | | | | | | | | | | | |
Individually Evaluated for Impairment | | | $ | 6,085 | | | $ | 86 | | | $ | 3,633 | | | $ | - | | | $ | 9,804 | |
Collectively Evaluated for Impairment | | | 37,581 | | | 2,682 | | | 26,020 | | | 497 | | | 66,780 | |
| | | |
Loans: | | | | | | | | | | | | |
Ending Balance | | | $ | 2,696,210 | | | $ | 521,392 | | | $ | 3,979,060 | | | $ | 64,789 | | | $ | 7,261,451 | |
Individually Evaluated for Impairment | | | 20,843 | | | 4,320 | | | 17,985 | | | - | | | 43,148 | |
Collectively Evaluated for Impairment | | | 2,675,367 | | | 517,072 | | | 3,961,075 | | | 64,789 | | | 7,218,303 | |
| | | As of December 31, 2018 | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | |
Individually Evaluated for Impairment | | $ | 6,066 | | | $ | 126 | | | $ | 1,887 | | | $ | 49 | | | $ | 8,128 | |
Collectively Evaluated for Impairment | | | 32,950 | | | | 3,396 | | | | 23,621 | | | | 505 | | | | 60,472 | |
| | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 2,513,225 | | | $ | 533,192 | | | $ | 3,422,589 | | | $ | 64,493 | | | $ | 6,533,499 | |
Individually Evaluated for Impairment | | | 18,444 | | | | 1,461 | | | | 18,637 | | | | 49 | | | | 38,591 | |
Collectively Evaluated for Impairment | | | 2,494,781 | | | | 531,731 | | | | 3,403,952 | | | | 64,444 | | | | 6,494,908 | |
The following table presents details of the Company’s impaired loans as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. Loans which have been fully charged off do not appear in the tables.table.
| | | | March 31, 2020 | |
| | | | | | | | | | For the three months | |
| | | | | | | | | | ended March 31, 2020 | |
| | | | | | | | | | | | Interest | |
| | | June 30, 2019 | | | For the three months ended June 30, 2019 | | | For the six months ended June 30, 2019 | | | | | Unpaid | | | | Average | | Income | |
| | | Recorded Investment | | | Unpaid Principal Balance | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized in Period | | | Average Recorded Investment | | | Interest Income Recognized in Period | | | Recorded | | Principal | | Related | | Recorded | | Recognized | |
| | | | Investment | | | Balance | | | Allowance | | | Investment | | | in Period | |
| | | (In Thousands) | | | (In Thousands) | |
With no allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 1,769 | | | $ | 1,769 | | | $ | - | | | $ | 1,769 | | | $ | 20 | | | $ | 1,769 | | | $ | 52 | | | $ | 12,360 | | | $ | 12,360 | | | $ | - | | | $ | 12,352 | | | $ | 176 | |
Real estate - construction | | 416 | | | 420 | | | - | | | 420 | | | 6 | | | 437 | | | 13 | | | 30 | | | 34 | | | - | | | 35 | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 1,083 | | | 1,179 | | | - | | | 1,184 | | | 16 | | | 1,143 | | | 33 | | | 2,195 | | | 2,291 | | | - | | | 2,299 | | | 33 | |
1-4 family mortgage | | 472 | | | 472 | | | - | | | 475 | | | - | | | 487 | | | - | | | 717 | | | 717 | | | - | | | 735 | | | 1 | |
Other mortgage | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,701 | | | | 1,701 | | | | - | | | | 1,731 | | | | 18 | |
Total real estate - mortgage | | 1,555 | | | 1,651 | | | - | | | 1,659 | | | 16 | | | 1,630 | | | 33 | | | 4,613 | | | 4,709 | | | - | | | 4,765 | | | 52 | |
Consumer | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 9 | | | | 9 | | | | - | | | | 9 | | | | - | |
Total with no allowance recorded | | | 3,740 | | | | 3,840 | | | | - | | | | 3,848 | | | | 42 | | | | 3,836 | | | | 98 | | | | 17,012 | | | | 17,112 | | | | - | | | | 17,161 | | | | 228 | |
| | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | 18,014 | | | 23,761 | | | 5,201 | | | 20,253 | | | 71 | | | 21,520 | | | 234 | | | 32,508 | | | 32,775 | | | 8,840 | | | 33,186 | | | 239 | |
Real estate - construction | | 1,588 | | | 1,588 | | | 110 | | | 1,588 | | | 20 | | | 1,640 | | | 40 | | | 1,804 | | | 1,882 | | | 351 | | | 2,749 | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 14,349 | | | 14,349 | | | 2,402 | | | 13,208 | | | 207 | | | 13,724 | | | 425 | | | 7,487 | | | 12,127 | | | 827 | | | 12,159 | | | 5 | |
1-4 family mortgage | | 1,469 | | | 1,469 | | | 196 | | | 1,473 | | | (1 | ) | | 1,475 | | | 1 | | | 1,662 | | | 1,822 | | | 104 | | | 1,526 | | | 4 | |
Other mortgage | | | 6,530 | | | | 6,530 | | | | 2,207 | | | | 6,530 | | | | 23 | | | | 6,452 | | | | 44 | | | | 53 | | | | 53 | | | | - | | | | 156 | | | | 2 | |
Total real estate - mortgage | | 22,348 | | | 22,348 | | | 4,805 | | | 21,211 | | | 229 | | | 21,651 | | | 470 | | | 9,202 | | | 14,002 | | | 931 | | | 13,841 | | | 11 | |
Consumer | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total with allowance recorded | | | 41,950 | | | | 47,697 | | | | 10,116 | | | | 43,052 | | | | 320 | | | | 44,811 | | | | 744 | | | | 43,514 | | | | 48,659 | | | | 10,122 | | | | 49,776 | | | | 250 | |
| | | |
Total Impaired Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | 19,783 | | | 25,530 | | | 5,201 | | | 22,022 | | | 91 | | | 23,289 | | | 286 | | | 44,868 | | | 45,135 | | | 8,840 | | | 45,538 | | | 415 | |
Real estate - construction | | 2,004 | | | 2,008 | | | 110 | | | 2,008 | | | 26 | | | 2,077 | | | 53 | | | 1,834 | | | 1,916 | | | 351 | | | 2,784 | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 15,432 | | | 15,528 | | | 2,402 | | | 14,392 | | | 223 | | | 14,867 | | | 458 | | | 9,682 | | | 14,418 | | | 827 | | | 14,458 | | | 38 | |
1-4 family mortgage | | 1,941 | | | 1,941 | | | 196 | | | 1,948 | | | (1 | ) | | 1,962 | | | 1 | | | 2,379 | | | 2,539 | | | 104 | | | 2,261 | | | 5 | |
Other mortgage | | | 6,530 | | | | 6,530 | | | | 2,207 | | | | 6,530 | | | | 23 | | | | 6,452 | | | | 44 | | | | 1,754 | | | | 1,754 | | | | - | | | | 1,887 | | | | 20 | |
Total real estate - mortgage | | 23,903 | | | 23,999 | | | 4,805 | | | 22,870 | | | 245 | | | 23,281 | | | 503 | | | 13,815 | | | 18,711 | | | 931 | | | 18,606 | | | 63 | |
Consumer | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 9 | | | | 9 | | | | - | | | | 9 | | | | - | |
Total impaired loans | | $ | 45,690 | | | $ | 51,537 | | | $ | 10,116 | | | $ | 46,900 | | | $ | 362 | | | $ | 48,647 | | | $ | 842 | | | $ | 60,526 | | | $ | 65,771 | | | $ | 10,122 | | | $ | 66,937 | | | $ | 478 | |
December 31, 2018 | | |
| | | | December 31, 2019 | |
| | | | | | | | | | For the twelve months | |
| | | | | | | | | | ended December 31, 2019 | |
| | | | | | | | | | | | Interest | |
| | | | | | | | | For the twelve months ended December 31, 2018 | | | | | Unpaid | | | | Average | | Income | |
| | | Recorded Investment | | | Unpaid Principal Balance | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized in Period | | | Recorded | | Principal | | Related | | Recorded | | Recognized | |
| | | | Investment | | | Balance | | | Allowance | | | Investment | | | In Period | |
| | | (In Thousands) | | | (In Thousands) | |
With no allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 6,064 | | | $ | 6,064 | | | $ | - | | | $ | 6,142 | | | $ | 237 | | | $ | 9,015 | | | $ | 10,563 | | | $ | - | | | $ | 11,284 | | | $ | 562 | |
Real estate - construction | | 464 | | | 467 | | | - | | | 524 | | | 28 | | | 2,731 | | | 2,735 | | | - | | | 2,063 | | | 126 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 1,763 | | | 1,947 | | | - | | | 2,223 | | | 120 | | | 7,150 | | | 7,246 | | | - | | | 7,548 | | | 618 | |
1-4 family mortgage | | 1,071 | | | 1,071 | | | - | | | 1,088 | | | 21 | | | | 287 | | | | 287 | | | | - | | | | 289 | | | | 2 | |
Other mortgage | | | 5,061 | | | | 5,061 | | | | - | | | | 5,133 | | | | 252 | | |
Total real estate - mortgage | | 7,895 | | | 8,079 | | | - | | | 8,444 | | | 393 | | | 7,437 | | | 7,533 | | | - | | | 7,837 | | | 620 | |
Consumer | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total with no allowance recorded | | | 14,423 | | | | 14,610 | | | | - | | | | 15,110 | | | | 658 | | | | 19,183 | | | | 20,831 | | | | - | | | | 21,184 | | | | 1,308 | |
| | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | 12,380 | | | 20,141 | | | 6,066 | | | 15,918 | | | 462 | | | 11,828 | | | 19,307 | | | 6,085 | | | 19,714 | | | 395 | |
Real estate - construction | | 997 | | | 997 | | | 126 | | | 997 | | | 31 | | | 1,589 | | | 1,589 | | | 86 | | | 1,614 | | | 27 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 3,358 | | | 3,358 | | | 99 | | | 3,364 | | | 105 | | | 7,888 | | | 11,028 | | | 2,456 | | | 13,627 | | | 301 | |
1-4 family mortgage | | 975 | | | 975 | | | 208 | | | 975 | | | 30 | | | 1,153 | | | 1,153 | | | 176 | | | 1,157 | | | 1 | |
Other mortgage | | | 6,409 | | | | 6,409 | | | | 1,580 | | | | 6,598 | | | | 217 | | | | 1,507 | | | | 1,507 | | | | 1,001 | | | | 1,468 | | | | 21 | |
Total real estate - mortgage | | 10,742 | | | 10,742 | | | 1,887 | | | 10,937 | | | 352 | | | 10,548 | | | 13,688 | | | 3,633 | | | 16,252 | | | 323 | |
Consumer | | | 49 | | | | 49 | | | | 49 | | | | 49 | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total with allowance recorded | | | 24,168 | | | | 31,929 | | | | 8,128 | | | | 27,901 | | | | 848 | | | | 23,965 | | | | 34,584 | | | | 9,804 | | | | 37,580 | | | | 745 | |
| | | |
Total Impaired Loans: | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | 18,444 | | | 26,205 | | | 6,066 | | | 22,060 | | | 699 | | | 20,843 | | | 29,870 | | | 6,085 | | | 30,998 | | | 957 | |
Real estate - construction | | 1,461 | | | 1,464 | | | 126 | | | 1,521 | | | 59 | | | 4,320 | | | 4,324 | | | 86 | | | 3,677 | | | 153 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | 5,121 | | | 5,305 | | | 99 | | | 5,587 | | | 225 | | | 15,038 | | | 18,274 | | | 2,456 | | | 21,175 | | | 919 | |
1-4 family mortgage | | 2,046 | | | 2,046 | | | 208 | | | 2,063 | | | 51 | | | 1,440 | | | 1,440 | | | 176 | | | 1,446 | | | 3 | |
Other mortgage | | | 11,470 | | | | 11,470 | | | | 1,580 | | | | 11,731 | | | | 469 | | | | 1,507 | | | | 1,507 | | | | 1,001 | | | | 1,468 | | | | 21 | |
Total real estate - mortgage | | 18,637 | | | 18,821 | | | 1,887 | | | 19,381 | | | 745 | | | | 17,985 | | | | 21,221 | | | | 3,633 | | | | 24,089 | | | | 943 | |
Consumer | | | 49 | | | | 49 | | | | 49 | | | | 49 | | | | 3 | | |
Total impaired loans | | $ | 38,591 | | | $ | 46,539 | | | $ | 8,128 | | | $ | 43,011 | | | $ | 1,506 | | | $ | 43,148 | | | $ | 55,415 | | | $ | 9,804 | | | $ | 58,764 | | | $ | 2,053 | |
As of March 31, 2020, the Company had executed 730 loan modifications with payment deferrals on outstanding loan balances of $574.7 million in connection with the COVID-19 relief provided by the CARES Act. Of these 730 payment deferrals, 720 were principal only deferrals totaling $547.8 million, five were interest only deferrals totaling $18.3 million and five were principal and interest deferrals totaling $8.6 million. These deferrals were generally no more than three months in duration and were not considered troubled debt restructurings based on interagency guidance issued in March 2020.
Troubled Debt Restructurings (“TDR”) at June 30, 2019,March 31, 2020, December 31, 20182019 and June 30, 2018March 31, 2019 totaled $11.3$2.4 million, $14.6$3.3 million and $17.3$12.3 million, respectively. The portion of those TDRs accruing interest at March 31, 2020, December 31, 2019 and March 31, 2019 totaled $2.4 million, $3.3 million and $2.7 million, respectively. At June 30, 2019,March 31, 2020, the Company had a related allowance for loan losses of $2.0 million$223,000 allocated to these TDRs, compared to $4.3$929,000 million at December 31, 20182019 and $3.6$2.6 million at June 30, 2018.March 31, 2019. One commercial loan totaling $350,000 was newly classified as a TDR activity by portfolio segmentand there were no renewals of existing TDRs for the three and sixmonths ended June 30, 2019March 31, 2020. is presented in the table below. There were no modifications made to new TDRs or renewals of existing TDRs for the three and sixmonths ended June 30, 2018.March 31, 2019.
| | | Three Months Ended June 30, 2019 | | | Six Months Ended June 30, 2019 | |
| | | 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 | | | $ | 2,742 | | | $ | 2,742 | | | | 1 | | | $ | 2,742 | | | $ | 2,742 | |
Real estate - construction | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
1-4 family mortgage | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Other mortgage | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total real estate mortgage | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Consumer | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | 1 | | | $ | 2,742 | | | $ | 2,742 | | | | 1 | | | $ | 2,742 | | | $ | 2,742 | |
| | | 2020 | |
| | | | | | | Pre- | | | Post- | |
| | | | | | | Modification | | | Modification | |
| | | | | | | Outstanding | | | Outstanding | |
| | | Number of | | | Recorded | | | Recorded | |
| | | Contracts | | | Investment | | | Investment | |
| | | (In Thousands) | |
Troubled Debt Restructurings | | | | | | | | | | | | |
Commercial, financial and agricultural | | | 1 | | | $ | 350 | | | $ | 350 | |
Real estate - construction | | | - | | | | - | | | | - | |
Real estate - mortgage: | | | | | | | | | | | | |
Owner-occupied commercial | | | - | | | | - | | | | - | |
1-4 family mortgage | | | - | | | | - | | | | - | |
Other mortgage | | | - | | | | - | | | | - | |
Total real estate mortgage | | | - | | | | - | | | | - | |
Consumer | | | - | | | | - | | | | - | |
| | | | 1 | | | $ | 350 | | | $ | 350 | |
The following table presents TDRs by portfolio segment which defaulted during the three and six months ended June 30, 2019 and 2018, andThere were no loans which were modified in the previous twelve months (i.e., the twelve months prior to default). that defaulted during the three months ended March 31, 2020. There were two commercial loans totaling $325,000 which were modified in the previous twelve months which defaulted during the three months ended March 31, 2019. For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status. As of June 30, 2019, the Company’s TDRs have all resulted from term extensions, rather than from interest rate reductions or debt forgiveness.
