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

Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Loans

Note 5 - Loans

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE

– LOANS

The following table details the Company’s loans at

June 30, 2017

and

December 31, 2016:

	June 30, 2017			December 31, 2016
	(Dollars In Thousands)
Commercial, financial and agricultural	$	2,123,498		$	1,982,267
Real estate - construction		395,398			335,085
Real estate - mortgage:
Owner-occupied commercial		1,272,659			1,171,719
1-4 family mortgage		565,121			536,805
Other mortgage		931,788			830,683
Subtotal: Real estate - mortgage		2,769,568			2,539,207
Consumer		55,224			55,211
Total Loans		5,343,688			4,911,770
Less: Allowance for loan losses		(55,059	)		(51,893	)
Net Loans	$	5,288,629		$	4,859,877


Commercial, financial and agricultural		39.74	%		40.36	%
Real estate - construction		7.40	%		6.82	%
Real estate - mortgage:
Owner-occupied commercial		23.82	%		23.86	%
1-4 family mortgage		10.57	%		10.93	%
Other mortgage		17.44	%		16.91	%
Subtotal: Real estate - mortgage		51.83	%		51.70	%
Consumer		1.03	%		1.12	%
Total Loans		100.00	%		100.00	%

The credit quality of the loan portfolio is summarized

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,

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

June 30, 2017

and

December 31, 2016

were as follows:

June 30, 2017	Pass		Special Mention		Substandard		Doubtful		Total

	(In Thousands)
Commercial, financial and agricultural	$	2,051,745	$	40,323	$	31,430	$	-	$	2,123,498
Real estate - construction		384,442		7,582		3,374		-		395,398
Real estate - mortgage:
Owner-occupied commercial		1,255,649		11,098		5,912		-		1,272,659
1 -4 family mortgage		559,579		1,256		4,286		-		565,121
Other mortgage		914,552		13,662		3,574		-		931,788
Total real estate mortgage		2,729,780		26,016		13,772		-		2,769,568
Consumer		55,169		55		-		-		55,224
Total	$	5,221,136	$	73,976	$	48,576	$	-	$	5,343,688

December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Total

	(In Thousands)
Commercial, financial and agricultural	$	1,893,664	$	61,035	$	27,568	$	-	$	1,982,267
Real estate - construction		324,958		5,861		4,266		-		335,085
Real estate - mortgage:
Owner-occupied commercial		1,158,615		6,037		7,067		-		1,171,719
1-4 family mortgage		531,868		2,065		2,872		-		536,805
Other mortgage		818,724		11,224		735		-		830,683
Total real estate mortgage		2,509,207		19,326		10,674		-		2,539,207
Consumer		55,135		76		-		-		55,211
Total	$	4,782,964	$	86,298	$	42,508	$	-	$	4,911,770

Loans by performance status as of

June 30, 2017

and

December 31, 2016

were as follows:

June 30, 2017	Performing		Nonperforming		Total

	(In Thousands)
Commercial, financial and agricultural	$	2,118,113	$	5,385	$	2,123,498
Real estate - construction		393,021		2,377		395,398
Real estate - mortgage:
Owner-occupied commercial		1,270,411		2,248		1,272,659
1-4 family mortgage		564,200		921		565,121
Other mortgage		931,788		-		931,788
Total real estate mortgage		2,766,399		3,169		2,769,568
Consumer		55,176		48		55,224
Total	$	5,332,709	$	10,979	$	5,343,688

December 31, 2016	Performing		Nonperforming		Total

	(In Thousands)
Commercial, financial and agricultural	$	1,974,975	$	7,292	$	1,982,267
Real estate - construction		331,817		3,268		335,085
Real estate - mortgage:
Owner-occupied commercial		1,165,511		6,208		1,171,719
1-4 family mortgage		536,731		74		536,805
Other mortgage		830,683		-		830,683
Total real estate mortgage		2,532,925		6,282		2,539,207
Consumer		55,166		45		55,211
Total	$	4,894,883	$	16,887	$	4,911,770

Loans by past due status as of

June 30, 2017

and

December 31, 2016

were as follows:

June 30, 2017	Past Due Status (Accruing Loans)
	30-59 Days		60-89 Days		90+ Days		Total Past Due		Non-Accrual		Current		Total Loans

	(In Thousands)
Commercial, financial and agricultural	$	6,311	$	317	$	968	$	7,596	$	4,417	$	2,111,485	$	2,123,498
Real estate - construction		-		-		-		-		2,377		393,021		395,398
Real estate - mortgage:
Owner-occupied commercial		4,498		-		-		4,498		2,248		1,265,913		1,272,659
1-4 family mortgage		376		703		-		1,079		921		563,121		565,121
Other mortgage		980		-		-		980		-		930,808		931,788
Total real estate - mortgage		5,854		703		-		6,557		3,169		2,759,842		2,769,568
Consumer		49		8		48		105		-		55,119		55,224
Total	$	12,214	$	1,028	$	1,016	$	14,258	$	9,963	$	5,319,467	$	5,343,688

