UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________

FORM 10-Q

(Mark one)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

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

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

	~~FOR THE QUARTERLY PERIOD ENDED~~ ~~SEPTEMBER 30, 2020~~

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

	For the transition period from _______to_______

Commission file number 001-36452

SERVISFIRST BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

2500 Woodcrest Place,, Birmingham, Alabama 35209

(Address of Principal Executive Offices) ~~(Zip~~(Zip Code)

(205) 949-0302

(Registrant's Telephone Number, Including Area Code)

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $.001 per share	SFBS	~~The NASDAQ Global Select Market~~New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

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

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

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

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

Class		Outstanding as of October ~~23, 2020~~25, 2021
Common stock, $.001 par value		~~53,915,245~~54,211,147

TABLE OF CONTENTS

EX-31.01 SECTION 302 CERTIFICATION OF THE CEO

EX-31.02 SECTION 302 CERTIFICATION OF THE CFO

EX-32.01 SECTION 906 CERTIFICATION OF THE CEO

EX-32.02 SECTION 906 CERTIFICATION OF THE CFO

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020
	(Unaudited)				(1	)	(Unaudited)				(1)
ASSETS
Cash and due from banks	$	70,472		$	78,618		$	102,313		$	93,655
Interest-bearing balances due from depository institutions		1,551,597			451,509			4,297,473			2,115,985
Federal funds sold		1,302			100,473			44,700			1,771
Cash and cash equivalents		1,623,371			630,600			4,444,486			2,211,411
Available for sale debt securities, at fair value		913,049			759,399			723,324			886,688
Held to maturity debt securities (fair value of $250 at September 30, 2020 and December 31, 2019)		250			250
Held to maturity debt securities (fair value of $261,276 at September 30, 2021 and $250 at December 31, 2020)								261,276			250
Mortgage loans held for sale		21,472			6,312			578			14,425
Loans		8,508,554			7,261,451			8,812,811			8,465,688
Less allowance for loan losses		(92,440	)		(76,584	)
Less allowance for credit losses								(108,950	)		(87,942	)
Loans, net		8,416,114			7,184,867			8,703,861			8,377,746
Premises and equipment, net		55,273			56,496			60,953			54,969
Accrued interest and dividends receivable		36,607			26,262			33,815			36,841
Deferred tax assets		26,764			25,566			31,533			31,072
Other real estate owned and repossessed assets		6,976			8,178			2,068			6,497
Bank owned life insurance contracts		254,045			209,395			281,399			276,387
Goodwill and other identifiable intangible assets		13,976			14,179			13,705			13,908
Other assets		26,977			26,149			45,230			22,460
Total assets	$	11,394,874		$	8,947,653		$	14,602,228		$	11,932,654
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing	$	2,762,814		$	1,749,879		$	4,366,654		$	2,788,772
Interest-bearing		6,910,969			5,780,554			7,712,016			7,186,952
Total deposits		9,673,783			7,530,433			12,078,670			9,975,724
Federal funds purchased		669,350			470,749			1,286,756			851,545
Other borrowings		64,719			64,703			64,701			64,748
Accrued interest payable		11,915			11,934			12,697			12,321
Other liabilities		25,518			27,152			45,111			35,464
Total liabilities		10,445,285			8,104,971			13,487,935			10,939,802
Stockholders' equity:
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at September 30, 2020 and December 31, 2019		0			0
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 53,915,245 shares issued and outstanding at September 30, 2020, and 53,623,740 shares issued and outstanding at December 31, 2019		54			54
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at September 30, 2021 and December 31, 2020								0			0
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 54,207,147 shares issued and outstanding at September 30, 2021, and 53,943,751 shares issued and outstanding at December 31, 2020								54			54
Additional paid-in capital		223,280			219,766			225,648			223,856
Retained earnings		706,924			616,611			869,731			748,224
Accumulated other comprehensive income		18,831			5,749			18,360			20,218
Total stockholders' equity attributable to ServisFirst Bancshares, Inc.		949,089			842,180			1,113,793			992,352
Noncontrolling interest		500			502			500			500
Total stockholders' equity		949,589			842,682			1,114,293			992,852
Total liabilities and stockholders' equity	$	11,394,874		$	8,947,653		$	14,602,228		$	11,932,654

(1) Derived from audited financial statements.

See Notes to Consolidated Financial Statements.

(1) Derived from audited financial statements.

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended					Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,					September 30,				September 30,				September 30,
	2020		2019			2020		2019		2021		2020		2021		2020
Interest income:
Interest and fees on loans	$	89,564	$	90,767		$	268,332	$	264,901	$	96,119	$	89,564	$	285,373	$	268,332
Taxable securities		5,858		4,367			16,104		12,306		6,544		5,858		18,666		16,104
Nontaxable securities		166		316			610		1,155		62		166		255		610
Federal funds sold		16		1,768			327		4,985		4		16		11		327
Other interest and dividends		506		3,912			2,584		9,269		1,507		506		3,046		2,584
Total interest income		96,110		101,130			287,957		292,616		104,236		96,110		307,351		287,957
Interest expense:
Deposits		9,876		24,787			37,377		71,172		6,581		9,876		20,298		37,377
Borrowed funds		1,152		3,338			4,624		9,576		1,335		1,152		3,700		4,624
Total interest expense		11,028		28,125			42,001		80,748		7,916		11,028		23,998		42,001
Net interest income		85,082		73,005			245,956		211,868		96,320		85,082		283,353		245,956
Provision for loan losses		12,284		6,985			36,151		16,754
Net interest income after provision for loan losses		72,798		66,020			209,805		195,114
Provision for credit losses											5,963		12,284		23,066		36,151
Net interest income after provision for credit losses											90,357		72,798		260,287		209,805
Noninterest income:
Service charges on deposit accounts		1,818		1,735			5,557		5,223		1,727		1,818		5,542		5,557
Mortgage banking		2,519		1,333			5,697		2,995		1,423		2,519		6,869		5,697
Credit card income		1,840		1,868			5,003		5,185		2,043		1,840		5,147		5,003
Securities gains		0		34			0		28		0		0		620		0
Increase in cash surrender value life insurance		1,733		787			4,650		2,327		1,671		1,733		5,012		4,650
Other operating income		262		453			972		1,172		1,162		262		2,897		972
Total noninterest income		8,172		6,210			21,879		16,930		8,026		8,172		26,087		21,879
Noninterest expenses:
Salaries and employee benefits		14,994		15,499			46,444		44,103		17,995		14,994		50,425		46,444
Equipment and occupancy expense		2,556		2,387			7,390		6,933		2,996		2,556		8,494		7,390
Third party processing and other services		3,281		2,923			10,360		8,058		4,144		3,281		11,506		10,360
Professional services		955		887			2,994		3,072		948		955		2,978		2,994
FDIC and other regulatory assessments (credits)		1,061		(296	)		2,988		1,804
FDIC and other regulatory assessments											1,630		1,061		4,637		2,988
OREO expense		119		78			2,023		312		123		119		820		2,023
Other operating expenses		3,607		3,683			11,110		12,227		6,541		3,607		15,740		11,110
Total noninterest expenses		26,573		25,161			83,309		76,509		34,377		26,573		94,600		83,309
Income before income taxes		54,397		47,069			148,375		135,535		64,006		54,397		191,774		148,375
Provision for income taxes		11,035		9,506			29,787		27,329		11,507		11,035		37,793		29,787
Net income		43,362		37,563			118,588		108,206		52,499		43,362		153,981		118,588
Preferred stock dividends		0		0			31		31		0		0		31		31
Net income available to common stockholders	$	43,362	$	37,563		$	118,557	$	108,175	$	52,499	$	43,362	$	153,950	$	118,557

Basic earnings per common share	$	0.80	$	0.70		$	2.20	$	2.02	$	0.97	$	0.80	$	2.84	$	2.20
Diluted earnings per common share	$	0.80	$	0.69		$	2.19	$	2.00	$	0.96	$	0.80	$	2.83	$	2.19

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net income
$ 43,362 $ 37,563 $ 118,588 $ 108,206
Other comprehensive income, net of tax:

Unrealized net holding gains arising during period from securities available for sale, net of tax of $58 and $3,477 for the three and nine months ended September 30, 2020, respectively, and net of tax of $424 and $2,791 for the three and nine months ended September 30, 2019, respectively
220 1,434 13,082 10,497
Reclassification adjustment for net gains on sale of securities, net of tax of $7 and $5 for the three and nine months ended September 30, 2019, respectively
0 27 0 23
Other comprehensive income, net of tax
220 1,461 13,082 10,520
Comprehensive income
$ 43,582 $ 39,024 $ 131,670 $ 118,726

See Notes to Consolidated Financial Statements.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021			2020		2021			2020
Net income	$	52,499		$	43,362	$	153,981		$	118,588
Other comprehensive (loss) income, net of tax:
Unrealized net holding (loss) gains arising during period from securities available for sale, net of tax of $(1,798) and $(2,097) for the three and nine months ended September 30, 2021, respectively, and net of tax of $58 and $3,477 for the three and nine months ended September 30, 2020, respectively		(6,764	)		220		(7,916	)		13,082
Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax of $36 for the three and nine months ended September 30, 2021		(136	)		0		(136	)		0
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity net of tax of $1,480 for the three and nine months ended September 30, 2021, respectively		5,705			0		5,705			0
Reclassification adjustment for net gains on call of securities, net of tax of $130 for the nine months ended September 30, 2021		0			0		490			0
Other comprehensive income (loss), net of tax		(1,195	)		220		(1,858	)		13,082
Comprehensive income	$	51,304		$	43,582	$	152,123		$	131,670

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)(Unaudited)

	Three Months Ended September 30,																				Three Months Ended September 30,
	Common Shares		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Noncontrolling interest			Total Stockholders' Equity			Common Shares		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling interest			Total Stockholders' Equity
Balance, July 1, 2019		53,526,882	$	0	$	54	$	218,658		$	555,425		$	4,318	$	502		$	778,957
Common dividends declared, $0.15 per share		-		0		0		0			(8,020	)		0		0			(8,020	)
Issue restricted shares pursuant to stock incentives, net of forfeitures		10,500		0		0		0			0			0		0			0
Issue shares of common stock upon exercise of stock options		41,731		0		0		571			0			0		0			571
9,069 shares of common stock withheld in net settlement upon exercise of stock options		-		0		0		(289	)		0			0		0			(289	)
Stock-based compensation expense		-		0		0		294			0			0		0			294
Other comprehensive income, net of tax		-		0		0		0			0			1,461		0			1,461
Net income		-		0		0		0			37,563			0		0			37,563
Balance, September 30, 2019		53,579,113	$	0	$	54	$	219,234		$	584,968		$	5,779	$	502		$	810,537

Balance, July 1, 2020		53,874,276	$	0	$	54	$	222,437		$	672,984		$	18,611	$	502		$	914,588			53,874,276	$	0	$	54	$	222,437		$	672,984		$	18,611		$	502		$	914,588
Common dividends declared, $0.175 per share		-		0		0		0			(9,422	)		0		0			(9,422	)
Common dividends declared, $0.175 per share																						-		0		0		0			(9,422	)		0			0			(9,422	)
Issue restricted shares pursuant to stock incentives, net of forfeitures		3,500		0		0		0			0			0		0			0			3,500		0		0		0			0			0			0			0
Issue shares of common stock upon exercise of stock options		37,469		0		0		728			0			0		0			728			37,469		0		0		728			0			0			0			728
5,831 shares of common stock withheld in net settlement upon exercise of stock options		-		0		0		(225	)		0			0		0			(225	)		-		0		0		(225	)		0			0			0			(225	)
Stock-based compensation expense		-		0		0		340			0			0		0			340			-		0		0		340			0			0			0			340
Other comprehensive income, net of tax																						-		0		0		0			0			220			0			220
Net income																						-		0		0		0			43,362			0			(2	)		43,360
Balance, September 30, 2020																						53,915,245	$	0	$	54	$	223,280		$	706,924		$	18,831		$	500		$	949,589

Balance, July 1, 2021																						54,201,204	$	0	$	54	$	225,127		$	828,048		$	19,555		$	500		$	1,073,284
Common dividends declared, $0.20 per share																						-		0		0		0			(10,842	)		0			0			(10,842	)
Dividends on nonvested restricted stock recognized as compensation expense																						-		0		0		0			26			0			0			26
Issue restricted shares pursuant to stock incentives, net of forfeitures																						346		0		0		0			0			0			0			0
Issue shares of common stock upon exercise of stock options																						5,597		0		0		159			0			0			0			159
1,903 shares of common stock withheld in net settlement upon exercise of stock options																						-		0		0		(99	)		0			0			0			(99	)
Stock-based compensation expense																						-		0		0		461			0			0			0			461
Other comprehensive loss, net of tax		-		0		0		0			0			220		0			220			-		0		0		0			0			(1,195	)		0			(1,195	)
Net income		-		0		0		0			43,362			0		(2	)		43,360			-		0		0		0			52,499			0			0			52,499
Balance, September 30, 2020		53,915,245	$	0	$	54	$	223,280		$	706,924		$	18,831	$	500		$	949,589
Balance, September 30, 2021																						54,207,147	$	0	$	54	$	225,648		$	869,731		$	18,360		$	500		$	1,114,293

	Nine Months Ended September 30,																					Nine Months Ended September 30,
	Common Shares		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling interest			Total Stockholders' Equity			Common Shares		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling interest			Total Stockholders' Equity
Balance, January 1, 2019		53,375,195	$	0	$	53	$	218,521		$	500,868		$	(4,741	)	$	502		$	715,203
Common dividends paid, $0.30 per share		-		0		0		0			(16,038	)		0			0			(16,038	)
Common dividends declared, $0.15 per share		-		0		0		0			(8,037	)		0			0			(8,037	)
Preferred dividends paid		-		0		0		0			(31	)		0			0			(31	)
Issue restricted shares pursuant to stock incentives, net of forfeitures		18,874		0		0		0			0			0			0			0
Issue shares of common stock upon exercise of stock options		185,044		0		1		1,674			0			0			0			1,675
54,256 shares of common stock withheld in net settlement upon exercise of stock options		-		0		0		(1,742	)		0			0			0			(1,742	)
Stock-based compensation expense		-		0		0		781			0			0			0			781
Other comprehensive income, net of tax		-		0		0		0			0			10,520			0			10,520
Net income		-		0		0		0			108,206			0			0			108,206
Balance, September 30, 2019		53,579,113	$	0	$	54	$	219,234		$	584,968		$	5,779		$	502		$	810,537

Balance, January 1, 2020		53,623,740	$	0	$	54	$	219,766		$	616,611		$	5,749		$	502		$	842,682			53,623,740	$	0	$	54	$	219,766		$	616,611		$	5,749		$	502		$	842,682
Common dividends paid, $0.35 per share		-		0		0		0			(18,822	)		0			0			(18,822	)
Common dividends declared, $0.175 per share		-		0		0		0			(9,422	)		0			0			(9,422	)
Common dividends paid, $0.35 per share																							-		0		0		0			(18,822	)		0			0			(18,822	)
Common dividends declared, $0.175 per share																							-		0		0		0			(9,422	)		0			0			(9,422	)
Preferred dividends paid		-		0		0		0			(31	)		0			0			(31	)		-		0		0		0			(31	)		0			0			(31	)
Issue restricted shares pursuant to stock incentives, net of forfeitures		29,067		0		0		0			0			0			0			0			29,067		0		0		0			0			0			0			0
Issue shares of common stock upon exercise of stock options		262,438		0		0		3,172			0			0			0			3,172			262,438		0		0		3,172			0			0			0			3,172
16,862 shares of common stock withheld in net settlement upon exercise of stock options		-		0		0		(627	)		0			0			0			(627	)		-		0		0		(627	)		0			0			0			(627	)
Stock-based compensation expense		-		0		0		969			0			0			0			969			-		0		0		969			0			0			0			969
Other comprehensive loss, net of tax		-		0		0		0			0			13,082			0			13,082
Other comprehensive income, net of tax																							-		0		0		0			0			13,082			0			13,082
Net income		-		0		0		0			118,588			0			(2	)		118,586			-		0		0		0			118,588			0			(2	)		118,586
Balance, September 30, 2020		53,915,245	$	0	$	54	$	223,280		$	706,924		$	18,831		$	500		$	949,589			53,915,245	$	0	$	54	$	223,280		$	706,924		$	18,831		$	500		$	949,589

See Notes to Consolidated Financial Statements.
Balance, January 1, 2021																							53,943,751	$	0	$	54	$	223,856		$	748,224		$	20,218		$	500		$	992,852
Common dividends paid, $0.40 per share																							-		0		0		0			(21,678	)		0			0			(21,678	)
Common dividends declared, $0.20 per share																							-		0		0		0			(10,842	)		0			0			(10,842	)
Preferred dividends paid																							-		0		0		0			(31	)		0			0			(31	)
Dividends on nonvested restricted stock recognized as compensation expense																							-		0		0		0			77			0			0			77
Issue restricted shares pursuant to stock incentives, net of forfeitures																							57,570		0		0		0			0			0			0			0
Issue shares of common stock upon exercise of stock options																							205,826		0		0		3,219			0			0			0			3,219
51,374 shares of common stock withheld in net settlement upon exercise of stock options																							-		0		0		(2,737	)		0			0			0			(2,737	)
Stock-based compensation expense																							-		0		0		1,310			0			0			0			1,310
Other comprehensive loss, net of tax																							-		0		0		0			0			(1,858	)		0			(1,858	)
Net income																							-		0		0		0			153,981			0			0			153,981
Balance, September 30, 2021																							54,207,147	$	0	$	54	$	225,648		$	869,731		$	18,360		$	500		$	1,114,293

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020
OPERATING ACTIVITIES
Net income	$	118,588		$	108,206		$	153,981		$	118,588
Adjustments to reconcile net income to net cash provided by
Deferred tax (benefit) expense		(4,675	)		2,851
Provision for loan losses		36,151			16,754
Deferred tax (benefit)								12			(4,675	)
Provision for credit losses								23,066			36,151
Depreciation		2,788			2,774			3,074			2,788
Accretion on acquired loans		(100	)		(91	)		0			(100	)
Amortization of core deposit intangible		203			203			203			203
Net amortization of debt securities available for sale		3,834			2,040			7,456			3,834
Increase in accrued interest and dividends receivable		(10,345	)		(1,353	)
Decrease (increase) in accrued interest and dividends receivable								3,026			(10,345	)
Stock-based compensation expense		969			781			1,310			969
(Decrease) increase in accrued interest payable		(19	)		1,095
Increase (decrease) in accrued interest payable								376			(19	)
Proceeds from sale of mortgage loans held for sale		194,558			90,188			221,548			194,558
Originations of mortgage loans held for sale		(204,021	)		(95,764	)		(200,832	)		(204,021	)
Gain on call of securities available for sale								(620	)		0
Gain on sale of mortgage loans held for sale		(5,697	)		(2,995	)		(6,869	)		(5,697	)
Net gain on sale of debt securities available for sale		0			(28	)
Net gain on sale of other real estate owned and repossessed assets		(8	)		(6	)
Net loss (gain) on sale of other real estate owned and repossessed assets								282			(8	)
Write down of other real estate owned and repossessed assets		1,836			288			876			1,836
Operating loss (income) of tax credit partnerships		4			(16	)
Operating losses of tax credit partnerships								4			4
Increase in cash surrender value of life insurance contracts		(4,650	)		(2,327	)		(5,012	)		(4,650	)
Net change in other assets, liabilities, and other operating activities		(11,916	)		(19,766	)		(6,395	)		(11,916	)
Net cash provided by operating activities		117,500			102,834			195,486			117,500
INVESTMENT ACTIVITIES
Purchase of debt securities available for sale		(288,453	)		(186,240	)		(298,684	)		(288,453	)
Proceeds from maturities, calls and paydowns of debt securities available for sale		148,206			100,687			188,559			148,206
Purchase of debt securities held to maturity		0			(250	)
Investment in tax credit partnership and SBIC		(636	)		0			(10,546	)		(636	)
Increase in loans		(1,269,704	)		(505,224	)		(350,600	)		(1,269,704	)
Purchase of premises and equipment		(1,565	)		(1,522	)		(9,058	)		(1,565	)
Purchase of bank owned life insurance contracts		(40,000	)		(20,000	)		0			(40,000	)
Proceeds from sale of other real estate owned and repossessed assets		1,780			727			911			1,780
Net cash used in investing activities		(1,450,372	)		(611,822	)		(479,418	)		(1,450,372	)
FINANCING ACTIVITIES
Net increase in non-interest-bearing deposits		1,012,935			121,331			1,577,882			1,012,935
Net increase in interest-bearing deposits		1,130,415			687,119			525,064			1,130,415
Net increase in federal funds purchased		198,601			81,506			435,211			198,601
Proceeds from exercise of stock options		3,172			1,675			3,219			3,172
Taxes paid in net settlement of tax obligation upon exercise of stock options		(627	)		(1,742	)		(2,737	)		(627	)
Dividends paid on common stock		(18,822	)		(16,038	)		(21,601	)		(18,822	)
Dividends paid on preferred stock		(31	)		(31	)		(31	)		(31	)
Net cash provided by financing activities		2,325,643			873,820			2,517,007			2,325,643
Net increase in cash and cash equivalents		992,771			364,832			2,233,075			992,771
Cash and cash equivalents at beginning of period		630,600			681,895			2,211,411			630,600
Cash and cash equivalents at end of period	$	1,623,371		$	1,046,727		$	4,444,486		$	1,623,371
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Cash paid/(received) for:
Interest	$	42,020		$	76,653		$	23,622		$	42,020
Income taxes		38,593			34,464			18,148			38,593
Income tax refund		(47	)		(86	)		(3	)		(47	)
NONCASH TRANSACTIONS
Other real estate acquired in settlement of loans	$	2,406		$	1,177		$	1,419		$	2,406
Internally financed sale of other real estate owned								3,779			0
Available-for-sale securities transferred to held-to-maturity portfolio								261,026			0
Dividends declared		9,422			8,037			10,842			9,422

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2020~~2021

(Unaudited)

NOTE 1 - GENERAL

The accompanying consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) and its consolidated subsidiaries, including ServisFirst Bank (the “Bank”), may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, ~~2019.~~2020.

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

DebtSecurities

Debt securities are classified based on the Company’s intention on the date of purchase. All debt securities classified as available-for-sale are recorded at fair value with any unrealized gains and losses reported in accumulated other comprehensive income (loss), net of the deferred income tax effects. Securities that the Company has both the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at historical cost and adjusted for amortization of premiums and accretion of discounts.

