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Section 1: 10-Q/A (FORM 10-Q/A)

sfbs20200331_10q.htm
Form 10-Q/A true 0001430723 xbrli:shares iso4217:USD 0001430723 2020-03-31 2020-03-31 0001430723 2020-04-27
--12-31 Q1 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q/A
Amendment No. 1
 
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
             
             For the transition period from _______to_______
 
 
Commission file number 001-36452
 
SERVISFIRST BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
26-0734029
(State or Other Jurisdiction of 
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 
2500 Woodcrest Place, Birmingham, Alabama
35209
(Address of Principal Executive Offices)
(Zip Code)
 
(205) 949-0302
(Registrant's Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common stock, par value $.001 per share
SFBS
NASDAQ Global Select Market
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company Emerging growth company 
 
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  No ☒
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
 
Class Outstanding as of April 27, 2020
Common stock, $.001 par value 53,844,009
 
 
 
 
 
 

 
EXPLANATORY NOTE
 
ServisFirst Bancshares, Inc., a Delaware corporation, together with its subsidiaries, including ServisFirst Bank, the “Company”, which may also be referred to as “we”, “our”, “us”, “ServisFirst Bancshares”, and “ServisFirst”, is filing this Amendment No. 1 to Quarterly Report on Form 10-Q/A (the “Amendment”) to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, which was filed with the Securities and Exchange Commission on April 30, 2020 (the “Original Filing”). The Company is filing this Amendment solely for the purpose of correcting in Item 2 of its Form 10-Q for the quarterly period ended March 31, 2020 the table setting forth capital ratios required by the FDIC and Alabama Banking Department, which was inadvertently misstated with respect to the data shown as of  March 31, 2020.  There were no other changes to the Original Filing.
 
 
 
 
 
 
 
 
 
 
 
 
 

 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION 4
        Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
        Item 6. Exhibits 16
 
 
 
 
 
 
 
 
 
 
3

 
PART 1. FINANCIAL INFORMATION
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc. (the “Company”) and its wholly owned subsidiary, ServisFirst Bank (the “Bank”). This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated balance sheets as of March 31, 2020 and December 31, 2019 and consolidated statements of income for the three months ended March 31, 2020 and March 31, 2019.
 
Forward-Looking Statements
 
Statements in this document that are not historical facts, including, but not limited to, statements concerning future operations, results or performance, are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words “believe,” “expect,” “anticipate,” “project,” “plan,” “intend,” “will,” “could,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. The Company cautions that such forward-looking statements, wherever they occur in this quarterly report or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.  Such forward-looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including, but not limited to: the global health and economic crisis precipitated by the COVID-19 outbreak; general economic conditions, especially in the credit markets and in the Southeast; the performance of the capital markets; changes in interest rates, yield curves and interest rate spread relationships; changes in accounting and tax principles, policies or guidelines; changes in legislation or regulatory requirements; changes in our loan portfolio and deposit base; economic crisis and associated credit issues in industries most impacted by the COVID-19 outbreak, including but not limited to, the restaurant, hospitality and retail sectors; possible changes in laws and regulations and governmental monetary and fiscal policies; the cost and other effects of legal and administrative cases and similar contingencies; possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and the value of collateral; the effect of natural disasters, such as hurricanes and tornados, in our geographic markets; and increased competition from both banks and non-banks.  The foregoing list of factors is not exhaustive. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K and our other SEC filings. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.  The Company assumes no obligation to update or revise any forward-looking statements that are made from time to time.
 
Business
 
We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama.  Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides commercial banking services through 20 full-service banking offices located in Alabama, Tampa Bay, Florida, the panhandle of Florida, the greater Atlanta, Georgia metropolitan area, Charleston, South Carolina, and Nashville, Tennessee.  Through the bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.
 
Our principal business is to accept deposits from the public and to make loans and other investments. Our principal sources of funds for loans and investments are demand, time, savings, and other deposits. Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.
 
Overview
 
As of March 31, 2020, we had consolidated total assets of $9.36 billion, up $417.2 million, or 4.7%, from total assets of $8.95 billion at December 31, 2019.  Total loans were $7.57 billion at March 31, 2020, up $307.4 million, or 4.2%, from $7.26 billion at December 31, 2019. Total deposits were $7.83 billion at March 31, 2020, up $302.2 million, or 4.0%, from $7.53 billion at December 31, 2019.
 
 
4

 
Net income available to common stockholders for the three months ended March 31, 2020 was $34.8 million, down $232,000, or 0.6%, from $35.0 million for the three months ended March 31, 2019.  Basic and diluted earnings per common share were $0.65 and $0.64, respectively, for the three months ended March 31, 2020, compared to $0.65 and  $0.65, respectively, for the corresponding period in 2019.  An increase in net interest income of $8.9 million for the comparative periods contributed to the increase in net income.  Partially offsetting the increase in net interest income were increases in salary expenses, other operating expenses, and provision for loan losses.  Changes in income and expenses are more fully explained in “Results of Operations” below.
 
Critical Accounting Policies
 
The accounting and financial policies of the Company conform to U.S. GAAP and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, valuation of foreclosed real estate, deferred taxes, and fair value of financial instruments are particularly subject to change.  Information concerning our accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
 
Financial Condition
 
Cash and Cash Equivalents
 
At March 31, 2020, we had $306.1 million in federal funds sold, compared to $100.5 million at December 31, 2019.  We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest.  At March 31, 2020, we had $67.4 million in balances at the Federal Reserve, compared to $61.9 million at December 31, 2019.  Our increase in federal funds sold were the result of an increase in funds sold on the American Financial Exchange during the first quarter of 2020.
 