December 31, 2016	Past Due Status (Accruing Loans)
	30-59 Days		60-89 Days		90+ Days		Total Past Due		Non-Accrual		Current		Total Loans

	(In Thousands)
Commercial, financial and agricultural	$	710	$	40	$	10	$	760	$	7,282	$	1,974,225	$	1,982,267
Real estate - construction		59		-		-		59		3,268		331,758		335,085
Real estate - mortgage:
Owner-occupied commercial		-		-		6,208		6,208		-		1,165,511		1,171,719
1-4 family mortgage		160		129		-		289		74		536,442		536,805
Other mortgage		95		811		-		906		-		829,777		830,683
Total real estate - mortgage		255		940		6,208		7,403		74		2,531,730		2,539,207
Consumer		52		17		45		114		-		55,097		55,211
Total	$	1,076	$	997	$	6,263	$	8,336	$	10,624	$	4,892,810	$	4,911,770

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

year history of net charge-offs experienced by pool, with the most recent net charge-off experience given a greater weighting. This results in the expected loss rate per year, adjusted by a qualitative adjustment factor and a years-to-impairment factor, for each pool of loans to derive the total amount of allowance for non-impaired loans.

Impaired Loans.

Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the original terms of the loan agreement. The collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or the fair value of the underlying collateral. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent. Fair value estimates for specifically impaired collateral-dependent loans are derived from appraised values based on the current market value or “as is” value of the property, normally from recently received and reviewed appraisals. Appraisals are obtained from certified and licensed appraisers and are based on certain assumptions, which

may

include construction or development status and the highest and best use of the property.

These appraisals are reviewed by our credit administration department, and values are adjusted downward to reflect anticipated disposition costs. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated for each impaired loan. As subsequent events dictate and estimated net realizable values decline, required reserves

may

be established or further adjustments recorded.

External Qualitative Factors

. The determination of the portion of the allowance for loan losses relating to external qualitative factors is based on consideration of the following factors: gross domestic product growth rate, changes in prime rate, delinquency trends, peer delinquency trends, year-over-year loan growth and state unemployment rate trends. Data for the

three

most recent periods is utilized in the calculation for each external qualitative component. The factors have a consistent weighted methodology to calculate the amount of allowance due to external qualitative factors.

Internal Qualitative Factors

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

The following table presents an analysis of the allowance for loan losses by portfolio segment and changes in the allowance for loan losses for the

three

and

six

months ended

June 30, 2017

and

June 30, 2016.

The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.

	Commercial financial and agricultural			Real estate - construction			Real estate - mortgage			Consumer			Total

	(In Thousands)
	Three Months Ended June 30, 2017
Allowance for loan losses:
Balance at March 31, 2017	$	28,707		$	4,825		$	19,962		$	398		$	53,892
Charge-offs		(3,067	)		(40	)		(106	)		(33	)		(3,246	)
Recoveries		16			14			2			-			32
Provision		3,471			339			534			37			4,381
Balance at June 30, 2017	$	29,127		$	5,138		$	20,392		$	402		$	55,059

		Three Months Ended June 30, 2016
Allowance for loan losses:
Balance at March 31, 2016	$	22,839		$	5,005		$	16,901		$	400		$	45,145
Charge-offs		(1,412	)		(355	)		(191	)		(31	)		(1,989	)
Recoveries		1			39			2			-			42
Provision		2,227			590			888			95			3,800
Balance at June 30, 2016	$	23,655		$	5,279		$	17,600		$	464		$	46,998

		Six Months Ended June 30, 2017
Allowance for loan losses:
Balance at December 31, 2016	$	28,872		$	5,125		$	17,504		$	392		$	51,893
Charge-offs		(5,922	)		(40	)		(372	)		(108	)		(6,442	)
Recoveries		206			30			4			1			241
Provision		5,971			23			3,256			117			9,367
Balance at June 30, 2017	$	29,127		$	5,138		$	20,392		$	402		$	55,059

		Six Months Ended June 30, 2016
Allowance for loan losses:
Balance at December 31, 2015	$	21,495		$	5,432		$	16,061		$	431		$	43,419
Charge-offs		(1,462	)		(736	)		(191	)		(49	)		(2,438	)
Recoveries		4			55			99			-			158
Provision		3,618			528			1,631			82			5,859
Balance at June 30, 2016	$	23,655		$	5,279		$	17,600		$	464		$	46,998

