SERVISFIRST BANCSHARES, INC.
2500 Woodcrest Place
Birmingham, Alabama 35209
March 21, 2022
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of ServisFirst Bancshares, Inc. Our Annual
Meeting will be held on Friday, May 6, 2022, at 8:00 A.M., Central Time. As a result of the continuing public health impact
of COVID-19, the Annual Meeting will be held in a virtual meeting format only by visiting meetnow.global/M9MK7FJ.
You will not be able to attend the 2022 Annual Meeting physically.
Our proxy materials describe the formal business to be transacted at the Annual Meeting, which includes a report on
our operations. Many of our directors and officers will be present to answer any questions that you and other stockholders may
have. Included in the materials is our Annual Report to Stockholders, which contains detailed information concerning our
activities and operating performance including our Annual Report on Form 10-K for the year ended December 31, 2021.
The business to be conducted at the Annual Meeting consists of: (1) the election of seven directors; (2) an advisory vote
on executive compensation; (3) the ratification of the appointment of Dixon Hughes Goodman LLP as our independent registered
public accounting firm for the year ending December 31, 2022; (4) the adoption of an amendment to our Restated Certificate of
Incorporation increasing the authorized shares of our common stock; and (5) such other business as may properly come before
the Annual Meeting. Our board of directors unanimously recommends a vote “FOR” the election of the director nominees; “FOR”
the “Say on Pay” advisory vote approving our executive compensation; “FOR” the ratification of the appointment of Dixon
Hughes Goodman LLP as our independent registered public accounting firm for the year ending December 31, 2022; and “FOR”
the amendment to our Restated Certificate of Incorporation increasing the number of authorized shares of our common stock.
You may vote your shares by following your broker’s voting instructions, by submitting voting instructions by telephone
or by Internet, by voting virtually at the Annual Meeting or, if you requested to receive printed proxy materials, by completing
and returning your proxy card. Instructions regarding the methods of voting are contained in the enclosed Proxy Statement and
on the Notice of Internet Availability of Proxy Materials or proxy card.
It is important that your shares be represented at the Annual Meeting. To be admitted as a stockholder to our virtual
Annual Meeting at meetnow.global/M9MK7FJ, you must enter the control number found on your proxy card, voting instruction
form or notice you previously received. On behalf of our board of directors, we request that you vote your shares now, even if
you currently plan to attend the Annual Meeting virtually. This will not prevent you from voting virtually, but will assure that
your vote is counted. Your vote is important.
The proxy materials are first being made available to stockholders on or about March 21, 2022.
Sincerely,
Thomas A. Broughton III
Chairman, President and Chief Executive Officer
SERVISFIRST BANCSHARES, INC.
2500 Woodcrest Place
Birmingham, Alabama 35209
NOTICE OF 2022 VIRTUAL ANNUAL MEETING OF STOCKHOLDERS
Date and Time:
Friday, May 6, 2022 8:00 a.m., Central Time
Place:
There will be no physical location for the Annual Meeting. Stockholders will be able to participate online
by logging in virtually at meetnow.global/M9MK7FJ.
Items of Business: 1.
To elect the seven nominees listed in the accompanying Proxy Statement to serve on our board of
directors until the next Annual Meeting of Stockholders and until their successors are duly elected
and qualified.
2.
To conduct a “Say on Pay” advisory vote on our executive compensation.
3.
4.
5.
To ratify the appointment of Dixon Hughes Goodman LLP as our independent registered public
accounting firm for the year ending December 31, 2022.
To approve an amendment to our Restated Certificate of Incorporation to increase the authorized
shares of common stock from 100,000,000 shares to 200,000,000 shares.
To transact such other business as may properly come before the 2022 Annual Meeting or any
postponement or adjournment thereof.
Our board of directors unanimously recommends a vote “FOR” the election of the director nominees,
“FOR” the “Say on Pay” advisory vote approving our executive compensation, “FOR” the ratification
of the appointment of Dixon Hughes Goodman LLP as our independent registered public accounting
firm for the year ending December 31, 2022, and “FOR” the amendment of our Restated Certificate
of Incorporation to increase the authorized shares of common stock.
Record Date:
March 8, 2022
Voting by Proxy: IT IS IMPORTANT THAT YOU SUBMIT VOTING INSTRUCTIONS BY TELEPHONE OR BY
INTERNET OR, IF YOU REQUESTED TO RECEIVE PRINTED PROXY MATERIALS, BY
RETURNING YOUR PROXY CARD. THEREFORE, WHETHER OR NOT YOU EXPECT TO
ATTEND THE ANNUAL MEETING VIA THE VIRTUAL WEBCAST, PLEASE VOTE BY
TELEPHONE OR BY INTERNET, SUBMIT VOTING INSTRUCTIONS OR SIGN, DATE AND
RETURN THE PROXY CARD AS SOON AS POSSIBLE. STOCKHOLDERS OF RECORD WHO
VOTE OVER THE TELEPHONE OR THE INTERNET, SUBMIT VOTING INSTRUCTIONS OR
EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE ANNUAL MEETING, REVOKE
THEIR PROXY AND VOTE THEIR SHARES VIRTUALLY.
i
Internet
Availability of
Proxy Materials:
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held
on May 6, 2022: The solicitation of the enclosed proxy is made on behalf of the Board of Directors for use
at the Annual Meeting to be held on May 6, 2022. It is expected that this Proxy Statement and related
materials will first be provided to stockholders on or about March 21, 2022. Our Proxy Statement, form of
proxy and 2021 Annual Report on Form 10-K are available at: www.investorvote.com/SFBS.
By Order of the Board of Directors,
William M. Foshee
Secretary and Chief Financial Officer
Birmingham, Alabama
March 21, 2022
ii
TABLE OF CONTENTS
SUMMARY ............................................................................................................................................................
Agenda and Voting Recommendations ..................................................................................................................
Voting Your Shares ...................................................................................................................................................
Participating in the Virtual 2022 Annual Meeting ...............................................................................................
Additional Information .............................................................................................................................................
PROPOSAL 1: ELECTION OF DIRECTORS .......................................................................................
Annual Election of Directors ...................................................................................................................................
CORPORATE GOVERNANCE ...................................................................................................................
Governance Practices .............................................................................................................................................
Director Resignation Policy .....................................................................................................................................
Incentive Compensation Clawback Policy ............................................................................................................
Stock Ownership of Board and Executives ...........................................................................................................
Policy Against Hedging Activities..........................................................................................................................
Policy Against Pledging Activities .........................................................................................................................
Board Independence ...............................................................................................................................................
The Role of Our Board of Directors ...................................................................................................................
Board Leadership Structure .....................................................................................................................................
The Board’s Role in Risk Oversight .......................................................................................................................
The Board’s Role in Human Capital Management ..............................................................................................
Board Committees and Their Functions ...........................................................................................................
Audit Committee .......................................................................................................................................................
Compensation Committee ........................................................................................................................................
Corporate Governance and Nominations Committee ..........................................................................................
Compensation Committee Interlocks and Insider Participation .........................................................................
Director Attendance ..................................................................................................................................................
Certain Relationships and Related Transactions ............................................................................................
Code of Conduct for Directors and Employees ...............................................................................................
Communications with the Board .........................................................................................................................
DIRECTOR COMPENSATION ...................................................................................................................
Annual Retainers and Meeting Fees .......................................................................................................................
Director Compensation for 2021 .............................................................................................................................
OWNERSHIP OF SERVISFIRST COMMON STOCK BY DIRECTORS, OFFICERS
AND CERTAIN BENEFICIAL OWNERS ...............................................................................................
Delinquent Section 16(a) Reports ........................................................................................................................
1
1
2
2
2
3
3
6
6
7
7
7
8
8
8
9
9
9
10
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15
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17
iii
PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION ...............................
EXECUTIVE COMPENSATION .................................................................................................................
Compensation Discussion and Analysis (CD&A) ............................................................................................
Named Executive Officers .......................................................................................................................................
2021 Business Results ..............................................................................................................................................
2021 Compensation Changes ..................................................................................................................................
Allocation of Compensation Elements – Pay for Performance ..........................................................................
Role of Compensation Committee ..........................................................................................................................
Role of Compensation Consultant ..........................................................................................................................
Compensation Philosophy and Objectives ............................................................................................................
Stockholder Approval ...............................................................................................................................................
Elements of our Compensation Program ...............................................................................................................
Key Compensation Policies and Supplemental Information ...............................................................................
Chief Executive Officer Compensation .................................................................................................................
Peer Group Benchmarking .......................................................................................................................................
Annual Base Salary ...................................................................................................................................................
Annual Incentive Compensation .............................................................................................................................
Equity-Based Incentive Compensation ..................................................................................................................
Change in Compensation Structure for 2022 ........................................................................................................
Severance and Change in Control ...........................................................................................................................
Compensation Committee Report .......................................................................................................................
Summary Compensation Table ...........................................................................................................................
Grants of Plan-Based Awards for Fiscal 2021 .................................................................................................
Outstanding Equity Awards at 2021 Fiscal Year-End ...................................................................................
Option Exercises and Stock Vested for Fiscal 2021 ........................................................................................
Pension Benefits .......................................................................................................................................................
Nonqualified Deferred Compensation Plans ....................................................................................................
Chief Executive Officer Pay Ratio ......................................................................................................................
Effect of Compensation Policies and Practices on Risk Management and Risk-Taking Incentives ...
Potential Payments Upon Termination or Change in Control .....................................................................
Change in Control Agreements ...............................................................................................................................
Endorsement Split-Dollar Agreements ..................................................................................................................
Estimated Payments upon a Termination or Change in Control ........................................................................
PROPOSAL 3: RATIFY APPOINTMENT OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ...................................................................................................................
Independent Registered Public Accounting Firm Fees ..................................................................................
Independent Registered Public Accounting Firm .................................................................................................
Audit and Non-Audit Services Pre-Approval Policy ...........................................................................................
Audit Committee Report .......................................................................................................................................
iv
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18
18
18
18
20
20
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39
40
PROPOSAL 4: AMEND RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF SERVISFIRST’S
COMMON STOCK ............................................................................................................................................
Introduction ..............................................................................................................................................................
Form of the Amendment .......................................................................................................................................
Purpose of the Amendment ..................................................................................................................................
Rights of Additional Authorized Shares; No Preemptive Rights ................................................................
Potential Adverse Effects of the Amendment ...................................................................................................
Potential Anti-Takeover Effects ..........................................................................................................................
GENERAL INFORMATION ..............................................................................................................................
Other Business .........................................................................................................................................................
Questions and Answers About the 2022 Annual Meeting and Voting .......................................................
Annual Report on Form 10-K ..............................................................................................................................
Stockholder Proposals ............................................................................................................................................
Solicitation of Proxies .............................................................................................................................................
41
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41
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42
43
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43
48
48
48
v
SUMMARY
The 2022 Annual Meeting of Stockholders of ServisFirst Bancshares, Inc. will be held online via the internet at 8:00 A.M.,
Central Time on Friday, May 6, 2022.
Throughout this Proxy Statement, unless the context indicates otherwise, when we use the terms the “Company,” “we,” “our” or
“us,” we are referring to ServisFirst Bancshares, Inc. and its wholly-owned subsidiary, ServisFirst Bank (which we refer to as
the “Bank”). When we use the term “Annual Meeting,” we intend to include both the Annual Meeting to be held on the date and
at the time and place identified above and any adjournment or postponement of such Annual Meeting.
Agenda and Voting Recommendations
1
Proposal 1: Election of Directors
The board of directors unanimously recommends a vote FOR each director nominee.
The seven director nominees presented in this proposal are recommended for election to the board of
directors.
Additional information about each director and his or her qualifications may be found on page 3.
Name
Age
Director
Since
Primary Occupation
Independent AC CC CGNC
Committee
Memberships
Thomas A. Broughton
III
J. Richard Cashio
James J. Filler
66 2007
64 2007
78 2007
Michael D. Fuller
Christopher J. Mettler
69 2007
46 2019
Hatton C. V. Smith
71 2007
Chairman, President and Chief Executive Officer of
ServisFirst Bancshares, Inc. and ServisFirst Bank
Retired Chief Executive Officer of TASSCO, LLC
Retired Chief Executive Officer of Jefferson Iron &
Metal Brokerage, Inc.
Retired President of Double Oak Water Reclamation
Founder and President of Sovereign Co.
Retired Chief Executive Officer of Royal Cup Coffee;
Chief Executive Officer of Back Forty Beer Company
Manager of Tuder Investments, LLC
Irma L. Tuder
✓
AC: Audit Committee CC: Compensation Committee CGNC: Corporate Governance & Nominations Committee
Financial Expert
Committee Chair Committee Member
60 2018
✓
✓
✓
✓
✓
Proposal 2:
Advisory Vote on Executive
Compensation
2
The board of directors unanimously recommends a
vote FOR the resolution.
Additional information about executive compensation
may be found on page 17.
3
Proposal 3:
Ratify Appointment of the
Independent Registered Public
Accounting Firm
The board of directors unanimously recommends a
vote FOR the resolution.
Additional information about the independent
registered public accounting firm may be found on
page 39.
Proposal 4:
Approve an Amendment to the Restated Certificate of Incorporation
4
The board of directors unanimously recommends a vote FOR the resolution.
Additional information about the amendment may be found on page 41.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 1
Voting Your Shares
It is important that your shares be voted at the Annual Meeting. Please vote your proxy in advance of the Annual Meeting to
ensure your shares will be represented. You can vote your shares:
• By going to the website www.investorvote.com/SFBS and following the instructions for Internet voting on the proxy
card or Notice of Internet Availability of Proxy Materials that you received in the mail. You will need the 15-digit
control number printed therein. You may also access instructions for telephone voting on the website.
• By using your mobile device to scan the QR barcode on your proxy card or Notice of Internet Availability of Proxy
Materials and following the prompts that appear on your mobile device.
•
If you received a printed copy of the proxy materials, by completing and mailing your proxy card in the prepaid return
envelope, or if you reside in the United States or Canada, by dialing 1-800-652-8683 and following the instructions for
telephone voting provided by the recorded message at that number. You will need your 15-digit control number printed
on your proxy card.
You may vote during the Annual Meeting when attending virtually by providing your control number and following instructions
available on the virtual meeting website during the meeting. For registered stockholders, the control number can be found on
your proxy card or notice. If a broker, bank or other nominee holds your shares, you will need to register with Computershare in
advance of the Annual Meeting to be able to vote your shares virtually. However, even if you plan to participate in the virtual
Annual Meeting, please vote your proxy by Internet, telephone, or mail in advance of the Annual Meeting to ensure that your
shares will be represented.
Participating in the Virtual 2022 Annual Meeting
To be admitted as a stockholder to the virtual Annual Meeting, you will need to enter the 15-digit control number printed on
your Notice or proxy card. All other attendees will be admitted to the virtual Annual Meeting as guests and will not have the
same access available to stockholders using their 15-digit control number.
Additional Information
See “General Information – Questions and Answers About the 2022 Annual Meeting and Voting” on page 43 for additional
information about attending the virtual Annual Meeting and voting your shares.
2 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
Under our bylaws, our board of directors (our “Board”) consists of six directors unless a different number is fixed from time to
time by resolution passed by a majority of our Board, which is the only means of fixing a different number. In October 2019, our
board voted to increase the size of the Board to seven directors. Seven directors will be elected at the Annual Meeting to hold
office until our 2023 Annual Meeting of Stockholders and until their successors are elected and have qualified.
Our Board has nominated the seven persons named below, all of whom currently serve as directors, for election as directors at
the 2022 Annual Meeting. Other than Ms. Tuder, who began serving as a director of the Bank and the Company on October 15,
2018, and Mr. Mettler, who began serving as a director of the Bank and the Company on October 21, 2019, each of our director
nominees has served as a director of the Bank since its inception in 2005 and as a director of the Company since our formation
in 2007. Each of these nominees has consented to serve as a director, if re-elected. Unless otherwise instructed, the management
proxies intend to vote the proxies received by them for the election of all seven of these nominees. If any nominee identified
below becomes unable to serve as a director before the Annual Meeting, the management proxies will vote the proxies received
by them for the election of a substitute nominee selected by our Board.
Ms. Tuder is Latina, making our Board approximately 14% female and ethnically diverse. We are committed to our continued
efforts to increase diversity and foster an inclusive work environment that supports our employees and the communities we serve.
We recruit the best people for the job regardless of gender, race, ethnicity, age, disability, sexual orientation, gender identity,
cultural background, or religious belief.
Annual Election of Directors
The seven nominees receiving the most votes cast in the election of directors by holders of shares of common stock present or
represented by proxy and entitled to vote at the Annual Meeting will be elected to serve as directors of the Company for the next
year. As a result, although shares as to which the authority to vote is withheld will be counted, such “withhold” votes will have
no effect on the outcome of the election of directors, except with respect to our director resignation policy.
Information regarding directors and director nominees and their ages as of the record date is as follows:
Committee Memberships
Name
Thomas A. Broughton III
Age
66
Director
Since
2007
J. Richard Cashio
James J. Filler
64
78
2007
2007
Michael D. Fuller
Christopher J. Mettler
Hatton C. V. Smith
69
46
71
2007
2019
2007
Irma L. Tuder
60
2018
Independent
Primary Occupation
Chairman, President and Chief Executive Officer of
ServisFirst Bancshares, Inc. and ServisFirst Bank
Retired Chief Executive Officer of TASSCO, LLC
Retired Chief Executive Officer of Jefferson Iron &
Metal Brokerage, Inc.
Retired President of Double Oak Water Reclamation
Founder and President of Sovereign Co.
Retired Chief Executive Officer, Royal Cup Coffee
Chief Executive Officer, Back Forty Beer Company
Manager of Tuder Investments, LLC
X
X
X
X
X
X
AC
CC
CGNC
[M]
[M]
[C][M]
[M]
[M]
[M]
[M]
[C][M]
[C][FE][M]
[M]
AC: Audit Committee CC: Compensation Committee CGNC: Corporate Governance & Nominations Committee
[C] Committee Chair [M] Committee Member [FE] Financial Expert
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 3
The following summarizes the business experience and background of each of our nominees. Each of the director nominees also
serves as a director of the Bank, and Mr. Broughton also serves as Chairman, President and Chief Executive Officer of us and
the Bank.
Thomas A. Broughton III
Age: 66
Committees: None
Position: President, CEO and Chairman
Director Since: 2007
Bank Director Since: 2005
Mr. Broughton has served as our President and Chief Executive Officer and a director since 2007 and as President, Chief
Executive Officer and a director of the Bank since its inception in May 2005. Mr. Broughton was named chairman of the board
of the Company and the Bank effective January 1, 2019. Mr. Broughton has spent the entirety of his over 35-year banking career
in the Birmingham area. In 1985, Mr. Broughton was named President of the de novo First Commercial Bank. When First
Commercial Bank was bought by Synovus Financial Corp. in 1992, Mr. Broughton continued as President and was named Chief
Executive Officer of First Commercial Bank. In 1998, he became Regional Chief Executive Officer of Synovus Financial Corp.,
responsible for the Alabama and Florida markets. In 2001, Mr. Broughton’s Synovus region shifted, and he became Regional
Chief Executive Officer for the markets of Alabama, Tennessee and parts of Georgia. He continued his work in this position until
his retirement from Synovus in August 2004. Mr. Broughton’s experience in banking has afforded him opportunities to work in
many areas of banking and has given him exposure to all bank functions. Mr. Broughton served on the Board of Directors of
Cavalier Homes, Inc. from 1986 until 2009, when the Company was sold to a subsidiary of Berkshire Hathaway. We believe that
Mr. Broughton’s extensive experience in banking in Alabama and the Southeast, and, in particular, his success in building and
growing new banks and developing new markets, makes him highly qualified to serve as a director.
J. Richard Cashio
Age: 64
Committees: Audit; Compensation;
Corporate Governance and Nominations
(Chair)
Position: Director
Director Since: 2007
Bank Director Since: 2005
Mr. Cashio has served as a director of the Company since 2007 and as a director of the Bank since its inception in May 2005.
Mr. Cashio has been a private investor since his retirement in 2013. Mr. Cashio served as Chief Executive Officer of TASSCO,
LLC from 2005 until his retirement in January 2014 and served as the Chief Executive Officer of Tricon Metals & Services, Inc.
from 2000 until its sale in October 2008. We believe that Mr. Cashio’s experience as the chief executive officer of successful
industrial enterprises allows him to offer our Board both the benefit of his business experience and the perspectives of one of our
target customer groups, making him highly qualified to serve as a director.
James J. Filler
Age: 78
Committees: Compensation
Position: Lead Independent Director
Director Since: 2007
Bank Director Since: 2005
Mr. Filler has served as a director of the Company since 2007 and as a director of the Bank since its inception in May 2005. In
January 2019, following Mr. Broughton becoming chairman of our Board of directors, Mr. Filler was appointed to serve as the
Board’s lead independent director. Mr. Filler has been a private investor since his retirement in 2006. Prior to his retirement, Mr.
Filler spent 44 years in the metals recycling industry with Jefferson Iron & Metal, Inc. and Jefferson Iron & Metal Brokerage
Co., Inc. We believe that Mr. Filler’s extensive business experience and strong ties to the Birmingham business community offer
us valuable strategic insights and make him highly qualified to serve as a director.
4 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Michael D. Fuller
Age: 69
Committees: Audit; Corporate Governance
and Nominations
Position: Director
Director Since: 2007
Bank Director Since: 2005
Mr. Fuller has served as a director of the Company since 2007 and as a director of the Bank since its inception in May 2005. For
over 20 years, Mr. Fuller has been a private investor in real estate investments. Prior to that time, Mr. Fuller played professional
football for nine years. Mr. Fuller served as President of Double Oak Water Reclamation, a private wastewater collection and
treatment facility in Shelby County, Alabama, from 1998 to 2018. We believe that Mr. Fuller’s experience in the real estate
sector, which is a major focus of our business, as well as his overall business experience and community presence, make him
highly qualified to serve as a director.
