ServisFirst Bancshares 10Q 2024 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________

FORM 10-Q

(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______to_______

Commission file number 001-36452

SERVISFIRST BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

2500 Woodcrest Place, Birmingham, Alabama	35209
(Address of Principal Executive Offices	(Zip Code)

(205) 949-0302

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $.001 per share	SFBS	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of October 30, 2024
Common stock, $.001 par value	54,552,393

TABLE OF CONTENTS

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

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

	September 30, 2024			December 31, 2023
	(Unaudited)				(1	)
ASSETS
Cash and due from banks	$	142,372		$	123,430
Interest-bearing balances due from depository institutions		1,614,317			1,907,083
Federal funds sold		3,542			100,575
Cash and cash equivalents		1,760,231			2,131,088
Available-for-sale debt securities, at fair value		1,139,007			900,183
Held-to-maturity debt securities (fair value of $673,023 and $907,191, respectively)		728,580			982,664
Restricted equity securities		11,300			10,226
Mortgage loans held for sale		8,453			5,074
Loans		12,338,226			11,658,829
Less allowance for credit losses		(160,755	)		(153,317	)
Loans, net		12,177,471			11,505,512
Premises and equipment, net		61,328			59,324
Accrued interest and dividends receivable		61,578			59,181
Deferred tax asset, net		57,290			62,918
Other real estate owned and repossessed assets		2,723			995
Bank owned life insurance contracts		297,656			292,759
Goodwill		13,615			13,615
Other assets		129,946			106,129
Total assets	$	16,449,178		$	16,129,668
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing demand	$	2,576,329		$	2,643,101
Interest-bearing		10,570,200			10,630,410
Total deposits		13,146,529			13,273,511
Federal funds purchased		1,542,623			1,256,724
Other borrowings		64,741			64,735
Accrued interest and dividends payable		26,581			27,545
Other liabilities		98,435			66,748
Total liabilities		14,878,909			14,689,263
Stockholders' equity:
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at September 30, 2024 and December 31, 2023		-			-
Common stock, par value $0.001 per share; 200,000,000 shares authorized: 54,551,543 shares issued and outstanding at September 30, 2024; and 54,461,580 shares issued and outstanding at December 31, 2023		54			54
Additional paid-in capital		235,649			232,605
Retained earnings		1,365,701			1,254,841
Accumulated other comprehensive loss		(31,635	)		(47,595	)
Total stockholders' equity attributable to ServisFirst Bancshares, Inc.		1,569,769			1,439,905
Noncontrolling interest		500			500
Total stockholders' equity		1,570,269			1,440,405
Total liabilities and stockholders' equity	$	16,449,178		$	16,129,668

(1) Derived from audited financial statements.

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Interest income:
Interest and fees on loans	$	205,952	$	178,754	$	587,230	$	514,204
Taxable securities		17,493		15,522		49,630		37,987
Nontaxable securities		7		15		25		53
Federal funds sold		31		985		1,110		1,826
Other interest and dividends		24,496		17,930		64,234		30,114
Total interest income		247,979		213,206		702,229		584,184
Interest expense:
Deposits		113,211		95,901		321,948		223,585
Borrowed funds		19,647		17,607		56,790		51,349
Total interest expense		132,858		113,508		378,738		274,934
Net interest income		115,121		99,698		323,491		309,250
Provision for credit losses		5,659		4,282		15,883		15,133
Net interest income after provision for credit losses		109,462		95,416		307,608		294,117
Noninterest income:
Service charges on deposit accounts		2,341		2,163		6,784		6,239
Mortgage banking		1,352		825		3,409		1,963
Credit card income		1,925		2,532		6,413		6,627
Bank-owned life insurance income		2,113		1,818		7,402		5,935
Other operating income		818		797		2,245		2,274
Total noninterest income		8,549		8,135		26,253		23,038
Noninterest expenses:
Salaries and employee benefits		25,057		20,080		72,256		57,941
Equipment and occupancy expense		3,795		3,579		10,919		10,435
Third party processing and other services		8,035		6,549		22,666		20,031
Professional services		1,715		1,265		4,920		4,499
FDIC and other regulatory assessments		2,355		2,346		8,462		6,105
Other real estate owned expense		103		18		141		30
Other operating expenses		4,572		7,826		14,886		20,752
Total noninterest expenses		45,632		41,663		134,250		119,793
Income before income taxes		72,379		61,888		199,611		197,362
Provision for income taxes		12,472		8,548		37,542		32,583
Net income		59,907		53,340		162,069		164,779
Dividends on preferred stock		-		-		31		31
Net income available to common stockholders	$	59,907	$	53,340	$	162,038	$	164,748
Basic earnings per common share	$	1.10	$	0.98	$	2.97	$	3.03
Diluted earnings per common share	$	1.10	$	0.98	$	2.97	$	3.02

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
Net income	$	59,907		$	53,340		$	162,069		$	164,779
Other comprehensive income (loss), net of tax
Unrealized net holding gains (losses) arising during period from securities available for sale, net of tax of $5,025 and $(340) for the three months ended September 30, 2024 and 2023, respectively, and $7,463 and $(5,743) for the nine months ended September 30, 2024 and 2023, respectively		14,997			(1,016	)		16,341			(17,138	)
Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax of $(38) and $(54) for the three months ended September 30, 2024 and 2023, respectively, and $(120) and $(150) for the nine months ended September 30, 2024 and 2023, respectively		(111	)		(160	)		(381	)		(447	)
Other comprehensive income (loss), net of tax		14,886			(1,176	)		15,960			(17,585	)
Comprehensive income	$	74,793		$	52,164		$	178,029		$	147,194

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts) (Unaudited)

	Three Months Ended September 30,
	Common Shares		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling interest		Total Stockholders' Equity
Balance, July 1, 2023		54,425,033	$	-	$	54	$	230,659		$	1,190,920		$	(58,662	)	$	500	$	1,363,471
Common dividends declared, $0.28 per share		-		-		-		-			(15,239	)		-			-		(15,239	)
Dividends on nonvested restricted stock recognized as compensation expense		-		-		-		-			59			-			-		59
Issue restricted shares pursuant to stock incentives, net of forfeitures		414		-		-		-			-			-			-		-
Issue shares of common stock upon
Stock-based compensation expense		-		-		-		929			-			-			-		929
Other comprehensive loss, net of tax		-		-		-		-			-			(1,176	)		-		(1,176	)
Net income		-		-		-		-			53,340			-			-		53,340
Balance, September 30, 2023		54,425,447	$	-	$	54	$	231,588		$	1,229,080		$	(59,838	)	$	500	$	1,401,384


Balance, July 1, 2024		54,521,479	$	-	$	54	$	234,495		$	1,322,048		$	(46,521	)	$	500	$	1,510,576
Common dividends declared, $0.30 per share		-		-		-		-			(16,365	)		-			-		(16,365	)
Dividends on nonvested restricted stock recognized as compensation expense		-		-		-		-			111			-			-		111
Issue restricted shares pursuant to stock incentives, net of forfeitures		21,256		-		-		-			-			-			-		-
Issue shares of common stock upon exercise of stock options		-		-		-		236			-			-			-		236
1,492 shares of common stock withheld in net settlement upon exercise of stock options		8,808		-		-		(95	)		-			-			-		(95	)
Stock-based compensation expense		-		-		-		1,013			-			-			-		1,013
Other comprehensive income, net of tax		-		-		-		-			-			14,886			-		14,886
Net income		-		-		-		-			59,907			-			-		59,907
Balance, September 30, 2024		54,551,543	$	-	$	54	$	235,649		$	1,365,701		$	(31,635	)	$	500	$	1,570,269

	Nine Months Ended September 30,
	Common Shares		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling interest		Total Stockholders' Equity
Balance, January 1, 2023		54,326,527	$	-	$	54	$	229,693		$	1,109,902		$	(42,253	)	$	500	$	1,297,896
Common dividends paid, $0.56 per share		-		-		-		-			(30,472	)		-			-		(30,472	)
Common dividends declared, $0.28 per share		-		-		-		-			(15,239	)		-			-		(15,239	)
Preferred dividends paid		-		-		-		-			(31	)		-			-		(31	)
Dividends on nonvested restricted stock recognized as compensation expense		-		-		-		-			141			-			-		141
Issue restricted shares pursuant to stock incentives, net of forfeitures		37,682		-		-		-			-			-			-		-
Issue shares of common stock upon exercise of stock options		61,238		-		-		1,014			-			-			-		1,014
26,462 shares of common stock withheld in net settlement upon exercise of stock options		-		-		-		(1,838	)		-			-			-		(1,838	)
Stock-based compensation expense		-		-		-		2,719			-			-			-		2,719
Other comprehensive loss, net of tax		-		-		-		-			-			(17,585	)		-		(17,585	)
Net income		-		-		-		-			164,779			-			-		164,779
Balance, September 30, 2023		54,425,447	$	-	$	54	$	231,588		$	1,229,080		$	(59,838	)	$	500	$	1,401,384


Balance, January 1, 2024		54,461,580	$	-	$	54	$	232,605		$	1,254,841		$	(47,595	)	$	500	$	1,440,405
Impact of adoption ASU 2023-02, net of tax		-		-		-		-			(2,269	)		-			-		(2,269	)
Adjusted balance, January 1, 2024		54,461,580		-		54		232,605			1,252,572			(47,595	)		500		1,438,136
Common dividends paid, $0.60 per share		-		-		-		-			(32,709	)		-			-		(32,709	)
Common dividends declared, $0.30 per share		-		-		-		-			(16,365	)		-			-		(16,365	)
Preferred dividends paid		-		-		-		-			(31	)		-			-		(31	)
Dividends on nonvested restricted stock recognized as compensation expense		-		-		-		-			165			-			-		165
Issue restricted shares pursuant to stock incentives, net of forfeitures		63,281		-		-		-			-			-			-		-
Issue shares of common stock upon exercise of stock options		26,682		-		-		605			-			-			-		605
6,668 shares of common stock withheld in net settlement upon exercise of stock options		-		-		-		(410	)		-			-			-		(410	)
Stock-based compensation expense		-		-		-		2,849			-			-			-		2,849
Other comprehensive income, net of tax		-		-		-		-			-			15,960			-		15,960
Net income		-		-		-		-			162,069			-			-		162,069
Balance, September 30, 2024		54,551,543	$	-	$	54	$	235,649		$	1,365,701		$	(31,635	)	$	500	$	1,570,269

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2024			2023
OPERATING ACTIVITIES
Net income	$	162,069		$	164,779
Adjustments to reconcile net income to net cash provided by operations
Deferred tax expense (benefit)		(1,715	)		(5,581	)
Provision for credit losses		15,883			15,133
Depreciation		3,695			3,241
Accretion on acquired loans		141			148
Amortization of investments in tax credit partnerships		6,925			9,114
Net (accretion) amortization of debt securities available-for-sale		(234	)		222
Increase in accrued interest and dividends receivable		(2,397	)		(8,078	)
Stock-based compensation expense		2,849			2,719
(Decrease) increase in accrued interest and dividends payable		(964	)		6,068
Proceeds from sale of mortgage loans held for sale		148,471			91,747
Originations of mortgage loans held for sale		(148,440	)		(94,511	)
Gain on sale of mortgage loans held for sale		(3,410	)		(1,962	)
Net (gain) loss on sale of other real estate owned and repossessed assets		(114	)		28
Write down of other real estate owned and repossessed assets		74			-
Increase in cash surrender value of life insurance contracts		(3,672	)		(5,935	)
Net change in other assets, liabilities, and other operating activities		6,586			(70,920	)
Net cash provided by operating activities		185,747			106,212
INVESTMENT ACTIVITIES
Purchases of debt securities available-for-sale		(641,347	)		(626,728	)
Proceeds from maturities, calls and paydowns of debt securities available-for-sale		426,561			436,523
Purchases of debt securities held-to-maturity		(45,472	)		(48,723	)
Proceeds from maturities, calls and paydowns of debt securities held-to-maturity		299,055			38,945
Purchases of restricted equity securities		(1,074	)		(46,482	)
Proceeds from sale of restricted equity securities		-			43,990
Investment in tax credit partnerships and SBIC		(9,266	)		(7,303	)
Return of capital from tax credit partnerships and SBIC		274			191
(Increase) decrease in loans		(691,514	)		36,879
Purchases of premises and equipment		(5,699	)		(2,907	)
Proceeds from death benefit of bank owned life insurance contracts		-			2,566
Proceeds from sale of other real estate owned and repossessed assets		1,843			158
Net cash used in investing activities		(666,639	)		(172,891	)
FINANCING ACTIVITIES
Net decrease in non-interest-bearing deposits		(66,772	)		(700,275	)
Net (decrease) increase in interest-bearing deposits		(60,210	)		2,295,846
Net increase (decrease) in federal funds purchased		285,899			(248,509	)
FHLB advances		-			300,000
Repayment of FHLB advances		-			(300,000	)
Proceeds from exercise of stock options		605			1,014
Taxes paid in net settlement of tax obligation upon exercise of stock options		(410	)		(1,838	)
Dividends paid on common stock		(49,046	)		(30,472	)
Dividends paid on preferred stock		(31	)		(31	)
Net cash provided by financing activities		110,035			1,315,735
Net (decrease) increase in cash and cash equivalents		(370,857	)		1,249,056
Cash and cash equivalents at beginning of period		2,131,088			816,053
Cash and cash equivalents at end of period	$	1,760,231		$	2,065,109
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest	$	379,702		$	268,866
Income taxes		33,565			53,991
NONCASH TRANSACTIONS					-
Other real estate acquired in settlement of loans	$	3,531		$	628
Dividends on nonvested restricted stock reclassified as compensation expense		55			141
Dividends declared		16,365			15,239

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024

(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 that ServisFirst Bancshares, Inc. (the “Company”) and its consolidated subsidiaries, including ServisFirst Bank (the “Bank”), 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, 2023.