Interest and dividends on securities, including amortization of premiums and accretion of discounts calculated under the effective interest method, are included in interest income. For certain securities, amortization of premiums and accretion of discounts is computed based on the anticipated life of the security which may be shorter than the stated life of the security. Realized gains and losses from the sale of securities are determined using the specific identification method and are recorded on the trade date of the sale.

Allowance for ~~Loan~~Credit Losses

The ~~Company was prepared to fully adopt Accounting Standards Update (“ASU”)~~ ~~2016~~-~~13,~~~~Financial Instruments – Credit Losses (Topic~~ ~~326~~) ~~as of~~ ~~January 1, 2020~~ ~~prior to the COVID-~~19 ~~outbreak and subsequent passage of the~~ Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed on March 27, 2020 ~~which~~and provided financial institutions with the option to delay adoption of ~~ASU~~Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-~~13.~~13,Financial Instruments-Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments (“CECL”). As described below under “Note 9 ~~The~~- Recently Adopted Accounting Pronouncements”, the Company ~~has~~ decided to delay its adoption ~~until~~of ASU 2016-13, as provided by the ~~earlier of the date on which the national emergency concerning COVID-~~19 ~~terminates or~~CARES Act, until December 31, 2020, with an effective retrospective implementation date of January 1, 2020.Prior to January 1, 2020, as well as for quarterly periods in 2020 which were not restated, the allowance for credit losses (“ACL”) was calculated using an incurred losses methodology.

~~The allowance for loan losses as of~~ ~~September 30, 2020~~ ~~is determined under the Company’s incurred loss model. Qualitative adjustments were made~~Prior to the ~~amount~~adoption of ~~the allowance to take into effect management’s estimates~~ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of ~~the COVID-~~19 ~~pandemic’s impact~~Credit Losses on ~~the local and regional markets in which the Company operates. Further discussion of~~Financial Instruments, the allowance for loan losses isrepresented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. The allowance for losses on loans included allowance allocations calculated in ~~Note~~accordance with FASB Accounting Standards Codification (“ASC”) Topic 5310, ~~– Loans.~~“Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”

NOTE 2 - CASH AND CASH EQUIVALENTS

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

NOTE 3 - EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In Thousands, Except Shares and Per Share Data)
Earnings per common share
Weighted average common shares outstanding		54,205,565		53,893,753		54,143,324		53,817,928
Net income available to common stockholders	$	52,499	$	43,362	$	153,950	$	118,557
Basic earnings per common share	$	0.97	$	0.80	$	2.84	$	2.20
Weighted average common shares outstanding		54,205,565		53,893,753		54,143,324		53,817,928
Dilutive effects of assumed conversions and exercise of stock options and warrants		272,175		339,212		296,680		380,494
Weighted average common and dilutive potential common shares outstanding		54,477,740		54,232,965		54,440,004		54,198,422
Net income available to common stockholders	$	52,499	$	43,362	$	153,950	$	118,557
Diluted earnings per common share	$	0.96	$	0.80	$	2.83	$	2.19

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(In Thousands, Except Shares and Per Share Data)

Earnings per common share

Weighted average common shares outstanding
53,893,753 53,544,747 53,817,928 53,508,710
Net income available to common stockholders
$ 43,362 $ 37,563 $ 118,557 $ 108,175
Basic earnings per common share
$ 0.80 $ 0.70 $ 2.20 $ 2.02

Weighted average common shares outstanding
53,893,753 53,544,747 53,817,928 53,508,710
Dilutive effects of assumed conversions and exercise of stock options and warrants
339,212 551,621 380,494 578,700
Weighted average common and dilutive potential common shares outstanding
54,232,965 54,096,368 54,198,422 54,087,410
Net income available to common stockholders
$ 43,362 $ 37,563 $ 118,557 $ 108,175
Diluted earnings per common share
$ 0.80 $ 0.69 $ 2.19 $ 2.00

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized as follows:

			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market
	Cost		Gain		Loss			Value		Cost		Gain		Loss			Value
September 30, 2020	(In Thousands)
September 30, 2021										(In Thousands)
Securities Available for Sale
U.S. Treasury securities	$	18,990	$	436	$	0		$	19,426	$	14,001	$	178	$	0		$	14,179
Government agencies		15,222		299		0			15,521		9,023		61		0			9,084
Mortgage-backed securities		500,251		17,879		(68	)		518,062		294,887		4,693		(1,032	)		298,548
State and municipal securities		36,922		486		0			37,408		21,414		221		(38	)		21,597
Corporate debt		317,887		5,638		(893	)		322,632		367,861		12,580		(525	)		379,916
Total	$	889,272	$	24,738	$	(961	)	$	913,049	$	707,186	$	17,733	$	(1,595	)	$	723,324
Securities Held to Maturity
Mortgage-backed securities										$	261,026	$	0	$	0		$	261,026
State and municipal securities		250		0		0			250		250		0		0			250
Total	$	250	$	0	$	0		$	250	$	261,276	$	0	$	0		$	261,276

December 31, 2019
December 31, 2020
Securities Available for Sale
U.S. Treasury securities	$	48,923	$	291	$	(4	)	$	49,210	$	13,993	$	364	$	0		$	14,357
Government agencies		18,245		143		(2	)		18,386		15,228		230		0			15,458
Mortgage-backed securities		470,513		4,859		(1,318	)		474,054		477,407		17,720		(18	)		495,109
State and municipal securities		56,951		335		(14	)		57,272		37,671		444		0			38,115
Corporate debt		157,549		3,098		(170	)		160,477		316,857		7,296		(504	)		323,649
Total	$	752,181	$	8,726	$	(1,508	)	$	759,399	$	861,156	$	26,054	$	(522	)	$	886,688
Securities Held to Maturity
Mortgage-backed securities										$	0	$	0	$	0		$	0
State and municipal securities		250		0		0			250		250		0		0			250
Total	$	250	$	0	$	0		$	250	$	250	$	0	$	0		$	250

During the third quarter of 2021, the company transferred, at fair value, $261.3 million of mortgage-backed securities from the available-for-sale portfolio to the held-to-maturity portfolio. The related unrealized after-tax gains of $5.6 million remained in accumulated other comprehensive income and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities. No gains or losses were recognized at the time of the transfer.

The amortized cost and fair value of debt securities as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories along with the other categories of debt securities.

	September 30, 2020				December 31, 2019				September 30, 2021				December 31, 2020
	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
Due within one year	$	22,531	$	22,627	$	58,722	$	58,975	$	35,755	$	36,142	$	30,797	$	31,060
Due from one to five years		78,998		81,105		90,034		91,005		41,797		42,745		59,828		61,481
Due from five to ten years		191,528		194,527		129,501		131,914		331,653		342,607		288,002		293,886
Due after ten years		95,964		96,728		3,411		3,451		3,094		3,282		5,122		5,152
Mortgage-backed securities		500,251		518,062		470,513		474,054		294,887		298,548		477,407		495,109
	$	889,272	$	913,049	$	752,181	$	759,399	$	707,186	$	723,324	$	861,156	$	886,688

Debt securities held to maturity
Due from one to five years	$	250	$	250	$	250	$	250	$	250	$	250	$	250	$	250
Due from five to ten years										0		-		0		-
Due after ten years										0		-		0		-
Mortgage-backed securities										261,026		261,026		0		0
	$	250	$	250	$	250	$	250	$	261,276	$	261,276	$	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 September 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$431.0~~$536.0 million and ~~$389.9~~$477.6 million, respectively.

The following table identifies, as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months.

	Less Than Twelve Months					Twelve Months or More				Total
	Gross					Gross				Gross
	Unrealized					Unrealized				Unrealized
	Losses			Fair Value		Losses		Fair Value		Losses			Fair Value
	(In Thousands)
September 30, 2021
Mortgage-backed securities	$	(1,537	)	$	194,922	$	0	$	0	$	(1,537	)	$	194,922
State and municipal securities		(38	)		3,954		0		0		(38	)		3,954
Corporate debt		(525	)		30,975		0		0		(525	)		30,975
Total	$	(2,100	)	$	229,851	$	0	$	0	$	(2,100	)	$	229,851

December 31, 2020
Mortgage-backed securities	$	(18	)	$	3,667	$	0	$	0	$	(18	)	$	3,667
Corporate debt		(504	)		59,576		0		0		(504	)		59,576
Total	$	(522	)	$	63,243	$	0	$	0	$	(522	)	$	63,243

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In Thousands)
Sale and call proceeds	$	12,735	$	2,001	$	35,532	$	12,947
Gross realized gains	$	0	$	0	$	620	$	0
Net realized gain	$	0	$	0	$	620	$	0

At September 30, ~~2020,~~2021, ~~none~~ ~~of the Company’s 641~~0 allowance for credit losses has been recognized on available for sale debt securities ~~had been~~ in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired. This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available for sale debt securities. The issuers of these debt securities continue to make timely principal and interest payments under the contractual terms of the securities. The Company does 12not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased. Furthermore, the Company performed an analysis that determined that the following securities have a 0 expected credit loss: U.S. Treasury Securities; and, Agency-Backed Securities, including securities issued by GNMA, FNMA, FHLB, FFCB and SBA. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United States Government or ~~more months.~~one of its agencies. All debt securities in an unrealized loss position as of September 30, 2021 continue to perform as scheduled and the Company does not believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.

Less Than Twelve Months

Twelve Months or More

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

(In Thousands)

September 30, 2020

U.S. Treasury securities
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Government agency securities
0 0 0 0 0 0
Mortgage-backed securities
(68 ) 34,639 0 0 (68 ) 34,639
State and municipal securities (1)
0 0 0 0 0 0
Corporate debt
(893 ) 87,212 0 0 (893 ) 87,212
Total
$ (961 ) $ 121,851 $ 0 $ 0 $ (961 ) $ 121,851

December 31, 2019

U.S. Treasury securities
$ (4 ) $ 3,012 $ 0 $ 0 $ (4 ) $ 3,012
Government agency securities
(2 ) 266 0 0 (2 ) 266
Mortgage-backed securities
(1,206 ) 153,330 (112 ) 24,911 (1,318 ) 178,241
State and municipal securities
(4 ) 1,900 (10 ) 2,647 (14 ) 4,547
Corporate debt
(170 ) 19,981 0 0 (170 ) 19,981
Total
$ (1,386 ) $ 178,489 $ (122 ) $ 27,558 $ (1,508 ) $ 206,047

NOTE 5– – LOANS

The ~~following table details~~loan portfolio is classified based on the ~~Company’s loans at~~ ~~September 30, 2020~~ underlying collateral utilized to secure each loan for financial reporting purposes. This classification is consistent with the Quarterly Report of Condition and ~~December 31, 2019:~~Income filed by the Bank with the Federal Deposit Insurance Corporation (FDIC).

September 30,

December 31,

2020

2019

(Dollars In Thousands)

Commercial, financial and agricultural
$ 3,466,189 $ 2,696,210
Real estate - construction
530,919 521,392
Real estate - mortgage:

Owner-occupied commercial
1,725,222 1,587,478
1-4 family mortgage
671,841 644,188
Other mortgage
2,056,549 1,747,394
Subtotal: Real estate - mortgage
4,453,612 3,979,060
Consumer
57,834 64,789
Total Loans
8,508,554 7,261,451
Less: Allowance for loan losses
(92,440 ) (76,584 )
Net Loans
$

8,416,114

$ 7,184,867
Commercial, financial and agricultural
40.74
%
37.13
%
Real estate - construction
6.24
%
7.18
%
Real estate - mortgage:

Owner-occupied commercial
20.27
%
21.86
%
1-4 family mortgage
7.90
%
8.87
%
Other mortgage
24.17
%
24.07
%
Subtotal: Real estate - mortgage
52.34
%
54.80
%
Consumer
0.68
%
0.89
%
Total Loans
100.00
%
100.00
%

Commercial, financial and agricultural - Includes loans to business enterprises issued for commercial, industrial, agricultural production and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

Real estate – construction – Includes loans secured by real estate to finance land development or the construction of industrial, commercial or residential buildings. Repayment is dependent upon the completion and eventual sale, refinance or operation of the related real estate project.

Owner-occupied commercial real estate mortgage – Includes loans secured by nonfarm nonresidential properties for which the primary source of repayment is the cash flow from the ongoing operations conducted by the party that owns the property.

121

-4 family real estate mortgage – Includes loans secured by residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.

Other real estate mortgage – Includes loans secured by nonowner-occupied properties, including office buildings, industrial buildings, warehouses, retail buildings, multifamily residential properties and farmland. Repayment is primarily dependent on income generated from the underlying collateral.

Consumer – Includes loans to individuals not secured by real estate. Repayment is dependent upon the personal cash flow of the borrower.

In light of the U.S. and global economic crisis brought about by the COVID-19 pandemic, the Company has prioritized assisting its clients through this troubled time. The ~~CARES~~Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides for Paycheck Protection ~~Plan~~Program (“PPP”) loans to be made by banks to employers with less than 500 employees if they continue to employ their existing workers. AsThe American Rescue Plan Act of ~~September 30, 2020,~~2021, which was signed into law on March 21, 2021, provides additional relief for businesses, states, municipalities and individuals by, among other things, allocating additional funds for the PPP. Effective May 28, 2021, the PPP was closed to new applications. The Company ~~has~~ funded approximately ~~4,900~~7,400 loans for a total amount of ~~$1.05~~$1.5 billion for clients under the PPP ~~and management expects to continue to participate in any extensions of the PPP by the Treasury Department.~~ since April 2020. At September 30, 2021 and December 31, 2020, unaccreted deferred loan origination fees, net of costs, related to PPP loans totaled ~~$25.3 million.~~$11.9 million and $17.8 million, respectively. PPP loan origination fees recorded ~~as an adjustment~~ to ~~loan yield~~interest income totaled $5.2 million and $4.0 million for the three months ended September 30, 2021 and2020, respectively, and totaled $22.3 million and $6.6 million for the nine months ended September 30, 2021 and 2020,~~were $4.0~~ respectively. PPP loans outstanding totaled $387.7 million and ~~$6.6~~$900.5 million at September 30, 2021 and December 31, 2020, respectively. ~~These~~ PPP loans are included within the ~~Commercial,~~commercial, financial and agricultural loan category in the table ~~above.~~below.

The following table details the Company’s loans at September 30, 2021 and December 31, 2020:

	September 30,			December 31,
	2021			2020
	(Dollars In Thousands)
Commercial, financial and agricultural	$	2,927,845		$	3,295,900
Real estate - construction		887,938			593,614
Real estate - mortgage:
Owner-occupied commercial		1,809,840			1,693,428
1-4 family mortgage		765,102			711,692
Other mortgage		2,357,812			2,106,184
Subtotal: Real estate - mortgage		4,932,754			4,511,304
Consumer		64,274			64,870
Total Loans		8,812,811			8,465,688
Less: Allowance for credit losses		(108,950	)		(87,942	)
Net Loans	$	8,703,861		$	8,377,746

Commercial, financial and agricultural		33.22	%		38.93	%
Real estate - construction		10.08	%		7.01	%
Real estate - mortgage:
Owner-occupied commercial		20.54	%		20.00	%
1-4 family mortgage		8.68	%		8.41	%
Other mortgage		26.75	%		24.89	%
Subtotal: Real estate - mortgage		55.97	%		53.29	%
Consumer		0.73	%		0.77	%
Total Loans		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~~credit portfolio segments and classes. These categories are utilized to develop the associated allowance for ~~loan~~credit 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 borrower (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

●

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

●

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

●

Doubtful – loans that have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

~~Loans~~The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of September 30, ~~2020~~ 2021 :~~and~~ ~~December 31, 2019~~ ~~were as follows:~~

			Special																				Revolving
September 30, 2020	Pass		Mention		Substandard		Doubtful		Total

September 30, 2021											2021		2020		2019		2018		2017		Prior		Loans		Total
	(In Thousands)										(In Thousands)
Commercial, financial and agricultural	$	3,374,467	$	17,955	$	73,767	$	0	$	3,466,189
Pass											$	743,568	$	354,601	$	247,276	$	152,278	$	120,995	$	129,518	$	1,082,443	$	2,830,679
Special Mention												1,994		1,381		1,243		0		1,183		761		21,993		28,555
Substandard												133		389		10,356		1,762		1,841		9,203		44,927		68,611
Doubtful												0		0		0		0		0		0		0		0
Total Commercial, financial and agricultural											$	745,695	$	356,371	$	258,875	$	154,040	$	124,019	$	139,482	$	1,149,363	$	2,927,845
Real estate - construction		527,231		3,100		588		0		530,919
Real estate - mortgage:
Pass											$	358,942	$	260,450	$	138,146	$	18,669	$	13,538	$	18,671	$	69,693	$	878,109
Special Mention												0		0		7,094		2,500		0		0		0		9,594
Substandard												0		0		0		0		0		235		0		235
Doubtful												0		0		0		0		0		0		0		0
Total Real estate - construction											$	358,942	$	260,450	$	145,240	$	21,169	$	13,538	$	18,906	$	69,693	$	887,938
Owner-occupied commercial		1,708,113		14,280		2,829		0		1,725,222
Pass											$	270,480	$	364,308	$	261,258	$	190,301	$	173,659	$	476,757	$	64,069	$	1,800,832
Special Mention												0		0		0		780		289		2,886		0		3,955
Substandard												0		0		0		0		0		5,053		0		5,053
Doubtful												0		0		0		0		0		0		0		0
Total Owner-occupied commercial											$	270,480	$	364,308	$	261,258	$	191,081	$	173,948	$	484,696	$	64,069	$	1,809,840
1-4 family mortgage		666,463		2,065		3,313		0		671,841
Pass											$	204,167	$	131,472	$	79,542	$	48,773	$	39,955	$	42,073	$	209,286	$	755,268
Special Mention												0		852		920		235		165		1,607		3,738		7,517
Substandard												0		150		238		122		232		620		955		2,317
Doubtful												0		0		0		0		0		0		0		0
Total 1-4 family mortgage											$	204,167	$	132,474	$	80,700	$	49,130	$	40,352	$	44,300	$	213,979	$	765,102
Other mortgage		2,031,328		12,006		13,215		0		2,056,549
Total real estate mortgage		4,405,904		28,351		19,357		0		4,453,612
Pass											$	517,787	$	451,397	$	429,536	$	190,584	$	307,546	$	380,299	$	60,331	$	2,337,480
Special Mention												0		0		0		0		2,739		4,691		0		7,430
Substandard												0		0		0		4,521		8,381		0		0		12,902
Doubtful												0		0		0		0		0		0		0		0
Total Other mortgage											$	517,787	$	451,397	$	429,536	$	195,105	$	318,666	$	384,990	$	60,331	$	2,357,812
Consumer		57,785		49		0		0		57,834
Total	$	8,365,387	$	49,455	$	93,712	$	0	$	8,508,554
Pass											$	13,736	$	5,643	$	3,211	$	1,073	$	1,083	$	3,897	$	35,605	$	64,248
Special Mention												0		0		0		0		0		26		0		26
Substandard												0		0		0		0		0		0		0		0
Doubtful												0		0		0		0		0		0		0		0
Total Consumer											$	13,736	$	5,643	$	3,211	$	1,073	$	1,083	$	3,923	$	35,605	$	64,274
Total Loans
Pass											$	2,108,680	$	1,567,871	$	1,158,969	$	601,678	$	656,776	$	1,051,215	$	1,521,427	$	8,666,616
Special Mention												1,994		2,233		9,257		3,515		4,376		9,971		25,731		57,077
Substandard												133		539		10,594		6,405		10,454		15,111		45,882		89,118
Doubtful												0		0		0		0		0		0		0		0
Total Loans											$	2,110,807	$	1,570,643	$	1,178,820	$	611,598	$	671,606	$	1,076,297	$	1,593,040	$	8,812,811

1314

Special

December 31, 2019

Pass

Mention

Substandard

Doubtful

Total

(In Thousands)

Commercial, financial and agricultural
$ 2,629,487 $ 46,176 $ 20,547 $ 0 $ 2,696,210
Real estate - construction
512,373 4,731 4,288 0 521,392
Real estate - mortgage:

Owner-occupied commercial
1,555,283 18,240 13,955 0 1,587,478
1-4 family mortgage
639,959 2,787 1,442 0 644,188
Other mortgage
1,735,869 10,018 1,507 0 1,747,394
Total real estate mortgage
3,931,111 31,045 16,904 0 3,979,060
Consumer
64,789 0 0 0 64,789
Total
$ 7,137,760 $ 81,952 $ 41,739 $ 0 $ 7,261,451

The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2020:

													Revolving
December 31, 2020	2020		2019		2018		2017		2016		Prior		Loans		Total
	(In Thousands)
Commercial, financial and agricultural
Pass	$	1,260,341	$	332,690	$	229,838	$	169,616	$	89,893	$	137,021	$	988,093	$	3,207,492
Special Mention		2,551		1,404		10		253		163		281		14,948		19,610
Substandard		569		10,639		617		5,447		963		2,038		48,525		68,798
Doubtful		0		0		0		0		0		0		0		0
Total Commercial, financial and agricultural	$	1,263,461	$	344,733	$	230,465	$	175,316	$	91,019	$	139,340	$	1,051,566	$	3,295,900
Real estate - construction
Pass	$	230,931	$	222,357	$	53,981	$	16,361	$	7,677	$	13,816	$	48,256	$	593,379
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		235		0		235
Doubtful		0		0		0		0		0		0		0		0
Total Real estate - construction	$	230,931	$	222,357	$	53,981	$	16,361	$	7,677	$	14,051	$	48,256	$	593,614
Owner-occupied commercial
Pass	$	351,808	$	271,645	$	221,513	$	198,935	$	158,531	$	417,743	$	61,119	$	1,681,294
Special Mention		0		0		0		6,524		543		1,873		200		9,140
Substandard		0		0		12		780		0		1,962		240		2,994
Doubtful		0		0		0		0		0		0		0		0
Total Owner-occupied commercial	$	351,808	$	271,645	$	221,525	$	206,239	$	159,074	$	421,578	$	61,559	$	1,693,428
1-4 family mortgage
Pass	$	179,314	$	111,016	$	70,381	$	60,774	$	27,985	$	44,111	$	212,616	$	706,197
Special Mention		508		0		0		105		481		0		1,112		2,206
Substandard		350		126		0		235		218		0		2,360		3,289
Doubtful		0		0		0		0		0		0		0		0
Total 1-4 family mortgage	$	180,172	$	111,142	$	70,381	$	61,114	$	28,684	$	44,111	$	216,088	$	711,692
Other mortgage
Pass	$	470,086	$	470,092	$	250,945	$	368,283	$	180,244	$	272,722	$	68,721	$	2,081,093
Special Mention		0		0		0		2,793		541		8,566		0		11,900
Substandard		0		50		4,589		8,552		0		0		0		13,191
Doubtful		0		0		0		0		0		0		0		0
Total Other mortgage	$	470,086	$	470,142	$	255,534	$	379,628	$	180,785	$	281,288	$	68,721	$	2,106,184
Consumer
Pass	$	20,410	$	4,421	$	1,551	$	1,671	$	1,031	$	3,615	$	32,125	$	64,824
Special Mention		0		0		15		0		31		0		0		46
Substandard		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Total Consumer	$	20,410	$	4,421	$	1,566	$	1,671	$	1,062	$	3,615	$	32,125	$	64,870
Total Loans
Pass	$	2,512,890	$	1,412,221	$	828,209	$	815,640	$	465,361	$	889,028	$	1,410,930	$	8,334,279
Special Mention		3,059		1,404		25		9,675		1,759		10,720		16,260		42,902
Substandard		919		10,815		5,218		15,014		1,181		4,235		51,125		88,507
Doubtful		0		0		0		0		0		0		0		0
Total Loans	$	2,516,868	$	1,424,440	$	833,452	$	840,329	$	468,301	$	903,983	$	1,478,315	$	8,465,688

