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

Quarterly report pursuant to Section 13 or 15(d)

LOANS

LOANS

3 Months Ended

Mar. 31, 2014

Receivables [Abstract]

LOANS

NOTE 5 LOANS

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

	March 31,			December 31,
	2014			2013
	(Dollars In Thousands)
Commercial, financial and agricultural	$	1,306,058		$	1,278,649
Real estate - construction		157,127			151,868
Real estate - mortgage:
Owner-occupied commercial		711,067			710,372
1-4 family mortgage		285,368			278,621
Other mortgage		428,391			391,396
Subtotal: Real estate - mortgage		1,424,826			1,380,389
Consumer		49,786			47,962
Total Loans		2,937,797			2,858,868
Less: Allowance for loan losses		(31,728)			(30,663)
Net Loans	$	2,906,069		$	2,828,205

Commercial, financial and agricultural		44.46	%		44.73	%
Real estate - construction		5.35	%		5.31	%
Real estate - mortgage:
Owner-occupied commercial		24.20	%		24.85	%
1-4 family mortgage		9.71	%		9.74	%
Other mortgage		14.58	%		13.69	%
Subtotal: Real estate - mortgage		48.49	%		48.28	%
Consumer		1.70	%		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 presently jeopardize debt repayment. These loans are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies 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 March 31, 2014 and December 31, 2013 were as follows:

			Special
March 31, 2014	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,264,111	$	36,607	$	5,340	$	-	$	1,306,058
Real estate - construction		142,287		5,131		9,709		-		157,127
Real estate - mortgage:
Owner-occupied commercial		693,100		15,657		2,310		-		711,067
1-4 family mortgage		271,603		1,269		12,496		-		285,368
Other mortgage		414,818		8,077		5,496		-		428,391
Total real estate mortgage		1,379,521		25,003		20,302		-		1,424,826
Consumer		48,969		-		817		-		49,786
Total	$	2,834,888	$	66,741	$	36,168	$	-	$	2,937,797

			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 March 31, 2014 and December 31, 2013 were as follows:

March 31, 2014	Performing		Nonperforming		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,305,610	$	448	$	1,306,058
Real estate - construction		152,848		4,279		157,127
Real estate - mortgage:
Owner-occupied commercial		709,670		1,397		711,067
1-4 family mortgage		283,343		2,025		285,368
Other mortgage		428,148		243		428,391
Total real estate mortgage		1,421,161		3,665		1,424,826
Consumer		48,984		802		49,786
Total	$	2,928,603	$	9,194	$	2,937,797

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 March 31, 2014 and December 31, 2013 were as follows:

March 31, 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	$	1,127	$	98	$	-	$	1,225	$	448	$	1,304,385	$	1,306,058
Real estate - construction		1,755		-		15		1,770		4,264		151,093		157,127
Real estate - mortgage:
Owner-occupied commercial		224		-		-		224		1,397		709,446		711,067
1-4 family mortgage		45		169		-		214		2,025		283,129		285,368
Other mortgage		522		-		-		522		243		427,626		428,391
Total real estate - mortgage		791		169		-		960		3,665		1,420,201		1,424,826
Consumer		16		53		95		164		707		48,915		49,786
Total	$	3,689	$	320	$	110	$	4,119	$	9,084	$	2,924,594	$	2,937,797

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.

The following table presents an analysis of the allowance for loan losses by portfolio segment as of March 31, 2014 and December 31, 2013, and changes in the allowance for loan losses for the three months ended March 31, 2014 and March 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 -				Qualitative
	agricultural		construction		mortgage		Consumer		Factors		Total
	(In Thousands)
	Three Months Ended March 31, 2014
Allowance for loan losses:
Balance at December 31, 2013	$	11,170	$	5,809	$	7,495	$	855	$	5,334	$	30,663
Chargeoffs		(1,222)		(23)		(4)		(58)		-		(1,307)
Recoveries		45		8		4		1		-		58
Provision		987		264		642		153		268		2,314
Balance at March 31, 2014	$	10,980	$	6,058	$	8,137	$	951	$	5,602	$	31,728

	Three Months Ended March 31, 2013
Allowance for loan losses:
Balance at December 31, 2012	$	8,233	$	6,511	$	4,912	$	199	$	6,403	$	26,258
Chargeoffs		(887)		(1,990)		-		(1)		-		(2,878)
Recoveries		6		7		-		2		-		15
Provision		1,599		2,114		825		(36)		(218)		4,284
Balance at March 31, 2013	$	8,951	$	6,642	$	5,737	$	164	$	6,185	$	27,679

	As of March 31, 2014
Allowance for loan losses:
Individually Evaluated for Impairment	$	1,422	$	2,184	$	2,703	$	802	$	-	$	7,111
Collectively Evaluated for Impairment		9,558		3,874		5,434		149		5,602		24,617

Loans:
Ending Balance	$	1,306,058	$	157,127	$	1,424,826	$	49,786		-	$	2,937,797
Individually Tested for Impairment		3,450		9,709		20,246		802		-		34,207
Collectively Evaluated for Impairment		1,302,608		147,418		1,404,580		48,984		-		2,903,590

	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		9,178		4,212		5,513		156		5,334		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 March 31, 2014 and December 31, 2013, respectively. Loans which have been fully charged off do not appear in the table.

