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EX-32.1 - EXHIBIT 32.1 - ServisFirst Bancshares, Inc.v319892_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - ServisFirst Bancshares, Inc.v319892_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - ServisFirst Bancshares, Inc.v319892_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - ServisFirst Bancshares, Inc.v319892_ex31-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

(Mark one)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

 

¨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 000-53149

 

SERVISFIRST BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware 26-0734029
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

 

850 Shades Creek Parkway, Birmingham, Alabama 35209
(Address of Principal Executive Offices) (Zip Code)

 

(205) 949-0302

(Registrant's Telephone Number, Including Area Code)

 

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 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 x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and small reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

 

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 July 30, 2012
Common stock, $.001 par value   6,005,318

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 48
Item 4. Controls and Procedures 48
     
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 49
Item 1A. Risk Factors 49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
Item 3. Defaults Upon Senior Securities 49
Item 4. Mine Safety Disclosures 49
Item 5. Other Information 49
Item 6. Exhibits 50
 
EX-31.01 SECTION 302 CERTIFICATION OF THE CEO
EX-31.02 SECTION 302 CERTIFICATION OF THE CFO
EX-32.01 SECTION 906 CERTIFICATION OF THE CEO
EX-32.02 SECTION 906 CERTIFICATION OF THE CFO

 

2
 

 

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS JUNE 30, 2012 AND DECEMBER 31, 2011

(In thousands, except share and per share amounts)

 

   June 30, 2012   December 31, 2011 
   (Unaudited)   (Audited) 
ASSETS          
Cash and due from banks  $42,332   $43,018 
Interest-bearing balances due from depository institutions   29,002    99,350 
Federal funds sold   84,468    100,565 
Cash and cash equivalents   155,802    242,933 
Available for sale debt securities, at fair value   296,508    293,809 
Held to maturity debt securities (fair value of $22,193 and $15,999 at June 30, 2012 and December 31, 2011, respectively)   21,011    15,209 
Restricted equity securities   4,018    3,501 
Mortgage loans held for sale   15,000    17,859 
Loans   2,022,589    1,830,742 
Less allowance for loan losses   (23,239)   (22,030)
Loans, net   1,999,350    1,808,712 
Premises and equipment, net   6,032    4,591 
Accrued interest and dividends receivable   8,057    8,192 
Deferred tax assets   5,738    4,914 
Other real estate owned   9,834    12,275 
Bank owned life insurance contracts   41,165    40,390 
Other assets   7,728    8,400 
Total assets  $2,570,243   $2,460,785 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Liabilities:          
Deposits:          
Noninterest-bearing  $467,344   $418,810 
Interest-bearing   1,773,558    1,725,077 
Total deposits   2,240,902    2,143,887 
Federal funds purchased   80,205    79,265 
Other borrowings   -    4,954 
Trust preferred securities   30,514    30,514 
Accrued interest payable   935    945 
Other liabilities   2,819    4,928 
Total liabilities   2,355,375    2,264,493 
Stockholders' equity:          
Preferred stock, Series A Senior Non-Cumulative Perpetual, par value $.001 (liquidation preference $1,000), net of discount; 40,000 shares authorized, 40,000 shares issued and outstanding at June 30, 2012 and at December 31, 2011   39,958    39,958 
Preferred stock, par value $.001 per share; 1,000,000 authorized and 960,000 currently undesignated   -    - 
Common stock, par value $.001 per share; 15,000,000 shares authorized; 6,004,318 shares issued and outstanding at June 30, 2012 and 5,932,182 shares issued and outstanding at December 31, 2011   6    6 
Additional paid-in capital   89,324    87,805 
Retained earnings   77,968    61,581 
Accumulated other comprehensive income   7,612    6,942 
Total stockholders' equity   214,868    196,292 
Total liabilities and stockholders' equity  $2,570,243   $2,460,785 
See Notes to Consolidated Financial Statements.          

 

3
 

 

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2012   2011   2012   2011 
Interest income:                    
Interest and fees on loans  $24,438   $19,845   $47,763   $38,466 
Taxable securities   1,302    1,444    2,639    2,986 
Nontaxable securities   814    719    1,596    1,433 
Federal funds sold   42    35    95    71 
Other interest and dividends   58    37    132    85 
Total interest income   26,654    22,080    52,225    43,041 
Interest expense:                    
Deposits   3,028    3,264    6,150    6,398 
Borrowed funds   721    768    1,432    1,619 
Total interest expense   3,749    4,032    7,582    8,017 
Net interest income   22,905    18,048    44,643    35,024 
Provision for loan losses   3,083    1,494    5,466    3,725 
Net interest income after provision for loan losses   19,822    16,554    39,177    31,299 
Noninterest income:                    
Service charges on deposit accounts   719    547    1,320    1,114 
Mortgage banking   879    476    1,836    827 
Securities gains   -    523    -    666 
Increase in cash surrender value life insurance   385    -    775    - 
Other operating income   445    236    766    446 
Total noninterest income   2,428    1,782    4,697    3,053 
Noninterest expenses:                    
Salaries and employee benefits   5,248    5,026    10,413    9,240 
Equipment and occupancy expense   961    934    1,896    1,820 
Professional services   306    351    638    591 
FDIC and other regulatory assessments   356    225    746    975 
OREO expense   536    135    673    389 
Other operating expenses   2,488    2,698    4,560    4,951 
Total noninterest expenses   9,895    9,369    18,926    17,966 
Total interest income   12,355    8,967    24,948    16,386 
Provision for income taxes   4,024    3,122    8,361    5,670 
Net income   8,331    5,845    16,587    10,716 
Preferred stock dividends   100    -    200    - 
Net income available to common stockholders  $8,231   $5,845   $16,387   $10,716 
                     
Basic earnings per common share  $1.38   $1.02   $2.74   $1.88 
                     
Diluted earnings per common share  $1.21   $0.89   $2.41   $1.65 
                     
See Notes to Consolidated Financial Statements.                    

 

4
 

 

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2012   2011   2012   2011 
Net income  $8,331   $5,845   $16,587   $10,716 
Other comprehensive income, net of tax:                    
Unrealized holding gains arising during period from securities available for sale, net of tax of $245 and $178 for the three and six months ended June 30, 2012, respectively, and $1,550 and $1,713 for the three and six months ended June 30, 2011, respectively   454    2,877    670    3,182 
Reclassification adjustment for net gains on sale of securities in net income, net of tax of $184 and $234 for the three and six months ended June 30, 2011, respectively   -    (339)   -    (432)
Other comprehensive income, net of tax   454    2,538    670    2,750 
Comprehensive income  $8,785   $8,383   $17,257   $13,466 
                     
See Notes to Consolidated Financial Statements                    

 

5
 

 

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 2012

(In thousands, except share amounts)

(Unaudited)

 

                   Accumulated     
           Additional       Other   Total 
   Preferred   Common   Paid-in   Retained   Comprehensive   Stockholders' 
   Stock   Stock   Capital   Earnings   Income   Equity 
Balance, December 31, 2011  $39,958   $6   $87,805   $61,581   $6,942   $196,292 
Preferred dividends paid   -    -    -    (200)   -    (200)
Exercise 72,136 stock options and warrants, including tax benefit   -    -    997    -    -    997 
Other comprehensive income   -    -    -    -    670    670 
Stock-based compensation expense   -    -    522    -    -    522 
Net income   -    -    -    16,587    -    16,587 
Balance, June 30, 2012  $39,958   $6   $89,324   $77,968   $7,612   $214,868 

 

See Notes to Consolidated Financial Statements

 

6
 

 

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In thousands) (Unaudited)

 

   2012   2011 
OPERATING ACTIVITIES          
Net income  $16,587   $10,716 
Adjustments to reconcile net income to net cash provided by          
Deferred tax benefit   (703)   (2,452)
Provision for loan losses   5,466    3,725 
Depreciation and amortization   604    566 
Net amortization of investments   529    417 
Market value adjustment of interest rate cap   9    99 
Decrease in accrued interest and dividends receivable   136    143 
Stock-based compensation expense   522    465 
(Decrease) increase in accrued interest payable   (10)   85 
Proceeds from sale of mortgage loans held for sale   121,731    67,237 
Originations of mortgage loans held for sale   (117,006)   (63,871)
Gain on sale of securities available for sale   -    (666)
Gain on sale of mortgage loans held for sale   (1,866)   - 
Net loss (gain) on sale of other real estate owned   62    (32)
Write down of other real estate owned   420    156 
Decrease in special prepaid FDIC insurance assessments   626    793 
Increase in cash surrender value of life insurance contracts   (775)   - 
Loss on prepayment of other borrowings   -    738 
Net change in other assets, liabilities, and other operating activities   (2,109)   (46)
Net cash provided by operating activities   24,223    18,073 
INVESTMENT ACTIVITIES          
Purchase of securities available for sale   (31,223)   (26,007)
Proceeds from maturities, calls and paydowns of securities available for sale   28,544    13,504 
Purchase of securities held to maturity   (6,005)   (8,704)
Proceeds from maturities, calls and paydowns of securities held to maturity   203    43 
Increase in loans   (196,384)   (169,996)
Purchase of premises and equipment   (2,045)   (789)
Purchase of restricted equity securities   (787)   (543)
Proceeds from sale of securities available for sale   -    63,270 
Proceeds from sale of restricted equity securities   270    154 
Proceeds from sale of other real estate owned and repossessions   2,239    1,882 
Net cash used in investing activities   (205,188)   (127,186)
FINANCING ACTIVITIES          
Net increase in noninterest-bearing deposits   48,534    33,478 
Net increase in interest-bearing deposits   48,481    11,680 
Net increase in federal funds purchased   940    - 
Proceeds from sale of common stock, net   997    10,212 
Proceeds from sale of preferred stock, net   -    39,958 
Repayment of other borrowings   (4,918)   (20,738)
Dividends on preferred stock   (200)   - 
Net cash provided by financing activities   93,834    74,590 
Net decrease in cash and cash equivalents   (87,131)   (34,523)
Cash and cash equivalents at beginning of year   242,933    231,978 
Cash and cash equivalents at end of year  $155,802   $197,455 
SUPPLEMENTAL DISCLOSURE          
Cash paid for:          
Interest  $7,592   $7,932 
Income taxes   8,691    8,136 
NONCASH TRANSACTIONS          
Transfers of loans from held for sale to held for investment  $-   $417 
Other real estate acquired in settlement of loans   304    2,112 
Internally financed sales of other real estate owned   24    141 

 

See Notes to Consolidated Financial Statements.