Christopher J. Mettler
Age: 46
Committees: Compensation Committee
Position: Director
Director Since: 2019
Bank Director Since: 2019
Mr. Mettler has served as a director of the Company and the Bank since October 21, 2019. Mr. Mettler is Founder and President
of Sovereign Co., where he leads strategy and business development. Mr. Metter assumed a full-time role at Sovereign as of
April 26, 2019. Sovereign leverages proprietary marketing attribution and artificial intelligence technology to systematically
measure thousands of simultaneous marketing messages to display the most relevant products for consumers. Previously, Mr.
Mettler founded two marketing and financial technology businesses, CompareCards and SnapCap, both of which were acquired
in two separate transactions by LendingTree (Nasdaq: TREE). Mr. Mettler served as President of Iron Horse Holdings LLC from
January 1, 2014 until November 16, 2016. Following LendingTree’s acquisition of CompareCards from Iron Horse Holdings in
November 2016, Mr. Mettler transitioned to serve as a salaried employee of LendingTree through April 26, 2019. We believe
Mr. Mettler’s business experience, his strong background in the financial technology sector and his prior service on our
Charleston, South Carolina advisory board makes him highly qualified to serve as a director.
Hatton C. V. Smith
Age: 71
Committees: Compensation (Chair)
Position: Director
Director Since: 2007
Bank Director Since: 2005
Mr. Smith has served as a director of the Company since 2007 and as a director of the Bank since its inception in May 2005. Mr.
Smith served as the Chief Executive Officer of Royal Cup Coffee from 1996 until 2014 and in various other positions with Royal
Cup Coffee prior to 1996. Mr. Smith retired from all positions with Royal Cup Coffee effective February 2020. He currently
serves as the Chief Executive Officer of Back Forty Beer Company, which specializes in unique craft beers in the Southeast. Mr.
Smith is also involved in many different charities and has served as Chair of the United Way and President of the Baptist Health
System. We believe that Mr. Smith’s business experience, his strong roots in the greater Birmingham business and civic
community, and his high profile and extensive community contacts in one of our largest markets make him highly qualified to
serve as a director.
Irma L. Tuder
Age: 60
Committees: Audit (Chair); Corporate
Governance and Nominations
Position: Director
Director Since: 2018
Bank Director Since: 2018
Ms. Tuder is currently a private investor. She is the founder, former CEO and Board Chairperson of Analytical Services, Inc.
(ASI), a nationally recognized business providing management and technical solutions to federal government agencies. Ms.
Tuder successfully led the acquisition of ASI by Arctic Scope Regional Corporation Federal Holding Company in 2007. Ms.
Tuder has over 30 years of experience in strategic business planning and execution, executive leadership, financial management
and business operations. Prior to founding ASI, Ms. Tuder spent five years as a controller in private industry and five years in
public accounting. In addition to her service as a director of the Company and Bank, Ms. Tuder is a member of the Notre Dame
Institute for Latino Studies Advisory Council, HudsonAlpha Institute for Biotechnology Board of Directors, University of
Alabama in Huntsville (UAH) Foundation Board and UAH Business School Advisory Board. Ms. Tuder received a BBA in
accountancy from the University of Notre Dame and MBA from Troy State University in Montgomery. We believe that Ms.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 5
Tuder’s extensive background in business, finance and accounting make her highly qualified to serve as both a director and as
Chair of our Audit Committee.
The Board of Directors Unanimously Recommends a Vote “FOR” the Election of Each of the Board Nominees
CORPORATE GOVERNANCE
Our business is managed under the direction of our Board of directors. The Board has the legal responsibility for overseeing the
affairs and performance of the Company. The primary responsibility of the Board is to exercise their business judgment in what
they believe to be in the best interests of the Company and its stockholders.
Governance Practices
Our Board of directors believes that sound governance practices and policies provide an important framework to assist them in
fulfilling their oversight duty. The Corporate Governance Guidelines of ServisFirst Bancshares, Inc. (the “Governance
Guidelines”), include a number of the practices and policies under which our Board has operated for many years, together with
concepts suggested by various authorities in corporate governance and the requirements under the New York Stock Exchange
(“NYSE”) Listed Company Manual and the Sarbanes-Oxley Act of 2002.
Each year, our Board of directors reviews our Governance Guidelines and other governance documents and modifies them as it
deems appropriate. These documents include the Governance Guidelines, the committee charters, our Code of Business Conduct
and Ethics, our Related Party Transactions Policy and other key policies and practices. Copies of the currently effective charters
for each Board committee, the Code of Business Conduct and Ethics, the Governance Guidelines and certain other corporate
governance policies are available on the Company’s website at www.servisfirstbancshares.com under the “Governance” tab.
Some of the principal subjects covered by our Governance Guidelines comprise:
• Director Qualifications, which include: a Board candidate’s independence, experience, knowledge, skills, expertise,
integrity, and ability to make independent analytical inquiries; his or her understanding of our business and the business
environment in which we operate; and the candidate’s ability and willingness to devote adequate time and effort to
Board responsibilities, taking into account the candidate’s employment and other Board commitments.
• Responsibilities of Directors, which include: acting in the best interests of all stockholders; maintaining independence;
developing and maintaining a sound understanding of our business and the industry in which we operate; preparing for
and attending Board and Board committee meetings; and providing active, objective and constructive participation at
those meetings.
• Director Access to Management and, as Necessary and Appropriate, Independent Advisors, which covers: encouraging
presentations to our Board from the officers responsible for functional areas of our business and from outside
consultants who are engaged to conduct periodic reviews of various aspects of our operations or the quality of certain
of our assets, such as the Bank’s loan portfolio.
• Director Orientation and Continuing Education, such as: programs to familiarize directors with any changes to our
business, strategic plans, and significant financial, accounting and risk management issues; our compliance programs
and conflicts policies; our code of business conduct and ethics and our corporate governance guidelines. In addition,
each director is expected to participate in continuing education programs relating to developments in our business and
in corporate governance.
6 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
• Regularly Scheduled Executive Sessions, without Management, will be held by our Board, led by our Lead Independent
Director, and by the Audit Committee, which meets separately with our independent auditors.
Director Resignation Policy
In October 2016, our Board approved and adopted a Director Resignation Policy. This policy provides that, in an uncontested
election, any director nominee who receives a greater number of “Withhold” votes than votes “For” his or her election shall
promptly tender his or her resignation to the Chairman of our Board following the certification of the election results. The
Company’s Corporate Governance and Nominations Committee (“CG&N Committee”) will consider the offer of resignation and
recommend to the Board whether to accept or reject the resignation. Our Board must then act on the recommendation within 90
days following certification of the election results following receipt of the recommendation. After the Board makes a formal
decision on the CG&N Committee’s recommendation, the Company must publicly disclose the action on a Current Report on
Form 8-K within four business days of the decision. If the Board determines to take any action other than accepting such
resignation, the Current Report must also include the Board’s rationale supporting its decision. A copy of our Director
Resignation Policy is available on our website www.servisfirstbancshares.com under the “Governance” tab.
Incentive Compensation Clawback Policy
Our Board has approved and adopted a Clawback Policy for recovery of incentive compensation from the Company’s current
and former executive officers under certain circumstances. The Clawback Policy is designed to comply with Section 10D of the
Securities Exchange Act of 1934 (the “Exchange Act”) and proposed Rule 10D-1. The Clawback Policy provides that, in the
event the Company is required to restate financial results due to material noncompliance with any financial reporting requirement
under the securities laws, the Board may adjust future compensation, cancel outstanding awards, seek recoupment of previous
awards and take any other remedial and recovery action permitted by law, to recoup all or a portion of any incentive compensation
approved, awarded or granted to an executive officer of the Company after the date of adoption of the Clawback Policy and such
award, vesting or payment occurred or was received during the three completed fiscal years immediately preceding the date on
which the Company is required to prepare the restatement. The Clawback Policy applies when the Compensation Committee has
determined that the incentive compensation approved, awarded or granted was predicated upon the achievement of certain
financial results that were the subject of the restatement and that a lesser amount of incentive compensation would have been
approved, awarded or granted to the executive officer based upon the restated financial results. In each such instance, the
Company will seek to recoup the amounts by which an executive officer’s incentive compensation that was awarded, vested or
paid during the three-year period referenced above exceeded the amounts that would have been awarded, vested or paid based
on the restated financial results.
Stock Ownership of Board and Executives
Long-term stock ownership is deeply engrained in our culture and reflects our Board’s strong commitment to the Company’s
success. We have reviewed the stock ownership policies of other financial institutions, the criteria identified by certain proxy
advisory firms in determining whether a stock ownership policy is “rigorous” or “robust,” and the stock ownership of our
directors and executive officers. We ultimately concluded not to adopt a formal stock ownership policy at this stage of the
Company’s existence primarily because the current ownership levels of our long-time directors and, with one exception, our
named executive officers far exceed the ownership requirements of even the most rigorous policies we reviewed. Using the
market price and the number of shares of common stock beneficially owned as of December 31, 2021, each of our non-employee
directors held common stock valued over 25 times such director’s annual retainer, our Chief Executive Officer held common
stock valued at over 55 times his annual base salary, and each of our other named executive officers, with the exception of Mr.
Abbott, held common stock valued at over 40 times his annual base salary.
Our Board annually reviews our Governance Guidelines and other governance documents and practices and modifies them as it
deems appropriate. Although we will reconsider adopting stock ownership guidelines in the future, including in the event of
Board or management changes, we intend to operate the Company in a way that we believe makes the most sense taking into
account numerous factors.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 7
Policy Against Hedging Activities
The Company is dedicated to growing its business and enhancing stockholder value in an ethical way while being mindful of the
need to avoid taking actions that pose undue risk or have the appearance of posing undue risk to the Company. Our goal is to
grow stockholder value in both the short term and in the longer term, and we expect our directors, officers and employees to have
the same goals as the Company. Consistent with these goals, our Insider Trading Policy prohibits any of our directors, officers
and employees from engaging in hedging activities involving the Company’s securities, including the following:
short sales, meaning any transactions in the Company’s securities whereby one may benefit from a decline in the stock
price of our common stock;
purchases or sales of derivative securities related to the Company’s securities (puts, calls, collars, swaps forward sale
contracts and similar arrangements, excluding stock options issued pursuant to employee benefit plans); and
investments in exchange funds (a stock fund that allows an investor to exchange his or her holdings in Company
securities for units in a portfolio of securities), excluding investments in the Company stock fund available under the
Company’s 401(k) plan.
Policy Against Pledging Activities
Our Insider Trading Policy prohibits our directors, officers and employees from pledging our securities as collateral for loans
unless approved by our Insider Trading Compliance Officer. While being mindful of the need to avoid taking actions that pose
undue risk or appear to pose undue risk to our Company, we also appreciate that our situation may be unique. We are a public
Company that has, since the Bank’s inception in 2005 and our formation in 2007, experienced a relative amount of success. As
a result of this success, a significant portion of the wealth of some of our officers and employees resides in their ownership of
our common stock. As detailed above, all of our directors and all but one of our executive officers own enough shares of common
stock to far exceed the multiples of base salary or annual cash retainer typically required by stock ownership guidelines.
Accordingly, we provide our Insider Trading Compliance Officer with the discretion to permit pledges in certain limited
circumstances.
Board Independence
The cornerstone of our corporate governance program is an independent and qualified Board of directors. The Board has
established guidelines consistent with the current listing standards of the NYSE for determining director independence. You can
find
the Company’s website at
www.servisfirstbancshares.com under the “Governance” tab.
in our Governance Guidelines, which are posted on
these guidelines
During its most recent review, our Board considered transactions and relationships between each director or any member of a
director’s immediate family and us and the Bank. Our Board also considered whether there were any transactions or relationships
between our Company and any entity of which a director or an immediate family member of a director is an executive officer,
general partner or significant equity holder. The purpose of this review was to determine whether any such relationships or
transactions existed that were inconsistent with a determination that a director is independent. Independent directors must be free
of any relationship with us or our management that may impair the director’s ability to make independent judgments.
Our CG&N Committee has determined in its business judgment that six of the Company’s seven directors are independent as
defined in the NYSE listing standards and that each member is free of any relationships that would interfere with his individual
exercise of independent judgment. Our independent directors are Messrs. Cashio, Filler, Fuller, Mettler and Smith, and Ms.
Tuder. Mr. Broughton, our Chairman, is considered an inside director because of his employment as our President and Chief
Executive Officer (see “Certain Relationships and Related Transactions” for a list of other relationships the Board considered
when determining independence).
8 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
The Role of Our Board of Directors
The members of our Board also are members of the board of directors of the Bank, which accounts for substantially all of our
consolidated operating results. The members of our Board keep informed about our business through discussions with senior
management and other officers and managers of the Company and the Bank, by reviewing analyses and reports sent to them by
management and outside consultants, and by participating in meetings of the Board and meetings of those Board committees on
which they serve.
Board Leadership Structure
We believe that our stockholders are best served by a strong, independent Board of directors with extensive business experience
and strong ties to our markets. We believe that objective oversight of the performance of our management team is critical to
effective corporate governance, and we believe our Board provides such objective oversight.
Our Board is led by a combination of Mr. Filler, our Lead Independent Director, and Mr. Broughton, our Chairman, President
and CEO, supplemented by engaged, independent committee chairs and directors. Our independent directors unanimously voted
for Mr. Broughton to serve as the chairman of our Board following the retirement of our prior Chairman on December 31, 2018.
The Board believes that the Company has been well served by Mr. Broughton’s leadership since the Bank’s inception in 2005
and our formation in 2007. The Board further believes that Mr. Broughton’s combined role as chairman and CEO will allow him
to set the overall tone and direction for the Company, maintain consistency in the internal and external communication of our
strategic and business priorities, and have primary responsibility for managing our operations. The Board also believes that a
strong, effective Lead Independent Director, like Mr. Filler, an independent board, and independent committees provide the
independent leadership necessary to balance the combined chairman and CEO role and, with the formal and informal mechanisms
we have in place to facilitate the work of the Board and its committees, results in the Board effectiveness and efficiency that our
stockholders expect.
Mr. Broughton’s leadership has been especially evident during the COVID-19 pandemic. While the Company and Bank are
known for being able to make lending decisions quickly on a decentralized basis, our employees look to Mr. Broughton to set
the tone for the entire Company. Under his leadership, the Bank handled an extraordinary number of Payroll Protection Plan
(“PPP”) loans pursuant to the terms of the CARES Act for both existing Bank customers and new customers. Mr. Broughton’s
emphasis on customer service leveraged existing relationships and earned new banking relationships during the pandemic, as
new customers were able to compare their experience with the Bank against the service provided by their current bankers.
We believe our Board’s structure provides leadership and operational oversight, notwithstanding Mr. Broughton’s role as
Chairman. Our Board’s three standing committees, which are described below under “Board Committees and Their Functions”,
are composed exclusively of independent directors. In addition to the Board committees at the Company, our Bank has a separate
loan committee on which all of our directors serve. We believe that this structure further reinforces the Board’s role as an
objective overseer of our business, operations, risk sensitivity and day-to-day management.
The Board’s Role in Risk Oversight
While our Board is ultimately responsible for the management of risks inherent in our business, in our day-to-day operations
senior management is responsible for instituting risk management practices that are consistent with our overall business strategy
and risk tolerance. In addition, because our operations are conducted primarily through the Bank, we maintain an asset-liability
and investment committee at the Bank level, consisting of four executive officers of the Bank. This committee is charged with
monitoring our liquidity and funds positions. The committee regularly reviews the rate sensitivity position on three-month, six-
month and one-year time horizons; loans-to-deposits ratios; and average maturities for certain categories of liabilities. This
committee reports to our Board of directors at least quarterly, and otherwise as needed.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 9
In addition, our Audit Committee assists the Board in overseeing and monitoring management’s conduct of our financial
reporting process and system of internal accounting and financial controls, and our Compensation Committee oversees the
management of risks relating to executive and non-executive compensation.
Outside of formal meetings, our Board and its committees have regular access to senior executives, including our Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer, as well as our senior credit officers. Our bank board, which consists
of all the members of our Board, and loan committee also meet monthly with management to review loans, credit loss issues and
other areas of risk for the bank. We believe that this structure allows the Board to maintain effective oversight over our risks and
to ensure that our management personnel are following prudent and appropriate risk management practices.
The Board’s Role in Human Capital Management
Our Board adopted an Environmental, Social and Governance Policy (the “ESG Policy”) in October of 2021. The Board included
Human Capital Management as part of the ESG Policy, with an emphasis on four key areas: (1) hiring, promotion and talent
development; (2) health and safety; (3) compensation and benefits; and (4) diversity and inclusion. The below entries summarize
our current policy positions in each of these key areas:
Hiring, Promotion & Talent Development
We are always looking to build our workforce from within and promote from our current talent pool whenever possible. We are
also committed to the continued development of our employees, whether through banking industry-related training or position-
related training.
Health and Safety
We are committed to the health, safety, and wellness of our employees. In response to local government and health guidelines
around the COVID-19 pandemic, glass barriers have been installed where necessary, and we regularly encourage our employees
to utilize video conferencing platforms when possible. All branches and internal corporate offices have been provided with
cleaning supplies and are encouraged to disinfect surface areas consistently. We maintain a social distancing policy and update
our procedures as federal and state agencies make new recommendations.
Compensation and Benefits
We provide robust compensation and benefits programs to help meet the needs of our employees. In addition to competitive
salaries, these programs include a 401(k) Retirement Plan, full medical, dental and vision insurance, life insurance and paid time
off. As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards
programs for our employees in order to attract and retain superior talent.
Diversity and Inclusion
We are committed to our continued efforts to increase diversity and foster an inclusive work environment that supports our
employees and the communities we serve. We recruit the best people for the job regardless of gender, race, ethnicity, age,
disability, sexual orientation, gender identity, cultural background or religious belief. As an example, Ms. Tuder is Latina, making
our Board approximately 14% female and ethnically diverse. It is our policy to fully comply with all state and federal laws
applicable to discrimination in the workplace.
10 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Board Committees and Their Functions
Our Board maintains three standing committees that are each composed entirely of independent directors. The governing charter
for each of the three committees is available on our website www.servisfirstbancshares.com under the “Governance” tab.
Audit Committee
Name(1)
Irma L. Tuder
Michael D. Fuller
James J. Filler
J. Richard Cashio
Christopher J. Mettler
Hatton C. V. Smith
Committee Chair Committee Member Financial Expert
Compensation Committee
Corporate Governance &
Nominations Committee
(1) Mr. Broughton is not independent and therefore does not serve on any committee.
Audit Committee
Number of meetings in 2021: 4
Functions:
• Assists our Board of directors in maintaining the integrity of our financial statements and of our financial reporting
processes and systems of internal audit controls, as well as monitoring our compliance with legal and regulatory
requirements and the performance of our internal audit function;
• Reviews the scope of independent audits and assesses the results;
• Meets with management to consider the adequacy of the internal control over, and the objectivity of, financial reporting,
and meets with our independent auditors and with appropriate financial personnel concerning these matters;
•
Selects, determines the compensation of, appoints and oversees our independent registered public accounting firm, and
evaluates their qualifications, performance and independence; and
• Reviews and approves all related party transactions of the Company in accordance with our Related Party Transactions
Policy (with some related party transactions referred to the full Board for consideration).
Our Board of directors has determined that each Audit Committee member meets the independence standards for Audit
Committee membership under the rules of the Securities and Exchange Commission (“SEC”) and the rules of the NYSE.
Compensation Committee
Number of meetings in 2021: 6
Functions:
• Annually reviews the performance and compensation of our Chief Executive Officer, who is not present during
deliberations or voting with respect to his compensation;
• Makes recommendations to the independent members of our Board of directors with respect to the compensation of
our Chief Executive Officer and all other executive officers of the Company;
• Makes determinations, either as a committee or together with the other independent directors, regarding the
performance and compensation level of our Chief Executive Officer and our other named executive officers;
• Reviews relationships between compensation practices and risk management policies and practices to evaluate
mitigation of any identified risks;
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 11
• Establishes the compensation structure for our senior management and approves the compensation of our senior
executives;
• Develops and reviews succession planning for key executives, including our chief executive officer; and
• Advises and reports to our Board of directors at least annually, including with respect to the Company’s incentive and
equity-based compensation plans, and oversees the activities of the individuals and committees responsible for
administering such plans.
The Compensation Committee has the authority, in its sole discretion, to appoint, engage, retain and terminate any compensation
consultant, legal counsel or other advisor to assist in the performance of its duties, and the Company is responsible for providing
appropriate funding to the Compensation Committee for payment of reasonable compensation to any such advisor retained by
the Compensation Committee. During fiscal 2020, our Compensation Committee retained McLagan (a division of Aon) to
conduct a comprehensive review of our compensation programs. As discussed in more detail herein, McLagan’s review was to
evaluate the continued appropriateness of the Company’s compensation program as compared to certain peer companies, with
the goal of ensuring that the Company’s pay practices mature in tandem with its business. McLagan provided services to the
Company during 2021. The cost of such services did not exceed $120,000. The committee determined that there were no conflicts
between McLagan and the Company or any member of the Compensation Committee.
Our Board of directors has determined that each Compensation Committee member is independent under the rules of the NYSE.
Corporate Governance and Nominations Committee
Number of meetings in 2021: 2
Functions:
•
Identifies individuals believed to be qualified to become Board members, and selects or recommends to the Board, the
nominees to stand for election as directors;
• Establishes the criteria for selecting candidates for nomination to our Board, actively seeks candidates who meet those
criteria and makes recommendations to our Board of directors to fill vacancies on, or make additions to, our Board or
any committee of our Board (see “Governance Practices” for a detailed discussion of qualification criteria);
• Develops and recommends to our Board standards to be applied in making determinations as to the absence of material
relationships between the Company and a director;
• Establishes the procedures for the evaluation and oversight of our Board and management; and
• Monitors and recommends changes in the organization and procedures of the Board, in the size of the Board or any
Board committee and in our corporate governance policies, and monitors the Company’s corporate governance
structure.