Loans by performance status as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:

September 30, 2020	Performing		Nonperforming		Total

September 30, 2021							Performing		Nonperforming		Total
	(In Thousands)						(In Thousands)
Commercial, financial and agricultural	$	3,447,490	$	18,699	$	3,466,189	$	2,920,843	$	7,002	$	2,927,845
Real estate - construction		530,332		587		530,919		887,704		234		887,938
Real estate - mortgage:
Owner-occupied commercial		1,723,384		1,838		1,725,222		1,808,779		1,061		1,809,840
1-4 family mortgage		671,227		614		671,841		763,639		1,463		765,102
Other mortgage		2,051,722		4,827		2,056,549		2,353,121		4,691		2,357,812
Total real estate mortgage		4,446,333		7,279		4,453,612		4,925,539		7,215		4,932,754
Consumer		57,826		8		57,834		64,254		20		64,274
Total	$	8,481,981	$	26,573	$	8,508,554	$	8,798,340	$	14,471	$	8,812,811

December 31, 2019	Performing		Nonperforming		Total

December 31, 2020							Performing		Nonperforming		Total
	(In Thousands)						(In Thousands)
Commercial, financial and agricultural	$	2,681,280	$	14,930	$	2,696,210	$	3,284,180	$	11,720	$	3,295,900
Real estate - construction		519,803		1,589		521,392		593,380		234		593,614
Real estate - mortgage:
Owner-occupied commercial		1,576,652		10,826		1,587,478		1,692,169		1,259		1,693,428
1-4 family mortgage		641,875		2,313		644,188		710,817		875		711,692
Other mortgage		1,740,963		6,431		1,747,394		2,101,379		4,805		2,106,184
Total real estate mortgage		3,959,490		19,570		3,979,060		4,504,365		6,939		4,511,304
Consumer		64,766		23		64,789		64,809		61		64,870
Total	$	7,225,339	$	36,112	$	7,261,451	$	8,446,734	$	18,954	$	8,465,688

1416

Loans by past due status as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:

September 30, 2020	Past Due Status (Accruing Loans)
							Total Past
September 30, 2021															Past Due Status (Accruing Loans)
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans								Total Past		Total						Nonaccrual
															30-59 Days		60-89 Days		90+ Days		Due		Nonaccrual		Current		Total Loans		With no ACL
	(In Thousands)														(In Thousands)
Commercial, financial and agricultural	$	721	$	3,102	$	63	$	3,886	$	18,636	$	3,443,667	$	3,466,189	$	193	$	77	$	36	$	306	$	6,966	$	2,920,573	$	2,927,845	$	4,233
Real estate - construction		0		0		0		0		587		530,332		530,919		0		0		0		0		234		887,704		887,938		0
Real estate - mortgage:
Owner-occupied commercial		0		0		0		0		1,838		1,723,384		1,725,222		289		0		0		289		1,061		1,808,490		1,809,840		1,061
1-4 family mortgage		211		320		0		531		614		670,696		671,841		200		622		579		1,401		884		762,817		765,102		368
Other mortgage		0		0		4,827		4,827		0		2,051,722		2,056,549		0		0		4,691		4,691		0		2,353,121		2,357,812		0
Total real estate - mortgage		211		320		4,827		5,358		2,452		4,445,802		4,453,612		489		622		5,270		6,381		1,945		4,924,428		4,932,754		1,429
Consumer		36		6		8		50		0		57,784		57,834		56		51		20		127		0		64,147		64,274		0
Total	$	968	$	3,428	$	4,898	$	9,294	$	21,675	$	8,477,585	$	8,508,554	$	738	$	750	$	5,326	$	6,814	$	9,145	$	8,796,852	$	8,812,811	$	5,662

December 31, 2019	Past Due Status (Accruing Loans)
							Total Past
December 31, 2020															Past Due Status (Accruing Loans)
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans								Total Past		Total						Nonaccrual
															30-59 Days		60-89 Days		90+ Days		Due		Nonaccrual		Current		Total Loans		With no ACL
	(In Thousands)														(In Thousands)
Commercial, financial and agricultural	$	3,135	$	344	$	201	$	3,680	$	14,729	$	2,677,801	$	2,696,210	$	92	$	1,738	$	11	$	1,841	$	11,709	$	3,282,350	$	3,295,900	$	5,101
Real estate - construction		830		0		0		830		1,589		518,973		521,392		0		0		0		0		234		593,380		593,614		0
Real estate - mortgage:
Owner-occupied commercial		917		7,242		0		8,159		10,826		1,568,493		1,587,478		0		995		0		995		1,259		1,691,174		1,693,428		467
1-4 family mortgage		1,638		567		873		3,078		1,440		639,670		644,188		61		1,073		104		1,238		771		709,683		711,692		512
Other mortgage		0		0		4,924		4,924		1,507		1,740,963		1,747,394		18		0		4,805		4,823		0		2,101,361		2,106,184		0
Total real estate - mortgage		2,555		7,809		5,797		16,161		13,773		3,949,126		3,979,060		79		2,068		4,909		7,056		2,030		4,502,218		4,511,304		979
Consumer		35		25		23		83		0		64,706		64,789		64		13		61		138		0		64,732		64,870		0
Total	$	6,555	$	8,178	$	6,021	$	20,754	$	30,091	$	7,210,606	$	7,261,451	$	235	$	3,819	$	4,981	$	9,035	$	13,973	$	8,442,680	$	8,465,688	$	6,080

~~The allowance~~As described in Note 9 - Recently Adopted Accounting Pronouncements, the Company adopted ASU 2016-13 on January 1, 2020, which introduced the CECL methodology for ~~loan~~estimating all expected losses ~~(“ALLL”) is maintained at~~over the life of a ~~level which, in management’s judgment, is adequate to absorb credit losses inherent in~~financial asset. Under 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 reviewCECL methodology, the allowance for credit losses is measured on ~~loans. Such agencies~~a collective basis for pools of loans with similar risk characteristics. For loans that do ~~may~~ not~~require~~ share similar risk characteristics with the ~~Company~~collectively evaluated pools, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to ~~recognize adjustments to the allowance based on their judgments about information available to them~~be reasonable and supportable, and at the ~~time~~end of ~~their examination.~~the reasonable and supportable forecast period losses are reverted to long-term historical averages. The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.

The ~~methodology utilized~~Company uses the discounted cash flow (“DCF”) method to estimate ACL for ~~the calculation of the allowance for loan losses is divided into~~ ~~four~~ ~~distinct categories. Those categories include allowances for non-impaired loans (ASC~~ ~~450~~~~), impaired loans (ASC~~ ~~310~~~~), external qualitative factors, and internal qualitative factors. A description of each category of the allowance for loan loss methodology is listed below.~~

~~Non-Impaired Loans.~~ ~~Non-impaired loans are grouped into homogeneous~~all loan pools ~~by loan type:~~except for commercial ~~and industrial, construction and development, commercial real estate,~~ ~~second~~ ~~lien home equity~~revolving lines of credit and credit cards. For all ~~other loans. Each~~ loan ~~pool is stratified by internal risk rating~~pools utilizing the DCF method, the Company utilizes and ~~multiplied~~forecasts national unemployment rate as a loss driver. The Company also utilizes and forecasts GDP growth as a second loss driver for its agricultural and consumer loan pools. Consistent forecasts of the loss drivers are used across the loan segments. At September 30, 2021 and December 31, 2020, the Company utilized a reasonable and supportable forecast period of twelve months followed by a six-month straight-line reversion to long-term averages. The Company leveraged economic projections from reputable and independent sources to inform its loss ~~allocation percentage derived from~~driver forecasts. The Company expects national unemployment to remain above pre-pandemic levels over the ~~loan pool historical loss rate. The historical loss~~forecast period with an improved national GDP growth rate ~~is based on an age weighted~~ 5 ~~year history of net charge-offs experienced by pool, with~~as the ~~most recent net charge-off experience given a greater weighting. This results in~~economy comes back on-line over 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 contractual 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.~~next year.

1517

~~External Qualitative Factors~~. The ~~determination~~Company uses a loss-rate method to estimate expected credit losses for its C&I lines of credit and credit card pools. The C&I lines of credit pool incorporates a probability of default (“PD”) and loss given default (“LGD”) modeling approach. This approach involves estimating the ~~portion~~pool average life and then using historical correlations 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, yeardefault and loss experience 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~~time to calculate the ~~amount~~lifetime PD and LGD. These two inputs are then applied to the outstanding pool balance. The credit card pool incorporates a remaining life modeling approach, which utilizes an attrition-based method to estimate the remaining life of ~~allowance~~the pool. A quarterly average loss rate is then calculated using the Company’s historical loss data. The model reduces the pool balance quarterly on a straight-line basis over the estimated life of the pool. The quarterly loss rate is multiplied by the outstanding balance at each period-end resulting in an estimated loss for each quarter. The sum of estimated loss for all quarters is the total calculated reserve for the pool. Management has applied the loss-rate method to C&I lines of credit and to credit cards due to ~~external~~their generally short-term nature. An expected loss ratio is applied based on internal and peer historical losses.

Each loan pool is adjusted for qualitative ~~factors. An additional qualitative factor was incorporated beginning~~factors not inherently considered in the ~~second~~ ~~quarter~~quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of ~~2020~~ ~~due to COVID-~~19loans, staff experience, changes in volume and ~~its effect on overall macroeconomic~~trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions. ~~This specific qualitative factor totaled $14.9 million at~~ ~~June 30, 2020.~~ ~~This COVID-~~19 ~~qualitative factor totaled~~ ~~$11.3~~ ~~million at~~ ~~September 30, 2020,~~ ~~a decrease of~~ ~~$3.6~~ ~~million from~~ ~~June 30, 2020,~~ ~~primarily due to improvement~~

Inherent risks in the ~~national unemployment rate at the end~~loan portfolio will differ based on type of ~~the~~ ~~third~~ ~~quarter of~~ ~~2020.~~loan. Specific risk characteristics by loan portfolio segment are listed below:

~~Internal Qualitative Factors~~Commercial and industrial~~. The determination~~loans include risks associated with borrower’s cash flow, debt service coverage and management’s expertise. These loans are subject to the risk that the Company may have difficulty converting collateral to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation. These commercial loans may be subject to many different types of risks, including fraud, bankruptcy, economic downturn, deteriorated or non-existent collateral, and changes in interest rates.

Real estate constructionloans include risks associated with the borrower’s credit-worthiness, contractor’s qualifications, borrower and contractor performance, and the overall risk and complexity of the ~~portion~~proposed project. Construction lending is also subject to risks associated with sub-market dynamics, including population, employment trends and household income. During times of economic stress, this type of loan has typically had a greater degree of risk than other loan types.

Real estate mortgageloans consist of loans secured by commercial and residential real estate. Commercial real estate lending is dependent upon successful management, marketing and expense supervision necessary to maintain the property. Repayment of these loans may be adversely affected by conditions in the real estate market or the general economy. Also, commercial real estate loans typically involve relatively large loan balances to a single borrower. Residential real estate lending risks are generally less significant than those of other loans. Real estate lending risks include fluctuations in the value of real estate, bankruptcies, economic downturn and customer financial problems.

Consumer loans carry a moderate degree of risk compared to other loans. They are generally more risky than traditional residential real estate loans but less risky than commercial loans. Risk of default is usually determined by the well-being of the ~~allowance for loan losses relating to internal qualitative factors~~local economies. During times of economic stress, there is ~~based on~~usually some level of job loss both nationally and locally, which directly affects the consideration of criteria which includes the following: number of extensions and deferrals, single pay and interest only loans, current financial information, credit concentrations and risk grade accuracy. A self-assessment for eachability of the ~~criteria is made with a consistent weighted methodology used~~consumer to ~~calculate the amount of allowance required for internal qualitative factors.~~

~~During the~~ ~~third~~ ~~quarter of~~ ~~2019,~~ the Company recorded a $7.4 million payment resulting from the termination of a Loan Guarantee Program (“LGP”) operated by the State of Alabama. The payment was recorded as an increase to the allowance for loan losses specifically related to loans formerly enrolled in this program, in accordance with the Company’s established ALLL review and evaluation criteria.repay debt.

The following table presents ~~an analysis of the allowance for loan losses by portfolio segment and~~ changes in the allowance for credit losses, and allowance for loan losses, segregated by loan type, for the three and nine months ended September 30, ~~2020~~2021 and September 30, ~~2019.~~ 2020.~~The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.~~

Commercial,

financial and

Real estate -

Real estate -

agricultural

construction

mortgage

Consumer

Total

(In Thousands)

Three Months Ended September 30, 2020

Allowance for loan losses:

Balance at June 30, 2020
$ 47,986 $ 4,531 $ 38,399 $ 591 $ 91,507
Charge-offs
(11,146 ) 0 (200 ) (44 ) (11,390 )
Recoveries
12 0 12 15 39
Provision
12,421 (441 ) 304 0 12,284
Balance at September 30, 2020
$ 49,273 $ 4,090 $ 38,515 $ 562 $ 92,440

Three Months Ended September 30, 2019

Allowance for loan losses:

Balance at June, 2019
$ 38,709 $ 3,419 $ 28,783 $ 475 $ 71,386
Charge-offs
(3,626 ) 0 (4,974 ) (172 ) (8,772 )
Recoveries
126 1 0 60 187
Allocation from LGP
4,905 115 2,386 0 7,406
Provision
5,108 (343 ) 2,069 151 6,985
Balance at September 30, 2019
$ 45,222 $ 3,192 $ 28,264 $ 514 $ 77,192

Nine Months Ended September 30, 2020

Balance at December 31, 2019

Allowance for loan losses:
$ 43,666 $ 2,768 $ 29,653 $ 497 $ 76,584
Charge-offs
(15,144 ) (830 ) (4,397 ) (165 ) (20,536 )
Recoveries
158 2 26 55 241
Provision
20,593 2,150 13,233 175 36,151
Balance at September 30, 2020
$ 49,273 $ 4,090 $ 38,515 $ 562 $ 92,440

Nine Months Ended September 30, 2019

Allowance for loan losses:

Balance at December 31, 2018
$ 39,016 $ 3,522 $ 25,508 $ 554 $ 68,600
Charge-offs
(10,273 ) 0 (5,193 ) (453 ) (15,919 )
Recoveries
255 2 11 83 351
Allocation from LGP
4,905 115 2,386 0 7,406
Provision
11,319 (447 ) 5,552 330 16,754
Balance at September 30, 2019
$ 45,222 $ 3,192 $ 28,264 $ 514 $ 77,192

As of September 30, 2020

Allowance for loan losses:

Individually Evaluated for Impairment
$ 9,204 $ 201 $ 195 $ 0 $ 9,600
Collectively Evaluated for Impairment
40,069 3,889 38,320 562 82,840

Loans:

Ending Balance
$ 3,466,189 $ 530,919 $ 4,453,612 $ 57,834 $ 8,508,554
Individually Evaluated for Impairment
73,800 587 19,376 0 93,763
Collectively Evaluated for Impairment
3,392,389 530,332 4,434,236 57,834 8,414,791

As of December 31, 2019

Allowance for loan losses:

Individually Evaluated for Impairment
$ 6,085 $ 86 $ 3,633 $ 0 $ 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 0 43,148
Collectively Evaluated for Impairment
2,675,367 517,072 3,961,075 64,789 7,218,303

	Commercial,
	financial and			Real estate -		Real estate -
	agricultural			construction		mortgage			Consumer			Total
	(In Thousands)
	Three Months Ended September 30, 2021
Allowance for credit losses:
Balance at June 30, 2021	$	42,433		$	22,413	$	38,530		$	1,294		$	104,670
Charge-offs		(1,541	)		0		(208	)		(86	)		(1,835	)
Recoveries		140			0		4			8			152
Provision		(144	)		2,124		3,681			302			5,963
Balance at September 30, 2021	$	40,888		$	24,537	$	42,007		$	1,518		$	108,950

~~The following table presents details of the Company’s impaired loans as of~~ ~~September 30, 2020~~ ~~and~~ ~~December 31, 2019,~~ ~~respectively. Loans which have been fully charged off do~~ ~~not~~ ~~appear in the tables.~~

For the three months

For the nine months

ended September 30,

ended September 30,

September 30, 2020

2020

2020

Interest

Interest

Unpaid

Average

Income

Average

Income

Recorded

Principal

Related

Recorded

Recognized

Recorded

Recognized

Investment

Balance

Allowance

Investment

in Period

Investment

in Period

(In Thousands)

With no allowance recorded:

Commercial, financial and agricultural
$ 50,898 $ 60,687 $ - $ 61,374 $ 442 $ 61,967 $ 1,605
Real estate - construction
0 0 - 0 0 0 0
Real estate - mortgage:

Owner-occupied commercial
1,581 1,581 - 1,582 12 1,600 52
1-4 family mortgage
2,899 2,899 - 2,882 26 2,814 78
Other mortgage
12,200 12,200 - 12,068 122 12,211 396
Total real estate - mortgage
16,680 16,680 - 16,532 160 16,625 526
Consumer
0 0 - 0 0 0 0
Total with no allowance recorded
67,578 77,367 - 77,906 602 78,592 2,131

With an allowance recorded:

Commercial, financial and agricultural
22,902 23,169 9,204 21,648 102 22,237 535
Real estate - construction
587 637 201 954 0 1,012 0
Real estate - mortgage:

Owner-occupied commercial
1,252 1,392 146 4,563 3 3,915 97
1-4 family mortgage
412 412 49 398 12 406 12
Other mortgage
1,032 1,032 0 1,022 11 1,077 35
Total real estate - mortgage
2,696 2,836 195 5,983 26 5,398 144
Consumer
0 0 0 0 0 0 0
Total with allowance recorded
26,185 26,642 9,600 28,585 128 28,647 679

Total Impaired Loans:

Commercial, financial and agricultural
73,800 83,856 9,204 83,022 544 84,204 2,140
Real estate - construction
587 637 201 954 0 1,012 0
Real estate - mortgage:

Owner-occupied commercial
2,833 2,973 146 6,145 15 5,515 149
1-4 family mortgage
3,311 3,311 49 3,280 38 3,220 90
Other mortgage
13,232 13,232 0 13,090 133 13,288 431
Total real estate - mortgage
19,376 19,516 195 22,515 186 22,023 670
Consumer
0 0 0 0 0 0 0
Total impaired loans
$ 93,763 $ 104,009 $ 9,600 $ 106,491 $ 730 $ 107,239 $ 2,810

December 31, 2019

For the twelve months

ended December 31, 2019

Unpaid

Average

Interest Income

Recorded

Principal

Related

Recorded

Recognized in

Investment

Balance

Allowance

Investment

Period

(In Thousands)

With no allowance recorded:

Commercial, financial and agricultural
$ 9,015 $ 10,563 $ - $ 11,284 $ 562
Real estate - construction
2,731 2,735 - 2,063 126
Real estate - mortgage:

Owner-occupied commercial
7,150 7,246 - 7,548 618
1-4 family mortgage
287 287 - 289 2
Other mortgage
0 0 - 0 0
Total real estate - mortgage
7,437 7,533 - 7,837 620
Consumer
0 0 - 0 0
Total with no allowance recorded
19,183 20,831 - 21,184 1,308

With an allowance recorded:

Commercial, financial and agricultural
11,828 19,307 6,085 19,714 395
Real estate - construction
1,589 1,589 86 1,614 27
Real estate - mortgage:

Owner-occupied commercial
7,888 11,028 2,456 13,627 301
1-4 family mortgage
1,153 1,153 176 1,157 1
Other mortgage
1,507 1,507 1,001 1,468 21
Total real estate - mortgage
10,548 13,688 3,633 16,252 323
Consumer
0 0 0 0 0
Total with allowance recorded
23,965 34,584 9,804 37,580 745

Total Impaired Loans:

Commercial, financial and agricultural
20,843 29,870 6,085 30,998 957
Real estate - construction
4,320 4,324 86 3,677 153
Real estate - mortgage:

Owner-occupied commercial
15,038 18,274 2,456 21,175 919
1-4 family mortgage
1,440 1,440 176 1,446 3
Other mortgage
1,507 1,507 1,001 1,468 21
Total real estate - mortgage
17,985 21,221 3,633 24,089 943
Consumer
0 0 0 0 0
Total impaired loans
$ 43,148 $ 55,415 $ 9,804 $ 58,764 $ 2,053

	Three Months Ended September 30, 2020
Allowance for loan losses:
Balance at June 30, 2020	$	47,986		$	4,531		$	38,399		$	591		$	91,507
Charge-offs		(11,146	)		0			(200	)		(44	)		(11,390	)
Recoveries		12			0			12			15			39
Provision		12,421			(441	)		304			0			12,284
Balance at September 30, 2020	$	49,273		$	4,090		$	38,515		$	562		$	92,440

	Nine Months Ended September 30, 2021
Allowance for credit losses:
Balance at December 31, 2020	$	36,370		$	16,057		$	33,722		$	1,793		$	87,942
Charge-offs		(2,168	)		0			(279	)		(227	)		(2,674	)
Recoveries		464			52			68			32			616
Provision		6,222			8,428			8,496			(80	)		23,066
Balance at September 30, 2021	$	40,888		$	24,537		$	42,007		$	1,518		$	108,950

	Nine Months Ended September 30, 2020
Allowance for loan losses:
Balance at December 31, 2019	$	43,666		$	2,768		$	29,653		$	497		$	76,584
Charge-offs		(15,144	)		(830	)		(4,397	)		(165	)		(20,536	)
Recoveries		158			2			26			55			241
Provision		20,593			2,150			13,233			175			36,151
Balance at September 30, 2020	$	49,273		$	4,090		$	38,515		$	562		$	92,440

The following table details the allowance for loan losses and recorded investment in loans by impairment evaluation method as of September 30, 2020, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:

	Commercial,
	financial and		Real estate -		Real estate -
	agricultural		construction		mortgage		Consumer		Total
	(In Thousands)
Allowance for loan losses:
Individually Evaluated for Impairment	$	9,204	$	201	$	195	$	0	$	9,600
Collectively Evaluated for Impairment		40,069		3,889		38,320		562		82,840

Loans:
Ending Balance	$	3,466,189	$	530,919	$	4,453,612	$	57,834	$	8,508,554
Individually Evaluated for Impairment		73,800		587		19,376		0		93,763
Collectively Evaluated for Impairment		3,392,389		530,332		4,434,236		57,834		8,414,791

We maintain an allowance for credit losses on unfunded lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a drawdown on the commitment. The allowance for credit losses on unfunded loan commitments is classified as a liability account on the balance sheet within other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded commitments was $3.0 million at September 30, 2021 and $2.2 million at December 31, 2020. The provision expense for unfunded commitments was reduced by $300,000 for the three months ended September 30, 2021 and was $800,000 for the nine months ended September 30, 2021. The provision expense for unfunded commitments was $0 for both corresponding periods in 2020. Prior to January 1, 2020, except quarterly periods in 2020 which were not restated, the allowance for losses on unfunded loan commitments was calculated using an incurred losses methodology.