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 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. The difference in earnings per share under the two-class method was not significant for both the three and nine month periods ended September 30, 2024 and 2023.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(In Thousands, Except Shares and Per Share Data)
Earnings per common share
Weighted average common shares outstanding		54,549,664		54,424,561		54,518,996		54,398,845
Net income available to common stockholders	$	59,907	$	53,340	$	162,038	$	164,748
Basic earnings per common share	$	1.10	$	0.98	$	2.97	$	3.03

Weighted average common shares outstanding		54,549,664		54,424,561		54,518,996		54,398,845
Dilutive effects of assumed exercise of stock options and vesting of performance shares		92,918		106,074		96,651		131,952
Weighted average common and dilutive potential common shares outstanding		54,642,582		54,530,635		54,615,647		54,530,797
Net income available to common stockholders	$	59,907	$	53,340	$	162,038	$	164,748
Diluted earnings per common share	$	1.10	$	0.98	$	2.97	$	3.02

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2024 and December 31, 2023 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
September 30, 2024	(In Thousands)
Debt Securities Available-for-Sale
U.S. Treasury Securities	$	566,247	$	1,077	$	-		$	567,324
Mortgage-backed securities		256,622		798		(19,120	)		238,300
State and municipal securities		10,543		1		(826	)		9,718
Corporate debt		350,700		13		(27,048	)		323,665
Total	$	1,184,112	$	1,889	$	(46,994	)	$	1,139,007
Debt Securities Held-to-Maturity
U.S. Treasury Securities	$	249,349	$	-	$	(16,226	)	$	233,123
Mortgage-backed securities		471,151		565		(39,398	)		432,318
State and municipal securities		8,080		-		(498	)		7,582
Total	$	728,580	$	565	$	(56,122	)	$	673,023

December 31, 2023
Debt Securities Available-for-Sale
U.S. Treasury Securities	$	340,556	$	251	$	-		$	340,807
Mortgage-backed securities		241,458		6		(25,979	)		215,485
State and municipal securities		11,400		1		(1,178	)		10,223
Corporate debt		375,676		-		(42,009	)		333,667
Total	$	969,090	$	258	$	(69,166	)	$	900,183
Debt Securities Held-to-Maturity
U.S. Treasury Securities	$	508,985	$	-	$	(24,718	)	$	484,267
Mortgage-backed securities		465,615		3		(50,025	)		415,593
State and municipal securities		8,063		-		(732	)		7,331
Total	$	982,664	$	3	$	(75,475	)	$	907,191

The amortized cost and fair value of debt securities as of September 30, 2024 and December 31, 2023 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories along with the other categories of debt securities.

	September 30, 2024				December 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Debt securities available-for-sale
Due within one year	$	523,255	$	523,759	$	350,400	$	350,396
Due from one to five years		118,734		116,395		70,016		67,334
Due from five to ten years		282,501		258,273		304,216		264,893
Due after ten years		3,000		2,280		3,000		2,076
Mortgage-backed securities		256,622		238,300		241,458		215,485
	$	1,184,112	$	1,139,007	$	969,090	$	900,183

Debt securities held-to-maturity
Due within one year	$	250	$	250	$	260,047	$	257,835
Due from one to five years		256,684		240,011		203,481		185,741
Due from five to ten years		495		444		53,521		48,022
Mortgage-backed securities		471,151		432,318		465,615		415,593
	$	728,580	$	673,023	$	982,664	$	907,191

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

Restricted equity securities are comprised entirely of restricted investment in Federal Home Loan Bank stock for membership requirements.

The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law as of September 30, 2024 and December 31, 2023 was $1.52 billion and $1.49 billion, respectively. The increase in pledged investment is due to increases in public funds balances deposited with the Bank during 2024.

The following table identifies, as of September 30, 2024 and December 31, 2023, 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.

	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)
September 30, 2024
Debt Securities available-for-sale
Mortgage-backed securities	$	-		$	1	$	(19,120	)	$	193,011	$	(19,120	)	$	193,012
State and municipal securities		-			-		(826	)		9,273		(826	)		9,273
Corporate debt		(1,505	)		20,420		(25,544	)		298,260		(27,048	)		318,680
Total	$	(1,505	)	$	20,421	$	(45,490	)	$	500,544	$	(46,994	)	$	520,965
Debt Securities held-to-maturity
U.S. Treasury Securities	$	-		$	-	$	(16,226	)	$	233,124	$	(16,226	)	$	233,123
Mortgage-backed securities		-			2,061		(39,398	)		383,853		(39,398	)		385,914
State and municipal securities		-			-		(498	)		7,332		(498	)		7,332
Total	$	-		$	2,061	$	(56,122	)	$	624,309	$	(56,122	)	$	626,369
December 31, 2023
Debt Securities available-for-sale
Mortgage-backed securities	$	(6	)	$	704	$	(25,973	)	$	214,393	$	(25,979	)	$	215,097
State and municipal securities		-			-		(1,178	)		9,777		(1,178	)		9,777
Corporate debt		(794	)		15,141		(41,214	)		311,666		(42,009	)		326,807
Total	$	(801	)	$	15,845	$	(68,365	)	$	535,836	$	(69,166	)	$	551,681
Debt Securities held-to-maturity
U.S. Treasury Securities	$	-		$	-	$	(24,718	)	$	484,267	$	(24,718	)	$	484,267
Mortgage-backed securities		(1	)		430		(50,024	)		411,585		(50,025	)		412,015
State and municipal securities		-			-		(732	)		7,081		(732	)		7,081
Total	$	(1	)	$	430	$	(75,474	)	$	902,933	$	(75,475	)	$	903,363

At September 30, 2024 and 2023, no allowance for credit losses (“ACL”) has been recognized on available-for-sale debt securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired. This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available-for-sale debt securities. The issuers of these debt securities continue to make timely principal and interest payments under the contractual terms of the securities. The Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Historical loss rates associated with securities having similar grades as those in our portfolio have generally not been significant. Furthermore, as of September 30, 2024 and 2023, there were no past due principal or interest payments associated with these securities. Based upon (i) the issuer’s strong bond ratings and (ii) a zero historical loss rate, no allowance for credit losses has been recorded for held-to-maturity State and Municipal Securities as such amount is not material at September 30, 2024 and 2023. All debt securities in an unrealized loss position as of September 30, 2024 continue to perform as scheduled and the Company does not believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.

NOTE 5 – LOANS

The loan portfolio is classified based on the underlying collateral utilized to secure each loan for financial reporting purposes. This classification is consistent with the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (FDIC).

Commercial, financial and agricultural - Includes loans to business enterprises issued for commercial, industrial, agricultural production and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

Real estate – construction – Includes loans secured by real estate to finance land development or the construction of industrial, commercial or residential buildings. Repayment is dependent upon the completion and eventual sale, refinance or operation of the related real estate project.

Owner-occupied commercial real estate mortgage – Includes loans secured by nonfarm nonresidential properties for which the primary source of repayment is the cash flow from the ongoing operations conducted by the party that owns the property.

1-4 family real estate mortgage – Includes loans secured by residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.

Other real estate mortgage – Includes loans secured by nonowner-occupied properties, including office buildings, industrial buildings, warehouses, retail buildings, multifamily residential properties and farmland. Repayment is primarily dependent on income generated from the underlying collateral.

Consumer – Includes loans to individuals not secured by real estate. Repayment is dependent upon the personal cash flow of the borrower.

The following table details the Company’s loans at September 30, 2024 and December 31, 2023:

	September 30,			December 31,
	2024			2023
	(Dollars In Thousands)
Commercial, financial and agricultural	$	2,793,989		$	2,823,986
Real estate - construction		1,439,648			1,519,619
Real estate - mortgage:
Owner-occupied commercial		2,441,687			2,257,163
1-4 family mortgage		1,409,981			1,249,938
Other mortgage		4,190,935			3,744,346
Subtotal: Real estate - mortgage		8,042,603			7,251,447
Consumer		61,986			63,777
Total Loans		12,338,226			11,658,829
Less: Allowance for credit losses on		(160,755	)		(153,317	)
Net Loans	$	12,177,471		$	11,505,512


Commercial, financial and agricultural		22.64	%		24.22	%
Real estate - construction		11.67	%		13.03	%
Real estate - mortgage:
Owner-occupied commercial		19.79	%		19.36	%
1-4 family mortgage		11.43	%		10.72	%
Other mortgage		33.97	%		32.12	%
Subtotal: Real estate - mortgage		65.18	%		62.20	%
Consumer		0.50	%		0.55	%
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 credit loss portfolio segments and classes. These categories are utilized to develop the associated allowance for credit losses using historical losses adjusted for current economic conditions defined as follows:

●	Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or obligors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.
●	Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.
●	Substandard – loans that exhibit well-defined weakness or weaknesses that presently jeopardize debt repayment. These loans are characterized by the distinct possibility that the institution will sustain some loss if the 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.

The table below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of September 30, 2024:

September 30, 2024	2024		2023		2022		2021		2020		Prior		Revolving		Revolving lines of credit converted to term loans		Total
	(In Thousands)
Commercial, financial and agricultural
Pass	$	381,183	$	193,291	$	364,536	$	298,591	$	127,616	$	207,332	$	1,097,724	$	309	$	2,670,582
Special Mention		1,469		-		11,415		2,545		3,753		9,968		17,519		-		46,669
Substandard - accruing		3,492		-		1,008		365		365		25,694		21,602		-		52,526
Substandard -Non-accrual		-		2,271		1,766		9,412		478		8,914		1,371		-		24,212
Total Commercial, financial and agricultural	$	386,144	$	195,562	$	378,725	$	310,913	$	132,212	$	251,908	$	1,138,216	$	309	$	2,793,989
Current-period gross write-offs	$	-	$	1,002	$	-	$	52	$	675	$	4,225	$	2,263	$	-	$	8,217

Real estate - construction
Pass	$	214,037	$	295,362	$	557,893	$	189,368	$	45,997	$	17,754	$	71,704	$	-	$	1,392,115
Special Mention		-		590		27,555		16,421		-		-		-		-		44,566
Substandard - accruing		-		-		2,000		-		-		967		-		-		2,967
Total Real estate - construction	$	214,037	$	295,952	$	587,448	$	205,789	$	45,997	$	18,721	$	71,704	$	-	$	1,439,648

Owner-occupied commercial
Pass	$	258,398	$	181,867	$	522,801	$	501,821	$	270,619	$	602,983	$	61,533	$	813	$	2,400,835
Special Mention		-		944		1,544		434		5,470		11,476		1,351		-		21,219
Substandard - accruing		-		417		1,155		6,714		2,249		2,423		-		-		12,958
Substandard -Non-accrual		-		-		-		-		-		6,675		-		-		6,675
Total Owner-occupied commercial	$	258,398	$	183,228	$	525,500	$	508,969	$	278,338	$	623,557	$	62,884	$	813	$	2,441,687
Current-period gross write-offs	$	-	$	-	$	-	$	100	$	-	$	-	$	-	$	-	$	100

1-4 family mortgage
Pass	$	227,811	$	138,582	$	340,028	$	201,430	$	69,045	$	86,428	$	329,412	$	-	$	1,392,736
Special Mention		-		556		795		1,987		987		4,565		1,116		-		10,006
Substandard - accruing		-		-		-		-		-		1,692		621		-		2,313
Substandard -Non-accrual		-		265		388		1,575		641		894		1,163		-		4,926
Total 1-4 family mortgage	$	227,811	$	139,403	$	341,211	$	204,992	$	70,673	$	93,579	$	332,312	$	-	$	1,409,981
Current-period gross write-offs	$	-	$	28	$	61	$	62	$	-	$	5	$	182	$	-	$	338

Other mortgage
Pass	$	341,446	$	172,384	$	1,423,763	$	940,369	$	416,585	$	718,072	$	74,433	$	246	$	4,087,298
Special Mention		-		-		13,328		71,375		-		3,408		-		-		88,112
Substandard - accruing		-		-		4,585		-		-		9,681		-		-		14,266
Substandard -Non-accrual		-		-		384		875		-		-		-		-		1,259
Total Other mortgage	$	341,446	$	172,384	$	1,442,060	$	1,012,619	$	416,585	$	731,162	$	74,433	$	246	$	4,190,935

Consumer
Pass	$	23,560	$	3,226	$	2,769	$	1,699	$	1,301	$	3,409	$	25,943	$	-	$	61,907
Special Mention		-		-		-		-		-		-		28		-		28
Substandard - accruing		-		-		-		-		-		-		50		-		50
Substandard -Non-accrual		-		-		-		-		-		1		-		-		1
Total Consumer	$	23,560	$	3,226	$	2,769	$	1,699	$	1,301	$	3,410	$	26,021	$	-	$	61,986
Current-period gross write-offs	$	-		8		-		-		-		75		278		-	$	361