Investment Securities
 
Debt securities available for sale totaled $826.8 million at March 31, 2020 and $759.4 million at December 31, 2019.  Investment securities held to maturity totaled $250,000 at March 31, 2020 and December 31, 2019, respectively. We had pay downs of $20.8 million on mortgage-backed securities and calls and maturities of $5.9 million and $245,000 on municipal securities and certificates of deposit, respectively during the first three months of 2020. We bought $80.2 million of mortgage-backed securities during the first three months of 2020.
 
The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure.  In doing so, we seek to balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs.  The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities.  The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting.  The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer-term securities purchased to generate level income for us over periods of interest rate fluctuations.
 
Each quarter, management assesses whether there have been events or economic circumstances indicating that a security on which there is an unrealized loss is other-than-temporarily impaired.  Management considers several factors, including the amount and duration of the impairment; the intent and ability of the Company to hold the security for a period sufficient for a recovery in value; and known recent events specific to the issuer or its industry.  In analyzing an issuer’s financial condition, management considers whether the securities are issued by agencies of the federal government, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports, among other things. As we currently do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, which may be at maturity, no declines are deemed to be other than temporary.  We will continue to evaluate our investment securities for possible other-than-temporary impairment, which could result in non-cash charges to earnings in one or more future periods. All securities held are traded in liquid markets.
 
Lower market interest rates resulting from the financial crisis related to the COVID-19 pandemic have caused the market values of most of our investment securities to increase.  Our unrealized gains on investments have increased from $7.2 million as of December 31, 2019 to $22.0 million as of March 31, 2020.
 
 
5

 
The Company does not invest in collateralized debt obligations (“CDOs”). We have $160.6 million of bank holding company subordinated notes.  All such bonds were rated BBB or better by Kroll Bond Rating Agency at the time of our investment in them.  All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased.  The total investment portfolio as of March 31, 2020 has a combined average credit rating of AA.
 
The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $374.3 million and $389.9 million as of March 31, 2020 and December 31, 2019, respectively.
 
Loans
 
As of March 31, 2020, the Company had executed 730 loan modifications with payment deferrals on outstanding loan balances of $574.7 million in connection with the COVID-19 relief provided by the CARES Act.  Almost all of these were principal only deferrals, were generally no more than three months in duration and were not considered troubled debt restructurings based on interagency guidance issued in March 2020.  We anticipate continuing payment deferrals as provided by the CARES Act during 2020.
 
We had total loans of $7.57 billion at March 31, 2020, up  $307.4 million, or 4.2%, compared to $7.26 billion at December 31, 2019.  At March 31, 2020, the percentage of our total loans in each of our markets was as follows:
 
   
Percentage of Total Loans in MSA
 
Birmingham, AL
    40.7
%
Huntsville, AL
    8.1
%
Dothan, AL
    8.8
%
Montgomery, AL
    5.5
%
Mobile, AL
    6.0
%
Total Alabama MSAs
    69.1
%
Pensacola, FL
    6.0
%
West Florida (1)
    4.5
%
Total Florida MSAs
    10.5
%
Nashville, TN
    10.2
%
Atlanta, GA
    6.2
%
Charleston, SC
    4.0
%
 
Asset Quality
 
The Company determined to delay its adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” until the earlier of the date on which the national emergency concerning COVID-19 terminates or December 31, 2020, as outlined in the CARES Act, with an effective retrospective implementation date of January 1, 2020.  Accordingly, the Company will continue to use the incurred loss methodology to calculate the allowance for loan losses until the earlier of either event.
 
The allowance for loan losses, sometimes referred to as the “ALLL,” is established and maintained at levels management deems adequate to absorb anticipated credit losses from identified and otherwise inherent risks in the loan portfolio as of the balance sheet date. In assessing the adequacy of the allowance for loan losses, management considers its evaluation of the loan portfolio, past due loan experience, collateral values, current economic conditions and other factors considered necessary to maintain the allowance at an adequate level.  If the ALLL is considered inadequate to absorb future loan losses on existing loans for any reason, including but not limited to, increases in the size of the loan portfolio, increases in charge-offs or changes in the risk characteristics of the loan portfolio, then the provision for loan losses is increased.  Our management believes that the allowance was adequate at March 31, 2020.
 
Our management reviews the adequacy of the ALLL on a quarterly basis. The ALLL calculation is segregated into various segments that include classified loans, loans with specific allocations and pass rated loans. A pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss. Loans are rated using a nine-point risk grade scale with loan officers having the primary responsibility for assigning risk grades and for the timely reporting of changes in the risk grades. Based on these processes, and the assigned risk grades, the criticized and classified loans in the portfolio are segregated into the following regulatory classifications: Special Mention, Substandard, Doubtful or Loss, with some general allocation of reserve based on these grades. At March 31, 2020, total loans rated Special Mention, Substandard, and Doubtful were $101.8 million, or 1.3% of total loans, compared to $123.7 million, or 1.7% of total loans, at December 31, 2019. Reserve percentages assigned to non-impaired loans are based on historical charge-off experience adjusted for other risk factors. To evaluate the overall adequacy of the ALLL to absorb losses inherent in our loan portfolio, our management considers historical loss experience based on volume and types of loans, trends in classifications, volume and trends in delinquencies and nonaccruals, economic conditions, including the economic distress caused by the COVID-19 pandemic and other pertinent information. Based on future evaluations, additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level.
 
 
6

 
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 reviewed specifically and separately under FASB ASC 310-30-35, Subsequent Measurement of Impaired Loans, to determine the appropriate reserve allocation. Impaired loans are measured based on the present value of expected future cash flows discounted at the interest rate implicit in the original loan agreement, or, as a practical expedient, 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.
 