 

7
 

 

SERVISFIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

 

NOTE 1 - GENERAL

 

The accompanying consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U. S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2011.

 

All reported amounts are in thousands except share and per share data.

 

NOTE 2 - CASH AND CASH EQUIVALENTS

 

Cash on hand, cash items in process of collection, amounts due from banks, and federal funds sold are included in cash and cash equivalents.

 

NOTE 3 - EARNINGS PER COMMON SHARE

 

Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options and warrants, as well as the potential common shares issuable upon possible conversion of the preferred securities described in Note 11 to the consolidated financial statements.

 

8
 

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2012   2011   2012   2011 
   (In Thousands, Except Shares and Per Share Data) 
Earnings per common share                    
Weighted average common shares outstanding   5,981,218    5,708,871    5,971,630    5,694,871 
Net income available to common stockholders  $8,231   $5,845   $16,387   $10,716 
Basic earnings per common share  $1.38   $1.02   $2.74   $1.88 
                     
Weighted average common shares outstanding   5,981,218    5,708,871    5,971,630    5,694,871 
Dilutive effects of assumed conversions and exercise of stock options and warrants   952,346    997,082    952,087    962,488 
Weighted average common and dilutive potential common shares outstanding   6,933,564    6,705,953    6,923,717    6,657,359 
Net income available to common stockholders  $8,231   $5,845   $16,387   $10,716 
Effect of interest expense on covertible debt, net of tax and discretionary expenditures related to conversion   142    148    283    294 
Net income available to common stockholders, adjusted for effect of debt conversion  $8,373   $5,993   $16,670   $11,010 
Diluted earnings per common share  $1.21   $0.89   $2.41   $1.65 

 

NOTE 4 - SECURITIES

 

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2012 and December 31, 2011 are summarized as follows:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Market 
   Cost   Gain   Loss   Value 
   (In Thousands) 
June 30, 2012                    
Securities Available for Sale                    
U.S. Treasury and government sponsored agencies  $86,643   $1,272   $-   $87,915 
Mortgage-backed securities   84,665    4,672    (7)   89,330 
State and municipal securities   107,733    5,766    (36)   113,463 
Corporate debt   5,756    44    -    5,800 
Total   284,797    11,754    (43)   296,508 
Securities Held to Maturity                    
Mortgage-backed securities   15,476    651    (24)   16,103 
State and municipal securities   5,535    555    -    6,090 
Total  $21,011   $1,206   $(24)  $22,193 
                     
December 31, 2011                    
Securities Available for Sale                    
U.S. Treasury and government sponsored agencies  $98,169   $1,512   $(59)  $99,622 
Mortgage-backed securities   88,118    4,462    -    92,580 
State and municipal securities   95,331    5,230    (35)   100,526 
Corporate debt   1,029    52    -    1,081 
Total   282,647    11,256    (94)   293,809 
Securities Held to Maturity                    
Mortgage-backed securities   9,676    410    -    10,086 
State and municipal securities   5,533    380    -    5,913 
Total  $15,209   $790   $-   $15,999 

 

9
 

 

All mortgage-backed securities are with government-sponsored enterprises (GSEs) such as Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, and Federal Home Loan Mortgage Corporation.

 

The following table identifies, as of June 30, 2012 and December 31, 2011, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months. At June 30, 2012, none of the Company’s 553 debt securities had been in an unrealized loss position for 12 or more months. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity; accordingly, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2012. Further, the Company believes any deterioration in value of its current investment securities is attributable to changes in market interest rates and not credit quality of the issuer.

 

   Less Than Twelve Months   Twelve Months or More   Total 
   Gross       Gross       Gross     
   Unrealized       Unrealized       Unrealized     
   Losses   Fair Value   Losses   Fair Value   Losses   Fair Value 
   (In Thousands) 
June 30, 2012                              
U.S. Treasury and government sponsored agencies  $-   $-   $-   $-   $-   $- 
Mortgage-backed securities   (31)   5,902    -    -    (31)   5,902 
State and municipal securities   (36)   7,500    -    -    (36)   7,500 
Corporate debt   -    -    -    -    -    - 
Total  $(67)  $13,402   $-   $-   $(67)  $13,402 
                               
December 31, 2011                              
U.S. Treasury and government sponsored agencies  $(59)  $15,074   $-   $-   $(59)  $15,074 
State and municipal securities   (35)   4,559    -    -    (35)   4,559 
Corporate debt   -    -    -    -    -    - 
Total  $(94)  $19,633   $-   $-   $(94)  $19,633 

 

10
 

 

NOTE 5 – LOANS

 

The following table details the Company’s loans at June 30, 2012 and December 31, 2011:

 

   June 30,   December 31, 
   2012   2011 
   (Dollars In Thousands) 
Commercial, financial and agricultural  $856,823   $799,464 
Real estate - construction   148,486    151,218 
Real estate - mortgage:          
Owner-occupied commercial   490,204    398,601 
1-4 family mortgage   229,036    205,182 
Other mortgage   254,295    235,251 
Subtotal: Real estate - mortgage   973,535    839,034 
Consumer   43,745    41,026 
Total Loans   2,022,589    1,830,742 
Less: Allowance for loan losses   (23,239)   (22,030)
Net Loans  $1,999,350   $1,808,712 
           
Commercial, financial and agricultural   42.36%   43.67%
Real estate - construction   7.34%   8.26%
Real estate - mortgage:          
Owner-occupied commercial   24.24%   21.77%
1-4 family mortgage   11.33%   11.21%
Other mortgage   12.57%   12.85%
Subtotal: Real estate - mortgage   48.14%   45.83%
Consumer   2.16%   2.24%
Total Loans   100.00%   100.00%

 

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions defined as follows:

 

·Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or obligors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

 

·Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

 

11
 

 

·Substandard – loans that exhibit well-defined weakness or weaknesses that presently jeopardize debt repayment. These loans are characterized by the distinct possibility that the institution will sustain some loss if the weaknesses are not corrected.

 

·Doubtful – loans that have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

 

Loans by credit quality indicator as of June 30, 2012 and December 31, 2011 were as follows:

 

       Special             
June 30, 2012  Pass   Mention   Substandard   Doubtful   Total 
   (In Thousands) 
Commercial, financial and agricultural  $840,432   $10,379   $6,012   $-   $856,823 
Real estate - construction   117,852    8,295    22,339    -    148,486 
Real estate - mortgage:                         
Owner-occupied commercial   477,066    7,097    6,041    -    490,204 
1-4 family mortgage   216,338    6,614    6,084    -    229,036 
other mortgage   243,987    6,884    3,424    -    254,295 
Total real estate mortgage   937,391    20,595    15,549    -    973,535 
Consumer   43,393    86    266    -    43,745 
Total  $1,939,068   $39,355   $44,166   $-   $2,022,589 

 

       Special             
December 31, 2011  Pass   Mention   Substandard   Doubtful   Total 
   (In Thousands) 
Commercial, financial and agricultural  $780,270   $11,775   $7,419   $-   $799,464 
Real estate - construction   117,244    14,472    19,502    -    151,218 
Real estate - mortgage:                         
Owner-occupied commercial   385,084    7,333    6,184    -    398,601 
1-4 family mortgage   194,447    4,835    5,900    -    205,182 
other mortgage   224,807    7,034    3,410    -    235,251 
Total real estate mortgage   804,338    19,202    15,494    -    839,034 
Consumer   40,353    96    577    -    41,026 
Total  $1,742,205   $45,545   $42,992   $-   $1,830,742 

 

12
 

 

Loans by performance status as of June 30, 2012 and December 31, 2011 were as follows:

 

June 30, 2012  Performing   Nonperforming   Total 
   (In Thousands) 
Commercial, financial and agricultural  $856,367   $456   $856,823 
Real estate - construction   140,971    7,515    148,486 
Real estate - mortgage:               
Owner-occupied commercial   487,247    2,957    490,204 
1-4 family mortgage   228,568    468    229,036 
other mortgage   253,602    693    254,295 
Total real estate mortgage   969,417    4,118    973,535 
Consumer   43,709    36    43,745 
Total  $2,010,464   $12,125   $2,022,589 