The CG&N committee considers candidates for director who are recommended by its members, by other Board members, and
by management. The CG&N committee will consider stockholder nominees for election to our Board that are timely
recommended by stockholders provided that a complete description of the nominees’ qualifications, experience and background,
together with a statement signed by each nominee in which he or she consents to act as a Board member if elected, accompany
the recommendations. Nominations must also include evidence of the nominating stockholder’s ownership of Company common
stock. Stockholder nominations should be directed to the chair of the CG&N Committee, care of our chief financial officer, at
the Company’s principal executive office, 2500 Woodcrest Place, Birmingham, Alabama 35209. The CG&N committee will
evaluate candidates recommended by stockholders using the same criteria as for other candidates recommended by its members,
other members of the Board, or management.
12 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
In evaluating nominees for director, the CG&N committee believes that it is of primary importance to ensure that the Board’s
composition reflects a diversity of business experience and community leadership, as well as a demonstrated ability to promote
the Company’s strategic objectives and expand its presence, profile and customer base in its local markets. Additionally, our
CG&N committee charter provides that the CG&N committee, in selecting or recommending Board candidates, shall consider
factors it deems appropriate, which may include diversity. The members of the CG&N committee and the Board also take into
account views on diversity that our stockholders may communicate to us.
Our Board of directors has determined that each member of the CG&N committee is independent under the standards of
independence of the rules of the NYSE.
Compensation Committee Interlocks and Insider Participation
The primary functions of the Compensation Committee are to evaluate and administer the compensation of our President and
Chief Executive Officer and other executive officers and to review our general compensation programs. No member of this
committee has served as an officer or employee of the Company, the Bank or any other subsidiary. In addition, none of our
executive officers has served as a director or as a member of the compensation committee of a company which employs any of
our directors. For further information, see “Compensation Discussion and Analysis” and “Board Committees and Their
Functions.”
Director Attendance
Our Board of directors held 9 meetings in 2021. Each director attended more than 75% of the aggregate of: (i) the number of
meetings of the Board of directors held during the period he or she served on the Board; and (ii) the number of meetings of
committees of the Board of directors held during the period he or she served on such committees. While we do not have a formal
policy regarding director attendance at our annual meetings, we generally expect our directors to attend if at all possible. All of
our directors attended the 2021 Annual Meeting either in person or via remote webcast.
Certain Relationships and Related Transactions
We have not entered into any business transactions with related parties required to be disclosed under Rule 404(a) of Regulation
S-K other than banking transactions in the ordinary course of our business with our directors and officers, as well as members of
their families and corporations, partnerships or other organizations in which they have a controlling interest, and the lease
arrangement described below. Management recognizes that related party transactions can present unique risks and potential
conflicts of interest (in appearance and in fact). Therefore, we maintain written policies around interactions with related parties
which require that these transactions are entered into and maintained on the following terms:
•
•
in the case of banking transactions, each is on substantially the same terms, including price or interest rate, collateral
and fees, as those prevailing at the time for comparable transactions with unrelated parties that are not expected to
involve more than the normal risk of collectability or present other unfavorable features to the bank; and
in the case of related party transactions, each is approved by a majority of the directors who do not have an interest in
the transaction. Banking transactions which meet the criteria disclosed above are deemed pre-approved by the Board.
Any potential related party transactions are reported to our chief financial officer, who then reports such transactions to our Audit
Committee. Our Audit Committee determines whether such transactions constitute related party transactions and, if so, reports
those transactions to our Board for consideration if such transactions are not deemed pre-approved under our policy. A copy of
our policy governing related party transactions is available on our website www.servisfirstbancshares.com under the
“Governance” tab.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 13
The aggregate amount of indebtedness from our directors and executive officers (including their affiliates and inclusive of persons
serving as executive officers of the bank) to the bank as of December 31, 2021 was approximately $51.18 million, which equaled
4.44% of our total equity capital as of that date. Related party transactions are made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral (where applicable), as those prevailing at the time for
comparable transactions with persons not related to us, and do not involve more than normal risk of collectability or present other
features unfavorable to us. No related party loans were disclosed as past due, nonaccrual or troubled debt restructurings in our
consolidated financial statements for the year ended December 31, 2021. We anticipate making related party loans in the future
to the same extent as we have in the past.
In addition to banking transactions made in the ordinary course of business, the Company leased office space in its corporate
headquarters to one related party in 2021 pursuant to the terms of a lease entered into 2017. Prior to entering into such lease in
2017, the Company obtained, and the Board considered, a market reasonableness study, and the Board, other than the related
party, approved such lease on terms consistent with the results of the market reasonableness study. Under the terms of the lease,
the Company agreed to lease an office of approximately 120 square feet to Mr. Michael D. Fuller, a director of the Company, on
a month-to-month basis at $26.00 per square foot, subject to 1.5% annual escalations, plus a utilities and overhead fee equal to
10% of the rental rate.
Code of Conduct for Directors and Employees
Our Board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and
directors. The Code of Business Conduct and Ethics covers compliance with law; fair and honest dealings with us, with
competitors and with others; fair and honest disclosure to the public; and procedures for compliance with the Code of Business
Conduct and Ethics. A copy of our Code of Business Conduct and Ethics is, and any amendment to or waiver from a provision
of our Code of Business Conduct and Ethics will be, available free of charge on our website at www.servisfirstbancshares.com
under the “Governance” tab.
Communications with the Board
You may contact any of our independent directors, individually or as a group, by writing to them c/o William M. Foshee, Chief
Financial Officer, ServisFirst Bancshares, Inc., 2500 Woodcrest Place, Birmingham, Alabama 35209. Mr. Foshee will review
and forward to the appropriate directors copies of all such correspondence that, in the opinion of Mr. Foshee, deals with the
functions of the Board of directors or its committees or that he otherwise determines requires their attention. Concerns relating
to accounting, internal controls or auditing matters will be brought promptly to the attention of the Chairwoman of the Audit
Committee and will be handled in accordance with procedures established by the Audit Committee.
DIRECTOR COMPENSATION
The following summarizes the compensation earned by, or paid to, each person who served as a non-employee Director during
all or any part of our 2021 fiscal year. Mr. Broughton was not separately compensated for his service on the Board. Directors of
the Company also serve on the Board of the Bank and receive no additional compensation for such service. Ms. Tuder also serves
on the advisory board of our Huntsville, AL region, and her compensation for such service is included in the tabular disclosure
below. As of February 22, 2022, our six non-employee Directors beneficially owned, collectively, approximately 5.47% of our
outstanding common stock. We seek to structure Director compensation to further align the interests of Directors with the
interests of our stockholders.
14 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Annual Retainers and Meeting Fees
Position
Director
Lead Independent Director
Audit Committee Member
Audit Committee Chair
Compensation Committee Member
Compensation Committee Chair
CG&N Committee Member
CG&N Committee Chair
Annual
Retainer
($)
45,000
25,000
8,000
10,000
6,000
8,000
4,000
7,500
As part of the comprehensive review of our compensation program performed by the Compensation Committee’s independent
consultant, McLagan (a division of Aon plc), the Compensation Committee directed McLagan to review director compensation
in comparison to certain identified peer companies. The consultant found, in general, our director compensation ranked among
the lowest of our peers. Our Board, at the recommendation of our Compensation Committee, moved to a retainer fee structure
for director compensation in 2021 as part of the restructuring of our overall compensation program. In setting our retainer fees,
we did not attempt to benchmark our director compensation at an identified median of our peer companies, but rather used
comparisons with those peers as part of an analysis of standard compensation practices. All director meeting fees have been
eliminated in favor of retainer fees.
Director Compensation for 2021
The following table sets forth information regarding the compensation of our non-employee directors for the year ended
December 31, 2021.
Fees
earned or
paid in
cash
($)
66,500
57,000
76,000
51,000
53,000
64,400
Name
Stock
Awards1
($)
50,028
50,028
50,028
50,028
50,028
50,028
All Other
Compensation
($)
-
-
-
-
-
-
Total
($)
116,528
107,028
126,028
101,028
103,028
114,028
J. Richard Cashio
Michael D. Fuller
James J. Filler
Christopher J. Mettler
Hatton C. V. Smith
Irma L. Tuder2
_____________________
1 Represents the grant date fair value of time-based restricted stock awarded on April 19, 2021 (820 shares valued at $61.01 per
share, the closing price of the Company’s common stock on that date). All Director restricted stock awards were outstanding on
December 31, 2021. See Note 13 of our audited consolidated financial statements included in our Annual Report on Form 10-K
for the year ended December 31, 2021 for information regarding assumptions made in the valuation of these awards. These
awards have a one-year vesting term.
2 Ms. Tuder’s cash compensation includes $5,400 in fees paid for service on the Huntsville advisory board.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 15
OWNERSHIP OF SERVISFIRST COMMON STOCK BY DIRECTORS, OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of our common stock as of February 22, 2022 by: (i) each of our directors;
(ii) our named executive officers; (iii) all of our directors and our executive officers as a group; and (iv) each stockholder known
by us to beneficially own more than 5% of our common stock. Except as otherwise indicated, each person listed below has sole
voting and investment power with respect to all shares shown to be beneficially owned by him except to the extent that such
power is shared by a spouse under applicable law. The information provided in the table is based on our records, information
filed with the SEC and information provided to the Company.
Name and Address of Beneficial Owner(1)
Five Percent Stockholders
Blackrock, Inc.(3) .................................................................................
55 East 52nd Street
New York, NY 10055
The Vanguard Group(5) ........................................................................
100 Vanguard Blvd.
Malvern, PA 19355
Amount and Nature of
Beneficial Ownership
Percentage of Outstanding
Common Stock (%)(2)
7,423,879 (4)
13.57%(4)
5,191,699 (4)
9.58%(4)
Directors and Executive Officers
Thomas A. Broughton III ....................................................................
Irma L. Tuder ......................................................................................
Michael D. Fuller ................................................................................
James J. Filler ......................................................................................
J. Richard Cashio ................................................................................
Hatton C. V. Smith ..............................................................................
Christopher J. Mettler ..........................................................................
William M. Foshee ..............................................................................
Rodney E. Rushing ..............................................................................
Henry F. Abbott ..................................................................................
All directors and executive officers as a group (10 persons) ...............
___________________
817,422 (6)
71,441 (7)
508,162 (8)
1,371,706 (9)
579,626 (10)
416,048 (11)
21,565 (12)
292,747 (13)
424,152 (14)
7,994 (15)
4,510,988 (16)
1.51%
*
*
2.53%
1.07%
*
*
*
*
*
8.31%
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Indicates ownership of less than 1% of outstanding common stock.
The address for all directors and executive officers is 2500 Woodcrest Place, Birmingham, Alabama 35209.
Except as otherwise noted herein, the percentage is determined on the basis of 54,273,091 shares of our common stock outstanding plus securities
deemed outstanding pursuant to Rule 13d-3 promulgated under the Exchange Act. Under Rule 13d-3, a person is deemed to be a beneficial owner
of any security owned by certain family members and any security of which that person has the right to acquire beneficial ownership within 60
days, including, without limitation, shares of our common stock subject to currently exercisable options.
In a Schedule 13G/A filed January 27, 2022, Blackrock, Inc. reported having sole power to vote or to direct the vote of 7,369,781 shares of common
stock, shared power to vote or direct the vote of zero shares of common stock, sole power to dispose or direct the disposition of 7,423,879 shares
of common stock and shared power to dispose or to direct the disposition of zero shares of common stock. All information in this footnote was
obtained from the Schedule 13G/A filed by Blackrock, Inc.
Reflects shares reported on Schedule 13G/A as beneficially owned as of December 31, 2021.
In a Schedule 13G/A filed February 10, 2022, The Vanguard Group reported having sole power to vote or direct the vote of 0 shares of common
stock, shared power to vote or direct to vote 85,321 shares of common stock, sole power to dispose or direct the disposition of 5,063,968 shares of
common stock and shared power to dispose or to direct the disposition of 127,731 shares of common stock. All information in this footnote was
obtained from the Schedule 13G/A filed by The Vanguard Group.
Includes 54,790 shares of common stock owned by his spouse and 14,290 shares of common stock owned by his two stepchildren. Also includes
497,812 shares held by a GRAT for the benefit of Mr. Broughton’s children, for which Mr. Broughton retains the power of substitution.. Does not
include 190,000 shares held by TAB2, LLC and 300,000 shares held by TAB3, LLC, which are managed by a third party manager. Mr. Broughton
disclaims beneficial ownership of common stock held by his spouse and his two stepchildren.
Does not include an option granted on October 15, 2018 to purchase up to 25,000 shares of common stock for $35.65 per share which vests 100%
on October 15, 2023. Includes 40,215 shares owned by Tuder Family, LLC, a limited liability company of which the reporting person is a member
and manager. The reporting person disclaims beneficial ownership of the Tuder Family, LLC shares except to the extent of her pecuniary interest
therein.
16 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
Includes 93,052 shares of common stock held by Mr. Fuller’s spouse.
Includes 151,500 shares Mr. Filler owns jointly with his spouse.
Does not include 28,752 shares owned by Mr. Cashio’s adult daughter. Includes 184,000 shares of common stock held by Mr. Cashio’s spouse.
Mr. Cashio disclaims beneficial ownership of all shares not directly owned by him. Mr. Cashio has pledged 51,625 shares to ServisFirst Bank as
security for a loan and 124,112 shares to J.P. Morgan as security for a line of credit.
Mr. Smith has pledged 96,999 shares to ServisFirst Bank, as security for a line of credit.
Does not include an option granted to Mr. Mettler on October 21, 2019 to purchase 25,000 shares of common stock for $33.90 per share which
vests 100% after five years.
Includes 24,000 share held by Mr. Foshee’s spouse. Mr. Foshee disclaims beneficial ownership of such shares. Mr. Foshee has pledged 48,000
shares to Morgan Stanley and 39,500 shares to US Bank.
Includes an option to purchase 15,000 shares of common stock for $6.915 per share granted on February 10, 2014, which vested 100% on February
10, 2021. Includes 100,000 shares of common stock held in trust for the benefit of Mr. Rushing’s daughters.
Includes 182 shares held through Mr. Abbott’s 401(k) account.
Includes 15,000 shares obtainable within 60 days pursuant to the exercise of outstanding options..
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our Section 16 officers, directors and persons who own more than 10% of our common
stock to file reports of ownership and changes in ownership with the SEC. Messrs. Cashio, Filler, Fuller, Mettler and Smith and
Ms. Tuder each filed a late Form 4 on April 23, 2021, reporting awards made on April 19, 2021. Messrs. Clemmer and Vieira
each filed a late Form 4 on January 27, 2021.
PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION
As required under Section 14A of the Exchange Act, we provide our stockholders with an annual advisory vote on the
compensation of our named executive officers. In 2017, our stockholders approved an annual advisory vote. At the 2021 Annual
Meeting, approximately 97% of the votes cast (which excludes broker non-votes) were in approval of our executive compensation
program.
Our compensation committee reviewed the results of the advisory vote and did not implement any significant changes to our
executive compensation as a result of the say-on-pay advisory vote. The compensation committee recognizes that effective
practices evolve, and the committee will continue to consider changes as needed to keep our executive compensation program
competitive and tightly linked to performance. See “Compensation Discussion and Analysis” for a detailed discussion of our
executive compensation practices, philosophy and objectives.
Consistent with our stockholders’ preference and prevailing demand, we expect to hold an advisory vote on executive
compensation every year. This year, we are asking stockholders to approve the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers as disclosed in the Proxy
Statement for the 2022 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the
Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.
The advisory vote will not be binding on the compensation committee or the board of directors. However, they will carefully
consider the outcome of the vote and take into consideration any specific concerns raised by investors when determining future
compensation arrangements.
The Board of Directors Unanimously Recommends a Vote “FOR” the Resolution Approving the Compensation Paid to
Our Named Executive Officers.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 17
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis (CD&A)
This CD&A describes our executive compensation objectives and philosophy. It also describes our compensation program and
reviews the compensation outcomes for fiscal 2021. We are a bank holding company headquartered in Birmingham, Alabama.
Our Bank, founded in 2005, provides commercial banking services through offices located in Alabama, Georgia, South Carolina,
Tennessee and Florida. We operate our Bank using a simple business model based on organic loan and deposit growth, generated
through high quality customer service, delivered by a team of experienced bankers focused on developing and maintaining long-
term banking relationships with our target customers. Our strategy focuses on operating a limited and efficient branch network
with sizable aggregate balances of total loans and deposits housed in each branch office. We strive to translate this business
model and strategy into higher profits for our stockholders. Our compensation program is intended to incentivize our named
executive officers to pursue strategies and actions that promote both annual and longer-term value to stockholders, consistent
with the intention of our business model.
Named Executive Officers
• Thomas A. Broughton III, President and Chief Executive Officer
• Rodney E. Rushing, Executive Vice President and Chief Operating Officer
• William M. Foshee, Executive Vice President and Chief Financial Officer
• Henry F. Abbott, Senior Vice President and Chief Credit Officer
Each of our four named executive officers also held the same position with the Bank during fiscal 2021. Following the retirement
of our long-time Chief Operating Officer at the end of 2020, our Board and management determined not to promote any other
officer to serve as an executive officer of the Company. In accordance with Rule 3b-7 promulgated under the Securities Exchange
Act of 1934, as amended, our Board and management considered whether any of the executive officers of the Bank should be
included as a named executive officer. The Bank’s executive officers, other than our named executive officers, do not serve in
policy making roles, although our business model does provide for operational flexibility in our regional markets. All of our
policy making functions are handled by our named executive officers. Therefore, we have not included any of our Bank
executives as named executive officers.
All of our executive officers are employees of the Bank for payroll and tax purposes. Because both the Compensation Committee
and the Bank compensation committee consist of the same persons, as do both Boards of Directors, references herein to “our” or
“the” Compensation Committee will be deemed to refer to our Compensation Committee and/or the Bank’s compensation
committee, as applicable.
2021 Business Results
Net income available to common stockholders was $207.7 million for 2021, a 23% increase over net income of $169.6
million in 2020.
Diluted earnings per share were $3.82 for 2021, a 22% increase over 2020.
Total loans grew from $8.5 billion to $9.5 billion, or by 13%, during 2021.
Deposits grew from $9.98 billion to $12.45 billion year-over-year, or 25%.
18 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
The graph below shows our total shareholder return (actual stock price plus reinvestment of dividends – “TSR”) expressed as the
cumulative return to stockholders over the past five (5) years. As illustrated, a $100 investment in ServisFirst common stock on
December 31, 2016 would be valued at $233 as of December 31, 2021, outperforming the banking industry as measured by the
S&P 500 Financials Index and the KBW NASDAQ Bank Index (BKX).
Index:
ServisFirst Bancshares, Inc. ......
S&P 500 Financials ..................
KBW Bank ...............................
100.00
100.00
100.00
12/31/2016
Date
12/31/2017
111.26
120.02
116.25
12/31/2018
87.07
97.97
93.46
12/31/2019
103.89
133.72
123.50
12/31/2020
112.72
111.21
106.67
12/31/2021
232.67
147.12
144.05
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 19
2021 Compensation Changes
During 2020, our Compensation Committee retained McLagan (a division of Aon plc) as an independent compensation
consultant to conduct a comprehensive review of our compensation program. The objectives for this review, along with the
changes implemented to achieve such objectives, are set forth in the table below.
Compensation Program Objective
Changes Implemented for 2021
Mix of pay elements reflects current market practice
Added annual equity grants
Adopted performance-based annual incentive plan for
short-term compensation
Increase executive pay levels to be more in line with
market peer median, in order to attract and retain key
talent
Increased base salaries of named executive officers
Added time-based restricted stock awards
Adopted annual incentive plan for short-term
Emphasize performance-based and at-risk pay elements
compensation
Implemented performance-share grants with vesting
based on 3-year TSR performance compared with 2021
Peer Group
Adopted annual incentive plan with defined performance
goals for short-term compensation
McLagan’s review of our 2020 executive compensation structure revealed that base salaries, on average, were 26% below the
market median. Our executive cash compensation (base salary + annual incentive) and total direct compensation (base salary +
annual incentive + equity incentives) were, on average, 21% and 42%, respectively, below market medians. The changes
implemented for the 2021 fiscal year were designed to begin addressing the shortfall with respect to the median compensation
paid by our peers and to implement certain structural changes for future years. Our compensation structure is not intended to
“benchmark” the median of our 2021 Peer Group (as defined below), but rather to assist us in making sure our compensation
structure remains competitive. Structural changes also include the implementation of “double-trigger” change in control
protections for our named executive officers.
Allocation of Compensation Elements – Pay for Performance
For fiscal year 2021, an average of 36.6% of our named executive officers’ compensation was in annual short-term cash
incentives which, as described below, are performance-based awards. With the exception of Mr. Abbott, an average of 20% of
our named executive officers’ compensation consisted of long-term equity-based incentives, 50% of which are performance-
based. The following table illustrates the percentage of each named executive officer’s total compensation, as reported in the
“Summary Compensation Table,” related to base salary, annual short-term cash incentives and long-term equity-based incentives:
Named Executive Officer
Percentage of Total Compensation
(Fiscal Year 2021)(1)
Annual
Short
Term
Cash
Incentives
Equity-
Based
Incentives
Perquisites
and
Benefits
Annual
Base
Salary
Thomas A. Broughton III, Principal Executive Officer (“PEO”)
Rodney E. Rushing
William M. Foshee, Principal Financial Officer (“PFO”)
Henry F. Abbott
27%
43
43
53
46%
33
32
40
26%
20
20
-
2%
4
4
7
(1) Total percentages may not equal 100% due to rounding.
20 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Role of Compensation Committee
The Compensation Committee is responsible for the design, implementation and administration of the compensation programs
for our executive officers and directors. The Compensation Committee completed the following actions relative to 2021 executive
compensation:
• Reviewed and approved base salary increases based on materials provided by its compensation consultant.
• Reviewed and approved the 2021 compensation peer group.
