ServisFirst Bancshares, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LOANS

LOANS

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

LOANS

NOTE 5 LOANS

The following table details the Company’s loans at September 30, 2014 and December 31, 2013:

	September 30,			December 31,
	2014			2013
	(Dollars In Thousands)
Commercial, financial and agricultural	$	1,382,607		$	1,278,649
Real estate - construction		194,506			151,868
Real estate - mortgage:
Owner-occupied commercial		773,432			710,372
1-4 family mortgage		314,778			278,621
Other mortgage		443,245			391,396
Subtotal: Real estate - mortgage		1,531,455			1,380,389
Consumer		51,204			47,962
Total Loans		3,159,772			2,858,868
Less: Allowance for loan losses		(34,442)			(30,663)
Net Loans	$	3,125,330		$	2,828,205

Commercial, financial and agricultural		43.76	%		44.73	%
Real estate - construction		6.15	%		5.31	%
Real estate - mortgage:
Owner-occupied commercial		24.48	%		24.85	%
1-4 family mortgage		9.96	%		9.74	%
Other mortgage		14.03	%		13.69	%
Subtotal: Real estate - mortgage		48.47	%		48.28	%
Consumer		1.62	%		1.68	%
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 portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions defined as follows:

⋅

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

⋅

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

⋅

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

⋅

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

Loans by credit quality indicator as of September 30, 2014 and December 31, 2013 were as follows:

			Special
September 30, 2014	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,353,330	$	25,648	$	3,629	$	-	$	1,382,607
Real estate - construction		181,357		5,333		7,816		-		194,506
Real estate - mortgage:
Owner-occupied commercial		764,902		6,898		1,632		-		773,432
1-4 family mortgage		304,005		3,278		7,495		-		314,778
Other mortgage		428,997		8,790		5,458		-		443,245
Total real estate mortgage		1,497,904		18,966		14,585		-		1,531,455
Consumer		50,485		46		673		-		51,204
Total	$	3,083,076	$	49,993	$	26,703	$	-	$	3,159,772

			Special
December 31, 2013	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,238,109	$	34,883	$	5,657	$	-	$	1,278,649
Real estate - construction		139,239		3,392		9,237		-		151,868
Real estate - mortgage:
Owner-occupied commercial		696,687		11,545		2,140		-		710,372
1-4 family mortgage		265,019		1,253		12,349		-		278,621
Other mortgage		379,419		8,179		3,798		-		391,396
Total real estate mortgage		1,341,125		20,977		18,287		-		1,380,389
Consumer		47,243		3		716		-		47,962
Total	$	2,765,716	$	59,255	$	33,897	$	-	$	2,858,868

Loans by performance status as of September 30, 2014 and December 31, 2013 were as follows:

September 30, 2014	Performing		Nonperforming		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,381,648	$	959	$	1,382,607
Real estate - construction		187,539		6,967		194,506
Real estate - mortgage:
Owner-occupied commercial		772,339		1,093		773,432
1-4 family mortgage		308,681		6,097		314,778
Other mortgage		441,766		1,479		443,245
Total real estate mortgage		1,522,786		8,669		1,531,455
Consumer		50,531		673		51,204
Total	$	3,142,504	$	17,268	$	3,159,772

December 31, 2013	Performing		Nonperforming		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,276,935	$	1,714	$	1,278,649
Real estate - construction		148,118		3,750		151,868
Real estate - mortgage:
Owner-occupied commercial		708,937		1,435		710,372
1-4 family mortgage		276,725		1,896		278,621
Other mortgage		391,153		243		391,396
Total real estate mortgage		1,376,815		3,574		1,380,389
Consumer		47,264		698		47,962
Total	$	2,849,132	$	9,736	$	2,858,868

Loans by past due status as of September 30, 2014 and December 31, 2013 were as follows:

September 30, 2014	Past Due Status (Accruing Loans)
							Total Past
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	-	$	117	$	242	$	359	$	717	$	1,381,531	$	1,382,607
Real estate - construction		181		-		-		181		6,967		187,358		194,506
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		1,093		772,339		773,432
1-4 family mortgage		105		170		948		1,223		5,149		308,406		314,778
Other mortgage		-		-		-		-		1,479		441,766		443,245
Total real estate - mortgage		105		170		948		1,223		7,721		1,522,511		1,531,455
Consumer		7		61		-		68		673		50,463		51,204
Total	$	293	$	348	$	1,190	$	1,831	$	16,078	$	3,141,863	$	3,159,772

December 31, 2013	Past Due Status (Accruing Loans)
							Total Past
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	73	$	-	$	-	$	73	$	1,714	$	1,276,862	$	1,278,649
Real estate - construction		-		-		-		-		3,750		148,118		151,868
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		1,435		708,937		710,372
1-4 family mortgage		177		-		19		196		1,877		276,548		278,621
Other mortgage		-		-		-		-		243		391,153		391,396
Total real estate - mortgage		177		-		19		196		3,555		1,376,638		1,380,389
Consumer		89		97		96		282		602		47,078		47,962
Total	$	339	$	97	$	115	$	551	$	9,621	$	2,848,696	$	2,858,868

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions and other risks inherent in the portfolio. Allowances for impaired loans are generally determined based on collateral values or the present value of the estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for losses on loans. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

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

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

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

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

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

In the third quarter of 2014, the allowance for loan loss calculation was updated to incorporate a greater emphasis placed on external and internal qualitative factors compared to historical calculations. This was determined based on an analysis of loan growth, loss rates relative to peer institutions and overall interest rate risk. This adjustment increased the allowance for loan losses associated with external and internal qualitative factors by $2.1 million at September 30, 2014 compared to June 30, 2014.