Total Loans
Pass	$	1,446,435	$	984,712	$	3,211,790	$	2,133,278	$	931,163	$	1,635,978	$	1,660,749	$	1,368	$	12,005,473
Special Mention		1,469		2,090		54,637		92,762		10,210		29,418		20,014		-		210,600
Substandard - accruing		3,492		417		8,748		7,079		2,614		40,457		22,273		-		85,080
Substandard -Non-accrual		-		2,536		2,538		11,862		1,119		16,484		2,534		-		37,073
Total Loans	$	1,451,396	$	989,755	$	3,277,713	$	2,244,981	$	945,106	$	1,722,337	$	1,705,570	$	1,368	$	12,338,226
Current-period gross write-offs	$	-	$	1,038	$	61	$	214	$	675	$	4,305	$	2,723	$	-	$	9,016

Loans by credit quality indicator, loan type and based on year of origination as of December 31, 2023 were as follows:

December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving		Revolving lines of credit converted to term loans		Total
	(In Thousands)
Commercial, financial and agricultural
Pass	$	341,335	$	455,281	$	354,034	$	162,543	$	100,032	$	151,527	$	1,161,324	$	491	$	2,726,567
Special Mention		4,275		1,982		5,105		5,765		1,320		3,549		21,769		7		43,772
Substandard - accruing		1,410		-		2,830		368		9,501		27,962		4,360		-		46,431
Substandard -Non-accrual		-		2		767		206		-		3,336		2,905		-		7,216
Total Commercial, financial and agricultural	$	347,020	$	457,265	$	362,736	$	168,882	$	110,853	$	186,374	$	1,190,358	$	498	$	2,823,986
Current-period gross write-offs	$	1,213	$	4,690	$	2,531	$	779	$	4	$	2,014	$	1,998	$	-	$	13,229

Real estate - construction
Pass	$	216,745	$	874,903	$	283,012	$	49,668	$	4,866	$	16,558	$	72,156	$	-	$	1,517,908
Special Mention		589		-		-		-		-		-		-		-		589
Substandard - accruing		-		33		-		-		-		978		-		-		1,011
Substandard -Non-accrual		-		-		-		-		-		-		-		111		111
Total Real estate - construction	$	217,334	$	874,936	$	283,012	$	49,668	$	4,866	$	17,536	$	72,156	$	111	$	1,519,619
Current-period gross write-offs	$	-	$	-	$	19	$	-	$	-	$	-	$	-	$	89	$	108

Owner-occupied commercial
Pass	$	148,915	$	478,364	$	517,667	$	300,978	$	181,864	$	512,752	$	64,170	$	844	$	2,205,554
Special Mention		5,369		1,411		7,705		8,317		8,530		7,539		-		-		38,871
Substandard - accruing		1,358		-		-		-		-		4,292		-		-		5,650
Substandard -Non-accrual		-		-		-		-		2,329		4,759		-		-		7,088
Total Owner-occupied commercial	$	155,642	$	479,775	$	525,372	$	309,295	$	192,723	$	529,342	$	64,170	$	844	$	2,257,163
Current-period gross write-offs	$	-	$	-	$	-	$	-	$	117	$	-	$	-	$	-	$	117

1-4 family mortgage
Pass	$	166,927	$	376,964	$	228,183	$	75,104	$	40,697	$	61,046	$	286,066	$	-	$	1,234,987
Special Mention		574		721		2,504		1,009		3,865		439		727		-		9,839
Substandard - accruing		-		-		-		-		-		425		261		-		686
Substandard -Non-accrual		155		380		741		572		877		901		800		-		4,426
Total 1-4 family mortgage	$	167,656	$	378,065	$	231,428	$	76,685	$	45,439	$	62,811	$	287,854	$	-	$	1,249,938
Current-period gross write-offs	$	-	$	40	$	-	$	-	$	-	$	14	$	-	$	-	$	54

Other mortgage
Pass	$	162,418	$	1,119,609	$	1,106,055	$	448,781	$	249,059	$	540,325	$	100,516	$	247	$	3,727,010
Special Mention		-		-		-		-		-		-		850		-		850
Substandard - accruing		-		4,975		-		-		-		11,005		-		-		15,980
Substandard -Non-accrual		-		-		-		-		130		376		-		-		506
Total Other mortgage	$	162,418	$	1,124,584	$	1,106,055	$	448,781	$	249,189	$	551,706	$	101,366	$	247	$	3,744,346
Current-period gross write-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer
Pass	$	22,227	$	3,890	$	4,542	$	1,794	$	1,295	$	2,687	$	27,342	$	-	$	63,777
Special Mention		-		-		-		-		-		-		-		-		-
Substandard - accruing		-		-		-		-		-		-		-		-		-
Substandard -Non-accrual		-		-		-		-		-		-		-		-		-
Total Consumer	$	22,227	$	3,890	$	4,542	$	1,794	$	1,295	$	2,687	$	27,342	$	-	$	63,777
Current-period gross write-offs	$	-	$	-	$	-	$	-	$	4	$	49	$	1,020	$	-	$	1,073

Total Loans
Pass	$	1,058,567	$	3,309,011	$	2,493,493	$	1,038,868	$	577,813	$	1,284,895	$	1,711,574	$	1,582	$	11,475,803
Special Mention		10,807		4,114		15,314		15,091		13,715		11,527		23,346		7		93,921
Substandard - accruing		2,768		5,008		2,830		368		9,501		44,662		4,621		-		69,758
Substandard -Non-accrual		155		382		1,508		778		3,336		9,372		3,705		111		19,347
Total Loans	$	1,072,297	$	3,318,515	$	2,513,145	$	1,055,105	$	604,365	$	1,350,456	$	1,743,246	$	1,700	$	11,658,829
Current-period gross write-offs	$	1,213	$	4,730	$	2,550	$	779	$	125	$	2,077	$	3,018	$	89	$	14,581

Loans by performance status as of September 30, 2024 and December 31, 2023 were as follows:

September 30, 2024	Performing		Nonperforming		Total

	(In Thousands)
Commercial, financial and agricultural	$	2,768,695	$	25,294	$	2,793,989
Real estate - construction		1,439,648		-		1,439,648
Real estate - mortgage:
Owner-occupied commercial		2,434,932		6,755		2,441,687
1-4 family mortgage		1,404,187		5,794		1,409,981
Other mortgage		4,189,676		1,259		4,190,935
Total real estate mortgage		8,028,795		13,808		8,042,603
Consumer		61,920		66		61,986
Total	$	12,299,058	$	39,168	$	12,338,226

December 31, 2023	Performing		Nonperforming		Total

	(In Thousands)
Commercial, financial and agricultural	$	2,816,599	$	7,387	$	2,823,986
Real estate - construction		1,519,508		111		1,519,619
Real estate - mortgage:
Owner-occupied commercial		2,250,074		7,089		2,257,163
1-4 family mortgage		1,243,603		6,335		1,249,938
Other mortgage		3,743,840		506		3,744,346
Total real estate mortgage		7,237,517		13,930		7,251,447
Consumer		63,672		105		63,777
Total	$	11,637,296	$	21,533	$	11,658,829

Loans by past due status as of September 30, 2024 and December 31, 2023 were as follows:

September 30, 2024	Past Due Status (Accruing Loans)
							Total Past		Total						Nonaccrual
	30-59 Days		60-89 Days		90+ Days		Due		Nonaccrual		Current		Total Loans		With no ACL

	(In Thousands)
Commercial, financial and agricultural	$	4,151	$	1,091	$	1,081	$	6,323	$	24,213	$	2,763,453	$	2,793,989	$	20,985
Real estate - construction		31,459		14,074		-		45,533		-		1,394,115		1,439,648		-
Real estate - mortgage:
Owner-occupied commercial		3,261		-		79		3,340		6,676		2,431,671		2,441,687		6,522
1-4 family mortgage		306		2,644		868		3,818		4,926		1,401,237		1,409,981		4,399
Other mortgage		57,738		6,357		-		64,095		1,259		4,125,581		4,190,935		713
Total real estate - mortgage		61,305		9,001		947		71,253		12,861		7,958,489		8,042,603		11,634
Consumer		89		33		65		187		1		61,798		61,986		1
Total	$	97,004	$	24,199	$	2,093	$	123,296	$	37,075	$	12,177,855	$	12,338,226	$	32,620

December 31, 2023	Past Due Status (Accruing Loans)
							Total Past		Total						Nonaccrual
	30-59 Days		60-89 Days		90+ Days		Due		Nonaccrual		Current		Total Loans		With no ACL

	(In Thousands)
Commercial, financial and agricultural	$	3,418	$	3,718	$	170	$	7,306	$	7,217	$	2,809,463	$	2,823,986	$	5,028
Real estate - construction		-		34		-		34		111		1,519,474		1,519,619		-
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		7,089		2,250,074		2,257,163		7,089
1-4 family mortgage		540		4,920		1,909		7,369		4,426		1,238,143		1,249,938		1,224
Other mortgage		676		10,703		-		11,379		506		3,732,461		3,744,346		506
Total real estate - mortgage		1,216		15,623		1,909		18,748		12,021		7,220,678		7,251,447		8,819
Consumer		58		31		105		194		-		63,583		63,777		-
Total	$	4,692	$	19,406	$	2,184	$	26,282	$	19,349	$	11,613,198	$	11,658,829	$	13,847

Under the current expected credit losses (“CECL”) methodology, the ACL is measured on a collective basis for pools of loans with similar risk characteristics. For loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable forecast period losses are reverted to long-term historical averages. The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.

The Company uses the discounted cash flow (“DCF”) method to estimate ACL for all loan pools except for commercial and industrial ("C&I") revolving lines of credit and credit cards. C&I revolving lines of credit and credit cards are members of the Commercial, financial and agricultural and Consumer portfolios, respectively. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment rate as a loss driver. The Company also utilizes and forecasts GDP growth as a second loss driver for its agricultural and consumer loan pools. Consistent forecasts of the loss drivers are used across the loan segments. At September 30, 2024 and December 31, 2023, the Company utilized a reasonable and supportable forecast period of twelve months followed by a six-month straight-line reversion to long term averages. The Company leveraged economic projections from reputable and independent sources to inform its loss driver forecasts. The Company expects the national unemployment rate to fall and the national GDP growth rate to rise compared to the December 31, 2023 forecast.

The Company uses a loss-rate method to estimate expected credit losses for its C&I revolving lines of credit and credit card pools. The C&I revolving lines of credit pool incorporates a probability of default (“PD”) and loss given default (“LGD”) modeling approach. This approach involves estimating the pool average life and then using historical correlations of default and loss experience over time to calculate the lifetime PD and LGD. These two inputs are then applied to the outstanding pool balance. The credit card pool incorporates a remaining life modeling approach, which utilizes an attrition-based method to estimate the remaining life of the pool. A quarterly average loss rate is then calculated using the Company’s historical loss data. The model reduces the pool balance quarterly on a straight-line basis over the estimated life of the pool. The quarterly loss rate is multiplied by the outstanding balance at each period-end resulting in an estimated loss for each quarter. The sum of estimated loss for all quarters is the total calculated reserve for the pool. Management has applied the loss-rate method to C&I lines of credit and to credit cards due to their generally short-term nature. An expected loss ratio is applied based on internal and peer historical losses.

Each loan pool is adjusted for qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.

Inherent risks in the loan portfolio will differ based on type of loan. Specific risk characteristics by loan portfolio segment are listed below:

Commercial, financial and agricultural loans include risks associated with the borrower’s cash flow, debt service coverage, and management’s expertise. These loans are subject to the risk that the Company may have difficulty converting collateral to a liquid asset if necessary, as well as risks associated with the degree of specialization, mobility, and general collectability in a default situation. These commercial loans may be subject to many different types of risks, including fraud, bankruptcy, economic downturn, deteriorated or non-existent collateral, and changes in interest rates.

Real estate construction loans include risks associated with the borrower’s creditworthiness, contractor’s qualifications, borrower and contractor performance, and the overall risk and complexity of the proposed project. Construction lending is also subject to risks associated with sub-market dynamics, including population, employment trends and household income. During times of economic stress, this type of loan has typically had a greater degree of risk than other loan types.

Real estate mortgage loans consist of loans secured by commercial and residential real estate. Commercial real estate lending is dependent upon successful management, marketing and expense supervision necessary to maintain the property. Repayment of these loans may be adversely affected by conditions in the real estate market or the general economy. Also, commercial real estate loans typically involve relatively large loan balances to a single borrower. Residential real estate lending risks are generally less significant than those of other loans. Real estate lending risks include fluctuations in the value of real estate, bankruptcies, economic downturn and customer financial problems.

Consumer loans carry a moderate degree of risk compared to other loans. They are generally more risky than traditional residential real estate loans but less risky than commercial loans. Risk of default is usually determined by the well-being of the local economies. During times of economic stress, there is usually some level of job loss both nationally and locally, which directly affects the ability of the consumer to repay debt.

The following table presents changes in the ACL, segregated by loan type, for the three and nine months ended September 30, 2024 and 2023.