• Reviewed and approved the adoption of the annual incentive plan and 2021 performance objectives.
• Reviewed and approved 2021 equity grants and performance criteria for performance share units.
• Reviewed contractual arrangements for named executive officers (“NEOs”).
• Reviewed the Company’s compensation philosophy.
• Determined annual awards for NEOs for 2021 performance and approved the payment of such awards in 2022.
No executive officers of the Company make any recommendations to the Compensation Committee or participate in any way
regarding the compensation of other executive officers, other than our President and Chief Executive Officer, Mr. Broughton.
The Compensation Committee consults with Mr. Broughton to gain a better insight into the performance of the executive team
as a basis for the Compensation Committee’s determinations regarding executive compensation. While the Compensation
Committee consults with Mr. Broughton, the Compensation Committee makes its decisions independently.
Role of Compensation Consultant
As permitted by the Compensation Committee charter, the Committee periodically engages an independent outside compensation
consultant to advise the Committee on executive compensation matters. In 2020, the Committee retained McLagan (a division
of Aon PLC) to provide executive compensation consulting services. Pursuant to the terms of its retention, McLagan reported
directly to the Compensation Committee, which retains sole authority to select, retain, terminate, and approve the fees and other
retention terms of its relationship with McLagan.
McLagan’s comprehensive review of our executive compensation program was intended to evaluate the continued
appropriateness of our compensation program as compared to certain peer companies, with the goal of ensuring that our pay
practices mature in tandem with our business. The Compensation Committee adopted changes to our compensation program for
the 2021 fiscal year in light of the recommendations provided by McLagan.
During 2021, McLagan assisted the Compensation Committee with the following:
• Reviewed the competitiveness of the Company’s current pay levels and practices for executive officers as compared
to that of market peers, including the 2021 Peer Group.
• Assisted the Committee with evaluation of its incentive programs for 2021.
• Assisted the Committee in its preparation of compensation disclosures as required under Regulation S-K with respect
to this proxy statement including this Compensation Discussion and Analysis and associated tables and disclosures
included herein by reference.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 21
The Committee evaluated McLagan’s analysis and recommendations alongside other factors when making compensation
decisions affecting our 2021 executive compensation.
In 2021, the Committee reviewed its relationship with McLagan. Considering all relevant factors, including those set forth in
Rule 10C-1(b)(4)(i) through (vi) under the Securities Exchange Act of 1934, as amended, the Committee determined that it is
not aware of any conflict of interest that has been raised by the work performed by McLagan.
Compensation Philosophy and Objectives
In order to recruit, retain and appropriately incentivize the most qualified and competent individuals as executive officers, we
strive to maintain a compensation program that not only is competitive in our market but that also provides our Compensation
Committee with the flexibility to determine incentive compensation using a commonsense approach. Our Compensation
Committee believes that the most effective executive compensation program is one that is designed to reward the achievement
of specific annual, long-term and strategic goals by us and the Bank, and which aligns executives’ interests with those of our
stockholders by rewarding performance, with the ultimate objective of improving stockholder value.
To reward both short- and long-term performance in the compensation program and in furtherance of our compensation objectives
noted above, our executive officer compensation philosophy includes the following principles:
Compensation should be related to performance. The Compensation Committee believes that a significant portion of an
executive officer’s compensation should be tied not only to individual performance, but also the Company’s performance
measured against both financial and non-financial goals and objectives.
Incentive compensation should represent a significant portion of an executive officer’s total compensation. The
Compensation Committee is committed to providing competitive compensation that reflects our performance and that of the
individual officer or employee.
Compensation levels should be competitive. The Compensation Committee reviews available data to ensure that our
compensation is competitive with that provided by other comparable companies. The Compensation Committee believes that
competitive compensation enhances our ability to attract and retain executive officers. As discussed above, our Compensation
Committee retained a compensation consultant during the 2020 fiscal year to complete a deep review of our compensation
structure in order to ensure that our compensation remains competitive. Following completion of this review, our Compensation
Committee approved a peer group for compensation purposes and utilized said peer group to determine compensation levels for
2021.
Incentive compensation should balance short-term and long-term performance. The Compensation Committee seeks to
achieve a balance between encouraging strong short-term annual results and ensuring our long-term viability and success. To
reinforce the importance of balancing these perspectives, executive officers generally will be provided both short- and long-term
incentives. As a result of the review of compensation competitiveness by McLagan, the Compensation Committee has adopted
short-term and long-term compensation plans for its executives in 2021. All short-term compensation awards are performance-
based, while long-term compensation awards are split between restricted stock awards and performance-based performance
shares.
Stockholder Approval
At the 2021 Annual Meeting, approximately 97% of the votes cast (which excludes broker non-votes) were in approval of our
executive compensation program. Our 2021 proxy statement included a brief discussion of the changes implemented for 2021,
highlighting our Compensation Committee’s intent to provide our named executive officers with market rate compensation linked
to performance. Our Compensation Committee reviewed the results of the advisory vote; however, the changes made to our 2021
executive compensation programs were made prior to the advisory vote and the Committee did not implement any additional
changes to our executive compensation as a result of the say-on-pay advisory vote. The Compensation Committee recognizes
that effective practices evolve, and the Committee will continue to consider changes as needed to keep our executive
compensation program competitive and tightly linked to performance.
22 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Elements of our Compensation Program
The following table outlines the major elements of 2021 total compensation for our executives:
Compensation
Element
Base Salary
Description and Purpose
Helps attract and retain executives
through periodic payments of
market-competitive base pay
Annual Short-Term
Incentives
Encourages achievement of
financial performance metrics that
create near-term stockholder value
Long-Term Equity
Incentive Awards
Aligns long-term interests of
executives and stockholders while
creating a retention incentive
through multi-year vesting
Change in Control
Agreements
Provides protection to our named
executive officers in the event we
are subject to a change in control.
Endorsement Split-
Dollar Agreements
Other Compensation
Bank-owned life insurance on
Messrs. Broughton, Rushing and
Foshee. Designed to provide a long-
term retention incentive for the
named executives, along with
generating a favorable return for the
Bank.
Dividend equivalents on restricted
stock units, limited perquisites and
health and welfare benefits on the
same basis as other employees
Link to Performance
Based on individual performance,
experience, and scope of
responsibility. Used to establish
cash and equity incentive award
opportunities
Ties the executive’s compensation
directly to factors that we believe
are important to the success of the
Company.
Performance metrics include loan
growth and earnings per share. Loan
growth is integral to the future
success of the Company, while
earnings per share aligns executive
pay with overall Company success.
Annual short-term incentives are
paid in cash.
Restricted stock awards are time-
vested over three years.
Performance share awards are
determined based on Company TSR
over a 3-year period as compared to
the custom 2021 Peer Group.
- -
- -
Fixed/
Performance
Based
Fixed
Short/Long-
Term
Short-Term
Performance
Based
Short-Term
Long-Term
Fixed &
Performance
Based
Fixed
Long-Term
Fixed
Long-Term
Dividend equivalents on restricted
stock units further enhance the
executive’s link to stockholders by
ensuring they share in the
distribution of income generated
from ongoing financial
performance.
Fixed &
Performance
Based
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 23
Key Compensation Policies and Supplemental Information
Robust Clawback Policy: In the event the Company is required to restate financial results, the Compensation Committee may
adjust future compensation, cancel outstanding stock or performance-based awards, or seek recoupment of previous awards from
Company officers.
Significant Executive Investment in Company Stock: Long-term stock ownership is deeply engrained in our culture, and it
reflects our Board’s strong commitment to the Company’s success. For more information, see “Corporate Governance—
Governance Practices—Stock Ownership of Board and Executives.”
Restrictions on Hedging or Pledging Company Stock: Executive officers and Directors of the Company are not permitted to
use options, contracts or other arrangements to hedge their holdings of Company stock. They also are prohibited from pledging
Company stock as security for loans without approval from our Insider Trading Compliance Officer. Historically, our Insider
Trading Compliance Officer has approved limited pledging arrangements in order to allow our executive officers to retain their
Company stock in light of our stock’s strong market performance since our initial public offering in 2014.
Chief Executive Officer Compensation
The compensation of Thomas A. Broughton III, our President and Chief Executive Officer, is discussed throughout the following
paragraphs. The Compensation Committee establishes Mr. Broughton’s compensation package each year with the intent of
providing compensation designed to retain Mr. Broughton’s services and motivate him to perform to the best of his abilities. Mr.
Broughton’s 2021 base salary and incentive compensation reflect the Compensation Committee’s and our Board’s determination
of the total compensation package necessary to meet this objective.
Peer Group Benchmarking
For 2021 compensation determinations, the Compensation Committee (with assistance from its independent compensation
consultant, McLagan (a division of Aon)) selected a benchmark group of publicly-traded financial institutions to use in assessing
the compensation of our executive officers and directors. The peer group data is used by our Compensation Committee as
information about pay levels and practices of similarly-sized financial institutions in the areas we compete for key talent. This
information guides our Compensation Committee in providing a competitive level of total compensation to our executive officers
while also maintaining “common sense” flexibility where necessary.
Our Compensation Committee utilized the following criteria to select a peer group for use in 2021 compensation, while also
giving consideration to whether the selected peers had business models compatible with the Company’s business model:
Total Assets between $5.25 - $20 billion (with one peer company at $21 billion in assets)
Not located in Mountain Pacific or Northeast regions
Located within a top 100 Metropolitan Statistical Area
Commercial loans comprise more than 60% of the total loan portfolio
24 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Our Compensation Committee also utilized a proprietary database from McLagan when making compensation determinations
for our Chief Credit Officer, Mr. Abbott. The 2021 benchmark group of publicly-traded financial institutions used to set 2021
compensation (the “2021 Peer Group”) included the following companies:
Company Name
Ticker City
State
Total Assets
LTM as of 9/30/2020
($000)
First Midwest Bancorp Inc.
Atlantic Union Bkshs Corp.
Ameris Bancorp
Independent Bk Group Inc.
First Financial Bancorp.
Trustmark Corp.1
TowneBank
WSFS Financial Corp.
Provident Financial Services
Sandy Spring Bancorp Inc.
Eagle Bancorp Inc
Veritex Holdings Inc.
Enterprise Financial Services
Amerant Bancorp Inc.
Lakeland Bancorp
ConnectOne Bancorp Inc.
Kearny Financial Corp.
Univest Financial Corp.
Allegiance Bancshares Inc.
Peapack-Gladstone Financial
Bryn Mawr Bank Corp.
IL
FMBI Chicago
AUB Richmond
VA
GA
ABCB Atlanta
IBTX McKinney
TX
OH
FFBC Cincinnati
MS
TRMK Jackson
VA
TOWN Portsmouth
WSFS Wilmington
DE
NJ
Jersey City
PFS
MD
SASR Olney
MD
EGBN Bethesda
TX
VBTX Dallas
MO
EFSC Clayton
FL
AMTB Coral Gables
LBAI Oak Ridge
NJ
CNOB Englewood Cliffs NJ
NJ
KRNY Fairfield
PA
UVSP Souderton
TX
ABTX Houston
NJ
PGC Bedminster
PA
BMTC Bryn Mawr
(1) Data shown for Trustmark Corp. reflects LTM as of 6/30/2020.
21,088,143
19,930,650
19,873,851
17,117,007
15,925,647
15,692,079
14,795,417
13,830,108
12,871,322
12,678,131
10,106,294
8,702,375
8,367,976
7,977,047
7,522,184
7,449,559
7,310,209
6,382,831
5,967,751
5,958,107
5,046,939
When determining compensation for our executive officers for 2021, our Compensation Committee considered the median range
of total compensation and components of compensation for the comparable roles within the 2021 Peer Group companies. As
discussed above, our Compensation Committee did not seek to set compensation at specific target levels as compared to the 2021
Peer Group. Instead, our Compensation Committee used the information provided by the 2021 Peer Group to assess
compensation levels and to provide a competitive level of total compensation for our executives.
Annual Base Salary
Our Compensation Committee endeavors to establish base salary levels for executives that are consistent and competitive with
those provided for similarly situated executives of other similar financial institutions, taking into account each executive’s areas
and level of responsibility.
Each of our named executive officers received an increase in their base salaries for 2021, effective as of their work anniversary
date. The base salaries of our named executive officers were, on average, 26% below the 2021 Peer Group median (or, in the
case of Mr. Abbott, the median for similar positions in the McLagan proprietary database). In Mr. Broughton’s case, his 2020
base salary was approximately 34% below the 2021 Peer Group median for a chief executive officer. The 2021 base salary
increases are intended to begin to align our NEO salaries with those of our peers, but we note that the increases were not sufficient
to bring any of these salary figures to the median of the 2021 Peer Group salary range.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 25
Named Executive Officer
2020
Annual Base
Salary
2021
Annual Base Salary
% Change
Thomas A. Broughton III, Principal Executive Officer (“PEO”)
Rodney E. Rushing
William M. Foshee, Principal Financial Officer (“PFO”)
Henry F. Abbott
$
525,000 $
327,000
300,000
195,000
675,000
375,000
340,000
225,000
29%
15%
13%
15%
Annual Incentive Compensation
In 2021, our Board and Compensation Committee adopted an annual incentive plan administered by the Committee. The adoption
of a performance-based annual incentive plan accomplished two goals: (1) tied short-term compensation for our named executive
officers to specific Company performance metrics; and (2) provided a mechanism for delivery of additional cash compensation
to our named executive officers in a manner that is recognized as a best practice in the market. The annual incentive plan provides
a framework for annual or short-term cash incentive award opportunities for our executive officers and key employees. Prior to
or shortly after the beginning of each performance period, our Compensation Committee establishes the specific performance
goals and designates each participant’s target award under the plan.
For 2021, each of our named executive officers was named as a participant in the annual incentive plan, with target awards
approved by the Committee as follows:
Named Executive Officer
Thomas A. Broughton III, Principal Executive Officer (“PEO”)
Rodney E. Rushing
William M. Foshee, Principal Financial Officer (“PFO”)
Henry F. Abbott
Performance Objectives
Target Award
(as a % of
base salary)
Target
Award
($)
105% $
50%
50%
50%
708,750
170,000
187,500
112,500
Our Compensation Committee utilized two performance objectives for the 2021 annual incentive plan: loan growth, excluding
Paycheck Protection Program (“PPP”) loans; and earnings per share. Our business model depends on organic loan growth, so
thirty percent (30%) of the total performance objective was weighted to loan growth. PPP loans were excluded from the
calculation of total loan growth so as not to skew the results based on a short-term government program. Our Compensation
Committee allocated 70% of the annual incentive to earnings per share in order to incentivize our named executive officers to
work towards results that directly benefit our stockholders in the near term. In order to balance the potential risk of incentivizing
annual loan growth, a credit quality modifier consisting of the ratio of nonperforming assets to total loans was utilized. While
growth under our organic business model depends upon loan growth, our annual incentive plan for 2021 was structured so that
loan growth incentives also include a component of careful analysis of credit quality when entering into new loan relationships.
26 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Our 2021 performance objectives for the annual incentive plan, the assigned weight for each performance objective and the
threshold, target and maximum performance level for each objective are set forth in the table below, along with our 2021 actual
performance:
Performance Objective
Loan Growth1
Earnings per Share
Overall
Weight
30%
70%
50%
Threshold
7%
$3.25
2021 Performance Levels
100%
Target
9%
$3.40
150%
Maximum
11%
$3.60
2021 Actual
23%
$3.86
[1] Loan growth excludes PPP loans. The table below summarizes the reconciliation of Total loans to Loans, excluding PPP loans,
for each of the years ending December 31, 2020 and December 31, 2021.
Total loans
Less PPP loans
Total loans, excluding PPP loans
Credit Quality Modifier and Discretionary Adjustments
For the Year Ended
December 31, 2020
For the Year Ended
December 31, 2021
(In Thousands)
$
$
8,465,688 $
900,493
7,565,195 $
9,532,934
230,184
9,302,750
Our annual incentive plan included a credit quality modifier based on the ratios of Non-performing Assets to Total Assets. The
below table sets forth the potential modifier based on the ratio achieved for 2021:
Credit Quality Modifier
NPAs/Total Assets
No Adjustment
<1.50%
50% Reduction
1.50%
75% Reduction
1.75%
100% Reduction
2.00%
2021 Actual
0.09%
Annual Incentive Plan Award Opportunities
The Compensation Committee established the annual incentive plan award opportunities for our named executive officers as a
percentage of base salary. Target award opportunities were designed to provide for total cash compensation that rewards
executives for successful achievement of growth in both loans and earnings per share while being competitive with total cash
compensation among our peers. The potential annual incentive award payments, expressed as a percentage of base salary, were
as follows:
Named Executive
Officer
Thomas A.
Broughton
Rodney E. Rushing
William M. Foshee
Henry F. Abbott
Threshold as
a % of Base
Salary (%)
52.5 %
Threshold
Incentive
Payment ($)
$354,375
Target as a %
of Base
Salary (%)
105
Target
Incentive
Payment ($)
$708,750
Maximum as
a % of Base
Salary (%)
157.5
Maximum
Incentive
Payment ($)
$1,063,125
25
25
25
93,750
85,000
56,250
50
50
50
187,500
170,000
112,500
75
75
75
281,250
255,000
168,750
Threshold, target and maximum incentive payments in the chart above are based on base salaries effective at year-end 2021.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 27
Annual Incentive Plan Award Payouts
The payout level under our annual incentive plan in 2021, based on actual results of the two performance objectives, was 150%
of the target payout level. We had a ratio of NPAs/Total Assets of 0.09% as of December 31, 2021, so there was no reduction of
annual incentive payments as a result of the credit quality modifier.
The Company enjoyed exceptional results for the year ended December 31, 2021, achieving more than twice the loan growth
required to attain the maximum performance level for loan growth and exceeding the maximum performance level for earnings
per share set for our 2021 annual incentive awards by more than 7%. In addition, our asset quality remained very high. Our
Compensation Committee and Board credit Mr. Broughton for the achievement of these exceptional results. As a result of these
outstanding results, our Board elected to exercise its discretion to increase Mr. Broughton’s maximum annual incentive award
by $100,000.
Named Executive Officer
Thomas A. Broughton(1)
Rodney E. Rushing
William M. Foshee
Henry F. Abbott
2021 Award ($)
$1,063,125
281,250
255,000
168,750
Award as %
of Target
150%
150
150
150
Award as % of
Base Salary
157.5%
75
75
75
(1) Mr. Broughton’s percentages are rounded to the nearest tenth of a percent. Mr. Broughton’s award does not include the additional $100,000 awarded by
the Compensation Committee as a discretionary bonus.
Equity-Based Incentive Compensation
Our Compensation Committee determined to begin making annual equity grants to our named executive officers in order to be
competitive with market best practices, to align executives with stockholders and to address potential retention concerns. Annual
equity-based incentive awards are composed 50% of time-based restricted stock grants and 50% of performance-based
performance share units. Time-based restricted stock awards are intended to aid in retention of our named executive officers,
while performance share awards reward our named executive officers for delivering total shareholder returns in the highest
percentile when compared against our peer companies.
On January 25, 2021, the Board approved the Committee’s grants of time-based restricted stock and performance share units for
2021. Given his 2020 grant, Mr. Abbott did not receive a grant for 2021, but will be eligible to receive a long-term incentive
award in future periods.
Named Executive Officer
Time-based
Restricted
Stock (#)
Fair Value
of 2021
Restricted
Stock Award
($)
Target
Performance
Share Units
(#)
Fair Value of
2021
Performance
Share Units
($)
Total
Target
Award
Value ($)
Thomas A. Broughton III, Principal
Executive Officer (“PEO”)
Rodney E. Rushing
William M. Foshee, Principal
Financial Officer (“PFO”)
8,267
2,187
1,983
$354,406
93,757
8,267
2,187
$306,292
81,028
$660,699
174,785
85,011
1,983
73,470
158,481
The time-based restricted stock vests one-third per year on the first three anniversaries of the grant date, provided that the
executive remains employed through the applicable vesting date. The performance shares represent the opportunity to earn shares
of our common stock after a three-year period, subject to the executive’s continued employment through the end of the
performance period.
The number of performance shares earned shall be determined by reference to the Company’s TSR relative to the 2021 Peer
Group set forth below over the performance period commencing on January 1, 2021 and ending on December 31, 2023 (the
“Performance Period”).
28 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Depending on our TSR percent rank relative to the 2021 Peer Group, our named executive officers may earn between 0% and
150% of the Target number of performance shares set forth in the above table corresponding to the Company’s attainment of the
TSR percent rank relative to the 2021 Peer Group as set forth in the table below on the last day of the Performance Period. The
named executive officers shall receive shares of our common stock with respect to the number of earned performance shares
(and related dividend equivalents thereon, which will be presumed to have been reinvested in shares of our common stock on
each ex-dividend date).
Performance
Level
Threshold
Target
Maximum
Company Percent
Rank Relative to 2021
Peer Group
35th Percentile
50th Percentile
75th Percentile
Number of
Performance
Shares Earned
50% of Target
100% of Target
150% of Target
The percentage of performance shares earned if our TSR Percent Rank Relative to the 2021 Peer Group is between Threshold
and Target or between Target and Maximum shall be determined by linear interpolation. Notwithstanding the foregoing, if our
TSR at the end of the Performance Period is negative, then the maximum number of performance shares that can be earned is the
Target number of performance shares, regardless of how our TSR compares to the 2021 Peer Group at the end of the Performance
Period. This mechanism is intended to prevent our named executive officers from receiving more than the Target number of
performance shares if our TSR at the end of the Performance Period is negative, even if such TSR exceeds 50% of our 2021 Peer
Group.
Our Stock Incentive Plan allows for the accelerated vesting of equity awards in the event of a change in control. In general, under
this Plan a “change in control” means a reorganization, merger or consolidation of the Company or the Bank with or into another
entity where our stockholders before the transaction own less than 50% of our combined voting power after the transaction, a
sale of all or substantially all of our assets or a purchase of more than 50% of the combined voting power of our outstanding
capital stock in a single transaction or a series of related transactions by one “person” (as that term is used in Section 13(d) of
the Exchange Act) or more than one person acting in concert.