   
As of and for the Three Months Ended
 
   
March 31,
 
   
2020
   
2019
 
   
(Dollars in thousands)
 
Total loans outstanding, net of unearned income
  $ 7,568,836     $ 6,659,908  
Average loans outstanding, net of unearned income
  $ 7,361,149     $ 6,601,497  
Allowance for loan losses at beginning of period
    76,584       68,600  
Charge-offs:
               
Commercial, financial and agricultural loans
    2,640       3,037  
Real estate - construction
    454       -  
Real estate - mortgage
    1,678       50  
Consumer loans
    58       218  
Total charge-offs
    4,830       3,305  
Recoveries:
               
Commercial, financial and agricultural loans
    62       12  
Real estate - construction
    1       1  
Real estate - mortgage
    1       7  
Consumer loans
    12       7  
Total recoveries
    76       27  
Net charge-offs
    4,754       3,278  
Provision for loan losses
    13,584       4,885  
Allowance for loan losses at period end
  $ 85,414     $ 70,207  
Allowance for loan losses to period end loans
    1.13
%
    1.05
%
Net charge-offs to average loans
    0.26
%
    0.20
%
 
 
           
Percentage
 
           
of loans in
 
           
each
 
           
category to
 
March 31, 2020
 
Amount
   
total loans
 
   
(In Thousands)
 
Commercial, financial and agricultural
  $ 48,780       36.61
%
Real estate - construction
    3,757       7.25
%
Real estate - mortgage
    32,360       55.34
%
Consumer
    517       0.80
%
Total
  $ 85,414       100.00
%
 
           
Percentage
 
           
of loans in
 
           
each
 
           
category to
 
December 31, 2019
 
Amount
   
total loans
 
   
(In Thousands)
 
Commercial, financial and agricultural
  $ 43,666       37.13
%
Real estate - construction
    2,768       7.18
%
Real estate - mortgage
    29,653       54.80
%
Consumer
    497       0.89
%
Total
  $ 76,584       100.00
%
 
 
7

 
Nonperforming Assets
 
Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to $33.9 million at March 31, 2020 compared to $36.1 million at December 31, 2019.  Of this total, nonaccrual loans of $28.9 million at March 31, 2020 represented a net decrease of $1.2 million from nonaccrual loans at December 31, 2019.  Excluding credit card accounts, there was one loan 90 or more days past due and still accruing totaling $4.9 million at March 31, 2020, compared to one loan totaling $5.0 million at December 31, 2019.  Troubled Debt Restructurings (“TDR”) at March 31, 2020 and December 31, 2019 were $2.4 million and $3.3 million, respectively.  There was one loan newly classified as a TDR totaling $350,000 and no renewals of existing TDRs for the three months ended March 31, 2020.  There were no modifications made to new TDRs or renewals of existing TDRs for the three months ended March 31, 2019.
 
OREO and repossessed assets decreased to $7.5 million at March 31, 2020, from $8.2 million at December 31, 2019.  The following table summarizes OREO and repossessed asset activity for the three months ended March 31, 2020 and 2019:
 
   
Three months ended March 31,
 
   
2020
   
2019
 
   
(In thousands)
 
Balance at beginning of period
  $ 8,178     $ 5,169  
Transfers from loans and capitalized expenses
    287       381  
Proceeds from sales
    (454 )     (48 )
Write-downs / net gain (loss) on sales
    (563 )     (22 )
Balance at end of period
  $ 7,448     $ 5,480  
 
 
The following table summarizes our nonperforming assets and TDRs at March 31, 2020 and December 31, 2019:
 
   
March 31, 2020
   
December 31, 2019
 
           
Number of
           
Number of
 
   
Balance
   
Loans
   
Balance
   
Loans
 
   
(Dollar Amounts In Thousands)
 
Nonaccrual loans:
                               
Commercial, financial and agricultural
  $ 15,130       26     $ 14,729       29  
Real estate - construction
    1,804       4       1,588       2  
Real estate - mortgage:
                               
Owner-occupied commercial
    10,235       5       10,826       3  
1-4 family mortgage
    1,736       9       1,440       5  
Other mortgage
    -       -       1,507       1  
Total real estate - mortgage
    11,971       14       13,773       9  
Consumer
    9       1       -       -  
Total Nonaccrual loans:
  $ 28,914       45     $ 30,090       40  
                                 
90+ days past due and accruing:
                               
Commercial, financial and agricultural
  $ 45       3     $ 201       3  
Real estate - construction
    -       -       -       -  
Real estate - mortgage:
                               
Owner-occupied commercial
    -       -       -       -  
1-4 family mortgage
    -       -       873       5  
Other mortgage
    4,893       1       4,924       1  
Total real estate - mortgage
    4,893       1       5,797       6  
Consumer
    16       4       23       8  
Total 90+ days past due and accruing:
  $ 4,954       8     $ 6,021       17  
                                 
Total Nonperforming Loans:
  $ 33,868       53     $ 36,111       57  
                                 
Plus: Other real estate owned and repossessions
    7,448       10       8,178       12  
Total Nonperforming Assets
  $ 41,316       63     $ 44,289       69  
                                 
Restructured accruing loans:
                               
Commercial, financial and agricultural
  $ 975       3     $ 625       2  
Real estate - construction
    -       -       -       -  
Real estate - mortgage:
                               
Owner-occupied commercial
    -       -       -       -  
1-4 family mortgage
    -       -       -       -  
Other mortgage
    -       -       -       -  
Total real estate - mortgage
    -       -       -       -  
Consumer
    -       -       -       -  
Total restructured accruing loans:
  $ 975       3     $ 625       2  
Total Nonperforming assets and restructured accruing loans
  $ 42,291       66     $ 44,914       71  
                                 