 

December 31, 2011  Performing   Nonperforming   Total 
   (In Thousands) 
Commercial, financial and agricultural  $798,285   $1,179   $799,464 
Real estate - construction   141,155    10,063    151,218 
Real estate - mortgage:               
Owner-occupied commercial   397,809    792    398,601 
1-4 family mortgage   204,512    670    205,182 
other mortgage   234,558    693    235,251 
Total real estate mortgage   836,879    2,155    839,034 
Consumer   40,651    375    41,026 
Total  $1,816,970   $13,772   $1,830,742 

 

13
 

 

Loans by past due status as of June 30, 2012 and December 31, 2011 were as follows:

 

June 30, 2012  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  $469   $7   $-   $476   $456   $855,891   $856,823 
Real estate - construction   1,925    -    -    1,925    7,515    139,046    148,486 
Real estate - mortgage:                                   
Owner-occupied commercial   -    -    -    -    2,957    487,247    490,204 
1-4 family mortgage   16    389    -    405    468    228,163    229,036 
Other mortgage   -    -    -    -    693    253,602    254,295 
Total real estate - mortgage   16    389    -    405    4,118    969,012    973,535 
Consumer   34    2    -    36    36    43,673    43,745 
Total  $2,444   $398   $-   $2,842   $12,125   $2,007,622   $2,022,589 

 

December 31, 2011  Past Due Status (Accruing Loans)             
               Total Past             
   30-59 Days   60-89 Days   90+ Days   Due   Non-Accrual   Current   Total Loans 
   (In Thousands) 
Commercial, financial and agricultural  $-   $-   $-   $-   $1,179   $798,285   $799,464 
Real estate - construction   2,234    -    -    2,234    10,063    138,921    151,218 
Real estate - mortgage:                                   
Owner-occupied commercial   -    -    -    -    792    397,809    398,601 
1-4 family mortgage   2,107    -    -    2,107    670    202,405    205,182 
Other mortgage   -    -    -    -    693    234,558    235,251 
Total real estate - mortgage   2,107    -    -    2,107    2,155    834,772    839,034 
Consumer   -    84    -    84    375    40,567    41,026 
Total  $4,341   $84   $-   $4,425   $13,772   $1,812,545   $1,830,742 

 

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based on management’s evaluation of the loan portfolios, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. Allocation of the allowance is made for specific loans, but the entire allowance is available for any loan that in management’s judgment deteriorates and is uncollectible. The unallocated portion of the reserve is management’s evaluation of potential future losses that would arise in the loan portfolio should management’s assumption about qualitative and environmental conditions materialize. The unallocated portion of the allowance for loan losses is based on management’s judgment regarding various external and internal factors including macroeconomic trends, management’s assessment of the Company’s loan growth prospects, and evaluations of internal risk controls.

 

14
 

 

The following table presents an analysis of the allowance for loan losses by portfolio segment as of June 30, 2012 and December 31, 2011. The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.

 

15
 

 

   Commercial,                     
   financial and   Real estate -   Real estate -             
   agricultural   construction   mortgage   Consumer   Unallocated   Total 
   (In Thousands) 
   Three Months Ended June 30, 2012 
Allowance for loan losses:                              
Balance at March 31, 2012  $6,625   $7,607   $3,893   $510   $5,027   $23,662 
Chargeoffs   (261)   (2,502)   (221)   (537)   -    (3,521)
Recoveries   -    8    4    3    -    15 
Provision   147    2,469    (36)   309    194    3,083 
Balance at June 30, 2012  $6,511   $7,582   $3,640   $285   $5,221   $23,239 

 

   Three Months Ended June 30, 2011 
Allowance for loan losses:                              
Balance at March 31, 2011  $6,241   $6,285   $2,669   $441   $3,590   $19,226 
Chargeoffs   (310)   (1,021)   (15)   (5)   -    (1,351)
Recoveries   -    74    1    72    -    147 
Provision   (109)   1,130    532    43    (102)   1,494 
Balance at June 30, 2011  $5,822   $6,468   $3,187   $551   $3,488   $19,516 

 

   Six Months Ended June 30, 2012 
Allowance for loan losses:                              
Balance at December 31, 2011  $6,627   $6,542   $3,295   $531   $5,035   $22,030 
Chargeoffs   (548)   (2,919)   (281)   (629)   -    (4,377)
Recoveries   100    8    6    6    -    120 
Provision   332    3,951    620    377    186    5,466 
Balance at June 30, 2012  $6,511   $7,582   $3,640   $285   $5,221   $23,239 

 

   Six Months Ended June 30, 2011 
Allowance for loan losses:                              
Balance at December 31, 2010  $5,348   $6,373   $2,443   $749   $3,164   $18,077 
Chargeoffs   (860)   (1,321)   (15)   (329)   -    (2,525)
Recoveries   -    165    1    73    -    239 
Provision   1,334    1,251    758    58    324    3,725 
Balance at June 30, 2011  $5,822   $6,468   $3,187   $551   $3,488   $19,516 

 

   As of June 30, 2012 
Individually Evaluated for Impairment  $372   $1,748   $946   $63   $-   $3,129 
Collectively Evaluated for Impairment   6,139    5,834    2,694    222    5,221    20,110 
                               
Loans:                              
Ending Balance  $856,823   $148,486   $973,535   $43,745   $-   $2,022,589 
Individually Tested for Impairment   3,960    19,529    14,827    238    -    38,554 
Collectively Evaluated for Impairment  $852,863   $128,957   $958,708   $43,507   $-   $1,984,035 

 

   As of December 31, 2011 
                         
Allowance for loan losses:  $6,627   $6,542   $3,295   $531   $5,035   $22,030 
                               
Individually Evaluated for Impairment  $1,382   $1,533   $941   $325   $-   $4,181 
Collectively Evaluated for Impairment   5,245    5,009    2,354    206    5,035    17,849 
                               
Loans:                              
Ending Balance  $799,464   $151,218   $839,034   $41,026    -   $1,830,742 
Individually Evaluated for Impairment   5,578    16,262    14,866    547    -    37,253 
Collectively Evaluated for Impairment   793,886    134,956    824,168    40,479    -    1,793,489 

 

16
 

 

The following table presents details of the Company’s impaired loans as of June 30, 2012 and December 31, 2011, respectively. Loans which have been fully charged off do not appear in the tables.

 

               For the three months   For the six months 
               ended June 30,   ended June 30, 
   June 30, 2012   2012   2012 
                   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  $2,555   $2,873   $-   $1,902   $25   $1,818   $39 
Real estate - construction   8,772    10,234    -    8,832    97    8,916    130 
Real estate - mortgage:                                   
Owner-occupied commercial   5,735    5,735    -    5,752    42    5,769    60 
1-4 family mortgage   1,635    1,636    -    1,632    17    1,631    34 
Other mortgage   1,456    1,456    -    1,419    10    1,413    25 
Total real estate - mortgage   8,826    8,827    -    8,803    69    8,813    119 
Consumer   36    610    -    138    -    256    - 
Total with no allowance recorded   20,189    22,544    -    19,675    191    19,803    288 
                                    
With an allowance recorded:                                   
Commercial, financial and agricultural   1,405    1,405    372    1,418    25    1,433    47 
Real estate - construction   10,757    11,898    1,748    11,109    78    11,163    159 
Real estate - mortgage:                                   
Owner-occupied commercial   74    74    43    80    1    82    2 
1-4 family mortgage   4,197    4,418    811    4,413    37    4,414    72 
Other mortgage   1,730    1,730    92    1,734    25    1,739    50 
Total real estate - mortgage   6,001    6,222    946    6,227    63    6,235    124 
Consumer   202    202    63    173    1    173    3 
Total with allowance recorded   18,365    19,727    3,129    18,927    167    19,004    333 
                                    
Total Impaired Loans:                                   
Commercial, financial and agricultural   3,960    4,278    372    3,320    50    3,251    86 
Real estate - construction   19,529    22,132    1,748    19,941    175    20,079    289 
Real estate - mortgage:                                   
Owner-occupied commercial   5,809    5,809    43    5,832    43    5,851    62 
1-4 family mortgage   5,832    6,054    811    6,045    54    6,045    106 
Other mortgage   3,186    3,186    92    3,153    35    3,152    75 
Total real estate - mortgage   14,827    15,049    946    15,030    132    15,048    243 
Consumer   238    812    63    311    1    429    3 
Total impaired loans  $38,554   $42,271   $3,129   $38,602   $358   $38,807   $621 

 

17
 

 

December 31, 2011
                     
       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  $1,264   $1,264   $-   $1,501   $74 
Real estate - construction   11,583    12,573    -    10,406    226 
Owner-occupied commercial   2,493    2,493    -    2,523    153 
1-4 family mortgage   1,293    1,293    -    1,241    44 
Other mortgage   2,837    2,837    -    2,746    162 
Total real estate - mortgage   6,623    6,623    -    6,510    359 
Consumer   173    173    -    173    6 
Total with no allowance recorded   19,643    20,633    -    18,590    665 
                          