Loans that no longer share similar risk characteristics with collectively evaluated pools are estimated on an individual basis. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows:

			Accounts								ACL
September 30, 2021	Real Estate		Receivable		Equipment		Other		Total		Allocation
	(In Thousands)
Commercial, financial and agricultural	$	16,299	$	21,941	$	16,430	$	5,275	$	59,945	$	7,613
Real estate - construction		235		0		0		0		235		14
Real estate - mortgage:
Owner-occupied commercial		1,059		1,002		0		0		2,061		557
1-4 family mortgage		1,804		0		0		24		1,828		66
Other mortgage		12,901		0		0		0		12,901		0
Total real estate - mortgage		15,764		1,002		0		24		16,790		623
Consumer		0		0		0		0		0		0
Total	$	32,298	$	22,943	$	16,430	$	5,299	$	76,970	$	8,250

			Accounts								ACL
December 31, 2020	Real Estate		Receivable		Equipment		Other		Total		Allocation
	(In Thousands)
Commercial, financial and agricultural	$	19,373	$	27,952	$	16,877	$	4,594	$	68,796	$	7,142
Real estate - construction		235		0		0		0		235		1
Real estate - mortgage:
Owner-occupied commercial		2,012		971		0		12		2,995		499
1-4 family mortgage		3,264		0		0		24		3,288		48
Other mortgage		13,191		0		0		0		13,191		0
Total real estate - mortgage		18,467		971		0		36		19,474		547
Consumer		0		0		0		0		0		0
Total	$	38,075	$	28,923	$	16,877	$	4,630	$	88,505	$	7,690

On March 22, 2020, an Interagency Statement was issued by banking regulators that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act 2021, which extended the period established by Section 4013 of the CARES Act to the earlier of January 1, 2022 or the date that is 60 days after the date on which the national COVID-19 emergency terminates. In accordance with such guidance, the Bank is offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. As of September 30, 2021, there ~~are 42~~were 18 loans outstanding totaling ~~$28.2~~$2.7 million that have payment deferrals in connection with the COVID-19 relief provided by the CARES Act. OfAll of these ~~42 payment~~remaining deferrals ~~9 were principal only deferrals totaling $5.1 million, 4 were interest only deferrals totaling $3.2 million and 29 were~~are principal and interest ~~deferrals totaling $19.9 million.~~deferrals. The CARES Act precluded all of ~~ServisFirst~~the Company’s COVID-19 loan modifications from being classified as a TDR as of September 30, ~~2020.~~2021.

Troubled Debt Restructurings (“TDR”) at September 30, ~~2020,~~2021, December 31, ~~2019~~2020 and September 30, ~~2019~~2020 totaled ~~$2.7~~$‐‐2.9 million, ~~$3.3~~$1.5 million and ~~$11.2~~$2.7 million, respectively. The portion of those TDRs accruing interest at September 30, ~~2020,~~2021, December 31, ~~2019~~2020 and September 30, ~~2019~~2020 totaled ~~$1.8 million, $625,000 and $3.5 million, respectively. At~~ ~~September 30, 2020,~~ ~~the Company had a related allowance for loan losses of $534,000 allocated to these TDRs, compared to $929,000 at~~ ~~December 31, 2019~~ $437,000, $818,000 and $1.8 million, at ~~September 30, 2019.~~ respectively. The following tables present loans modified in a TDR ~~activity by portfolio segment for the~~during three and nine months ended September 30, ~~2020~~2021 and September 30, ~~2019~~2020 ~~is presented in~~by portfolio segment and the ~~table below.~~financial impact of those modifications. The tables include modifications made to new TDRs, as well as renewals of existing TDRs.

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Pre-

Post-

Pre-

Post-

Modification

Modification

Modification

Modification

Outstanding

Outstanding

Outstanding

Outstanding

Number of

Recorded

Recorded

Number of

Recorded

Recorded

Contracts

Investment

Investment

Contracts

Investment

Investment

(In Thousands)
Troubled Debt Restructurings

Commercial, financial and agricultural

1

$
214

$
214

2

$
564

$
564
Real estate - construction

1

357

357

1

357

357
Real estate - mortgage:

Owner-occupied commercial

1

611

611

1

611

611
1-4 family mortgage

-

-

-

-

-

-
Other mortgage

-

-

-

-

-

-
Total real estate mortgage

1

611

611

1

611

611
Consumer

-

-

-

-

-

-

3

$
1,182

$
1,182

4

$
1,532

$
1,532

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Pre-

Post-

Pre-

Post-

Modification

Modification

Modification

Modification

Outstanding

Outstanding

Outstanding

Outstanding

Number of

Recorded

Recorded

Number of

Recorded

Recorded

Contracts

Investment

Investment

Contracts

Investment

Investment

(In Thousands)
Troubled Debt Restructurings

Commercial, financial and agricultural

-

$
-

$
-

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

1920

	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment
	(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural		0	$	0	$	0		2	$	1,155	$	1,155
Real estate - construction		0		0		0		0		0		0
Real estate - mortgage:
Owner-occupied commercial		0		0		0		1		991		991
1-4 family mortgage		0		0		0		0		0		0
Other mortgage		0		0		0		0		0		0
Total real estate mortgage		0		0		0		1		991		991
Consumer		0		0		0		0		0		0
		0	$	0	$	0		3	$	2,146	$	2,146

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment
	(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural		1	$	214	$	214		2	$	564	$	564
Real estate - construction		1		357		357		1		357		357
Real estate - mortgage:
Owner-occupied commercial		1		611		611		1		611		611
1-4 family mortgage		0		0		0		0		0		0
Other mortgage		0		0		0		0		0		0
Total real estate mortgage		1		611		611		1		611		611
Consumer		0		0		0		0		0		0
		3	$	1,182	$	1,182		4	$	1,532	$	1,532

There were 0 loans which were modified in the previous twelve months (i.e., the twelve months prior to default) that defaulted during the three and nine months ended September 30, ~~2020.~~2021 ~~There were 0 loans which were modified in the previous~~ ~~twelve~~ ~~months that defaulted during the~~ ~~three~~ ~~months ended~~and September 30, ~~2019.~~2020, ~~There were~~ ~~two~~ ~~commercial loans totaling $325,000 which were modified in the previous~~ ~~twelve~~ ~~months which defaulted during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019.~~ respectively. For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status.

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 ~~8.4~~10.2 years. At September 30, ~~2020,~~2021, the Company had lease right-of-use assets and lease liabilities totaling ~~$10.3~~$18.8 million and ~~$11.1~~$19.4 million, respectively, compared to ~~$12.3~~$10.5 million and ~~$12.4~~$10.6 million, respectively, at December 31, ~~2019~~2020 which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance ~~Sheet.~~Sheets.

Maturities of operating lease liabilities as of September 30, ~~2020~~2021 are as follows:

	September 30, 2020			September 30, 2021
	(In Thousands)			(In Thousands)
2020 (remaining)	$	839
2021		2,744
2021 (remaining)				$	991
2022		2,679			4,013
2023		2,205			3,520
2024		1,232			2,566
2025					2,481
thereafter		2,624			7,411
Total lease payments		12,323			21,308
Less: imputed interest		(1,219	)		(1,455	)
Present value of operating lease liabilities	$	11,104		$	19,424

As of September 30, ~~2020,~~2021, the weighted average remaining term of operating leases is ~~5.0~~6.9 years and the weighted average discount rate used in the measurement of operating lease liabilities was ~~3.20%~~2.47%.

Operating cash flows related to leases were $967,000 and $2.5 million for the three and nine months ended September 30, 2021, respectively, compared to $855,000 and $2.6 million for the three and nine months ended September 30, 2020, ~~respectively, compared to $888,000 and $2.5 million for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019,~~ respectively.

Lease costs during the three and nine months ended September 30, ~~2020~~2021 and September 30, ~~2019~~2020 were as follows (in thousands):

	Three Months Ended September 30,						Three Months Ended September 30,
	2020			2019			2021			2020
Operating lease cost	$	876		$	809		$	1,048		$	876
Short-term lease cost		13			8			0			13
Variable lease cost		77			49			148			77
Sublease income		(25	)		(23	)		(24	)		(25	)
Net lease cost	$	941		$	843		$	1,172		$	941

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020
Operating lease cost	$	2,623		$	2,500		$	2,960		$	2,623
Short-term lease cost		45			21			0			45
Variable lease cost		165			151			346			165
Sublease income		(70	)		(35	)		(86	)		(70	)
Net lease cost	$	2,763		$	2,637		$	3,220		$	2,763

NOTE 7 - EMPLOYEE AND DIRECTOR BENEFITS

Stock Options

The Company has a stock-based compensation plan as described below. The compensation cost that has been charged to earnings for the plan was $461,000 and $1.3 million for the three and nine months ended September 30, 2021 and $340,000 and $969,000 for the three and nine months ended September 30, ~~2020~~ ~~and $294,000 and $781,000 for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019.~~2020.

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

The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatilities of the Company’s common stock. 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. Treasury yield curve in effect at the time of grant.

	~~2019~~2021
Expected volatility		40.00	%
Expected dividends		~~1.74~~1.78	%
Expected term (in years)		~~6.7~~7.5
Risk-free rate		~~2.56~~2.43	%

~~There were 0 grants of stock options during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020.~~ The weighted average grant-date fair value of options granted during the nine months ended September 30, ~~2019~~2021 was ~~$12.60.~~$12.73. There were 0 grants of stock options during the nine months ended September 30, 2020.

The following table summarizes stock option activity during the nine months ended September 30, ~~2020~~2021 and September 30, ~~2019:~~2020:

						Weighted										Weighted
				Weighted		Average								Weighted		Average
				Average		Remaining		Aggregate						Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic						Exercise		Contractual		Intrinsic
	Shares			Price		Term (years)		Value			Shares			Price		Term (years)		Value
																		(In Thousands)
Nine Months Ended September 30, 2021:
Outstanding at January 1, 2021												640,950		$	18.14		4.6	$	16,981
Granted												500			32.60		7.7		23
Exercised												(257,200	)		12.46		3.2		16,805
Forfeited												(9,000	)		16.57		2.1		256
Outstanding at September 30, 2021												375,250		$	19.56		4.1	$	22,438

Exercisable at September 30, 2021												281,000		$	12.79		3.0	$	18,565
								(In Thousands)
Nine Months Ended September 30, 2020:
Outstanding at January 1, 2020		965,248		$	15.19		4.9	$	21,911			965,248		$	15.19		4.9	$	21,911
Granted		0			0		-		0			0			0		-		0
Exercised		(279,300	)		11.36		3.2		6,330			(279,300	)		11.36		3.2		6,330
Forfeited		(18,000	)		30.79		6.4		58			(18,000	)		30.79		6.4		58
Outstanding at September 30, 2020		667,948			16.37		4.5	$	11,720			667,948		$	16.37		4.5	$	11,720

Exercisable at September 30, 2020		209,200		$	12.41		3.2	$	4,425			209,200		$	12.41		3.2	$	4,425

Nine Months Ended September 30, 2019:
Outstanding at January 1, 2019		1,238,748		$	13.02		5.2	$	23,355
Granted		10,500			34.44		9.4		(14	)
Exercised		(239,300	)		7.02		2.3		6,162
Forfeited		(20,200	)		24.88		6.5		167
Outstanding at September 30, 2019		989,748			14.46		5.0	$	18,603

Exercisable at September 30, 2019		278,000		$	7.36		3.1	$	7,261

As of September 30, ~~2020,~~2021, there was ~~$815,000~~$467,000 of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next ~~0.9~~1.7 years.

Restricted Stock and Performance Shares

The Company periodically grants restricted stock awards that vest upon time-based service conditions. Dividend payments are made during the vesting period. The value of restricted stock is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period. As of September 30, ~~2020,~~2021, there was ~~$1.8~~$3.5 million of total unrecognized compensation cost related to non-vested time-based restricted stock. The cost is expected to be recognized evenly over the remaining ~~2.9~~2.4 years of the restricted stock’s vesting period.

The ~~following table summarizes restricted stock activity~~Company periodically grants performance shares that give plan participants the opportunity to earn between 0% and 150% of the number of performance shares granted based on achieving certain performance metrics. The number of performance shares earned is determined by reference to the Company’s total shareholder return relative to a peer group of other publicly traded banks and bank holding companies during the ~~nine~~ ~~months ended~~ ~~September 30, 2020~~ ~~and~~ ~~2019,~~ ~~respectively:~~performance period. The performance period is generally three years starting on the grant date. The fair value of the performance shares is determined using a Monte Carlo simulation model on the grant date.

						Restricted Stock					Performance Shares
						Shares			Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Nine Months Ended September 30, 2021:
Non-vested at January 1, 2021							84,307		$	34.92		0	$	0
Granted							69,295			48.92		12,437		37.05
Vested							(13,024	)		28.44		0		0
Forfeited							(11,725	)		39.59		0		0
Non-vested at September 30, 2021							128,853		$	42.68		12,437	$	37.05
	Shares			Weighted Average Grant Date Fair Value
Nine Months Ended September 30, 2020:
Non-vested at January 1, 2020		71,290		$	31.53		71,290		$	31.53		0	$	0
Granted		29,067			33.20		29,067			33.20		0		0
Vested		(19,928	)		23.64		(19,928	)		23.64		0		0
Forfeited		0			0		0			0		0		0
Non-vested at September 30, 2020		80,429			34.09		80,429		$	34.09		0	$	0

Nine Months Ended September 30, 2019:
Non-vested at January 1, 2019		56,576		$	29.94
Granted		21,274			34.08
Vested		(5,200	)		20.31
Forfeited		(2,500	)		38.17
Non-vested at September 30, 2019		70,150			31.62

NOTE 8 - DERIVATIVES

The Company periodically enters into derivative contracts to manage exposures to movements in interest rates. The Company purchased an interest rate cap in May of 2020 to limit exposures to increases in interest rates. The interest rate cap is not designated as a hedging instrument but rather as a stand-alone derivative. The interest rate cap has an original term of 3 years, a notional amount of $300 million and is tied to the one-month LIBOR rate with a strike rate of 0.50%. The fair value of the interest rate cap is carried on the balance sheet in other assets and the change in fair value is recognized in noninterest income each quarter. At September 30, ~~2020~~2021 the interest rate cap had a fair value of ~~$200,000~~$314,000 and remaining term of ~~2.6~~1.6 years.

The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were not material.

NOTE 9– – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In ~~July 2018,~~ ~~the Financial Accounting Standards Board (“FASB”) issued ASU~~ ~~2018~~-~~13,~~~~Fair Value Measurement (Topic~~ ~~820~~~~): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.~~ ~~This ASU eliminated, added and modified certain disclosure requirements for fair value measurements. Among the changes, entities are~~ no ~~longer required to disclose the amount of and reasons for transfers between Level~~ 1 ~~and Level~~ 2 ~~of the fair value hierarchy however, entities are required to disclose the range and weighted average used to develop significant unobservable inputs for Level~~ 3 ~~fair value measurements. ASU~~ ~~No.~~~~2018~~-13 ~~was effective for the Company beginning~~ ~~January 1, 2020.~~ ~~As ASU~~ ~~2018~~-13 ~~only revised disclosure requirements, it had~~ no ~~material impact on the Company’s Consolidated Financial 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~~ASC 326 requires 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.~~forecasts that affect the collectability of the reported amount. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The ~~CARES~~Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, gave financial institutions the option to delay adoption of ~~ASU~~ ~~2016~~-~~13.~~CECL. The Company ~~decided~~elected 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~~Amounts reported for periods beginning on or after ~~third~~January 1, 2020 -~~party software solution vendor providing expertise~~are presented under ASC 326, except quarterly periods in CECL modeling techniques to develop expected credit loss estimation models. Loans with similar risk characteristics have been evaluated in pools and, depending on the nature of each identified pool, the Company utilized a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method. The historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates and gross domestic product.

~~CECL parallel comparisons~~2020, which were ~~performed at~~ ~~September 30, 2020~~ not~~and the Company estimates the allowance for loan losses~~ restated under CECL will be within 5 percent of the allowance for loan losses under the incurred loss methodology. 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 uncertainty and unprecedented effect of COVID-~~19 ~~as well as the corresponding response from the federal government through the CARES Act. Qualitative factors were adjusted for a higher level of risk associated~~all prior period information is presented in accordance with previously applicable GAAP. Based on prevailing economic conditions ~~with a mitigating adjustment for the regulatory environment.~~

~~Credit losses for loans that~~and forecasts as of nolonger 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~~ ~~September 30,~~January 1, 2020, the ~~macroeconomic conditions and forecasts at that date, and other management judgments,~~Company recognized a cumulative net increase to retained earnings of $1.1 million, net of tax, attributable to a decrease in the ~~Company does~~ ~~not~~ ~~currently expect to record any~~ allowance for credit losses ~~on available~~of $2.0 million, an increase in the allowance for ~~sale securities.~~off balance sheet credit exposures of $0.5 million, and a decrease in deferred tax assets of $0.4 million. This was the result of implementing a more quantitative methodology. The commercial, financial, and agricultural loan category decreased $8.2 million due to the portfolio primarily consisting of loans with generally short contractual maturities. This was partially offset by an increase of $6.2 million in the real estate – construction loan category due to the application of peer loss rates within the discounted cash flow pool reserve methodology. Peer historical loss rates were utilized to better align with loss expectations given the Company’s low historical loss experience in this category.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides 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 new reference rate.

In August 2021, the FASB issued ASU No.2021-06Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This ASU amends and adds various SEC paragraphs to the codification pursuant to the issuance of SEC Final Rule Releases No.33-10786 and No.33-10835 issued to improve disclosure rules. The ASU is effective upon issuance. The adoption of this disclosure guidance did not have a material impact on the Company's consolidated financial statements

NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS

In August 2020, FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging – Contracts in ~~Entity’s~~Entity’s Own Equity (Topic 815): Accounting for Convertible Instruments and Contracts in an ~~Entity’s~~Entity’s Own Equity. The update is intended to simplify accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The update removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The update also simplifies the diluted earnings per share calculation in certain areas. The update is effective for the Company for its fiscal year beginning after December 15, 2021, including interim periods within those years. Early adoption will be permitted. The Company does not currently have any affected convertible debt instruments outstanding so it does not believe that the update will have an impact on its consolidated financial statements.

In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments”which amends guidance so that lessors are no longer required to record a selling loss at lease commencement for a lease with any variable lease payments that do not depend on an index or rate. A lessor would classify such leases as an operating lease rather than a sales-type or direct financing lease. The update is effective for the Company for its fiscal year beginning after December 15, 2021, including interim periods within those years. The Company does not expect adoption of ASU 2021-05 to have an impact on its consolidated financial statements.

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. The Company ~~bought~~ ~~two~~periodically buys corporate debt securities in a private placement ~~transaction, for which~~transactions. Level 2 inputs are not ~~available.~~available for these securities. The Company uses average observable prices of similar corporate securities owned by the Company to value ~~the~~ ~~two~~such securities and are classified in Level 3 of the hierarchy. The ~~range of values and~~ weighted average value ~~as of~~ ~~September 30, 2020~~ ~~was 87.6222 to 116.1915 and 104.0924, respectively,~~ observed for the Company’s other similar corporate ~~securities. The range of values and weighted average value~~securities was 4% as of ~~December 31, 2019~~ September 30, 2021.~~was 98.7836 to 112.2305 and 102.2648, respectively, observed for the Company’s other similar corporate securities.~~

Derivative ~~instruments~~instruments.. The fair values of derivatives are determined based on a valuation pricing model using readily available observable market parameters such as interest rate curves, adjusted for counterparty credit risk. These measurements are classified as level 2 within the valuation hierarchy.

~~Impaired~~ Loans Individually Evaluated. ~~. Impaired loans~~Loans individually evaluated are measured and reported at fair value when full payment under the loan terms is not probable. ~~Impaired loans~~Loans individually evaluated are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, ~~which typically ranges between 8%-10%,~~ 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~~Loans individually evaluated are subject to nonrecurring fair value adjustment upon initial recognition or subsequent ~~impairment.~~individual evaluation. A portion of the allowance for ~~loan~~credit losses is allocated to ~~impaired~~ loans individually evaluated if the value of such loans is deemed to be less than the unpaid balance. The range of fair value adjustments and weighted average ~~adjustments~~adjustment as of September 30, ~~2020~~2021 was 0% to ~~50%~~60% and ~~17.1%~~23.8%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, ~~2019~~2020 was 0% to ~~30%~~56% and ~~5.6%,~~22.3% respectively. ~~Impaired loans~~Loans individually evaluated are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized ~~as an impairment charge related~~ to ~~impaired~~write-down individually evaluated loans that are measured at fair value on a nonrecurring basis was $113,000 and $3.4 million during the three and nine months ended September 30, 2021, respectively, and $11.2 million and $20.0 million during the three and nine months ended September 30, 2020, ~~respectively, and $7.7 million and $16.1 million during the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 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~~credit 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 September 30, ~~2020~~2021 was 5%8% to ~~46%~~25% and ~~10.7%~~10%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, ~~2019~~2020 was 5% to ~~10%~~27% and ~~8.0%~~12.5%, respectively. These measurements are classified as Level 3 within the valuation hierarchy. A loss on the sale and write-downs of OREO and repossessed assets of ~~$86,000~~$115,000 and ~~$2.5~~$1.1 million was recognized for the three and nine months ended September 30, ~~2020,~~2021, respectively, and ~~$58,000~~$86,000 and ~~$282,000~~$2.5 million for the three and nine months ended September 30, ~~2019,~~2020, 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 are~~is classified within Level 3 of the hierarchy.

