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

9 Months Ended

Sep. 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

September 30, 2017

and

December 31, 2016:

	September 30, 2017			December 31, 2016
	(Dollars In Thousands)
Commercial, financial and agricultural	$	2,223,910		$	1,982,267
Real estate - construction		467,838			335,085
Real estate - mortgage:
Owner-occupied commercial		1,323,383			1,171,719
1-4 family mortgage		593,180			536,805
Other mortgage		962,690			830,683
Subtotal: Real estate - mortgage		2,879,253			2,539,207
Consumer		57,764			55,211
Total Loans		5,628,765			4,911,770
Less: Allowance for loan losses		(58,459	)		(51,893	)
Net Loans	$	5,570,306		$	4,859,877


Commercial, financial and agricultural		39.51	%		40.36	%
Real estate - construction		8.31	%		6.82	%
Real estate - mortgage:
Owner-occupied commercial		23.51	%		23.86	%
1-4 family mortgage		10.54	%		10.93	%
Other mortgage		17.10	%		16.91	%
Subtotal: Real estate - mortgage		51.15	%		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

September 30, 2017

and

December 31, 2016

were as follows:

September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	2,144,426	$	49,079	$	30,405	$	-	$	2,223,910
Real estate - construction		457,188		7,367		3,283		-		467,838
Real estate - mortgage:
Owner-occupied commercial		1,305,408		11,814		6,161		-		1,323,383
1-4 family mortgage		587,451		1,492		4,237		-		593,180
Other mortgage		945,548		14,118		3,024		-		962,690
Total real estate mortgage		2,838,407		27,424		13,422		-		2,879,253
Consumer		57,672		4		88		-		57,764
Total	$	5,497,693	$	83,874	$	47,198	$	-	$	5,628,765

December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,893,664	$	61,035	$	27,568	$	-	$	1,982,267
Real estate - construction		324,958		5,861		4,266		-		335,085
Real estate - mortgage:
Owner-occupied commercial		1,158,615		6,037		7,067		-		1,171,719
1-4 family mortgage		531,868		2,065		2,872		-		536,805
Other mortgage		818,724		11,224		735		-		830,683
Total real estate mortgage		2,509,207		19,326		10,674		-		2,539,207
Consumer		55,135		76		-		-		55,211
Total	$	4,782,964	$	86,298	$	42,508	$	-	$	4,911,770

Loans by performance status as of

September 30, 2017

and

December 31, 2016

were as follows:

September 30, 2017	Performing		Nonperforming		Total

	(In Thousands)
Commercial, financial and agricultural	$	2,216,004	$	7,906	$	2,223,910
Real estate - construction		465,553		2,285		467,838
Real estate - mortgage:
Owner-occupied commercial		1,320,886		2,497		1,323,383
1-4 family mortgage		591,544		1,636		593,180
Other mortgage		962,260		430		962,690
Total real estate mortgage		2,874,690		4,563		2,879,253
Consumer		57,656		108		57,764
Total	$	5,613,903	$	14,862	$	5,628,765

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

September 30, 2017

and

December 31, 2016

were as follows:

September 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	$	5,317	$	12,081	$	2,108	$	19,506	$	5,798	$	2,198,606	$	2,223,910
Real estate - construction		997		618		-		1,615		2,285		463,938		467,838
Real estate - mortgage:
Owner-occupied commercial		310		3,354		-		3,664		2,497		1,317,222		1,323,383
1-4 family mortgage		1,132		295		328		1,755		1,308		590,117		593,180
Other mortgage		-		-		-		-		430		962,260		962,690
Total real estate - mortgage		1,442		3,649		328		5,419		4,235		2,869,599		2,879,253
Consumer		102		13		70		185		38		57,541		57,764
Total	$	7,858	$	16,361	$	2,506	$	26,725	$	12,356	$	5,589,684	$	5,628,765

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

five

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

nine

months ended

September 30, 2017

and

September 30, 2016.

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

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

	(In Thousands)
	Three Months Ended September 30, 2017
Allowance for loan losses:
Balance at June 30, 2017	$	29,127		$	5,138		$	20,392		$	402		$	55,059
Charge-offs		(924	)		(16	)		(550	)		(65	)		(1,555	)
Recoveries		67			12			59			14			152
Provision		3,431			197			1,065			110			4,803
Balance at September 30, 2017	$	31,701		$	5,331		$	20,966		$	461		$	58,459

	Three Months Ended September 30, 2016
Allowance for loan losses:
Balance at June 30, 2016	$	23,655		$	5,279		$	17,600		$	464		$	46,998
Charge-offs		(1,270	)		(79	)		(144	)		(81	)		(1,574	)
Recoveries		35			9			1			-			45
Provision		3,560			(394	)		282			16			3,464
Balance at September 30, 2016	$	25,980		$	4,815		$	17,739		$	399		$	48,933