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2019 | | | 2018 | | | 2019 | | | 2018 | |
| | | | | | | | | | | | | | | | | |
| | | (In thousands) | |
Defaulted during the period, where modified in a TDR twelve months prior to default | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | - | | | $ | 268 | | | $ | 325 | | | $ | 268 | |
Real estate - construction | | | - | | | | - | | | | - | | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | - | | | | - | | | | - | | | | - | |
1-4 family mortgage | | | - | | | | - | | | | - | | | | - | |
Other mortgage | | | - | | | | - | | | | - | | | | - | |
Total real estate mortgage | | | - | | | | - | | | | - | | | | - | |
Consumer | | | - | | | | - | | | | - | | | | - | |
| | | $ | - | | | $ | 268 | | | $ | 325 | | | $ | 268 | |
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 9.79 years. At June 30, 2019,March 31, 2020, the Company had lease right-of-use assets and lease liabilities totaling $13.1$12.5 million and $12.6 million, respectively, compared to $12.3 and $13.4 million, respectively at December 31, 2019 which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance Sheet.
Maturities of operating lease liabilities as of June 30, 2019March 31, 2020 are as follows:
| | | June 30, 2019 | | | March 31, 2020 | |
| | | (In Thousands) | | | (In Thousands) | |
2019 (remaining) | | $ | 1,582 | | |
2020 | | 3,197 | | |
2020 (remaining) | | | $ | 2,544 | |
2021 | | 2,584 | | | 2,688 | |
2022 | | 2,606 | | | 2,655 | |
2023 | | 2,185 | | | 2,181 | |
2024 | | | 1,180 | |
thereafter | | | 3,749 | | | | 2,570 | |
Total lease payments | | 15,903 | | | 13,818 | |
Less: imputed interest | | | (2,756 | ) | | | (1,224 | ) |
Present value of operating lease liabilities | | $ | 13,147 | | | $ | 12,594 | |
As of June 30, 2019,March 31, 2020, the weighted average remaining term of operating leases is 6.05.3 years and the weighted average discount rate used in the measurement of operating lease liabilities was 5.00%3.19%.
Operating cash flows related to leases were $786,000$852,000 and $1,563,000$781,000 for the three and sixmonths ended June 30, March 31, 2020 and 2019,respectively.
Lease costs during the three and sixmonths ended June 30, March 31, 2020 and 2019were as follows (in thousands):
| | | Three Months Ended June 30, 2019 | |
Operating lease cost | | $ | 842 | |
Short-term lease cost | | | 7 | |
Variable lease cost | | | 52 | |
Sublease income | | | (6 | ) |
Net lease cost | | $ | 895 | |
| | | | Three Months Ended March 31, | |
| | | Six Months Ended June 30, 2019 | | | 2020 | | | 2019 | |
Operating lease cost | | $ | 1,691 | | | $ | 873 | | | $ | 840 | |
Short-term lease cost | | 13 | | | 16 | | | 9 | |
Variable lease cost | | 102 | | | 44 | | | 38 | |
Sublease income | | | (12 | ) | | | (16 | ) | | | (6 | ) |
Net lease cost | | $ | 1,794 | | | $ | 917 | | | $ | 881 | |
NOTE 7 - EMPLOYEE AND DIRECTOR BENEFITS
Stock Options
TheAt March 31, 2020, the Company has a stock-based compensation planhad stock incentive plans as described below. The compensation cost that has been charged to earnings for the planplans was approximately $206,000$276,000 and $488,000$282,000 for the three and sixmonths ended June 30, 2019March 31, 2020 and $244,000 and $482,000 for the three2019, and six months ended June 30, 2018.respectively.
The Company’s 2009 Amended and Restated Stock Incentive Plan authorizes the grant of up to 5,550,000 shares and allows for the issuance of Stock Appreciation Rights, Restricted Stock, Stock Options, Non-stock Share Equivalents, Performance Shares or Performance Units. The plan allowsBoth plans allow for the grant of incentive stock options and non-qualified stock options, and option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the planplans is 10ten 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. Expected volatility isvolatilities are based on historical volatilitiesan index of the Company’s common stock.southeastern United States publicly traded banks. The expected term for options granted is based on the short-cut method and 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.
| | | 2019 | | | 2018 | |
Expected volatility | | | 40.00 | % | | | 24.13 | % |
Expected dividends | | | 1.74 | % | | | 1.06 | % |
Expected term (in years) | | | 6.7 | | | | 6.3 | |
Risk-free rate | | | 2.55 | % | | | 2.67 | % |
| | 2019 | |
Expected volatility | | | 40.00 | % |
Expected dividends | | | 1.76 | % |
Expected term (in years) | | | 6.3 | |
Risk-free rate | | | 2.61 | % |
There were no grants of stock options during the three months ended March 31, 2020. The weighted average grant-date fair value of options granted during the sixthree months ended June 30,March 31, 2019 and June 30, 2018 was $12.60 and $10.95, respectively.$12.20.
The following table summarizes stock option activity during the sixthree months ended June 30, 2019March 31, 2020 and June 30, 2018:2019:
| | | Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (years) | | | Aggregate Intrinsic Value | |
| | | | | | | | | | | | | | | (In Thousands) | |
Six Months Ended June 30, 2019: | | | | | | | | | | | | | | | | |
Outstanding at January 1, 2019 | | | 1,238,748 | | | $ | 13.02 | | | | 5.2 | | | $ | 23,355 | |
Granted | | | 10,500 | | | | 34.44 | | | | 9.7 | | | | (2 | ) |
Exercised | | | (188,500 | ) | | | 5.58 | | | | 1.8 | | | | 5,014 | |
Forfeited | | | (13,000 | ) | | | 29.93 | | | | 7.4 | | | | 56 | |
Outstanding at June 30, 2019 | | | 1,047,748 | | | $ | 14.37 | | | | 5.3 | | | $ | 21,233 | |
| | | | | | | | | | | | | | | | | |
Exercisable at June 30, 2019 | | | 328,800 | | | $ | 8.13 | | | | 3.7 | | | $ | 8,964 | |
| | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2018: | | | | | | | | | | | | | | | | |
Outstanding at January 1, 2018 | | | 1,666,834 | | | $ | 10.68 | | | | 5.5 | | | $ | 51,377 | |
Granted | | | 12,750 | | | | 41.50 | | | | 9.7 | | | | (9 | ) |
Exercised | | | (175,836 | ) | | | 4.90 | | | | 3.1 | | | | 6,317 | |
Forfeited | | | (6,000 | ) | | | 19.50 | | | | 7.7 | | | | 128 | |
Outstanding at June 30, 2018 | | | 1,497,748 | | | $ | 11.58 | | | | 5.3 | | | $ | 43,787 | |
| | | | | | | | | | | | | | | | | |
Exercisable at June 30, 2018 | | | 748,600 | | | $ | 7.34 | | | | 3.9 | | | $ | 25,811 | |
| | | | | | | | | | | Weighted | | | | | |
| | | | | | | Weighted | | | Average | | | | | |
| | | | | | | Average | | | Remaining | | | | | |
| | | | | | | Exercise | | | Contractual | | | Aggregate | |
| | | Shares | | | Price | | | Term (years) | | | Intrinsic Value | |
| | | | | | | | | | | | | | | (In Thousands) | |
Three Months Ended March 31, 2020: | | | | | | | | | | | | | | | | |
Outstanding January 1, 2020 | | | 965,248 | | | $ | 15.19 | | | | 4.9 | | | $ | 21,911 | |
Granted | | | - | | | | - | | | | - | | | | - | |
Exercised | | | (216,000 | ) | | | 10.47 | | | | 3.3 | | | | 4,072 | |
Forfeited | | | (18,000 | ) | | | 30.79 | | | | 6.9 | | | | 26 | |
Outstanding March 31, 2020 | | | 731,248 | | | | 17.68 | | | | 5.4 | | | $ | 12,969 | |
| | | | | | | | | | | | | | | | | |
Exercisable March 31, 2020 | | | 210,500 | | | $ | 16.54 | | | | 5.0 | | | $ | 7,146 | |
| | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019: | | | | | | | | | | | | | | | | |
Outstanding January 1, 2019 | | | 1,238,748 | | | $ | 13.02 | | | | 5.2 | | | $ | 23,355 | |
Granted | | | 6,000 | | | | 34.09 | | | | 9.8 | | | | (2 | ) |
Exercised | | | (162,500 | ) | | | 4.59 | | | | 1.7 | | | | 4,384 | |
Forfeited | | | - | | | | - | | | | - | | | | - | |
Outstanding March 31, 2019 | | | 1,082,248 | | | | 14.41 | | | | 6.3 | | | $ | 21,318 | |
| | | | | | | | | | | | | | | | | |
Exercisable March 31, 2019 | | | 354,800 | | | $ | 8.40 | | | | 4.0 | | | $ | 9,356 | |
As of June 30, 2019,March 31, 2020, there was approximately $1,374,000$1.1 million of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next 1.51.7 years.
Restricted Stock
The Company periodically grants restricted stock awards that vest upon service conditions. Dividend payments are made during the vesting period. The value of restricted stock is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period. As of June 30, 2019,March 31, 2020, there was $1,316,000$1.8 million of total unrecognized compensation cost related to non-vested restricted stock. The cost is expected to be recognized evenly over the remaining 2.93.0 years of the restricted stock’s vesting period.
The following table summarizes restricted stock activity during the six months ended June 30, 2019 and 2018, respectively:
| | | Shares | | | Weighted Average Grant Date Fair Value | | | Shares | | | Weighted Average Grant Date Fair Value | |
Six Months Ended June 30, 2019: | | | | | | |
Three Months Ended March 31, 2020: | | |
Non-vested at January 1, 2020 | | | 71,290 | | | $ | 31.53 | |
Granted | | | 15,300 | | | 39.45 | |
Vested | | | (8,376 | ) | | 18.64 | |
Forfeited | | | | - | | | - | |
Non-vested at March 31, 2020 | | | | 78,214 | | | 34.46 | |
| | | |
Three Months Ended March 31, 2019: | | |
Non-vested at January 1, 2019 | | 44,076 | | | $ | 38.44 | | | 44,076 | | | $ | 28.94 | |
Granted | | 23,474 | | | 34.03 | | | 2,700 | | | 34.09 | |
Vested | | (5,200 | ) | | 20.31 | | | (5,200 | ) | | 20.31 | |
Forfeited | | | (2,500 | ) | | 38.17 | | | | - | | | - | |
Non-vested at June 30, 2019 | | | 59,850 | | | $ | 38.95 | | |
| | | |
Six Months Ended June 30, 2018: | | | | | | |
Non-vested at January 1, 2018 | | 120,676 | | | $ | 10.29 | | |
Granted | | 11,850 | | | 41.29 | | |
Vested | | (61,700 | ) | | 5.81 | | |
Forfeited | | | - | | | - | | |
Non-vested at June 30, 2018 | | | 70,826 | | | $ | 19.38 | | |
Non-vested at March 31, 2019 | | | | 41,576 | | | 30.35 | |
NOTE 8 - DERIVATIVES
The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of June 30, 2019March 31, 2020 and December 31, 20182019 were not material.
NOTE 9 – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In February 2016,July 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU 20162018-02,13, LeasesFair Value Measurement (Topic 842820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.. The FASB issued this This ASU eliminated, added and modified certain disclosure requirements for fair value measurements. Among the changes, entities are no longer required to increase transparencydisclose the amount of and comparability among organizations by recognizing lease assetsreasons for transfers between Level 1 and lease liabilities onLevel 2 of the balance sheet by lesseesfair value hierarchy, however, entities are required to disclose the range and weighted average used to develop significant unobservable inputs for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in thisLevel 3 fair value measurements. ASU wereNo.2018-13 was effective for the Company onbeginning January 1, 2019.2020. The Company elected the three practical expedients allowed by the amendments as follows: 1) forego an assessment of whether any existing contracts are or contain leases, 2) forego an assessment of the classification of existing leases as to whether they are operating leases or capital leases, and 3) forego an assessment of direct costs for any existing leases. Upon adoption on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities of $14.0 million and did not restate comparative periods. There was no impact on the Company’s consolidated statements of income or cash flows. See Note 6 – Leases for additional information.
In June 2018, the FASB issuedAs ASU 2018-07,13 Compensation – Stock Compensation (Topiconly revised disclosure requirements, it has 718), Improvements to Nonemployee Share-Based Payment Accounting. These amendments expand the scope of Topic 718,no Compensation - Stock Compensation, which only included share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees are now substantially aligned. The ASU superseded Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The Company adopted this ASU effective January 1, 2019. However, the amendments did not have anmaterial impact on the Company’s Consolidated Financial Statements because it does not currently have any stock-based payment awards outstanding to nonemployees.
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 were effective for the Company as of January 1, 2019. The amendments in this ASU did not impact the Company’s Consolidated Financial Statements, as it has always amortized premiums to the first call date.Statements.
NOTE 10 -– RECENT ACCOUNTING PRONOUNCEMENTS
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.
The amendments in this ASU are effective forCoronavirus Aid, Relief, and Economic Security Act (“CARES Act”), passed by Congress and signed into law by the company for fiscal years and interim periods within those fiscal years beginning afterPresident on December 15, 2019.March 27, 2020, The Company has established a cross-functional implementation team with assigned roles and responsibilities, key tasksgave financial institutions the option to complete, and a general timeline to be followed. The team meets regularly to discuss the latest developments and ensure progress is being made on the adoption plan. The Company has contracted with a third-party provider for enhanced modeling techniques that incorporate the loss measurement requirements in these amendments and is in the process of finalizing and documenting the methodologies that will be utilized, including challenging estimated credit loss model assumptions and outputs and refining the qualitative framework. The team is also currently developing controls, processes, policies and disclosures in preparation for performing complete parallel runs in the third and fourth quarters of 2019. The Company expects validation of the new model(s) to be completed during the third quarter of 2019. The Company continues to evaluate the impactdelay adoption of ASU 2016-1313. willThe Company decided to delay its adoption of the Update until the earlier of the date the national emergency concerning COVID-19 terminates or December 31, 2020, with an effective retrospective adoption date of January 1, 2020.
The Company’s CECL implementation team includes leadership from Accounting, Credit Administration and Risk Management. This group works closely with a third-party software solution vendor providing expertise in CECL modeling techniques to develop expected credit loss estimation models. Loans with similar risk characteristics have been evaluated in pools and, depending on its consolidated financial statements and disclosures, and while currently unable to reasonably estimate the impactnature of adopting the ASU,each identified pool, the Company expectsutilized a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method. The historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the impactCompany’s historical credit loss experience, such as national unemployment rates and gross domestic product.
CECL parallel comparisons were performed at March 31, 2020 and the Company estimates an increase in its allowance for loan losses under CECL by approximately 10%. The Company forecasted an immediate reversion to longer term average historical loss experience for the reasonable and supportable forecast due to the current level of adoption could be significantly influenced by the composition, characteristicsuncertainty and qualityunprecedented effect of its loan portfolioCOVID-19 as well as the prevailingcorresponding response from the federal government through the CARES Act. Qualitative factors were adjusted for a higher level of risk associated with economic conditions with a mitigating adjustment for the regulatory environment.