There ~~were~~ nowas one residential real estate loans with a balance of $72,000 foreclosed and classified as OREO as of September 30, ~~2020,~~2021, compared to ~~one~~0 residential real estate loan foreclosure ~~for $103,000~~ as of December 31, ~~2019.~~2020.

One residential real estate loan for $150,000 was in the process of being foreclosed as of September 30, 2021. There were 0 residential real estate loans in process of foreclosure as of December 31, 2020.

The following table presents the Company’s financial assets ~~and financial liabilities~~ carried at fair value on a recurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020. There were 0 liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.

	Fair Value Measurements at September 30, 2020 Using								Fair Value Measurements at September 30, 2021 Using
	Quoted Prices in								Quoted Prices in
	Active Markets		Significant Other		Significant				Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable				for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total		Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:	(In Thousands)								(In Thousands)
Available-for-sale debt securities:
U.S. Treasury securities	$	0	$	19,426	$	0	$	19,426	$	0	$	14,179	$	0	$	14,179
Government agency securities		0		15,521		0		15,521
Government agencies										0		9,084		0		9,084
Mortgage-backed securities		0		518,062		0		518,062		0		298,548		0		298,548
State and municipal securities		0		37,408		0		37,408		0		21,597		0		21,597
Corporate debt		0		316,051		6,581		322,632		0		362,898		17,018		379,916
Total available-for-sale debt securities		0		906,468		6,581		913,049		0		706,306		17,018		723,324
Interest rate cap derivative		0		200		0		200		0		314		0		314
Total assets at fair value	$	0	$	906,668	$	6,581	$	913,249	$	0	$	706,620	$	17,018	$	723,638

	Fair Value Measurements at December 31, 2019 Using								Fair Value Measurements at December 31, 2020 Using
	Quoted Prices in								Quoted Prices in
	Active Markets		Significant Other		Significant				Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable				for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total		Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:	(In Thousands)								(In Thousands)
Available-for-sale debt securities:
U.S. Treasury securities	$	0	$	49,210	$	0	$	49,210	$	0	$	14,357	$	0	$	14,357
Government agency securities		0		18,386		0		18,386
Government agencies										-		15,458		0		15,458
Mortgage-backed securities		0		474,054		0		474,054		0		495,109		0		495,109
State and municipal securities		0		57,272		0		57,272		0		38,115		0		38,115
Corporate debt		0		153,881		6,596		160,477		0		323,649		0		323,649
Total available-for-sale debt securities												886,688				886,688
Interest rate cap derivative										-		139		-		139
Total assets at fair value	$	0	$	752,803	$	6,596	$	759,399	$	0	$	886,827	$	0	$	886,827

The following table presents the Company’s financial assets ~~and financial liabilities~~ carried at fair value on a nonrecurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

	Fair Value Measurements at September 30, 2020								Fair Value Measurements at September 30, 2021
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)								(In Thousands)
Impaired loans	$	0	$	0	$	84,163	$	84,163
Loans individually evaluated									$	0	$	0	$	79,935	$	79,935
Other real estate owned and repossessed assets		0		0		6,976		6,976		0		0		2,068		2,068
Total assets at fair value	$	0	$	0	$	91,139	$	91,139	$	0	$	0	$	82,003	$	82,003

	Fair Value Measurements at December 31, 2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)
Loans individually evaluated	$	0	$	0	$	80,815	$	80,815
Other real estate owned and repossessed assets		0		0		6,497		6,497
Total assets at fair value	$	0	$	0	$	87,312	$	87,312

Fair Value Measurements at December 31, 2019

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

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Total

Assets Measured on a Nonrecurring Basis:

(In Thousands)

Impaired loans
$ 0 $ 0 $ 33,344 $ 33,344
Other real estate owned and repossessed assets
0 0 8,178 8,178
Total assets at fair value
$ 0 $ 0 $ 41,522 $ 41,522

There were 0 liabilities measured at fair value on a non-recurring basis as of September 30, 2021 and December 31, 2020.

In the case of the investment securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the 25nine

months ended September 30, 2021, there were four transfers between Levels 1,2 or 3.

The table below includes a rollforward of the balance sheet amounts for the three and nine months ended September 30, 2021 and September 30, 2020 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology:

	For the Three months ended September 30,						For the Nine months ended September 30,
	2021			2020			2021			2020
	Available-for-sale Securities			Available-for-sale Securities			Available-for-sale Securities			Available-for-sale Securities
	(In Thousands)
Fair value, beginning of period	$	14,994		$	6,596		$	0		$	6,596
Transfers into Level 3		0			0			6,000			0
Total realized gains included in income		0			0			0			0
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end		24			(15	)		518			(15	)
Purchases		5,500			0			18,000			0
Transfers out of Level 3		(3,500	)		0			(7,500	)		0
Fair value, end of period	$	17,018		$	6,581		$	17,018		$	6,581

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 September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:

September 30, 2020

December 31, 2019

Carrying

Carrying

Amount

Fair Value

Amount

Fair Value

(In Thousands)

Financial Assets:

Level 1 inputs:

Cash and due from banks
$ 1,622,069 $ 1,622,069 $ 530,127 $ 530,127

Level 2 inputs:

Federal funds sold
1,302 1,302 100,473 100,473
Mortgage loans held for sale
21,472 22,244 6,302 6,312

Level 3 inputs:

Held to maturity debt securities
250 250 250 250
Loans, net
8,331,951 8,232,972 7,151,523 7,099,198

Financial liabilities:

Level 2 inputs:

Deposits
$ 9,673,783 $ 9,687,830 $ 7,530,433 $ 7,534,984
Federal funds purchased
669,350 669,350 470,749 470,749
Other borrowings
64,719 63,840 64,703

65,048

	September 30, 2021				December 31, 2020
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In Thousands)
Financial Assets:
Level 1 inputs:
Cash and due from banks	$	4,399,786	$	4,399,786	$	2,209,640	$	2,209,640

Level 2 inputs:
Federal funds sold		44,700		44,700		1,771		1,771
Held to maturity debt securities		261,026		261,026		0		0
Mortgage loans held for sale		578		574		14,425		14,497

Level 3 inputs:
Held to maturity debt securities		250		250		250		250
Loans, net		8,623,926		8,564,829		8,296,931		8,387,718

Financial liabilities:
Level 2 inputs:
Deposits	$	12,078,670	$	12,084,052	$	9,975,724	$	9,987,665
Federal funds purchased		1,286,756		1,286,756		851,545		851,545
Other borrowings		64,701		65,500		64,748		65,560

~~NOTE~~ 12 ~~– SUBSEQUENT EVENTS~~

On ~~October 21, 2020,~~ ~~the Company entered into a Note Purchase Agreement whereby it issued in a private placement $34.8 million in aggregate principal amount of 4.00% Subordinated Notes due~~ ~~October 21, 2030.~~ ~~The Notes were sold to accredited investors pursuant to an exemption from registration under the Securities Act of~~ ~~1933,~~ ~~as amended. The Notes will pay interest semi-annually on~~ ~~June 30~~^th ~~and~~ ~~December 31~~^st ~~each year, beginning~~ ~~December 31, 2020,~~ ~~until the Notes mature. The Notes~~ ~~may~~ ~~not~~ ~~be prepaid by the Company prior to~~ ~~October 21, 2025.~~ ~~The Company used all of the net proceeds to redeem in full its 5.00% Subordinated Notes issued~~ ~~July 15, 2015.~~

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

The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary, ServisFirst Bank. This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements as of and for the three and nine months ended September 30, ~~2020~~2021 and September 30, ~~2019.~~2020.

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, 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 as a result of our reclassification as a large financial institution by the FDIC; changes in our loan portfolio and the 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;~~policies, including, but not limited to, economic stimulus initiatives and the ability of the U.S. Congress to increase the U.S. statutory debt limit as needed; 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.~~non-bank financial institutions. 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, our Quarterly Reports on Form 10-Q for fiscal year ~~2020~~2021 and our other SEC filings. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained herein. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made. 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~~business and personal financial services through 21 full-service banking offices located in Birmingham, Huntsville, Mobile, Montgomery and Dothan, Alabama, ~~Tampa Bay,~~Northwest Florida, ~~the panhandle of~~West Central Florida, ~~the greater~~Nashville, Tennessee, Atlanta, Georgia, ~~metropolitan area,~~and Charleston, South ~~Carolina, and Nashville, Tennessee.~~Carolina. Through the Bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.

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 Quarter and Year-to-Date Results

As of September 30, ~~2020,~~2021, we had consolidated total assets of ~~$11.39~~$14.60 billion, up ~~$2.45~~$2.67 billion, or ~~27%~~22.4%, ~~when compared to consolidated~~from total assets of ~~$8.95~~$11.93 billion at December 31, ~~2019.~~2020. Total loans were ~~$8.51~~$8.81 billion at September 30, ~~2020,~~2021, up ~~$1.25 billion,~~$347.1 million, or ~~17%~~4.1%, from ~~$7.26~~$8.47 billion at December 31, ~~2019.~~2020. Total deposits were ~~$9.67~~$12.08 billion at September 30, ~~2020,~~2021, up ~~$2.14~~$2.10 billion, or ~~29%~~21.1%, from ~~$7.53~~$9.98 billion at December 31, ~~2019.~~2020.

Net income available to common stockholders for the three months ended September 30, ~~2020~~2021 was ~~$43.4~~$52.5 million, ~~an increase of $5.8~~up $9.1 million, or ~~15.4%~~21.0%, from ~~$37.6~~$43.4 million for the ~~corresponding period in 2019.~~three months ended September 30, 2020. Basic and diluted earnings per common share were ~~$0.80~~$0.97 and $0.96 for the three months ended September 30, ~~2020,~~2021, compared to ~~basic~~$0.80 and ~~diluted earnings per common share of $0.70 and $0.69,~~$0.80, respectively, for the corresponding period in ~~2019.~~2020.

Net income available to common stockholders for the nine months ended September 30, ~~2020~~2021 was ~~$118.6~~$154.0 million, ~~an increase of $10.4~~up $35.4 million, or ~~9.6%~~29.9%, from ~~$108.2~~$118.6 million for the corresponding period in ~~2019.~~2020. Basic and diluted earnings per common share were ~~$2.20~~$2.84 and ~~$2.19,~~$2.83, respectively, for the nine months ended September 30, ~~2020,~~2021, compared to ~~$2.02~~$2.20 and ~~$2.00,~~$2.19, respectively, for the corresponding period in ~~2019.~~2020.

Critical Accounting Policies

The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for ~~loan~~credit losses ~~valuation of foreclosed real estate, deferred~~and income 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, ~~2019.~~2020.

Financial Condition

Cash and Cash Equivalents

At September 30, ~~2020,~~2021, we had ~~$1.3~~$44.7 million in federal funds sold, compared to ~~$100.5~~$1.8 million at December 31, ~~2019.~~2020. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At September 30, ~~2020,~~2021, we had ~~$1.40~~$4.21 billion in balances at the Federal Reserve, compared to ~~$61.9 million~~$1.92 billion at December 31, ~~2019.~~2020. The increase in balances kept at the Federal Reserve in ~~2020~~2021 result from federal stimulus funds on deposit with us by our customers stemming from the COVID-19 pandemic.

Debt Securities

Debt securities available for sale totaled ~~$913.0~~$723.3 million at September 30, ~~2020~~2021 and ~~$759.4~~$886.7 million at December 31, ~~2019.~~2020. Investment securities held to maturity totaled ~~$250,000~~$261.2 million at September 30, ~~2020~~2021 and $250,000 at December 31, ~~2019.~~2020. During the third quarter of 2021, we transferred, at fair value, $261.3 million of mortgage-backed securities from the available for sale portfolio to the held to maturity portfolio. The unrealized after-tax gain of $5.6 million associated with these securities remained in accumulated other comprehensive income and will be amortized over their remaining life, offsetting the related amortization of discount on the transferred securities. We had paydowns of ~~$87.2~~$143.9 million on mortgage-backed securities and government agencies, maturities of ~~$48.1~~$44.0 million on municipal bonds, corporate securities and treasury securities, and calls of ~~$8.1~~$35.1 million on U.S. government agencies and municipal securities during the nine months ended September 30, ~~2020.~~2021. We recognized a $620,000 gain on the call of a corporate bond during the second quarter of 2021. We purchased ~~$120.0~~$218.7 million in mortgage-backed securities and ~~$168.5~~$80.0 million in corporate securities during the first nine months of ~~2020.~~2021. For a tabular presentation of debt securities available for sale and held to maturity at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, see “Note 4 – Securities” in our Notes to Consolidated Financial Statements.

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

Each quarter, management assesses whether there have been events or economic circumstances indicating that a security on which there is an unrealized loss is other-than-temporarily impaired. Management considers several factors, including the amount and duration of the impairment; the intent and ability of the Company to hold the security for a period sufficient for a recovery in value; and known recent events specific to the issuer or its industry. In analyzing an issuer’s financial condition, management considers whether the securities are issued by agencies of the federal government, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports, among other things. As we currently do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, which may be at maturity, and impairment positions at September 30, 2020 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.

The Company does not invest in collateralized debt obligations (“CDOs”). At September 30, ~~2020,~~2021, we had ~~$316.1~~$379.4 million of bank holding company subordinated notes. If rated, all of these notes were rated BBB or better by Kroll Bond Rating Agency at the time of our ~~investment in them.~~investment. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at September 30, ~~2020~~2021 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 was ~~$432.7~~$536.0 million and ~~$389.9~~$477.6 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Loans

~~Loans~~We had total loans of $8.81 billion at September 30, 2021, an increase of $347.1 million, or 4.1%, compared to $8.47 billion at December 31, 2020. Excluding the impact of PPP loan origination and forgiveness, we grew our loans by $859.9 million, or 11.4% from December 31, 2020 to September 30, 2021. We originated approximately 7,400 PPP loans totaling $1.5 billion during the Covid-19 pandemic. Over 6,300 of these loans had a balance of less than $350,000.

As of September 30, ~~2020,~~2021, there are 4218 loans outstanding totaling ~~$28.2~~$2.7 million that have payment deferrals in connection with the COVID-19 relief provided by the CARES Act. OfAll of these 42 payment deferrals ~~9 were principal only deferrals totaling $5.1 million, 4 were interest only deferrals totaling $3.2 million and 29~~ were principal and interest ~~deferrals totaling $19.9 million.~~deferrals. The amount of accrued interest related to payment deferrals provided by the CARES Act on all loans originated to date totaled ~~$6.0~~$4.1 million at September 30, ~~2020.~~2021. These deferrals were not considered troubled debt restructurings based on interagency guidance ~~within the CARES Act~~ issued in March 2020.

We had total loans of $8.51 billion at September 30, 2020, an increase of $1.25 billion, or 17%, compared to $7.26 billion at December 31, 2019. We originated approximately 4,900 PPP loans totaling $1.05 billion as of September 30, 2020. Over 4,100 of these loans have a balance of less than $350,000. The percentage of our loans in each of our regions were as follows:

	~~Percentage of Total Loans in Market~~
~~Birmingham, AL~~		~~39.8~~	%
~~Huntsville, AL~~		~~8.4~~	%
~~Dothan, AL~~		~~8.6~~	%
~~Montgomery, AL~~		~~5.5~~	%
~~Mobile, AL~~		~~6.1~~	%
~~Total Alabama MSAs~~		~~68.4~~	%
~~Pensacola, FL~~		~~6.3~~	%
~~West Florida (1)~~		~~4.9~~	%
~~Total Florida MSAs~~		~~11.2~~	%
~~Nashville, TN~~		~~9.4~~	%
~~Atlanta, GA~~		~~6.5~~	%
~~Charleston, SC~~		~~4.4~~	%

~~(1) comprised of Tampa Bay and Sarasota, Florida~~

Asset Quality

The Company ~~determined to delay~~assesses the adequacy of 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~~at the end of each calendar quarter. The level of allowance is based on the Company’s evaluation of historical default and ~~otherwise~~loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, ~~portfolio as~~the estimated value of ~~the balance sheet date. In assessing the adequacy of the ALLL, management considers its evaluation~~any underlying collateral, composition of the loan portfolio ~~past due loan experience, collateral values, current economic conditions~~ and other ~~factors considered necessary~~relevant factors. The allowance is increased by a provision for credit losses, which is charged to ~~maintain the ALLL at an~~expense, and reduced by charge-offs, net of recoveries. The allowance for credit losses is believed adequate ~~level. If the ALLL is considered inadequate~~ to absorb all expected future ~~loan~~ losses ~~on existing loans for any reason, including but not limited~~ to ~~increases in~~be recognized over the ~~size~~contractual life 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 September 30, 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~~portfolio.

Loans with similar risk characteristics are ~~segregated into~~evaluated in pools and, depending on the ~~following regulatory classifications: Special Mention, Substandard, Doubtful~~nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or ~~Loss, with some general allocation~~remaining life method. For all loan pools utilizing the DCF method, the Company utilizes and forecasts the national unemployment rate as a loss driver. The Company also utilizes and forecasts GDP growth as a second loss driver for its agricultural and consumer loan pools. Consistent forecasts of ~~reserve based on these grades.~~the loss drivers are used across the loan segments. At September 30, ~~2020, total loans rated Special Mention, Substandard,~~2021 and ~~Doubtful were $143.2 million, or 1.7% of total loans, compared to $123.7 million, or 1.7% of total loans, at~~ December 31, ~~2019. Reserve percentages assigned~~2020, the Company utilized a reasonable and supportable forecast period of twelve months followed by a six-month straight-line reversion to ~~non-impaired loans are based on historical charge-off experience adjusted for other risk factors. To evaluate~~long term averages. The Company leveraged economic projections from reputable and independent sources to inform its loss driver forecasts. The Company expects national unemployment to remain above pre-pandemic levels over the ~~overall adequacy of~~forecast period with an improved national GDP growth rate as the ~~ALLL to absorb losses inherent in our loan portfolio, our management considers~~economy comes back on-line over the next year.

The historical loss experience ~~based~~estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates and gross domestic product. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on ~~volume~~the current economic environment among other factors. See “Note 5 – Loans” in our Notes to Consolidated Financial Statements.

The expected credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and ~~types~~volume of loans, ~~trends~~staff experience, changes in ~~classifications,~~ volume and trends of problem loans, concentration risk, trends in ~~delinquencies and nonaccruals, economic conditions, including the economic distress caused by the COVID-19 pandemic~~underlying collateral values, external factors, quality of loan review system 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.economic conditions.

2930

~~The following table presents a summary~~Expected credit losses for loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis. Individual evaluations are performed for nonaccrual loans, loans rated substandard, and modified loans classified as troubled debt restructurings. Specific allocations of ~~changes in~~the allowance for credit losses are estimated on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.

Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the allowance for loan losses represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. The allowance for ~~the three~~losses on loans included allowance allocations calculated in accordance with FASB Accounting Standards Codification (“ASC”) Topic 310, “Receivables” and ~~nine months ended September 30, 2020 and 2019:~~allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”

	As of and for the Three Months Ended						As of and for the Nine Months Ended						As of and for the Three Months Ended						As of and for the Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	(Dollars in thousands)												(Dollars in thousands)
Total loans outstanding, net of unearned income	$	8,508,554		$	7,022,069		$	8,508,554		$	7,022,069		$	8,812,811		$	8,508,554		$	8,812,811		$	8,508,554
Average loans outstanding, net of unearned income	$	8,365,155		$	6,961,270		$	8,021,262		$	6,785,257		$	8,680,174		$	8,365,155		$	8,613,172		$	8,021,262
Allowance for credit losses at beginning of period														104,670			-			87,942
Allowance for loan losses at beginning of period		91,507			71,386			76,584			68,600			-			91,507			-			76,584
Charge-offs:
Commercial, financial and agricultural loans		11,146			3,626			15,144			10,273			1,541			11,146			2,168		��	15,144
Real estate - construction		-			-			830			-			-			-			-			830
Real estate - mortgage		200			4,974			4,397			5,193			208			200			279			4,397
Consumer loans		44			172			165			453			86			44			227			165
Total charge-offs		11,390			8,772			20,536			15,919			1,835			11,390			2,674			20,536
Recoveries:
Commercial, financial and agricultural loans		12			126			158			255			140			12			464			158
Real estate - construction		-			1			2			2			-			-			52			2
Real estate - mortgage		12			-			26			11			4			12			68			26
Consumer loans		15			60			55			83			8			15			32			55
Total recoveries		39			187			241			351			152			39			616			241
Net charge-offs		11,351			8,585			20,295			15,568			1,683			11,351			2,058			20,295
Allocation from LGP		-			7,406			-			7,406
Provision for loan losses		12,284			6,985			36,151			16,754
Provision for credit losses														5,963			12,284			23,066			36,151
Allowance for credit losses at period end													$	108,950		$	-		$	108,950		$	-
Allowance for loan losses at period end	$	92,440		$	77,192		$	92,440		$	77,192		$	-		$	92,440		$	-		$	92,440
Allowance for credit losses to period end loans														1.24	%		-	%		1.24	%		-	%
Allowance for loan losses to period end loans		1.09	%		1.10	%		1.09	%		1.10	%		-	%		1.09	%		-	%		1.09	%
Net charge-offs to average loans		0.54	%		0.49	%		0.34	%		0.31	%		0.08	%		0.54	%		0.03	%		0.34	%

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 September 30, 2020 and December 31, 2019:

Percentage of loans

in each category

September 30, 2020

Amount

to total loans

(In Thousands)

Commercial, financial and agricultural
$ 49,273 40.74
%
Real estate - construction
4,090 6.24
%
Real estate - mortgage
38,515 52.34
%
Consumer
562 0.68
%
Total
$ 92,440 100.00
%

			Percentage of loans					Percentage of loans
			in each category					in each category
December 31, 2019	Amount		to total loans
September 30, 2021						Amount		to total loans
	(In Thousands)					(In Thousands)
Commercial, financial and agricultural	$	43,666		37.13	%	$	40,888		33.22	%
Real estate - construction		2,768		7.18	%		24,537		10.08	%
Real estate - mortgage		29,653		54.80	%		42,007		55.97	%
Consumer		497		0.89	%		1,518		0.73	%
Total	$	76,584		100.00	%	$	108,950		100.00	%

								Percentage of loans
								in each category
December 31, 2020						Amount		to total loans
						(In Thousands)
Commercial, financial and agricultural						$	36,370		38.93	%
Real estate - construction							16,057		7.01	%
Real estate - mortgage							33,722		53.29	%
Consumer							1,793		0.77	%
Total						$	87,942		100.00	%

3031

Nonperforming Assets

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to ~~$26.6~~$14.5 million at September 30, ~~2020,~~2021, compared to ~~$36.1~~$19.0 million at December 31, ~~2019.~~2020. Of this total, nonaccrual loans of ~~$21.7~~$9.1 million at September 30, ~~2020~~2021 represented a net decrease of ~~$8.4~~$4.9 million from nonaccrual loans at December 31, ~~2019.~~2020. Excluding credit card accounts, there ~~was one loan~~were five loans 90 or more days past due and still accruing totaling ~~$4.8~~$5.3 million at September 30, ~~2020,~~2021, compared to ~~three loans~~one loan totaling ~~$5.0~~$4.9 million at December 31, ~~2019.~~2020. Troubled Debt Restructurings (“TDR”) at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$2.7~~$2.9 million and ~~$3.3~~$1.4 million, respectively.

