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

Quarterly report pursuant to Section 13 or 15(d)

LOANS

LOANS

6 Months Ended

Jun. 30, 2015

Receivables [Abstract]

LOANS

NOTE 6 LOANS

The following table details the Company’s loans at June 30, 2015 and December 31, 2014:

	June 30,			December 31,
	2015			2014
	(Dollars In Thousands)
Commercial, financial and agricultural	$	1,630,134		$	1,495,092
Real estate - construction		219,607			208,769
Real estate - mortgage:
Owner-occupied commercial		930,719			793,917
1-4 family mortgage		392,245			333,455
Other mortgage		627,099			471,363
Subtotal: Real estate - mortgage		1,950,063			1,598,735
Consumer		63,930			57,262
Total Loans		3,863,734			3,359,858
Less: Allowance for loan losses		(40,020)			(35,629)
Net Loans	$	3,823,714		$	3,324,229

Commercial, financial and agricultural		42.19	%		44.50	%
Real estate - construction		5.68	%		6.21	%
Real estate - mortgage:
Owner-occupied commercial		24.09	%		23.63	%
1-4 family mortgage		10.15	%		9.92	%
Other mortgage		16.23	%		14.03	%
Subtotal: Real estate - mortgage		50.47	%		47.58	%
Consumer		1.66	%		1.71	%
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 June 30, 2015 and December 31, 2014 were as follows:

			Special
June 30, 2015	Pass		Mention		Substandard		Doubtful		Total
					(In Thousands)
Commercial, financial and agricultural	$	1,566,548	$	37,582	$	26,004	$	-	$	1,630,134
Real estate - construction		208,726		5,148		5,733		-		219,607
Real estate - mortgage:
Owner-occupied commercial		909,165		18,050		3,504		-		930,719
1-4 family mortgage		387,048		1,848		3,349		-		392,245
Other mortgage		613,360		8,798		4,941		-		627,099
Total real estate mortgage		1,909,573		28,696		11,794		-		1,950,063
Consumer		63,229		37		664		-		63,930
Total	$	3,748,076	$	71,463	$	44,195	$	-	$	3,863,734

			Special
December 31, 2014	Pass		Mention		Substandard		Doubtful		Total
					(In Thousands)
Commercial, financial and agricultural	$	1,459,356	$	25,416	$	10,320	$	-	$	1,495,092
Real estate - construction		197,727		5,332		5,710		-		208,769
Real estate - mortgage:
Owner-occupied commercial		784,492		6,848		2,577		-		793,917
1-4 family mortgage		326,316		4,253		2,886		-		333,455
Other mortgage		457,782		9,015		4,566		-		471,363
Total real estate mortgage		1,568,590		20,116		10,029		-		1,598,735
Consumer		56,559		37		666		-		57,262
Total	$	3,282,232	$	50,901	$	26,725	$	-	$	3,359,858

Loans by performance status as of June 30, 2015 and December 31, 2014 were as follows:

June 30, 2015	Performing		Nonperforming		Total
			(In Thousands)
Commercial, financial and agricultural	$	1,629,272	$	862	$	1,630,134
Real estate - construction		214,523		5,084		219,607
Real estate - mortgage:
Owner-occupied commercial		930,643		76		930,719
1-4 family mortgage		390,831		1,414		392,245
Other mortgage		626,535		564		627,099
Total real estate mortgage		1,948,009		2,054		1,950,063
Consumer		63,266		664		63,930
Total	$	3,855,070	$	8,664	$	3,863,734

December 31, 2014	Performing		Nonperforming		Total
			(In Thousands)
Commercial, financial and agricultural	$	1,493,995	$	1,097	$	1,495,092
Real estate - construction		203,720		5,049		208,769
Real estate - mortgage:
Owner-occupied commercial		793,234		683		793,917
1-4 family mortgage		331,859		1,596		333,455
Other mortgage		470,404		959		471,363
Total real estate mortgage		1,595,497		3,238		1,598,735
Consumer		56,596		666		57,262
Total	$	3,349,808	$	10,050	$	3,359,858

Loans by past due status as of June 30, 2015 and December 31, 2014 were as follows:

June 30, 2015	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	$	3,488	$	238	$	-	$	3,726	$	862	$	1,625,546	$	1,630,134
Real estate - construction		-		-		-		-		5,084		214,523		219,607
Real estate - mortgage:
Owner-occupied commercial		405		-		-		405		76		930,238		930,719
1-4 family mortgage		-		156		470		626		944		390,675		392,245
Other mortgage		-		449		-		449		564		626,086		627,099
Total real estate - mortgage		405		605		470		1,480		1,584		1,946,999		1,950,063
Consumer		18		2		-		20		664		63,246		63,930
Total	$	3,911	$	845	$	470	$	5,226	$	8,194	$	3,850,314	$	3,863,734

