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Note 5 - Loans

9 Months Ended

Sep. 30, 2020

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

NOTE 5 – LOANS

The following table details the Company’s loans at September 30, 2020 and December 31, 2019:

	September 30,			December 31,
	2020			2019
	(Dollars In Thousands)
Commercial, financial and agricultural	$	3,466,189		$	2,696,210
Real estate - construction		530,919			521,392
Real estate - mortgage:
Owner-occupied commercial		1,725,222			1,587,478
1-4 family mortgage		671,841			644,188
Other mortgage		2,056,549			1,747,394
Subtotal: Real estate - mortgage		4,453,612			3,979,060
Consumer		57,834			64,789
Total Loans		8,508,554			7,261,451
Less: Allowance for loan losses		(92,440	)		(76,584	)
Net Loans	$	8,416,114		$	7,184,867
Commercial, financial and agricultural		40.74	%		37.13	%
Real estate - construction		6.24	%		7.18	%
Real estate - mortgage:
Owner-occupied commercial		20.27	%		21.86	%
1-4 family mortgage		7.90	%		8.87	%
Other mortgage		24.17	%		24.07	%
Subtotal: Real estate - mortgage		52.34	%		54.80	%
Consumer		0.68	%		0.89	%
Total Loans		100.00	%		100.00	%

In light of the U.S. and global economic crisis brought about by the COVID-19 pandemic, the Company has prioritized assisting its clients through this troubled time. The CARES Act provides for Paycheck Protection Plan (“PPP”) loans to be made by banks to employers with less than 500 employees if they continue to employ their existing workers. As of September 30, 2020, the Company has funded approximately 4,900 loans for a total amount of $1.05 billion for clients under the PPP, and management expects to continue to participate in any extensions of the PPP by the Treasury Department. At September 30, 2020, unaccreted deferred loan origination fees, net of costs, related to PPP loans totaled $25.3 million. PPP loan origination fees recorded as an adjustment to loan yield for the three and nine months ended September 30, 2020 were $4.0 million and $6.6 million, respectively. These PPP loans are included within the Commercial, financial and agricultural loan category in the table above.

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 borrower (or guarantors, 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 September 30, 2020 and December 31, 2019 were as follows:

			Special
September 30, 2020	Pass		Mention		Substandard		Doubtful		Total

	(In Thousands)
Commercial, financial and agricultural	$	3,374,467	$	17,955	$	73,767	$	-	$	3,466,189
Real estate - construction		527,231		3,100		588		-		530,919
Real estate - mortgage:
Owner-occupied commercial		1,708,113		14,280		2,829		-		1,725,222
1-4 family mortgage		666,463		2,065		3,313		-		671,841
Other mortgage		2,031,328		12,006		13,215		-		2,056,549
Total real estate mortgage		4,405,904		28,351		19,357		-		4,453,612
Consumer		57,785		49		-		-		57,834
Total	$	8,365,387	$	49,455	$	93,712	$	-	$	8,508,554

			Special
December 31, 2019	Pass		Mention		Substandard		Doubtful		Total

	(In Thousands)
Commercial, financial and agricultural	$	2,629,487	$	46,176	$	20,547	$	-	$	2,696,210
Real estate - construction		512,373		4,731		4,288		-		521,392
Real estate - mortgage:
Owner-occupied commercial		1,555,283		18,240		13,955		-		1,587,478
1-4 family mortgage		639,959		2,787		1,442		-		644,188
Other mortgage		1,735,869		10,018		1,507		-		1,747,394
Total real estate mortgage		3,931,111		31,045		16,904		-		3,979,060
Consumer		64,789		-		-		-		64,789
Total	$	7,137,760	$	81,952	$	41,739	$	-	$	7,261,451

Loans by performance status as of September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020	Performing		Nonperforming		Total

	(In Thousands)
Commercial, financial and agricultural	$	3,447,490	$	18,699	$	3,466,189
Real estate - construction		530,332		587		530,919
Real estate - mortgage:
Owner-occupied commercial		1,723,384		1,838		1,725,222
1-4 family mortgage		671,227		614		671,841
Other mortgage		2,051,722		4,827		2,056,549
Total real estate mortgage		4,446,333		7,279		4,453,612
Consumer		57,826		8		57,834
Total	$	8,481,981	$	26,573	$	8,508,554