Ratios:
                               
Nonperforming loans to total loans
    0.45
%
            0.50
%
       
Nonperforming assets to total loans plus other real estate owned and repossessions
    0.55
%
            0.61
%
       
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions
    0.56
%
            0.62
%
       
 
 
8

 
The balance of nonperforming assets can fluctuate due to changes in economic conditions.  We have established a policy to discontinue accruing interest on a loan (i.e., place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible.  Interest income on nonaccrual loans is recognized only as received. If we believe that a loan will not be collected in full, we will increase the allowance for loan losses to reflect management’s estimate of any potential exposure or loss.  Generally, payments received on nonaccrual loans are applied directly to principal.  We have adjusted our policy to continue the accrual of interest on loans which we have executed payment deferrals on in connection with the CARES Act.  These deferrals are generally no more than three months in duration and were not considered troubled debt restructurings based on interagency guidance issued in March 2020.
 
Impaired Loans and Allowance for Loan Losses
 
As of March 31, 2020, we had impaired loans of $60.5 million inclusive of nonaccrual loans, an increase of $17.4 million from $43.1 million as of December 31, 2019.  This increase is primarily attributable to one commercial relationship classified as impaired at March 31, 2020, totaling $20.0 million.  We allocated $10.1 million of our allowance for loan losses at March 31, 2020 to these impaired loans, an increase of $0.3 million compared to $9.8 million as of December 31, 2019. A loan is considered impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the original loan agreement. Impairment does not always indicate credit loss but provides an indication of collateral exposure based on prevailing market conditions and third-party valuations. Impaired loans are measured by either the present value of expected future cash flows discounted at the interest rate implicit in the original loan agreement, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent. The amount of impairment, if any, and subsequent changes are included in the allowance for loan losses. Interest on accruing loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Our credit administration team performs verification and testing to ensure appropriate identification of impaired loans and that proper reserves are held on these loans. 
 
Of the $60.5 million of impaired loans reported as of March 31, 2020, $44.9 million were commercial, financial and agricultural loans, $1.8 million were real estate – construction loans, $13.8 million were real estate - mortgage loans and $9,000 were consumer loans.
 
Deposits
 
Total deposits increased by $302.0 million to $7.83 billion at March 31, 2020 compared to $7.53 billion at December 31, 2019.  We anticipate long-term sustainable growth in deposits through continued development of market share in our less mature markets and through organic growth in our mature markets.
 
For amounts and rates of our deposits by category, see the table “Average Consolidated Balance Sheets and Net Interest Analysis on a Fully Taxable-equivalent Basis” under the subheading “Net Interest Income” below.
 
9

 
The following table summarizes balances of our deposits and the percentage of each type to the total at March 31, 2020 and December 31, 2019.
 
   
March 31, 2020
   
December 31, 2019
 
Non-interest-bearing demand
  $ 1,925,626       24.58
%
  $ 1,749,879       23.24
%
Interest-bearing
    5,064,699       64.66
%
    4,986,155       66.21
%
Savings
    67,434       0.86
%
    65,808       0.87
%
Time deposits, $250,000 and under
    281,085       3.59
%
    267,259       3.55
%
Time deposits, over $250,000
    493,811       6.30
%
    461,332       6.13
%
    $ 7,832,655       100.00
%
  $ 7,530,433       100.00
%
 
Borrowings
 
Our borrowings consist of federal funds purchased and subordinated notes payable.  We had $543.6 million and $470.7 million at March 31, 2020 and December 31, 2019, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was 0.20% for the quarter ended March 31, 2020.  Other borrowings consist of the following:
 
 
$34.78 million of 5% Subordinated Notes due July 15, 2025, which were issued in a private placement in July 2015 and pay interest semi-annually; and
 
$30.0 million of 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually.
 
Liquidity
 
Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, and other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.
 
The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity was to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding.  At March 31, 2020, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $1.2 billion.  Additionally, the Bank had borrowing availability of approximately $772.0 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements. We believe these sources of funding are adequate to meet immediate anticipated funding needs, but we may need additional funding if we are able to maintain our current growth rate into the future.
 
 
We anticipate the need for short-term funding of PPP loans and have applied with the Federal Reserve Bank of Atlanta to participate in their PPP Liquidity Facility (“PPPLF”).  The PPPLF will allow us to use PPP loans as collateral to borrow funds from the FRB-Atlanta at a rate of 0.35% for a certain period of time.  We currently anticipate that the vast majority of the loans we make through the PPP will be totally forgiven by the SBA by the end of the second quarter of 2020, or soon thereafter.
 
Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits.  In addition, we have issued debt as described above under “Borrowings.”
 
We are subject to general FDIC guidelines that require a minimum level of liquidity. Management believes our liquidity ratios meet or exceed these guidelines. However, uncertainties brought about by the COVID-19 pandemic may adversely affect our ability to obtain funding or may increase the cost of funding.
 
10

 
The following table reflects the contractual maturities of our term liabilities as of March 31, 2020. The amounts shown do not reflect any early withdrawal or prepayment assumptions.
 