	Commercial,
	financial and			Real estate -			Real estate -
	agricultural			construction			mortgage			Consumer			Total

	(In Thousands)
	Three Months Ended September 30, 2024
Allowance for credit losses on loans:
Balance, July 1, 2024	$	56,216		$	40,450		$	59,684		$	1,742		$	158,092
Charge-offs		(3,020	)		-			(252	)		(155	)		(3,427	)
Recoveries		616			-			2			37			655
Provision for credit losses on loans		3,226			(3,092	)		5,322			(21	)		5,435
Balance at September 30, 2024	$	57,038		$	37,358		$	64,756		$	1,603		$	160,755

	Three Months Ended September 30, 2023
Allowance for credit losses on loans:
Balance, July 1, 2023	$	43,465		$	40,443		$	66,237	$	2,127		$	152,272
Charge-offs		(4,783	)		(19	)		-		(341	)		(5,143	)
Recoveries		825			-			-		11			836
Provision for credit losses on loans		6,454			(2,401	)		37		192			4,282
Balance at September 30, 2023	$	45,961		$	38,023		$	66,274	$	1,989		$	152,247

	Nine Months Ended September 30, 2024
Allowance for credit losses on loans:
Balance at January 1, 2024	$	52,121		$	44,658		$	55,126		$	1,412		$	153,317
Charge-offs		(8,217	)		-			(438	)		(361	)		(9,016	)
Recoveries		1,220			8			8			62			1,298
Provision for credit losses on loans		11,914			(7,308	)		10,060			490			15,156
Balance at September 30, 2024	$	57,038		$	37,358		$	64,756		$	1,603		$	160,755

	Nine Months Ended September 30, 2023
Allowance for credit losses:
Balance at January 1, 2023	$	42,830		$	42,889		$	58,652		$	1,926		$	146,297
Charge-offs		(10,398	)		(19	)		(157	)		(842	)		(11,416	)
Recoveries		2,187			3			-			43			2,233
Provision for credit losses on loans		11,342			(4,850	)		7,779			862			15,133
Balance at September 30, 2023	$	45,961		$	38,023		$	66,274		$	1,989		$	152,247

We maintain an ACL on unfunded lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a drawdown on the commitment. The ACL on unfunded loan commitments is classified as a liability account on the Consolidated Balance Sheet within other liabilities, while the corresponding provision for these credit losses is recorded as a component of other expense. During the third quarter of 2024, we reclassified the provision for Unfunded Commitments from Other Expenses to Provision for Credit Losses. The ACL on unfunded commitments was $1.3 million at September 30, 2023, and $575,000 at December 31, 2023. The provision expense for unfunded commitments was $239,000 and $726,000 for the three and nine months ended September 30, 2024, respectively. There was no provision expense for the three and nine months ended September 30, 2023, respectively.

Loans that no longer share similar risk characteristics with collectively evaluated pools are estimated on an individual basis. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows:

			Accounts								ACL
September 30, 2024	Real Estate		Receivable		Equipment		Other		Total		Allocation
	(In Thousands)
Commercial, financial and agricultural	$	19,317	$	3,587	$	5,640	$	42,498	$	71,042	$	20,569
Real estate - construction		2,000		-		-		967		2,967		-
Real estate - mortgage:
Owner-occupied commercial		19,552		-		-		80		19,632		154
1-4 family mortgage		14,650		-		-		875		15,525		546
Other mortgage		6,350		-		472		377		7,199		1,050
Total real estate - mortgage		40,552		-		472		1,332		42,356		1,750
Consumer		-		-		1		50		51		50
Total	$	61,869	$	3,587	$	6,113	$	44,847	$	116,416	$	22,369

			Accounts								ACL
December 31, 2023	Real Estate		Receivable		Equipment		Other		Total		Allocation
	(In Thousands)
Commercial, financial and agricultural	$	20,266	$	7,240	$	2,126	$	24,016	$	53,648	$	16,189
Real estate - construction		145		-		-		978		1,123		1
Real estate - mortgage:
Owner-occupied commercial		12,038		-		-		698		12,736		475
1-4 family mortgage		15,694		-		-		-		15,694		1,058
Other mortgage		5,062		-		-		800		5,862		603
Total real estate - mortgage		32,794		-		-		1,498		34,292		2,136
Consumer		-		-		-		-		-		-
Total	$	53,205	$	7,240	$	2,126	$	26,492	$	89,063	$	18,326

The table below details the amortized cost basis at the end of the reporting period for loans made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2024 and 2023:

	Three Months Ended September 30, 2024
			Payment Deferral
	Term		and Term				Percentage of
	Extensions		Extensions		Total		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	41,486	$	11,355	$	52,841		0.43	%
Owner-occupied commercial		3,138		-		3,138		0.03	%
1-4 family mortgage		115		-		115		-	%
Total	$	44,739	$	11,355	$	56,094		0.46	%

	Nine Months Ended September 30, 2024
			Payment Deferral
	Term		and Term				Percentage of
	Extensions		Extensions		Total		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	48,448	$	12,363	$	60,811		0.49	%
Real estate - construction		967		-		967		0.01	%
Owner-occupied commercial		4,595		1,155		5,750		0.05	%
1-4 family mortgage		526		172		698		0.01	%
Other mortgage		9,681		-		9,681		0.08	%
Total	$	64,217	$	13,690	$	77,907		0.64	%

	Three months ended September 30, 2023
			Payment Deferral
	Term		and Term				Percentage of
	Extensions		Extensions		Total		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	25,340	$	-	$	25,340		0.22	%
Other mortgage		303		303		606		0.01	%
Total	$	25,643	$	303	$	25,946		0.23	%

	Nine months ended September 30, 2023
			Payment Deferral
	Term		and Term				Percentage of
	Extensions		Extensions		Total		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	30,264	$	-	$	30,264		0.26	%
Owner-occupied commercial		2,410		-		2,410		0.02	%
Other mortgage		11,236		303		11,539		0.10	%
Total	$	43,910	$	303	$	44,213		0.38	%

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024 and 2023:

	Three Months Ended September 30, 2024
			Total Payment
	Term Extensions		Deferral
	(In months)		(In Thousands)
Commercial, financial and agricultural		3 to 95	$	1,278
Real estate - construction		-		-
Owner-occupied commercial		4 to 5		-
1-4 family mortgage		6		-
Other mortgage		-		-

	Nine Months Ended September 30, 2024
			Total Payment
	Term Extensions		Deferral
	(In months)		(In Thousands)
Commercial, financial and agricultural		2 to 95	$	1,403
Real estate - construction		12		-
Owner-occupied commercial		4 to 60		16
1-4 family mortgage		6 to 121		2
Other mortgage		11		-

	Three Months Ended September 30, 2023
			Total Payment
	Term Extensions		Deferral
	(In months)		(In Thousands)
Commercial, financial and agricultural		1 to 12	$	-
Real estate - construction		-		-
Owner-occupied commercial		-		-
1-4 family mortgage		-		-
Other mortgage		2 to 3		-

	Nine Months Ended September 30, 2023
			Total Payment
	Term Extensions		Deferral
	(In months)		(In Thousands)
Commercial, financial and agricultural		1 to 65	$	-
Real estate - construction		-		-
Owner-occupied commercial		3 to 60		49
1-4 family mortgage		-		-
Other mortgage		2 to 36		59

As of September 30, 2024, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first or second quarters of 2024 that subsequently defaulted. For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status. Adjustments have been made to both the three months and nine months ended September 30, 2023 tables, due to the refinement of our policy surrounding the definition of borrowers experiencing financial difficulty.

NOTE 6 - LEASES

The Company leases space under non-cancelable operating leases for several of its banking offices and certain office equipment. The leases have remaining terms up to 14 years. At September 30, 2024, the Company had lease right-of-use assets and lease liabilities totaling $25.2 million and $26.1 million, respectively, compared to $26.5 million and $27.4 million, respectively, at December 31, 2023 which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance Sheets.

Maturities of operating lease liabilities as of September 30, 2024 are as follows:

	September 30, 2024
	(In Thousands)
2024 (remaining)	$	1,376
2025		5,345
2026		4,491
2027		3,927
2028		3,079
thereafter		12,435
Total lease payments		30,653
Less: imputed interest		(4,521	)
Present value of operating lease liabilities	$	26,132

As of September 30, 2024, the weighted average remaining term of operating leases is 7.8 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.72%.

Operating cash outflows related to leases were $1.4 million and $4.2 million for the three and nine months ended September 30, 2024, respectively, compared to $1.8 million and $4.3 million for the three and nine months ended September 30, 2023, respectively.

Lease costs during the three and nine months ended September 30, 2024 and September 30, 2023 were as follows (in thousands):

	Three Months Ended September 30,
	2024			2023
Operating lease cost	$	1,443		$	1,784
Short-term lease cost		59			-
Variable lease cost		206			212
Sublease income		(4	)		(5	)
Net lease cost	$	1,704		$	1,991

	Nine Months Ended September 30,
	2024			2023
Operating lease cost	$	4,237		$	4,291
Short-term lease cost		59			-
Variable lease cost		639			597
Sublease income		(14	)		(21	)
Net lease cost	$	4,921		$	4,867

NOTE 7 - EMPLOYEE AND DIRECTOR BENEFITS

Stock Incentive Plan

The Company has a stock incentive plan as described below. The compensation cost that has been charged to earnings for the plan was approximately $1.0 million and $2.8 million for the three and nine months ended September 30, 2024, respectively, and $929,000 and $2.7 million for the three and nine months ended September 30, 2023, respectively.

The Company’s 2009 Amended and Restated Stock Incentive Plan authorizes the grant of up to 5,550,000 shares and allows for the issuance of Stock Appreciation Rights, Restricted Stock, Stock Options, Non-stock Share Equivalents, Performance Shares or Performance Units. The plan allows for the grant of incentive stock options and non-qualified stock options, and option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plan is ten years.

The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model. Expected volatilities are based on the Company’s trading price history. 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.

There have not been any grants of stock options since October of 2019.

The following table summarizes stock option activity during the nine months ended September 30, 2024 and 2023:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (years)		Value
								(In Thousands)
Nine Months Ended September 30, 2024:
Outstanding at January 1, 2024		165,800		$	24.35		2.9	$	7,211
Exercised		(33,350	)		18.71		1.0		11,627
Outstanding at September 30, 2024		132,450		$	25.69		2.6	$	5,117

Exercisable at September 30, 2024		115,950		$	22.95		1.7	$	6,808

Nine Months Ended September 30, 2023:
Outstanding at January 1, 2023		280,000		$	19.43		3.0	$	14,088
Exercised		(87,700	)		12.04		0.8		3,520
Forfeited		(1,000	)		34.09		5.3		18
Outstanding at September 30, 2023		191,300		$	22.65		3.4	$	6,235

Exercisable at September 30, 2023		139,300		$	17.12		1.7	$	5,051

As of September 30, 2024, there was $4,000 of total unrecognized compensation cost related to non-vested stock options, which will be recognized during October 2024.

Restricted Stock and Performance Shares

The Company periodically grants restricted stock awards that vest upon time-based service conditions. Dividend payments are made during the vesting period. The value of restricted stock 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. As of September 30, 2024, there was $5.7 million of total unrecognized compensation cost related to non-vested time-based restricted stock. The cost is expected to be recognized evenly over the remaining 2.2 years of the restricted stock’s vesting period.

The Company periodically grants performance shares that give plan participants the opportunity to earn between 0% and 150% of the number of performance shares granted based on achieving certain market conditions. The number of performance shares earned is determined by reference to the Company’s total shareholder return relative to a peer group of other publicly traded banks and bank holding companies during the performance period. The performance period is generally three years starting on the grant date. The fair value of the performance shares is determined using a Monte Carlo simulation model on the grant date. As of September 30, 2024, there was $1.2 million of total unrecognized compensation cost related to non-vested performance shares. As of September 30, 2024, non-vested performance shares had a weighted average remaining time to vest of 1.7 years.

	Restricted Stock					Performance Shares
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nine Months Ended September 30, 2024:
Non-vested at January 1, 2024		158,298		$	58.08		31,944		$	58.25
Granted		50,324			66.74		14,253			68.67
Vested		(46,938	)		45.61		(18,653	)		37.05
Forfeited		(5,696	)		53.50		(2,318	)		72.18
Non-vested at September 30, 2024		155,988		$	64.79		25,226		$	78.53

Nine Months Ended September 30, 2023:
Non-vested at January 1, 2023		141,580		$	56.39		23,852		$	54.16
Granted		49,415			60.29		8,091			70.29
Vested		(31,492	)		52.22		-			-
Forfeited		(11,733	)		64.78		-			-
Non-vested at September 30, 2023		147,770		$	57.92		31,943		$	58.25

NOTE 8 - DERIVATIVES

The Company has entered into forward loan sale commitments with secondary market investors to deliver loans on a “best efforts delivery” basis, which do not meet the definition of a derivative instrument. 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 with customers 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 September 30, 2024 and December 31, 2023 were not material.

NOTE 9 – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments expanded the permitted use of the proportional amortization method, which was previously only available to low-income housing tax credit investments, to other tax equity investments if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the income tax benefits received and both the amortization of the investment and the income tax benefits received are recognized as a component of income tax expense. ASU 2023-02 was adopted on a modified retrospective basis of transition or, for certain changes, a prospective basis, which resulted in a reduction to retained earnings as of January 1, 2024, of $2.3 million.

NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires enhanced income tax disclosures primarily related to the rate reconciliation and income taxes paid information to provide more transparency by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation table and (ii) income taxes paid, net of refunds, to be disaggregated by jurisdiction based on an established threshold. The amendments in this standard will be effective for the Company on January 1, 2025. The Company is currently evaluating the impact the amendments will have the consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures. This amendment is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other decision makers for additional, more detailed information about a reportable segment’s expenses. The amendment applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 31, 2024. Early adoption is permitted. The amendments are to be applied retrospectively to all periods presented and segment expense categories should be based on the categories identified at adoption. The Company does not currently expect adoption of the amendment to have a material impact on its consolidated financial statements.