The following table presents an analysis of the allowance for loan losses by portfolio segment as of September 30, 2014 and December 31, 2013. 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, 2014
Allowance for loan losses:
Balance at June 30, 2014	$	13,637	$	6,734	$	11,523	$	1,090	$	32,984
Charge-offs		(531)		(610)		(149)		(131)		(1,421)
Recoveries		-		97		14		20		131
Provision		1,364		461		905		18		2,748
Balance at September 30, 2014	$	14,470	$	6,682	$	12,293	$	997	$	34,442

	Three Months Ended September 30, 2013
Allowance for loan losses:
Balance at June 30, 2013	$	13,794	$	5,788	$	8,856	$	319	$	28,757
Charge-offs		(849)		(394)		(1,746)		(42)		(3,031)
Recoveries		13		124		24		6		167
Provision		910		309		1,248		567		3,034
Balance at September 30, 2013	$	13,868	$	5,827	$	8,382	$	850	$	28,927

	Nine Months Ended September 30, 2014
Allowance for loan losses:
Balance at December 31, 2013	$	13,576	$	6,078	$	10,065	$	944	$	30,663
Charge-offs		(1,895)		(958)		(1,043)		(207)		(4,103)
Recoveries		46		285		28		23		382
Provision		2,743		1,277		3,243		237		7,500
Balance at September 30, 2014	$	14,470	$	6,682	$	12,293	$	997	$	34,442

	Nine Months Ended September 30, 2013
Allowance for loan losses:
Balance at December 31, 2012	$	11,061	$	6,907	$	7,964	$	326	$	26,258
Charge-offs		(1,838)		(4,271)		(2,016)		(172)		(8,297)
Recoveries		50		226		28		10		314
Provision		4,595		2,965		2,406		686		10,652
Balance at September 30, 2013	$	13,868	$	5,827	$	8,382	$	850	$	28,927

	As of September 30, 2014
Allowance for loan losses:
Individually Evaluated for Impairment		1,229		1,764		2,660		673		6,326
Collectively Evaluated for Impairment		13,241		4,918		9,633		324		28,116

Loans:
Ending Balance	$	1,382,607	$	194,506	$	1,531,455	$	51,204	$	3,159,772
Individually Evaluated for Impairment		3,629		7,816		14,585		673		26,703
Collectively Evaluated for Impairment		1,378,978		186,690		1,516,870		50,531		3,133,069

	As of December 31, 2013
Allowance for loan losses:
Individually Evaluated for Impairment		1,992		1,597		1,982		699		6,270
Collectively Evaluated for Impairment		11,584		4,481		8,083		245		24,393

Loans:
Ending Balance	$	1,278,649	$	151,868	$	1,380,389	$	47,962	$	2,858,868
Individually Evaluated for Impairment		3,827		9,238		18,202		699		31,966
Collectively Evaluated for Impairment		1,274,822		142,630		1,362,187		47,263		2,826,902

The following table presents details of the Company’s impaired loans as of September 30, 2014 and December 31, 2013, 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, 2014						2014				2014
									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	$	1,700	$	1,700	$	-	$	1,796	$	26	$	1,927	$	83
Real estate - construction		2,054		2,054		-		2,016		11		1,910		34
Real estate - mortgage:
Owner-occupied commercial		216		216		-		219		2		229		7
1-4 family mortgage		1,199		1,199		-		1,199		15		1,199		45
Other mortgage		2,823		2,823		-		2,823		34		2,827		118
Total real estate - mortgage		4,238		4,238		-		4,241		51		4,255		170
Consumer		-		-		-		-		-		-		-
Total with no allowance recorded		7,992		7,992		-		8,053		88		8,092		287

With an allowance recorded:
Commercial, financial and agricultural		1,929		1,929		1,229		1,933		16		1,967		70
Real estate - construction		5,762		6,643		1,764		6,130		-		6,089		20
Real estate - mortgage:
Owner-occupied commercial		1,416		1,416		287		1,440		9		1,475		29
1-4 family mortgage		6,296		6,296		1,591		6,354		29		7,222		132
Other mortgage		2,635		2,635		782		2,548		20		2,813		64
Total real estate - mortgage		10,347		10,347		2,660		10,342		58		11,510		225
Consumer		673		673		673		677		1		684		-
Total with allowance recorded		18,711		19,592		6,326		19,082		75		20,250		315