   
Payments due by Period
 
                                         
   
Total
   
1 year or less
   
1 - 3 years
   
3 - 5 years
   
Over 5 years
 
   
(In Thousands)
 
Contractual Obligations (1)
                                       
                                         
Deposits without a stated maturity
  $ 6,957,760     $ -     $ -     $ -     $ -  
Certificates of deposit (2)
    874,895       459,095       340,605       75,195       -  
Federal funds purchased
    543,623       543,623       -       -       -  
Subordinated notes payable
    64,707       -       -       -       64,707  
Operating lease commitments
    12,593       2,872       4,747       2,781       2,193  
Total
  $ 8,453,578     $ 1,005,590     $ 345,352     $ 77,976     $ 66,900  
 
(1) Excludes interest.
                                       
(2) Certificates of deposit give customers the right to early withdrawal. Early withdrawals may be subject to penalties. The penalty amount depends on the remaining time to maturity at the time of early withdrawal.
 
 
Capital Adequacy
 
As of March 31, 2020, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, we must maintain minimum common equity Tier 1, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of March 31, 2020.
 
The following table sets forth (i) the capital ratios required by the FDIC and the Alabama Banking Department’s leverage ratio requirement and (ii) our actual ratios of capital to total regulatory or risk-weighted assets, as of March 31, 2020, December 31, 2019 and March 31, 2019:
 
   
Actual
 
For Capital Adequacy
Purposes
   
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
 
   
Amount
   
Ratio
     
Amount
   
Ratio
   
Amount
   
Ratio
 
As of March 31, 2020:
                                                 
CET 1 Capital to Risk Weighted Assets:
                                                 
Consolidated
  $ 849,949       10.46
%
    $ 365,531       4.50
%
    N/A       N/A  
ServisFirst Bank
    912,858       11.24
%
      365,460       4.50
%
  $ 527,886       6.50
%
Tier 1 Capital to Risk Weighted Assets:
                                                 
Consolidated
    850,451       10.47
%
      487,375       6.00
%
    N/A       N/A  
ServisFirst Bank
    913,360       11.25
%
      487,280       6.00
%
    649,706       8.00
%
Total Capital to Risk Weighted Assets:
                                                 
Consolidated
    1,001,072       12.32
%
      649,833       8.00
%
    N/A       N/A  
ServisFirst Bank
    999,274       12.30
%
      649,706       8.00
%
    812,133       10.00
%
Tier 1 Capital to Average Assets:
                                                 
Consolidated
    850,451       9.37
%
      363,121       4.00
%
    N/A       N/A  
ServisFirst Bank
    913,360       10.06
%
      363,065       4.00
%
    453,831       5.00
%
                                                   
As of December 31, 2019:
                                                 
CET 1 Capital to Risk Weighted Assets:
                                                 
Consolidated
  $ 822,396       10.50
%
    $ 342,283       4.50
%
    N/A       N/A  
ServisFirst Bank
    885,172       11.30
%
      342,269       4.50
%
  $ 494,389       6.50
%
Tier 1 Capital to Risk Weighted Assets:
                                                 
Consolidated
    822,896       10.50
%
      456,377       6.00
%
    N/A       N/A  
ServisFirst Bank
    885,674       11.31
%
      456,359       6.00
%
    608,479       8.00
%
Total Capital to Risk Weighted Assets:
                                                 
Consolidated
    964,683       12.31
%
      608,502       8.00
%
    N/A       N/A  
ServisFirst Bank
    962,758       12.29
%
      608,479       8.00
%
    760,598       10.00
%
Tier 1 Capital to Average Assets:
                                                 
Consolidated
    822,896       9.13
%
      356,012       4.00
%
    N/A       N/A  
ServisFirst Bank
    885,674       9.83
%
      355,998       4.00
%
    444,997       5.00
%
                                                   
As of March 31, 2019:
                                                 
CET 1 Capital to Risk Weighted Assets:
                                                 
Consolidated
  $ 731,864       10.30
%
    $ 319,875       4.50
%
    N/A       N/A  
ServisFirst Bank
    796,506       11.21
%
      319,851       4.50
%
  $ 462,007       6.50
%
Tier 1 Capital to Risk Weighted Assets:
                                                 
Consolidated
    732,366       10.30
%
      426,500       6.00
%
    N/A       N/A  
ServisFirst Bank
    797,008       11.21
%
      426,468       6.00
%
    568,624       8.00
%
Total Capital to Risk Weighted Assets:
                                                 
Consolidated
    867,748       12.21
%
      568,667       8.00
%
    N/A       N/A  
ServisFirst Bank
    838,216       12.21
%
      568,624       8.00
%
    710,780       10.00
%
Tier 1 Capital to Average Assets:
                                                 
Consolidated
    732,366       9.03
%
      324,553       4.00
%
    N/A       N/A  
ServisFirst Bank
    797,008       9.82
%
      324,537       4.00
%
    405,671       5.00
%
 
11

 
Off-Balance Sheet Arrangements
 
In the normal course of business, we are a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in our balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial instruments.
 
Our exposure to credit loss in the event of non-performance by the other party to such financial instruments is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.  As of March 31, 2020, we had reserves of $0.5 million for losses on such off-balance sheet arrangements consistent with guidance in the Federal Reserve Bank’s Interagency Policy Statement SR 06-17.
 
As part of our mortgage operations, we originate and sell certain loans to investors in the secondary market.  We continue to experience a manageable level of investor repurchase demands.  For loans sold, we have an obligation to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations and warranties made by the Bank at the time of the sale.  Representations and warranties typically include those made regarding loans that had missing or insufficient file documentation or loans obtained through fraud by borrowers or other third parties such as appraisers.  We had a reserve of $0.4 million as of March 31, 2020 and December 31, 2019 for the settlement of any repurchase demands by investors.
 