With an allowance recorded:                         
Commercial, financial and agricultural   4,314    4,314    1,382    4,156    226 
Real estate - construction   4,679    4,679    1,482    3,987    94 
Real estate - mortgage:                         
Owner-occupied commercial   3,515    3,515    88    3,504    365 
1-4 family mortgage   4,397    4,397    904    4,484    198 
Other mortgage   331    331    -    337    22 
Total real estate - mortgage   8,243    8,243    992    8,325    585 
Consumer   374    624    325    425    - 
Total with allowance recorded   17,610    17,860    4,181    16,893    905 
                          
Total Impaired Loans:                         
Commercial, financial and agricultural   5,578    5,578    1,382    5,657    300 
Real estate - construction   16,262    17,252    1,482    14,393    320 
Real estate - mortgage:                         
Owner-occupied commercial   6,008    6,008    88    6,027    518 
1-4 family mortgage   5,690    5,690    904    5,725    242 
Other mortgage   3,168    3,168    -    3,083    184 
Total real estate - mortgage   14,866    14,866    992    14,835    944 
Consumer   547    797    325    598    6 
Total impaired loans  $37,253   $38,493   $4,181   $35,483   $1,570 

 

Troubled Debt Restructurings (“TDR”) at June 30, 2012, December 31, 2011 and June 30, 2011 totaled $8.4 million, $4.5 million and $5.8 million, respectively. At June 30, 2012, the Company had a related allowance for loan losses of $433,000 allocated to these TDRs, compared to $439,000 at December 31, 2011 and $465,000 at June 30, 2011. The Company had three TDR loans to one borrower in the amount of $2.8 million enter into payment default status during the first quarter of 2012. All other loans classified as TDRs as of June 30, 2012 are performing as agreed under the terms of their restructured plans. The following table presents an analysis of TDRs as of June 30, 2012 and June 30, 2011.

 

18
 

 

   June 30, 2012   June 30, 2011 
       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   2   $1,263   $1,263    10   $2,440   $2,440 
Real estate - construction   15    2,377    2,377    -    -    - 
Real estate - mortgage:                              
Owner-occupied commercial   3    2,786    2,786    2    3,017    3,017 
1-4 family mortgage   5    1,709    1,709    -    -    - 
Other mortgage   1    304    304    1    340    340 
Total real estate mortgage   9    4,799    4,799    3    3,357    3,357 
Consumer   -    -    -    -    -    - 
    26   $8,439   $8,439    13   $5,797   $5,797 
                               
    Number of    Recorded         Number of    Recorded      
    Contracts    Investment         Contracts    Investment      
                               
Troubled Debt Restructurings                              
That Subsequently Defaulted                              
Commercial, financial and agricultural   -   $-         -   $-      
Real estate - construction   -    -         -    -      
Real estate - mortgage:                              
Owner-occupied commercial   3    2,786         -    -      
1-4 family mortgage   -    -         -    -      
Other mortgage   -    -         -    -      
Total real estate - mortgage   3    2,786         -    -      
Consumer   -    -         -    -      
    3   $2,786         -   $-      

 

NOTE 6 - EMPLOYEE AND DIRECTOR BENEFITS

 

Stock Options

 

At June 30, 2012, the Company had stock-based compensation plans, as described below. The compensation cost that has been charged to earnings for the plans was approximately $262,000 and $522,000 for the three and six months ended June 30, 2012 and $240,000 and $465,000 for the three and six months ended June 30, 2011.

 

The Company’s 2005 Amended and Restated Stock Option Plan allows for the grant of stock options to purchase up to 1,025,000 shares of the Company’s common stock. The Company’s 2009 Stock Incentive Plan authorizes the grant of up to 425,000 shares and allows for the issuance of Stock Appreciation Rights, Restricted Stock, Stock Options, Non-stock Share Equivalents, Performance Shares or Performance Units. Both plans allow for the grant of incentive stock options and non-qualified stock options, and awards are generally granted with an exercise price equal to the estimated fair market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plans is ten years.

 

19
 

 

The Company has granted non-plan options to certain persons representing key business relationships to purchase up to an aggregate amount of 55,000 shares of the Company’s common stock at prices between $15.00 and $20.00 per share with a term of ten years. These options are non-qualified and not part of either plan.

 

The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. Expected volatilities are based on an index of southeastern United States publicly traded banks. The expected term for options granted is based on the short-cut method and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of grant.

 

   2012   2011 
Expected volatility   20.00%   29.00%
Expected dividends   -%   0.50%
Expected term (in years)   6 years    7 years 
Risk-free rate   1.02%   2.70%

 

The weighted average grant-date fair value of options granted during the six months ended June 30, 2012 and June 30, 2011 was $6.43 and $8.54, respectively.

 

The following table summarizes stock option activity during the six months ended June 30, 2012 and June 30, 2011:

 

           Weighted     
       Weighted   Average     
       Average   Remaining   Aggregate 
       Exercise   Contractual   Intrinsic 
   Shares   Price   Term (years)   Value 
               (In Thousands) 
Six Months Ended June 30, 2012:                
Outstanding at January 1, 2012   1,073,800   $18.33    6.0   $12,508 
Granted   36,500    30.00    9.7    - 
Exercised   (52,136)   11.00    3.6    991 
Outstanding at June 30, 2012   1,058,164    19.11    5.8   $11,527 
                     
Exercisable at June 30, 2012   434,706   $13.31    3.9   $7,257 
                     
Six Months Ended June 30, 2011:                    
Outstanding at January 1, 2011   881,000   $15.65    6.9   $8,238 
Granted   166,500    26.05    9.6    - 
Exercised   (5,000)   10.50    4.4    98 
Outstanding at June 30, 2011   1,042,500    17.34    6.2   $13,203 
                     
Exercisable at June 30, 2011   332,459   $12.71    4.8   $5,748 

 

As of June 30, 2012, there was $1,940,000 of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next 5.8 years.

 

20
 

 

Restricted Stock

 

The Company has issued restricted stock to a certain executive officer and five other employees, and currently has 26,000 non-vested shares issued. The value of restricted stock awards is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period, which is five years from the date of grant. As of June 30, 2012, there was $362,000 of total unrecognized compensation cost related to non-vested restricted stock. The cost is expected to be recognized evenly over the remaining 2.5 years of the restricted stock’s vesting period.

 

Stock Warrants

 

In recognition of the efforts and financial risks undertaken by the organizers of ServisFirst Bank (the “Bank”) in 2005, the Bank granted warrants to organizers to purchase a total 60,000 shares of common stock at a price of $10, which was the fair market value of the Bank’s common stock at the date of the grant. The warrants became warrants to purchase a like number of shares of the Company’s common stock upon the formation of the Company as a holding company for the Bank. The warrants vest in equal annual increments over a three-year period commencing on the first anniversary date of the Bank’s incorporation and will terminate on the tenth anniversary of the incorporation date. The total number of these warrants outstanding at June 30, 2012 and June 30, 2011 was 20,000 and 60,000, respectively.

 

The Company issued warrants for 75,000 shares of common stock at a price of $25 per share in the third quarter of 2008. These warrants were issued in connection with the trust preferred securities that are discussed in detail in Note 10.

 

NOTE 7 - DERIVATIVES

 

During 2008, the Company entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet customer financing needs. Upon entering into these swaps, the Company entered into offsetting positions with a regional correspondent bank in order to minimize the risk to the Company. As of June 30, 2012, the Company was party to two swaps with notional amounts totaling approximately $11.3 million with customers and two swaps with notional amounts totaling approximately $11.3 million with a regional correspondent bank. These swaps qualify as derivatives, but are not designated as hedging instruments. The Company has recorded the value of these swaps at $563,000 in offsetting entries in other assets and other liabilities.

 

During 2010, the Company entered into an interest rate cap with a notional value of $100 million. The cap has a strike rate of 2.00% and is indexed to the three month London Interbank Offered Rate (“LIBOR”). The cap does not qualify for hedge accounting treatment, and is marked to market, with changes in market value reflected in interest expense.

 

The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of June 30, 2012 and December 31, 2011 were not material.

 

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NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, which amends disclosures by requiring improved information about financial instruments and derivative instruments that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. Reporting entities are required to provide both net and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of international financial reporting standards (“IFRS”). Companies are required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective disclosures are required. The Company does not believe this update will have a material impact on its financial position or results of operations.

 

In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05, which defers the effective date pertaining to reclassification adjustments out of other accumulated comprehensive income in ASU 2011-05, until the FASB is able to reconsider those requirements. All other requirements of ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011, which coincide with the effective dates of the requirements in ASU 2011-05 amended by this update. Adoption of this update by the Company had no impact on its financial statements.

 

NOTE 9 - FAIR VALUE MEASUREMENT

 

Measurement of fair value under U.S. GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below:

 

Level 1:Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2:Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3:Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value.

 

Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on prices obtained from independent vendors. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, securities are classified in Level 3 of the hierarchy.

 

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Interest Rate Swap Agreements. The fair value is estimated by a third party using inputs that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the hierarchy. These fair value estimations include primarily market observable inputs such as yield curves and option volatilities, and include the value associated with counterparty credit risk.