	March 31, 2014
							For the three months ended March 31, 2014
									Interest
			Unpaid				Average		Income
	Recorded		Principal		Related		Recorded		Recognized
	Investment		Balance		Allowance		Investment		in Period
	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	1,161	$	1,654	$	-	$	1,414	$	14
Real estate - construction		2,214		2,652		-		1,964		11
Real estate - mortgage:
Owner-occupied commercial		759		759		-		767		2
1-4 family mortgage		1,198		1,198		-		1,198		15
Other mortgage		2,306		2,306		-		2,309		35
Total real estate - mortgage		4,263		4,263		-		4,274		52
Consumer		-		-		-		-		-
Total with no allowance recorded		7,638		8,569		-		7,652		77

With an allowance recorded:
Commercial, financial and agricultural		2,289		2,429		1,422		2,312		31
Real estate - construction		7,495		7,976		2,184		7,337		45
Real estate - mortgage:
Owner-occupied commercial		1,496		1,496		449		1,520		14
1-4 family mortgage		11,297		11,297		1,546		11,297		84
Other mortgage		3,190		3,288		708		3,194		37
Total real estate - mortgage		15,983		16,081		2,703		16,011		135
Consumer		802		802		802		808		-
Total with allowance recorded		26,569		27,288		7,111		26,468		211

Total Impaired Loans:
Commercial, financial and agricultural		3,450		4,083		1,422		3,726		45
Real estate - construction		9,709		10,628		2,184		9,301		56
Real estate - mortgage:
Owner-occupied commercial		2,255		2,255		449		2,287		16
1-4 family mortgage		12,495		12,495		1,546		12,495		99
Other mortgage		5,496		5,594		708		5,503		72
Total real estate - mortgage		20,246		20,344		2,703		20,285		187
Consumer		802		802		802		808		-
Total impaired loans	$	34,207	$	35,857	$	7,111	$	34,120	$	288

	December 31, 2013
									Interest
			Unpaid				Average		Income
	Recorded		Principal		Related		Recorded		Recognized
	Investment		Balance		Allowance		Investment		In 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 March 31, 2014, December 31, 2013 and March 31, 2013 totaled $13.5 million, $14.2 million and $12.3 million, respectively. At March 31, 2014, the Company had a related allowance for loan losses of $2.1 million allocated to these TDRs, compared to $2.4 million at December 31, 2013 and $1.4 million at March 31, 2013. The Company’s TDRs have resulted primarily from allowing the borrower to pay interest-only for an extended period of time, or through interest rate reductions rather than from debt forgiveness. There are ten TDR loans to one borrower in the amount of $4.1 million in payment default status at March 31, 2014. All other loans classified as TDRs as of March 31, 2014 are performing as agreed under the terms of their restructured plans. The following table presents an analysis of TDRs as of March 31, 2014 and March 31, 2013.

	March 31, 2014						March 31, 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		3	$	1,049	$	1,049		2	$	1,121	$	1,121
Real estate - construction		7		2,078		2,078		15		3,213		3,213
Real estate - mortgage:
Owner-occupied commercial		-		-		-		6		5,907		5,907
1-4 family mortgage		4		10,073		10,073		5		1,709		1,709
Other mortgage		1		278		278		1		301		301
Total real estate mortgage		5		10,351		10,351		12		7,917		7,917
Consumer		-		-		-		-		-		-
		15	$	13,478	$	13,478		29	$	12,251	$	12,251

	Number of		Recorded		Number of		Recorded
	Contracts		Investment		Contracts		Investment
Troubled Debt Restructurings That Subsequently Defaulted Commercial, financial and agricultural		1	$	141		-	$	-
Real estate - construction		7		2,078		-		-
Real estate - mortgage:
Owner-occupied commercial		-		-		3		2,786
1-4 family mortgage		2		1,848		-		-
Other mortgage		-		-		-		-
Total real estate - mortgage		2		1,848		3		2,786
Consumer		-		-		-		-
		10	$	4,067		3	$	2,786

- 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.

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