Financial instruments whose contract amounts represent credit risk at March 31, 2020 are as follows:
 
   
March 31, 2020
 
   
(In Thousands)
 
Commitments to extend credit
  $ 2,265,133  
Credit card arrangements
    247,976  
Standby letters of credit
    73,135  
    $ 2,586,244  
 
Commitments to extend credit beyond current funded amounts are agreements to lend to a customer as long as there is no violation of any condition established in the applicable loan agreement. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by us upon extension of credit is based on our management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
 
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. All letters of credit are due within one year or less of the original commitment date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
 
Results of Operations
 
Summary of Net Income  
 
Net income and net income available to common stockholders for the three months ended March 31, 2020 was  $34.8 million compared to  $35.0 million for the three months ended March 31, 2019.  The decrease in net income was primarily attributable to a $8.7 million increase in provision for loan losses during the three months ended March 31, 2020 over the amount provided during the same period in 2019.  Total noninterest expenses increased by $2.6 million during the three months ended March 31, 2020 compared to expenses during the same period in 2019. Net interest income increased by $8.9 million during the three months ended March 31, 2020 compared to the same period in 2019, mostly the result of growth in total average earning assets and lower interest rates paid on interest-bearing deposits.
 
12

 
Basic and diluted net income per common share were $0.65 and $0.64, respectively, for the three months ended March 31, 2020, compared to $0.65, for both, for the corresponding period in 2019.  Return on average assets for the three months ended March 31, 2020 was 1.54% compared to 1.75% for the corresponding period in 2019 and return on average stockholders’ equity for the three months ended March 31, 2020 was 16.23% compared to 19.42% for the corresponding period in 2019.
 
Net Interest Income
 
Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets. The major factors which affect net interest income are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings.
 
Taxable-equivalent net interest income increased $8.9 million, or 12.9%, to  $77.7 million for the three months ended March 31, 2020 compared to $68.8 million for the corresponding period in 2019.  This increase was primarily attributable to a $894.1 million increase in average earning assets, or 11.4%, year over year.  The taxable-equivalent yield on interest-earning assets decreased from 4.85% to 4.46% year over year. The yield on loans for the three months ended March 31, 2020 was 4.88% compared to 5.25% for the corresponding period in 2019.  The cost of total interest-bearing liabilities decreased to 1.19% for the three months ended March 31, 2020 from 1.73% for the corresponding period in 2019. Net interest margin for the three months ended March 31, 2020 increased 2 basis points to 3.58% from 3.56% for the corresponding period in 2019.
 
The following table shows, for the three months ended March 31, 2020 and March 31, 2019, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue.  The accompanying table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-earning assets and interest-bearing liabilities for the same periods.  Changes as a result of mix or the number of days in the periods have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. Both tables are presented on a taxable-equivalent basis where applicable:
 
Average Consolidated Balance Sheets and Net Interest Analysis
 
On a Fully Taxable-Equivalent Basis
 
For the Three Months Ended March 31,
 
(Dollar Amounts In Thousands)
 
   
2020
   
2019
 
           
Interest
   
Average
           
Interest
   
Average
 
   
Average
   
Earned /
   
Yield /
   
Average
   
Earned /
   
Yield /
 
   
Balance
   
Paid
   
Rate
   
Balance
   
Paid
   
Rate
 
Assets:
                                               
Interest-earning assets:
                                               
Loans, net of unearned income (1) (2)
                                               
Taxable
  $ 7,328,594     $ 89,076       4.89
%
  $ 6,570,920     $ 85,233       5.26
%
Tax-exempt (3)
    32,555       327       4.04       30,577       287       3.81  
Total loans, net of unearned income
    7,361,149       89,403       4.88       6,601,497       85,520       5.25  
Mortgage loans held for sale
    4,282       23       2.16       1,614       26       6.53  
Investment securities:
                                               
Taxable
    750,413       5,154       2.75       518,955       3,746       2.89  
Tax-exempt (3)
    44,029       257       2.33       87,537       464       2.12  
Total investment securities (4)
    794,442       5,411       2.72       606,492       4,210       2.78  
Federal funds sold
    105,423       277       1.06       192,690       1,219       2.57  
Interest-bearing balances with banks
    469,199       1,718       1.47       438,099       2,764       2.56  
Total interest-earning assets
  $ 8,734,495     $ 96,832       4.46
%
  $ 7,840,392     $ 93,739       4.85
%
Non-interest-earning assets:
                                               
Cash and due from banks
    66,140                       74,430                  
Net premises and equipment
    58,066                       58,852                  
Allowance for loan losses, accrued interest and other assets
    241,479                       149,941                  
Total assets
  $ 9,100,180                     $ 8,123,615                  
                                                 
                                                 
Liabilities and stockholders' equity:
                                               
Interest-bearing liabilities:
                                               
Interest-bearing demand deposits
  $ 956,803     $ 1,346       0.57
%
  $ 942,686     $ 2,003       0.86
%
Savings deposits
    67,380       84       0.50       54,086       73       0.55  
Money market accounts
    4,061,286       11,127       1.10       3,758,162       16,513       1.78  
Time deposits
    805,924       4,188       2.09       698,976       3,556       2.06  
Total interest-bearing deposits
    5,891,393       16,745       1.14       5,453,910       22,145       1.65  
Federal funds purchased
    492,638       1,601       1.31       312,989       1,995       2.59  
Other borrowings
    64,707       781       4.85       64,671       781       4.90  
Total interest-bearing liabilities
  $ 6,448,738     $ 19,127       1.19
%
  $ 5,831,570     $ 24,921       1.73
%
Non-interest-bearing liabilities:
                                               
Non-interest-bearing demand deposits
    1,749,671                       1,524,502                  
Other liabilities
    39,801                       36,362                  
Stockholders' equity
    853,800                       735,611                  
Accumulated other comprehensive income (loss)
    8,170                       (4,430 )                
Total liabilities and stockholders' equity
  $ 9,100,180                     $ 8,123,615                  
Net interest income
          $ 77,705                     $ 68,818          
Net interest spread
                    3.27
%
                    3.12
%
Net interest margin
                    3.58
%
                    3.56
%
                                           
(1)
 
Non-accrual loans are included in average loan balances in all periods.  Loan fees of $1,281 and $973 are included in interest income in the first quarter of 2020 and 2019, respectively.
(2)
 
Net accretion on acquired loan discounts of $84 is included in interest income in the first quarter of 2019.
(3)
 
Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.
(4)
 
Unrealized gains (losses) of $10,282 and $(5,664) are excluded from the yield calculation in the first quarter of 2020 and 2019, respectively.
 