OREO and repossessed assets decreased to ~~$7.0~~$2.1 million at September 30, ~~2020,~~2021, from ~~$8.2~~$6.5 million at December 31, ~~2019.~~2020. The following table summarizes OREO and repossessed asset activity for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020
	(In thousands)						(In thousands)
Balance at beginning of period	$	8,178		$	5,169		$	6,497		$	8,178
Transfers from loans and capitalized expenses		2,406			1,177			1,419			2,406
Proceeds from sales		(1,780	)		(727	)		(911	)		(1,780	)
Internally financed sales		-			-			(3,779	)		-
Write-downs / net gain (loss) on sales		(1,828	)		(282	)		(1,158	)		(1,828	)
Balance at end of period	$	6,976		$	5,337		$	2,068		$	6,976

The following table summarizes our nonperforming assets and TDRs at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

	September 30, 2020					December 31, 2019					September 30, 2021					December 31, 2020
				Number of					Number of					Number of					Number of
	Balance			Loans		Balance			Loans		Balance			Loans		Balance			Loans
	(Dollar Amounts In Thousands)										(Dollar Amounts In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	18,636			24	$	14,729			29	$	6,966			23	$	11,709			22
Real estate - construction		587			3		1,589			2		234			1		234			1
Real estate - mortgage:
Owner-occupied commercial		1,838			6		10,826			3		1,061			2		1,259			4
1-4 family mortgage		614			6		1,440			5		884			9		771			7
Other mortgage		-			-		1,507			1		-			-		-			-
Total real estate - mortgage		2,452			12		13,773			9		1,945			11		2,030			11
Consumer		-			-		-			-		-			-		-			-
Total Nonaccrual loans:	$	21,675			39	$	30,091			40	$	9,145			35	$	13,973			34

90+ days past due and accruing:
Commercial, financial and agricultural	$	63			3	$	201			3	$	36			5	$	11			2
Real estate - construction		-			-		-			-		-			-		-			-
Real estate - mortgage:
Owner-occupied commercial		-			-		-			-		-			-		-			-
1-4 family mortgage		-			-		873			5		579			4		104			1
Other mortgage		4,827			1		4,924			1		4,691			1		4,805			1
Total real estate - mortgage		4,827			1		5,797			6		5,270			5		4,909			2
Consumer		8			4		23			8		20			17		61			25
Total 90+ days past due and accruing:	$	4,898			8	$	6,021			17	$	5,326			27	$	4,981			29

Total Nonperforming Loans:	$	26,573			47	$	36,112			57	$	14,471			62	$	18,954			63

Plus: Other real estate owned and repossessions		6,976			10		8,178			12		2,068			7		6,497			11
Total Nonperforming Assets	$	33,549			57	$	44,290			69	$	16,539			69	$	25,451			74

Restructured accruing loans:
Commercial, financial and agricultural	$	1,800			5	$	625			2	$	437			2	$	818			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:	$	1,800			5	$	625			2	$	437			2	$	818			3

Total Nonperforming assets and restructured accruing loans	$	35,349			62	$	44,915			71	$	16,976			71	$	26,269			77

Ratios:
Nonperforming loans to total loans		0.31	%				0.50	%				0.16	%				0.22	%
Nonperforming assets to total loans plus other real estate owned and repossessions		0.39	%				0.61	%				0.19	%				0.30	%
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions		0.42	%				0.62	%				0.19	%				0.31	%

3132

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~~if management believes that the collection of interest is not 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~~credit losses to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal.

~~Impaired Loans~~In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments and ~~Allowance for Loan Losses~~

interest. While interest continues to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As of September 30, ~~2020, we had impaired loans~~2021, the Company carries $4.1 million of ~~$93.8~~accrued interest income on deferrals made to COVID-19 affected borrowers compared to $5.8 million ~~inclusive of nonaccrual loans, an increase of $50.7 million from $43.1 million as of~~at December 31, ~~2019. This increase~~2020. At this time, the Company is ~~primarily attributable to four commercial relationships newly classified as impaired during 2020. Substandard loans are detailed in Note 5,~~ ~~“Loans”~~, within the credit quality indicator table. While total impaired loans have increased, our overall collateral exposure on these impairments has remained consistent. We allocated $9.6 million of our allowance for loan losses at September 30, 2020 to these impaired loans, a decrease of $0.2 million compared to 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~~project the ~~scheduled payments~~materiality of ~~principal or interest when due according~~such an impact on future deferrals to COVID-19 affected borrowers but recognizes the ~~contractual terms~~breadth 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 expectedeconomic impact may affect its borrowers’ ability to repay in 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 $93.8 million of impaired loans reported as of September 30, 2020, $73.8 million were commercial, financial and agricultural loans, $587,000 were real estate construction loans and $19.4 million were real estate mortgage loans.periods.

Deposits

Total deposits were ~~$9.67~~$12.08 billion at September 30, ~~2020,~~2021, an increase of ~~$2.14~~$2.10 billion, or ~~29%~~21.1%, over ~~$7.53~~$9.98 billion at December 31, ~~2019.~~2020. Increased growth rates during 2020 and 2021 have been the result of ~~Paycheck Protection Program (“PPP”)~~PPP lending in which our borrowers have retained portions of their proceeds in the Bank. We believe that these increased deposit balances will be temporary in nature. 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 Balance Sheets and Net Interest Analysis on a Fully Taxable-Equivalent Basis” under the subheading “Net Interest Income.”

The following table summarizes balances of our deposits and the percentage of each type to the total at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

	September 30, 2020				December 31, 2019				September 30, 2021				December 31, 2020
Noninterest-bearing demand	$	2,762,814	28.56	%	$	1,749,879	23.24	%	$	4,366,655	36.15	%	$	2,788,772	27.96	%
Interest-bearing demand		6,030,311	62.34	%		4,986,193	66.21	%		6,780,830	56.14	%		6,276,910	62.92	%
Savings		85,916	0.89	%		65,808	0.87	%		121,626	1.01	%		89,418	0.90	%
Time deposits, $250,000 and under		276,127	2.85	%		267,221	3.55	%
Time deposits , $250,000 and under										259,585	2.15	%		273,301	2.74	%
Time deposits, over $250,000		468,615	4.84	%		461,332	6.13	%		499,974	4.14	%		497,323	4.99	%
Brokered time deposits		50,000	0.52	%		-	-	%		50,000	0.41	%		50,000	0.50	%
	$	9,673,783	100.00	%	$	7,530,433	100.00	%	$	12,078,670	100.00	%	$	9,975,724	100.00	%

3233

The following table presents the maturities of our time deposits as of September 30, 2021 and December 30, 2020.

At September 30, 2021	$100,000 and greater		Less than $100,000		Total
Maturity	(In Thousands)
Three months or less	$	181,832	$	22,295	$	204,127
Over three through six months		167,216		26,307		193,523
Over six months through one year		324,548		35,799		360,347
Over one year		1,500		50,062		51,562
Total	$	675,096	$	134,463	$	809,559

At December 31, 2020	$100,000 and greater		Less than $100,000		Total
Maturity	(In Thousands)
Three months or less	$	117,505	$	18,996	$	136,501
Over three through six months		132,828		18,866		151,694
Over six months through one year		215,578		23,116		238,694
Over one year		216,617		74,119		290,736
Total	$	682,528	$	135,097	$	817,625

Other Borrowings

Our borrowings consist of federal funds purchased and subordinated notes payable. We had ~~$669.3 million~~$1.29 billion and ~~$470.7~~$851.5 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was ~~0.22%~~0.21% for the quarter ended September 30, ~~2020.~~2021. Other borrowings consist of the following:

●

$34.75 million of 5%the Company’s 4% Subordinated Notes due ~~July 15, 2025,~~October 21, 2030, which were issued in a private placement in ~~July 2015~~October 2020 and pay interest ~~semi-annually; and~~semi-annually. The Notes may not be prepaid by the Company prior to October 21, 2025.

●

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

~~During the fourth quarter of 2020, we expect to redeem the $34.75 million of 5% Subordinated Notes due July 15, 2025 in full, and issue $34.75 million of 4% Subordinated Notes.~~

Liquidity

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

The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity were to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding. At September 30, ~~2020,~~2021, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled ~~$2.13~~$5.03 billion. At September 30, ~~2020,~~2021, the Bank had borrowing availability of approximately ~~$923.0~~$986.0 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements. Additionally, the Bank had $2.84 billion in available lines from the Federal Reserve Bank-Atlanta. $1.79 billion of these lines from the Federal Reserve Bank-Atlanta are collateralized by loans of the Bank. The remaining $1.05 billion are collateralized by PPP loans originated by the Bank. We believe these sources of funding are adequate to meet our anticipated funding needs.

Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, correspondent banking relationships and related federal funds purchased, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. In addition, we have issued debt as described above under “Other Borrowings”.

We are subject to general FDIC guidelines that require a minimum level of liquidity. Management believes our liquidity ratios meet or exceed these guidelines. Our management is not currently aware of any trends or demands that are reasonably likely to result in liquidity materially increasing or decreasing. However, uncertainties brought about by the COVID-19 pandemic may adversely affect our ability to obtain funding or may increase the cost of funding.

The following table reflects the contractual maturities of our term liabilities as of September 30, ~~2020.~~2021. The amounts shown do not reflect any early withdrawal or prepayment assumptions.

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

Deposits without a stated maturity	Deposits without a stated maturity	$	8,879,041	$	-	$	-	$	-	$	-	$	11,269,111	$	-	$	-	$	-	$	-
Certificates of deposit (2)	Certificates of deposit (2)		744,742		458,475		248,499		37,768		-		759,559		577,599		157,063		24,897		-
Brokered certificates of deposit	Brokered certificates of deposit		50,000		-		50,000		-		-		50,000		-		50,000		-		-
Federal funds purchased	Federal funds purchased		669,350		669,350		-		-		-		1,286,756		1,286,756		-		-		-
Subordinated debentures	Subordinated debentures		64,750		-		-		-		64,750		64,750		-		-		-		64,750
Operating lease commitments	Operating lease commitments		11,105		2,533		4,567		2,317		1,688		19,424		874		6,826		4,639		7,085
Total	Total	$	10,418,988	$	1,130,358	$	303,066	$	39,785	$	66,438	$	13,449,600	$	1,865,499	$	213,789	$	29,469	$	71,732

(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 September 30, ~~2020~~2021 was ~~$949.1 million,~~$1.11 billion, or ~~8.33%~~7.63% of total assets. At December 31, ~~2019,~~2020, total stockholders’ equity attributable to us was ~~$842.2~~$992.4 million, or ~~9.41%~~8.32% of total assets. The decline in the ratio of capital to assets is the result of increased deposits during 2021. We believe a large portion of these increased deposits to be temporary in nature, although we cannot project when they might be withdrawn.

As of September 30, ~~2020,~~2021, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, we must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios.

The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective January 1, 2015, subject to a phase-in period for certain aspects of the new rules. In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of common equity Tier 1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer ~~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.

The following table sets forth (i) the capital ratios required by the FDIC and the Alabama Banking Department’s leverage ratio requirement and (ii) our actual ratios, not including the capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of September 30, ~~2020,~~2021, December 31, ~~2019~~2020 and September 30, ~~2019:~~2020:

To Be Well Capitalized

For Capital Adequacy

Under Prompt Corrective

Actual

Purposes

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of September 30, 2020

(Dollars in Thousands)

CET 1 Capital to Risk-Weighted Assets:

Consolidated
$ 916,373 11.24
%
$ 366,802 4.50
%
N/A N/A
ServisFirst Bank
978,584 12.01
%
366,724 4.50
%
$ 529,712 6.50
%
Tier 1 Capital to Risk-Weighted Assets:

Consolidated
916,873 11.25
%
489,070 6.00
%
N/A N/A
ServisFirst Bank
979,084 12.01
%
488,965 6.00
%
651,953 8.00
%
Total Capital to Risk-Weighted Assets:

Consolidated
1,067,583 13.10
%
652,093 8.00
%
N/A N/A
ServisFirst Bank
1,072,024 13.15
%
651,953 8.00
%
814,941 10.00
Tier 1 Capital to Average Assets:

Consolidated
916,873 8.22
%
446,428 4.00
%
N/A N/A
ServisFirst Bank
979,084 8.78
%
446,243 4.00
%
557,804 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 September 30, 2019

CET 1 Capital to Risk-Weighted Assets:

Consolidated
$ 790,168 10.39
%
$ 342,283 4.50
%
N/A N/A
ServisFirst Bank
852,807 11.21
%
342,269 4.50
%
$ 494,389 6.50
%
Tier 1 Capital to Risk-Weighted Assets:

Consolidated
790,670 10.39
%
456,377 6.00
%
N/A N/A
ServisFirst Bank
853,309 11.22
%
456,359 6.00
%
608,479 8.00
%
Total Capital to Risk-Weighted Assets:

Consolidated
933,055 12.27
%
608,502 8.00
%
N/A N/A
ServisFirst Bank
931,001 12.24
%
608,479 8.00
%
760,598 10.00
%
Tier 1 Capital to Average Assets:

Consolidated
790,670 8.88
%
356,012 4.00
%
N/A N/A
ServisFirst Bank
853,309 9.59
%
355,998 4.00
%
444,997 5.00
%

											To Be Well Capitalized
						For Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2021	(Dollars in Thousands)
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	1,081,750		10.46	%	$	465,322		4.50	%		N/A		N/A
ServisFirst Bank		1,143,936		11.06	%		465,264		4.50	%	$	672,047		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		1,082,250		10.47	%		620,429		6.00	%		N/A		N/A
ServisFirst Bank		1,144,436		11.07	%		620,352		6.00	%		827,135		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		1,258,901		12.17	%		827,239		8.00	%		N/A		N/A
ServisFirst Bank		1,256,386		12.15	%		827,135		8.00	%		1,033,919		10.00
Tier 1 Capital to Average Assets:
Consolidated		1,082,250		7.80	%		554,910		4.00	%		N/A		N/A
ServisFirst Bank		1,144,436		8.25	%		554,858		4.00	%		693,572		5.00	%

As of December 31, 2020
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	958,300		10.50	%	$	410,816		4.50	%		N/A		N/A
ServisFirst Bank		1,018,031		11.15	%		410,766		4.50	%	$	593,328		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		958,800		10.50	%		547,755		6.00	%		N/A		N/A
ServisFirst Bank		1,018,531		11.16	%		547,688		6.00	%		730,250		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		1,113,690		12.20	%		730,340		8.00	%		N/A		N/A
ServisFirst Bank		1,108,673		12.15	%		730,250		8.00	%		912,813		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		958,800		8.23	%		465,980		4.00	%		N/A		N/A
ServisFirst Bank		1,018,531		8.75	%		465,448		4.00	%		581,810		5.00	%

As of September 30, 2020
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	916,373		11.24	%	$	366,802		4.50	%		N/A		N/A
ServisFirst Bank		978,584		12.01	%		366,724		4.50	%	$	529,712		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		916,873		11.25	%		489,070		6.00	%		N/A		N/A
ServisFirst Bank		979,084		12.01	%		488,965		6.00	%		651,953		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		1,067,583		13.10	%		652,093		8.00	%		N/A		N/A
ServisFirst Bank		1,072,024		13.15	%		651,953		8.00	%		814,941		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		916,873		8.22	%		446,428		4.00	%		N/A		N/A
ServisFirst Bank		979,084		8.78	%		446,243		4.00	%		557,804		5.00	%

We are a legal entity separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole shareholder. Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders. The requirement that a bank holding company must serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the Bank holding company’s ability to serve as such a source of strength. Our ability to pay dividends is also subject to the provisions of Delaware corporate law.

The Alabama Banking Department also regulates the Bank’s dividend payments. Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the Bank’s surplus is equal to at least 20% of its capital (our Bank’s surplus currently exceeds 20% of its capital). Moreover, our Bank is also required by Alabama law to obtain the prior approval of the Superintendent of Banks (“Superintendent”) for its payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (i) the Bank’s net earnings (as defined by statute) for that year, plus (ii) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends, withdrawals or transfers may be made from the Bank’s surplus without the prior written approval of the Superintendent.

The Bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividends if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. If, in the opinion of the federal banking regulators, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulators could require, after notice and a hearing, that the Bank stop or refrain from engaging in the questioned practice.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial 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.~~arrangements. All such credit arrangements bear interest at variable rates and we have no such credit arrangements which bear interest at fixed rates.

Our exposure to credit loss in the event of non-performance by the other party to such financial ~~instruments~~instrument for commitments to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount of ~~those~~these instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. ~~As of September 30, 2020, we have reserved $500,000 for losses on such off-balance sheet arrangements consistent with guidance in the FRB’s Interagency Policy Statement SR 06-17.~~

As part of our mortgage operations, we originate and sell certain loans to investors in the secondary market. We continue to experience a manageable level of investor repurchase demands. For loans sold, we have an obligation to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations and warranties made by the Bank at the time of the sale. Representations and warranties typically include those made regarding loans that had missing or insufficient file documentation or loans obtained through fraud by borrowers or other third parties such as appraisers. ~~We had a reserve of $558,000 as of September 30, 2020 and $370,000 as of December 31, 2019 for the settlement of any repurchase demands by investors.~~

Financial instruments whose contract amounts represent credit risk at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
	(In Thousands)		(In Thousands)		(In Thousands)
Commitments to extend credit	$	2,557,139	$	2,303,788	$	3,332,764	$	2,606,258
Credit card arrangements		247,976		248,617		350,929		286,128
Standby letters of credit		72,138		48,394		56,077		66,208
	$	2,877,253	$	2,600,799	$	3,739,770	$	2,958,594

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

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

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

Results of Operations

Summary of Net Income

Net income and net income available to common stockholders for the three months ended September 30, ~~2020~~2021 was ~~$43.4~~$52.5 million compared to net income and net income available to common stockholders of ~~$37.6~~$43.4 million for the three months ended September 30, ~~2019.~~2020. Net income and net income available to common stockholders for the nine months ended September 30, ~~2020~~2021 was ~~$118.6~~$154.0 million compared to net income and net income available to common stockholders of ~~$108.2~~$118.6 million for the nine months ended September 30, ~~2019. The increase in net income for~~2020. For the three months ended September 30, 2021 compared to 2020 ~~over the same period in 2019 was primarily attributable to a $12.1 million~~net interest income increased $11.2 million. The increase in net interest income ~~resulting from a $2.15 billion increase~~for the three and nine-month periods is primarily attributable to growth in average earning assets and ~~a $2.0~~non-interest-bearing deposit balances. Decreases in provision for credit losses of $6.3 million ~~increase in non-interest income, led by increased mortgage banking revenue. The same key drivers~~and $13.1 million for the three and nine-month periods also contributed to the increase in net income for the ~~nine months ended September 30, 2020 compared~~comparative periods. Non-interest income also contributed to ~~2019 resulting~~the increased net income in ~~a $34.1~~the nine-month period, increasing $4.2 million, ~~increase in net interest income on a $1.65 billion increase in average earning assets, and a $4.9 million increase in non-interest income.~~or 19.2%, to $26.1 million. Increases ~~in provision for loan losses of $5.3 million and $19.4 million, increases~~ in non-interest expense of ~~$1.4~~$7.8 million and ~~$6.8~~$11.3 million and increases in income tax expense of ~~$1.5 million~~$472,000 and ~~$2.5~~$8.0 million, respectively, for the three and nine months ended September 30, ~~2020~~2021 compared to ~~2019~~2020 partially offset increases in income.

Basic and diluted net income per common share were ~~$0.80~~$0.97 and $0.96, respectively, for the three months ended September 30, ~~2020,~~2021, compared to ~~$0.70 and $0.69, respectively,~~$0.80 for the corresponding period in ~~2019.~~2020. Basic and diluted net income per common share were ~~$2.20~~$2.84 and ~~$2.19,~~$2.83, respectively, for the nine months ended September 30, ~~2020,~~2021, compared to ~~$2.02~~$2.20 and ~~$2.00,~~$2.19, respectively, for the corresponding period in ~~2019.~~2020. Return on average assets for the three and nine months ended September 30, ~~2020~~2021 was ~~1.54%~~1.50% and 1.58% compared to ~~1.67% and 1.70%~~1.54%, respectively, for the corresponding periods in ~~2019.~~2020. Return on average common stockholders’ equity for the three and nine months ended September 30, ~~2020~~2021 was ~~18.43%~~18.93% and ~~17.73%~~19.45%, respectively, compared to ~~18.69%~~18.43% and ~~18.93%~~17.73%, respectively, for the corresponding periods in ~~2019.~~2020.