Credit losses for loans that no longer share similar risk characteristics were estimated on an individual basis. Individual evaluations were performed for nonaccrual loans, loans rated substandard, and modified loans classified as troubled debt restructurings. Specific allowances were estimated based on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.
The estimation methodology for credit losses on lending-related commitments were similar to the process for estimating credit losses for loans, with the addition of a probability of draw estimate that will be applied to each commitment amount.
Based upon the nature and characteristics of our securities portfolios at March 31, 2020, the macroeconomic conditions and forecasts as ofat that date, and other management judgments, the adoption date.Company does not currently expect to record any allowance for credit losses on available for sale securities.
In July 2018,March 2020, the FASB issued ASU 20182020-13,04, Fair Value MeasurementReference Rate Reform (Topic 820848): Disclosure Framework – ChangesFacilitation of the Effects of Reference Rate Reform on Financial Reporting. The Update provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be effective for a limited time, starting March 12, 2020 through December 31, 2022. The Company has identified a replacement reference rate established by the American Financial Exchange. This rate is based on an active market of daily fund trading among participant banks. The Company will apply the guidance provided by this ASU in transitioning to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, however, entities will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No.2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No.2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.reference rate.
NOTE 11 - FAIR VALUE MEASUREMENT
Measurement of fair value under U.S. GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value.
Debt Securities.Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on pricing services provided by independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing source regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In cases where Level 1 orThe Company bought two corporate debt securities in a private placement transactions, for which Level 2 inputs are not available,available. The Company uses average observable prices of similar corporate securities owned by the Company to value the two securities and are classified in Level 3 of the hierarchy. The range of values and weighted average value as of March 31, 2020 was 94.5744 to 106.7775 and 102.3865, respectively, observed for the Company’s other similar corporate securities. The range of values and weighted average value as of December 31, 2019 was 98.7836 to 112.2305 and 102.2648, respectively, observed for the Company’s other similar corporate securities.
Impaired Loans. Impaired loans are measured and reported at fair value when full payment under the loan terms is not probable. Impaired loans are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASCAccounting Standards Codification (“ASC”) 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates, and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. The range of fair value adjustments and weighted average adjustment as of March 31, 2020 was 0% to 50% and 16.6%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2019 was 0% to 30% and 5.6%, respectively. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized as an impairment charge related to impaired loans that are measured at fair value on a nonrecurring basis was $6,568,000 and $8,427,000$5.0 million during the three and sixmonths ended June 30, 2019,March 31, 2020, respectively, and $1,543,000 and $3,888,000$1.9 million during the three and sixmonths ended June 30, 2018, March 31, 2019.respectively.
Other Real Estate Owned and repossessed assets. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure and repossessed assets are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO or repossession are charged to the allowance for loan losses subsequent to foreclosure or repossession.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, 2020 was 5% to 10% and 7.8%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2019 was 5% to 10% and 8.0%, respectively. These measurements are classified as Level 3 within the valuation hierarchy. A loss on the sale and write-downs of OREO of $563,000 and repossessed assets of $202,000 and $224,000$22,000 was recognized forduring the three and sixmonths ended June 30, 2019,March 31, 2020 respectively, and $99,000 and $353,000 for the threeand six2019, months ended June 30, 2018, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO and repossessed assets areis classified within Level 3 of the hierarchy.
There was one residential real estate loan with a balance of $300,000$287,000 foreclosed and classified as OREO as of June 30, 2019.March 31, 2020, This samecompared to one residential real estate loan had a balance of $360,000foreclosure for $103,000 as of December 31, 2018. 2019.The property
One residential real estate loan for $600,000 was sold onin the process of being foreclosed as of July 9, 2019March 31, 2020 with a $2,000 loss on sale.and the residential real estate loan for $287,000 mentioned above was in the process of being foreclosed as of December 31, 2019.
The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of June 30, 2019March 31, 2020 and December 31, 2018:2019. There were no liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.
| | | Fair Value Measurements at June 30, 2019 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 debt securities: | | | | | | | | | | | | | | | | |
U.S. Treasury and government agencies | | $ | - | | | $ | 74,707 | | | $ | - | | | $ | 74,707 | |
Mortgage-backed securities | | | - | | | | 363,425 | | | | - | | | | 363,425 | |
State and municipal securities | | | - | | | | 84,311 | | | | - | | | | 84,311 | |
Corporate debt | | | - | | | | 128,933 | | | | 6,595 | | | | 135,528 | |
Total assets at fair value | | $ | - | | | $ | 651,376 | | | $ | 6,595 | | | $ | 657,971 | |
| | | Fair Value Measurements at December 31, 2018 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 debt securities: | | | | | | | | | | | | | | | | |
U.S. Treasury and government agencies | | $ | - | | | $ | 76,993 | | | $ | - | | | $ | 76,993 | |
Mortgage-backed securities | | | - | | | | 304,304 | | | | - | | | | 304,304 | |
State and municipal securities | | | - | | | | 105,994 | | | | - | | | | 105,994 | |
Corporate debt | | | - | | | | 96,375 | | | | 6,518 | | | | 102,893 | |
Total assets at fair value | | $ | - | | | $ | 583,666 | | | $ | 6,518 | | | $ | 590,184 | |
| | | Fair Value Measurements at March 31, 2020 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 | | $ | - | | | $ | 49,782 | | | $ | - | | | $ | 49,782 | |
Government agency securities | | | - | | | | 18,593 | | | | - | | | | 18,593 | |
Mortgage-backed securities | | | - | | | | 546,431 | | | | - | | | | 546,431 | |
State and municipal securities | | | - | | | | 51,328 | | | | - | | | | 51,328 | |
Corporate debt | | | - | | | | 154,001 | | | | 6,647 | | | | 160,648 | |
Total assets at fair value | | $ | - | | | $ | 820,135 | | | $ | 6,647 | | | $ | 826,782 | |
| | | Fair Value Measurements at December 31, 2019 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 | | $ | - | | | $ | 49,210 | | | $ | - | | | $ | 49,210 | |
Government agency securities | | | - | | | | 18,386 | | | | - | | | | 18,386 | |
Mortgage-backed securities | | | - | | | | 474,054 | | | | - | | | | 474,054 | |
State and municipal securities | | | - | | | | 57,272 | | | | - | | | | 57,272 | |
Corporate debt | | | - | | | | 153,881 | | | | 6,596 | | | | 160,477 | |
Total assets at fair value | | $ | - | | | $ | 752,803 | | | $ | 6,596 | | | $ | 759,399 | |
The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of June 30, 2019March 31, 2020 and December 31, 2018:2019. There were no liabilities measured at fair value on a non-recurring basis as of March 31, 2020 and December 31, 2019.
| | | | Fair Value Measurements at March 31, 2020 Using | | | | |
| | | | Quoted Prices in | | | | | | | |
| | | | Active Markets | | Significant Other | | Significant | | | |
| | | Fair Value Measurements at June 30, 2019 | | | | | | 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 | | $ | - | | | $ | - | | | $ | 35,574 | | | $ | 35,574 | | | $ | - | | | $ | - | | | $ | 50,404 | | | $ | 50,404 | |
Other real estate owned and repossessed assets | | | - | | | | - | | | | 5,649 | | | | 5,649 | | | | - | | | | - | | | | 7,448 | | | | 7,448 | |
Total assets at fair value | | $ | - | | | $ | - | | | $ | 41,223 | | | $ | 41,223 | | | $ | - | | | $ | - | | | $ | 57,852 | | | $ | 57,852 | |
| | | | Fair Value Measurements at December 31, 2019 Using | | | | |
| | | | Quoted Prices in | | | | | | | |
| | | | Active Markets | | Significant Other | | Significant | | | |
| | | Fair Value Measurements at December 31, 2018 | | | | | | 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 | | $ | - | | | $ | - | | | $ | 30,463 | | | $ | 30,463 | | | $ | - | | | $ | - | | | $ | 33,344 | | | $ | 33,344 | |
Other real estate owned and repossessed assets | | | - | | | | - | | | | 5,169 | | | | 5,169 | | |
Other real estate owned | | | | - | | | | - | | | | 8,178 | | | | 8,178 | |
Total assets at fair value | | $ | - | | | $ | - | | | $ | 35,632 | | | $ | 35,632 | | | $ | - | | | $ | - | | | $ | 41,522 | | | $ | 41,522 | |
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 estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis as of June 30, 2019March 31, 2020 and December 31, 20182019 were as follows:
| | | June 30, 2019 | | | December 31, 2018 | |
| | | Carrying Amount | | | Fair Value | | | Carrying Amount | | | Fair Value | |
| | | (In Thousands) | |
Financial Assets: | | | | | | | | | | | | | | | | |
Level 1 inputs: | | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 477,893 | | | $ | 477,893 | | | $ | 458,050 | | | $ | 458,050 | |
| | | | | | | | | | | | | | | | | |
Level 2 inputs: | | | | | | | | | | | | | | | | |
Federal funds sold | | | 408,289 | | | | 408,289 | | | | 223,845 | | | | 223,845 | |
Mortgage loans held for sale | | | 9,446 | | | | 9,446 | | | | 120 | | | | 121 | |
| | | | | | | | | | | | | | | | | |
Level 3 inputs: | | | | | | | | | | | | | | | | |
Held to maturity debt securities | | | 250 | | | | 250 | | | | - | | | | - | |
Loans, net | | | 6,860,926 | | | | 6,791,540 | | | | 6,464,899 | | | | 6,398,604 | |
| | | | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Level 2 inputs: | | | | | | | | | | | | | | | | |
Deposits | | $ | 7,404,794 | | | $ | 7,407,047 | | | $ | 6,915,708 | | | $ | 6,910,176 | |
Federal funds purchased | | | 459,449 | | | | 459,449 | | | | 288,725 | | | | 288,725 | |
Other borrowings | | | 64,684 | | | | 64,624 | | | | 64,666 | | | | 64,613 | |
| | | March 31, 2020 | | | December 31, 2019 | |
| | | Carrying | | | | | | | Carrying | | | | | |
| | | Amount | | | Fair Value | | | Amount | | | Fair Value | |
| | | (In Thousands) | |
Financial Assets: | | | | | | | | | | | | | | | | |
Level 1 inputs: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 378,404 | | | $ | 378,404 | | | $ | 530,127 | | | $ | 530,127 | |
| | | | | | | | | | | | | | | | | |
Level 2 inputs: | | | | | | | | | | | | | | | | |
Federal funds sold | | | 306,127 | | | | 306,127 | | | | 100,473 | | | | 100,473 | |
Mortgage loans held for sale | | | 6,747 | | | | 6,775 | | | | 6,302 | | | | 6,312 | |
| | | | | | | | | | | | | | | | | |
Level 3 Inputs: | | | | | | | | | | | | | | | | |
Held to maturity debt securities | | | 250 | | | | 250 | | | | 250 | | | | 250 | |
Loans, net | | | 7,433,018 | | | | 7,401,907 | | | | 7,151,523 | | | | 7,099,198 | |
| | | | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | | |
Level 2 inputs: | | | | | | | | | | | | | | | | |
Deposits | | $ | 7,832,655 | | | $ | 7,817,647 | | | $ | 7,530,433 | | | $ | 7,534,984 | |
Federal funds purchased | | | 543,623 | | | | 543,623 | | | | 470,749 | | | | 470,749 | |
Other borrowings | | | 64,707 | | | | 64,950 | | | | 64,703 | | | | 65,048 | |
NOTE 12 – SUBSEQUENT EVENTS
In light of the US and global economic crisis brought about by the COVID-19 pandemic, the Company has prioritized assisting its clients through this troubled time. The CARES Act provides for Payroll Protection Plan (“PPP”) loans to be made by banks to employers with less than 500 employees if they continue to employ their existing workers. As of April 17, 2020, the Company has funded approximately 3,525 loans for a total amount of $920.3 million for clients under the PPP, and management expects to continue to participate in any extensions of the PPP by the Treasury Department.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc. (the “Company”) and its wholly-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, 2020 and December 31, 2019 and consolidated statements of income for the three and six months ended June 30, 2019March 31, 2020 and June 30, 2018.March 31, 2019.
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 (the “Exchange Act”) 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; 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, including but not limited to, the restaurant, hospitality and retail sectors; 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. 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 20 full-service banking offices located in Alabama, Tampa Bay, Florida, the panhandle of Florida, the greater Atlanta, Georgia metropolitan area, Charleston, South Carolina, and Nashville, Tennessee. Through the Bank,bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.
Our principal business is to accept deposits from the public and to make loans and other investments. Our principal sources of funds for loans and investments are demand, time, savings, and other deposits. Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.
Overview of Second Quarter 2019 Results
As of June 30, 2019,March 31, 2020, we had consolidated total assets of $8.74$9.36 billion, up $732.9$417.2 million, or 9.2%4.7%, when compared to consolidatedfrom total assets of $8.01$8.95 billion at December 31, 2018.2019. Total loans were $6.97$7.57 billion at June 30, 2019,March 31, 2020, up $434.4$307.4 million, or 6.6%4.2%, from $6.53$7.26 billion at December 31, 2018.2019. Total deposits were $7.40$7.83 billion at June 30, 2019,March 31, 2020, up $489.1$302.2 million, or 7.1%4.0%, from $6.92$7.53 billion at December 31, 2018.2019.
Net income available to common stockholders for the three months ended June 30, 2019March 31, 2020 was $35.6$34.8 million, an increase of $2.1 million,down $232,000, or 6.2%0.6%, from $33.5$35.0 million for the corresponding period in 2018.three months ended March 31, 2019. Basic and diluted earnings per common share were $0.67$0.65 and $0.66,$0.64, respectively, for the three months ended June 30, 2019,March 31, 2020, compared to basic$0.65 and diluted earnings per common share of $0.63 and $0.62 for the corresponding period in 2018.
Net income available to common stockholders for the six months ended June 30, 2019 was $70.6 million, an increase of $4.5 million, or 6.8%, from $66.1 million for the corresponding period in 2018. Basic and diluted earnings per common share were $1.32 and $1.31, respectively, for the six months ended June 30, 2019, compared to $1.24 and $1.22,$0.65, respectively, for the corresponding period in 2018.2019. An increase in net interest income of $8.9 million for the comparative periods contributed to the increase in net income. Partially offsetting the increase in net interest income were increases in salary expenses, other operating expenses, and provision for loan losses. Changes in income and expenses are more fully explained in “Results of Operations” below.
Critical Accounting Policies
The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”)GAAP and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. GAAP,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 allowance for loan losses, valuation of foreclosed real estate, deferred taxes, and fair value of financial instruments are particularly subject to change. Information concerning our accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
Financial Condition
Cash and Cash Equivalents
At June 30, 2019,March 31, 2020, we had $408.3$306.1 million in federal funds sold, compared to $223.8$100.5 million at December 31, 2018.2019. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At June 30, 2019,March 31, 2020, we had $96.8$67.4 million in balances at the Federal Reserve, compared to $41.9$61.9 million at December 31, 2018. The balances we keep2019. Our increase in federal funds sold were the result of an increase in funds sold on deposit at the Federal Reserve will fluctuate depending on our net funding position and on our ability to earn higher rates on balances at other correspondent banks.American Financial Exchange during the first quarter of 2020.
DebtInvestment Securities
Debt securities available for sale totaled $658.0$826.8 million at June 30, 2019March 31, 2020 and $590.2$759.4 million at December 31, 2018.2019. Investment securities held to maturity totaled $0.3 million$250,000 at June 30, 2019.March 31, 2020 and December 31, 2019, respectively. We had paydownspay downs of $26.9$20.8 million on mortgage-backed securities and government agencies,calls and maturities of $22.8$5.9 million on municipal bonds, corporate securities and treasury securities, and calls of $6.2 million$245,000 on municipal securities and certificates of deposit, respectively during the sixfirst three months ended June 30, 2019.of 2020. We purchased $59.3bought $80.2 million inof mortgage-backed securities and $40.4 million in corporate securities during the first sixthree months of 2019. For a tabular presentation of debt securities available for sale and held to maturity at June 30, 2019 and December 31, 2018, see “Note 4 – Securities” in our Notes to Consolidated Financial Statements.2020.