December 31, 2019	Performing		Nonperforming		Total

	(In Thousands)
Commercial, financial and agricultural	$	2,681,280	$	14,930	$	2,696,210
Real estate - construction		519,803		1,589		521,392
Real estate - mortgage:
Owner-occupied commercial		1,576,652		10,826		1,587,478
1-4 family mortgage		641,875		2,313		644,188
Other mortgage		1,740,963		6,431		1,747,394
Total real estate mortgage		3,959,490		19,570		3,979,060
Consumer		64,766		23		64,789
Total	$	7,225,339	$	36,112	$	7,261,451

Loans by past due status as of September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020	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	$	721	$	3,102	$	63	$	3,886	$	18,636	$	3,443,667	$	3,466,189
Real estate - construction		-		-		-		-		587		530,332		530,919
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		1,838		1,723,384		1,725,222
1-4 family mortgage		211		320		-		531		614		670,696		671,841
Other mortgage		-		-		4,827		4,827		-		2,051,722		2,056,549
Total real estate - mortgage		211		320		4,827		5,358		2,452		4,445,802		4,453,612
Consumer		36		6		8		50		-		57,784		57,834
Total	$	968	$	3,428	$	4,898	$	9,294	$	21,675	$	8,477,585	$	8,508,554

December 31, 2019	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	$	3,135	$	344	$	201	$	3,680	$	14,729	$	2,677,801	$	2,696,210
Real estate - construction		830		-		-		830		1,589		518,973		521,392
Real estate - mortgage:
Owner-occupied commercial		917		7,242		-		8,159		10,826		1,568,493		1,587,478
1-4 family mortgage		1,638		567		873		3,078		1,440		639,670		644,188
Other mortgage		-		-		4,924		4,924		1,507		1,740,963		1,747,394
Total real estate - mortgage		2,555		7,809		5,797		16,161		13,773		3,949,126		3,979,060
Consumer		35		25		23		83		-		64,706		64,789
Total	$	6,555	$	8,178	$	6,021	$	20,754	$	30,091	$	7,210,606	$	7,261,451

The allowance for loan losses (“ALLL”) 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: 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 contractual 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 rate implicit in the original loan agreement, 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. An additional qualitative factor was incorporated beginning in the second quarter of 2020 due to COVID-19 and its effect on overall macroeconomic conditions. This specific qualitative factor totaled $14.9 million at June 30, 2020. This COVID-19 qualitative factor totaled $11.3 million at September 30, 2020, a decrease of $3.6 million from June 30, 2020, primarily due to improvement in the national unemployment rate at the end of the third quarter of 2020.

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.

During the third quarter of 2019, the Company recorded a $7.4 million payment resulting from the termination of a Loan Guarantee Program (“LGP”) operated by the State of Alabama. The payment was recorded as an increase to the allowance for loan losses specifically related to loans formerly enrolled in this program, in accordance with the Company’s established ALLL review and evaluation criteria.

The following table presents an analysis of the allowance for loan losses by portfolio segment and changes in the allowance for loan losses for the three and nine months ended September 30, 2020 and September 30, 2019. 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 September 30, 2020
Allowance for loan losses:
Balance at June 30, 2020	$	47,986		$	4,531		$	38,399		$	591		$	91,507
Charge-offs		(11,146	)		-			(200	)		(44	)		(11,390	)
Recoveries		12			-			12			15			39
Provision		12,421			(441	)		304			-			12,284
Balance at September 30, 2020	$	49,273		$	4,090		$	38,515		$	562		$	92,440

	Three Months Ended September 30, 2019
Allowance for loan losses:
Balance at June, 2019	$	38,709		$	3,419		$	28,783		$	475		$	71,386
Charge-offs		(3,626	)		-			(4,974	)		(172	)		(8,772	)
Recoveries		126			1			-			60			187
Allocation from LGP		4,905			115			2,386			-			7,406
Provision		5,108			(343	)		2,069			151			6,985
Balance at September 30, 2019	$	45,222		$	3,192		$	28,264		$	514		$	77,192