December 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	$	1,388	$	3,490	$	925	$	5,803	$	172	$	1,489,117	$	1,495,092
Real estate - construction		-		-		-		-		5,049		203,720		208,769
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		683		793,234		793,917
1-4 family mortgage		14		-		-		14		1,596		331,845		333,455
Other mortgage		-		-		-		-		959		470,404		471,363
Total real estate - mortgage		14		-		-		14		3,238		1,595,483		1,598,735
Consumer		21		-		-		21		666		56,575		57,262
Total	$	1,423	$	3,490	$	925	$	5,838	$	9,125	$	3,344,895	$	3,359,858

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 June 30, 2015 and December 31, 2014. 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 June 30, 2015
Allowance for loan losses:
Balance at March 31, 2015	$	16,857	$	5,889	$	13,546	$	1,064	$	37,356
Charge-offs		(1,151)		(93)		(208)		(19)		(1,471)
Recoveries		6		65		2		-		73
Provision		3,340		(187)		831		78		4,062
Balance at June 30, 2015	$	19,052	$	5,674	$	14,171	$	1,123	$	40,020

	Three Months Ended June 30, 2014
Allowance for loan losses:
Balance at March 31, 2014	$	13,505	$	6,341	$	10,837	$	1,045	$	31,728
Charge-offs		(142)		(325)		(890)		(18)		(1,375)
Recoveries		1		180		10		2		193
Provision		273		538		1,566		61		2,438
Balance at June 30, 2014	$	13,637	$	6,734	$	11,523	$	1,090	$	32,984

	Six Months Ended June 30, 2015
Allowance for loan losses:
Balance at December 31, 2014	$	16,079	$	6,395	$	12,112	$	1,043	$	35,629
Charge-offs		(1,228)		(475)		(641)		(24)		(2,368)
Recoveries		25		164		103		-		292
Provision		4,176		(410)		2,597		104		6,467
Balance at June 30, 2015	$	19,052	$	5,674	$	14,171	$	1,123	$	40,020

	Six Months Ended June 30, 2014
Allowance for loan losses:
Balance at December 31, 2013	$	13,576	$	6,078	$	10,065	$	944	$	30,663
Charge-offs		(1,364)		(348)		(894)		(76)		(2,682)
Recoveries		46		188		14		3		251
Provision		1,379		816		2,338		219		4,752
Balance at June 30, 2014	$	13,637	$	6,734	$	11,523	$	1,090	$	32,984

	As of June 30, 2015
Allowance for loan losses:
Individually Evaluated for Impairment		3,235		1,233		1,252		664		6,384
Collectively Evaluated for Impairment		15,817		4,441		12,919		459		33,636

Loans:
Ending Balance	$	1,630,134	$	219,607	$	1,950,063	$	63,930	$	3,863,734
Individually Evaluated for Impairment		26,030		5,788		14,564		685		47,067
Collectively Evaluated for Impairment		1,604,104		213,819		1,935,499		63,245		3,816,667

	As of December 31, 2014
Allowance for loan losses:
Individually Evaluated for Impairment		1,344		1,448		1,636		666		5,094
Collectively Evaluated for Impairment		14,735		4,947		10,476		377		30,535

Loans:
Ending Balance	$	1,495,092	$	208,769	$	1,598,735	$	57,262	$	3,359,858
Individually Evaluated for Impairment		10,350		5,680		10,029		666		26,725
Collectively Evaluated for Impairment		1,484,742		203,089		1,588,706		56,596		3,333,133

The following table presents details of the Company’s impaired loans as of June 30, 2015 and December 31, 2014, respectively. Loans which have been fully charged off do not appear in the tables.