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 June 30, 2019 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.
Lower market interest rates resulting from the financial crisis related to the COVID-19 pandemic have caused the market values of most of our investment securities to increase. Our unrealized gains on investments have increased from $7.2 million as of December 31, 2019 to $22.0 million as of March 31, 2020.
The Company does not invest in collateralized debt obligations (“CDOs”). We have $135.5$160.6 million of bank holding company subordinated notes. All of these notessuch bonds were rated BBB or better by Kroll Bond Rating Agency at the time of our investment in them. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at June 30, 2019as of March 31, 2020 has a combined average credit rating of AA.
The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $334.1$374.3 million and $291.6$389.9 million as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Loans
As of March 31, 2020, the Company had executed 730 loan modifications with payment deferrals on outstanding loan balances of $574.7 million in connection with the COVID-19 relief provided by the CARES Act. Almost all of these were principal only deferrals, were generally no more than three months in duration and were not considered troubled debt restructurings based on interagency guidance issued in March 2020. We anticipate continuing payment deferrals as provided by the CARES Act during 2020.
We had total loans of $6.97$7.57 billion at June 30, 2019, an increase of $434.4March 31, 2020, up $307.4 million, or 6.6%4.2%, compared to $6.53$7.26 billion at December 31, 2018.2019. At June 30, 2019,March 31, 2020, the percentage of our total loans in each of our regions weremarkets was as follows:
| | | Percentage of Total Loans in MSA | |
Birmingham-Hoover,Birmingham, AL MSA
| | | 40.940.7 | % |
Huntsville, AL | | | 8.1 | % |
Dothan, AL MSA | | | 9.4 | %
|
Huntsville, AL MSA
| | | 8.8 | % |
Mobile,Montgomery, AL MSA
| | | 6.75.5 | % |
Montgomery,Mobile, AL MSA
| | | 5.96.0 | % |
Total Alabama MSAs | | | 71.769.1 | % |
Pensacola-Ferry Pass-Brent,Pensacola, FL MSA
| | | 6.26.0 | % |
Tampa-St. Petersburg-Clearwater, FL MSAWest Florida (1)
| | | 3.14.5 | % |
Total Florida MSAs | | | 9.310.5 | % |
Atlanta-Sandy Springs-Roswell,Nashville, TN
| | | 10.2 | % |
Atlanta, GA MSA | | | 6.2 | % |
Nashville-Davidson-Murfreesboro-Franklin, TN MSACharleston, SC
| | | 9.2 | %
|
Charleston-North Charleston, SC MSA
| | | 3.64.0 | % |
Asset Quality
The Company determined to delay its adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” until the earlier of the date on which the national emergency concerning COVID-19 terminates or December 31, 2020, as outlined in the CARES Act, with an effective retrospective implementation date of January 1, 2020. Accordingly, the Company will continue to use the incurred loss methodology to calculate the allowance for loan losses until the earlier of either event.
The allowance for loan losses, sometimes referred to as the “ALLL,” is established and maintained at levels management deems adequate to absorb anticipated credit losses from identified and otherwise inherent risks in the loan portfolio as of the balance sheet date. In assessing the adequacy of the ALLL,allowance for loan losses, management considers its evaluation of the loan portfolio, past due loan experience, collateral values, current economic conditions and other factors considered necessary to maintain the ALLLallowance at an adequate level. Loan losses are charged against the ALLL when management believes that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL. If the ALLL is considered inadequate to absorb future loan losses on existing loans for any reason, including but not limited to, increases in the size of the loan portfolio, increases in charge-offs or changes in the risk characteristics of the loan portfolio, then the provision for loan losses is increased. Our management believes that the allowance was adequate at June 30, 2019.March 31, 2020.
Our management reviews the adequacy of the ALLL on a quarterly basis. The ALLL 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 June 30, 2019,March 31, 2020, total loans rated Special Mention, Substandard, and Doubtful were $134.7$101.8 million, or 1.9%1.3% of total loans, compared to $139.0$123.7 million, or 2.1%1.7% of total loans, at December 31, 2018.2019. 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 ALLL 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, including the economic distress caused by the COVID-19 pandemic 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.
Loans are considered impaired when, based on current information and events, it is probable that the bank will be unable to collect all amounts due according to the original terms of the loan agreement. The collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are reviewed specifically and separately under FASB ASC 310-30-35, Subsequent Measurement of Impaired Loans, to determine the appropriate reserve allocation. Impaired loans are measured based on the present value of expected future cash flows discounted at the interest rate implicit in the original loan agreement, or, as a practical expedient, at the loan’s observable market price, or the fair value of the underlying collateral. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent.
The following table presents a summary of changes in the allowance for loan losses for the three and six months ended June 30, 2019 and 2018:
| | | As of and for the Three Months Ended | | As of and for the Six Months Ended | | | As of and for the Three Months Ended | |
| | | June 30, | | | June 30, | | | March 31, | |
| | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
Total loans outstanding, net of unearned income | | $ | 6,968,886 | | | $ | 6,129,649 | | | $ | 6,968,886 | | | $ | 6,129,649 | | | $ | 7,568,836 | | | $ | 6,659,908 | |
Average loans outstanding, net of unearned income | | $ | 6,789,051 | | | $ | 5,988,623 | | | $ | 6,695,792 | | | $ | 5,936,501 | | | $ | 7,361,149 | | | $ | 6,601,497 | |
Allowance for loan losses at beginning of period | | 70,207 | | | 62,050 | | | 68,600 | | | 59,406 | | | 76,584 | | | 68,600 | |
Charge-offs: | | | | | | | | | | | | | | |
Commercial, financial and agricultural loans | | 3,610 | | | 1,732 | | | 6,647 | | | 2,820 | | | 2,640 | | | 3,037 | |
Real estate - construction | | | 454 | | | - | |
Real estate - mortgage | | 169 | | | 440 | | | 219 | | | 821 | | | 1,678 | | | 50 | |
Consumer loans | | | 63 | | | | 47 | | | | 281 | | | | 135 | | | | 58 | | | | 218 | |
Total charge-offs | | | 3,842 | | | | 2,219 | | | | 7,147 | | | | 3,776 | | | | 4,830 | | | | 3,305 | |
Recoveries: | | | | | | | | | | | | | | |
Commercial, financial and agricultural loans | | 117 | | | 173 | | | 129 | | | 177 | | | 62 | | | 12 | |
Real estate - construction | | - | | | 97 | | | 1 | | | 104 | | | 1 | | | 1 | |
Real estate - mortgage | | 4 | | | 2 | | | 11 | | | 44 | | | 1 | | | 7 | |
Consumer loans | | | 16 | | | | 15 | | | | 23 | | | | 24 | | | | 12 | | | | 7 | |
Total recoveries | | | 137 | | | | 287 | | | | 164 | | | | 349 | | | | 76 | | | | 27 | |
Net charge-offs | | 3,705 | | | 1,932 | | | 6,983 | | | 3,427 | | | 4,754 | | | 3,278 | |
Provision for loan losses | | 4,884 | | | 4,121 | | | 9,769 | | | 8,260 | | | 13,584 | | | 4,885 | |
Allowance for loan losses at period end | | $ | 71,386 | | | $ | 64,239 | | | $ | 71,386 | | | $ | 64,239 | | | $ | 85,414 | | | $ | 70,207 | |
Allowance for loan losses to period end loans | | 1.02 | % | | 1.05 | % | | 1.02 | % | | 1.05 | % | | 1.13 | % | | 1.05 | % |
Net charge-offs to average loans | | 0.22 | % | | 0.13 | % | | 0.21 | % | | 0.12 | % | | 0.26 | % | | 0.20 | % |
Management believes that the comprehensive allowance analysis developed by our credit administration group is in compliance with all current regulatory guidelines; however, actual losses could differ from management’s estimates.
| | | | | | | Percentage | |
| | | | | | | of loans in | |
| | | | | | | each | |
| | | | | | | category to | |
March 31, 2020 | | Amount | | | total loans | |
| | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 48,780 | | | | 36.61 | % |
Real estate - construction | | | 3,757 | | | | 7.25 | % |
Real estate - mortgage | | | 32,360 | | | | 55.34 | % |
Consumer | | | 517 | | | | 0.80 | % |
Total | | $ | 85,414 | | | | 100.00 | % |
The following table presents the allocation of the allowance for loan losses for each respective loan category with the corresponding percentage of loans in each category to total loans at June 30, 2019 and December 31, 2018:
June 30, 2019 | | Amount | | | Percentage of loans in each category to total loans | |
| | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 38,709 | | | | 37.80 | % |
Real estate - construction | | | 3,419 | | | | 8.67 | % |
Real estate - mortgage | | | 28,783 | | | | 52.62 | % |
Consumer | | | 475 | | | | 0.93 | % |
Total | | $ | 71,386 | | | | 100.00 | % |
December 31, 2018 | | Amount | | | Percentage of loans in each category to total loans | | |
| | | | | | Percentage | |
| | | | | | of loans in | |
| | | | | | each | |
| | | | | | category to | |
December 31, 2019 | | | Amount | | | total loans | |
| | | (In Thousands) | | | (In Thousands) | |
Commercial, financial and agricultural | | $ | 39,016 | | | 38.47 | % | | $ | 43,666 | | | 37.13 | % |
Real estate - construction | | 3,522 | | | 8.16 | % | | 2,768 | | | 7.18 | % |
Real estate - mortgage | | 25,508 | | | 52.39 | % | | 29,653 | | | 54.80 | % |
Consumer | | | 554 | | | | 0.99 | % | | | 497 | | | | 0.89 | % |
Total | | $ | 68,600 | | | | 100.00 | % | | $ | 76,584 | | | | 100.00 | % |
Nonperforming Assets
Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, increased $4.3 milliondecreased to $32.1$33.9 million at June 30, 2019,March 31, 2020 compared to $27.8$36.1 million at December 31, 2018.2019. Of this total, nonaccrual loans of $21.8$28.9 million at June 30, 2019,March 31, 2020 represented a net decrease of $0.1$1.2 million from nonaccrual loans at December 31, 2018.2019. Excluding credit card accounts, there were three loanswas one loan 90 or more days past due and still accruing totaling $10.3$4.9 million at June 30, 2019,March 31, 2020, compared to three loansone loan totaling $5.7$5.0 million at December 31, 2018. This increase in loans 90 or more days past due and still accruing relates to one commercial loan totaling $4.8 million at June 30, 2019. Troubled Debt Restructurings (“TDR”) at June 30, 2019March 31, 2020 and December 31, 20182019 were $11.3$2.4 million and $14.6$3.3 million, respectively. There was one renewal of an existing TDR totaling $2.7 million for the three and six months ended June 30, 2019. There were no loansloan newly classified as a TDR totaling $350,000 and no renewals of existing TDRs for the three months ended March 31, 2020. There were no modifications made to new TDRs or renewals of existing TDRs for the three and six months ended June 30, 2018. These TDRs are the result of term extensions rather than interest rate reductions or forgiveness of debt.March 31, 2019.