	Nine Months Ended September 30, 2017
Allowance for loan losses:
Balance at December 31, 2016	$	28,872		$	5,125		$	17,504		$	392		$	51,893
Charge-offs		(6,846	)		(56	)		(922	)		(173	)		(7,997	)
Recoveries		273			42			62			16			393
Provision		9,402			220			4,322			226			14,170
Balance at September 30, 2017	$	31,701		$	5,331		$	20,966		$	461		$	58,459

	Nine Months Ended September 30, 2016
Allowance for loan losses:
Balance at December 31, 2015	$	21,495		$	5,432		$	16,061		$	431		$	43,419
Charge-offs		(2,732	)		(815	)		(335	)		(130	)		(4,012	)
Recoveries		39			64			100			-			203
Provision		7,178			134			1,913			98			9,323
Balance at September 30, 2016	$	25,980		$	4,815		$	17,739		$	399		$	48,933

	As of September 30, 2017
Allowance for loan losses:
Individually Evaluated for Impairment	$	5,725		$	829		$	1,892		$	50		$	8,496
Collectively Evaluated for Impairment		25,976			4,502			19,074			411			49,963

Loans:
Ending Balance	$	2,223,910		$	467,838		$	2,879,253		$	57,764		$	5,628,765
Individually Evaluated for Impairment		30,405			3,328			15,789			88			49,610
Collectively Evaluated for Impairment		2,193,505			464,510			2,863,464			57,676			5,579,155

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

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

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

September 30, 2017

and

December 31, 2016,

respectively. Loans which have been fully charged off do

not

appear in the tables.

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

	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	4,671	$	4,671	$	-	$	4,770	$	52		$	4,998	$	164
Real estate - construction		45		48		-		48		1			49		2
Real estate - mortgage:
Owner-occupied commercial		2,366		2,532		-		2,551		37			2,584		113
1-4 family mortgage		1,752		1,752		-		1,756		22			1,781		67
Other mortgage		732		732		-		732		10			733		32
Total real estate - mortgage		4,850		5,016		-		5,039		69			5,098		212
Consumer		38		40		-		41		1			42		2
Total with no allowance recorded		9,604		9,775		-		9,898		123			10,187		380

With an allowance recorded:
Commercial, financial and agricultural		25,734		27,719		5,725		26,129		256			27,021		800
Real estate - construction		3,283		3,283		829		3,357		14			3,369		42
Real estate - mortgage:
Owner-occupied commercial		8,024		8,024		1,512		8,024		75			7,873		217
1-4 family mortgage		2,485		2,485		328		2,485		10			2,506		56
Other mortgage		430		980		52		974		(4	)		984		21
Total real estate - mortgage		10,939		11,489		1,892		11,483		81			11,363		294
Consumer		50		50		50		50		1			39		2
Total with allowance recorded		40,006		42,541		8,496		41,019		352			41,792		1,138

Total Impaired Loans:
Commercial, financial and agricultural		30,405		32,390		5,725		30,899		308			32,019		964
Real estate - construction		3,328		3,331		829		3,405		15			3,418		44
Real estate - mortgage:
Owner-occupied commercial		10,390		10,556		1,512		10,575		112			10,457		330
1-4 family mortgage		4,237		4,237		328		4,241		32			4,287		123
Other mortgage		1,162		1,712		52		1,706		6			1,717		53
Total real estate - mortgage		15,789		16,505		1,892		16,522		150			16,461		506
Consumer		88		90		50		91		2			81		4
Total impaired loans	$	49,610	$	52,316	$	8,496	$	50,917	$	475		$	51,979	$	1,518

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

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

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

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

Troubled Debt Restructurings (“TDR”) at

September 30, 2017,

December 31, 2016

and

September 30, 2016

totaled

$16.4

million,

$7.3

million and

$6.7

million, respectively. At

September 30, 2017,

the Company had a related allowance for loan losses of

$4.0

million allocated to these TDRs, compared to

$2.3

million at

December 31, 2016

and

$1.7

million at

September 30, 2016.

TDR activity by portfolio segment for the

three

and

nine

months ended

September 30, 2017

is presented in the table below.

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

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

There were

TDRs which defaulted during the

three

and

nine

months ended

September 30, 2017

and

2016,

and which were modified in the previous

twelve

months (i.e., the

twelve

months prior to default). For purposes of this disclosure, default is defined as

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

September 30, 2017,

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

- 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