 

Impaired Loans. Impaired loans are measured and reported at fair value when full payment under the loan terms is not probable. Impaired loans are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in Accounting Standards Codification (“ASC”) 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates, and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized as an impairment charge related to impaired loans that are measured at fair value on a nonrecurring basis was $809,000 and $3,700,000 during the three and six months ended June 30, 2012, respectively, and $1,508,000 and $3,135,000 during the three and six months ended June 30, 2011, respectively.

 

Other Real Estate Owned. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for loan losses subsequent to foreclosure. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. A loss on the sale and write-downs of OREO of $366,000 and $483,000 was recognized for the three and six months ended June 30, 2012, respectively, and $144,000 and $91,000 for the three and six months ended June 30, 2011, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO is classified within Level 3 of the hierarchy.

 

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of June 30, 2012 and December 31, 2011:

 

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   Fair Value Measurements at June 30, 2012 Using     
   Quoted Prices in             
   Active Markets   Significant Other   Significant     
   for Identical   Observable Inputs   Unobservable     
   Assets (Level 1)   (Level 2)   Inputs (Level 3)   Total 
   (In Thousands) 
Assets Measured on a Recurring Basis:                    
Available-for-sale securities:                    
U.S. Treasury and government sponsored agencies  $-   $87,915   $-   $87,915 
Mortgage-backed securities   -    89,330    -    89,330 
State and municipal securities   -    113,463    -    113,463 
Corporate debt   -    5,800    -    5,800 
Interest rate swap agreements   -    563    -    563 
Total assets at fair value  $-   $297,071   $-   $297,071 
                     
Liabilities Measured on a Recurring Basis:                    
Interest rate swap agreements  $-   $563   $-   $563 

 

   Fair Value Measurements at December 31, 2011 Using     
   Quoted Prices in             
   Active Markets   Significant Other   Significant     
   for Identical   Observable Inputs   Unobservable     
   Assets (Level 1)   (Level 2)   Inputs (Level 3)   Total 
   (In Thousands) 
Assets Measured on a Recurring Basis:                    
Available-for-sale securities                    
U.S. Treasury and government sponsored agencies  $-   $99,622   $-   $99,622 
Mortgage-backed securities   -    92,580    -    92,580 
State and municipal securities   -    100,526    -    100,526 
Corporate debt   -    1,081    -    1,081 
Interest rate swap agreements   -    617    -    617 
Interest rate cap   -    9    -    9 
Total assets at fair value  $-   $294,435   $-   $294,435 
                     
Liabilities Measured on a Recurring Basis:                    
Interest rate swap agreements  $-   $617   $-   $617 

 

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The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of June 30, 2012 and December 31, 2011:

 

  Fair Value Measurements at June 30, 2012 Using     
  Quoted Prices in          
  Active Markets   Significant Other   Significant    
  for Identical   Observable   Unobservable    
  Assets (Level 1)   Inputs (Level 2)   Inputs (Level 3)   Total 
  (In Thousands) 
Assets Measured on a Nonrecurring Basis:         
Impaired loans  $-    -   $35,425   $35,425 
Other real estate owned and repossessed assets   -    -    9,834    9,834 
Total assets at fair value   -    -   $45,259   $45,259 

 

  Fair Value Measurements at December 31, 2011 Using      
  Quoted Prices in            
  Active Markets   Significant Other   Significant    
  for Identical   Observable   Unobservable    
  Assets (Level 1)   Inputs (Level 2)   Inputs (Level 3)   Total 
  (In Thousands) 
Assets Measured on a Nonrecurring Basis:         
Impaired loans  $-   $-   $33,072   $33,072 
Other real estate owned   -    -    12,275    12,275 
Total assets at fair value  $-   $-   $45,347   $45,347 

 

The fair value of a financial instrument is the current amount that would be exchanged in a sale between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Current U.S. GAAP excludes certain financial instruments and all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

 

The carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2012 and December 31, 2011 are presented in the following table. This table includes those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis.

 

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   June 30, 2012   December 31, 2011 
   Carrying       Carrying     
   Amount   Fair Value   Amount   Fair Value 
   (In Thousands) 
Financial Assets:                    
Level 2 inputs:                    
Cash and cash equivalents  $155,802   $155,802   $242,933   $242,933 
Investment securities available for sale   284,797    296,508    282,647    293,809 
Investment securities held to maturity   21,011    22,193    15,209    15,999 
Restricted equity securities   4,018    4,018    3,501    3,501 
Mortgage loans held for sale   15,000    15,000    17,859    17,859 
Accrued interest and dividends receivable   8,057    8,057    8,192    8,192 
Bank owned life insurance contracts   41,165    41,165    40,390    40,390 
Derivatives   563    563    626    626 
                     
Level 3 inputs:                    
Loans, net   1,999,350    1,997,175    1,808,712    1,811,612 
                     
Financial Liabilities:                    
Level 2 inputs:                    
Deposits   2,240,902    2,246,238    2,143,887    2,150,308 
Federal funds purchased   80,205    80,205    79,265    79,265 
Borrowings   -    -    4,954    5,377 
Trust preferred securities   30,514    27,385    30,514    27,402 
Accrued interest payable   935    935    945    945 
Derivatives   563    563    617    617 

 

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

 

Cash and cash equivalents: The carrying amounts reported in the statements of financial condition for cash and cash equivalents approximate those assets’ fair values.

 

Investment securities: Fair values for investment securities held to maturity are generally based on prices provided by independent pricing services. Management evaluates the reasonableness of prices provided by such services, as well as their underlying pricing methodologies. These measurements are classified within level 2 of the fair value hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available.

 

Restricted equity securities: Fair values for other investments are considered to be their cost.

 

Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair value is based on carrying amounts. The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The method of estimating fair value does not incorporate the exit-price concept of fair value as prescribed by ASC 820 and generally produces a higher value than an exit-price approach. The measurement of the fair value of loans is classified within Level 3 of the fair value hierarchy.

 

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Mortgage loans held for sale: Loans are committed to be delivered to investors on a “best efforts delivery” basis within 30 days of origination. Due to this short turn-around time, the carrying amounts of the Company’s agreements approximate their fair values.

 

Derivatives: The fair values of the derivative agreements are estimated by a third party using inputs that are observable or can be corroborated by observable market data, and are therefore classified within Level 2 of the fair value hierarchy.

 

Accrued interest and dividends receivable: The carrying amount of accrued interest and dividends receivable approximates its fair value.

 

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation using interest rates currently offered for deposits with similar remaining maturities. The fair value of the Company’s time deposits do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value. Measurements of the fair value of certificates of deposit are classified within Level 2 of the fair value hierarchy.

 

Federal funds purchased: The carrying amounts of federal funds purchased approximate their market value.

 

Other borrowings: The fair values of other borrowings are estimated using discounted cash flow analysis, based on interest rates currently being offered by the Federal Home Loan Bank for borrowings of similar terms as those being valued. These measurements are classified as Level 2 in the fair value hierarchy.

 

Trust preferred securities: The fair values of trust preferred securities are estimated using a discounted cash flow analysis, based on interest rates currently being offered on the best alternative debt available at the measurement date. These measurements are classified as Level 2 in the fair value hierarchy.

 

Accrued interest payable: The carrying amount of accrued interest payable approximates its fair value.

 

Loan commitments: The fair values of the Company’s off-balance-sheet financial instruments are based on fees currently charged to enter into similar agreements. Since the majority of the Company’s other off-balance-sheet financial instruments consist of non-fee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

 

NOTE 10 – SF HOLDING 1, INC. AND SF REATLY 1, INC.

 

In January 2012, the Company formed SF Holding 1, Inc., an Alabama corporation, and its subsidiary, SF Realty 1, Inc., an Alabama corporation. SF Realty 1 elected to be treated as a real estate investment trust (“REIT”) for U.S. income tax purposes. SF Realty 1 holds and manages participations in residential mortgages and commercial real estate loans originated by ServisFirst Bank.

 

NOTE 11 – SUBSEQUENT EVENTS

 

The Company has evaluated all subsequent events through the date of this filing to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of June 30, 2012, and events which occurred subsequent to June 30, 2012 but were not recognized in the financial statements. As of the date of this filing, there were no subsequent events that required recognition or disclosure.

 

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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 financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and June 30, 2011.

 

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,” “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: 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 the deposit base; possible changes in laws and regulations and governmental monetary and fiscal policies, including, but not limited to, economic stimulus initiatives and so-called “bailout” initiatives; 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 “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 contained herein. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.

 

Business

 

We are a bank holding company under the Bank Holding Company Act of 1956 incorporated in Delaware and headquartered at 850 Shades Creek Parkway, Birmingham, Alabama 35209 (Jefferson County). Through the Bank, we operate ten full-service banking offices, with nine offices located in Jefferson, Shelby, Madison, Montgomery and Houston counties in the metropolitan statistical areas (“MSAs”) of Birmingham-Hoover, Huntsville, Montgomery and Dothan, Alabama, and one office located in Escambia County in the Pensacola-Ferry Pass-Brent, Florida MSA, which opened April 1, 2011. These MSAs constitute our primary service areas.

 

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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 (including negotiable orders of withdrawal, or NOW accounts). 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 (including NOW accounts), interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.