OREO and repossessed assets increaseddecreased to $5.6$7.5 million at June 30, 2019,March 31, 2020, from $5.2$8.2 million at December 31, 2018. The total number of OREO and repossessed asset accounts was 12 at June 30, 2019 and December 31, 2018, respectively.2019. The following table summarizes OREO and repossessed asset activity for the sixthree months ended June 30, 2019March 31, 2020 and 2018:2019:
| | | Three months ended March 31, | |
| | | 2020 | | | 2019 | |
| | | (In thousands) | |
Balance at beginning of period | | $ | 8,178 | | | $ | 5,169 | |
Transfers from loans and capitalized expenses | | | 287 | | | | 381 | |
Proceeds from sales | | | (454 | ) | | | (48 | ) |
Write-downs / net gain (loss) on sales | | | (563 | ) | | | (22 | ) |
Balance at end of period | | $ | 7,448 | | | $ | 5,480 | |
| | | Six Months Ended June 30, | |
| | | 2019 | | | 2018 | |
| | | (In thousands) | |
Balance at beginning of period | | $ | 5,169 | | | $ | 6,701 | |
Transfers from loans and capitalized expenses | | | 752 | | | | 751 | |
Proceeds from sales | | | (48 | ) | | | (1,252 | ) |
Internally financed sales | | | - | | | | - | |
Write-downs / net gain (loss) on sales | | | (224 | ) | | | (263 | ) |
Balance at end of period | | $ | 5,649 | | | $ | 5,937 | |
The following table summarizes our nonperforming assets and TDRs at June 30, 2019March 31, 2020 and December 31, 2018:2019:
| | | June 30, 2019 | | | December 31, 2018 | |
| | | | | | | Number of | | | | | | | Number of | |
| | | Balance | | | Loans | | | Balance | | | Loans | |
| | | (Dollar Amounts In Thousands) | |
Nonaccrual loans: | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 11,081 | | | | 22 | | | $ | 10,503 | | | | 16 | |
Real estate - construction | | | 238 | | | | 1 | | | | 997 | | | | 1 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | 3,558 | | | | 3 | | | | 3,358 | | | | 2 | |
1-4 family mortgage | | | 1,941 | | | | 9 | | | | 2,046 | | | | 9 | |
Other mortgage | | | 5,022 | | | | 1 | | | | 5,022 | | | | 1 | |
Total real estate - mortgage | | | 10,521 | | | | 13 | | | | 10,426 | | | | 12 | |
Consumer | | | - | | | | - | | | | - | | | | - | |
Total Nonaccrual loans: | | $ | 21,840 | | | | 36 | | | $ | 21,926 | | | | 29 | |
| | | | | | | | | | | | | | | | | |
90+ days past due and accruing: | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 4,756 | | | | 2 | | | $ | 605 | | | | 10 | |
Real estate - construction | | | - | | | | - | | | | - | | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | - | | | | - | | | | - | | | | - | |
1-4 family mortgage | | | 528 | | | | 1 | | | | 123 | | | | 1 | |
Other mortgage | | | 4,990 | | | | 1 | | | | 5,008 | | | | 1 | |
Total real estate - mortgage | | | 5,518 | | | | 2 | | | | 5,131 | | | | 2 | |
Consumer | | | 25 | | | | 3 | | | | 108 | | | | 28 | |
Total 90+ days past due and accruing: | | $ | 10,299 | | | | 7 | | | $ | 5,844 | | | | 40 | |
| | | | | | | | | | | | | | | | | |
Total Nonperforming Loans: | | $ | 32,139 | | | | 43 | | | $ | 27,770 | | | | 69 | |
| | | | | | | | | | | | | | | | | |
Plus: Other real estate owned and repossessions | | | 5,649 | | | | 12 | | | | 5,169 | | | | 12 | |
Total Nonperforming Assets | | $ | 37,788 | | | | 55 | | | $ | 32,939 | | | | 81 | |
| | | | | | | | | | | | | | | | | |
Restructured accruing loans: | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 2,742 | | | | 1 | | | $ | 3,073 | | | | 3 | |
Real estate - construction | | | - | | | | - | | | | - | | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | - | | | | - | | | | - | | | | - | |
1-4 family mortgage | | | - | | | | - | | | | - | | | | - | |
Other mortgage | | | - | | | | - | | | | - | | | | - | |
Total real estate - mortgage | | | - | | | | - | | | | - | | | | - | |
Consumer | | | - | | | | - | | | | - | | | | - | |
Total restructured accruing loans: | | $ | 2,742 | | | | 1 | | | $ | 3,073 | | | | 3 | |
| | | | | | | | | | | | | | | | | |
Total Nonperforming assets and restructured accruing loans | | $ | 40,530 | | | | 56 | | | $ | 36,012 | | | | 84 | |
| | | | | | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | | | | |
Nonperforming loans to total loans | | | 0.46 | % | | | | | | | 0.43 | % | | | | |
Nonperforming assets to total loans plus other real estate owned and repossessions | | | 0.54 | % | | | | | | | 0.50 | % | | | | |
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions | | | 0.58 | % | | | | | | | 0.55 | % | | | | |
| | | March 31, 2020 | | | December 31, 2019 | |
| | | | | | | Number of | | | | | | | Number of | |
| | | Balance | | | Loans | | | Balance | | | Loans | |
| | | (Dollar Amounts In Thousands) | |
Nonaccrual loans: | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 15,130 | | | | 26 | | | $ | 14,729 | | | | 29 | |
Real estate - construction | | | 1,804 | | | | 4 | | | | 1,588 | | | | 2 | |
Real estate - mortgage: | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | 10,235 | | | | 5 | | | | 10,826 | | | | 3 | |
1-4 family mortgage | | | 1,736 | | | | 9 | | | | 1,440 | | | | 5 | |
Other mortgage | | | - | | | | - | | | | 1,507 | | | | 1 | |
Total real estate - mortgage | | | 11,971 | | | | 14 | | | | 13,773 | | | | 9 | |
Consumer | | | 9 | | | | 1 | | | | - | | | | - | |
Total Nonaccrual loans: | | $ | 28,914 | | | | 45 | | | $ | 30,090 | | | | 40 | |
| | | | | | | | | | | | | | | | | |
90+ days past due and accruing: | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 45 | | | | 3 | | | $ | 201 | | | | 3 | |
Real estate - construction | | | - | | | | - | | | | - | | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | - | | | | - | | | | - | | | | - | |
1-4 family mortgage | | | - | | | | - | | | | 873 | | | | 5 | |
Other mortgage | | | 4,893 | | | | 1 | | | | 4,924 | | | | 1 | |
Total real estate - mortgage | | | 4,893 | | | | 1 | | | | 5,797 | | | | 6 | |
Consumer | | | 16 | | | | 4 | | | | 23 | | | | 8 | |
Total 90+ days past due and accruing: | | $ | 4,954 | | | | 8 | | | $ | 6,021 | | | | 17 | |
| | | | | | | | | | | | | | | | | |
Total Nonperforming Loans: | | $ | 33,868 | | | | 53 | | | $ | 36,111 | | | | 57 | |
| | | | | | | | | | | | | | | | | |
Plus: Other real estate owned and repossessions | | | 7,448 | | | | 10 | | | | 8,178 | | | | 12 | |
Total Nonperforming Assets | | $ | 41,316 | | | | 63 | | | $ | 44,289 | | | | 69 | |
| | | | | | | | | | | | | | | | | |
Restructured accruing loans: | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural | | $ | 975 | | | | 3 | | | $ | 625 | | | | 2 | |
Real estate - construction | | | - | | | | - | | | | - | | | | - | |
Real estate - mortgage: | | | | | | | | | | | | | | | | |
Owner-occupied commercial | | | - | | | | - | | | | - | | | | - | |
1-4 family mortgage | | | - | | | | - | | | | - | | | | - | |
Other mortgage | | | - | | | | - | | | | - | | | | - | |
Total real estate - mortgage | | | - | | | | - | | | | - | | | | - | |
Consumer | | | - | | | | - | | | | - | | | | - | |
Total restructured accruing loans: | | $ | 975 | | | | 3 | | | $ | 625 | | | | 2 | |
Total Nonperforming assets and restructured accruing loans | | $ | 42,291 | | | | 66 | | | $ | 44,914 | | | | 71 | |
| | | | | | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | | | | |
Nonperforming loans to total loans | | | 0.45 | % | | | | | | | 0.50 | % | | | | |
Nonperforming assets to total loans plus other real estate owned and repossessions | | | 0.55 | % | | | | | | | 0.61 | % | | | | |
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions | | | 0.56 | % | | | | | | | 0.62 | % | | | | |
The balance of nonperforming assets can fluctuate due to changes in economic conditions. We have established a policy to discontinue accruing interest on a loan (i.e., place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. Interest income on nonaccrual loans is recognized only as received. If we believe that a loan will not be collected in full, we will increase the allowance for loan losses to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal. We have adjusted our policy to continue the accrual of interest on loans which we have executed payment deferrals on in connection with the CARES Act. These deferrals are generally no more than three months in duration and were not considered troubled debt restructurings based on interagency guidance issued in March 2020.
Impaired Loans and Allowance for Loan Losses
As of June 30, 2019,March 31, 2020, we had impaired loans of $45.7$60.5 million inclusive of nonaccrual loans, an increase of $7.1$17.4 million from $38.6$43.1 million as of December 31, 2018.2019. This increase is primarily attributable to one commercial relationship classified as impaired at March 31, 2020, totaling $20.0 million. We allocated $10.1 million of our allowance for loan losses at June 30, 2019March 31, 2020 to these impaired loans, an increase of $2.0$0.3 million compared to $8.1$9.8 million as of June 30, 2018.December 31, 2019. 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 interest rate implicit in the original loan agreement, 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 loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Our credit administration team performs verification and testing to ensure appropriate identification of impaired loans and that proper reserves are held on these loans.
Of the $45.7$60.5 million of impaired loans reported as of June 30, 2019, $19.8March 31, 2020, $44.9 million were commercial, financial and agricultural loans, $2.0$1.8 million were real estate – construction loans, and $23.9$13.8 million were real estate - mortgage loans and $9,000 were consumer loans.
Deposits
Total deposits were $7.40increased by $302.0 million to $7.83 billion at June 30, 2019, an increase of $489.1 million, or 7.1%, over $6.92March 31, 2020 compared to $7.53 billion at December 31, 2018.2019. We anticipate long-term sustainable growth in deposits through continued development of market share in our less mature markets and through organic growth in our mature markets.
For amounts and rates of our deposits by category, see the table “Average Consolidated Balance Sheets and Net Interest Analysis on a Fully Taxable-EquivalentTaxable-equivalent Basis” under the subheading “Net Interest Income.”Income” below.
The following table summarizes balances of our deposits and the percentage of each type to the total at June 30, 2019March 31, 2020 and December 31, 2018:2019.
| | | June 30, 2019 | | | December 31, 2018 | |
Noninterest-bearing demand | | $ | 1,576,959 | | | | 21.30 | % | | $ | 1,557,341 | | | | 22.52 | % |
Interest-bearing demand | | | 5,080,434 | | | | 68.61 | % | | | 4,624,909 | | | | 66.88 | % |
Savings | | | 54,007 | | | | 0.73 | % | | | 53,880 | | | | 0.78 | % |
Time deposits , $250,000 and under | | | 271,301 | | | | 3.66 | % | | | 257,925 | | | | 3.73 | % |
Time deposits, over $250,000 | | | 422,093 | | | | 5.70 | % | | | 421,653 | | | | 6.10 | % |
| | | $ | 7,404,794 | | | | 100.00 | % | | $ | 6,915,708 | | | | 100.00 | % |
| | | March 31, 2020 | | | December 31, 2019 | |
Non-interest-bearing demand | | $ | 1,925,626 | | | | 24.58 | % | | $ | 1,749,879 | | | | 23.24 | % |
Interest-bearing | | | 5,064,699 | | | | 64.66 | % | | | 4,986,155 | | | | 66.21 | % |
Savings | | | 67,434 | | | | 0.86 | % | | | 65,808 | | | | 0.87 | % |
Time deposits, $250,000 and under | | | 281,085 | | | | 3.59 | % | | | 267,259 | | | | 3.55 | % |
Time deposits, over $250,000 | | | 493,811 | | | | 6.30 | % | | | 461,332 | | | | 6.13 | % |
| | | $ | 7,832,655 | | | | 100.00 | % | | $ | 7,530,433 | | | | 100.00 | % |
Other Borrowings
Our borrowings consist of federal funds purchased and subordinated notes payable. We had $459.4$543.6 million and $288.7$470.7 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was 2.51%0.20% for the quarter ended June 30, 2019.March 31, 2020. Other borrowings consist of the following:
| | ● | $34.7534.78 million of 5% Subordinated Notes due July 15, 2025, which were issued in a private placement in July 2015 and pay interest semi-annually; and |
| | ● | $30.0 million of 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually. |
Liquidity
Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, and other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.
The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity 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 June 30, 2019,March 31, 2020, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $1.13$1.2 billion. Additionally, the Bank had additional borrowing availability of approximately $655.0$772.0 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 ourimmediate anticipated funding needs. needs, but we may need additional funding if we are able to maintain our current growth rate into the future.
We anticipate the need for short-term funding of PPP loans and have applied with the Federal Reserve Bank of Atlanta to participate in their PPP Liquidity Facility (“PPPLF”). The PPPLF will allow us to use PPP loans as collateral to borrow funds from the FRB-Atlanta at a rate of 0.35% for a certain period of time. We currently anticipate that the vast majority of the loans we make through the PPP will be totally forgiven by the SBA by the end of the second quarter of 2020, or soon thereafter.
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.”
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 awareHowever, uncertainties brought about by the COVID-19 pandemic may adversely affect our ability to obtain funding or may increase the cost of any trends or demands that are reasonably likely to result in liquidity materially increasing or decreasing.funding.
The following table reflects the contractual maturities of our term liabilities as of June 30, 2019.March 31, 2020. The amounts shown do not reflect any early withdrawal or prepayment assumptions.
| | | | Payments due by Period | |
| | | Payments due by Period | | |
| | | Total | | | 1 year or less | | | Over 1 - 3 years | | | Over 3 - 5 years | | | Over 5 years | | | Total | | | 1 year or less | | | 1 - 3 years | | | 3 - 5 years | | | Over 5 years | |
| | | (In Thousands) | | | (In Thousands) | |
Contractual Obligations (1) | | | | | | | | | | | | | | | | | | | | | | |
| | | |
Deposits without a stated maturity | | $ | 6,711,400 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 6,957,760 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Certificates of deposit (2) | | 693,394 | | | 410,494 | | | 190,148 | | | 92,740 | | | 12 | | | 874,895 | | | 459,095 | | | 340,605 | | | 75,195 | | | - | |
Federal funds purchased | | 459,449 | | | 459,449 | | | - | | | - | | | - | | | 543,623 | | | 543,623 | | | - | | | - | | | - | |
Subordinated debentures | | 64,750 | | | - | | | - | | | - | | | 64,750 | | |
Subordinated notes payable | | | 64,707 | | | - | | | - | | | - | | | 64,707 | |
Operating lease commitments | | | 15,903 | | | | 3,183 | | | | 5,476 | | | | 4,150 | | | | 3,094 | | | | 12,593 | | | | 2,872 | | | | 4,747 | | | | 2,781 | | | | 2,193 | |
Total | | $ | 7,944,896 | | | $ | 873,126 | | | $ | 195,624 | | | $ | 96,890 | | | $ | 67,856 | | | $ | 8,453,578 | | | $ | 1,005,590 | | | $ | 345,352 | | | $ | 77,976 | | | $ | 66,900 | |
(1) | Excludes interest. | | | | | | | | | | | | | | | | | | | | |
(2) | Certificates of deposit give customers the right to early withdrawal. Early withdrawals may be subject to penalties. The penalty amount depends on the remaining time to maturity at the time of early withdrawal. | |
Capital Adequacy
Total stockholders’ equity attributable to us at June 30, 2019 was $778.5 million, or 8.9% of total assets. At December 31, 2018, total stockholders’ equity attributable to us was $714.7 million, or 8.9% of total assets.
As of June 30, 2019,March 31, 2020, 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.
The final rules implementingratios as disclosed in 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,table below. Our management believes that we are well-capitalized 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 solelyprompt corrective action provisions as 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 was phased in incrementally over time, beginning January 1, 2016 and 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.March 31, 2020.
The following table sets forth (i) the capital ratios required by the FDIC and the Alabama Banking Department’s leverage ratio requirement and (ii) our actual ratios not including the capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of June 30, 2019,March 31, 2020, December 31, 20182019 and June 30, 2018:March 31, 2019:
| | | | | | | | | | | | | | | | | | | To Be Well Capitalized | |
| | | | | | | | | | | For Capital Adequacy | | | Under Prompt Corrective | |
| | | Actual | | | Purposes | | | Action Provisions | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
As of June 30, 2019: | | (Dollars in Thousands) | |
CET 1 Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 759,998 | | | | 10.18 | % | | $ | 335,955 | | | | 4.50 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 823,912 | | | | 11.04 | % | | | 335,942 | | | | 4.50 | % | | $ | 485,249 | | | | 6.50 | % |
Tier 1 Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 760,500 | | | | 10.19 | % | | | 447,940 | | | | 6.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 824,414 | | | | 11.04 | % | | | 447,922 | | | | 6.00 | % | | | 597,230 | | | | 8.00 | % |
Total Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 897,070 | | | | 12.02 | % | | | 597,254 | | | | 8.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 896,300 | | | | 12.01 | % | | | 597,230 | | | | 8.00 | % | | | 746,537 | | | | 10.00 | |
Tier 1 Capital to Average Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 760,500 | | | | 9.00 | % | | | 338,030 | | | | 4.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 824,414 | | | | 9.76 | % | | | 338,016 | | | | 4.00 | % | | | 422,520 | | | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | |
CET 1 Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 705,203 | | | | 10.12 | % | | $ | 313,564 | | | | 4.50 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 768,614 | | | | 11.03 | % | | | 313,554 | | | | 4.50 | % | | $ | 452,911 | | | | 6.50 | % |
Tier 1 Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 705,705 | | | | 10.13 | % | | | 418,086 | | | | 6.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 769,116 | | | | 11.04 | % | | | 418,071 | | | | 6.00 | % | | | 557,428 | | | | 8.00 | % |
Total Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 839,471 | | | | 12.05 | % | | | 557,448 | | | | 8.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 867,715 | | | | 12.03 | % | | | 557,428 | | | | 8.00 | % | | | 696,786 | | | | 10.00 | % |
Tier 1 Capital to Average Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 705,705 | | | | 9.07 | % | | | 311,214 | | | | 4.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 769,116 | | | | 9.89 | % | | | 311,206 | | | | 4.00 | % | | | 389,007 | | | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of June 30, 2018: | | | | | | | | | | | | | | | | | | | | | | | | |
CET 1 Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 647,449 | | | | 10.08 | % | | $ | 289,164 | | | | 4.50 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 710,665 | | | | 11.06 | % | | | 289,131 | | | | 4.50 | % | | $ | 417,634 | | | | 6.50 | % |
Tier 1 Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 647,951 | | | | 10.08 | % | | | 385,552 | | | | 6.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 711,167 | | | | 11.07 | % | | | 385,508 | | | | 6.00 | % | | | 514,011 | | | | 8.00 | % |
Total Capital to Risk-Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 777,338 | | | | 12.10 | % | | | 514,070 | | | | 8.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 775,906 | | | | 12.08 | % | | | 514,011 | | | | 8.00 | % | | | 642,514 | | | | 10.00 | % |
Tier 1 Capital to Average Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 647,951 | | | | 9.21 | % | | | 281,293 | | | | 4.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 711,167 | | | | 10.11 | % | | | 281,271 | | | | 4.00 | % | | | 351,589 | | | | 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.