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 ~~$12.1~~$11.2 million, or ~~16.6%~~13.2%, to ~~$85.2~~$96.4 million for the three months ended September 30, ~~2020~~2021 compared to ~~$73.1~~$85.2 million for the corresponding period in ~~2019,~~2020, and increased ~~$34.2~~$37.4 million, or ~~16.1%~~15.2%, to ~~$246.2~~$283.6 million for the nine months ended September 30, ~~2020~~2021 compared to ~~$212.0~~$246.2 million for the corresponding period in ~~2019.~~2020. This increase was primarily attributable to growth in average earning assets, which increased ~~$2.15~~$2.66 billion, or ~~25.0%~~24.7%, from the third quarter of ~~2019~~2020 to the third quarter of ~~2020,~~2021, and ~~$1.65~~$2.65 billion, or ~~20.1%~~26.9%, from the nine months ended September 30, ~~2019~~2020 to the same period in ~~2020.~~2021. The taxable-equivalent yield on interest-earning assets decreased to ~~3.55%~~3.08% for the three months ended September 30, ~~2020~~2021 from ~~4.65%~~3.55% for the corresponding period in ~~2019,~~2020, and decreased to ~~3.90%~~3.28% for the nine months ended September 30, ~~2020~~2021 from ~~4.76%~~3.90% for the corresponding period in ~~2019.~~2020. The yield on loans for the three months ended September 30, ~~2020~~2021 was ~~4.26%~~4.39% compared to ~~5.17%~~4.26% for the corresponding period in ~~2019,~~2020, and ~~4.47%~~4.43% compared to ~~5.22%~~4.47% for the nine months ended September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, respectively. The cost of total interest-bearing liabilities decreased to ~~0.59%~~0.35% for the three months ended September 30, ~~2020~~2021 compared to ~~1.73%~~0.59% for the corresponding period in ~~2019,~~2020, and decreased to ~~0.81%~~0.37% for the nine months ended September 30, ~~2020~~2021 from ~~1.77%~~0.81% for the corresponding period in ~~2019.~~2020. Net interest margin for the three months ended September 30, ~~2020~~2021 was ~~3.14%~~2.85% compared to ~~3.36%~~3.14% for the corresponding period in ~~2019,~~2020, and ~~3.33%~~3.03% for the nine months ended September 30, ~~2020~~2021 compared to ~~3.45%~~3.33% for the corresponding period in ~~2019.~~2020. The Federal Open Market Committee of the Federal Reserve Bank has recently signaled that it would discontinue buying assets in the open market and possibly start raising interest rates in an effort to control inflation. Higher interest rates could benefit our loan interest income in the future.

The following tables show, for the three and nine months ended September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue. The accompanying tables reflect changes in our net interest margin as a result of changes in the volume and rate of our interest-earning assets and interest-bearing liabilities for the same periods. Changes as a result of mix or the number of days in the periods have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. The tables are presented on a taxable-equivalent basis where applicable:

Average Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Three Months Ended September 30,

(In thousands, except Average Yields and Rates)

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

		2020							2019								2021							2020
				Interest		Average					Interest		Average						Interest		Average					Interest		Average
		Average		Earned /		Yield /			Average		Earned /		Yield /				Average		Earned /		Yield /			Average		Earned /		Yield /
		Balance		Paid		Rate			Balance		Paid		Rate				Balance		Paid		Rate			Balance		Paid		Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2)
Loans, net of unearned income (1)
Taxable		$	8,335,087	$	89,236		4.26	%	$	6,927,075	$	90,426		5.18	%		$	8,653,632	$	95,870		4.40	%	$	8,335,087	$	89,236		4.26	%
Tax-exempt (3)			30,068		313		4.14			34,195		343		3.98
Tax-exempt (2)																		26,542		271		4.05			30,068		313		4.14
Total loans, net of unearned income			8,365,155		89,549		4.26			6,961,270		90,769		5.17				8,680,174		96,141		4.39			8,365,155		89,549		4.26
Mortgage loans held for sale			20,053		71		1.41			6,482		40		2.45				7,050		30		1.69			20,053		71		1.41
Investment securities:
Taxable			820,526		5,858		2.86			595,405		4,367		2.93				969,715		6,544		2.70			820,526		5,858		2.86
Tax-exempt (3)			31,880		200		2.51			59,992		332		2.21
Total investment securities (4)			852,406		6,058		2.84			655,397		4,699		2.87
Tax-exempt (2)																		12,382		74		2.39			31,880		200		2.51
Total investment securities (3)																		982,097		6,618		2.70			852,406		6,058		2.84
Federal funds sold			41,884		16		0.15			312,968		1,768		2.24				8,551		4		0.19			41,884		16		0.15
Interest-bearing balances with banks			1,500,563		506		0.13			690,973		3,912		2.25				3,761,652		1,507		0.16			1,500,563		506		0.13
Total interest-earning assets		$	10,780,061	$	96,200		3.55		$	8,627,090	$	101,188		4.65			$	13,439,524	$	104,300		3.08		$	10,780,061	$	96,200		3.55
Non-interest-earning assets:
Cash and due from banks			75,065							71,418								90,034							75,065
Net fixed assets and equipment			56,799							58,243								62,845							56,799
Allowance for loan losses, accrued interest and other assets			281,196							162,654
Allowance for credit losses, accrued interest and other assets																		315,178							281,196
Total assets		$	11,193,121						$	8,919,405							$	13,907,581						$	11,193,121

Liabilities and stockholders' equity:	Liabilities and stockholders' equity:															Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits		$	1,077,595	$	840		0.31	%	$	900,754	$	1,904		0.84	%		$	1,431,420	$	694		0.19	%	$	1,077,595	$	840		0.31	%
Savings deposits			82,671		75		0.36			57,431		87		0.60				122,579		54		0.17			82,671		75		0.36
Money market accounts			4,739,566		5,188		0.44			4,265,435		18,900		1.76				5,328,291		3,492		0.26			4,739,566		5,188		0.44
Time deposits			841,378		3,773		1.78			703,278		3,897		2.20				806,108		2,341		1.15			841,378		3,773		1.78
Total interest-bearing deposits			6,741,210		9,876		0.58			5,926,898		24,788		1.66				7,688,398		6,581		0.34			6,741,210		9,876		0.58
Federal funds purchased			682,971		375		0.22			441,526		2,557		2.30				1,205,327		643		0.21			682,971		375		0.22
Other borrowings			64,717		777		4.77			64,689		781		4.79				64,694		692		4.23			64,717		777		4.78
Total interest-bearing liabilities		$	7,488,898	$	11,028		0.59	%	$	6,433,113	$	28,126		1.73	%		$	8,958,419	$	7,916		0.35	%	$	7,488,898	$	11,028		0.59	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits			2,728,513							1,654,928								3,800,972							2,728,513
Other liabilities			39,537							34,070								48,060							39,537
Stockholders' equity			917,626							792,284								1,078,987							917,626
Accumulated other comprehensive gain			18,547							5,010
Accumulated other comprehensive income																		21,143							18,547
Total liabilities and stockholders' equity		$	11,193,121						$	8,919,405							$	13,907,581						$	11,193,121
Net interest income				$	85,172						$	73,062							$	96,384						$	85,172
Net interest spread							2.96	%						2.92	%							2.73	%						2.96	%
Net interest margin							3.14	%						3.36	%							2.85	%						3.14	%

(1)

Non-accrual loans are included in average loan balances in all periods. Loan fees of ~~$5,193~~$7,203 and ~~$1,573~~$5,193 are included in interest income in the third quarter of ~~2020~~2021 and ~~2019,~~2020, respectively. Loan fees ~~in 2020~~ include accretion of PPP loan fees.

(2)

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

(3)

Unrealized gains of $26,709 and $23,418 are excluded from the yield calculation in the third quarter of 2021 and 2020, respectively.

	For the Three Months Ended September 30,
	2021 Compared to 2020 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	$	3,613		$	3,021		$	6,634
Tax-exempt		(35	)		(7	)		(42	)
Total loans, net of unearned income		3,578			3,014			6,592
Mortgages held for sale		(53	)		12			(41	)
Debt securities:
Taxable		1,034			(348	)		686
Tax-exempt		(117	)		(9	)		(126	)
Total debt securities		917			(357	)		560
Federal funds sold		(15	)		3			(12	)
Interest-bearing balances with banks		892			109			1,001
Total interest-earning assets	$	5,319		$	2,781		$	8,100

Interest-bearing liabilities:
Interest-bearing demand deposits	$	229		$	(375	)	$	(146	)
Savings		27			(48	)		(21	)
Money market accounts		588			(2,284	)		(1,696	)
Time deposits		(152	)		(1,280	)		(1,432	)
Total interest-bearing deposits		692			(3,987	)		(3,295	)
Federal funds purchased		280			(12	)		268
Other borrowed funds		-			(85	)		(85	)
Total interest-bearing liabilities		972			(4,084	)		(3,112	)
Increase in net interest income	$	4,347		$	6,865		$	11,212

Our growth in loans continues to drive favorable volume component change and overall change. The rate component was favorable as loan yields increased 13 basis points and average rates paid on interest-bearing liabilities decreased 24 basis points. Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the three months ended September 30, 2021 compared to the same period in 2020.

Average Balance Sheets and Net ~~accretion~~Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Nine Months Ended September 30,

(In thousands, except Average Yields and Rates)

	2021							2020
			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	$	8,586,180	$	284,548		4.43	%	$	7,989,750	$	267,354		4.47	%
Tax-exempt (3)		26,992		834		4.13			31,512		968		4.10
Total loans, net of unearned income		8,613,172		285,382		4.43			8,021,262		268,322		4.47
Mortgage loans held for sale		10,683		150		1.88			12,565		164		1.74
Investment securities:
Taxable		928,567		18,666		2.69			777,662		16,104		2.77
Tax-exempt (3)		16,748		315		2.51			38,014		709		2.49
Total investment securities (4)		945,315		18,981		2.68			815,676		16,813		2.75
Federal funds sold		9,558		11		0.15			76,733		327		0.57
Interest-bearing balances with banks		2,943,629		3,046		0.14			941,817		2,584		0.37
Total interest-earning assets	$	12,522,357	$	307,570		3.28	%	$	9,868,053	$	288,210		3.90	%
Non-interest-earning assets:
Cash and due from banks		127,963							72,482
Net fixed assets and equipment		60,448							57,435
Allowance for credit losses, accrued interest and other assets		318,745							258,263
Total assets	$	13,029,513						$	10,256,233

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,359,212	$	1,954		0.19	%	$	1,009,332	$	3,061		0.41	%
Savings deposits		106,853		142		0.18			74,095		233		0.42
Money market accounts		5,236,809		10,348		0.26			4,363,630		21,871		0.67
Time deposits		805,523		7,854		1.30			841,583		12,212		1.94
Total interest-bearing deposits		7,508,397		20,298		0.36			6,288,640		37,377		0.79
Federal funds purchased		1,009,905		1,630		0.22			583,232		2,286		0.52
Other borrowings		64,691		2,070		4.28			64,712		2,338		4.83
Total interest-bearing liabilities	$	8,582,993	$	23,998		0.37	%	$	6,936,584	$	42,001		0.81	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		3,295,530							2,376,029
Other liabilities		92,641							50,328
Stockholders' equity		1,038,336							878,271
Accumulated other comprehensive income		20,013							15,021
Total liabilities and stockholders' equity	$	13,029,513						$	10,256,233
Net interest income			$	283,572						$	246,209
Net interest spread						2.91	%						3.09	%
Net interest margin						3.03	%						3.33	%

(1)	Non-accrual loans are included in average loan balances in all periods. Loan fees of $27,519 and $10,123 are included in interest income in 2021 and 2020, respectively.
(2)	Accretion on acquired loan discounts of $100 is included in interest income in ~~the third quarter of~~ 2020.
(3)	Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.
(4)	Unrealized gains of ~~$23,418~~$25,276 and ~~$6,287~~$18,955 are excluded from the yield calculation in ~~the third quarter of~~2021 and 2020, ~~and 2019, respectively.~~

For the Three Months Ended September 30,

2020 Compared to 2019 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
$ 16,461 $ (17,651 ) $ (1,190 )
Tax-exempt
(43 ) 13 (30 )
Total loans, net of unearned income
16,418 (17,638 ) (1,220 )
Mortgages held for sale
54 (23 ) 31
Debt securities:

Taxable
1,598 (107 ) 1,491
Tax-exempt
(172 ) 40 (132 )
Total debt securities
1,426 (67 ) 1,359
Federal funds sold
(844 ) (908 ) (1,752 )
Interest-bearing balances with banks
2,180 (5,586 ) (3,406 )
Total interest-earning assets
19,234 (24,222 ) (4,988 )

Interest-bearing liabilities:

Interest-bearing demand deposits
316 (1,380 ) (1,064 )
Savings
30 (42 ) (12 )
Money market accounts
1,885 (15,597 ) (13,712 )
Time deposits
684 (808 ) (124 )
Total interest-bearing deposits
2,915 (17,827 ) (14,912 )
Federal funds purchased
917 (3,099 ) (2,182 )
Other borrowed funds
- (4 ) (4 )
Total interest-bearing liabilities
3,832 (20,930 ) (17,098 )
Increase in net interest income
$ 15,402 $ (3,292 ) $ 12,110

Decreases in average yields on loans drive unfavorable rate component. PPP loans carry an interest rate of 1.00%, well below the average yield on other loans. However, this lower yield is offset by the accretion of net origination fees paid by the Small Business Administration on PPP loans. Decreases in average rates paid on interest-bearing deposits drive favorable rate component change. Growth in average loans, noninterest bearing deposits and equity drive favorable volume component change and overall change.

Average Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Nine Months Ended September 30,

(In thousands, except Average Yields and Rates)

2020

2019

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
$ 7,989,750 $ 267,354 4.47
%
$ 6,752,945 $ 263,942 5.23
%
Tax-exempt (3)
31,512 968 4.10 32,312 934 3.86
Total loans, net of unearned income
8,021,262 268,322 4.47 6,785,257 264,876 5.22
Mortgage loans held for sale
12,565 164 1.74 4,452 116 3.48
Investment securities:

Taxable
777,662 16,104 2.77 560,230 12,306 2.94
Tax-exempt (3)
38,014 709 2.49 74,864 1,201 2.14
Total investment securities (4)
815,676 16,813 2.75 635,094 13,507 2.84
Federal funds sold
76,733 327 0.57 276,898 4,985 2.41
Interest-bearing balances with banks
941,817 2,584 0.37 514,527 9,269 2.41
Total interest-earning assets
$ 9,868,053 $ 288,210 3.90
%
$ 8,216,228 $ 292,753 4.76
%
Non-interest-earning assets:

Cash and due from banks
72,482 74,185
Net fixed assets and equipment
57,435 58,565
Allowance for loan losses, accrued interest and other assets
258,263 156,332
Total assets
$ 10,256,233 $ 8,505,310

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Interest-bearing demand deposits
$ 1,009,332 $ 3,061 0.41
%
$ 917,609 $ 5,911 0.86
%
Savings deposits
74,095 233 0.42 55,315 236 0.57
Money market accounts
4,363,630 21,871 0.67 3,987,210 53,831 1.81
Time deposits
841,583 12,212 1.94 698,905 11,194 2.14
Total interest-bearing deposits
6,288,640 37,377 0.79 5,659,039 71,172 1.68
Federal funds purchased
583,232 2,286 0.52 391,471 7,233 2.47
Other borrowings
64,712 2,338 4.83 64,680 2,343 4.84
Total interest-bearing liabilities
$ 6,936,584 $ 42,001 0.81
%
$ 6,115,190 $ 80,748 1.77
%
Non-interest-bearing liabilities:

Non-interest-bearing demand deposits
2,376,029 1,591,184
Other liabilities
50,328 34,866
Stockholders' equity
878,271 764,087
Accumulated other comprehensive gain (loss)
15,021 (17 )
Total liabilities and stockholders' equity
$ 10,256,233 $ 8,505,310
Net interest income
$ 246,209 $ 212,005
Net interest spread
3.09
%
2.99
%
Net interest margin
3.33
%
3.45
%

~~(1)~~

Non-accrual loans are included in average loan balances in all periods. Loan fees of $10,123 and $3,461 are included in interest income in 2020 and 2019, respectively. Loan fees in 2020 include accretion of PPP loan fees.

~~(2)~~

~~Accretion on acquired loan discounts of $100 and $91 are included in interest income in 2020 and 2019, respectively.~~

~~(3)~~

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

~~(4)~~

~~Unrealized gains of $18,955 and $77 are excluded from the yield calculation in 2020 and 2019,~~ respectively.

4041

	For the Nine Months Ended September 30,									For the Nine Months Ended September 30,
	2020 Compared to 2019 Increase (Decrease) in Interest Income and Expense Due to Changes in:									2021 Compared to 2020 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	$	44,611		$	(41,199	)	$	3,412		$	19,564		$	(2,370	)	$	17,194
Tax-exempt		(23	)		57			34			(141	)		7			(134	)
Total loans, net of unearned income		44,588			(41,142	)		3,446			19,423			(2,363	)		17,060
Mortgages held for sale		129			(81	)		48			(26	)		12			(14	)
Debt securities:
Taxable		4,549			(751	)		3,798			3,032			(470	)		2,562
Tax-exempt		(663	)		171			(492	)		(401	)		7			(394	)
Total debt securities		3,886			(580	)		3,306			2,631			(463	)		2,168
Federal funds sold		(2,265	)		(2,393	)		(4,658	)		(172	)		(144	)		(316	)
Interest-bearing balances with banks		4,477			(11,162	)		(6,685	)		2,843			(2,381	)		462
Total interest-earning assets		50,815			(55,358	)		(4,543	)	$	24,699		$	(5,339	)	$	19,360

Interest-bearing liabilities:
Interest-bearing demand deposits		542			(3,392	)		(2,850	)	$	837		$	(1,944	)	$	(1,107	)
Savings		68			(71	)		(3	)		77			(168	)		(91	)
Money market accounts		4,676			(36,636	)		(31,960	)		3,709			(15,232	)		(11,523	)
Time deposits		2,146			(1,128	)		1,018			(504	)		(3,854	)		(4,358	)
Total interest-bearing deposits		7,432			(41,227	)		(33,795	)		4,119			(21,198	)		(17,079	)
Federal funds purchased		2,477			(7,424	)		(4,947	)		1,125			(1,781	)		(656	)
Other borrowed funds		1			(6	)		(5	)		(1	)		(267	)		(268	)
Total interest-bearing liabilities		9,910			(48,657	)		(38,747	)		5,243			(23,246	)		(18,003	)
Increase in net interest income	$	40,905		$	(6,701	)	$	34,204		$	19,456		$	17,907		$	37,363

~~Decreases in the average rates paid on interest-bearing deposits drive favorable rate component change. Decreases in average yields on loans drive unfavorable rate component while~~Our growth in loans ~~non-interest-bearing deposits and average equity~~ continues to drive favorable volume component change and overall change. The rate component was favorable as average rates paid on interest-bearing liabilities decreased 44 basis points while loan yields decreased 4 basis points. Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the nine months ended September 30, 2021 compared to the same period in 2020.

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~credit losses was $6.0 million for the three months ended September 30, 2021, a decrease of $6.3 million from $12.3 million for the three months ended September 30, 2020, ~~an increase of $5.3 million from $7.0~~and was $23.1 million for the ~~three~~nine months ended September 30, ~~2019, and was~~2021, a $13.1 million decrease compared to $36.2 million for the nine months ended September 30, ~~2020, a $19.4 million increase compared to $16.8 million~~2020. The ACL for ~~the nine months ended~~ September 30, ~~2019. Annualized net~~2021 and December 31, 2020 was calculated under the current expected credit ~~charge-offs to quarter-to-date average loans increased five basis points to 0.54% for the third quarter of 2020 compared to 0.49% for the corresponding period in 2019~~losses (“CECL”) methodology and ~~increased three basis points to 0.34% for the nine months ended September 30, 2020 compared to 0.31% for the corresponding period in 2019. Nonperforming loans decreased to $26.6~~totaled $109.0 million and $87.9 million, or ~~0.31%~~1.24% and 1.04% of ~~total~~ loans, ~~at September 30, 2020 from $36.1 million, or 0.50%~~net of total loans, at December 31, 2019, and were $41.0 million, or 0.58% of total loans, at September 30, 2019. Impaired loans increased to $93.8 million, or 1.10% of total loans, at September 30, 2020, compared to $43.1 million, or 0.59% of total loans, at December 31, 2019. An additional qualitative factor was incorporated beginning in the second quarter of 2020 due to COVID-19 and its effect on overall macroeconomic conditions. This COVID-19 qualitative factor totaled $14.9 million at June 30, 2020 and totaled $11.3 million at September 30, 2020. This decrease of $3.6 million was primarily due to improvement in the national unemployment rate at the end of the third quarter of 2020.unearned income, respectively. The allowance for loan losses totaled $92.4 million, or 1.09% of ~~total~~ loans, net of unearned income, at September 30, 2020 and was calculated under the incurred loss methodology. Excluding PPP loans, the allowance for credit losses as a percentage of total loans under the CECL methodology at September 30, 2021 and June 30, 2021 was 1.29% and 1.30%, respectively, compared to ~~$76.6~~1.24% at September 30, 2020, under the incurred loss model. The increase in the ACL as a percent of total loans at September 30, 2021 from December 31, 2020 is largely the result of a net decrease in PPP loans totaling $513 million, which were excluded from the ACL, and $860 million in net loan growth, excluding PPP loans, during 2021. This loan growth was primarily within our real estate – mortgage and real estate – construction loan categories which have increased $421 million and $294 million, respectively. We added a new qualitative environmental factor to address the termination of the PPP for the effect it could have on various businesses that will need to be self-sustaining without the assistance of PPP as well as potential risk of nonpayment from SBA due to fraud within PPP loans. This new qualitative factor totaled $3.5 million at June 30, 2021 and totaled $2.8 million at September 30, 2021. Additionally, we allocated ACL totaling $1.7 million to address the risk associated with a newly downgraded commercial relationship at September 30, 2021. Annualized net credit charge-offs to quarter-to-date average loans were 0.08% for the third quarter of 2021, compared to 0.54% for the corresponding period in 2020. Annualized net credit charge-offs to year-to-date average loans were 0.03% for the nine months ended September 30, 2021, compared to 0.34% for the corresponding period in 2020. Nonperforming loans decreased to $14.5 million, or ~~1.05%~~0.16% of total loans, ~~net~~at September 30, 2021 from $19.0 million, or 0.22% of ~~unearned income,~~total loans, at December 31, ~~2019.~~2020, and were $26.6 million, or 0.31% of total loans, at September 30, 2020. See the section captioned “Asset Quality” located elsewhere in this item for additional discussion related to provision for credit losses.