 

Overview

 

As of June 30, 2012, we had consolidated total assets of $2,570,243,000, an increase of $109,458,000, or 4.4%, from $2,460,785,000 at December 31, 2011. Total loans were $2,022,589,000 at June 30, 2012, up $191,847,000, or 10.5%, from $1,830,742,000 at December 31, 2011. Total deposits were $2,240,902,000 at June 30, 2012, an increase of $97,015,000, or 4.5%, from $2,143,887,000 at December 31, 2011.

 

Net income available to common stockholders for the quarter ended June 30, 2012 was $8,231,000, an increase of $2,386,000, or 40.8%, from $5,845,000 for the quarter ended June 30, 2011. Basic and diluted earnings per common share were $1.38 and $1.21, respectively, for the three months ended June 30, 2012, compared to $1.02 and $0.89, respectively, for the corresponding period in 2011.

 

Net income available to common stockholders for the six months ended June 30, 2012 was $16,387,000, an increase of $5,671,000, or 52.9%, from $10,716,000 for the six months ended June 30, 2011. Basic and diluted earnings per common share were $2.74 and $2.41, respectively, for the six months ended June 30, 2012, compared to $1.88 and $1.65, respectively, for the corresponding period in 2011.

 

Critical Accounting Policies

 

The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. GAAP, 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, 2011.

 

Financial Condition

 

Cash and Cash Equivalents

 

At June 30, 2012, we had $84,468,000 in federal funds sold and other investments, compared to $100,565,000 at December 31, 2011.

 

Investment Securities

 

Investment securities available for sale totaled $296,508,000 at June 30, 2012 and $293,809,000 at December 31, 2011. Investment securities held to maturity totaled $21,011,000 at June 30, 2012 and $15,209,000 at December 31, 2011. Purchases of $17,931,000 in mortgage-backed securities, $1,500,000 in government-sponsored agencies, $13,097,000 in municipal bonds and $4,700,000 in corporate bonds replaced $28,620,000 in total security redemptions during the first six months of 2012.

 

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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 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.

 

The following table shows the amortized cost of our investment securities by their stated maturity at June 30, 2012:

 

   Less Than   One Year to   Five Years to   More Than     
   One Year   Five Years   Ten Years   Ten Years   Total 
   (In Thousands) 
U.S. Treasury and government sponsored Agencies  $20,011   $64,186   $1,853   $593   $86,643 
Mortgage-backed securities   287    1,032    36,958    61,864    100,141 
State and municipal securities   905    39,363    63,476    9,524    113,268 
Corporate debt   -    4,721    1,035    -    5,756 
Total  $21,203   $109,302   $103,322   $71,981   $305,808 
                          
Taxable-equivalent Yield   1.90%   2.40%   4.40%   4.20%   3.46%

 

All securities held are traded in liquid markets. As of June 30, 2012, we owned certain restricted securities of the Federal Home Loan Bank with an aggregate book value and market value of $3,767,000 and certain securities of First National Bankers Bank in which we invested $250,000. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity.

 

The Bank does not invest in collateralized debt obligations (“CDOs”). All tax-exempt securities currently held are issued by government issuers within the State of Alabama. All corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at June 30, 2012 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 $200,660,000 and $111,347,000 as of June 30, 2012 and December 31, 2011, respectively.

 

Loans

 

We had total loans of $2,022,589,000 at June 30, 2012, an increase of $191,847,000, or 10.5% year to date, compared to $1,830,742,000 at December 31, 2011. At June 30, 2012, 51% of our loans were in our Birmingham offices, 19% of our loans were in our Huntsville offices, 13% of our loans were in our Dothan offices, 11% of our loans were in our Montgomery offices, and 6% of our loans were in our Pensacola, Florida office.

 

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Asset Quality

 

The allowance for loan losses 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. Our management believes that the allowance was adequate at June 30, 2012.

 

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The following table presents the allocation of the allowance for loan losses for each respective loan category with the corresponding percentage of loans in each category to total loans. Management believes that the comprehensive allowance analysis developed by our credit administration group is in compliance with all current regulatory guidelines.

 

       Percentage of loans 
       in each category 
June 30, 2012  Amount   to total loans 
   (In Thousands)     
Commercial, financial and agricultural  $6,511    42.36%
Real estate - construction   7,582    7.34%
Real estate - mortgage   3,640    48.14%
Consumer   285    2.16%
Other   5,221    -%
Total  $23,239    100.00%

 

       Percentage of loans 
       in each category 
December 31, 2011  Amount   to total loans 
   (In Thousands)     
Commercial, financial and agricultural  $6,627    43.67%
Real estate - construction   6,542    8.26%
Real estate - mortgage   3,295    45.83%
Consumer   531    2.24%
Other   5,035    -%
Total  $22,030    100.00%

 

Nonperforming Assets

 

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to $12.1 million at June 30, 2012, compared to $13.8 million at December 31, 2011. The nonperforming loan totals consist entirely of nonaccrual loans as there were no loans 90 or more days past due and still accruing for either period. Troubled Debt Restructurings (“TDR”) at June 30, 2012 were $8.4 million compared to $4.5 million at December 31, 2011 with the majority of this increase attributable to a single residential builder relationship in the aggregate amount of $4.1 million. The Company had three TDR loans to one borrower in the amount of $2.8 million enter into payment default status during the first quarter of 2012. All TDR loans at December 31, 2011 were performing as agreed under the terms of their restructuring plans.

 

Other real estate owned (OREO) decreased to $9.8 million at June 30, 2012, from $12.3 million at December 31, 2011. The total number of OREO accounts decreased from 39 to 30.

 

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The following table summarizes our nonperforming assets and TDRs at June 30, 2012 and December 31, 2011:

 

   June 30, 2012   December 31, 2011 
       Number of       Number of 
   Balance   Loans   Balance   Loans 
   (Dollar Amounts In Thousands) 
Nonaccrual loans:                    
Commercial, financial and agricultural  $456    4   $1,179    7 
Real estate - construction   7,515    17    10,063    21 
Real estate - mortgage:                    
Owner-occupied commercial   2,957    4    792    2 
1-4 family mortgage   468    3    670    4 
Other mortgage   693    1    693    1 
Total real estate - mortgage   4,118    8    2,155    7 
Consumer   36    1    375    1 
Total Nonaccrual loans:  $12,125    30   $13,772    36 
                     
90+ days past due and accruing:                    
Commercial, financial and agricultural  $-    -   $-    - 
Real estate - construction   -    -    -    - 
Real estate - mortgage:                    
Owner-occupied commercial   -    -    -    - 
1-4 family mortgage   -    -    -    - 
Other mortgage   -    -    -    - 
Total real estate - mortgage   -    -    -    - 
Consumer   -    -    -    - 
Total 90+ days past due and accruing:  $-    -   $-    - 
                     
Total Nonperforming Loans:  $12,125    30   $13,772    36 
                     
Plus: Other real estate owned   9,839    30    12,305    39 
Total Nonperforming Assets  $21,964    60   $26,077    75 
                     
Restructured accruing loans:                    
Commercial, financial and agricultural  $1,263    2   $1,369    2 
Real estate - construction   2,377    15    -    - 
Real estate - mortgage:                    
Owner-occupied commercial   -    -    2,785    3 
1-4 family mortgage   1,709    5    -    - 
Other mortgage   304    1    331    1 
Total real estate - mortgage   2,013    6    3,116    4 
Consumer   -    -    -    - 
Total restructured accruing loans:  $5,653    23   $4,485    6 
                     
Total Nonperforming assets and restructured accruing loans  $27,617    83   $30,562    81 
                     
Ratios:                    
Nonperforming loans to total loans   0.60%        0.75%     
Nonperforming assets to total loans plus other real estate owned   1.08%        1.41%     
Nonperforming loans plus restructured accruing loans to total loans plus other real estate owned   0.87%        0.99%     

 

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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.

 

Impaired Loans and Allowance for Loan Losses

 

We have allocated approximately $7.6 million of our allowance for loan losses to real estate construction, including acquisition and development and lot loans, $6.5 million to commercial, financial and agricultural loans, and $3.9 million to other loan types. We have a total loan loss reserve as of June 30, 2012 allocable to specific loan types of $18.0 million. Another $5.2 million of our allowance for loan losses is based on our judgments regarding various external and internal factors, including macroeconomic trends, our assessment of the Bank’s loan growth prospects, and evaluations of internal risk controls. The total resulting loan loss reserve is $23.2 million. Based upon historical performance, known factors, overall judgment, and regulatory methodologies, including consideration of the possible effect of current residential housing market defaults and business failures plaguing financial institutions in general, management believes that the current methodology used to determine the adequacy of the allowance for loan losses is reasonable.

 

As of June 30, 2012, we had impaired loans of $38.6 million inclusive of nonaccrual loans, an increase of $1.3 million from $37.3 million as of December 31, 2011. We allocated $3.1 million of our allowance for loan losses at June 30, 2012 to these impaired loans. 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 loan’s effective interest rate, 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 impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Our credit risk management team performs verification and testing to ensure appropriate identification of impaired loans and that proper reserves are held on these loans.

 

Of the $38.6 million of impaired loans reported as of June 30, 2012, $19.5 million were real estate – construction loans, $4.0 million were commercial, financial, and agricultural loans, $5.8 million were commercial real estate loans, and $5.9 million were residential real estate loans. The remaining $3.4 million of impaired loans consisted of other mortgages and consumer loans. Of the $19.5 million of impaired real estate – construction loans, $9.9 million (a total of 28 loans with 9 builders) were residential construction loans, and $3.6 million consisted of various residential lot loans to 8 builders.