| | | Actual | | | For Capital Adequacy Purposes | | | To Be Well Capitalized Under Prompt Corrective Action Provisions | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
As of March 31, 2020: | | | | | | | | | | | | | | | | | | | | | | | | |
CET 1 Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 731,864 | | | | 10.30 | % | | $ | 319,875 | | | | 4.50 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 796,506 | | | | 11.21 | % | | | 319,851 | | | | 4.50 | % | | $ | 462,007 | | | | 6.50 | % |
Tier 1 Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 732,366 | | | | 10.30 | % | | | 426,500 | | | | 6.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 797,008 | | | | 11.21 | % | | | 426,468 | | | | 6.00 | % | | | 568,624 | | | | 8.00 | % |
Total Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 867,748 | | | | 12.21 | % | | | 568,667 | | | | 8.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 838,216 | | | | 12.21 | % | | | 568,624 | | | | 8.00 | % | | | 710,780 | | | | 10.00 | % |
Tier 1 Capital to Average Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 732,366 | | | | 9.03 | % | | | 324,553 | | | | 4.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 797,008 | | | | 9.82 | % | | | 324,537 | | | | 4.00 | % | | | 405,671 | | | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | | | |
CET 1 Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 822,396 | | | | 10.50 | % | | $ | 342,283 | | | | 4.50 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 885,172 | | | | 11.30 | % | | | 342,269 | | | | 4.50 | % | | $ | 494,389 | | | | 6.50 | % |
Tier 1 Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 822,896 | | | | 10.50 | % | | | 456,377 | | | | 6.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 885,674 | | | | 11.31 | % | | | 456,359 | | | | 6.00 | % | | | 608,479 | | | | 8.00 | % |
Total Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 964,683 | | | | 12.31 | % | | | 608,502 | | | | 8.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 962,758 | | | | 12.29 | % | | | 608,479 | | | | 8.00 | % | | | 760,598 | | | | 10.00 | % |
Tier 1 Capital to Average Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 822,896 | | | | 9.13 | % | | | 356,012 | | | | 4.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 885,674 | | | | 9.83 | % | | | 355,998 | | | | 4.00 | % | | | 444,997 | | | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of March 31, 2019: | | | | | | | | | | | | | | | | | | | | | | | | |
CET 1 Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 731,864 | | | | 10.30 | % | | $ | 319,875 | | | | 4.50 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 796,506 | | | | 11.21 | % | | | 319,851 | | | | 4.50 | % | | $ | 462,007 | | | | 6.50 | % |
Tier 1 Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 732,366 | | | | 10.30 | % | | | 426,500 | | | | 6.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 797,008 | | | | 11.21 | % | | | 426,468 | | | | 6.00 | % | | | 568,624 | | | | 8.00 | % |
Total Capital to Risk Weighted Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 867,748 | | | | 12.21 | % | | | 568,667 | | | | 8.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 838,216 | | | | 12.21 | % | | | 568,624 | | | | 8.00 | % | | | 710,780 | | | | 10.00 | % |
Tier 1 Capital to Average Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 732,366 | | | | 9.03 | % | | | 324,553 | | | | 4.00 | % | | | N/A | | | | N/A | |
ServisFirst Bank | | | 797,008 | | | | 9.82 | % | | | 324,537 | | | | 4.00 | % | | | 405,671 | | | | 5.00 | % |
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 instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in our balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial instruments.
Our exposure to credit loss in the event of non-performance by the other party to such financial instruments is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. As of June 30, 2019,March 31, 2020, we have reservedhad reserves of $0.5 million for losses on such off-balance sheet arrangements consistent with guidance in the FRB’sFederal Reserve Bank’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 $0.4 million as of June 30, 2019March 31, 2020 and December 31, 20182019 for the settlement of any repurchase demands by investors.
Financial instruments whose contract amounts represent credit risk at June 30, 2019 and DecemberMarch 31, 20182020 are as follows:
| | | June 30, 2019 | | | December 31, 2018 | | | March 31, 2020 | |
| | | (In Thousands) | | (In Thousands) | | | (In Thousands) | |
Commitments to extend credit | | $ | 2,055,219 | | | $ | 1,985,801 | | | $ | 2,265,133 | |
Credit card arrangements | | 223,683 | | | 173,613 | | | 247,976 | |
Standby letters of credit | | | 51,965 | | | | 40,590 | | | | 73,135 | |
| | | $ | 2,330,867 | | | $ | 2,200,004 | | | $ | 2,586,244 | |
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 June 30, 2019March 31, 2020 was $35.6$34.8 million compared to net income and net income available to common stockholders of $33.5$35.0 million respectively, for the three months ended June 30, 2018. Net income and net income available to common stockholders for the six months ended June 30, 2019 was $70.6 million compared to net income and net income available to common stockholders of $66.1 million for the six months ended June 30, 2018.March 31, 2019. The increasedecrease in net income for the three months ended June 30, 2019 over the same period in 2018 was primarily attributable to a $13.8$8.7 million increase in netprovision for loan losses during the three months ended March 31, 2020 over the amount provided during the same period in 2019. Total noninterest expenses increased by $2.6 million during the three months ended March 31, 2020 compared to expenses during the same period in 2019. Net interest income resulting from a $1.37 billion increaseincreased by $8.9 million during the three months ended March 31, 2020 compared to the same period in 2019, mostly the result of growth in total average earning assets and a $0.8 million increase in non-interest income, led by increased credit card income. The same key drivers contributed to the increase in net income for the six months ended June 30, 2019 compared to 2018 resulting in a $11.9 million increase in netlower interest incomerates paid on a $1.27 billion increase in average earning assets, and a $1.4 million increase in non-interest income. Increases in non-interest expense of $2.5 million and $4.8 million and increases in income tax expense of $1.0 million and $2.5 million, respectively, for the three and six months ended June 30, 2019 compared to 2018 partially offset increases in income.interest-bearing deposits.
Basic and diluted net income per common share were $0.67$0.65 and $0.66,$0.64, respectively, for the three months ended June 30, 2019,March 31, 2020, compared to $0.63 and $0.62, respectively,$0.65, for both, for the corresponding period in 2018. Basic and diluted net income per common share were $1.32 and $1.31, respectively, for the six months ended June 30, 2019, compared to $1.24 and $1.22, respectively, for the corresponding period in 2018.2019. Return on average assets for the three and six months ended June 30, 2019March 31, 2020 was 1.69% and 1.72%, respectively,1.54% compared to 1.91%1.75% for both of the corresponding periodsperiod in 2018. Return2019, and return on average common stockholders’ equity for the three and six months ended June 30, 2019March 31, 2020 was 18.72% and 19.06%16.23% compared to 20.89% and 21.13%, respectively,19.42% for the corresponding periodsperiod in 2018.2019.
Net Interest Income and Net Interest Margin Analysis
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 $5.4$8.9 million, or 8.4%12.9%, to $70.1$77.7 million for the three months ended June 30, 2019March 31, 2020 compared to $64.7$68.8 million for the corresponding period in 2018, and increased $11.7 million, or 9.2%, to $138.9 million for the six months ended June 30, 2019 compared to $127.3 million for the corresponding period in 2018.2019. This increase was primarily attributable to growtha $894.1 million increase in average earning assets, which increased $1.37 billion, or 20.3%11.4%, from the second quarter of 2018 to the second quarter of 2019, and $1.27 billion, or 18.9%, from the six months ended June 30, 2018 to the same period in 2019.year over year. The taxable-equivalent yield on interest-earning assets increaseddecreased from 4.85% to 4.80% for the three months ended June 30, 2019 from 4.64% for the corresponding period in 2018, and increased to 4.82% for the six months ended June 30, 2019 from 4.57% for the corresponding period in 2018.4.46% year over year. The yield on loans for the three months ended June 30, 2019March 31, 2020 was 5.23%4.88% compared to 4.93%5.25% for the corresponding period in 2018, and 5.24% compared to 4.87% for the six months ended June 30, 2019 and June 30, 2018, respectively.2019. The cost of total interest-bearing liabilities increaseddecreased to 1.83%1.19% for the three months ended June 30, 2019 compared to 1.13%March 31, 2020 from 1.73% for the corresponding period in 2018, and increased to 1.78% for the six months ended June 30, 2019 from 1.04% for the corresponding period in 2018.2019. Net interest margin for the three months ended June 30, 2019 was 3.44% comparedMarch 31, 2020 increased 2 basis points to 3.82%3.58% from 3.56% for the corresponding period in 2018, and 3.50% for the six months ended June 30, 2019 compared to 3.81% for the corresponding period in 2018.2019.
The following tables show,table shows, for the three and six months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, 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) | |
| | | 2020 | | | 2019 | |
| | | | | | | Interest | | | Average | | | | | | | Interest | | | Average | |
| | | Average | | | Earned / | | | Yield / | | | Average | | | Earned / | | | Yield / | |
| | | Balance | | | Paid | | | Rate | | | Balance | | | Paid | | | Rate | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, net of unearned income (1) (2) | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | $ | 7,328,594 | | | $ | 89,076 | | | | 4.89 | % | | $ | 6,570,920 | | | $ | 85,233 | | | | 5.26 | % |
Tax-exempt (3) | | | 32,555 | | | | 327 | | | | 4.04 | | | | 30,577 | | | | 287 | | | | 3.81 | |
Total loans, net of unearned income | | | 7,361,149 | | | | 89,403 | | | | 4.88 | | | | 6,601,497 | | | | 85,520 | | | | 5.25 | |
Mortgage loans held for sale | | | 4,282 | | | | 23 | | | | 2.16 | | | | 1,614 | | | | 26 | | | | 6.53 | |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 750,413 | | | | 5,154 | | | | 2.75 | | | | 518,955 | | | | 3,746 | | | | 2.89 | |
Tax-exempt (3) | | | 44,029 | | | | 257 | | | | 2.33 | | | | 87,537 | | | | 464 | | | | 2.12 | |
Total investment securities (4) | | | 794,442 | | | | 5,411 | | | | 2.72 | | | | 606,492 | | | | 4,210 | | | | 2.78 | |
Federal funds sold | | | 105,423 | | | | 277 | | | | 1.06 | | | | 192,690 | | | | 1,219 | | | | 2.57 | |
Interest-bearing balances with banks | | | 469,199 | | | | 1,718 | | | | 1.47 | | | | 438,099 | | | | 2,764 | | | | 2.56 | |
Total interest-earning assets | | $ | 8,734,495 | | | $ | 96,832 | | | | 4.46 | % | | $ | 7,840,392 | | | $ | 93,739 | | | | 4.85 | % |
Non-interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | | | 66,140 | | | | | | | | | | | | 74,430 | | | | | | | | | |
Net premises and equipment | | | 58,066 | | | | | | | | | | | | 58,852 | | | | | | | | | |
Allowance for loan losses, accrued interest and other assets | | | 241,479 | | | | | | | | | | | | 149,941 | | | | | | | | | |
Total assets | | $ | 9,100,180 | | | | | | | | | | | $ | 8,123,615 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing demand deposits | | $ | 956,803 | | | $ | 1,346 | | | | 0.57 | % | | $ | 942,686 | | | $ | 2,003 | | | | 0.86 | % |
Savings deposits | | | 67,380 | | | | 84 | | | | 0.50 | | | | 54,086 | | | | 73 | | | | 0.55 | |
Money market accounts | | | 4,061,286 | | | | 11,127 | | | | 1.10 | | | | 3,758,162 | | | | 16,513 | | | | 1.78 | |
Time deposits | | | 805,924 | | | | 4,188 | | | | 2.09 | | | | 698,976 | | | | 3,556 | | | | 2.06 | |
Total interest-bearing deposits | | | 5,891,393 | | | | 16,745 | | | | 1.14 | | | | 5,453,910 | | | | 22,145 | | | | 1.65 | |
Federal funds purchased | | | 492,638 | | | | 1,601 | | | | 1.31 | | | | 312,989 | | | | 1,995 | | | | 2.59 | |
Other borrowings | | | 64,707 | | | | 781 | | | | 4.85 | | | | 64,671 | | | | 781 | | | | 4.90 | |
Total interest-bearing liabilities | | $ | 6,448,738 | | | $ | 19,127 | | | | 1.19 | % | | $ | 5,831,570 | | | $ | 24,921 | | | | 1.73 | % |
Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | | 1,749,671 | | | | | | | | | | | | 1,524,502 | | | | | | | | | |
Other liabilities | | | 39,801 | | | | | | | | | | | | 36,362 | | | | | | | | | |
Stockholders' equity | | | 853,800 | | | | | | | | | | | | 735,611 | | | | | | | | | |
Accumulated other comprehensive income (loss) | | | 8,170 | | | | | | | | | | | | (4,430 | ) | | | | | | | | |
Total liabilities and stockholders' equity | | $ | 9,100,180 | | | | | | | | | | | $ | 8,123,615 | | | | | | | | | |
Net interest income | | | | | | $ | 77,705 | | | | | | | | | | | $ | 68,818 | | | | | |
Net interest spread | | | | | | | | | | | 3.27 | % | | | | | | | | | | | 3.12 | % |
Net interest margin | | | | | | | | | | | 3.58 | % | | | | | | | | | | | 3.56 | % |
Average Balance Sheets and Net Interest Analysis
| | | | | | | | | | | | | | | | | | | | | |
On a Fully Taxable-Equivalent Basis(1)
|
For the Three Months Ended June 30,
|
(In thousands, except Average Yields and Rates)
|
| | | 2019 | | | 2018 | |
| | | | | | | Interest | | | Average | | | | | | | Interest | | | Average | |
| | | Average | | | Earned / | | | Yield / | | | Average | | | Earned / | | | Yield / | |
| | | Balance | | | Paid | | | Rate | | | Balance | | | Paid | | | Rate | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, net of unearned income (1)(2) | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | $ | 6,756,927 | | | $ | 88,280 | | | | 5.24 | % | | $ | 5,958,377 | | | $ | 73,326 | | | | 4.94 | % |
Tax-exempt (3) | | | 32,124 | | | | 307 | | | | 3.83 | | | | 30,246 | | | | 297 | | | | 3.94 | |
Total loans, net of unearned income | | | 6,789,051 | | | | 88,587 | | | | 5.23 | | | | 5,988,623 | | | | 73,623 | | | | 4.93 | |
Mortgage loans held for sale | | | 5,208 | | | | 50 | | | | 3.85 | | | | 3,770 | | | | 40 | | | | 4.26 | |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 565,491 | | | | 4,192 | | | | 2.97 | | | | 475,777 | | | | 3,127 | | | | 2.63 | |