	Nine Months Ended September 30, 2020
Balance at December 31, 2019
Allowance for loan losses:	$	43,666		$	2,768		$	29,653		$	497		$	76,584
Charge-offs		(15,144	)		(830	)		(4,397	)		(165	)		(20,536	)
Recoveries		158			2			26			55			241
Provision		20,593			2,150			13,233			175			36,151
Balance at September 30, 2020	$	49,273		$	4,090		$	38,515		$	562		$	92,440

	Nine Months Ended September 30, 2019
Allowance for loan losses:
Balance at December 31, 2018	$	39,016		$	3,522		$	25,508		$	554		$	68,600
Charge-offs		(10,273	)		-			(5,193	)		(453	)		(15,919	)
Recoveries		255			2			11			83			351
Allocation from LGP		4,905			115			2,386			-			7,406
Provision		11,319			(447	)		5,552			330			16,754
Balance at September 30, 2019	$	45,222		$	3,192		$	28,264		$	514		$	77,192

	As of September 30, 2020
Allowance for loan losses:
Individually Evaluated for Impairment	$	9,204		$	201		$	195		$	-		$	9,600
Collectively Evaluated for Impairment		40,069			3,889			38,320			562			82,840

Loans:
Ending Balance	$	3,466,189		$	530,919		$	4,453,612		$	57,834		$	8,508,554
Individually Evaluated for Impairment		73,800			587			19,376			-			93,763
Collectively Evaluated for Impairment		3,392,389			530,332			4,434,236			57,834			8,414,791

	As of December 31, 2019
Allowance for loan losses:
Individually Evaluated for Impairment	$	6,085		$	86		$	3,633		$	-		$	9,804
Collectively Evaluated for Impairment		37,581			2,682			26,020			497			66,780

Loans:
Ending Balance	$	2,696,210		$	521,392		$	3,979,060		$	64,789		$	7,261,451
Individually Evaluated for Impairment		20,843			4,320			17,985			-			43,148
Collectively Evaluated for Impairment		2,675,367			517,072			3,961,075			64,789			7,218,303

The following table presents details of the Company’s impaired loans as of September 30, 2020 and December 31, 2019, respectively. Loans which have been fully charged off do not appear in the tables.

							For the three months				For the nine months
							ended September 30,				ended September 30,
	September 30, 2020						2020				2020
									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	$	50,898	$	60,687	$	-	$	61,374	$	442	$	61,967	$	1,605
Real estate - construction		-		-		-		-		-		-		-
Real estate - mortgage:
Owner-occupied commercial		1,581		1,581		-		1,582		12		1,600		52
1-4 family mortgage		2,899		2,899		-		2,882		26		2,814		78
Other mortgage		12,200		12,200		-		12,068		122		12,211		396
Total real estate - mortgage		16,680		16,680		-		16,532		160		16,625		526
Consumer		-		-		-		-		-		-		-
Total with no allowance recorded		67,578		77,367		-		77,906		602		78,592		2,131

With an allowance recorded:
Commercial, financial and agricultural		22,902		23,169		9,204		21,648		102		22,237		535
Real estate - construction		587		637		201		954		-		1,012		-
Real estate - mortgage:
Owner-occupied commercial		1,252		1,392		146		4,563		3		3,915		97
1-4 family mortgage		412		412		49		398		12		406		12
Other mortgage		1,032		1,032		-		1,022		11		1,077		35
Total real estate - mortgage		2,696		2,836		195		5,983		26		5,398		144
Consumer		-		-		-		-		-		-		-
Total with allowance recorded		26,185		26,642		9,600		28,585		128		28,647		679

Total Impaired Loans:
Commercial, financial and agricultural		73,800		83,856		9,204		83,022		544		84,204		2,140
Real estate - construction		587		637		201		954		-		1,012		-
Real estate - mortgage:
Owner-occupied commercial		2,833		2,973		146		6,145		15		5,515		149
1-4 family mortgage		3,311		3,311		49		3,280		38		3,220		90
Other mortgage		13,232		13,232		-		13,090		133		13,288		431
Total real estate - mortgage		19,376		19,516		195		22,515		186		22,023		670
Consumer		-		-		-		-		-		-		-
Total impaired loans	$	93,763	$	104,009	$	9,600	$	106,491	$	730	$	107,239	$	2,810