Peer Group
The 2021 benchmark peer group used to determine 2021 performance share unit awards and assess the Company’s TSR
performance is the same 2021 Peer Group previously identified.
Change in Compensation Structure for 2022
Annual Base Salary. Our compensation consultant prepared a revised compensation study in December 2021, Our
Compensation Committee, following a review of such compensation study, approved base salary increases for each of our named
executive officers, effective as of their work anniversary date. The base salaries of our named executive officers remain below
peer group median and the increases below are intended to align the salaries of our named executives with competitive market
levels.
Named Executive Officer
2021
Annual Base
Salary
2022
Annual Base Salary
% Change
Thomas A. Broughton III, Principal Executive Officer (“PEO”)
Rodney E. Rushing
William M. Foshee, Principal Financial Officer (“PFO”)
Henry F. Abbott
$675,000
375,000
340,000
225,000
$700,000
400,000
350,000
232,000
3.7 %
6.7
2.9
3.1
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 29
Severance and Change in Control
Prior to 2021, only Mr. Foshee and our former chief operating officer had change in control severance agreements in place with
the company. All of our named executive officers are at-will employees and do not have employment agreements with the
Company. When reviewing the compensation of our named executive officers as compared with our 2021 Peer Group, we
determined that financial institutions in the markets in which we operate routinely enter into change in control agreements with
their named executives. We believe that reasonable severance benefits are appropriate to protect our named executive officers in
the event of a change in control. Given the prevalence of such agreements among our peers, we also view change in control
agreements as a benefit that will assist in our retention of our most talented officers.
As of February 25, 2021, we entered into Change in Control Agreements with each of our named executive officers. Each of
these agreements provides the officer with certain employment protections for a two-year period following a change in control
of the Company (the “Protected Period”). The Change in Control Agreements are “double-trigger” agreements, meaning that an
executive’s employment must be terminated during the Protected Period in order to receive benefits under the agreement. If the
officer’s employment is terminated during the Protected Period without Cause or by the officer with Good Reason (as those terms
are defined in the Change in Control Agreements), the officer would be entitled to receive, among other benefits: (1) a cash
severance payment equal to a specific multiple (2.99x for Mr. Broughton, 2x for each of Messrs. Foshee and Rushing, and 1.5x
for Mr. Abbott) of the sum of (a) the officer’s base salary at the time of termination, and (b) the average cash bonus paid to the
officer over the prior three years; and (2) a pro-rata bonus for the fiscal year in which the termination occurs. Each of the named
executive officers would also be entitled to receive a lump sum cash payment equal to 18 months’ worth of COBRA premiums,
based on the officer’s then-current coverage elections. In addition, certain pre-change in control terminations will be deemed to
constitute change in control terminations if such terminations occur at the request or direction of a person who has entered into
an agreement which would constitute a change in control upon consummation, or in connection with or anticipation of a change
in control transaction with such person, subject to certain conditions. See “Executive Compensation — Potential Payments Upon
Termination or Change in Control” for more information.
As a condition to receipt of any of the payments or benefits described herein, each named executive officer would be required to
execute a standard separation and release agreement containing a release of all claims, if any, against the Company within a 45-
day period following the officer’s termination date. Each named executive officer would also be subject to certain confidentiality,
non-competition and non-solicitation obligations and receipt of payments and benefits would be subject to the officer’s continued
compliance with such obligations. Our officers agree to maintain the confidentiality of our confidential information. For a period
of six months following such officer’s termination date, each of our officers has agreed to not engage in similar activities within
a sixty (60) mile radius of any Company office, and has further agreed to not solicit any Company employees or customers for a
period of one year following such officer’s termination date.
Our officers would not be entitled to any tax gross-ups for excise taxes that may be triggered under Sections 280G and 4999 of
the Internal Revenue Code of 1986, as amended. However, our officers are entitled to receive the “best net” treatment, which
means that if the total of all change in control payments due such officer exceeds the threshold that would trigger the imposition
of excise taxes, the officer will either (1) receive all payments and benefits due and the officer will be responsible for paying all
such taxes or (2) have such payments and benefits reduced such that imposition of the excise tax is no longer triggered, depending
on which method provides the officer with the better after-tax result.
Each Change in Control Agreement has an initial term of five (5) years from execution through December 31, 2025, but is subject
to additional five year “evergreen” renewal periods unless we provide written notice to the officer by June 30 of the final year in
the then current term.
Compensation Committee Report
The Compensation Committee of the Board of Directors of ServisFirst Bancshares, Inc. has reviewed and discussed the
Compensation Discussion and Analysis for the Company for the year ended December 31, 2021 with management. In reliance
on the reviews and discussions with management, the Compensation Committee recommended to the Board of Directors, and
the Board of Directors has approved, that the Compensation Discussion and Analysis be included in the required Company filings
with the SEC, including the Proxy Statement for the 2022 Annual Meeting of Stockholders.
30 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
The Compensation Committee Report shall not be deemed incorporated by reference in any document previously or subsequently
filed with the SEC that incorporates by reference all or any portion of this Proxy Statement.
Submitted by the Compensation Committee:
Hatton C.V. Smith, Chairman
J. Richard Cashio
James J. Filler
Christopher J. Mettler
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 31
Summary Compensation Table
The following table sets forth the aggregate compensation paid by us or the Bank to our named executive officers:
Name and Principal
Position Held
(a)
Year
(b)
Thomas A. Broughton III 2021
2020
President and Chief
2019
Executive Officer
Rodney E. Rushing
EVP and Chief
Operating Officer
2021
2020
2019
Stock
Awards (1)
(e)
($)
Salary
(c)
($)
Bonus
(d)
($)
675,000 100,000 660,699
525,000 938,000 20,022
525,000 575,000 20,022
364,477
327,000 222,000
327,000 132,000
174,785
-
-
-
William M. Foshee
EVP and Chief
Financial Officer
336,667
2021
2020
300,000 205,000
2019 300,000 125,000
158,481
-
-
-
Henry F. Abbott
SVP and Chief Credit
Officer
___________________
2021
2020
2019
-
217,500
195,000 60,000 50,009
195,000 40,000
-
-
Non-Equity
Incentive
Plan Comp
(2)
(g)
($)
1,063,125
-
-
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings
(h)
($)
-
-
-
Option
Awards
(f)
($)
-
-
-
-
-
-
-
-
-
-
-
-
281,250
-
-
255,000
-
-
168,750
-
-
-
-
-
-
-
-
-
-
-
All Other
Compensation(3)
(i)
($)
47,678 (4) 2,546,502
1,560,626
77,604
1,197,563
77,541
Total
(j)
($)
33,896
32,827
32,690
35,448
31,702
30,842
29,503
29,124
27,256
864,931
581,827
491,690
788,929
536,702
455,842
423,253
334,133
262,256
Amounts shown represent the grant date fair value of the grants of restricted stock under our 2009 Amended and Restated Stock Incentive Plan in
accordance with FASB ASC Topic 718 of awards made during 2021. Please refer to Note 13 (Employee and Director Benefits) in our 2021 Annual
Report on Form 10-K for a discussion of the assumptions used to calculate this amount. Awards that are subject to performance conditions are included
in the Summary Compensation Table assuming that target level performance conditions will be achieved. The following table summarizes the value of
the awards subject to performance conditions at the grant date assuming that the highest level of performance conditions is achieved:
Name
Thomas A. Broughton
Rodney E. Rushing
William M. Foshee
Represents amount awarded under our annual incentive plan. See Compensation Discussion & Analysis: Annual Incentive Compensation for
additional information regarding amounts earned in 2021.
The amounts in this column include the following for 2021:
Name
Grant Date Fair Value of Stock Awards; Highest Level of
Performance Conditions Achieved ($)
$459,420
121,524
110,187
Car
Allowance
Country Club
Allowance
Healthcare
Premiums
Employer
Contributions
to 401(k)
Plan
Imputed
Income for
Endorsement
Split-Dollar
Agreement
Group Life
and Long-
Term
Disability
Insurance
Premiums
$1,362
1,530
1,362
1,220
Thomas A. Broughton
$9,000
Rodney E. Rushing
9,000
William M. Foshee
9,000
Henry F. Abbott
5,400
Mr. Broughton’s spouse travels with him on business trips using the Company aircraft from time to time. The Company has determined that Mrs.
Broughton’s travel results in no additional incremental cost to the Company
$11,600
11,200
11,600
9,903
$8,180
-
-
3,520
$8,416
8,416
8,416
9,460
$9,120
3,750
5,070
-
Grants of Plan-Based Awards for Fiscal 2021
The following table summarizes each named executive officer’s 2021 annual incentive plan opportunity under the heading
Estimated Future Payouts Under Nonequity Incentive Plan Awards. Actual annual incentive plan amounts earned are set forth in
the Summary Compensation Table. See “Compensation Discussion and Analysis - Annual Incentive Compensation” for
additional information regarding 2021 objectives and performance.
32 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
(1)
(2)
(3)
(4)
The table also reflects equity incentive opportunities granted to our named executive officers in 2021. The threshold, target and
maximum number of performance share awards are summarized under the heading Estimated Future Payouts under Equity
Incentive Awards, while the heading All Other Stock Awards reflects time-based restricted stock awards. Our named executive
officers did not receive stock option awards during fiscal 2021. See Compensation Discussion and Analysis: Equity-Based
Incentive Compensation for additional detail.
Name
(a)
Grant
Date
(b)
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards ($)
Estimated Future Payouts
Under Equity Incentive
Plan Awards (#)
Threshold Target Maximum Threshold Target Maximum
All Other
Stock
Awards:
Number
of
Shares of
Stock or
Units (#)
(i)
Grant
Date
Fair
Value of
Stock
and
Option
Awards
($)
(j)
Thomas A. Broughton III (PEO)
1/25/21
$354,375 $708,750 $1,063,125
Rodney E. Rushing
1/25/21
1/25/21
$93,750 $187,500 $281,250
4,133
8,267
12,400
William M. Foshee (PFO)
1/25/21
1/25/21
1,093
2,187
3,280
Henry F. Abbott
$85,000 $170,000 $255,000
1/25/21
-
$56,250 $112,500 $168,750
991
1,983
2,974
8,267
$354,406
2,187
1,983
306,292
93,757
81,028
85,011
73,470
Outstanding Equity Awards at 2021 Fiscal Year-End
The below table details all outstanding equity awards as of December 31, 2021. All equity awards identified below were granted
under our 2009 Amended and Restated Stock Incentive Plan.
Option Awards
Stock Awards
Number of
securities
underlying
unexercised
options (#)
Exercisable
(b)
Number of
Securities
underlying
unexercised
options (#)
Unexercisable
(c)
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d)
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
(g)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
(h)
Option
exercise
price ($)
(e)
Option
expiration
date
(f)
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
(i)
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)
(j)
-
-
15,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
- $ 6.915 02/10/2024
-
-
-
-
-
-
-
- $
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,267
702,199
12,400 (5) 1,053,256
-
2,187
3,280 (5)
-
185,764
278,603
1,983
2,974 (5)
168,436
252,612
-
-
600 $ 50,964
1,527 129,703
-
-
-
-
Name
(a)
Thomas A.
Broughton III
(CEO) (1)
Rodney E.
Rushing (2)
William M.
Foshee (CFO) (3)
Henry F. Abbott
(4)
___________________
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 33
(1)
(2)
(3)
(4)
(5)
The award of 8,267 shares of restricted stock made to Mr. Broughton on January 25,2021 vests 1/3 per year on the first three anniversaries of the grant
date, provide the executive remains employed by the Company through the applicable vesting date. The market value of this restricted stock award is
based on $84.94 per share, the closing price of our common stock on December 31, 2021.
The option to purchase 15,000 shares at $6.915 per share granted to Mr. Rushing on February 10, 2014 vested 100% on February 10, 2021. Share
numbers and exercise price reflect 3-for-1 stock split that occurred on July 16, 2014 and 2-for-1 stock split that occurred on December 20, 2016. The
award of 2,187 shares of restricted stock made to Mr. Rushing on January 25,2021 vests 1/3 per year on the first three anniversaries of the grant date,
provide the executive remains employed by the Company through the applicable vesting date. The market value of this restricted stock award is based
on $84.94 per share, the closing price of our common stock on December 31, 2021.
The award of 1,983 shares of restricted stock made to Mr. Foshee on January 25,2021 vests 1/3 per year on the first three anniversaries of the grant
date, provide the executive remains employed by the Company through the applicable vesting date. The market value of this restricted stock award is
based on $84.94 per share, the closing price of our common stock on December 31, 2021.
The award of 600 shares of restricted stock made to Mr. Abbott on February 20, 2018 vests 100% on February 20, 2023. The award of 1,527 shares
made to Mr. Abbott on May 18, 2020 vests 100% on May 18, 2023. Share numbers and exercise price reflect 3-for-1 stock split that occurred on July
16, 2014 and 2-for-1 stock split that occurred on December 20, 2016. The market value of this restricted stock awards are based on $84.94 per share,
the closing price of our common stock on December 31, 2021.
Reflects performance shares for the performance period ending December 31, 2023. Performance shares are earned based on the Company’s TSR
relative to the 2021 Peer Group. The number of performance shares reported in this column assumes achievement at the maximum level for the
performance criteria based on performance through December 31, 2021.
Option Exercises and Stock Vested for Fiscal 2021
The following table sets forth information regarding option exercises by and restricted stock vesting for our named executive
officers during 2021:
Name
(a)
Thomas A. Broughton III(1)
Rodney E. Rushing
William M. Foshee
Henry F. Abbott(2)
___________________
Option Awards
Stock Awards
Number of
Shares Acquired
on Exercise (#)
(b)
Value Realized
on Exercise ($)
(c)
Number of Shares
Acquired
on Vesting (#)
(d)
Value Realized
on Vesting ($)
(e)
- $
-
-
2,000
-
-
-
123,370
655 $
-
-
-
41,691
-
-
-
(1)
(2)
On April 23, 2021, 655 shares of restricted stock vested. Based on a value of $63.65 per share, the closing price of the Company’s common stock on the
vesting date, the value realized by Mr. Broughton was $41,691.
Mr. Abbott exercised options for 2,000 shares at a price of $19.155 per share. Based upon a value of $80.84 per share, the closing price of the Company’s
common stock on the date of exercise, the value realized by Mr. Abbott on the exercise of such options was $123,370.
Pension Benefits
The Company does not maintain any benefit plan that provides for payments or other benefits at, following or in connection with
retirement, other than the Company’s 401(k) plan.
Nonqualified Deferred Compensation Plans
The Company does not maintain any defined contribution or other plans that provide for the deferral of compensation on a basis
that is not tax-qualified.
Chief Executive Officer Pay Ratio
Rules adopted by the SEC following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act require us to
provide a reasonable estimate of the ratio of the annual total compensation of our Chief Executive Officer to the median annual
total compensation of our employees. We identified our median employee in 2020 by comparing all salary, matching
contributions to our 401(k) plan, annual incentive compensation, bonus compensation, long-term incentive awards vested in 2020
and our payment of insurance premiums and provision of other perquisites, as reported to the Internal Revenue Service on Form
W-2 for 2020 for all of our employees (excluding our Chief Executive Officer) as of December 31, 2020. We believe there have
been no changes to our employee population or employee compensation arrangements that would result in a significant change
to our pay ratio disclosure and, therefore, we are using the same median employee identified as of December 31, 2020. As further
detailed in the paragraphs and Summary Compensation Table below, Mr. Broughton’s total annual compensation in fiscal 2021
was $2,546,502. The Company has determined that the annual compensation for its median employee for the same fiscal year
34 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
was approximately $79,900. Accordingly, we believe that the ratio of the annual total compensation of Mr. Broughton, our Chief
Executive Officer, to the median of the annual total compensation of all our employees in 2021 was 31.87 to 1.
Effect of Compensation Policies and Practices on Risk Management and Risk-Taking Incentives
There is inherent risk in the business of banking. However, we do not believe that any of our compensation policies and practices
provide incentives to our employees to take risks that are reasonably likely to have a material adverse effect on us. In particular,
we note that our annual incentive plan includes a credit quality modifier that operates to reduce annual incentive plan payments
by as much as 100% of the award amount if the Bank’s non-performing assets to total assets ratio exceeds certain thresholds. We
believe that our compensation policies and practices are consistent with those of similar bank holding companies and their
banking subsidiaries and are intended to encourage and reward performance that is consistent with sound practice in the industry.
Potential Payments Upon Termination or Change in Control
Change in Control Agreements
On February 25, 2021, the Compensation Committee approved the implementation of change in control protections for certain
of our officers, including each of our four NEOs. Each of the NEOs entered into a Change in Control Agreement effective as of
February 25, 2021. For Mr. Foshee, the Change in Control Agreement supersedes his prior change in control agreement.
Each Change in Control Agreement has an initial term of five (5) years (from the execution date through December 31, 2025)
but is subject to additional five-year “evergreen” renewal periods unless we provide written notice to the officer by June 30 of
the last year in the current term that we do not wish to extend the Change in Control Agreement beyond that term. The Change
in Control Agreement provides each officer with certain employment protections for a two-year period following a change in
control (the “Protected Period”). Notwithstanding the foregoing, certain pre-change in control terminations will also be treated
as change in control terminations as a result of agreements or negotiations regarding a change in control.
The term “change in control” is defined in these Change in Control Agreements as any of the following events:
•
•
• The consummation of a merger, consolidation or other corporate reorganization (other than a holding Company
reorganization) of either us or the Bank in which either entity does not survive, or if such entity survives, the equityholders
before such transaction do not own more than 40% of, respectively, (i) the equity securities of the surviving entity, and
(ii) the combined voting power of any other outstanding securities entitled to vote on the election of Directors of the
surviving entity;
the acquisition by any individual, entity or group of beneficial ownership of 50% or more of either (i) the then-outstanding
voting securities of either us or the Bank or (ii) the combined voting power of the then-outstanding voting securities of us
or the Bank entitled to vote generally in the election of Directors; provided, however, that the following shall not constitute
a change in control: (i) any acquisition of securities directly from us (other than a transaction that qualifies as a change in
control under another prong of this definition), (ii) any acquisition by us or any of our affiliates, or by any employee
benefit plan (or related trust) of us or our affiliates, or (iii) any acquisition by any corporation, entity, or group if, following
such acquisition, more than 50% of the then-outstanding voting rights of such corporation, entity or group are beneficially
owned by all or substantially all of the persons who were the owners of our common stock immediately prior to such
acquisition;
individuals who, as of the effective date of the Change in Control Agreement, constituted our incumbent Board cease for
any reason to constitute at least a majority of our Board of Directors, provided that any individual becoming a Director
subsequent to such date whose appointment or election, or nomination for election by our stockholders, was approved or
endorsed by a vote of at least a majority of the Directors then comprising the incumbent Board, shall be considered as
though such individual were a member of the incumbent Board, but excluding, for this purpose, any individual whose
initial assumption of office is in connection with an actual or threatened election contest relating to the election of our
Directors (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)t; or
approval by our stockholders of: (i) a complete liquidation or dissolution of the Bank, (ii) a complete liquidation or
dissolution of the Company, 0r (iii) the sale or other disposition of all or substantially all our assets, other than to a
corporation, with respect to which immediately following such sale or other disposition, more than 50% of, respectively,
(1) the then-outstanding equity securities of such corporation and (2) the combined voting power of the then-outstanding
voting securities of such corporation entitled to vote generally in the election of Directors, is then beneficially owned by
all or substantially all of the individuals and entities who were the beneficial owners, respectively, of our outstanding
common stock and our outstanding voting securities immediately prior to such sale or other disposition, in substantially
the same proportions as their ownership, immediately prior to such sale or disposition, of our outstanding common stock
and our outstanding securities, as the case may be.
•
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 35
If an NEO’s employment is terminated by us during the Protected Period without “cause” or by the NEO with “good reason” (as
those terms are defined in the Change in Control Agreement), the NEO will be entitled to receive certain payments and benefits.
Specifically, the NEO would be entitled to receive, among other benefits: (1) a cash severance payment equal to a specific
multiple (2.99x for Mr. Broughton, 2x for each of Messrs. Rushing and Foshee, and 1.5x for Mr. Abbott) of the sum of (a) the
NEO’s base salary in effect at the time of termination and (b) the average bonus paid to the NEO over the prior three years and
(2) a pro-rata cash bonus for the fiscal year in which the termination occurs. Each of Messrs. Broughton, Foshee and Rushing
would also be eligible to receive a lump sum cash payment equal to 18 months’ worth of COBRA premiums, based on the NEO’s
then-current coverage elections.
As a condition to receipt of any of the payments or benefits described herein, each named executive officer would be required to
execute a standard separation and release agreement containing a release of all claims, if any, against the Company within a 45-
day period following the officer’s termination date. Each named executive officer would also be subject to certain confidentiality,
non-competition and non-solicitation obligations and receipt of payments and benefits would be subject to the officer’s continued
compliance with such obligations. Our officers agree to maintain the confidentiality of our confidential information. For a period
of six months following such officer’s termination date, each of our officers has agreed to not engage in similar activities within
a sixty (60) mile radius of any Company office, and has further agreed to not solicit any Company employees or customers for a
period of one year following such officer’s termination date.
Under the Change in Control Agreements, the NEO would not be entitled to any tax gross-ups for excise taxes that may be
triggered under Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended. However, the NEO would be entitled
to receive the “best net” treatment, which means that if the total of all change in control payments due him exceeds the threshold
that would trigger the imposition of excise taxes, the NEO will either (1) receive all payments and benefits due him and be
responsible for paying all such taxes or (2) have his payments and benefits reduced such that imposition of the excise taxes is no
longer triggered, depending on which method provides him with the better after-tax result.