Total Impaired Loans:
Commercial, financial and agricultural		3,629		3,629		1,229		3,729		42		3,894		153
Real estate - construction		7,816		8,697		1,764		8,146		11		7,999		54
Real estate - mortgage:
Owner-occupied commercial		1,632		1,632		287		1,659		11		1,704		36
1-4 family mortgage		7,495		7,495		1,591		7,553		44		8,421		177
Other mortgage		5,458		5,458		782		5,371		54		5,640		182
Total real estate - mortgage		14,585		14,585		2,660		14,583		109		15,765		395
Consumer		673		673		673		677		1		684		-
Total impaired loans	$	26,703	$	27,584	$	6,326	$	27,135	$	163	$	28,342	$	602

December 31, 2013

			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	$	1,210	$	1,210	$	-	$	1,196	$	63
Real estate - construction		1,967		2,405		-		1,363		32
Real estate - mortgage:
Owner-occupied commercial		577		577		-		603		32
1-4 family mortgage		1,198		1,198		-		1,200		55
Other mortgage		2,311		2,311		-		1,901		123
Total real estate - mortgage		4,086		4,086		-		3,704		210
Consumer		-		-		-		-		-
Total with no allowance recorded		7,263		7,701		-		6,263		305

With an allowance recorded:
Commercial, financial and agricultural		2,618		2,958		1,992		2,844		98
Real estate - construction		7,270		7,750		1,597		6,564		200
Real estate - mortgage:
Owner-occupied commercial		1,509		1,509		620		1,573		38
1-4 family mortgage		11,120		11,120		1,210		10,743		342
Other mortgage		1,487		1,586		152		1,873		96
Total real estate - mortgage		14,116		14,215		1,982		14,189		476
Consumer		699		699		699		790		28
Total with allowance recorded		24,703		25,622		6,270		24,387		802

Total Impaired Loans:
Commercial, financial and agricultural		3,828		4,168		1,992		4,040		161
Real estate - construction		9,237		10,155		1,597		7,927		232
Real estate - mortgage:
Owner-occupied commercial		2,086		2,086		620		2,176		70
1-4 family mortgage		12,318		12,318		1,210		11,943		397
Other mortgage		3,798		3,897		152		3,774		219
Total real estate - mortgage		18,202		18,301		1,982		17,893		686
Consumer		699		699		699		790		28
Total impaired loans	$	31,966	$	33,323	$	6,270	$	30,650	$	1,107

Troubled Debt Restructurings (“TDR”) at September 30, 2014, December 31, 2013 and September 30, 2013 totaled $7.9 million, $ 14.2 million and $8.4 million, respectively. At September 30, 2014, the Company had a related allowance for loan losses of $1.9 million allocated to these TDRs, compared to $2.4 million at December 31, 2013 and $0.8 million at September 30, 2013. The Company’s TDRs for the three and nine months ended September 30, 2014 and 2013 have all resulted from term extensions rather than from interest rate reductions or debt forgiveness. The following tables present loans modified in a TDR during the periods presented by portfolio segment and the 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, 2014						Nine Months Ended September 30, 2014
			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	$	390	$	390		2	$	889	$	889
Real estate - construction		-		-		-		-		-		-
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		-		-
1-4 family mortgage		1		4,449		4,449		1		4,449		4,449
Other mortgage		1		275		275		2		1,684		1,684
Total real estate mortgage		2		4,724		4,724		3		6,133		6,133
Consumer		-		-		-		-		-		-
		3	$	5,114	$	5,114		5	$	7,022	$	7,022

	Three Months Ended September 30, 2013						Nine Months Ended September 30, 2013
			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	$	412	$	412		2	$	911	$	911
Real estate - construction		-		-		-		-		-		-
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		-		-
1-4 family mortgage		-		-		-		1		4,925		4,925
Other mortgage		1		294		294		1		294		294
Total real estate mortgage		1		294		294		2		5,219		5,219
Consumer		-		-		-		-		-		-
		2	$	706	$	706		4	$	6,130	$	6,130

The following table presents TDRs by portfolio segment which defaulted during the three and nine months ended September 30, 2014 and 2013, and which were modified in the previous twelve months (i.e., the twelve months prior to default). For purposes of this disclosure default is defined as 90 days past due and still accruing or placement on nonaccrual status.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Defaulted during the period, where modified in a TDR twelve months prior to default
Commercial, financial and agricultural	$	-	$	-	$	-	$	-
Real estate - construction		-		-		-		-
Real estate - mortgage:
Owner-occupied commercial		-		3,121		-		3,121
1-4 family mortgage		4,313		-		4,313		-
Other mortgage		-		-		-		-
Total real estate mortgage		4,313		3,121		4,313		3,121
Consumer		-		-		-		-
	$	4,313	$	3,121	$	4,313	$	3,121

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

+ References + Details