December 31, 2019
							For the twelve months
							ended December 31, 2019
			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	$	9,015	$	10,563	$	-	$	11,284	$	562
Real estate - construction		2,731		2,735		-		2,063		126
Real estate - mortgage:
Owner-occupied commercial		7,150		7,246		-		7,548		618
1-4 family mortgage		287		287		-		289		2
Other mortgage		-		-		-		-		-
Total real estate - mortgage		7,437		7,533		-		7,837		620
Consumer		-		-		-		-		-
Total with no allowance recorded		19,183		20,831		-		21,184		1,308

With an allowance recorded:
Commercial, financial and agricultural		11,828		19,307		6,085		19,714		395
Real estate - construction		1,589		1,589		86		1,614		27
Real estate - mortgage:
Owner-occupied commercial		7,888		11,028		2,456		13,627		301
1-4 family mortgage		1,153		1,153		176		1,157		1
Other mortgage		1,507		1,507		1,001		1,468		21
Total real estate - mortgage		10,548		13,688		3,633		16,252		323
Consumer		-		-		-		-		-
Total with allowance recorded		23,965		34,584		9,804		37,580		745

Total Impaired Loans:
Commercial, financial and agricultural		20,843		29,870		6,085		30,998		957
Real estate - construction		4,320		4,324		86		3,677		153
Real estate - mortgage:
Owner-occupied commercial		15,038		18,274		2,456		21,175		919
1-4 family mortgage		1,440		1,440		176		1,446		3
Other mortgage		1,507		1,507		1,001		1,468		21
Total real estate - mortgage		17,985		21,221		3,633		24,089		943
Consumer		-		-		-		-		-
Total impaired loans	$	43,148	$	55,415	$	9,804	$	58,764	$	2,053

As of September 30, 2020, there are 42 loans outstanding totaling $28.2 million that have payment deferrals in connection with the COVID-19 relief provided by the CARES Act. Of these 42 payment deferrals, 9 were principal only deferrals totaling $5.1 million, 4 were interest only deferrals totaling $3.2 million and 29 were principal and interest deferrals totaling $19.9 million. The CARES Act precluded all of ServisFirst COVID-19 loan modifications from being classified as a TDR as of September 30, 2020.

Troubled Debt Restructurings (“TDR”) at September 30, 2020, December 31, 2019 and September 30, 2019 totaled $2.7 million, $3.3 million and $11.2 million, respectively. The portion of those TDRs accruing interest at September 30, 2020, December 31, 2019 and September 30, 2019 totaled $1.8 million, $625,000 and $3.5 million, respectively. At September 30, 2020, the Company had a related allowance for loan losses of $534,000 allocated to these TDRs, compared to $929,000 at December 31, 2019 and $1.8 million at September 30, 2019. TDR activity by portfolio segment for the three and nine months ended September 30, 2020 and September 30, 2019 is presented in the table below.

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
		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	$	214	$	214	2	$	564	$	564
Real estate - construction	1		357		357	1		357		357
Real estate - mortgage:
Owner-occupied commercial	1		611		611	1		611		611
1-4 family mortgage	-		-		-	-		-		-
Other mortgage	-		-		-	-		-		-
Total real estate mortgage	1		611		611	1		611		611
Consumer	-		-		-	-		-		-
	3	$	1,182	$	1,182	4	$	1,532	$	1,532

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
		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	$	2,742	$	2,742
Real estate - construction	-		-		-	-		-		-
Real estate - mortgage:
Owner-occupied commercial	-		-		-	-		-		-
1-4 family mortgage	-		-		-	-		-		-
Other mortgage	-		-		-	-		-		-
Total real estate mortgage	-		-		-	-		-		-
Consumer	-		-		-	-		-		-
	-	$	-	$	-	1	$	2,742	$	2,742

There were no loans which were modified in the previous twelve months (i.e., the twelve months prior to default) that defaulted during the three and nine months ended September 30, 2020. There were no loans which were modified in the previous twelve months that defaulted during the three months ended September 30, 2019. There were two commercial loans totaling $325,000 which were modified in the previous twelve months which defaulted during the nine months ended September 30, 2019. For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status.