In addition to the cash payments set forth in the Change in Control Agreements, any stock options and restricted stock awards
granted to the specified NEO will immediately vest upon a change in control. Performance share awards shall vest assuming
Target performance for the performance period, but shall be prorated based on the number of days the executive worked during
the Performance Period through the change in control to the total number of days in the performance period.
36 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Endorsement Split-Dollar Agreements
On November 9, 2020, the Bank entered into endorsement split dollar agreements with each of Messrs. Broughton, Foshee and
Rushing. The agreements provide the executives with death benefits funded through Bank-owned life insurance policies. The
Bank solely owns all of the rights, title, and interest in the life insurance policy and will control all rights of ownership with
respect to the policy including, without limitation, the right to withdraw the cash value of such policy. The agreements provide
Mr. Broughton with a $3,000,000 death benefit endorsement, and each of Messrs. Foshee and Rushing with a $1,500,000 death
benefit endorsement. The amounts of the Bank-owned life insurance policies are sufficient to fund both the death benefit
endorsement to the executives’ beneficiaries and a complete return of all premiums paid on the policies to the Bank. The
executives’ beneficiaries designated in accordance with the terms of the agreements are entitled to the endorsed death benefit
amount from the proceeds of the insurance policies, provided each such executive remains employed by the Bank through the
earlier of (1) such executive’s date of death or (2) the second anniversary of the effective date of the agreements; provided,
however, if such executive terminates employment, other than due to death, during the period between the first and second
anniversaries of the effective date, such executive’s beneficiaries shall be entitled to fifty percent (50%) of the endorsed death
benefit amount.
The agreements will terminate immediately upon the first to occur of the following: (1) payment of the endorsed death benefit
in accordance with the terms of the agreements; or (2) termination of an executive’s employment for any reason, other than
death, prior to the first anniversary of the effective date.
Estimated Payments upon a Termination or Change in Control
The tables below contain the total payments one would receive under each termination scenario if the NEOs separated on
December 31, 2021. For all termination scenarios, the figures for long-term, equity-based incentive compensation awards are as
of December 31, 2021, at the closing stock price of $84.94 on that date. Terminations following a change in control are assumed
to be within the Protected Period and either without “cause” if the Company terminated the NEO or with “good reason” if the
NEO terminated employment.
Executive
Thomas A. Broughton III
Rodney E. Rushing
William M. Foshee
Henry F. Abbott
Termination Scenarios
Voluntary or
Without Cause
($)(1)
$
351,050
-
84,195
-
With
Cause
Death
($)(2)
Disability
($)(3)
- $ 4,053,249 $ 1,053,249
278,622
- 1,778,622
252,631
- 1,752,631
180,667
180,667
-
(1)
(2)
(3)
Amounts in this column include the amount of long-term, equity-based compensation each NEO is entitled to retain for meeting all retirement eligibility
criteria under outstanding award agreements. Neither Mr. Rushing nor Mr. Abbott met retirement eligibility criteria as of December 31, 2021.
Amounts in this column include benefits paid under the endorsement split-dollar agreements for Messrs. Broughton, Rushing and Foshee upon death
and the total amount of long-term, equity-based compensation each NEO is entitled either to retain or to have the vesting accelerated due to death.
Amounts in this column include the total amount of long-term, equity-based compensation each NEO is entitled either to retain or to have the vesting
accelerated due to disability.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 37
Termination Following a Change in Control Without Cause or for Good Reason
Executive
Cash
Severance(1)
($)
Unvested
Equity(2)
($)
Other
Benefits(3)
($)
Total(4)
($)
Thomas A. Broughton III
Rodney E. Rushing
William M. Foshee
Henry F. Abbott
$
5,361,746 $
1,386,582
1,267,000
574,953
936,209 $
247,600
224,496
180,667
21,460 $
21,866
21,866
21,866
6,319,415
1,656,048
1,513,362
777,486
(1)
(2)
(3)
(4)
Includes (1) a cash severance payment equal to a specific multiple (2.99x for Mr. Broughton, 2x for Messrs. Rushing and Foshee, and 1.5x for Mr.
Abbott of the sum of (a) base salary at the time of termination and (b) average cash bonus paid over the prior 3 years; and (2) a pro-rata cash bonus for
the fiscal year in which the termination occurs based on actual performance.
Restricted stock vests due to change in control; pro-rata portion of performance shares based on assumed target performance.
Lump sum cash payment equal to 18-months of COBRA premiums, based on the officer’s then-current coverage elections.
Subject to adjustment for “best net” treatment, which means that if the total of all change in control payments due an NEO exceeds the threshold that
would trigger the imposition of excise taxes, the NEO will either (1) receive all payments and benefits due him and be responsible for paying all such
taxes or (2) have his payments and benefits reduced such that imposition of the excise taxes is no longer triggered, depending on which method provides
him with the better after-tax result.
38 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
PROPOSAL 3: RATIFY APPOINTMENT OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Independent Registered Public Accounting Firm Fees
Subject to the ratification by our stockholders, our Board of directors intends to engage Dixon Hughes Goodman LLP as our
independent registered public accounting firm for the fiscal year ending December 31, 2022. Dixon Hughes Goodman LLP has
announced that it will merge with BKD LLP effective on June 1, 2022, with the name of the combined firm to be announced at
a later date.
The submission of this matter for ratification by stockholders is not legally required; however, our Board of directors believes
that such submission is consistent with best practices in corporate governance and affords stockholders an opportunity to provide
direct feedback to the directors on an important issue of corporate governance. A majority of the total votes cast at the Annual
Meeting, either in person or by proxy, will be required for the ratification of the appointment of the independent registered public
accounting firm. If our stockholders do not ratify the selection of Dixon Hughes Goodman LLP, the appointment of the
independent registered public accounting firm will be reconsidered by the Audit Committee and the Board of directors.
The Board of Directors Unanimously Recommends a Vote “FOR” the Ratification of Dixon Hughes Goodman LLP as
our Independent Registered Public Accounting Firm for the Year Ending December 31, 2022.
Independent Registered Public Accounting Firm
Our consolidated balance sheet as of December 31, 2021, and the related consolidated statements of income, comprehensive
income, stockholders’ equity and cash flows for the year ended December 31, 2021 have been audited by Dixon Hughes
Goodman LLP, our independent registered public accounting firm, as stated in their report appearing in our 2021 Annual Report
on Form 10-K. Dixon Hughes Goodman LLP was initially engaged as our independent registered public accounting firm on June
18, 2014. Representatives of Dixon Hughes Goodman LLP are expected to be in attendance at our Annual Meeting, will have
the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.
Audit and Non-Audit Services Pre-Approval Policy
The Audit Committee’s charter provides that the Audit Committee must pre-approve services to be performed by our independent
registered public accounting firm. In accordance with that requirement, the Audit Committee pre-approved the engagement of
Dixon Hughes Goodman LLP pursuant to which it provided the audit and audit-related services described below for the fiscal
year ended December 31, 2021. One hundred percent of the fees set forth below were pre-approved by the Audit Committee.
Dixon Hughes Goodman LLP
(1) Audit fees ...................................................................................................................... $
(2) Audit-related fees .......................................................................................................... $
(3) Tax fees ......................................................................................................................... $
(4) All other fees ................................................................................................................. $
___________________
2021
581,000 (1) $
66,400 (2) $
37,200 (3) $
1,500 (4) $
2020
594,040 (1)
64,700 (2)
36,000 (3)
11,825 (4)
(1) Consists of fees incurred in connection with the audit of the Company’s financial statements, real estate investment trusts, the review of quarterly
financial statements, and SEC filings.
(2) Consists of fees incurred in connection with the audit of the Company’s FHA lending program, 401(k) plan, and certain Tennessee public fund
pledging.
(3) Consists of fees incurred in connection with tax return filings for the year ended December 31, 2021 and 2020, respectively.
(4)
In 2021, consists of tax consultation related to tax credits. In 2020, consists of fees incurred in connection with research and consultation relating to
adoption of new accounting pronouncements, CARES Act implementation, and accounting for PPP loans and executive benefits.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 39
Audit Committee Report
The Audit Committee of the Board of directors of ServisFirst Bancshares, Inc. has reviewed and discussed the audited
consolidated financial statements of the Company and its subsidiary, ServisFirst Bank, with management of the Company and
Dixon Hughes Goodman LLP, independent registered public accountants for the Company for the year ended December 31,
2021. Management represented to the Audit Committee that the Company’s audited consolidated financial statements were
prepared in accordance with U.S. generally accepted accounting principles.
The Audit Committee has discussed with Dixon Hughes Goodman LLP the matters required to be discussed by the applicable
requirements of the PCAOB and the SEC. The Audit Committee has received the written disclosures and confirming letter from
Dixon Hughes Goodman LLP required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit
Committees,” and, in compliance with PCAOB Rule 3520, has discussed with Dixon Hughes Goodman LLP their independence
from the Company.
Based on these reviews and discussions with management of the Company and Dixon Hughes Goodman LLP referred to above,
the Audit Committee has recommended to our Board of directors that the audited consolidated financial statements of the
Company and its subsidiaries for the fiscal year ended December 31, 2021 be included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2021.
This Audit Committee Report shall not be deemed incorporated by reference in any document previously or subsequently filed
with the SEC that incorporates by reference all or any portion of this Proxy Statement.
Submitted by the Audit Committee:
Irma L. Tuder, Chairwoman
J. Richard Cashio
Michael D. Fuller
40 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
PROPOSAL 4: AMEND RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF SERVISFIRST’S
COMMON STOCK
Introduction
Our Board of directors unanimously approved a proposal to amend Article IV of our Restated Certificate of Incorporation (the
“Certificate”) to increase the number of shares of authorized common stock, $0.001 par value, from 100,000,000 to 200,000,000.
The approval by the Board is subject to the approval of such amendment by the holders of a majority of the issued and outstanding
shares of our common stock.
Under our Restated Certificate of Incorporation, we currently have authority to issue 100 million shares of common stock, par
value $.001 per share, of which 54,273,091 shares were issued and outstanding as of February 22, 2022. In addition, as of such
date, approximately 3,438,194 shares were reserved for issuance under our incentive compensation plans, under which options
to purchase a total of 326,750 shares and performance share awards for the issuance of up to 28,488 shares were outstanding.
After giving effect to such reserved shares, approximately 42,288,715 shares were available for issuance on such date.
Form of the Amendment
If our stockholders approve the amendment of our Certificate, Article IV of the Certificate will be amended to increase the
number of shares of common stock that the Company is authorized to issue from 100,000,000 to 200,000,000. There will be no
change in the number of authorized shares of preferred stock, which will remain at 1,000,000 shares. The amendment would
amend Article IV, Section 4.1 of our Certificate to read in its entirety as follows:
“Section 4.1 Authorization of Capital. The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue shall be Two Hundred One Million (201,000,000) shares, comprising
Two Hundred Million (200,000,000) shares of Common Stock, with a par value of $.001 per share, and One
Million (1,000,000) shares of Preferred Stock, with a par value of $.001 per share, as the Board of Directors
may decide to issue pursuant to Section 4.3, which constitutes a total authorized capital of all classes of capital
stock of Two Hundred One Thousand Dollars ($201,000.00).”
Purpose of the Amendment
Our Board of directors recommends that the stockholders approve the proposed amendment because it considers such amendment
to be in the best long-term and short-term interests of the Company, its stockholders and its other constituencies. The proposed
increase in the number of authorized shares of common stock will give the Company appropriate flexibility to issue shares for
future corporate needs, including, without limitation, financing, acquisitions, stock splits, stock dividends, stock incentive plans
and other corporate purposes. The shares may be issued by the Board in its discretion, subject to any further stockholder action
required in the case of any particular issuance by applicable law, regulatory agency, or under the applicable rules of any securities
exchange. The Board of directors believes that the availability of the additional shares for such purposes without delay or the
necessity for a special stockholders’ meeting (except as may be required by applicable law or regulatory authorities) will be
beneficial to the Company by providing it with the flexibility to consider and respond to future business opportunities and other
business needs as they arise. The availability of such additional shares will also enable us to act promptly when the Board of
directors determines that the issuance of additional shares of common stock, including in the form of a stock dividend or for
issuance in connection with an acquisition, is advisable. It is possible that shares of common stock may be issued at a time and
under circumstances that may increase or decrease earnings per share and increase or decrease the book value per share of shares
currently outstanding.
We do not have any immediate plans, agreements, arrangements, commitments or understandings with respect to the issuance of
any additional shares of our common stock that would be authorized upon approval of the proposed amendment. However, as
described above, we currently do not have sufficient authorized but unissued shares to effect a two-for-one stock split in the form
of a stock dividend. If the proposed amendment is not approved, our flexibility to pursue such a stock split and any potential
future transactions and compensation arrangements involving our stock will be limited.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 41
Rights of Additional Authorized Shares; No Preemptive Rights
The additional authorized shares of our common stock contemplated by the amendment, if and when issued, would be part of the
existing class of common stock and would have the same rights and privileges as the shares of our common stock currently
outstanding. There are no preemptive rights with respect to our common stock. Accordingly, should the Board of directors elect
to issue additional shares of common stock, our current stockholders would not have any preferential rights to purchase the
shares.
Potential Adverse Effects of the Amendment
If the amendment to our Certificate is adopted, the additional authorized shares of common stock can be issued or reserved with
approval of the Board or a committee thereof, as applicable, at times, in amounts, and upon terms that the Board or a committee
thereof, as applicable, may determine, subject to any further stockholder action required in the case of any particular issuance by
applicable law, regulatory agency, or under the applicable rules of any securities exchange. Future issuances of our common
stock, or securities convertible into our common stock, could have a dilutive effect on the earnings per share, book value per
share, voting power and percentage interest of holdings of our existing stockholders.
Potential Anti-Takeover Effects
The amendment to our Certificate, if adopted, could adversely affect the ability of third parties to effect a takeover or a change
in control by, for example, permitting issuances that would dilute the ownership of a person seeking to effect a change in the
composition of our Board or contemplating a tender offer or other transaction that the Board determines is not in our best interest
or the best interest of our stockholders. The Board’s ability to issue substantial amounts of our common stock (generally without
stockholder approval, subject to laws, regulations or NYSE rules that might require such approval), upon such terms and
conditions and the Board may determine, may, among other things, be used to create voting impediments with respect to a change
in control or to dilute the stock ownership of stockholders seeking to take control of the Company. Our Board, however, does
not intend or view the amendment to our Certificate as an anti-takeover measure, nor does it contemplate its use in such a manner
in the foreseeable future.
The Board of Directors Unanimously Recommends that Stockholders Vote “FOR” the Adoption of the Amendment to
the Restated Certificate of Incorporation to Increase the Number of Shares of Authorized Common Stock.
42 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
GENERAL INFORMATION
Other Business
As of the date of this Proxy Statement, the Board of directors does not know of any other business to be presented for
consideration or action at the Annual Meeting, other than that stated in the notice of the Annual Meeting. If other matters properly
come before the Annual Meeting, the persons named in the accompanying form of proxy will vote thereon in their best judgment.
Questions and Answers About the 2022 Annual Meeting and Voting
What is a proxy?
It is your legal designation of another person to vote the stock you own. The person so designated is called a proxy. If you
designate someone as your proxy in a written document, that document is called a proxy or a proxy card. We have designated
Thomas A. Broughton III and William M. Foshee (the “management proxies”) as proxies for the 2022 Annual Meeting of
Stockholders.
What are the purposes of the Annual Meeting?
At the Annual Meeting, stockholders will vote on: (1) the election of seven directors; (2) an advisory vote on our executive
compensation; (3) the ratification of Dixon Hughes Goodman LLP as our independent public accounting firm for the year ending
December 31, 2022; (4) the approval of the amendment to our Restated Certificate of Incorporation to increase the number of
authorized shares of our common stock; and (5) such other business as may properly come before the Annual Meeting. Our
Board of directors is not aware of any matters that will be brought before the Annual Meeting, other than procedural matters,
that are not listed above. However, if any other matters properly come before the Annual Meeting, the individuals named on the
proxy card, or their substitutes, will be authorized to vote on those matters in their own judgment.
How do I receive a printed copy of proxy materials?
To request a printed copy of the proxy materials, please call 1-866-641-4276, visit www.investorvote.com/SFBS or email
investorvote@computershare.com with “Proxy Materials ServisFirst Bancshares, Inc.” in the subject line. To make your request,
you will need the 15-digit control number printed on your Notice of Internet Availability of Proxy Materials or proxy card.
How may I attend the Annual Meeting virtually?
To access the Annual Meeting virtually, please click the virtual meeting link: meetnow.global/M9MK7FJ. There are two options
when logging in to the virtual meeting: Join as a “Guest” or Join as a “Stockholder”. When joining a “Stockholder” a control
number will be required.
Anyone may attend the virtual stockholder meeting as a guest, but will not have the option to vote shares during the meeting or
ask questions.
You may vote during the Annual Meeting when attending virtually by providing their control number and following instructions
available on the virtual meeting website during the meeting. For registered stockholders, the control number can be found on the
proxy card or notice. If shares of common stock are held through an intermediary, such as a bank or broker, you must register in
advance to attend the Annual Meeting virtually as a stockholder. For instructions on how to register to attend and vote virtually
when you hold your shares in a brokerage account or in your broker’s or another nominee’s name, see “How do I vote?” below.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 43
Who is entitled to vote?
Stockholders of record at the close of business on March 8, 2022, the record date for the Annual Meeting, are entitled to receive
notice of the Annual Meeting and to vote shares of common stock held as of the record date at the Annual Meeting. As of the
record date, 54,280,382 shares of our common stock were outstanding and entitled to vote. Each outstanding share of common
stock entitles its holder to cast one vote on each matter to be voted upon. There are no cumulative voting rights.
How do I vote?
If you hold your shares in a brokerage account in your broker’s or another nominee’s name (held in “street name”), you are a
beneficial owner and you should follow the voting directions provided by your broker or nominee:
• You may complete and mail a voting instruction form to your broker or nominee.
•
If your broker allows, you may submit voting instructions by telephone or the Internet.
• You may use a mobile device, scanning the QR barcode on your voter instruction form or Notice of Internet Availability
of Proxy Materials and following the prompts that appear on your mobile device.
• You may cast your vote at the virtual meeting, but you must register in advance to attend the Annual Meeting virtually
as a stockholder. To register, you must submit proof of proxy power (legal proxy) reflecting your Company
stockholdings along with your name and email address to Computershare. Requests for registration must be labeled as
“Legal Proxy” and be received no later than 4:00 p.m., Central Time, on April 28, 2022. Registered stockholders will
receive an email from Computershare confirming registration.
By mail: Requests for registration should be directed to Computershare at the following address:
Computershare
ServisFirst Bancshares, Inc. Legal Proxy
P.O. Box 43001
Providence, RI 02940-3001
By email:
Forward the broker provided email, or attach an image of the legal proxy, to legalproxy@computershare.com.
If you hold your shares in your own name as a holder of record with our transfer agent, Computershare, you are a “stockholder
of record” and may vote using any of the following methods:
• By going to the website www.investorvote.com/SFBS and following the instructions for Internet voting on the proxy
card or Notice of Internet Availability of Proxy Materials that you received in the mail. You will need the 15-digit
control number printed therein. You may also access instructions for telephone voting on the website.
• By using your mobile device to scan the QR barcode on your proxy card or Notice of Internet Availability of Proxy
Materials and following the prompts that appear on your mobile device.
•
If you received a printed copy of the proxy materials, by completing and mailing your proxy card in the prepaid return
envelope, or if you reside in the United States or Canada, by dialing 1-800-652-8683 and following the instructions for
telephone voting provided by the recorded message at that number. You will need your 15-digit control number printed
on your proxy card.
• By casting your vote virtually at the 2022 Annual Meeting. You may vote during the Annual Meeting when attending
virtually by providing your control number and following instructions available on the virtual meeting website during
the meeting. For registered stockholders, the control number can be found on your proxy card or notice.
44 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
If you invest in our common stock through the Company stock fund in the ServisFirst Bank 401(k) Profit Sharing Plan and Trust,
you will receive instructions for submitting your voting directions from the 401(k) plan’s administrator, Lincoln Financial. The
401(k) plan’s trustees will vote shares held by the 401(k) plan in accordance with the tabulation. Any shares for which the trustees
do not received timely voting directions will be voted by the trustees in proportion to the shares for which directions were actually
received. To allow the trustees sufficient time to process voting directions, the voting deadline for 401(k) plan participants is
5:00 p.m., Central Time, on May 2, 2022.
What if I change my mind after I vote my shares?
You can revoke or change your proxy at any time before it is voted at the 2022 Annual Meeting.
If you hold your shares in a brokerage account in your broker’s or another nominee’s name (“street name”), you may revoke or
change your vote:
• Via telephone or Internet, using the voting directions provided by your broker or nominee; or
• By casting your vote at the virtual meeting, but you must register in advance to attend the Annual Meeting virtually as
a stockholder. You can find registration instructions above under “How do I vote?”. Attendance at the virtual meeting
will not revoke any proxy you have previously granted unless you specifically so request.
If you are a registered stockholder, you may revoke or change your vote by:
• Voting by telephone or the Internet, using the voting directions provided on the proxy card or Notice of Internet
Availability of Proxy Materials that you received in the mail;
• Notifying our Secretary, William M. Foshee, in writing;
•
Sending another executed proxy card dated later than the first proxy card; or
• Voting virtually at the 2022 Annual Meeting. Attendance at the Annual Meeting will not revoke any proxy you have
previously granted unless you specifically so request.
If you invest in our common stock through the Company stock fund in the ServisFirst Bank 401(k) Profit Sharing Plan and Trust,
you may revoke or change your vote by following the instructions provided by the 401(k) plan’s administrator, Lincoln Financial.
To allow the trustees sufficient time to process voting directions, the deadline for 401(k) plan participants to revoke or change
their voting directions is 5:00 p.m., Central Time, on May 2, 2022.
How many shares must be present to hold the 2022 Annual Meeting?