In November 2024, the FASB issued 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). The amendments improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales and research and development). The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the impact these changes may have on our consolidated financial statements.

NOTE 11 - 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.

Debt 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 pricing services provided by independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing service regarding their methods of price discovery. 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, as in the case of certain corporate securities, these securities are classified in Level 3 of the hierarchy.

Derivative instruments. The fair values of derivatives are determined based on a valuation pricing model using readily available observable market parameters such as interest rate curves, adjusted for counterparty credit risk. These measurements are classified as level 2 within the valuation hierarchy.

Loans Individually Evaluated. Loans individually evaluated are measured and reported at fair value when full payment under the loan terms is not probable. Loans individually evaluated are carried at the present value of expected future cash flows using 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 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. Loans individually evaluated are subject to nonrecurring fair value adjustment upon initial recognition or subsequent individual evaluation. A portion of the ACL is allocated to loans individually evaluated if the value of such loans is deemed to be less than the unpaid balance. The range of fair value adjustments and weighted average adjustment as of September 30, 2024 was 0% to 75% and 26%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2023 was 0% to 66% and 25% respectively. Loans individually evaluated 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 to write-down individually evaluated loans that are measured at fair value on a nonrecurring basis was $4.7 million and $5.8 million during the three and nine months ended September 30, 2024, respectively, and $7.2 million and $13.5 million during the three and nine months ended September 30, 2023, 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 ACL subsequent to foreclosure. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. Appraisals are performed by certified and licensed appraisers. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the new cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals. The range of fair value adjustments and weighted average adjustment as of September 30, 2024 was 16% to 100% and 40%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2023 was 25% to 100% and 38.3%, respectively. These measurements are classified as Level 3 within the valuation hierarchy. A loss on the sale and write-downs of OREO and repossessed assets of $55,000 and $89,000 was recognized for the three and nine months ended September 30, 2024, respectively, and $33,000 and $28,000 for the three and nine months ended September 30, 2023. 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.

There were five residential real estate loans with a balance of $519,000 foreclosed and classified as OREO as of September 30, 2024, compared to three residential real estate loan foreclosures for $360,000 as of December 31, 2023.

Three residential real estate loans totaling $509,000 were in the process of being foreclosed as of September 30, 2024. There were three residential real estate loans for $292,000 that were in the process of being foreclosed as of December 31, 2023.

The following table presents the Company’s financial assets carried at fair value on a recurring basis as of September 30, 2024 and December 31, 2023. There were no liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023.

	Fair Value Measurements at September 30, 2024 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:	(In Thousands)
Available for sale debt securities:
U.S. Treasury securities	$	567,324	$	-	$	-	$	567,324
Mortgage-backed securities		-		238,300		-		238,300
State and municipal securities		-		9,718		-		9,718
Corporate debt		-		323,665		-		323,665
Total available-for-sale debt securities		567,324		571,683		-		1,139,007
Total assets at fair value	$	567,324	$	571,683	$	-	$	1,139,007

	Fair Value Measurements at December 31, 2023 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:	(In Thousands)
Available for sale debt securities:
U.S. Treasury securities	$	340,807	$	-	$	-	$	340,807
Government agency securities		-		-		-		-
Mortgage-backed securities		-		215,485		-		215,485
State and municipal securities		-		10,223		-		10,223
Corporate debt		-		326,808		6,860		333,668
Total available-for-sale debt securities		340,807		552,516		6,860		900,183
Total assets at fair value	$	340,807	$	552,516	$	6,860	$	900,183

The following table presents the Company’s financial assets carried at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023:

	Fair Value Measurements at September 30, 2024
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)
Loans individually evaluated	$	-	$	-	$	94,047	$	94,047
Other real estate owned and repossessed assets		-		-		2,723		2,723
Total assets at fair value	$	-	$	-	$	96,770	$	96,770

	Fair Value Measurements at December 31, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)
Loans individually evaluated	$	-	$	-	$	70,737	$	70,737
Other real estate owned and repossessed assets		-		-		995		995
Total assets at fair value	$	-	$	-	$	71,732	$	71,732

There were no liabilities measured at fair value on a non-recurring basis as of September 30, 2024 and December 31, 2023.

In the case of the debt securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been affected. For the nine months ended September 30, 2024, there were two transfers out of Level 3 into Level 2.

The table below includes a roll forward of the balance sheet amounts for the three and nine months ended September 30, 2024 and September 30, 2023 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024			2023
	Available-for-sale Securities		Available-for-sale Securities		Available-for-sale Securities			Available-for-sale Securities
	(In Thousands)
Fair value, beginning of period	$	-	$	6,860	$	6,860		$	10,860
Transfers into Level 3		-		-					-
Total realized gains included in income		-		-		-			-
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end		-		-		(1,329	)		160
Purchases		-		-		-			-
Transfers out of Level 3		-		-		(5,531	)		(4,160	)
Fair value, end of period	$	-	$	6,860	$	-		$	6,860

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 estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis as of September 30, 2024 and December 31, 2023 were as follows:

	September 30, 2024				December 31, 2023
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In Thousands)
Financial Assets:
Level 1 Inputs:
Cash and cash equivalents	$	1,756,689	$	1,756,689	$	2,030,513	$	2,030,513
Held to maturity U.S. Treasury securities		249,349		233,123		508,985		484,267

Level 2 Inputs:
Federal funds sold		3,542		3,542		100,575		100,575
Held to maturity debt securities		478,981		439,650		473,429		422,674
Mortgage loans held for sale		8,453		8,453		5,071		5,071
Restricted equity securities		11,300		11,300		10,226		10,226

Level 3 Inputs:
Held to maturity debt securities		250		250		250		250
Loans, net		12,177,471		11,826,898		11,505,512		11,032,819

Financial Liabilities:
Level 2 Inputs:
Deposits	$	13,146,529	$	13,145,438	$	13,273,511	$	13,266,640
Federal funds purchased		1,542,623		1,542,623		1,256,724		1,256,724
Other borrowings		64,741		58,861		64,735		58,083

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. This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2024 and September 30, 2023.

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, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). The words “believe,” “expect,” “anticipate,” “project,” “plan,” “intend,” “will,” “could,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. The Company cautions that such forward-looking statements, wherever they occur in this Quarterly Report on Form 10-Q or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including, but not limited to: 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 as a result of our reclassification as a large financial institution by the FDIC; 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, the Federal Reserve policies in connection with continued or re-emerging inflationary pressures and the ability of the U.S. Congress to increase the U.S. statutory debt limit as needed; computer hacking or cyber-attacks resulting in unauthorized access to confidential or proprietary information; substantial, unexpected or prolonged changes in the level or cost of liquidity; 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-bank financial institutions. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K, our subsequent Quarterly Reports on Form 10-Q 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. The Company assumes no obligation to update or revise any forward-looking statements that are made from time to time.

Business

We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides business and personal financial services through full-service banking offices located in Alabama, Florida, Georgia, North and South Carolina, Tennessee, and Virginia. We also operate loan production offices in Florida and Tennessee. Through the Bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.

Our principal business is to accept deposits from the public and to make loans and other investments. Our principal sources of funds for loans and investments are demand, time, savings, and other deposits. Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.

Third quarter highlights

●

Diluted earnings per common share of $ 1.10 for the third quarter of 2024, an increase of 12.2%, from the third quarter 2023.

●

Average loans of $12.37 billion for the third quarter of 2024, an increase of $803.6 million, or 7.0%, from the third quarter 2023.

●

Average deposits of $13.52 billion for the third quarter of 2024, an increase of $0.84 billion, or 6.6%, from the third quarter 2023.

●

Net interest income of $115.1 million for the third quarter of 2024, an increase of $15.4 million, or 15.5%, from the third quarter 2023.

●

Net interest margin of 2.84% for third quarter of 2024, increased 20 bps from 2.64% in the third quarter 2023.

Overview

As of September 30, 2024, we had consolidated total assets of $16.45 billion, an increase of $319.5 million, or 2.0%, from $16.13 billion at December 31, 2023. Total loans were $12.34 billion, an increase of $679.4 million, or 5.8%, from $11.66 billion at December 31, 2023. Total deposits were $13.15 billion, a decrease of $127.0 million, or 1.0%, from $13.27 billion at December 31, 2023.

Net income and net income available to common stockholders of $59.9 million for the quarter ended September 30, 2024, compared to net income and net income available to common stockholders of $53.3 million for the third quarter of 2023. Basic and diluted earnings per common share were both $1.10 for the three months ended September 30, 2024, compared to $0.98 for both in the corresponding period in 2023.

Net income of $162.1 million and net income available to common stockholders of $162.0 million for the nine months ended September 30, 2024, compared to net income of $164.8 million and net income available to common stockholders of $164.7 million for the nine months ended September 30, 2023. Basic and diluted earnings per common share were both $2.97 for the nine months ended September 30, 2024, compared to $3.03 and $3.02, respectively, for the corresponding period in 2023. Changes in income and expenses are more fully explained in “Results of Operations” below.

Performance Ratios

The following table presents selected ratios of our results of operations for the three and nine months ended September 30, 2024, and 2023.

	Three Months Ended September 30,						Nine Months Ended September 30
	2024			2023			2024			2023
Return on average assets		1.43	%		1.37	%		1.35	%		1.50	%
Return on average common stockholders' equity		15.55	%		15.34	%		14.51	%		16.23	%
Dividend payout ratio		27.36	%		28.63	%		27.36	%		27.80	%
Net interest margin (1)		2.84	%		2.64	%		2.77	%		2.90	%
Efficiency ratio (2)		36.90	%		38.64	%		38.53	%		36.05	%
Average stockholders' equity to average total assets		9.22	%		8.94	%		9.27	%		9.22	%

(1) Net interest margin is the net yield on interest earning assets and is the difference between the interest yield earned on interest-earning assets and interest rate paid on interest-bearing liabilities, divided by average earning assets.

(2) Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income.

Financial Condition

Cash and Cash Equivalents

At September 30, 2024, we had $3.5 million in federal funds sold, compared to $100.6 million at December 31, 2023. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At September 30, 2024, we had 0 in balances at the Federal Reserve, compared to 0 at December 31, 2023.

Investment Securities

Debt securities available-for-sale totaled $1.14 billion at September 30, 2024 and $900.2 million at December 31, 2023. Investment securities held to maturity totaled $728.6 million at September 30, 2024 and $982.7 million at December 31, 2023. We had paydowns of $72.8 million on mortgage-backed securities and government agencies, maturities of $667.7 million on municipal bonds, corporate securities and treasury securities, and calls of $2.0 million on corporate securities during the nine months ended September 30, 2024. We purchased $95.3 million in mortgage-backed securities, and $591.5 million in U.S. Treasury securities during the nine months ended September 30, 2024. For a tabular presentation of debt securities available for sale and held to maturity at September 30, 2024 and December 31, 2023, see “Note 4 – Securities” in our Notes to Consolidated Financial Statements.

The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure. In doing so, we balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs. The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting. The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer-term securities purchased to generate level income for us over periods of interest rate fluctuations.

All investment securities in an unrealized loss position as of September 30, 2024 continue to perform as scheduled. We have evaluated the securities and have determined that the decline in fair value, relative to its amortized cost, is not due to credit-related factors. In addition, we have the ability to hold these securities within the portfolio until maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

The Company does not invest in collateralized debt obligations (“CDOs”). As of September 30, 2024, we had $323.6 million of bank holding company subordinated notes. If rated, all such bonds were rated BBB or better by Kroll Bond Rating Agency at the time of our initial investment. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio has a combined average credit rating of AA as of September 30, 2024.

The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $1.52 billion and $1.49 billion as of September 30, 2024 and December 31, 2023, respectively.

Loans

We had total loans of $12.34 billion, an increase of $679.4 million, or 5.8%, from $11.66 billion at December 31, 2023. Other mortgage increased $424.8 million from last year, and increased $118.9 million during the quarter, making up over half of total loan growth for both periods. Our loan pipeline has expanded and indicates that loan demand is improving in our market areas.

Asset Quality

The Company assesses the adequacy of its allowance for credit losses ("ACL") at the end of each calendar quarter. The level of ACL is based on the Company’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio and other relevant factors. The ACL is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. The ACL is believed adequate to absorb all expected future losses to be recognized over the contractual life of the loans in the portfolio.

Loans with similar risk characteristics are evaluated in pools and, depending on the nature of each identified pool, the Company utilizes a discounted cash flow (“DCF”), probability of default / loss given default (“PD/LGD”) or remaining life method. The historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates and gross domestic product. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic environment among other factors. See “Note 1 – General” and “Note 5 – Loans” in the Notes to Consolidated Financial Statements included in Item 1. Consolidated Financial Statements elsewhere in this report.

The expected credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative adjustments either increase or decrease the quantitative model estimation. The Company considers factors that are relevant within the qualitative framework which include the following: lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.

Expected credit losses for loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis. Individual evaluations are performed for nonaccrual loans, loans rated substandard, and certain modified loans. Specific allocations of the ACL are estimated on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.