 
13

 
   
For the Three Months Ended March 31,
 
   
2020 Compared to 2019 Increase (Decrease) in Interest Income and Expense Due to Changes in:
 
   
Volume
   
Rate
   
Total
 
   
(In Thousands)
 
Interest-earning assets:
                       
Loans, net of unearned income
                       
Taxable
  $ 9,917     $ (6,074 )   $ 3,843  
Tax-exempt
    21       19       40  
Total loans, net of unearned income
    9,938       (6,055 )     3,883  
Mortgages held for sale
    23       (26 )     (3 )
Debt securities:
                       
Taxable
    1,628       (220 )     1,408  
Tax-exempt
    (247 )     40       (207 )
Total debt securities
    1,381       (180 )     1,201  
Federal funds sold
    (410 )     (532 )     (942 )
Interest-bearing balances with banks
    189       (1,235 )     (1,046 )
Total interest-earning assets
    11,121       (8,028 )     3,093  
                         
Interest-bearing liabilities:
                       
Interest-bearing demand deposits
    30       (687 )     (657 )
Savings
    17       (6 )     11  
Money market accounts
    1,278       (6,664 )     (5,386 )
Time deposits
    582       50       632  
Total interest-bearing deposits
    1,907       (7,307 )     (5,400 )
Federal funds purchased
    857       (1,251 )     (394 )
Other borrowed funds
    -       -       -  
Total interest-bearing liabilities
    2,764       (8,558 )     (5,794 )
Increase in net interest income
  $ 8,357     $ 530     $ 8,887  
 
 
14

 
Our growth in loans continues to drive favorable volume component change and overall change. The rate component was favorable as average rates paid on interest-bearing liabilities decreased 54 basis points while loan yields decreased 37 basis points. We repriced our deposits downward following the Federal Reserve’s rate cuts during the second half of 2019. Growth in non-interest-bearing deposits and equity also contributed to the increase in net interest revenue during the three months ended March 31, 2020 compared to the same period in 2019.
 
Provision for Loan Losses
 
The provision for loan losses was $13.6 million for the three months ended March 31, 2020, an increase of $8.7 million from $4.9 million for the three months ended March 31, 2019.  Net credit charge-offs to quarter-to-date average loans were 0.26% for the first quarter of 2019, a 10 basis point decrease compared to 0.36% for the fourth quarter of 2019 and a 6 basis point increase compared to 0.20% for the first quarter of 2019.  Nonperforming loans decreased to $2.2 million to $33.9 million, or 0.45% of total loans, at March 31, 2020 from $36.1 million, or 0.50% of total loans, at December 31, 2019, and were higher than $27.2 million, or 0.41% of total loans, at March 31, 2019. Impaired loans increased to $60.5 million, or 0.80% of total loans, at March 31, 2020, compared to $43.1 million, or 0.59% of total loans, at December 31, 2019.  We have evaluated risk factors related to macroeconomic conditions and uncertainty due to COVID-19 which resulted in additional reserve for loan losses related to external factors of $6.7 million at March 31, 2020.  The allowance for loan losses totaled $85.4 million, or 1.13% of total loans, net of unearned income, at March 31, 2020, compared to $70.2 million, or 1.05% of loans, net of unearned income, at December 31, 2019. 
 
Noninterest Income
 
Noninterest income totaled $6.7 million for the three months ended March 31, 2020, an increase of $1.7 million compared to the corresponding period in 2019. Service charges on deposit accounts increased $0.2 million to $1.9 million during the three months ended March 31, 2020 from $1.7 million during the corresponding period in 2019.  The number of transaction deposit accounts increased 14.6% from March 31, 2019 to March 31, 2020.  Credit card income increased $0.2 million to $1.8 million during the three months ended March 31, 2020 compared to $1.6 million during the corresponding period in 2019.  Spending on credit cards increased 29% for the same comparative period. Higher award payout rates offset increased interchange income on credit cards. Income associated with the cash surrender value of bank-owned life insurance increased $691,000 to $1.5 million during the three months ended March 31, 2020 compared to $762,000 during the corresponding period in 2019. We purchased $75.0 million in additional bank-owned life insurance contracts during the second half of 2019.
 
Noninterest Expense 
 
Noninterest expense totaled $27.9 million for the three months ended March 31, 2020, an increase of $2.6 million compared to $25.3 million for the corresponding period in 2019.
 
Details of expenses are as follows:
 
 
Salary and employee benefit expense increased $1.4 million to $15.7 million for the three months ended March 31, 2020 from $14.3 million for the corresponding period in 2019.  We had 492 total employees as of March 31, 2020 compared to 485 as of March 31, 2019, a 1% increase. We will incur additional compensation expenses associated with processing and booking PPP loans during the second quarter of 2020.  Such added expenses will be more than offset by the fees received on the PPP loans.
 