More than one-half of the Company’s outstanding common stock as of the record date must be represented at the 2022 Annual
Meeting in person, virtually or by proxy in order to hold the Annual Meeting. This is called a quorum. We will count your shares
as present at the Annual Meeting if you:
• Are present and vote virtually at the Annual Meeting;
• Have properly submitted a proxy card or a voter instruction form, or voted by telephone or the Internet on a timely basis;
or
• Hold your shares through a broker or otherwise in street name, and your broker uses its discretionary authority to vote
your shares on Proposal Number 3.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 45
As of the record date, 54,280,382 shares of our common stock, $0.001 par value per share, held by 474 stockholders of record,
were issued and outstanding. Proxies received but marked as abstentions will be included in the calculation of the number of
shares considered to be present at the Annual Meeting.
How many votes are needed to approve each item?
Directors are elected by a plurality of the votes cast. A “plurality vote” means that the winning candidate only needs to get more
votes than a competing candidate. If a director runs unopposed, he or she only needs one vote to be elected. However, if any
nominee for director receives a greater number of “withhold” votes than votes “for” such election, our director resignation policy
requires that such person must promptly tender his resignation to the Chairman of our Board following certification of the Annual
Meeting results.
The amendment to our Restricted Certificate of Incorporation requires approval by the holders of a majority of the issued and
outstanding shares of our common stock.
Any other matter that may properly come before the Annual Meeting must be approved by the affirmative vote of a majority of
the shares entitled to vote that are present or represented by proxy at the Annual Meeting.
What is the effect of an “abstain” vote or a “broker non-vote” on the proposals?
Under the General Corporation Law of the State of Delaware, an abstention from voting on any proposal will have the same legal
effect as an “against” vote, except election of directors, where an abstention has no effect under plurality voting.
A “broker non-vote” occurs if your shares are not registered in your name (that is, you hold your shares in “street name”) and
you do not provide the record holder of your shares (usually a bank, broker or other nominee) with voting instructions on any
matter as to which a broker may not vote without instructions from you, but the broker nevertheless provides a proxy for your
shares. Shares as to which a “broker non-vote” occurs are considered present for purposes of determining whether a quorum
exists, but are not considered votes cast or shares entitled to vote with respect to a voting matter. The election of directors, the
approval of an amendment of our Restated Certificate of Incorporation, and the advisory vote on executive compensation are
considered “non-routine” matters on which a broker may not vote without your instructions. The ratification of the appointment
of Dixon Hughes Goodman LLP as our independent registered public accounting firm is a “routine” matter, and brokers who do
not receive instructions from you on how to vote on that matter generally may vote on that matter in their discretion.
Broker non-votes are not counted as “for” or “against” Proposal 3, the advisory vote on executive compensation. Because a
majority of shares outstanding and entitled to vote is required for approval of the amendment of our Restated Certificate of
Incorporation, abstentions, broker non-votes and shares not voted at the Annual Meeting will have the same effect as votes
“AGAINST” Proposal 4.
Why did I receive a “Notice Regarding the Availability of Proxy Materials” but no proxy materials?
We distribute our proxy materials to stockholders via the Internet under the “Notice and Access” approach permitted by the rules
of the SEC. This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient
method of accessing the materials and voting. On or about March 21, 2022, we mailed a “Notice Regarding the Availability of
Proxy Materials” to stockholders, containing instructions on how to access the proxy materials on the Internet.
What are the Board’s recommendations?
Our Board of directors unanimously recommends that stockholders vote your shares: (1) “FOR” the election of the seven
nominees for the Board of directors, as more fully described in Proposal 1; (2) “FOR” the proposal regarding an advisory vote
on executive compensation, as more fully described in Proposal 2; (3) “FOR” the ratification of Dixon Hughes Goodman LLP
as our independent registered public accounting firm for 2022, as more fully described in Proposal 3; and (4) “FOR” the
amendment of our Restated Certificate of Incorporation, as more fully described in Proposal 4.
46 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
If you timely submit voting instructions by telephone or by Internet, or if your proxy card is properly executed and received in
time for voting, and not revoked, your shares will be voted in accordance with your instructions. In the absence of any instructions
or directions to the contrary on any proposal on a proxy card, the management proxies will vote all shares of common stock for
which such proxy cards have been received “for” Proposals 1, 2, 3 and 4.
Our Board of directors does not know of any matters other than the above proposals that may be brought before the Annual
Meeting. If any other matters should come before the Annual Meeting, the management proxies will have discretionary authority
to vote all proxies not marked to the contrary with respect to such matters in accordance with their best judgment.
In particular, the management proxies will have discretionary authority to vote with respect to the following matters that may
come before the Annual Meeting: (i) approval of the minutes of the prior meeting if such approval does not amount to ratification
of the action or actions taken at that meeting; (ii) any proposal omitted from the Proxy Statement and form of proxy pursuant to
Rules 14a-8 and 14a-9 under the Exchange Act; and (iii) matters incident to the conduct of the Annual Meeting. In connection
with such matters, the management proxies will vote in accordance with their best judgment.
What if I share an address and a last name with other Company stockholders?
To reduce the expenses of delivering duplicate proxy materials to stockholders, we are relying upon SEC “householding” rules
that permit delivery of only one set of applicable proxy materials to multiple stockholders who share an address and have the
same last name, unless we receive contrary instructions from any stockholder at that address. Stockholders of record who have
the same address and last name and have not previously requested electronic delivery of proxy materials will receive a single
envelope containing the notices or the proxy statement and proxy card for all stockholders having that address. The notice or
proxy card for each stockholder will include that stockholder’s unique control number needed to vote his or her shares. This
procedure reduces our printing costs and postage fees. If, in the future, you do not wish to participate in householding and prefer
to receive your Notice or Proxy Statement in a separate envelope, or if your household currently receives more than one Notice
or Proxy Statement and in the future, you would prefer to participate in householding, please call (205) 949-0307, or inform us
in writing at: ServisFirst Bancshares, Inc., 2500 Woodcrest Place, Birmingham, Alabama 35209, Attn: William M. Foshee,
Secretary. Requests will be responded to promptly.
For those stockholders who have the same address and last name and who request to receive a printed copy of the proxy materials
by mail, we will send only one copy of such materials to each address unless one or more of those stockholders notifies us, in
the same manner described above, that the stockholder(s) wish to receive a printed copy for each stockholder at that address.
Beneficial stockholders can request information about householding from their banks, brokers, or other holders of record.
Who pays for this proxy solicitation?
We do. We are making this proxy solicitation and will pay all costs in connection with the meeting, including the cost of
preparing, assembling and, as applicable, mailing the Notice of the Annual Meeting, Proxy Statement, proxy card and our Annual
Report to Stockholders for the year ended December 31, 2021, as well as handling and tabulating the proxies returned. In addition,
proxies may be solicited by directors, officers and regular employees of the Company, without additional compensation, in person
or by other electronic means. We will reimburse brokerage houses and other nominees for their expenses in forwarding proxy
materials to beneficial owners of our common stock.
SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement 47
Who can help answer your questions?
If you have questions about the Annual Meeting, you should contact our Secretary, William M. Foshee, 2500 Woodcrest Place,
Birmingham, Alabama 35209, telephone (205) 949-0307.
Annual Report on Form 10-K
On written request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year ended December
31, 2021 (including a list briefly describing the exhibits thereto), as filed with the SEC (including any amendments filed with the
SEC), to any record holder or beneficial owner of our common stock as of the close of business on March 8, 2022, the record
date, or to any person who subsequently becomes such a record holder or beneficial owner. Requests should be directed to the
attention of our Secretary at the address set forth above.
Stockholder Proposals
Under Exchange Act Rule 14a-8, any stockholder desiring to submit a proposal for inclusion in our proxy materials for our 2023
Annual Meeting of Stockholders must provide the Company with a written copy of that proposal by no later than November 21,
2022, which is 120 days before the first anniversary of the date on which the Company’s proxy materials for the 2022 Annual
Meeting were first made available to stockholders. However, if the date of our Annual Meeting in 2023 changes by more than
30 days from the date of our 2022 Annual Meeting, then the deadline would be a reasonable time before we begin distributing
our proxy materials for our 2023 Annual Meeting. Matters pertaining to such proposals, including the number and length thereof,
eligibility of persons entitled to have such proposals included and other aspects are governed by the Exchange Act and the rules
of the SEC thereunder and other laws and regulations, to which interested stockholders should refer.
If a stockholder desires to bring other business before the 2023 Annual Meeting without including such proposal in the
Company’s proxy statement, the stockholder must notify the Company in writing on or before February 3, 2023.
Our CG&N Committee will consider nominees for election to our Board of directors. See “Corporate Governance—Board
Committees and Their Functions—Corporate Governance and Nominations Committee” for details to be included in any such
nomination. Nominations should be submitted in a timely manner in care of our Chief Financial Officer. Generally, we will
consider nominations to be timely if submitted no later than the date a stockholder must submit a proposal for inclusion in our
proxy materials.
Solicitation of Proxies
Our Board of directors solicits the accompanying proxy for use at our Annual Meeting of Stockholders to be held on May 6,
2022, at 8 a.m., Central Daylight Time, held virtually via live webcast on the Internet at meetnow.global/M9MK7FJ. The Notice
of Annual Meeting of Stockholders and this Proxy Statement are being made available on or about March 21, 2022 to our
stockholders of record as of the close of business on March 8, 2022, the record date for the Annual Meeting.
Our corporate headquarters is located at 2500 Woodcrest Place, Birmingham, Alabama 35209 and our toll free telephone number
is (866) 317-0810.
By Order of the Board of Directors
SERVISFIRST BANCSHARES, INC.
William M. Foshee
Secretary and Chief Financial Officer
Birmingham, Alabama
March 21, 2022
48 SERVISFIRST BANCSHARES, INC. – Notice of 2022 Annual Meeting of Stockholders and Proxy Statement
Our Name is Our Mission
2021 Annual Report
ServisFirst Bank
www.servisfirstbank.com
ServisFirst Bancshares
www.servisfirstbancshares.com
Atlanta ▪ Birmingham ▪ Charleston ▪ Dothan ▪ Huntsville ▪ Mobile ▪ Montgomery ▪ Nashville ▪ Northwest Florida ▪ West Central Florida
March 2022
Dear Fellow Stockholder,
The year 2021 was a year of significant progress by your company in growth and profitability. The government introduced another
round of Paycheck Protection Program, and our bankers did a great job of executing not only for our customers but many new customers
as well. For a company that is still regarded as a “new bank,” this was an opportunity to significantly enhance our reputation for service
in the communities we serve.
We had record loan growth in 2021 with broad based growth in most of our regions. Much of this growth was in commercial real estate
as we have not seen a rebound in commercial and industrial loan demand since the pandemic began in the first quarter of 2020.
Our deposit growth in 2021 was historic as well, as we continue to see deposit inflows as we have since the pandemic started. Customers
were looking for a very strong bank during uncertain times and we were the beneficiary. Our deposits have grown 59% since the
pandemic began. We have significant excess liquidity to invest in government securities and continue to fund loan growth. Our strategy
on securities purchases has been to consistently purchase bonds each month since the fall of 2021 and will continue this program for the
foreseeable future. While the bank could immediately make a large purchase of bonds and lead to an immediate increase in income, it
would potentially expose us to a decline in market value of these securities in a rising rate environment. We are unaware of anyone who
has ever had the ability to predict the direction of interest rates, and we certainly do not, so we strive to grow earnings per share in any
rate environment.
Your Board increased the cash dividend by 15% from $0.20 to $0.23 per share for the January 2022 dividend. Our goal is to consistently
raise the dividend at a sustainable level that still allows us to fund our growth from internal funds without dilutive capital raises. We
have paid a quarterly dividend since just prior to our initial public offering, with the first paid in April 2014. Our book value per share
continued to compound as it grew by 15% in 2021 to $21.24 a share. After our IPO, we had a number of people comment that they
wished they could have purchased the stock when the bank was founded in 2005 and implying that there was no more opportunity to
see the stock grow in value. From our founding in May 2005 to the IPO in May 2014 (nine years) our stock grew from $10 to $91 per
share. In the less than 8 years since the IPO our stock (pre 6 for 1 split) has grown in value from $91 a share to $537 per share as of
March 14, 2022.
The bank’s officers, employees, and directors will continue to focus on growing your investment. We would appreciate any referrals of
new customers for the bank as referrals from customers and stockholders are our primary sources of growth.
We appreciate your investment in our Company.
Sincerely,
Thomas A. Broughton III
Chairman of the Board of Directors
President and Chief Executive Officer
Total Return Performance
ServisFirst Bancshares, Inc.
S&P 600
S&P 600 Financials
250
200
150
100
50
e
u
l
a
V
x
e
d
n
I
0
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
Index:
ServisFirst Bancshares, Inc. ...
S&P 600 .................................
S&P 600 Financials ...............
12/31/2016
100.00
100.00
100.00
12/31/2017
111.26
111.73
104.31
12/31/2018
87.07
100.83
95.40
12/31/2019
103.89
121.87
111.60
12/31/2020
112.72
133.53
98.96
12/31/2021
232.67
167.28
122.86
Date
Selected Balance Sheet Data:
Total Assets.......................................................
Total Loans .......................................................
Loans, net ..........................................................
Securities available for sale ..............................
Securities held to maturity ................................
Cash and due from banks ..................................
Interest-bearing balances with banks ...............
Federal funds sold .............................................
Mortgage loans held for sale ............................
Premises and equipment, net ............................
Deposits ............................................................
Federal funds purchased ...................................
Other borrowings ..............................................
Other liabilities .................................................
Stockholders' Equity .........................................
Selected Income Statement Data:
Interest income ..................................................
Interest expense ................................................
Net interest income ...........................................
Provision for credit losses.................................
Net interest income after provision for credit
losses .................................................................
Noninterest income ...........................................
Noninterest expense ..........................................
Income before income taxes .............................
Income tax expense...........................................
Net income ........................................................
Net income available to common stockholders
Per Common Share Data:
Net income, basic ..............................................
Net income, diluted ...........................................
Book value ........................................................
Weighted average shares outstanding:
Basic ..................................................................
Diluted ..............................................................
Actual shares outstanding
Selected Performance Ratios:
Return on average assets ...................................
Return on average stockholders' equity ............
Dividend payout ratio .......................................
Net interest margin (1) ......................................
Efficiency ratio (2) ............................................
Asset Quality Ratios:
Net charge-offs to average loans outstanding ..
Non-performing loans to total loans .................
Non-performing assets to total assets ...............
Allowance for credit losses to total gross loans
Allowance for credit losses to total non-
performing loans ...............................................
Liquidity Ratios:
Net loans to total deposits .................................
Net average loans to average earning assets ....
Noninterest-bearing deposits to total deposits .
Capital Adequacy Ratios:
Stockholders' Equity to total assets ..................
CET1 capital (3) ...............................................
Tier 1 capital (4) ...............................................
Total capital (5) .................................................
Leverage ratio (6) .............................................
Growth Ratios:
Percentage change in net income .....................
Percentage change in diluted net income per
share ..................................................................
Percentage change in assets ..............................
Percentage change in net loans .........................
Percentage change in deposits ..........................
Percentage change in stockholders' equity .......
SELECTED FINANCIAL DATA
$
$
$
$
2021
15,448,806
9,532,934
9,416,274
842,570
462,957
56,934
4,106,790
58,372
1,114
60,300
12,452,836
1,711,777
64,706
67,472
1,152,015
416,305
31,802
384,503
31,517
352,986
33,452
133,089
253,349
45,615
207,734
207,672
$
3.83
3.82
21.24
$
As of and for the years ended December 31,
2018
2019
2020
11,932,654
8,465,688
8,377,746
886,688
250
93,655
2,115,985
1,771
14,425
54,969
9,975,724
851,545
64,748
47,785
992,852
389,022
50,985
338,037
42,434
295,603
30,116
111,511
214,208
44,639
169,569
169,506
3.15
3.13
18.41
$
$
$
8,947,653
7,261,451
7,184,867
759,399
250
78,618
451,509
100,473
6,312
56,496
7,530,433
470,749
64,703
39,086
842,682
390,803
103,158
287,645
22,638
265,007
23,982
102,128
186,861
37,618
149,243
149,180
2.79
2.76
15.71
$
$
$
8,007,382
6,533,499
6,464,899
590,184
-
97,516
360,534
223,845
120
57,822
6,915,708
288,725
64,666
23,080
715,203
326,627
63,948
262,679
21,402
241,277
19,440
91,875
168,842
31,902
136,940
136,877
2.57
2.53
13.4
$
$
$
2017
7,082,384
5,851,261
5,791,855
538,080
250
86,213
151,849
239,524
4,459
58,900
6,091,674
301,797
64,832
16,477
607,604
262,756
35,333
227,423
23,225
204,198
17,361
84,209
137,350
44,258
93,092
93,030
1.76
1.72
11.47
54,160,990
54,434,573
54,227,060
53,844,482
54,219,037
53,943,751
53,530,766
54,103,074
53,623,740
53,172,695
54,169,879
53,375,195
52,887,359
54,123,957
52,992,586
1.53 %
19.27 %
20.98 %
2.94 %
31.84 %
0.03 %
0.13 %
0.09 %
1.22 %
1.59 %
18.55 %
22.39 %
3.31 %
30.29 %
0.36 %
0.22 %
0.21 %
1.04 %
1.73 %
19.16 %
21.76 %
3.46 %
32.77 %
0.32 %
0.50 %
0.50 %
1.05 %
1.88 %
20.96 %
15.04 %
3.75 %
32.57 %
0.20 %
0.43 %
0.41 %
1.05 %
1.43 %
16.38 %
11.64 %
3.68 %
34.4 %
0.29 %
0.19 %
0.26 %
1.02 %
1725.23 %
463.98 %
212.07 %
247.03 %
548.79 %
75.60 %
65.82 %
38.54 %
7.46 %
9.95 %
9.96 %
11.58 %
7.39 %
22.49 %
22.04 %
29.47 %
12.39 %
24.83 %
16.03 %
83.98 %
78.80 %
27.96 %
8.32 %
10.5 %
10.5 %
12.2 %
8.23 %
13.62 %
13.38 %
33.36 %
16.60 %
32.47 %
17.82 %
95.41 %
81.48 %
23.24 %
9.42 %
10.5 %
10.5 %
12.31 %
9.13 %
93.48 %
86.55 %
22.52 %
8.93 %
10.12 %
10.13 %
12.05 %
9.07 %
95.08 %
84.93 %
23.64 %
8.58 %
9.51 %
9.52 %
11.52 %
8.51 %
8.98 %
47.10 %
14.25 %
9.12 %
11.74 %
11.14 %
8.89 %
17.82 %
46.91 %
13.06 %
11.62 %
13.53 %
17.71 %
13.16 %
11.18 %
19.18 %
12.39 %
16.20 %
(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.
(3) CET1 capital ratio includes common stockholders' equity excluding unrealized gains/(losses) on securities available for sale, net of taxes, and intangible
assets divided by total risk-weighted assets.
(4) Tier 1 capital ratio includes CET1 and qualifying minority interest divided by total risk-weighted assets.
(5) Total capital ratio includes Tier 1 capital plus qualifying portions of subordinated debt and allowance for credit losses (limited to 1.25% of risk-weighted
assets) divided by total risk-weighted assets.
(6) Tier 1 leverage ratio includes Tier 1 capital divided by average assets less intangible assets.
OFFICERS AND DIRECTORS
BOARD OF DIRECTORS:
SERVISFIRST BANCSHARES, INC.
AND SERVISFIRST BANK
Thomas A. Broughton III,
J. Richard Cashio
James J. Filler
Michael D. Fuller
Christopher J. Mettler
Hatton C. V. Smith
Irma L. Tuder
SERVISFIRST BANK
REGIONAL DIRECTORS
ATLANTA, GEORGIA
Jeffrey B. Baker
Michael A. Bohling
Paul Conley
John Loud
Zach Parker
Brent Reid
CHARLESTON, SOUTH CAROLINA
Peter McKellar
Weesie Newton
Skip Sawin
Daniel Vallini
DOTHAN, ALABAMA
Jerry Adams
Charles H. Chapman
Ronald Devane
John Downs
Watson Downs
Steve McCarroll
Charles Owens
William C. Thompson
HUNTSVILLE, ALABAMA
Dennis Bragg
E. Wayne Bonner
Tres Childs
David Mathis
David Slyman
Irma L. Tuder
Sidney White
Danny Windham
Tom Young
PRINCIPAL OFFICERS: SERVISFIRST
BANCSHARES, INC.
Thomas A. Broughton III
Chairman, President and Chief Executive
Officer
William M. Foshee
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Rodney R. Rushing
Executive Vice President and
Chief Operating Officer
PRINCIPAL OFFICERS: SERVISFIRST
BANK
Thomas A. Broughton III
Chairman, President and Chief Executive
Officer
William M. Foshee
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Rodney R. Rushing
Executive Vice President and
Chief Operating Officer
Henry F. Abbott
Senior Vice President
Chief Credit Officer
G. Carlton Barker
Executive Vice President, Montgomery
President and Chief Executive Officer
Gregory W. Bryant
Executive Vice President, Tampa Bay
President and Chief Executive Officer
J. Hal Clemmer
Executive Vice President, Atlanta
President and Chief Executive Officer
Andrew N. Kattos
Executive Vice President, Huntsville
President and Chief Executive Officer
W. Bibb Lamar, Jr.
Executive Vice President, Mobile
President and Chief Executive Officer
B. Harrison Morris III
Executive Vice President, Dothan
President and Chief Executive Officer
Rex D. McKinney
Executive Vice President, Pensacola
President and Chief Executive Officer
Paul M. Schabacker
Executive Vice President,
Commercial Sales
Thomas G. Trouche
Executive Vice President, Charleston
President and Chief Executive Officer
Bradford A. Vieira
Executive Vice President, Nashville
President and Chief Executive Officer
SERVISFIRST BANCSHARES, INC.