Noninterest Income

Noninterest income totaled ~~$8.2~~$8.0 million for the three months ended September 30, ~~2020, an increase~~2021, a decrease of ~~$2.0 million, or 31.6%,~~$146,000 compared to the corresponding period in ~~2019,~~2020, and totaled ~~$21.9~~$26.1 million for the nine months ended September 30, ~~2020,~~2021, an increase of ~~$4.9~~$4.2 million, or ~~29.2%~~19.2%, compared to the corresponding period in ~~2019.~~2020. Mortgage banking income ~~increased $1.2~~decreased $1.1 million, or ~~89.0%~~43.5%, to ~~$2.5~~$1.4 million for the three months ended September 30, ~~2020~~2021 compared to ~~$1.3~~$2.5 million for the same period in ~~2019,~~2020, and increased ~~$2.7~~$1.2 million, or ~~90.2%~~20.6%, to ~~$5.7~~$6.9 million for the nine months ended September 30, ~~2020~~2021 compared to ~~$3.0~~$5.7 million for the same period in ~~2019. The~~2020.The number of mortgage loans originated ~~for sale~~during the third quarter of 2021 fell to ~~investors~~208 from 325 during ~~first~~the same quarter in 2020, and increased to 755 during the nine months ~~of 2020 increased approximately 67% when~~ended September 30, 2021 compared to 734 mortgage loans originated during the same period in ~~2019.~~2020 . Credit card income ~~decreased $28,000~~increased $203,000 to ~~$1.8~~$2.0 million for the three months ended September 30, ~~2020~~2021 compared to the same period in ~~2019,~~2020, and increased $144,000 to $5.1 million for the nine months ended September 30, 2021 compared to the same period in 2020. The number of credit card accounts increased approximately 31% and the aggregate amount of spend on all credit card accounts increased 43% during the third quarter of 2021 compared to the third quarter of 2020. Increase in cash surrender value of life insurance decreased ~~$182,000~~$62,000, or 3.6%, to $1.7 million during the three months ended September 30, 2021, compared to the corresponding period in 2020, and increased $362,000, or 7.8%, to $5.0 million for the nine months ended September 30, ~~2020~~2021 compared to $4.7 million for the same period in ~~2019. The amount~~2020.The quarter-to-date decrease is the result of ~~spend~~a decrease in crediting rates on ~~purchase cards increased $23.0 million~~existing policies while the ~~amount~~year-to-date increase is the result of ~~spend on business credit cards decreased $8.0~~$40.0 million ~~during the third quarter of 2020 when compared~~in new policies purchased in July 2020. Other income increased $900,000, or 343.5%, to ~~the third quarter of 2019. Purchase card spend carries lower profit margins than credit cards due to their higher rebates.~~

~~Noninterest Expense~~

~~Noninterest expense totaled $26.6~~$1.2 million for the three months ended September 30, ~~2020, an increase of $1.4 million, or 5.6%,~~2021 compared to ~~$25.2 million~~$262,000 for the same period in ~~2019,~~2020, and ~~totaled $83.3~~increased $1.9 million, or 198.0%, to $2.9 million for the nine months ended September 30, 2021 compared to $972,000 for the same period in 2020. We wrote down the value of our interest rate cap by $98,000 during the third quarter of 2021 through other income compared to a write down of $343,000 during the third quarter of 2020. Merchant service revenue increased from $163,000 during the third quarter of 2020 to $375,000, or 30.1%, during the third quarter of 2021.

Noninterest Expense

Noninterest expense totaled $34.4 million for the three months ended September 30, 2021, an increase of ~~$6.8~~$7.8 million, or ~~8.9%~~29.4%, compared to ~~$76.5~~$26.6 million for the same period in ~~2019.~~2020, and totaled $94.6 million for the nine months ended September 30, 2021, an increase of $11.3 million, or 13.6%, compared to $83.3 million for the same period in 2020.

Details of ~~expenses~~expense are as follows:

●

Salary and benefit expense ~~decreased $505,000,~~increased $3.0 million, or ~~3.3%~~20.0%, to ~~$15.0~~$18.0 million for the three months ended September 30, ~~2020~~2021, from ~~$15.5~~$15.0 million for the same period in ~~2019,~~2020, and increased ~~$2.3~~$4.0 million, or ~~5.3%~~8.6%, to ~~$46.4~~$50.4 million for the nine months ended September 30, ~~2020~~2021 from ~~$44.1~~$46.4 million for the same period in ~~2019.~~2020. Total employees ~~decreased~~increased from ~~511 as of September 30, 2019 to~~ 496 as of September 30, 2020, to 518 as of September 30, 2021, or ~~2.9%~~4.4%. Accruals for annual incentives increased $2.2 million from the third quarter of 2020 to the third quarter of 2021, primarily due to recent increases in loan originations.

●

Equipment and occupancy expense increased ~~$169,000,~~$440,000, or ~~7.1%~~17.2%, to ~~$2.6~~$3.0 million for the three months ended September 30, ~~2020~~2021 from ~~$2.4~~$2.6 million for the corresponding period in ~~2019,~~2020, and increased ~~$457,000,~~$1.1 million, or ~~6.6%~~14.9%, to ~~$7.4 million from $6.9~~$8.5 million for the nine months ended September 30, ~~2020~~2021 compared to $7.4 million for the corresponding period in ~~2019.~~2020. We moved our Nashville, Tennessee office in early 2021 to expand our space and improve visibility and we opened new offices in Orlando, Florida and Columbus, Georgia during 2021.

●

Third party processing and other services increased ~~$358,000,~~$863,000, or ~~12.2%~~26.3%, to ~~$3.3~~$4.1 million for the three months ended September 30, ~~2020~~2021, from ~~$2.9~~$3.3 million for the corresponding period in ~~2019,~~2020, and ~~increased $2.3~~increased$1.1 million, or ~~28.6%~~11.1%, to ~~$10.4 million from $8.1~~$11.5 million for the nine months ended September 30, ~~2020~~2021 compared to $10.4 million for the corresponding period in ~~2019. Limited-term licenses were added to our loan origination systems to enable more employees to assist customers with their PPP loans in 2020~~2020. We increased the number of correspondent banks for which ~~added $514,000 to third party~~we are processing ~~expenses.~~transactions through the Federal Reserve Bank.

●

Professional services expense increased $68,000, or 7.7%, to $1.0 million for the three months ended September 30, 2020 compared to the same period in 2019, and decreased $78,000, or 2.5%, to $3.0 million for the nine months ended September 30, 2020 compared to the same period in 2019.

●

FDIC and other regulatory assessments increased ~~$1.4 million~~$569,000, or 53.6%, to ~~$1.1~~$1.6 million for the three months ended September 30, ~~2020 compared to~~2021 from $1.1 million for the ~~same~~corresponding period in ~~2019,~~2020, and increased ~~$1.2~~$1.6 million, or 55.2%, to ~~$3.0~~$4.6 million for the nine months ended September 30, ~~2020~~2021 compared to $3.0 million for the ~~same~~corresponding period in ~~2019. We recognized a credit of $296,000 during the third quarter of 2019~~2020. Growth in total assets has increased our assessments. The Bank was reclassified as a ~~result~~large financial institution by the FDIC as of ~~the FDIC’s Small Bank Assessment Credit.~~September 30, 2021.

●

OREO expense increased ~~$41,000,~~$4,000, or ~~52.6%~~3.4%, to ~~$119,000~~$123,000 for the three months ended September 30, ~~2020 compared to~~2021, from $119,000 for the ~~same~~corresponding period in ~~2019,~~2020, and ~~increased~~decreased $1.2 million, or ~~548%~~59.5%, to $820,000 from $2.0 million for the nine months ended September 30, ~~2020~~2021 compared to the ~~same~~corresponding period in ~~2019. Updated appraisals resulted~~2020. The third quarter of 2021 included a write-down in ~~write-downs in values on two properties~~value of a property in our ~~Birmingham, Alabama market during the second quarter of 2020.~~Atlanta region.

●

Other operating expenses ~~decreased $76,000,~~increased $2.9 million, or ~~2.1%~~81.3%, to ~~$3.6~~$6.5 million for the three months ended September 30, ~~2020 compared to~~2021, from $3.6 million for the ~~same~~corresponding period in ~~2019,~~2020, and ~~decreased $1.1~~increased $4.6 million, or ~~9.1%~~41.7%, to $15.7 million from $11.1 million for the nine months ended September 30, ~~2020~~2021, compared to the ~~same~~corresponding period in ~~2019. Decreased lending expenses~~2020. We invested in ~~2020 are~~federal new market tax credits in July 2021 and wrote down the ~~result~~investment by $2.8 million during the third quarter of ~~lower~~2021 with a charge to other operating expenses. We decreased our reserve for credit losses on unfunded loan ~~demand due to~~commitments by $300,000 in the ~~COVID-19 pandemic. Decreases in business development expenses in 2020 are also the resulted~~third quarter of ~~the pandemic. Lower write downs in tax credit partnership investments resulted from extinguishment of partnerships at the end of 2019.~~2021.

4243

The following table presents our non-interest income and non-interest expense for the ~~three and nine month~~three-and-nine-month periods ending September 30, ~~2020~~2021, compared to the same periods in ~~2019.~~2020.

	Three Months Ended September 30,											Nine Months Ended September 30,										Three Months Ended September 30,										Nine Months Ended September 30,
	2020		2019			$ change			% change			2020		2019		$ change			% change			2021		2020		$ change			% change			2021		2020		$ change			% change
Non-interest income:
Noninterest income:
Service charges on deposit accounts	$	1,818	$	1,735		$	83			4.8	%	$	5,557	$	5,223	$	334			6.4	%	$	1,727	$	1,818	$	(91	)		(5.0)	%	$	5,542	$	5,557	$	(15	)		(0.3)	%
Mortgage banking		2,519		1,333			1,186			89.0	%		5,697		2,995		2,702			90.2	%		1,423		2,519		(1,096	)		(43.5)	%		6,869		5,697		1,172			20.6	%
Credit card income		1,840		1,868			(28	)		(1.5	%)		5,003		5,185		(182	)		(3.5	%)		2,043		1,840		203			11.0	%		5,147		5,003		144			2.9	%
Securities gains		-		34			(34	)		(100.0	%)		-		28		(28	)		(100.0	%)		-		-		-			-	%		620		-		620			NM	%
Increase in cash surrender value life insurance		1,733		787			946			120.2	%		4,650		2,327		2,323			99.8	%		1,671		1,733		(62	)		(3.6)	%		5,012		4,650		362			7.8	%
Other operating income		262		453			(191	)		(42.2	%)		972		1,172		(200	)		(17.1	%)		1,162		262		900			343.5	%		2,897		972		1,925			198.0	%
Total non-interest income	$	8,172	$	6,210		$	1,962			31.6	%	$	21,879	$	16,930	$	4,949			29.2	%	$	8,026	$	8,172	$	(146	)		(1.8)	%	$	26,087	$	21,879	$	4,208			19.2	%

Non-interest expense:
Noninterest expense:
Salaries and employee benefits	$	14,994	$	15,499		$	(505	)		(3.3	%)	$	46,444	$	44,103	$	2,341			5.3	%	$	17,995	$	14,994	$	3,001			20.0	%	$	50,425	$	46,444	$	3,981			8.6	%
Equipment and occupancy expense		2,556		2,387			169			7.1	%		7,390		6,933		457			6.6	%		2,996		2,556		440			17.2	%		8,494		7,390		1,104			14.9	%
Third party processing and other services		3,281		2,923			358			12.2	%		10,360		8,058		2,302			28.6	%		4,144		3,281		863			26.3	%		11,506		10,360		1,146			11.1	%
Professional services		955		887			68			7.7	%		2,994		3,072		(78	)		(2.5	%)		948		955		(7	)		(0.7)	%		2,978		2,994		(16	)		(0.5)	%
FDIC and other regulatory assessments		1,061		(296	)		1,357			(458.4	%)		2,988		1,804		1,184			65.6	%		1,630		1,061		569			53.6	%		4,637		2,988		1,649			55.2	%
OREO expense		119		78			41			52.6	%		2,023		312		1,711			548.4	%		123		119		4			3.4	%		820		2,023		(1,203	)		(59.5)	%
Other operating expense		3,607		3,683			(76	)		(2.1	%)		11,110		12,227		(1,117	)		(9.1	%)		6,541		3,607		2,934			81.3	%		15,740		11,110		4,630			41.7	%
Total non-interest expense	$	26,573	$	25,161		$	1,412			5.6	%	$	83,309	$	76,509	$	6,800			8.9	%	$	34,377	$	26,573	$	7,804			29.4	%	$	94,600	$	83,309	$	11,291			13.6	%

Income Tax Expense

Income tax expense was ~~$11.0~~$11.5 million for the three months ended September 30, ~~2020~~2021, compared to ~~$9.5~~$11.0 million for the same period in ~~2019,~~2020, and was ~~$29.8~~$37.8 million for the nine months ended September 30, ~~2020~~2021, compared to ~~$27.3~~$29.8 million for the same period in ~~2019.~~2020. Our effective tax rate for the three and nine months ended September 30, ~~2020~~2021 was ~~20.3%~~17.98% and ~~20.1%~~19.71%, respectively, compared to ~~20.2%~~20.29% and ~~20.2%~~20.08% for the corresponding periods in ~~2019,~~2020, respectively. We recognized $3.2 million in credits during the third quarter of 2021 related to the investment in federal new market tax credits in July 2021. We recognized excess tax benefits as aan income tax credit to our income tax expense from the exercise and vesting of stock options and restricted stock during the three and nine months ended September 30, ~~2020~~2021 of ~~$180,000~~$78,000 and ~~$1.4~~$2.4 million, respectively, compared to ~~$231,000~~$180,000 and ~~$1.2~~$1.4 million during the three and nine months ended September 30, ~~2019,~~2020, respectively. Our primary permanent differences are related to tax exempt income on securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance.

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~~whollyowned 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 develops its view of future rate trends and strives to manage rate risk within a targeted range by monitoring economic indicators, examining the views of economists and other experts, and understanding the current status of our balance sheet. Our annual budget reflects the anticipated rate environment for the next 12 months. The asset-liability committee conducts a quarterly analysis of the rate sensitivity position and reports its results to our board of directors.

The asset-liability committee thoroughly analyzes the maturities of rate-sensitive assets and liabilities. This analysis measures the “gap”, which is defined as the difference between the dollar amount of rate-sensitive assets repricing during a period and the volume of rate-sensitive liabilities repricing during the same period. The gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities. If the ratio is greater than one, the dollar value of assets exceeds the dollar value of liabilities; the balance sheet is “asset-sensitive.” Conversely, if the value of liabilities exceeds the value of assets, the ratio is less than one and the balance sheet is “liability-sensitive.” Our internal policy requires management to maintain the gap such that net interest margins will not change more than 10% if interest rates change 100 basis points or more than 15% if interest rates change 200 basis points. There have been no changes to our policies or procedures for analyzing our interest rate risk since December 31, ~~2019,~~2020, and there have been no material changes to our sensitivity to changes in interest rates since December 31, ~~2019,~~2020, as disclosed in our Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

CEO and CFO Certification.

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

Evaluation of Disclosure Controls and Procedures.

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

We conducted an evaluation (the "Evaluation") of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and CFO, as of September 30, ~~2020.~~2021. Based upon the Evaluation, our CEO and CFO have concluded that, as of September 30, ~~2020,~~2021, our disclosure controls and procedures are effective to ensure that material information relating to the Company. and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.

Changes in Internal Control Over Financial Reporting

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

PART II.II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, 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 the exception of:~~2020.

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.

4445

~~The outbreak has adversely impacted and is likely to continue to adversely impact our workforce and~~Our operations and financial performance could be adversely affected by natural disasters, and climate change can increase those risks while adding regulatory, compliance, reputational and other risks.

Natural disasters could have a material adverse effect on our financial position and results of operations. Natural disasters, such as hurricanes, tornados, earthquakes and similar unpredictable weather events, could affect us directly (by interrupting our systems, damaging our offices or otherwise preventing us from operating our business in the ~~operations~~ordinary course) or indirectly (by damaging or destroying the businesses or properties of our customers ~~and business partners. In particular, we may experience financial losses due~~or otherwise impairing our customers’ ability to make loan payments on a ~~number of operational factors impacting us~~timely basis 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~~destroying property pledged as collateral 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.~~loans).

~~The extent~~Climate change may result in new or increased regulatory burdens, which could materially affect our results of operations by requiring us to implement costly measures to comply with any new laws and regulations related to climate change. Changes to regulations or market shifts in response to climate change may also impact the businesses of some of our customers, which may require us to adjust our lending portfolios and business strategies with respect to such customers.

In addition, the ~~pandemic impacts~~investing public is increasingly focused on the financial services industry’s ability to manage environmental impact. We recently have adopted an Environmental, Social and Governance (“ESG”) Policy in an effort to refine and track our ~~business, financial condition and operations will depend on future developments, which are highly uncertain and are difficult~~compliance efforts; however, failure to ~~predict, including, but not limited to, its duration and severity, the actions to contain it or treat its~~appropriately manage our environmental 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~~could have a material adverse ~~impacts to our business as a result of its economic impact, including the availability of credit, adverse impacts~~effect on our ~~liquidity~~reputation 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~~harm our ability to ~~the effect the spread of COVID-19 as a global pandemic may have,~~attract and ~~as a result, the ultimate impact of the pandemic is highly uncertain~~retain customers 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 discussed in our Annual Report on Form 10-K could be heightened, changed or be added to in the 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.employees.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

~~Exhibit: Description~~

Exhibit:	Description
31.01	Certification of principal executive officer pursuant to Rule 13a-14(a).
31.02	Certification of principal financial officer pursuant to Rule 13a-14(a).
32.01	Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.
32.02	Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

4547

SIGNATURES

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

	SERVISFIRST BANCSHARES, INC.



Date: October ~~28, 2020~~ 29, 2021	By	/s/ Thomas A. Broughton III
		Thomas A. Broughton III
		President and Chief Executive Officer


Date: October ~~28, 2020~~ 29, 2021	By	/s/ William M. Foshee
		William M. Foshee
		Chief Financial Officer

4648

PART I. FINANCIAL INFORMATION		4
	Item 1.	Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2628
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4344
	Item 4.	Controls and Procedures	4445

PART II. OTHER INFORMATION		4445
	Item 1.	Legal Proceedings	4445
	Item 1A.	Risk Factors	4445
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4546
	Item 3.	Defaults Upon Senior Securities	4546
	Item 4.	Mine Safety Disclosures	4546
	Item 5.	Other Information	4546
	Item 6.	Exhibits	4547

							For the three months				For the nine months
							ended September 30,				ended September 30,
	September 30, 2020						2020				2020
									Interest				Interest
			Unpaid				Average		Income		Average		Income
	Recorded		Principal		Related		Recorded		Recognized		Recorded		Recognized
	Investment		Balance		Allowance		Investment		in Period		Investment		in Period

	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	50,898	$	60,687	$	-	$	61,374	$	442	$	61,967	$	1,605
Real estate - construction		0		0		-		0		0		0		0
Real estate - mortgage:
Owner-occupied commercial		1,581		1,581		-		1,582		12		1,600		52
1-4 family mortgage		2,899		2,899		-		2,882		26		2,814		78
Other mortgage		12,200		12,200		-		12,068		122		12,211		396
Total real estate - mortgage		16,680		16,680		-		16,532		160		16,625		526
Consumer		0		0		-		0		0		0		0
Total with no allowance recorded		67,578		77,367		-		77,906		602		78,592		2,131

With an allowance recorded:
Commercial, financial and agricultural		22,902		23,169		9,204		21,648		102		22,237		535
Real estate - construction		587		637		201		954		0		1,012		0
Real estate - mortgage:
Owner-occupied commercial		1,252		1,392		146		4,563		3		3,915		97
1-4 family mortgage		412		412		49		398		12		406		12
Other mortgage		1,032		1,032		0		1,022		11		1,077		35
Total real estate - mortgage		2,696		2,836		195		5,983		26		5,398		144
Consumer		0		0		0		0		0		0		0
Total with allowance recorded		26,185		26,642		9,600		28,585		128		28,647		679

Total Impaired Loans:
Commercial, financial and agricultural		73,800		83,856		9,204		83,022		544		84,204		2,140
Real estate - construction		587		637		201		954		0		1,012		0
Real estate - mortgage:
Owner-occupied commercial		2,833		2,973		146		6,145		15		5,515		149
1-4 family mortgage		3,311		3,311		49		3,280		38		3,220		90
Other mortgage		13,232		13,232		0		13,090		133		13,288		431
Total real estate - mortgage		19,376		19,516		195		22,515		186		22,023		670
Consumer		0		0		0		0		0		0		0
Total impaired loans	$	93,763	$	104,009	$	9,600	$	106,491	$	730	$	107,239	$	2,810

December 31, 2019
							For the twelve months
							ended December 31, 2019
			Unpaid				Average		Interest Income
	Recorded		Principal		Related		Recorded		Recognized in
	Investment		Balance		Allowance		Investment		Period

	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	9,015	$	10,563	$	-	$	11,284	$	562
Real estate - construction		2,731		2,735		-		2,063		126
Real estate - mortgage:
Owner-occupied commercial		7,150		7,246		-		7,548		618
1-4 family mortgage		287		287		-		289		2
Other mortgage		0		0		-		0		0
Total real estate - mortgage		7,437		7,533		-		7,837		620
Consumer		0		0		-		0		0
Total with no allowance recorded		19,183		20,831		-		21,184		1,308

With an allowance recorded:
Commercial, financial and agricultural		11,828		19,307		6,085		19,714		395
Real estate - construction		1,589		1,589		86		1,614		27
Real estate - mortgage:
Owner-occupied commercial		7,888		11,028		2,456		13,627		301
1-4 family mortgage		1,153		1,153		176		1,157		1
Other mortgage		1,507		1,507		1,001		1,468		21
Total real estate - mortgage		10,548		13,688		3,633		16,252		323
Consumer		0		0		0		0		0
Total with allowance recorded		23,965		34,584		9,804		37,580		745

Total Impaired Loans:
Commercial, financial and agricultural		20,843		29,870		6,085		30,998		957
Real estate - construction		4,320		4,324		86		3,677		153
Real estate - mortgage:
Owner-occupied commercial		15,038		18,274		2,456		21,175		919
1-4 family mortgage		1,440		1,440		176		1,446		3
Other mortgage		1,507		1,507		1,001		1,468		21
Total real estate - mortgage		17,985		21,221		3,633		24,089		943
Consumer		0		0		0		0		0
Total impaired loans	$	43,148	$	55,415	$	9,804	$	58,764	$	2,053

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment
	(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural	-	$	-	$	-	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