	As of and for the Three Months Ended						As of and for the Nine Months Ended September 30
	September 30,						September 30,
	2024			2023			2024			2023
	(Dollars in thousands)
Total loans outstanding, net of unearned income	$	12,338,226		$	11,641,130		$	12,338,226		$	11,641,130
Average loans outstanding, net of unearned income	$	12,366,657		$	11,563,026		$	12,058,006		$	11,604,264
Allowance for credit losses at beginning of period		158,092			152,272			153,317			146,297
Charge-offs:
Commercial, financial and agricultural loans		3,020			4,784			8,217			10,399
Real estate - construction		-			19			-			19
Real estate - mortgage		252			-			438			157
Consumer loans		155			341			361			842
Total charge-offs		3,427			5,144			9,016			11,417
Recoveries:
Commercial, financial and agricultural loans		616			825			1,220			2,186
Real estate - construction		-			-			8			3
Real estate - mortgage		2			-			8			1
Consumer loans		37			11			62			43
Total recoveries		655			836			1,298			2,233
Net charge-offs		2,772			4,308			7,718			9,184
Provision for credit losses on loans		5,435			4,282			15,156			15,133
Allowance for credit losses on loans at period end	$	160,755		$	152,246		$	160,755		$	152,246
Allowance for credit losses on loans to period end loans		1.30	%		1.31	%		1.30	%		1.31	%
Net charge-offs to average loans		0.09	%		0.15	%		0.09	%		0.11	%

			Percentage of loans
			in each category
September 30, 2024	Amount		to total loans
	(In Thousands)
Commercial, financial and agricultural	$	57,038		33.22	%
Real estate - construction		37,358		10.08	%
Real estate - mortgage		64,756		55.97	%
Consumer		1,603		0.73	%
Total	$	160,755		100.00	%

			Percentage of loans
			in each category
December 31, 2023	Amount		to total loans
	(In Thousands)
Commercial, financial and agricultural	$	52,121		31.30	%
Real estate - construction		44,658		11.57	%
Real estate - mortgage		55,126		56.43	%
Consumer		1,412		0.70	%
Total	$	153,317		100.00	%

Nonperforming Assets

Total nonperforming loans at September 30, 2024, which include nonaccrual loans and loans 90 or more days past due and still accruing, increased $17.6 million, or 81.9%, to $39.2 million from $21.5 million at December 31, 2023. Of this total, nonaccrual loans of $37.1 million at September 30, 2024 represented a net increase of $17.7 million from nonaccrual loans at December 31, 2023. The increase in non-performing assets to total assets can primarily be attributed to a single relationship that moved to non-accrual status during the first quarter of 2024. Excluding credit card accounts, there were seven loans 90 or more days past due and still accruing totaling $951,000 at September 30, 2024, compared to nine loans totaling $1.9 million at December 31, 2023. Loans made to borrowers experiencing financial difficulty that were modified during the three months ended September 30, 2024 and 2023 were $56.1 million and $25.9 million, respectively.

The following table details our nonperforming assets at September 30, 2024 and December 31, 2023:

	September 30, 2024					December 31, 2023
				Number of					Number of
	Balance			Loans		Balance			Loans
	(Dollar Amounts In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	24,213			58	$	7,217			35
Real estate - construction		-			-		111			1
Real estate - mortgage:
Owner-occupied commercial		6,676			15		7,089			14
1-4 family mortgage		4,926			46		4,426			41
Other mortgage		1,259			2		506			2
Total real estate - mortgage		12,861			63		12,021			57
Consumer		1			-		-			-
Total Nonaccrual loans:	$	37,075			121	$	19,349			93

90+ days past due and accruing:
Commercial, financial and agricultural	$	1,081			15	$	170			8
Real estate - construction		-			-		-			-
Real estate - mortgage:
Owner-occupied commercial		79			-		-			-
1-4 family mortgage		868			6		1,909			9
Other mortgage		-			-		-			-
Total real estate - mortgage		947			6		1,909			9
Consumer		65			11		105			16
Total 90+ days past due and accruing:	$	2,093			32	$	2,184			33

Total Nonperforming Loans:	$	39,168			153	$	21,533			126

Plus: Other real estate owned and repossessions		2,723			9		995			7
Total Nonperforming Assets	$	41,891			162	$	22,528			133

Ratios:
Nonperforming loans to total loans		0.32	%				0.18	%
Nonperforming assets to total loans plus other real estate owned and repossessions		0.34	%				0.19	%
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions		0.34	%				0.19	%

OREO and repossessed assets at September 30, 2024 were $2.7 million, an increase of $1.7 million, or 173.7%, from $995,000 at December 31, 2023. The following table summarizes OREO and repossessed asset activity for the nine months ended September 30, 2024 and 2023:

	Nine Months Ended September 30 September 30,
	2024			2023
	(In thousands)
Balance at beginning of period	$	995		$	248
Transfers from loans and capitalized expenses		3,531			628
Proceeds from sales		(1,843	)		(158	)
Write-downs / net gain (loss) on sales		40			(28	)
Balance at end of period	$	2,723		$	690

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 ACL to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal.

Deposits

We rely on increasing our deposit base to fund loan and other asset growth. Each of our markets is highly competitive. We compete for local deposits by offering attractive products with competitive rates. We expect to have a higher average cost of funds for local deposits than competitor banks due to our lack of an extensive branch network. Our management’s strategy is to offset the higher cost of funding with a lower level of operating expense and firm pricing discipline for loan products. We have promoted electronic banking services by providing them without charge and by offering in-bank customer training. At September 30, 2024, our total deposits were $13.15 billion, a decrease of $127.0 million, or 1.0%, from $13.27 billion at December 31, 2023.

The following table summarizes balances of our deposits and the percentage of each type to the total at September 30, 2024 and December 31, 2023:

	September 30, 2024				December 31, 2023
Noninterest-bearing demand	$	2,576,329	19.60	%	$	2,643,101	19.91	%
Interest-bearing demand		2,161,071	16.44	%		2,698,430	20.33	%
Money market		7,146,835	54.36	%		6,669,033	50.24	%
Savings		104,101	0.79	%		107,227	0.81	%
Time deposits, $250,000 and under		473,680	3.60	%		424,730	3.20	%
Time deposits, over $250,000		684,513	5.21	%		730,990	5.51	%
	$	13,146,529	100.00	%	$	13,273,511	100.00	%

At September 30, 2024 and December 31, 2023, we estimate that we had approximately $8.74 billion and $8.76 billion, respectively, in uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit. The uninsured deposit data for 2024 and 2023 reflect the deposit insurance impact of “combined ownership segregation” of escrow and other accounts at an aggregate level but do not reflect an evaluation of all of the account styling distinctions that would determine the availability of deposit insurance to individual accounts based on FDIC regulations.

Other Borrowings

Our borrowings consist of federal funds purchased and subordinated notes payable. We had $1.54 billion and $1.26 billion at September 30, 2024 and December 31, 2023, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was 4.97% for the quarter ended September 30, 2024. Other borrowings consist of the following:

●

$30.0 million of the Company’s 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually. The Notes may be prepaid by the Company; and

●

$34.75 million of the Company’s 4% Subordinated Notes due October 21, 2030, which were issued in a private placement in October 2020 and pay interest semi-annually. The Notes may not be prepaid by the Company prior to October 21, 2025.

Liquidity

Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, and other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.

The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity was to decline due to deposit withdrawals, 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 September 30, 2024, our liquid assets, represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $2.11 billion. The Bank had loans pledged to both the FHLB and the Federal Reserve Bank of Atlanta, which provided approximately $2.93 billion and $2.15 billion, respectively, in available funding. The Bank’s policy limits on brokered deposits would allow for up to $4.11 billion in available funding for brokered deposits. Additionally, the Bank had approximately $225.0 million in available unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements, to meet short term funding needs.

Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. In addition, we have issued debt as described above under “Borrowings” and have various other sources of liquidity as discussed herein. We believe these sources of funding are adequate to meet both our immediate (within the next 12 months) and our longer term anticipated funding needs. However, we may need additional funding if we are successful in maintaining our current growth rate into the future.

We are subject to general FDIC guidelines that require a minimum level of liquidity. Management believes our liquidity ratios meet or exceed these guidelines.

The following table illustrates, during the periods presented, the mix of our funding sources and the assets in which those funds are invested as a percentage of our average total assets for the period indicated. Average assets totaled $16.63 billion and $16.10 billion, respectively, for the three and nine months ended September 30, 2024.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2024			2023			2024			2023
Sources of Funds:
Deposits:
Non-interest-bearing		15.5	%		20.1	%		16.0	%		19.7	%
Interest-bearing		65.6			60.6			65.2			61.2
Federal funds purchased		8.4			8.3			8.3			8.6
Long term debt and other borrowings		0.4			0.7			0.4			0.6
Other liabilities		0.7			0.5			0.6			0.4
Equity capital		9.5			9.8			9.5			9.5
Total sources		100.0	%		100.0	%		100.0	%		100.0	%

Uses of Funds:
Loans		74.5	%		75.0	%		75.0	%		79.0	%
Securities		11.8			13.2			12.3			12.5
Interest-bearing balances with banks		10.7			8.4			9.6			5.2
Federal funds sold		-			0.5			0.2			0.3
Other assets		3.0			2.9			2.9			3.0
Total uses		100.0	%		100.0	%		100.0	%		100.0	%

Capital Adequacy

Total stockholders’ equity attributable to us at September 30, 2024 was $1.57 billion, or 9.55% of total assets. At December 31, 2023, total stockholders’ equity attributable to us was $1.44 billion, or 8.93% of total assets.

As of September 30, 2024, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, we must maintain minimum Common Equity Tier 1, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of September 30, 2024.

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, not including the applicable 2.5% capital conservation buffer, of capital to total regulatory or risk-weighted assets, as of September 30, 2024, December 31, 2023 and September 30, 2023:

											To Be Well Capitalized
						For Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2024	(Dollars in Thousands)
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	1,587,789		11.25	%	$	635,191		4.50	%		N/A		N/A
ServisFirst Bank		1,646,071		11.66	%		635,148		4.50	%	$	917,435		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		1,588,289		11.25	%		846,921		6.00	%		N/A		N/A
ServisFirst Bank		1,646,571		11.67	%		846,863		6.00	%		1,129,151		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		1,803,087		12.77	%		1,129,228		8.00	%		N/A		N/A
ServisFirst Bank		1,808,628		12.81	%		1,129,151		8.00	%		1,411,439		10.00
Tier 1 Capital to Average Assets:
Consolidated		1,588,289		9.54	%		666,213		4.00	%		N/A		N/A
ServisFirst Bank		1,646,571		9.89	%		666,173		4.00	%		832,716		5.00	%

As of December 31, 2023
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	1,473,885		10.91	%	$	607,690		4.50	%		N/A		N/A
ServisFirst Bank		1,535,757		11.37	%		607,665		4.50	%	$	877,738		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		1,474,385		10.92	%		810,253		6.00	%		N/A		N/A
ServisFirst Bank		1,536,257		11.38	%		810,220		6.00	%		1,080,293		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		1,681,028		12.45	%		1,080,338		8.00	%		N/A		N/A
ServisFirst Bank		1,690,149		12.52	%		1,080,293		8.00	%		1,350,366		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		1,474,385		9.12	%		646,710		4.00	%		N/A		N/A
ServisFirst Bank		1,536,257		9.50	%		646,675		4.00	%		808,343		5.00	%

As of September 30, 2023
CET 1 Capital to Risk-Weighted Assets:
Consolidated	$	1,447,107		10.69	%	$	609,385		4.50	%		N/A		N/A
ServisFirst Bank		1,508,380		11.14	%		609,345		4.50	%	$	880,164		6.50	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		1,447,607		10.69	%		812,514		6.00	%		N/A		N/A
ServisFirst Bank		1,508,880		11.14	%		812,459		6.00	%		1,083,279		8.00	%
Total Capital to Risk-Weighted Assets:
Consolidated		1,659,180		12.25	%		1,083,352		8.00	%		N/A		N/A
ServisFirst Bank		1,661,702		12.27	%		1,083,279		8.00	%		1,354,099		10.00	%
Tier 1 Capital to Average Assets:
Consolidated		1,447,607		9.35	%		619,043		4.00	%		N/A		N/A
ServisFirst Bank		1,508,880		9.75	%		619,041		4.00	%		773,801		5.00	%

We are a legal entity separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, are dividends the Bank pays to us as the Bank’s sole stockholder. Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well to our payment of dividends to our stockholders. The requirement that a bank holding company must serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as a source of strength. Our ability to pay dividends is also subject to the provisions of Delaware corporate law.

The Alabama Banking Department also regulates the Bank’s dividend payments. Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the Bank’s surplus is equal to at least 20% of its capital (our Bank’s surplus currently exceeds 20% of its capital). Moreover, our Bank is also required by Alabama law to obtain the prior approval of the Superintendent of Banks (“Superintendent”) for its payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (i) the Bank’s net earnings (as defined by statute) for that year, plus (ii) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends, withdrawals or transfers may be made from the Bank’s surplus without the prior written approval of the Superintendent.

The Bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividends if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. If, in the opinion of the federal banking regulators, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulators could require, after notice and a hearing, that the Bank stop or refrain from engaging in the questioned practice.

Commitments and Contingencies

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 arrangements. All such credit arrangements bear interest at variable rates and we have no such credit arrangements that bear interest at fixed rates.