 
Equipment and occupancy expense increased $141,000 to $2.4 million for the three months ended March 31, 2020 from $2.3 million for the corresponding period in 2019. We have incurred some additional equipment expenses associated with initiating our pandemic plan.  While we believe these expenses are immaterial, we cannot be sure that additional expenses will not be incurred if the impacts of the pandemic extend over a longer period of time.
 
 
Third party processing and other services increased $934,000 to $3.4 million for the three months ended March 31, 2020 from $2.4 million for the corresponding period in 2019. Increases in the number of transaction deposit accounts contributed to an increase in data processing expenses and an increase in the number of correspondent banking accounts and number of transactions in those accounts contributed to increased service charges from the Federal Reserve Bank of Atlanta.
 
 
Professional services decreased $66,000 to $928,000 for the three months ended March 31, 2020 from $994,000 for the corresponding period in 2019.
 
 
FDIC insurance assessments increased $313,000 to $1.3 million for the three months ended March 31, 2020 from $1.0 million for the corresponding period in 2019.  Our assessment base increased by 16% year-over-year.
 
15

 
 
Expenses related to other real estate owned increased to $601,000 for the three months ended March 31, 2020 from $22,000 for the corresponding period in 2019. This increase was the result of write-downs in value of property based on updated appraisals related to one foreclosed loan relationship in our Nashville region.
 
 
Other operating expenses decreased $702,000 to $3.7 million for the three months ended March 31, 2020 from $4.4 million for the corresponding period in 2019. Write-downs in tax credit investments decreased significantly as our New Market Tax Credit partnerships terminated at the end of 2019. Decreases in travel and entertainment expenses also contributed to the operating expense. We will likely experience decreased travel and entertainment expenses during the second quarter of 2020 as we continue to limit our person-to-person contact with our clients and prospects during the pandemic.
 
Changes in our non-interest income and expenses, including percentage changes, are detailed in the following table:
 
   
Three Months Ended March 31,
                 
   
2020
   
2019
   
$ change
   
% change
 
   
(Dollars In Thousands)
         
Noninterest income:
                               
Service charges on deposit accounts
  $ 1,916     $ 1,702     $ 214       12.6
%
Mortgage banking
    1,071       575       496       86.3
%
Credit cards
    1,765       1,576       189       12.0
%
Increase in cash surrender value life insurance
    1,453       762       691       90.7
%
Other operating income
    469       329       140       42.6
%
Total noninterest income
  $ 6,674     $ 4,944     $ 1,730       35.0
%
                                 
Noninterest expense:
                               
Salaries and employee benefits
  $ 15,658     $ 14,265     $ 1,393       9.8
%
Equipment and occupancy
    2,400       2,259       141       6.2
%
Third party processing and other services
    3,345       2,411       934       38.7
%
Professional services
    948       994       (46 )     (4.6
%)
FDIC and other regulatory assessments
    1,332       1,019       313       30.7
%
Other real estate owned
    601       22       579       2,631.8
%
Other operating expense
    3,636       4,358       (722 )     (16.6
%)
Total noninterest expense
  $ 27,920     $ 25,328     $ 2,592       10.2
%
 
Income Tax Expense
 
Income tax expense was $8.0 million for the three months ended March 31, 2020 versus $8.5 million for the same period in 2019. Our effective tax rate for the three months ended March 31, 2020 was 18.76%, compared to 19.53% for the corresponding period in 2019.  We recognized excess tax benefits as a credit to our income tax expense from the exercise of stock options and vesting of restricted stock of $1.1 million in the first quarter of 2020, compared to $772,000 in the first quarter of 2019.  Our primary permanent differences are related to tax-exempt income on securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance. We invested in an additional $75.0 million of bank-owned life insurance contracts during the second half of 2019.
 
We own real estate investment trusts for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank.  The trusts are wholly-owned subsidiaries of a trust holding company, which in turn is an indirect wholly-owned subsidiary of the Bank.  The trusts earn interest income on the loans they hold and incur operating expenses related to their activities.  They pay their net earnings, in the form of dividends, to the Bank, which receives a deduction for state income taxes.
 
ITEM 6. EXHIBITS
 
(a) Exhibit:
 
 
 
 
 
16

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
    SERVISFIRST BANCSHARES, INC.
     
     
Date: May 20, 2020 By /s/ Thomas A. Broughton III
    Thomas A. Broughton III
    President and Chief Executive Officer
     
Date: May 20, 2020 By   /s/ William M. Foshee
    William M. Foshee
    Chief Financial Officer
                                                                               
 
 
 
 
17
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Section 2: EX-31.01 (EXHIBIT 31.01)

ex_187528.htm

Exhibit 31.01

 

Section 302 Certification of the CEO

 

I, Thomas A. Broughton III, certify that:

 

1.             I have reviewed this Amendment 1 to Quarterly Report on Form 10-Q/A of ServisFirst Bancshares, Inc.;

 

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.             Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.             The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

 

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.             The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 20, 2020

 

/s/ Thomas A. Broughton III

Thomas A. Broughton III

President and Chief Executive Officer 

 

A signed original of this written statement has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

 

 
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Section 3: EX-31.02 (EXHIBIT 31.02)

ex_187529.htm

Exhibit 31.02

 

Section 302 Certification of the CFO

 

I, William M. Foshee, certify that:

 

1.             I have reviewed this Amendment 1 to Quarterly Report on Form 10-Q/A of ServisFirst Bancshares, Inc.;

 

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.             Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.             The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

 

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.             The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 20, 2020

 

/s/ William M. Foshee

William M. Foshee

Chief Financial Officer      

 

A signed original of this written statement has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 
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