Tax-exempt (3) | | | 77,364 | | | | 406 | | | | 2.10 | | | | 112,145 | | | | 729 | | | | 2.60 | |
Total investment securities (4) | | | 642,855 | | | | 4,598 | | | | 2.86 | | | | 587,922 | | | | 3,856 | | | | 2.62 | |
Federal funds sold | | | 323,714 | | | | 1,998 | | | | 2.48 | | | | 141,915 | | | | 694 | | | | 1.96 | |
Interest-bearing balances with banks | | | 411,481 | | | | 2,593 | | | | 2.53 | | | | 73,714 | | | | 332 | | | | 1.81 | |
Total interest-earning assets | | $ | 8,172,309 | | | $ | 97,826 | | | | 4.80 | | | $ | 6,795,944 | | | $ | 78,545 | | | | 4.64 | |
Non-interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | | | 76,988 | | | | | | | | | | | | 68,190 | | | | | | | | | |
Net fixed assets and equipment | | | 58,607 | | | | | | | | | | | | 59,262 | | | | | | | | | |
Allowance for loan losses, accrued interest and other assets | | | 156,264 | | | | | | | | | | | | 130,607 | | | | | | | | | |
Total assets | | $ | 8,464,168 | | | | | | | | | | | $ | 7,054,003 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing demand deposits | | $ | 909,847 | | | $ | 2,004 | | | | 0.88 | % | | $ | 827,540 | | | $ | 1,147 | | | | 0.56 | % |
Savings deposits | | | 54,391 | | | | 77 | | | | 0.57 | | | | 54,842 | | | | 47 | | | | 0.34 | |
Money market accounts | | | 3,932,459 | | | | 18,418 | | | | 1.88 | | | | 3,089,595 | | | | 8,498 | | | | 1.10 | |
Time deposits | | | 694,414 | | | | 3,741 | | | | 2.16 | | | | 596,450 | | | | 2,022 | | | | 1.36 | |
Total interest-bearing deposits | | | 5,591,111 | | | | 24,240 | | | | 1.74 | | | | 4,568,427 | | | | 11,714 | | | | 1.03 | |
Federal funds purchased | | | 418,486 | | | | 2,681 | | | | 2.57 | | | | 295,309 | | | | 1,378 | | | | 1.87 | |
Other borrowings | | | 64,680 | | | | 781 | | | | 4.84 | | | | 64,699 | | | | 782 | | | | 4.85 | |
Total interest-bearing liabilities | | $ | 6,074,277 | | | $ | 27,702 | | | | 1.83 | % | | $ | 4,928,435 | | | $ | 13,874 | | | | 1.13 | % |
Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | | 1,591,722 | | | | | | | | | | | | 1,469,194 | | | | | | | | | |
Other liabilities | | | 35,161 | | | | | | | | | | | | 13,079 | | | | | | | | | |
Stockholders' equity | | | 763,742 | | | | | | | | | | | | 650,641 | | | | | | | | | |
Accumulated other comprehensive loss | | | (734 | ) | | | | | | | | | | | (7,346 | ) | | | | | | | | |
Total liabilities and stockholders' equity | | $ | 8,464,168 | | | | | | | | | | | $ | 7,054,003 | | | | | | | | | |
Net interest income | | | | | | $ | 70,124 | | | | | | | | | | | $ | 64,671 | | | | | |
Net interest spread | | | | | | | | | | | 2.97 | % | | | | | | | | | | | 3.51 | % |
Net interest margin | | | | | | | | | | | 3.44 | % | | | | | | | | | | | 3.82 | % |
(1)
| Non-accrual loans are included in average loan balances in all periods. Loan fees of $914$1,281 and $990$973 are included in interest income in the secondfirst quarter of 20192020 and 2018,2019, respectively. |
(2) | | Net accretion on acquired loan discounts of $53$84 is included in interest income in the secondfirst quarter of 2018.2019. |
(3) | | Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%. |
(4) | | Unrealized lossesgains (losses) of $985$10,282 and $9,354$(5,664) are excluded from the yield calculation in the secondfirst quarter of 20192020 and 2018,2019, respectively. |
| | | For the Three Months Ended June 30, | | | For the Three Months Ended March 31, | |
| | | 2019 Compared to 2018 Increase (Decrease) in Interest Income and Expense Due to Changes in: | | | 2020 Compared to 2019 Increase (Decrease) in Interest Income and Expense Due to Changes in: | |
| | | Volume | | | Rate | | | Total | | | Volume | | Rate | | Total | |
| | | (In Thousands) | | | (In Thousands) | |
Interest-earning assets: | | | | | | | | | | | | | | |
Loans, net of unearned income | | | | | | | | | | | | | | |
Taxable | | $ | 9,140 | | | $ | 5,814 | | | $ | 14,954 | | | $ | 9,917 | | | $ | (6,074 | ) | | $ | 3,843 | |
Tax-exempt | | | 11 | | | | (1 | ) | | | 10 | | | | 21 | | | | 19 | | | | 40 | |
Total loans, net of unearned income | | 9,151 | | | 5,813 | | | 14,964 | | | 9,938 | | | (6,055 | ) | | 3,883 | |
Mortgages held for sale | | 13 | | | (3 | ) | | 10 | | | 23 | | | (26 | ) | | (3 | ) |
Debt securities: | | | | | | | | | | | | | | |
Taxable | | 588 | | | 477 | | | 1,065 | | | 1,628 | | | (220 | ) | | 1,408 | |
Tax-exempt | | | (206 | ) | | | (117 | ) | | | (323 | ) | | | (247 | ) | | | 40 | | | | (207 | ) |
Total debt securities | | 382 | | | 360 | | | 742 | | | 1,381 | | | (180 | ) | | 1,201 | |
Federal funds sold | | 1,063 | | | 241 | | | 1,304 | | | (410 | ) | | (532 | ) | | (942 | ) |
Interest-bearing balances with banks | | | 2,067 | | | | 194 | | | | 2,261 | | | | 189 | | | | (1,235 | ) | | | (1,046 | ) |
Total interest-earning assets | | | 12,676 | | | | 6,605 | | | | 19,281 | | | | 11,121 | | | | (8,028 | ) | | | 3,093 | |
| | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | |
Interest-bearing demand deposits | | 118 | | | 739 | | | 857 | | | 30 | | | (687 | ) | | (657 | ) |
Savings | | - | | | 30 | | | 30 | | | 17 | | | (6 | ) | | 11 | |
Money market accounts | | 2,670 | | | 7,250 | | | 9,920 | | | 1,278 | | | (6,664 | ) | | (5,386 | ) |
Time deposits | | | 358 | | | | 1,361 | | | | 1,719 | | | | 582 | | | | 50 | | | | 632 | |
Total interest-bearing deposits | | 3,146 | | | 9,380 | | | 12,526 | | | 1,907 | | | (7,307 | ) | | (5,400 | ) |
Federal funds purchased | | 662 | | | 641 | | | 1,303 | | | 857 | | | (1,251 | ) | | (394 | ) |
Other borrowed funds | | | - | | | | (1 | ) | | | (1 | ) | | | - | | | | - | | | | - | |
Total interest-bearing liabilities | | | 3,808 | | | | 10,020 | | | | 13,828 | | | | 2,764 | | | | (8,558 | ) | | | (5,794 | ) |
Increase in net interest income | | $ | 8,868 | | | $ | (3,415 | ) | | $ | 5,453 | | | $ | 8,357 | | | $ | 530 | | | $ | 8,887 | |
Increases in average rates paid on interest-bearing deposits drive unfavorable rate component change whileOur growth in loans non-interest bearing deposits and average equity continues to drive favorable volume component change and overall change.
Average Balance Sheets and Net Interest Analysis
|
On a Fully Taxable-Equivalent Basis
|
For the Six Months Ended June 30,
|
(In thousands, except Average Yields and Rates)
|
| | | 2019 | | | 2018 | |
| | | | | | | Interest | | | | | | | | | | | Interest | | | | | |
| | | Average | | | Earned / | | | Average | | | Average | | | Earned / | | | Average | |
| | | Balance | | | Paid | | | Yield / Rate | | | Balance | | | Paid | | | Yield / Rate | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, net of unearned income (1)(2) | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | $ | 6,664,437 | | | $ | 173,515 | | | | 5.25 | % | | $ | 5,903,216 | | | $ | 142,648 | | | | 4.87 | % |
Tax-exempt (3) | | | 31,355 | | | | 592 | | | | 3.78 | | | | 33,285 | | | | 662 | | | | 3.98 | |
Total loans, net of unearned income | | | 6,695,792 | | | | 174,107 | | | | 5.24 | | | | 5,936,501 | | | | 143,310 | | | | 4.87 | |
Mortgage loans held for sale | | | 3,421 | | | | 76 | | | | 4.48 | | | | 3,734 | | | | 81 | | | | 4.37 | |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 542,351 | | | | 7,939 | | | | 2.93 | | | | 455,873 | | | | 5,872 | | | | 2.58 | |
Tax-exempt (3) | | | 82,423 | | | | 870 | | | | 2.11 | | | | 116,185 | | | | 1,500 | | | | 2.58 | |
Total investment securities (4) | | | 624,774 | | | | 8,809 | | | | 2.82 | | | | 572,058 | | | | 7,372 | | | | 2.58 | |
Federal funds sold | | | 258,564 | | | | 3,217 | | | | 2.51 | | | | 136,722 | | | | 1,245 | | | | 1.84 | |
Interest-bearing balances with banks | | | 424,841 | | | | 5,357 | | | | 2.54 | | | | 84,801 | | | | 715 | | | | 1.70 | |
Total interest-earning assets | | $ | 8,007,392 | | | $ | 191,566 | | | | 4.82 | % | | $ | 6,733,816 | | | $ | 152,723 | | | | 4.57 | % |
Non-interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | | | 75,592 | | | | | | | | | | | | 68,249 | | | | | | | | | |
Net fixed assets and equipment | | | 58,729 | | | | | | | | | | | | 59,484 | | | | | | | | | |
Allowance for loan losses, accrued interest and other assets | | | 153,120 | | | | | | | | | | | | 136,125 | | | | | | | | | |
Total assets | | $ | 8,294,833 | | | | | | | | | | | $ | 6,997,674 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing demand deposits | | $ | 926,176 | | | $ | 4,007 | | | | 0.87 | % | | $ | 863,227 | | | $ | 2,290 | | | | 0.53 | % |
Savings deposits | | | 54,239 | | | | 149 | | | | 0.55 | | | | 54,059 | | | | 88 | | | | 0.33 | |
Money market accounts | | | 3,845,792 | | | | 34,932 | | | | 1.83 | | | | 3,058,558 | | | | 15,209 | | | | 1.00 | |
Time deposits | | | 696,682 | | | | 7,297 | | | | 2.11 | | | | 586,708 | | | | 3,748 | | | | 1.29 | |
Total interest-bearing deposits | | | 5,522,889 | | | | 46,385 | | | | 1.69 | | | | 4,562,552 | | | | 21,335 | | | | 0.94 | |
Federal funds purchased | | | 366,029 | | | | 4,676 | | | | 2.58 | | | | 296,175 | | | | 2,550 | | | | 1.74 | |
Other borrowings | | | 64,675 | | | | 1,562 | | | | 4.87 | | | | 64,752 | | | | 1,562 | | | | 4.86 | |
Total interest-bearing liabilities | | $ | 5,953,593 | | | $ | 52,623 | | | | 1.78 | % | | $ | 4,923,479 | | | $ | 25,447 | | | | 1.04 | % |
Non-interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | | 1,558,783 | | | | | | | | | | | | 1,429,426 | | | | | | | | | |
Other liabilities | | | 35,275 | | | | | | | | | | | | 13,863 | | | | | | | | | |
Stockholders' equity | | | 749,754 | | | | | | | | | | | | 636,137 | | | | | | | | | |
Accumulated other comprehensive (loss) | | | (2,572 | ) | | | | | | | | | | | (5,231 | ) | | | | | | | | |
Total liabilities and stockholders' equity | | $ | 8,294,833 | | | | | | | | | | | $ | 6,997,674 | | | | | | | | | |
Net interest income | | | | | | $ | 138,943 | | | | | | | | | | | $ | 127,276 | | | | | |
Net interest spread | | | | | | | | | | | 3.04 | % | | | | | | | | | | | 3.53 | % |
Net interest margin | | | | | | | | | | | 3.50 | % | | | | | | | | | | | 3.81 | % |
(1)
| Non-accrual loans are included in average loan balances in all periods. Loan fees of $1,887 and $1,739 are included in interest income in 2019 and 2018, respectively.
|
(2)
| Accretion on acquired loan discounts of $91 and $125 are included in interest income in 2019 and 2018, respectively.
|
(3)
| Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.
|
(4)
| Unrealized losses of $3,311 and $6,677 are excluded from the yield calculation in 2019 and 2018, respectively.
|
| | | For the Six Months Ended June 30, | |
| | | 2019 Compared to 2018 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 | | $ | 19,284 | | | $ | 11,583 | | | $ | 30,867 | |
Tax-exempt | | | (37 | ) | | | (33 | ) | | | (70 | ) |
Total loans, net of unearned income | | | 19,247 | | | | 11,550 | | | | 30,797 | |
Mortgages held for sale | | | (7 | ) | | | 2 | | | | (5 | ) |
Debt securities: | | | | | | | | | | | | |
Taxable | | | 1,202 | | | | 865 | | | | 2,067 | |
Tax-exempt | | | (387 | ) | | | (243 | ) | | | (630 | ) |
Total debt securities | | | 815 | | | | 622 | | | | 1,437 | |
Federal funds sold | | | 1,398 | | | | 574 | | | | 1,972 | |
Interest-bearing balances with banks | | | 4,132 | | | | 510 | | | | 4,642 | |
Total interest-earning assets | | | 25,585 | | | | 13,258 | | | | 38,843 | |
| | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | |
Interest-bearing demand deposits | | | 178 | | | | 1,539 | | | | 1,717 | |
Savings | | | - | | | | 61 | | | | 61 | |
Money market accounts | | | 4,683 | | | | 15,040 | | | | 19,723 | |
Time deposits | | | 805 | | | | 2,744 | | | | 3,549 | |
Total interest-bearing deposits | | | 5,666 | | | | 19,384 | | | | 25,050 | |
Federal funds purchased | | | 696 | | | | 1,430 | | | | 2,126 | |
Other borrowed funds | | | (2 | ) | | | 2 | | | | - | |
Total interest-bearing liabilities | | | 6,360 | | | | 20,816 | | | | 27,176 | |
Increase in net interest income | | $ | 19,225 | | | $ | (7,558 | ) | | $ | 11,667 | |
Increases in the The rate component was favorable as average rates paid on interest-bearing liabilities decreased 54 basis points while loan yields decreased 37 basis points. We repriced our deposits drive unfavorabledownward following the Federal Reserve’s rate component change while growthcuts during the second half of 2019. Growth in loans, non-interest bearingnon-interest-bearing deposits and average equity continuesalso contributed to drive favorable volume component change and overall change.the increase in net interest revenue during the three months ended March 31, 2020 compared to the same period in 2019.
Provision for Loan Losses
The provision for loan losses was $13.6 million for the three months ended March 31, 2020, an increase of $8.7 million from $4.9 million for the three months ended June 30, 2019, an increase of $0.8 million from $4.1 million for the three months ended June 30, 2018, and was $9.8 million for the six months ended June 30, 2019, a $1.5 million increase compared to $8.3 million for the six months ended June 30, 2018.March 31, 2019. Net credit charge-offs to quarter-to-date average loans increased nine basis points to 0.22%were 0.26% for the secondfirst quarter of 2019, a 10 basis point decrease compared to 0.13%0.36% for the corresponding period in 2018fourth quarter of 2019 and increased ninea 6 basis pointspoint increase compared to 0.21%0.20% for the six months ended June 30, 2019 compared to 0.12% for the corresponding period in 2018.first quarter of 2019. Nonperforming loans increaseddecreased to $32.1$2.2 million to $33.9 million, or 0.46%0.45% of total loans, at June 30, 2019March 31, 2020 from $27.8$36.1 million, or 0.43%0.50% of total loans, at December 31, 2018,2019, and were $14.1higher than $27.2 million, or 0.23%0.41% of total loans, at June 30, 2018.March 31, 2019. Impaired loans increased to $45.7$60.5 million, or 0.66%0.80% of total loans, at June 30, 2019,March 31, 2020, compared to $38.6$43.1 million, or 0.59% of total loans, at December 31, 2018.2019. We have evaluated risk factors related to macroeconomic conditions and uncertainty due to COVID-19 which resulted in additional reserve for loan losses related to external factors of $6.7 million at March 31, 2020. The allowance for loan losses totaled $70.2$85.4 million, or 1.02%1.13% of total loans, net of unearned income, at June 30, 2019,March 31, 2020, compared to $68.6$70.2 million, or 1.05% of loans, net of unearned income, at December 31, 2018.2019.