Our exposure to credit loss for commitments to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount of these instruments in the event of non-performance by the other party to such financial instrument. 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.

Financial instruments whose unfunded contract amounts represent credit risk at September 30, 2024 are as follows:

	September 30, 2024
	(In Thousands)
Commitments to extend credit	$	3,682,071
Credit card arrangements		358,814
Standby letters of credit		127,775
	$	4,168,660

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.

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 and net income available to common stockholders was $59.9 million for the quarter ended September 30, 2024, compared to net income and net income available to common stockholders was $53.3 million for the third quarter of 2023. The increase in net income for the three months ended September 30, 2024 compared to 2023 was primarily attributable to increases in net interest income. Net income was $162.1 million and net income available to common stockholders was $162.0 million for the nine months ended September 30, 2024, compared to net income was $164.8 million and net income available to common stockholders was $164.7 million for the nine months ended September 30, 2023. The decrease in net income for the nine months ended September 30, 2024 compared to 2023 was primarily attributable increases in non-interest expenses and provision for income taxes that were partially offset by the growth in net interest income.

Basic and diluted earnings per common share were both $1.10 for the three months ended September 30, 2024, compared to $0.98 for both in the corresponding period in 2023. Basic and diluted earnings per common share were both $2.97 for the nine months ended September 30, 2024, compared to $3.03 and $3.02, respectively, for the corresponding period in 2023. Return on average assets for the three and nine months ended September 30, 2024 was 1.43% and 1.35% compared to 1.37% and 1.50%, respectively, for the corresponding periods in 2023. Return on average common stockholders’ equity for the three and nine months ended September 30, 2024 was 15.55% and 14.51%, respectively, compared to 15.34% and 16.23%, respectively, for the corresponding periods in 2023.

Net Interest Income and Net Interest Margin Analysis

Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets. The major factors which affect net interest income are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings.

Taxable-equivalent net interest income increased $15.4 million, or 15.5%, to $115.1 million for the three months ended September 30, 2024 compared to $99.7 million for the corresponding period in 2023, and increased $14.8 million, or 4.8%, to $324.2 million for the nine months ended September 30, 2024 compared to $309.4 million for the corresponding period in 2023. The taxable-equivalent yield on interest-earning assets increased to 6.12% for the three months ended September 30, 2024 from 5.65% for the corresponding period in 2023, and increased to 6.00% for the nine months ended September 30, 2024 from 5.48% for the corresponding period in 2023. The yield on loans for the three months ended September 30, 2024 was 6.62% compared to 6.13% for the corresponding period in 2023, and 6.50% compared to 5.92% for the nine months ended September 30, 2024 and September 30, 2023, respectively. The cost of total interest-bearing liabilities increased to 4.26% for the three months ended September 30, 2024 compared to 4.02% for the corresponding period in 2023, and increased to 4.23% for the nine months ended September 30, 2024 from 3.54% for the corresponding period in 2023. Net interest margin for the three months ended September 30, 2024 was 2.84% compared to 2.64% for the corresponding period in 2023, and 2.77% for the nine months ended September 30, 2024 compared to 2.90% for the corresponding period in 2023.

The Federal Reserve Bank decreased their targeted federal funds rate from 5.25 – 5.50% at September 30, 2023 to its current range as of September 30, 2024 of 4.75 – 5.00%.

The following tables show, for the three and nine months ended September 30, 2024 and September 30, 2023, 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:

Average Balance Sheets and Net Interest Analysis
On a Fully Taxable-Equivalent Basis
For the Three Months Ended September 30,
(In thousands, except Average Yields and Rates)

	2024								2023
				Interest		Average						Interest		Average
	Average			Earned /		Yield /			Average			Earned /		Yield /
	Balance			Paid		Rate			Balance			Paid		Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)(2):
Taxable	$	12,351,073		$	205,791		6.63	%	$	11,545,003		$	178,485		6.13	%
Tax-exempt (3)		15,584			73		1.86			18,023			214		4.71
Total loans, net of unearned income		12,366,657			205,864		6.62			11,563,026			178,699		6.13
Mortgage loans held for sale		10,674			102		3.80			5,476			92		6.67
Investment securities:
Taxable		1,955,632			17,437		3.57			2,029,995			15,568		3.07
Tax-exempt (3)		815			9		4.42			2,408			15		2.49
Total investment securities (4)		1,956,447			17,446		3.57			2,032,403			15,583		3.07
Federal funds sold		2,106			31		5.86			74,424			985		5.25
Restricted equity securities		11,290			209		7.36			8,471			126		5.90
Interest-bearing balances with banks		1,775,192			24,343		5.46			1,293,243			17,759		5.45
Total interest-earning assets	$	16,122,366		$	247,995		6.12		$	14,977,043		$	213,244		5.65
Non-interest-earning assets:
Cash and due from banks		103,539								111,566
Net fixed assets and equipment		60,607								60,121
Allowance for credit losses, accrued interest and other assets		340,621								283,357
Total assets	$	16,627,133							$	15,432,087

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	2,318,384		$	17,299		2.97	%	$	2,153,973		$	14,767		2.72	%
Savings deposits		102,627			453		1.76			112,814			459		1.61
Money market accounts		7,321,503			81,857		4.45			6,538,426			69,947		4.24
Time deposits		1,197,650			13,601		4.52			1,093,388			10,728		3.89
Total interest-bearing deposits		10,940,164			113,210		4.12			9,898,601			95,901		3.84
Federal funds purchased		1,391,118			18,960		5.42			1,237,721			16,926		5.43
Other borrowings		64,738			687		4.22			64,734			690		4.23
Total interest-bearing liabilities	$	12,396,020		$	132,857		4.26	%	$	11,201,056		$	113,517		4.02	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		2,575,575								2,778,858
Other liabilities		122,455								52,797
Stockholders' equity		1,574,902								1,457,893
Accumulated other comprehensive loss		(41,819	)							(58,517	)
Total liabilities and stockholders' equity	$	16,627,133							$	15,432,087
Net interest income				$	115,138							$	99,727
Net interest spread							1.86	%							1.63	%
Net interest margin							2.84	%							2.64	%

(1)	Non-accrual loans are included in average loan balances in all periods. Loan fees of $3,949 and $2,996 are included in interest income in the third quarter of 2024 and 2023, respectively.
(2)	Amortization of acquired loan premiums of $45 and $49 is included in interest income in 2024 and 2023, respectively.
(3)	Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.
(4)	Unrealized losses of $(58,802) and $(83,815) are excluded from the yield calculation in the third quarter of 2024 and 2023, respectively.

	For the Three Months Ended September 30,
	2024 Compared to 2023 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	$	12,667		$	14,639		$	27,306
Tax-exempt		(26	)		(115	)		(141	)
Total loans, net of unearned income		12,641			14,524			27,165
Mortgages held for sale		61			(51	)		10
Debt securities:
Taxable		(594	)		2,463			1,869
Tax-exempt		(14	)		8			(6	)
Total debt securities		(608	)		2,471			1,863
Federal funds sold		(1,055	)		101			(954	)
Restricted equity securities		52			31			83
Interest-bearing balances with banks		6,560			24			6,584
Total interest-earning assets	$	17,651		$	17,100		$	34,751

Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,152		$	1,380		$	2,532
Savings		(44	)		38			(6	)
Money market accounts		8,504			3,406			11,910
Time deposits		1,070			1,803			2,873
Total interest-bearing deposits		10,682			6,627			17,309
Federal funds purchased		2,044			(10	)		2,034
Other borrowed funds		-			(3	)		(3	)
Total interest-bearing liabilities		12,726			6,614			19,340
Increase in net interest income	$	4,925		$	10,486		$	15,411

Our growth in loans and interest-bearing balances with banks drove the favorable volume component change. The rate component was favorable as loan yields increased 49 basis points and average rates paid on interest-bearing liabilities only increased 24 basis points.

Average Balance Sheets and Net Interest Analysis
On a Fully Taxable-Equivalent Basis
For the Nine Months Ended September 30,
(In thousands, except Average Yields and Rates)

	2024								2023
				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)(2):
Taxable	$	12,041,204		$	586,657		6.51	%	$	11,585,830		$	513,534		5.93	%
Tax-exempt (3)		16,802			382		3.04			18,434			611		4.43
Total loans, net of unearned income		12,058,006			587,039		6.50			11,604,264			514,145		5.92
Mortgage loans held for sale		7,413			271		4.88			4,019			180		5.99
Investment securities:
Taxable		1,968,535			49,575		3.36			1,838,423			38,035		2.77
Tax-exempt (3)		1,105			32		3.87			3,045			64		2.81
Total debt securities (4)		1,969,640			49,607		3.36			1,841,468			38,099		2.77
Federal funds sold		25,873			1,109		5.73			47,040			1,826		5.19
Restricted equity securities		11,000			606		7			9,070			447		7
Interest-bearing balances with banks		1,549,710			63,627		5			757,722			29,621		5.48
Total interest-earning assets	$	15,621,642		$	702,259		6.00	%	$	14,263,583		$	584,318		5.48	%
Non-interest-earning assets:
Cash and due from banks		99,680								106,285
Net fixed assets and equipment		60,131								60,411
Allowance for credit losses, accrued interest and other assets		314,403								280,829
Total assets	$	16,095,856							$	14,711,108

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	2,257,650		$	48,726		2.88	%	$	1,821,205		$	26,771		1.97	%
Savings deposits		105,159			1,372		1.74			123,098			1,192		1.29
Money market accounts		6,987,741			232,727		4.45			6,091,766			171,176		3.76
Time deposits		1,173,217			39,124		4.45			976,759			24,446		3.35
Total interest-bearing deposits		10,523,767			321,949		4.09			9,012,828			223,585		3.32
Federal funds purchased		1,335,914			54,729		5.47			1,272,285			48,199		5.07
Other borrowings		64,737			1,374		2.84			93,304			3,150		4.51
Total interest-bearing liabilities	$	11,924,418		$	378,052		4.23	%	$	10,378,417		$	274,934		3.54	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		2,588,532								2,913,244
Other liabilities		91,029								62,590
Stockholders' equity		1,537,432								1,405,702
Accumulated other comprehensive loss		(45,555	)							(48,845	)
Total liabilities and stockholders' equity	$	16,095,856							$	14,711,108
Net interest income				$	324,207							$	309,384
Net interest spread							1.77	%							1.94	%
Net interest margin							2.77	%							2.90	%

(1)	Non-accrual loans are included in average loan balances in all periods. Loan fees of $10,921 and $9,577 are included in interest income in 2024, and 2023, respectively.
(2)	Amortization of acquired loan premiums of $141 and $148 is included in interest income in 2024 and 2023, respectively.
(3)	Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.
(4)	Unrealized losses of $(64,522) and $(71,105) are excluded from the yield calculation in 2024 and 2023, respectively.

	For the Nine Months Ended September 30,
	2024 Compared to 2023 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	$	20,905		$	52,218		$	73,123
Tax-exempt		(50	)		(179	)		(229	)
Total loans, net of unearned income		20,855			52,039			72,894
Mortgages held for sale		129			(38	)		91
Debt securities:
Taxable		2,846			8,694			11,540
Tax-exempt		(50	)		18			(32	)
Total debt securities		2,796			8,712			11,508
Federal funds sold		(890	)		173			(717	)
Restricted equity securities		28			131			159
Interest-bearing balances with banks		32,474			1,532			34,006
Total interest-earning assets	$	55,392		$	62,549		$	117,941

Interest-bearing liabilities:
Interest-bearing demand deposits	$	7,446		$	14,509		$	21,955
Savings		(191	)		371			180
Money market accounts		27,330			34,221			61,551
Time deposits		5,546			9,132			14,678
Total interest-bearing deposits		40,131			58,233			98,364
Federal funds purchased		2,504			4,026			6,530
Other borrowed funds		(802	)		(974	)		(1,776	)
Total interest-bearing liabilities		41,833			61,285			103,118
Increase in net interest income	$	13,559		$	1,264		$	14,823

Our growth in loans and interest-bearing balances with banks drove the favorable volume component change. While the overall rate component was favorable, loan yields increased by 58 basis points, and the average rate paid on interest-bearing liabilities rose by 69 basis points.

Provision for Credit Losses

The provision for credit losses on loans was $5.4 million for the three months ended September 30, 2024, an increase of $1.2 million from $4.3 million for the three months ended September 30, 2023, and was $15.2 million for the nine months ended September 30, 2024, an increase of $23,000 from $15.1 million for the nine months ended September 30, 2023. The ACL as of September 30, 2024, June 30, 2024, and September 30, 2023, totaled $160.8 million, $158.1 million, and $152.2 million, or 1.30%, 1.28%, and 1.31% of loans, net of unearned income, respectively. During the third quarter of 2024, we recorded a $2.7 million provision for the potential impact of Hurricane Helene, which struck the Florida coast on September 26, 2024, and caused widespread damage from Florida to the Carolinas. In early October, Hurricane Milton struck the west coast of Florida and tracked across the middle of the state. Management is assessing the impact of both hurricanes to determine if additional provisions are warranted. During the third quarter of 2024, we reclassified the provision for Unfunded Commitments from Other Expenses to Provision for Credit Losses. Annualized net credit charge-offs to quarter-to-date average loans were 0.09% for the three months ended September 30, 2024, a 6 basis points decrease compared to 0.15% for the third quarter of 2023. Annualized net credit charge-offs to year-to-date average loans were 0.13% for the nine months ended September 30, 2024, compared to 0.16% for the corresponding period in 2023. Nonperforming loans increased to $39.2 million, or 0.32% of total loans, at September 30, 2024 from $34.9 million, or 0.28% of total loans at December 31, 2023, and increased compared to $22.6 million, or 0.19% of total loans, at September 30, 2023. See the section captioned “Asset Quality” located elsewhere in this item for additional discussion related to provision for credit losses.