							For the three months				For the six months
							ended June 30,				ended June 30,
	June 30, 2015						2015				2015
									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	$	3,315	$	3,323	$	-	$	3,313	$	45	$	3,376	$	63
Real estate - construction		1,450		1,452		-		1,453		7		1,480		15
Real estate - mortgage:
Owner-occupied commercial		4,127		4,285		-		4,127		23		4,133		59
1-4 family mortgage		2,362		2,650		-		2,367		18		2,354		38
Other mortgage		2,606		2,779		-		2,651		41		2,644		83
Total real estate - mortgage		9,095		9,714		-		9,145		82		9,131		180
Consumer		21		26		-		21		-		22		-
Total with no allowance recorded		13,881		14,515		-		13,932		134		14,009		258

With an allowance recorded:
Commercial, financial and agricultural		22,715		22,715		3,235		22,739		365		22,707		657
Real estate - construction		4,338		4,338		1,233		4,811		-		4,603		-
Real estate - mortgage:
Owner-occupied commercial		2,054		2,054		105		2,059		31		2,067		62
1-4 family mortgage		1,080		1,080		448		1,082		11		1,082		22
Other mortgage		2,335		2,328		699		2,335		20		2,542		40
Total real estate - mortgage		5,469		5,462		1,252		5,476		62		5,691		124
Consumer		664		664		664		664		-		664		5
Total with allowance recorded		33,186		33,179		6,384		33,690		427		33,665		786

Total Impaired Loans:
Commercial, financial and agricultural		26,030		26,038		3,235		26,052		410		26,083		720
Real estate - construction		5,788		5,790		1,233		6,264		7		6,083		15
Real estate - mortgage:
Owner-occupied commercial		6,181		6,339		105		6,186		54		6,200		121
1-4 family mortgage		3,442		3,730		448		3,449		29		3,436		60
Other mortgage		4,941		5,107		699		4,986		61		5,186		123
Total real estate - mortgage		14,564		15,176		1,252		14,621		144		14,822		304
Consumer		685		690		664		685		-		686		5
Total impaired loans	$	47,067	$	47,694	$	6,384	$	47,622	$	561	$	47,674	$	1,044

December 31, 2014
			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	$	7,059	$	7,059	$	-	$	7,104	$	406
Real estate - construction		1,527		1,527		-		1,493		40
Real estate - mortgage:
Owner-occupied commercial		1,576		1,576		-		236		12
1-4 family mortgage		542		592		-		592		19
Other mortgage		1,944		1,944		-		2,283		142
Total real estate - mortgage		4,062		4,112		-		3,111		173
Consumer		-		-		-		-		-
Total with no allowance recorded		12,648		12,698		-		11,708		619

With an allowance recorded:
Commercial, financial and agricultural		3,291		3,291		1,344		3,262		156
Real estate - construction		4,153		4,633		1,448		4,382		19
Real estate - mortgage:
Owner-occupied commercial		1,001		1,001		160		1,140		29
1-4 family mortgage		2,344		2,344		694		2,743		56
Other mortgage		2,622		2,622		782		2,767		84
Total real estate - mortgage		5,967		5,967		1,636		6,650		169
Consumer		666		666		666		681		-
Total with allowance recorded		14,077		14,557		5,094		14,975		344

Total Impaired Loans:
Commercial, financial and agricultural		10,350		10,350		1,344		10,366		562
Real estate - construction		5,680		6,160		1,448		5,875		59
Real estate - mortgage:
Owner-occupied commercial		2,577		2,577		160		1,376		41
1-4 family mortgage		2,886		2,936		694		3,335		75
Other mortgage		4,566		4,566		782		5,050		226
Total real estate - mortgage		10,029		10,079		1,636		9,761		342
Consumer		666		666		666		681		-
Total impaired loans	$	26,725	$	27,255	$	5,094	$	26,683	$	963

Troubled Debt Restructurings (“TDR”) at June 30, 2015, December 31, 2014 and June 30, 2014 totaled $8.3 million, $ 9.0 million and $9.2 million, respectively. At June 30, 2015, the Company had a related allowance for loan losses of $1.2 million allocated to these TDRs, compared to $1.0 million at December 31, 2014 and $2.2 million at June 30, 2014. All loans classified as TDRs were performing as agreed under the terms of their restructured plans as of June 30, 2015. There were seven TDR loans to one borrower totaling $2.2 million in payment default status as of June 30, 2014. There were no modifications made to new TDRs or renewals of existing TDRs for the three and six months ended June 30, 2015. TDR activity by portfolio segment for the three and six months ended June 30, 2014 is presented in the table below.

	Three Months Ended June 30, 2014						Six Months Ended June 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	$	499	$	499		1	$	499	$	499
Real estate - construction		-		-		-		-		-		-
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		-		-
1-4 family mortgage		-		-		-		-		-		-
Other mortgage		1		1,409		1,409		1		1,409		1,409
Total real estate mortgage		1		1,409		1,409		1		1,409		1,409
Consumer		-		-		-		-		-		-
		2	$	1,908	$	1,908		2	$	1,908	$	1,908

There were no TDRs which defaulted during the three and six months ended June 30, 2015 and 2014, 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.