Noninterest Income
Noninterest income totaled $5.8$6.7 million for the three months ended June 30, 2019,March 31, 2020, an increase of $837,000, or 17%,$1.7 million compared to the corresponding period in 2018, and totaled $10.72019. Service charges on deposit accounts increased $0.2 million forto $1.9 million during the sixthree months ended June 30, 2019, an increase of $1.4March 31, 2020 from $1.7 million or 14.6%, compared toduring the corresponding period in 2018. Mortgage banking2019. The number of transaction deposit accounts increased 14.6% from March 31, 2019 to March 31, 2020. Credit card income increased $298,000, or 37.8%,$0.2 million to $1.1$1.8 million forduring the three months ended June 30, 2019March 31, 2020 compared to $789,000$1.6 million during the corresponding period in 2019. Spending on credit cards increased 29% for the same period in 2018, andcomparative period. Higher award payout rates offset increased $355,000, or 27.2%,interchange income on credit cards. Income associated with the cash surrender value of bank-owned life insurance increased $691,000 to $1.7$1.5 million for the six months ended June 30, 2019 compared to $1.3 million for the same period in 2018. The number of loans originated for sale during the first half of 2019 increased approximately 37% when compared to the same period in 2018. Credit card income increased $380,000 to $1.7 million for the three months ended June 30, 2019March 31, 2020 compared to $1.3 million for$762,000 during the samecorresponding period in 2018, and increased $701,000 to $3.32019. We purchased $75.0 million for the six months ended June 30, 2019 compared to $2.6 million for the same period in 2018. The amount of purchases on cards increased by approximately 35%additional bank-owned life insurance contracts during the second quarterhalf of 2019 compared to the second quarter of 2018.2019.
Noninterest Expense
Noninterest expense totaled $26.0$27.9 million for the three months ended June 30, 2019,March 31, 2020, an increase of $2.5$2.6 million or 10.8%, compared to $23.5$25.3 million for the samecorresponding period in 2018, and totaled $51.3 million for the six months ended June 30, 2019, an increase of $4.8 million, or 10.3%, compared to $46.5 million for the same period in 2018.2019.
Details of expenses are as follows:
| | ● | Salary and employee benefit expense increased $1.2$1.4 million or 9.5%, to $14.3$15.7 million for the three months ended June 30, 2019March 31, 2020 from $13.1$14.3 million for the samecorresponding period in 2018, and increased $2.2 million, or 8.4%, to $28.6 million for the six months ended June 30, 2019 from $26.4 million for the same period in 2018. Total2019. We had 492 total employees increased from 459 as of June 30, 2018March 31, 2020 compared to 495485 as of June 30,March 31, 2019, or 8%.a 1% increase. We will incur additional compensation expenses associated with processing and booking PPP loans during the second quarter of 2020. Such added expenses will be more than offset by the fees received on the PPP loans. |
| | ● | Equipment and occupancy expense increased $174,000, or 8.2%,$141,000 to $2.3$2.4 million for the three months ended June 30, 2019March 31, 2020 from $2.1$2.3 million for the corresponding period in 2018,2019. We have incurred some additional equipment expenses associated with initiating our pandemic plan. While we believe these expenses are immaterial, we cannot be sure that additional expenses will not be incurred if the impacts of the pandemic extend over a longer period of time. |
| ● | Third party processing and other services increased $479,000, or 11.8%,$934,000 to $4.5 million from $4.1$3.4 million for the sixthree months ended June 30, 2019 compared toMarch 31, 2020 from $2.4 million for the corresponding period in 2018.2019. Increases in the number of transaction deposit accounts contributed to an increase in data processing expenses and an increase in the number of correspondent banking accounts and number of transactions in those accounts contributed to increased service charges from the Federal Reserve Bank of Atlanta. |
| | ● | Professional services expense increased $267,000, or 28.9%,decreased $66,000 to $1.2 million$928,000 for the three months ended June 30, 2019 compared toMarch 31, 2020 from $994,000 for the samecorresponding period in 2018, and increased $456,000, or 26.4%, to $2.2 million for the six months ended June 30, 2019 compared to the same period in 2018. Increases were primarily the result of increased audit fee and compliance consulting expense.2019. |
| | ● | FDIC and other regulatoryinsurance assessments decreased $78,000increased $313,000 to $1.1$1.3 million for the three months ended June 30, 2019 compared to the same period in 2018, and decreased $192,000 to $2.1March 31, 2020 from $1.0 million for the six months ended June 30, 2019 compared to the samecorresponding period in 2018. Decreases in2019. Our assessment rates and the termination of the FICO assessment have more than offset our growth in net average assets, which is our assessment base.base increased by 16% year-over-year. |
| | ● | OREO expenseExpenses related to other real estate owned increased $52,000 to $212,000$601,000 for the three months ended June 30, 2019 compared toMarch 31, 2020 from $22,000 for the samecorresponding period in 2018, and decreased $242,0002019. This increase was the result of write-downs in value of property based on updated appraisals related to $234,000 for the six months ended June 30, 2019 compared to $476,000 for the same period in 2018. In 2018, we incurred some costs to excavate raw landone foreclosed loan relationship in our Atlanta market in preparation for sale and also wrote down the value of a commercial building in Birmingham based on a recent appraisal.Nashville region.
|
| | ● | Other operating expenses increased $874,000, or 14.5%,decreased $702,000 to $6.9$3.7 million for the three months ended June 30, 2019 compared to the same period in 2018, and increased $2.1 million, or 18.0%, to $13.7March 31, 2020 from $4.4 million for the six months ended June 30, 2019 comparedcorresponding period in 2019. Write-downs in tax credit investments decreased significantly as our New Market Tax Credit partnerships terminated at the end of 2019. Decreases in travel and entertainment expenses also contributed to the same period in 2018. Increases in data processingoperating expense. We will likely experience decreased travel and entertainment expenses business development expensesduring the second quarter of 2020 as we continue to limit our person-to-person contact with our clients and Federal Reserve Bank service charges contributed to this increase in other operating expenses.prospects during the pandemic. |
The following table presentsChanges in our non-interest income and non-interest expense forexpenses, including percentage changes, are detailed in the three and six month periods ending June 30, 2019 compared to the same periods in 2018.following table:
| | | Three Months Ended June 30, | | | | | | | | | | | Six Months Ended June 30, | | | | | | | | | |
| | | 2019 | | | 2018 | | | $ change | | | % change | | | 2019 | | | 2018 | | | $ change | | | % change | |
Non-interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 1,786 | | | $ | 1,653 | | | $ | 133 | | | | 8.0 | % | | $ | 3,488 | | | $ | 3,238 | | | $ | 250 | | | | 7.7 | % |
Mortgage banking | | | 1,087 | | | | 789 | | | | 298 | | | | 37.8 | % | | | 1,662 | | | | 1,307 | | | | 355 | | | | 27.2 | % |
Credit card income | | | 1,741 | | | | 1,361 | | | | 380 | | | | 27.9 | % | | | 3,317 | | | | 2,616 | | | | 701 | | | | 26.8 | % |
Securities gains | | | (6 | ) | | | - | | | | (6 | ) | | | NM | | | | (6 | ) | | | 4 | | | | (10 | ) | | | NM | |
Increase in cash surrender value life insurance | | | 778 | | | | 786 | | | | (8 | ) | | | (1.0 | )% | | | 1,540 | | | | 1,563 | | | | (23 | ) | | | (1.5 | )% |
Other operating income | | | 392 | | | | 352 | | | | 40 | | | | 11.4 | % | | | 719 | | | | 629 | | | | 90 | | | | 14.3 | % |
Total non-interest income | | $ | 5,778 | | | $ | 4,941 | | | $ | 837 | | | | 16.9 | % | | $ | 10,720 | | | $ | 9,357 | | | $ | 1,363 | | | | 14.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | $ | 14,339 | | | $ | 13,098 | | | $ | 1,241 | | | | 9.5 | % | | $ | 28,604 | | | $ | 26,394 | | | $ | 2,210 | | | | 8.4 | % |
Equipment and occupancy expense | | | 2,287 | | | | 2,113 | | | | 174 | | | | 8.2 | % | | | 4,546 | | | | 4,067 | | | | 479 | | | | 11.8 | % |
Professional services | | | 1,191 | | | | 924 | | | | 267 | | | | 28.9 | % | | | 2,185 | | | | 1,729 | | | | 456 | | | | 26.4 | % |
FDIC and other regulatory assessments | | | 1,081 | | | | 1,159 | | | | (78 | ) | | | (6.7 | )% | | | 2,100 | | | | 2,292 | | | | (192 | ) | | | (8.4 | )% |
OREO expense | | | 212 | | | | 160 | | | | 52 | | | | 32.5 | % | | | 234 | | | | 476 | | | | (242 | ) | | | (50.8 | )% |
Other operating expense | | | 6,912 | | | | 6,038 | | | | 874 | | | | 14.5 | % | | | 13,679 | | | | 11,593 | | | | 2,086 | | | | 18.0 | % |
Total non-interest expense | | $ | 26,022 | | | $ | 23,492 | | | $ | 2,530 | | | | 10.8 | % | | $ | 51,348 | | | $ | 46,551 | | | $ | 4,797 | | | | 10.3 | % |
| | | Three Months Ended March 31, | | | | | | | | | |
| | | 2020 | | | 2019 | | | $ change | | | % change | |
| | | (Dollars In Thousands) | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 1,916 | | | $ | 1,702 | | | $ | 214 | | | | 12.6 | % |
Mortgage banking | | | 1,071 | | | | 575 | | | | 496 | | | | 86.3 | % |
Credit cards | | | 1,765 | | | | 1,576 | | | | 189 | | | | 12.0 | % |
Increase in cash surrender value life insurance | | | 1,453 | | | | 762 | | | | 691 | | | | 90.7 | % |
Other operating income | | | 469 | | | | 329 | | | | 140 | | | | 42.6 | % |
Total noninterest income | | $ | 6,674 | | | $ | 4,944 | | | $ | 1,730 | | | | 35.0 | % |
| | | | | | | | | | | | | | | | | |
Noninterest expense: | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | $ | 15,658 | | | $ | 14,265 | | | $ | 1,393 | | | | 9.8 | % |
Equipment and occupancy | | | 2,400 | | | | 2,259 | | | | 141 | | | | 6.2 | % |
Third party processing and other services | | | 3,345 | | | | 2,411 | | | | 934 | | | | 38.7 | % |
Professional services | | | 948 | | | | 994 | | | | (46 | ) | | | (4.6 | %) |
FDIC and other regulatory assessments | | | 1,332 | | | | 1,019 | | | | 313 | | | | 30.7 | % |
Other real estate owned | | | 601 | | | | 22 | | | | 579 | | | | 2,631.8 | % |
Other operating expense | | | 3,636 | | | | 4,358 | | | | (722 | ) | | | (16.6 | %) |
Total noninterest expense | | $ | 27,920 | | | $ | 25,328 | | | $ | 2,592 | | | | 10.2 | % |
Income Tax Expense
Income tax expense was $9.3$8.0 million for the three months ended June 30, 2019 compared to $8.3March 31, 2020 versus $8.5 million for the same period in 2018, and was $17.8 million for the six months ended June 30, 2019 compared to $15.4 million for the same period in 2018.2019. Our effective tax rate for the three and six months ended June 30, 2019March 31, 2020 was 20.7% and 20.2%18.76%, respectively, compared to 19.9% and 18.9%19.53% for the corresponding periodsperiod in 2018, respectively.2019. We recognized excess tax benefits as a credit to our income tax expense from the exercise and vesting of stock options and vesting of restricted stock duringof $1.1 million in the three and six months ended June 30, 2019first quarter of $186,000 and $958,000, respectively,2020, compared to $457,000 and $1.9 million during$772,000 in the three and six months ended June 30, 2018, respectively.first quarter of 2019. 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 invested in an additional $75.0 million of bank-owned life insurance contracts during the second half of 2019.
We own real estate investment trusts for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank. The trusts are wholly-owned subsidiaries of a trust holding company, which in turn is an indirect wholly-owned subsidiary of the Bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities. They pay their net earnings, in the form of dividends, to the Bank, which receives a deduction for state income taxes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Like all financial institutions, we are subject to market risk from changes in interest rates. Interest rate risk is inherent in the balance sheet due to the mismatch between the maturities of rate-sensitive assets and rate-sensitive liabilities. If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities is greater than the level of rate-sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short-term rates may be rising while longer-term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.
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 scenarios in the first and second year is -10% and -15%, respectively, and for the two-year cumulative is -15%. 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. There have been no changes to our policies or procedures for analyzing our interest rate risk since DecemberMarch 31, 2018, and2020, there have been no materialsignificant changes to our sensitivity to changes in interest rates since December 31, 2018, as disclosed2019. However, market disruptions brought about by the COVID-19 pandemic may adversely affect our sensitivity to market interest rates. We could experience an increase in the cost of funding our Annual Reportbalance sheet. We could also experience increased pricing competition for our existing loans or future borrower prospects, which could decrease rates earned on Form 10-K.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 1934.1934, 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 June 30, 2019.March 31, 2020. Based upon the Evaluation, our CEO and CFO have concluded that, as of June 30, 2019,March 31, 2020, our disclosure controls and procedures are effective to ensure that material information relating to the Company.ServisFirst Bancshares, Inc. and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.
Changes in Internal Control Over Financial Reporting
PART II.II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we may be a party to various legal proceedings arising in the ordinary course of business. Management does not believe the Company or the Bank is currently a party to any material legal proceedings.proceedings except as disclosed in Item 3, “Legal Proceedings”, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and there has been no material change in any matter described therein.
ITEM 1A. RISK FACTORS
Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, with regardthe exception of:
The ongoing COVID-19 pandemic and measures intended to prevent its spread may adversely affect our business, financial condition and operations, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.
Global health and economic concerns relating to the COVID-19 outbreak and government actions taken to reduce the spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern the markets in which we operate, implementing numerous measures to try to contain the virus. Such measures have included travel bans and restrictions, curfews, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in the near future.
The outbreak has adversely impacted and is likely to continue to adversely impact our workforce and operations and the operations of our customers and business partners. In particular, we may experience financial losses due to a number of operational factors impacting us or our customers or business partners, including but not limited to:
| ● | Credit losses resulting from financial stress experienced by our borrowers, especially those operating in industries most hard hit by government measures to contain the spread of the virus; |
| ● | Possible business disruptions experienced by our vendors and business partners in carrying out work that supports our operations; |
| ● | Heightened levels of cyber and payment fraud, as cyber criminals try to take advantage of the disruption and increased online activity brought about by the pandemic; and, |
| ● | Operational failures due to changes in our normal business practices necessitated by our internal measures to protect our employees and government-mandated measures intended to slow the spread of the virus. |
These factors may exist for an extended period of time and may continue to adversely affect our business, financial condition and operations even after the COVID-19 outbreak has subsided.
The extent to which the pandemic impacts our business, financial condition and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of its economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future. Additionally, future outbreaks of COVID-19, or other viruses, may occur.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Therefore, the risk factors previously discloseddiscussed in our Annual Report on Form 10-K could be heightened, changed or be added to in the Form 10-K.future. 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibit:
*denotes compensatory plan or arrangement
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | SERVISFIRST BANCSHARES, INC. |
| | | |
| | |
Date: JulyApril 30, 20192020 | By | /s/ Thomas A. Broughton III |
| | | Thomas A. Broughton III |
| | | President and Chief Executive Officer |
| | | |
Date: JulyApril 30, 2019 2020 | By | /s/ William M. Foshee |
| | | William M. Foshee |
| | | Chief Financial Officer |