 

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Deposits

 

Total deposits increased $97,015,000, or 4.5%, to $2,240,902,000 at June 30, 2012 compared to $2,143,887,000 at December 31, 2011. We anticipate long-term sustainable growth in deposits through continued development of market share in our 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”

 

Other Borrowings

 

We have paid off our two advances from the Federal Home Loan Bank of Atlanta. The payoffs occurred in March and June 2011. As discussed more fully under “Noninterest Expense” below, we incurred prepayment penalties totaling $738,000 by repaying these advances early. On June 1, 2012, we paid off our subordinated note payable due June 1, 2016, including all related accrued interest payable. As discussed in Note 10 to the Consolidated Financial Statements, we borrowed $15.5 million through the issuance of trust preferred securities and the related debenture on September 2, 2008. Both financial instruments bear an identical annual rate of interest of 8.50% and pay interest on March 1, June 1, September 1 and December 1 of each year. The current book value of this borrowing is $15.4 million as a result of amortization of the discount associated with 75,000 warrants issued to the holders of the trust preferred securities. As discussed in Note 11 to the Consolidated Financial Statements, we borrowed $15.0 million through the issuance of trust preferred securities and the related debenture on March 15, 2010. Both financial instruments bear an identical rate of interest of 6.00% and pay interest on March 15, June 15, September 15 and December 15 of each year.

 

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 were 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 June 30, 2012, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $296.3 million. Additionally, the Bank had additional borrowing availability of approximately $125.0 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 will need additional capital to maintain our current growth. 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 “Other 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. Our management is not currently aware of any trends or demands that are reasonably likely to result in liquidity materially increasing or decreasing.

 

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The following table reflects the contractual maturities of our term liabilities as of June 30, 2012. The amounts shown do not reflect any early withdrawal or prepayment assumptions.

 

   Payments due by Period 
           Over 1 - 3   Over 3 - 5     
   Total   1 year or less   years   years   Over 5 years 
   (In Thousands) 
Contractual Obligations (1)                         
                          
Deposits without a stated maturity  $1,842,717   $-   $-   $-   $- 
Certificates of deposit (2)   398,185    241,065    117,666    39,454    - 
Federal funds purchased   80,205    80,205    -    -    - 
Subordinated debentures   30,000    -    -    -    30,000 
Operating lease commitments   14,623    2,027    3,891    3,782    4,923 
Total  $2,365,730   $323,297   $121,557   $43,236   $34,923 

 

(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

 

In the first quarter of 2010, we formed ServisFirst Capital Trust II, which issued 15,000 shares of its 6.0% Mandatory Convertible Trust Preferred Securities (the “Preferred Securities”) for $15,000,000 and 50,000 shares of its common securities for $50,000 (collectively the “Trust Securities”) on March 15, 2010. The Trust invested all of the proceeds from the sale of the Trust Securities in the Company’s 6.0% Junior Subordinated Mandatory Convertible Deferrable Interest Debentures due March 15, 2040 in the principal amount of $15,050,000 (the “Subordinated Debentures”).  The Preferred Securities were offered and sold to accredited investors in a private placement. The Federal Reserve Board has deemed these securities to qualify as Tier 1 capital of the Company up to 25% of Tier 1 capital elements. See Note 11 to the consolidated financial statements for further discussion of the issuance and sale of the Preferred Securities.

 

On June 21, 2011, we entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which we issued and sold to the Treasury 40,000 shares of our Senior Non-Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share (the “Series A Preferred Stock”), for aggregate proceeds of $40,000,000. The issuance was pursuant to the Treasury’s Small Business Lending Fund program, a $30 billion fund established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. The Series A Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1, commencing October 1, 2011. The dividend rate, which is calculated on the aggregate Liquidation Amount, has been initially set at 1% per annum based upon the current level of “Qualified Small Business Lending” (“QSBL”) by the Bank. The dividend rate for future dividend periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods and from 1% per annum to 7% per annum for the eleventh through the first half of the nineteenth dividend periods.  If the Series A Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%.  Prior to that time, in general, the dividend rate decreases as the level of the Bank’s QSBL increases.  Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series A Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series A Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities.  In addition, if (i) we have not timely declared and paid dividends on the Series A Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of Series A Preferred Stock with an aggregate liquidation preference of at least $25,000,000 are still outstanding, the Treasury (or any successor holder of Series A Preferred Stock) may designate two additional directors to be elected to our Board of Directors.

 

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As is more completely described in the Certificate of Designation, holders of the Series A Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series A Preferred Stock and on certain corporate transactions.  Except with respect to such matters and, if applicable, the election of the additional directors described above, the Series A Preferred Stock does not have voting rights.

 

We may redeem the shares of Series A Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by our primary federal banking regulator.

 

As of June 30, 2012, 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 total risk-based, Tier 1 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 June 30, 2012.

 

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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 June 30, 2012, December 31, 2011 and June 30, 2011:

 

                   To Be Well Capitalized 
           For Capital Adequacy   Under Prompt Corrective 
   Actual   Purposes   Action Provisions 
   Amount   Ratio   Amount   Ratio   Amount   Ratio 
As of June 30, 2012:                              
Total Capital to Risk-Weighted Assets:                              
Consolidated  $260,495    12.37%  $168,475    8.00%  $N/A    N/A
ServisFirst Bank   258,421    12.27%   168,429    8.00%   210,536    10.00%
Tier 1 Capital to Risk-Weighted Assets:                              
Consolidated   237,256    11.27%   84,238    4.00%   N/A    N/A
ServisFirst Bank   235,182    11.17%   84,214    4.00%   126,322    6.00%
Tier 1 Capital to Average Assets:                              
Consolidated   237,256    9.36%   101,393    4.00%   N/A    N/A
ServisFirst Bank   235,182    9.29%   101,293    4.00%   126,616    5.00%
                               
As of December 31, 2011:                              
Total Capital to Risk-Weighted Assets:                              
Consolidated  $246,334    12.79%  $154,094    8.00%  $N/A    N/A
ServisFirst Bank   243,279    12.63%   154,070    8.00%   192,588    10.00%
Tier 1 Capital to Risk-Weighted Assets:                              
Consolidated   219,350    11.39%   77,047    4.00%   N/A    N/A  %
ServisFirst Bank   216,295    11.23%   77,035    4.00%   115,533    6.00%
Tier 1 Capital to Average Assets:                              
Consolidated   219,350    9.17%   95,642    4.00%   N/A    N/A
ServisFirst Bank   216,295    9.06%   95,481    4.00%   119,352    5.00%
                               
As of June 30, 2011:                              
Total Capital to Risk-Weighted Assets:                              
Consolidated  $230,075    14.50%  $126,967    8.00%  $N/A    N/A %
ServisFirst Bank   226,026    14.24%   126,956    8.00%   158,695    10.00%
Tier 1 Capital to Risk-Weighted Assets:                              
Consolidated   205,614    12.96%   63,484    4.00%   N/A    N/A
ServisFirst Bank   201,565    12.70%   63,478    4.00%   95,217    6.00%
Tier 1 Capital to Average Assets:                              
Consolidated   205,614    10.67%   77,113    4.00%   N/A    N/A%
ServisFirst Bank   201,565    10.47%   77,006    4.00%   96,257    5.00%

 

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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 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 $179,000 as of June 30, 2012 for the settlement of any repurchase demands by investors.

 

Financial instruments whose contract amounts represent credit risk at June 30, 2012 are as follows:

 

   June 30, 2012 
   (In Thousands) 
Commitments to extend credit  $805,055 
Credit card arrangements   23,145 
Standby letters of credit   34,702 
   $862,902 

 

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.

 

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Federal funds lines of credit are uncommitted lines issued to downstream correspondent banks for the purpose of providing liquidity to them. The lines are unsecured, and we have no obligation to sell federal funds to the correspondent, nor does the correspondent have any obligation to request or accept purchases of federal funds from us.

 

Results of Operations

 

Summary of Net Income

 

Net income for the three months ended June 30, 2012 was $8,331,000 compared to net income of $5,845,000 for the three months ended June 30, 2011. Net income for the six months ended June 30, 2012 was $16,587,000 compared to net income of $10,716,000 for the six months ended June 30, 2011. The increase in net income was primarily attributable to increased net interest income as a result of growth in average earning assets. Net interest income for the three months ended June 30, 2012 increased to $22,905,000, or $4,857,000, compared to $18,048,000 for the corresponding period in 2011. Net interest income for the six months ended June 30, 2012 increased to $44,643,000, or 27.5%, compared to $35,024,000 for the corresponding period in 2011. The provision for loan losses increased $1,589,000 to $3,083,000 for the three months ended June 30, 2012 compared to the corresponding period in 2011, and increased $1,741,000 to $5,466,000 for the six months ended June 30, 2012 compared to the corresponding period in 2011. The increase in provision for loan loss for the three and six-month periods ended June 30, 2012 was primarily due to an increase in net charge-offs during the second quarter compared to recent historical levels plus the year-to-date growth in the loan portfolio of 10.5% (21% annualized). This was partially offset by a combination of pay-downs and additional collateral being pledged to secure loans that are specifically impaired. Noninterest income increased $646,000 to $2,428,000 for the three months ended June 30, 2012 compared to the corresponding period in 2011, and increased $1,644,000 to $4,697,000 for the six months ended June 30, 2012 compared to the corresponding period in 2011. This increase in noninterest income was primarily attributable to increased mortgage banking income, as more fully explained in “Noninterest Income” below. Operating expenses for the three months ended June 30, 2012 increased to $9,895,000, or 5.6%, compared to $9,369,000 for the corresponding period in 2011, and for the six months ended June 30, 2012 increased to $18,926,000, or 5.3%, compared to $17,966,000 for the corresponding period in 2011. The increase in operating expenses was primarily attributable to an increase in OREO expense in 2012, as more fully explained in “Noninterest Expense” below.