		As of June 30, 2017
Allowance for loan losses:
Individually Evaluated for Impairment	$	4,457		$	921		$	1,779		$	-		$	7,157
Collectively Evaluated for Impairment		24,670			4,217			18,613			402			47,902

Loans:
Ending Balance	$	2,123,498		$	395,398		$	2,769,568		$	55,224		$	5,343,688
Individually Evaluated for Impairment		31,430			3,420			16,171			-			51,021
Collectively Evaluated for Impairment		2,092,068			391,978			2,753,397			55,224			5,292,667

		As of December 31, 2016
Allowance for loan losses:
Individually Evaluated for Impairment	$	6,607		$	923		$	622		$	-		$	8,152
Collectively Evaluated for Impairment		22,265			4,202			16,882			392			43,741

Loans:
Ending Balance	$	1,982,267		$	335,085		$	2,539,207		$	55,211		$	4,911,770
Individually Evaluated for Impairment		27,922			4,314			13,350			3			45,589
Collectively Evaluated for Impairment		1,954,345			330,771			2,525,857			55,208			4,866,181

The following table presents details of the Company’s impaired loans as of

June 30, 2017

and

December 31, 2016,

respectively. Loans which have been fully charged off do

not

appear in the tables.

	June 30, 2017						For the three months ended June 30, 2017				For the six months ended June 30, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Average Recorded Investment		Interest Income Recognized in Period

	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	6,003	$	6,016	$	-	$	6,213	$	66	$	6,272	$	137
Real estate - construction		46		48		-		49		1		49		2
Real estate - mortgage:
Owner-occupied commercial		2,398		2,564		-		2,584		37		2,601		76
1-4 family mortgage		2,674		2,674		-		2,678		29		2,716		51
Other mortgage		732		732		-		733		10		734		21
Total real estate - mortgage		5,804		5,970		-		5,995		76		6,051		148
Consumer		-		-		-		-		-		-		-
Total with no allowance recorded		11,853		12,034		-		12,257		143		12,372		287

With an allowance recorded:
Commercial, financial and agricultural		25,427		27,127		4,457		27,760		257		27,525		541
Real estate - construction		3,374		3,374		921		3,374		14		3,374		28
Real estate - mortgage:
Owner-occupied commercial		7,774		7,774		1,205		7,774		55		7,547		134
1-4 family mortgage		1,613		1,613		260		1,617		20		1,644		42
Other mortgage		980		980		314		983		12		990		25
Total real estate - mortgage		10,367		10,367		1,779		10,374		87		10,181		201
Consumer		-		-		-		-		-		-		-
Total with allowance recorded		39,168		40,868		7,157		41,508		358		41,080		770

Total Impaired Loans:
Commercial, financial and agricultural		31,430		33,143		4,457		33,973		323		33,797		678
Real estate - construction		3,420		3,422		921		3,423		15		3,423		30
Real estate - mortgage:
Owner-occupied commercial		10,172		10,338		1,205		10,358		92		10,148		210
1-4 family mortgage		4,287		4,287		260		4,295		49		4,360		93
Other mortgage		1,712		1,712		314		1,716		22		1,724		46
Total real estate - mortgage		16,171		16,337		1,779		16,369		163		16,232		349
Consumer		-		-		-		-		-		-		-
Total impaired loans	$	51,021	$	52,902	$	7,157	$	53,765	$	501	$	53,452	$	1,057

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

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

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

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

Troubled Debt Restructurings (“TDR”) at

June 30, 2017,

December 31, 2016

and

June 30, 2016

totaled

$16.4

million,

$7.3

million and

$6.8

million, respectively. At

June 30, 2017,

the Company had a related allowance for loan losses of

$3.1

million allocated to these TDRs, compared to

$2.3

million at

December 31, 2016

and

$1.0

million at

June 30, 2016.

TDR activity by portfolio segment for the

three

and

six

months ended

June 30, 2017

is presented in the table below.

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

	Three Months Ended June 30, 2016						Six Months Ended June 30, 2016
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural		1	$	366	$	366		1	$	366	$	366
Real estate - construction		-		-		-		-		-		-
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		-		-
1-4 family mortgage		-		-		-		-		-		-
Other mortgage		1		234		234		1		234		234
Total real estate mortgage		1		234		234		1		234		234
Consumer		-		-		-		-		-		-
		2	$	600	$	600		2	$	600	$	600

There were

TDRs which defaulted during the

three

and

six

months ended

June 30, 2017

and

2016,

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

days past due and still accruing or placement on nonaccrual status. As of

June 30, 2017,

the Company’s TDRs have all resulted from term extensions, rather than from interest rate reductions or debt forgiveness.

- 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