Noninterest Income

	Three Months Ended September 30,										Nine Months Ended September 30,
	2024		2023		$ change			% change			2024		2023		$ change			% change
Non-interest income:
Service charges on deposit accounts	$	2,341	$	2,163	$	178			8.2	%	$	6,784	$	6,239	$	545			8.7	%
Mortgage banking		1,352		825		527			63.9	%		3,409		1,963		1,446			73.7	%
Credit card income		1,925		2,532		(607	)		(24.0	)%		6,413		6,627		(214	)		(3.2	)%
Increase in cash surrender value life insurance		2,113		1,818		295			16.2	%		7,402		5,935		1,467			24.7	%
Other operating income		818		797		21			2.6	%		2,245		2,274		(29	)		(1.3	)%
Total non-interest income	$	8,549	$	8,135	$	414			5.1	%	$	26,253	$	23,038	$	3,215			14.0	%

Noninterest income totaled $8.5 million for the three months ended September 30, 2024, an increase of $414,000, or 5.1%, compared to the corresponding period in 2023, and totaled $26.3 million for the nine months ended September 30, 2024, an increase of $3.2 million, or 14.0%, from to the corresponding period in 2023. Service charges on deposit accounts increased $178,000, or 8.2%, to $2.3 million for the three months ended September 30, 2024 compared to $2.2 million for the same period in 2023, and increased $545,000, or 8.7%, to $6.8 million for the nine months ended September 30, 2024 compared to $6.2 million for the same period in 2023. Mortgage banking income increased $527,000, or 63.9%, to $1.4 million for the three months ended September 30, 2024 compared to $825,000 for the same period in 2023, and increased $1.4 million, or 73.7%, to $3.4 million for the nine months ended September 30, 2024 compared to $2.0 million for the same period in 2023. The increase in mortgage banking revenue was primarily attributed to a combination of favorable market conditions and increased staffing levels. Net credit card income decreased $607,000, or 24.0%, to $1.9 million for the three months ended September 30, 2024 compared to $2.5 million for the same period in 2023, and decreased $214,000, or 3.2%, to $6.4 million for the nine months ended September 30, 2024 compared to $6.6 million for the same period in 2023. Bank-owned life insurance (“BOLI”) income increased $295,000, or 16.2%, to $2.1 million for the three months ended September 30, 2024 compared to $1.8 million for the same period in 2023, and increased $1.5 million, or 24.7%, to $7.4 million for the nine months ended September 30, 2024 compared to $5.9 million for the same period in 2023. We recognized $1.2 million of income attributed to a death benefit related to a former employee in our BOLI program during the first quarter of 2024, and $890,000 during the second quarter of 2023. Other income increased $21,000, or 2.6%, to $818,000 for the three months ended September 30, 2024 compared to $797,000 for the same period in 2023, and decreased $29,000, or 1.3%, to $2.2 million for the nine months ended September 30, 2024 compared to $2.3 million for the same period in 2023. Merchant service revenue increased $12,000, or 2.0%, to $606,000 for the three months ended September 30, 2024 compared to $594,000 for the same period in 2023, and increased $79,000, or 4.9%, to $1.7 million for the nine months ended September 30, 2024 compared to $1.6 million for the same period in 2023.

Noninterest Expense

	Three Months Ended September 30,										Nine Months Ended September 30,
	2024		2023		$ change			% change			2024		2023		$ change			% change
Non-interest expense:
Salaries and employee benefits	$	25,057	$	20,080	$	4,977			24.8	%	$	72,256	$	57,941	$	14,315			24.7	%
Equipment and occupancy expense		3,795		3,579		216			6.0	%		10,919		10,435		484			4.6	%
Third party processing and other services		8,035		6,549		1,486			22.7	%		22,666		20,031		2,635			13.2	%
Professional services		1,715		1,265		450			35.6	%		4,920		4,499		421			9.4	%
FDIC and other regulatory assessments		2,355		2,346		9			0.4	%		8,462		6,105		2,357			38.6	%
OREO expense		103		18		85			472.2	%		141		30		111			370.0	%
Other operating expense		4,572		7,826		(3,254	)		(41.6	)%		14,886		20,752		(5,866	)		(28.3	)%
Total non-interest expense	$	45,632	$	41,663	$	3,969			9.5	%	$	134,250	$	119,793	$	14,457			12.1	%

Noninterest expense totaled $45.6 million for the three months ended September 30, 2024, an increase of $4.0 million, or 9.5%, compared to the corresponding period in 2023, and totaled $134.3 million for the nine months ended September 30, 2024, an increase of $14.5 million, or 12.1%, from to the corresponding period in 2023. During the second quarter of 2024, the Company recorded the impact from election of the proportional amortization method to account for historical and new market tax credit investments pursuant to adoption of Accounting Standards Update 2023-02. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the consolidated income statement as a component of income tax expense. Previously the amortization of the investment was included in other non-interest expenses.

Details of expense are as follows:

●

Salary and benefit expense increased $5.0 million, or 24.8%, to $25.1 million for the three months ended September 30, 2024 compared to $20.1 million for the same period in 2023, and increased $14.3 million, or 24.7%, to $72.3 million for the nine months ended September 30, 2024 compared to $57.9 million for the same period in 2023. The number of FTE employees increased by 52, or 9.2%, to 620 at September 30, 2024 compared to 568 at September 30, 2023. The increase in salary and benefit expense year-over-year was largely due to the normalization of incentives and increased salary expenses due to an increase in FTE employees. Incentives increased approximately $1.8 million, and salaries increased approximately $2.1 million from the third quarter of 2023.

●

Equipment and occupancy expense increased $216,000, or 6.0%, to $3.8 million for the three months ended September 30, 2024 compared to $3.6 million for the same period in 2023, and increased $484,000, or 4.6%, to $10.9 million for the nine months ended September 30, 2024 compared to $10.4 million for the same period in 2023.

●

Third party processing and other services increased $1.5 million, or 22.7%, to $8.0 million for the three months ended September 30, 2024 compared to $6.5 million for the same period in 2023, and increased $2.6 million, or 13.2%, to $22.7 million for the nine months ended September 30, 2024 compared to $20.0 million for the same period in 2023.

●

Professional services expense increased $450,000, or 35.6%, to $1.7 million for the three months ended September 30, 2024 compared to $1.3 million for the same period in 2023, and increased $421,000, or 9.4%, to $4.9 million for the nine months ended September 30, 2024 compared to $4.5 million for the same period in 2023.

●

FDIC and other regulatory assessments increased $9,000, or .4%, to $2.4 million for the three months ended September 30, 2024 compared to $2.3 million for the same period in 2023, and increased $2.4 million, or 38.6%, to $8.5 million for the nine months ended September 30, 2024 compared to $6.1 million for the same period in 2023. In the first quarter of 2024, the FDIC implemented a special assessment adjustment to recapitalize the Deposit Insurance Fund resulting in an expense of $1.8 million.

●

Other operating expenses decreased $3.3 million, or 41.6%, to $4.6 million for the three months ended September 30, 2024 compared to $7.8 million for the same period in 2023, and decreased $5.9 million, or 28.3%, to $14.9 million for the nine months ended September 30, 2024 compared to $20.8 million for the same period in 2023. The decrease in other operating expenses were largely due to the application of the proportional amortization method to account for historical and new market tax credit investments, discussed above.

Income Tax Expense

Income tax expense was $12.5 million for the three months ended September 30, 2024 compared to $8.5 million for the same period in 2023, and was $37.5 million for the nine months ended September 30, 2024, compared to $32.6 million for the same period in 2023. Our effective tax rate for the three and nine months ended September 30, 2024 was 17.23% and 18.8%, respectively, compared to 13.81% and 16.51% for the corresponding periods in 2023, respectively. The increase in our effective tax rates reflect our adoption of the proportional amortization of accounting for investment tax credits during the first quarter of 2024. We recognized excess tax benefits as an income tax credit to our income tax expense from the exercise and vesting of stock options and restricted stock during the three and nine months ended September 30, 2024 of $111,000 and $711,000, respectively, compared to no expense for the three months ended September 30, 2023 and $1.2 million for the nine months ended September 30, 2023, respectively. Our primary permanent differences are related to tax exempt income on securities, state income tax benefit on real estate investment trust dividends, various qualifying tax credits and change in cash surrender value of bank-owned life insurance.

We own real estate investment trusts for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank. The trusts are wholly-owned subsidiaries of a trust holding company, which in turn is an indirect wholly-owned subsidiary of the Bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities. They pay their net earnings, in the form of dividends, to the Bank, which receives a deduction for state income taxes.

Critical Accounting Estimates

The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles 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. In management’s opinion, certain accounting policies have a more significant impact than others on the Company’s financial reporting. The allowance for credit losses and income taxes are particularly significant for the Company’s financial reporting. Information concerning our accounting policies and critical accounting estimates 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, 2023. There were no changes to the accounting policies for the allowance for credit losses or income taxes during the three and nine months ended September 30, 2024.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Like all financial institutions, we are subject to market risk from changes in interest rates. Interest rate risk is inherent in the balance sheet due to the mismatch between the maturities of rate-sensitive assets and rate-sensitive liabilities. If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities is greater than the level of rate-sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short-term rates may be rising while longer-term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.

To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall or remain the same. Our asset-liability committee develops its view of future rate trends and strives to manage rate risk within a targeted range by monitoring economic indicators, examining the views of economists and other experts, and understanding the current status of our balance sheet. Our annual budget reflects the anticipated rate environment for the next 12 months. The asset-liability committee conducts a quarterly analysis of the rate sensitivity position and reports its results to our board of directors.

The asset-liability committee thoroughly analyzes the maturities of rate-sensitive assets and liabilities. This analysis measures the “gap,” which is defined as the difference between the dollar amount of rate-sensitive assets repricing during a period and the volume of rate-sensitive liabilities repricing during the same period. The gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities. If the ratio is greater than one, the dollar value of assets exceeds the dollar value of liabilities; the balance sheet is “asset-sensitive.” Conversely, if the value of liabilities exceeds the value of assets, the ratio is less than one and the balance sheet is “liability-sensitive.” Our internal policy requires management to maintain the gap such that net interest margins will not change more than 10% if interest rates change 100 basis points or more than 15% if interest rates change 200 basis points. There have been no changes to our policies or procedures for analyzing our interest rate risk since December 31, 2023, and there have been no material changes to our sensitivity to changes in interest rates since December 31, 2023, as disclosed in our Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

We conducted an evaluation (the "Evaluation") of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and CFO, as of September 30, 2024. Based upon the Evaluation, our CEO and CFO have concluded that, as of September 30, 2024, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be a party to various legal proceedings arising in the ordinary course of business. Management does not believe the Company or the Bank is currently a party to any material legal proceedings.

ITEM 1A. RISK FACTORS

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) On October 21, 2024, we announced the resignation of Kirk Pressley from his positions of Chief Financial Officer and Executive Vice President, effective October 31, 2024. On October 31, 2024, we entered into a Separation Agreement (the “Agreement”) by and among us, the Bank and Mr. Pressley, pursuant to which Mr. Pressley will receive a $150,000 severance benefit (less any required withholdings) over a period of six months. An initial $25,000 will be paid within seven days of the Agreement becoming effective. Thereafter, Mr. Pressley will receive an additional payment of $25,000 on each monthly anniversary of the first payment for a period of five months or until the full consideration of $150,000 is paid to him, if, to our satisfaction, Mr. Pressley signs and does not revoke the Agreement and otherwise complies with the terms, conditions and covenants therein. A copy of the Agreement is filed as Exhibit 10.1 to this Report. The foregoing description of the Agreement is qualified in its entirety by reference to the full text of the Agreement.

(b) None of the Company’s directors or officers adopted or terminated any Rule 10b5-1 or non-10b5-1 trading arrangements during the quarter ended September 30, 2024.

ITEM 6. EXHIBITS

Exhibit:	Description
3.1	Restated Certificate of Incorporation as amended (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, filed on August 3, 2023).
3.2	Certificate of Elimination of the Senior-Non Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K/A, filed on June 28, 2016).
3.3	Bylaws (Restated for SEC filing purposes only) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 4, 2014).
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 10, filed on March 28, 2008).
4.2	Revised Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on September 15, 2008, Commission File No. 0-53149).
10.1	Separation Agreement, dated October 31, 2024, by and among ServisFirst Bancshares, Inc., ServisFirst Bank and Kirk Pressley.
31.01	Certification of principal executive officer pursuant to Rule 13a-14(a).
31.02	Certification of principal financial officer pursuant to Rule 13a-14(a).
32.01	Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.
32.02	Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SERVISFIRST BANCSHARES, INC.

Date: November 6, 2024	By	/s/ Thomas A. Broughton III
		Thomas A. Broughton III
		President and Chief Executive Officer

Date: November 6, 2024	By	/s/ Edison K. Woodie
		Edison K. Woodie
		Interim Chief Financial Officer

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ServisFirst Bancshares (SFBS) 10-Q2024 Q3 Quarterly report

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