 

Basic and diluted net income per common share were $1.38 and $1.21, respectively, for the three months ended June 30, 2012, compared to $1.02 and $0.89, respectively, for the corresponding period in 2011. Basic and diluted net income per common share were $2.74 and $2.41, respectively, for the six months ended June 30, 2012, compared to $1.88 and $1.65, respectively, for the corresponding period in 2011. Return on average assets for the three and six months ended June 30, 2012 was 1.31% and 1.32%, respectively, compared to 1.22% and 1.14% for the corresponding period in 2011, and return on average common equity for the three and six months ended June 30, 2012 was 15.74% and 16.02%, respectively, compared to 17.30% and 16.56% for the corresponding period in 2011.

 

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.

 

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Taxable-equivalent net interest income increased $4,883,000, or 26.6%, to $23,274,000 for the three months ended June 30, 2012 compared to $18,391,000 for the corresponding period in 2011, and increased $9,091,000, or 25.0%, to $45,384,000 for the six months ended June 30, 2012 compared to $36,293,000 for the corresponding period in 2011. This increase was primarily attributable to growth in average earning assets. The taxable-equivalent yield on interest-earning assets decreased to 4.47% for the three months ended June 30, 2012 from 4.79% for the corresponding period in 2011, and decreased to 4.45% for the six months ended June 30, 2012 from 4.77% for the corresponding period in 2011. The yield on loans for the three months ended June 30, 2012 was 4.99% compared to 5.25% for the corresponding period in 2011, and 5.01% compared to 5.27% for the six months ended June 30, 2012 and June 30, 2011, respectively. Loan fees included in the yield calculation decreased to $74,000 for the three months ended June 30, 2012 from $153,000 for the corresponding period in 2011, and decreased to $184,000 for the six months ended June 30, 2012 from $304,000 for the corresponding period in 2011. Net loan fees decreased due to the origination of fewer real estate construction loans. The cost of total interest-bearing liabilities decreased to 0.80% for the three months ended June 30, 2012 from 1.07% for the corresponding period in 2011, and to 0.82% for the six months ended June 30, 2012 from 1.00% for the corresponding period in 2011. Net interest margin for the three months ended June 30, 2012 was 3.85% compared to 3.93% for the corresponding period in 2011, and 3.81% for the six months ended June 30, 2012 compared to 3.96% for the corresponding period in 2011.

 

The following tables show, for the three and six months ended June 30, 2012 and June 30, 2011, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue. The accompanying tables reflect 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. The tables are presented on a taxable-equivalent basis where applicable:

 

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Average Consolidated Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Three Months Ended June 30, 2012 and 2011

(Dollar Amounts In Thousands)

 

   2012   2011 
       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)                               
Taxable  $1,962,367   $24,335    4.99%  $1,512,972   $19,813    5.25%
Tax-exempt(2)   1,537    22    5.76    -    -    - 
Mortgage loans held for sale   11,390    88    3.11    3,385    31    3.67 
Investment securities:                              
Taxable   205,390    1,302    2.55    165,402    1,441    3.49 
Tax-exempt(2)   99,705    1,176    4.74    78,509    1,047    5.35 
Total investment securities (3)   305,095    2,478    3.27    243,911    2,488    4.09 
Federal funds sold   89,511    42    0.19    78,504    36    0.18 
Restricted equity securities   4,678    24    2.06    4,499    18    1.60 
Interest-bearing balances with banks   55,208    34    0.25    31,491    19    0.24 
Total interest-earning assets  $2,429,786   $27,023    4.47%  $1,874,762   $22,405    4.79%
Non-interest-earning assets:                              
Cash and due from banks   35,507              29,208           
Net fixed assets and equipment   5,863              4,900           
interest and other assets   63,675              17,294           
Total assets  $2,534,831              1,926,164           
                               
Liabilities and stockholders' equity:                              
Interest-bearing liabilities:                              
Interest-bearing demand deposits  $342,814   $265    0.31%  $289,996   $299    0.41%
Savings deposits   16,182    11    0.27    8,162    10    0.49 
Money market accounts   994,751    1,408    0.57    861,238    1,730    0.81 
Time deposits   400,100    1,343    1.35    308,016    1,224    1.59 
Federal funds purchased   86,690    54    0.25    -    -    - 
Other borrowings   33,838    668    7.94    42,229    751    7.13 
Total interest-bearing liabilities  $1,874,375   $3,749    0.80%  $1,509,641   $4,014    1.07%
Non-interest-bearing liabilities:                              
Non-interest-bearing demand deposits   442,590              274,906           
Other liabilities   7,529              6,062           
Stockholders' equity   202,741              131,463           
Unrealized gains on securities and derivatives   7,596              4,092           
Total liabilities and stockholders' equity  $2,534,831             $1,926,164           
Net interest spread             3.67%             3.73%
Net interest margin             3.85%             3.93%

 

(1) Non-accrual loans are included in average loan balances in all periods. Loan fees of $72,000 and $153,000 are included in interest income in 2012 and 2011, respectively.

(2) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 35%.

(3) Unrealized gains of $11,687,000 and $6,295,000 are excluded from the yield calculation in 2012 and 2011, respectively.

 

42
 

 

   For the Three Months Ended June 30, 
   2012 Compared to 2011 
   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  $5,771   $(1,249)  $4,522 
Tax-exempt   22    -    22 
Mortgages held for sale   63    (6)   57 
Securities - taxable   312    (451)   (139)
Securities - non taxable   267    (138)   129 
Federal funds sold   5    1    6 
Restricted equity securities   1    5    6 
Interest-bearing balances with banks   15    -    15 
Total interest-earning assets   6,456    (1,838)   4,618 
                
Interest-bearing liabilities:               
Interest-bearing demand deposits   50    (84)   (34)
Savings   7    (6)   1 
Money market accounts   247    (569)   (322)
Time deposits   337    (218)   119 
Federal funds purchased   54    -    54 
Other borrowed funds   (156)   73    (83)
Total interest-bearing liabilities   539    (804)   (265)
Increase in net interest income  $5,917   $(1,034)  $4,883 

 

43
 

 

Average Consolidated Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Six Months Ended June 30, 2012 and 2011

(Dollar Amounts In Thousands)

 

   2012   2011 
       Interest           Interest     
   Average   Earned /   Average   Average   Earned /   Average 
   Balance   Paid   Yield / Rate   Balance   Paid   Yield / Rate 
Assets:                              
Interest-earning assets:                              
Loans, net of unearned income (1)                              
Taxable  $1,910,060   $47,612    5.01%  $1,468,728   $38,406    5.27%
Tax-exempt(2)   769    22    5.75    -    -    - 
Mortgage loans held for sale   11,622    158    2.73    3,769    69    3.69 
Investment securities:                              
Taxable   206,782    2,639    2.57    175,407    2,986    3.43 
Tax-exempt(2)   96,538    2,308    4.81    77,775    2,086    5.41 
Total investment securities (3)   303,320    4,947    3.28    253,182    5,072    4.04 
Federal funds sold   94,606    95    0.20    75,676    72    0.19 
Restricted equity securities   4,384    45    2.06    4,283    35    1.65 
Interest-bearing balances with banks   70,328    87    0.25    40,940    49    0.24 
Total interest-earning assets  $2,395,089   $52,966    4.45%  $1,846,578   $43,703    4.77%
Non-interest-earning assets:                              
Cash and due from banks   35,602              27,518           
Net fixed assets and equipment   5,331              4,873           
Allowance for loan losses, accrued interest and other assets   63,611              15,523           
Total assets  $2,499,633             $1,894,492           
                               
Liabilities and stockholders' equity:                              
Interest-bearing liabilities:                              
Interest-bearing demand deposits  $342,672   $534    0.31%  $301,111   $625    0.42%
Savings deposits   15,974    22    0.28    7,423    19    0.52 
Money market accounts   981,998    2,855    0.58    849,291    3,404    0.81 
Time deposits   398,586    2,738    1.38    295,190    2,350    1.61 
Federal funds purchased   79,636    99    0.25    -    -    - 
Other borrowings   34,655    1,334    7.74    48,379    1,012    4.22 
Total interest-bearing liabilities  $1,853,521   $7,582    0.82%  $1,501,394   $7,410    1.00%
Non-interest-bearing liabilities:                              
Non-interest-bearing demand deposits   433,769              260,137           
Other liabilites   6,590              2,503           
Stockholders' equity   198,303              126,950           
Unrealized gains on securities and derivatives   7,450              3,508           
Total liabilities and stockholders' equity  $2,499,633