COMMITTEES
NOMINATING AND CORPORATE GOVERNANCE
J. Richard Cashio
Michael D. Fuller
Irma L. Tuder
AUDIT
J. Richard Cashio
Michael D. Fuller
Irma L. Tuder
COMPENSATION
J. Richard Cashio
James J. Filler
Christopher J. Mettler
Hatton C.V. Smith
MOBILE, ALABAMA
Stephen G. Crawford
Lowell J. Friedman
Barry E. Gritter
James M. Harrison, Jr.
James L. Henderson
Richard D. Inge
Kenneth S. Johnson
John H. Lewis, Jr.
Hunter Lyons
Bonner Williams
MONTGOMERY, ALABAMA
John Jernigan
Ray B. Petty
Edward M Stivers III
Todd Strange
Pete Taylor
Ken Upchurch
Alan E. Weil, Jr.
Taylor Williams
NASHVILLE, TENNESSEE
Charles R. Bone
Mary Margaret Borbeau
Joseph A. Cashia
Ryan Chapman
Todd Robinson
PENSACOLA, FLORIDA
Thomas M. Bizzell
Thomas B. Carter
Leo J. Cyr
Matthew W. Durney
Mark S. Greskovich
Ray Russenberger
Sandy Sansing
Atlanta Main Office
300 Galleria Parkway SE, Suite 100
Atlanta, Georgia 30339
678.504.2700
Atlanta Douglasville Office
2801 Chapel Hill Road
Douglasville, Georgia 30135
770.489.4443
Birmingham Main Office
2500 Woodcrest Place
Birmingham, Alabama 35209
205.949.0345
Birmingham Downtown Office
324 Richard Arrington Jr. Boulevard N.
Birmingham, Alabama 35203
205.949.2200
Birmingham Greystone Office
5403 Highway 280, Suite 401
Birmingham, Alabama 35242
205.949.0870
Charleston Main Office
701 East Bay Street, Suite 104
Charleston, SC 29403
843.414.3900
Columbus Office
6400 Bradley Park Drive Suite A
Columbus, Georgia 31904
762.240.9058
Dothan Main Office
4801 West Main Street
Dothan, Alabama 36305
334.340.4300
OFFICES AND LOCATIONS
Huntsville Main Office
401 Meridian Street, Suite 100
Huntsville, Alabama 35801
256.722.7800
Huntsville Research Park Office
1267-A Enterprise Way
Huntsville, Alabama 35806
256.722.7880
Mobile Main Office
2 North Royal Street
Mobile, Alabama 36602
251.544.6950
Mobile Spring Hill Office
4400 Old Shell Road
Mobile, Alabama 36608
251.544.6900
Mobile Fairhope Office
561 Fairhope Avenue, Suite 101
Fairhope, Alabama 36532
251.316.7145
Montgomery Main Office
One Commerce Street, Suite 100
Montgomery, Alabama 36104
334.223.5800
Montgomery East Office
7256 Halcyon Park Drive
Montgomery, Alabama 36117
334.223.5600
Nashville Main Office
1801 West End Avenue. Suite 850
Nashville, TN 37203
615.921.3500
Dothan Cottonwood Corners Office
Orlando Loan Production Office
1640 Ross Clark Circle, Suite 307
485 North Keller Road
Dothan, Alabama 36301
334.340.4400
Maitland, FL 32751
689.209.6404
Pensacola Main Office
219 East Garden Street, Suite 100
Pensacola, Florida 32502
850.266.9100
Pensacola Cordova Office
4980 North 12th Avenue
Pensacola, Florida 32504
850.266.9160
Pensacola Fort Walton Office
316 Racetrack Road NE
Fort Walton Beach, Florida 32547
850.266.9190
Sarasota Loan Production Office
240 South Pineapple Ave., Suite 401
Sarasota, FL 34236
813.528.8162
Summerville Office
100 South Main Street Suite I
Summerville, SC 29483
843.414.3950
Tampa Bay Main Office
4221 West Boy Scout Blvd, Suite 100
Tampa, Florida 33607
813.751.0801
Venice Office
247 Tamiami Trail South Suite 100
Venice, FL 34285
941.236.9130
STOCKHOLDER INFORMATION
ANNUAL MEETING
As a result of the continuing public health impact of COVID-19, the Annual Meeting of Stockholders of ServisFirst Bancshares, Inc.
will be held virtually on May 6, 2022, at 8:00 AM Central Daylight Time. You will be able to vote and submit your questions during
the annual meeting by visiting http://www.meetnow.global/M9MK7FJ.
FORM 10-K
Form 10-K is ServisFirst Bancshares, Inc.’s annual report filed with the Securities and Exchange Commission, and is included within
this document. A copy of ServisFirst Bancshares, Inc.’s 10-K may be obtained, free of charge, if you address a written request to our
Secretary, William M. Foshee, 2500 Woodcrest Place, Birmingham, Alabama 35209.
TRANSFER AGENT
Computershare
P.O. Box 30170
College Station, TX 77842-3170
1.800.368.5948
AVAILABLE INFORMATION
Our corporate website is:
http://www.servisfirstbancshares.com. We have direct links on this website to our Code of Ethics and the charters for our Audit,
Compensation and Corporate Governance and Nominating Committees by clicking on the “Investor Relations” tab. We also have direct
links to our filings with the Securities and Exchange Commission (SEC), including, but not limited to, our first annual report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and any amendments to these reports. You
may also obtain a copy of any such report free of charge by requesting such copy in writing to 2500 Woodcrest Place, Birmingham,
Alabama 35209 Attn.: Investor Relations. This annual report and accompanying exhibits and all other reports and filings that we file
with the SEC will be available for the public to view and copy (at prescribed rates) at the SEC’s Public Reference Room at 100 F Street,
Washington, D.C. 20549. You may also obtain copies of such information at the prescribed rates from the SEC’s Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains such reports, proxy and information
statements, and other information as we file electronically with the SEC by clicking on http://www.sec.gov.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Dixon Hughes Goodman LLP
191 Peachtree Street NE
Suite 2700
Atlanta, Georgia 30303
404.575.8900
SECURITIES COUNSEL
Bradley Arant Boult Cummings LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, Alabama 35203
205.521.8000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021
OR
☐ 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
(State or Other Jurisdiction of Incorporation or Organization)
26-0734029
(I.R.S. Employer Identification No.)
2500 Woodcrest Place, Birmingham, Alabama 35209
(Address of Principal Executive Offices) (Zip Code)
(205) 949-0302
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $.001 per share
Trading symbol(s)
SFBS
Name of exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ 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,” “small reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐
Emerging growth company ☐
Large accelerated filer ☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report.
Yes ☒ No ☐
Smaller reporting company ☐
Non-accelerated filer ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2021, the aggregate market value of the voting common stock held by non-affiliates of the registrant, based on a stock price of $67.98 per
share of Common Stock, was $3,377,202,000.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common stock, $.001 par value
Outstanding as of February 22, 2022
54,273,091
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2022 Annual Meeting
of Stockholders are incorporated by reference into Part III of this annual report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
SERVISFIRST BANCSHARES, INC.
TABLE OF CONTENTS
FORM 10-K
DECEMBER 31, 2021
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ......................................................... 1
PART I. ............................................................................................................................................................................. 2
ITEM 1. BUSINESS ............................................................................................................................................... 2
ITEM 1A. RISK FACTORS ...................................................................................................................................... 21
ITEM 1B. UNRESOLVED STAFF COMMENTS ................................................................................................... 35
ITEM 2. PROPERTIES .......................................................................................................................................... 36
ITEM 3. LEGAL PROCEEDINGS ........................................................................................................................ 37
ITEM 4. MINE SAFETY DISCLOSURES ............................................................................................................ 37
PART II. ............................................................................................................................................................................ 38
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES .................................................................. 38
[RESERVED] .......................................................................................................................................... 38
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................................................................................. 39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ......................... 61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......................................................... 63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ............................................................................................................... 110
ITEM 9A. CONTROLS AND PROCEDURES ........................................................................................................ 110
ITEM 9B. OTHER INFORMATION ....................................................................................................................... 110
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION .......... 110
PART III. .......................................................................................................................................................................... 111
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ................................. 111
ITEM 11. EXECUTIVE COMPENSATION ........................................................................................................... 111
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS ..........................................................................................
111
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
111
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ........................................................................ 111
DIRECTOR INDEPENDENCE ...........................................................................................................
PART IV. ......................................................................................................................................................................... 112
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ............................................................... 112
ITEM 16. FORM 10-K SUMMARY ........................................................................................................................ 114
SIGNATURES .................................................................................................................................................................. 115
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K and other publicly available documents, including the documents incorporated by reference
herein, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These “forward-looking
statements” reflect our current views with respect to, among other things, future events and our financial performance. The
words “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,”
“could,” “should,” “would,” “will,” and similar expressions are intended to identify such forward-looking statements, but
other statements not based on historical information may also be considered forward-looking. All forward-looking statements
are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ
materially from any results expressed or implied by such forward-looking statements. These statements should be considered
subject to various risks and uncertainties, and are made based upon management’s belief as well as assumptions made by,
and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. Such risks include, without limitation:
●
●
●
●
●
●
the global health and economic crisis precipitated by the COVID-19 outbreak;
the effects of the COVID-19 pandemic on business practices including, without limitation, work from home and
similar initiatives that may result in changes in the usage of commercial real estate;
the effects of adverse changes in the economy or business conditions, either nationally or in our market areas;
credit risks, including the deterioration of the credit quality of our loan portfolio, increased default rates and loan
losses or adverse changes in our portfolio or in specific industry concentrations of our loan portfolio;
the effects of governmental monetary and fiscal policies and legislative, regulatory and accounting changes
applicable to banks and other financial service providers, including the impact on us and our customers;
the economic crisis and associated credit issues in industries most impacted by the COVID-19 outbreak, including
but not limited to the restaurant, hospitality, travel and retail sectors;
the effects of hazardous weather in our markets;
the effects of competition from other financial institutions and financial service providers;
●
●
● our ability to keep pace with technology changes, including with respect to cyber-security and preventing breaches
of our and third-party security systems involving our customers and other sensitive and confidential data;
●
●
●
●
● our ability to attract new or retain existing deposits, or to initiate new or retain current loans;
●
the effect of any merger, acquisition or other transaction to which we or any of our subsidiaries may from time to
time be a party, including our ability to successfully integrate any business that we acquire;
the effect of changes in interest rates on the level and composition of deposits, loan demand and the values of loan
collateral, securities and interest sensitive assets and liabilities;
the effects of terrorism and efforts to combat it;
the effects of force majeure events, including war, natural disasters, pandemics or other widespread disease
outbreaks and other national or international crises;
an increase in the incidence or severity of fraud, illegal payments, security breaches or other illegal acts impacting
our customers;
the increased regulatory and compliance burdens associated with our bank exceeding $10 billion in assets;
the results of regulatory examinations;
the effect of inaccuracies in our assumptions underlying the establishment of our loan loss reserves; and
●
●
●
● other factors that are discussed in the section titled “Risk Factors” in Item 1A.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements
included in this annual report on Form 10-K. If one or more events related to these or other risks or uncertainties materialize,
or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.
Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement
speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any
forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge
from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each
factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
1
PART I
Unless this Form 10-K indicates otherwise, the terms “we,” ”our,” “us,” “the Company,” “ServisFirst Bancshares” and
“ServisFirst” as used herein refer to ServisFirst Bancshares, Inc., and its subsidiaries, including ServisFirst Bank, which
sometimes is referred to as “our bank subsidiary,” “our bank” or “the Bank,” and its other subsidiaries. References herein
to the fiscal years 2019, 2020 and 2021 mean our fiscal years ended December 31, 2019, 2020 and 2021, respectively.
ITEM 1. BUSINESS
Overview
We are a bank holding company within the meaning of the Bank Holding Company Act of 1956 and are headquartered in
Birmingham, Alabama. Through our wholly-owned subsidiary bank, we operate 23 full-service banking offices located in
Alabama, Florida, Georgia, South Carolina, and Tennessee. We also operate loan production offices in Florida. Through our
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. As of December 31, 2021, we had total assets of approximately
$15.4 billion, total loans of approximately $9.5 billion, total deposits of approximately $12.5 billion and total stockholders’
equity of approximately $1.2 billion.
We operate our bank using a simple business model based on organic loan and deposit growth, generated through high quality
customer service, delivered by a team of experienced bankers focused on developing and maintaining long-term banking
relationships with our target customers. We utilize a uniform, centralized back office risk and credit platform to support a
decentralized decision-making process executed locally by our regional chief executive officers. This decentralized decision-
making process allows individual lending officers varying levels of lending authority, based on the experience of the
individual officer. When the total amount of loans to a borrower exceeds an officer’s lending authority, further approval must
be obtained by the applicable regional chief executive officer and/or our senior management team. Rather than relying on a
more traditional retail bank strategy of operating a broad base of multiple brick and mortar branch locations in each market,
our strategy focuses on operating a limited and efficient branch network with sizable aggregate balances of total loans and
deposits housed in each branch office. We believe that this approach more appropriately addresses our customers’ banking
needs and reflects a best-of-class delivery strategy for commercial banking services.
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 and the amortization and prepayment of
loans and borrowings. 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.
Certain of our subsidiaries hold and manage participations in residential mortgages and commercial real estate loans
originated by our bank in Alabama, Florida, Georgia and Tennessee, respectively, and have elected to be treated as a real
estate investment trust, or REIT, for U.S. income tax purposes. Each of these entities is consolidated into the Company.
As a bank holding company, we are subject to regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). We are required to file reports with the Federal Reserve and are subject to regular examinations by that
agency.
Business Strategy
We are a full service commercial bank focused on providing competitive products, state of the art technology and quality
service. Our business philosophy is to operate as a metropolitan community bank emphasizing prompt, personalized customer
service to the individuals and businesses located in our primary markets. We aggressively market to our target customers,
which include privately held businesses generally with $2 million to $250 million in annual sales, professionals and affluent
consumers whom we believe are underserved by the larger regional banks operating in our markets. We also seek to capitalize
on the extensive relationships that our management, directors, advisory directors and stockholders have with the businesses
and professionals in our markets.
2
Focus on Core Banking Business. We deliver a broad array of core banking products to our customers. While many large
regional competitors and national banks have chosen to develop non-traditional business lines to supplement their net interest
income, we believe our focus on traditional commercial banking products driven by a high margin delivery system is a
superior method to deliver returns to our stockholders. We emphasize an internal culture of keeping our operating costs as
low as practical, which we believe leads to greater operational efficiency. Additionally, our centralized technology and
process infrastructure contribute to our low operating costs. We believe this combination of products, operating efficiency
and technology make us attractive to customers in our markets. In addition, we provide correspondent banking services to
more than 350 community banks located in 27 states throughout the United States. We provide a source of clearing and
liquidity to our correspondent bank customers, as well as a wide array of account, credit, settlement and international services.
Commercial Bank Emphasis. We have historically focused on people as opposed to places. This strategy translates into a
smaller number of brick and mortar branch locations relative to our size, but larger overall branch sizes in terms of total
deposits. As a result, as of December 31, 2021, our branches averaged approximately $541.4 million in total deposits. In the
more typical retail banking model, branch banks continue to lose traffic to other banking channels which may prove to be an
impediment to earnings growth for those banks that have invested in large branch networks. In addition, unlike many
traditional community banks, we place a strong emphasis on originating commercial and industrial loans, which comprised
approximately 31.3% of our total loan portfolio as of December 31, 2021.
Scalable, Decentralized Business Model. We emphasize local decision-making by experienced bankers supported by
centralized risk and credit oversight. We believe that the delivery by our bankers of in-market customer decisions, coupled
with risk and credit support from our corporate headquarters, allows us to serve our borrowers and depositors directly and in
person, while managing risk centrally and on a uniform basis. We intend to continue our growth by repeating this scalable
model in each market in which we are able to identify a strong banking team. Our goal in each market is to employ the highest
quality bankers in that market. We then empower those bankers to implement our operating strategy, grow our customer base
and provide the highest level of customer service possible. We focus on a geographic model of organizational structure as
opposed to a line of business model employed by most regional banks. This structure assigns significant responsibility and
accountability to our regional chief executive officers, who we believe will drive our growth and success. We have developed
a business culture whereby our management team, from the top down, is actively involved in sales, which we believe is a key
differentiator from our competition.
Local decision making has impacted how we have managed our business during the COVID-19 pandemic. Our ability to use
technology-based delivery channels to service our customers in a low-contact environment played an integral part in
maintaining social distancing to help prevent the spread of COVID-19. Our regional executives were able to manage their
banking operations in compliance with local shut-down orders. Our employees were able to work remotely as needed.
Additionally, our decentralized, local credit decision making coupled with our advanced technology-based delivery channels
enabled us to offer our customers efficient and timely access to the Small Business Administration’s (“SBA”) Paycheck
Protection Program (“PPP”) loans. During 2020 and 2021, we originated over 7,400 PPP loans with an aggregate balance of
approximately $1.5 billion.
Identify Opportunities in Vibrant Markets. Since opening our original banking facility in Birmingham in 2005, we have
expanded into nine additional markets as of December 31, 2021. Our focus has been to expand opportunistically when we
identify a strong banking team in a market with attractive economic characteristics and market demographics where we
believe we can achieve a minimum of $300 million in deposits within five years of market entry. There are two primary
factors we consider when determining whether to enter a new market:
●
the availability of successful, experienced bankers with strong reputations in the market; and
●
the economic attributes of the market necessary to drive quality lending opportunities coupled with deposit-
related characteristics of the potential market.
Prior to entering a new market, historically we have identified and built a team of experienced, successful bankers with
market-specific knowledge to lead the bank’s operations in that market, including a regional chief executive officer.
Generally, we or members of our senior management team are familiar with these individuals based on prior work experience
and reputation, and strongly believe in the ability of such individuals to successfully execute our business model. We also
often assemble a non-voting advisory board of directors in our markets, comprised of members representing a broad spectrum
of business experience and community involvement in the market. We currently have advisory boards in each of the
Huntsville, Montgomery, Dothan, Mobile, Pensacola, Nashville, Atlanta and Charleston markets.
3
In addition to organic expansion, we may seek to expand through targeted acquisitions.
Markets and Competition
Our primary markets are broadly defined as the MSAs of Birmingham-Hoover, Huntsville, Montgomery, Dothan, Daphne-
Fairhope-Foley and Mobile, Alabama, Crestview-Fort Walton Beach-Destin, Pensacola-Ferry Pass-Brent, North Port-
Sarasota-Bradenton and Tampa-St. Petersburg-Clearwater, Florida, Atlanta-Sandy Springs-Alpharetta, Georgia, Charleston-
North Charleston, South Carolina and Nashville-Davidson-Murfreesboro, Tennessee. We draw most of our deposits from,
and conduct most of our lending transactions in, these markets.
According to Federal Deposit Insurance Corporation (“FDIC”) reports, total deposits in each of our primary market areas
have expanded from 2011 to 2021 (deposit data reflects totals as reported by financial institutions as of June 30th of each
year) as follows:
2021
2011
(Dollars in Billions)
Compound
Annual Growth
Rate
Jefferson/Shelby County, Alabama ................ $
Madison County, Alabama .............................
Mobile County, Alabama ...............................
Montgomery County, Alabama ......................
Baldwin County, Alabama .............................
Houston County, Alabama .............................
Orange County, Florida ..................................
Hillsborough County, Florida .........................
Sarasota County, Florida ................................
Escambia County, Florida ..............................
Cobb County, Georgia ....................................
Douglas County, Georgia ...............................
Charleston County, South Carolina ................
Davidson County, Tennessee .........................
51.8 $
10.5
10.4
8.3
6.6
3.6
47.4
43.5
18.7
6.7
23.7
2.5
16.5
55.0
23.8
6.1
6.0
5.9
3.2
2.1
21.2
23.1
11.4
3.8
9.5
1.2
7.6
21.6
8.09%
5.58%
5.65%
3.47%
7.51%
5.54%
8.38%
6.53%
5.07%
5.83%
9.57%
7.62%
8.06%
9.80%
Our bank is subject to intense competition from various financial institutions and other financial service providers. Our bank
competes for deposits with other commercial banks, savings and loan associations, credit unions and issuers of commercial
paper and other securities, such as money-market and mutual funds. In making loans, our bank competes with other
commercial banks, savings and loan associations, consumer finance companies, credit unions, leasing companies, interest-
based lenders and other lenders.
4
The following table illustrates our market share, by insured deposits, in our primary service areas at June 30, 2021 as most
recently reported by the FDIC:
Market
Number of
Branches
Our Market
Deposits
Total
Market
Deposits Ranking
Market
Share
Percentage
(Dollars in Millions)
Alabama:
Birmingham-Hoover MSA ...................................
Huntsville MSA ....................................................
Montgomery MSA ...............................................
Dothan MSA ........................................................
Mobile MSA .........................................................
Daphne-Fairhope-Foley MSA ..............................
Florida:
Pensacola-Ferry Pass-Brent MSA ........................
Tampa-St. Petersburg-Clearwater MSA ...............
North Port-Sarasota-Bradenton MSA ...................
Crestview-Fort Walton Beach-Destin MSA .........
Georgia:
Atlanta-Sandy Springs-Alpharetta MSA ..............
South Carolina:
Charleston-North Charleston MSA ......................
Tennessee:
Nashville-Davidson-Murfreesboro MSA .............
3 $
2
2
2
2
1
2
1
1
1
4,833.0 $ 54,527.3
1,133.1 11,472.5
1,097.2 10,258.0
4,393.5
8,758.2
6,572.7
748.0
445.2
50.5
8,692.1
555.5
392.3 116,999.4
127.6 28,487.4
7,826.0
57.3
3
3
3
1
9
20
7
28
27
20
8.86%
9.88%
10.70%
17.03%
4.18%
0.77%
6.39%
0.34%
0.45%
0.73%
2
631.6 236,059.2
25
0.27%
2
296.9 20,354.7
12
1.46%
1
601.6 89,155.1
20
0.67%
The following table illustrates the combined total deposits for all financial institutions in the counties in which we operate as
a percent of the total of all deposits in each state at June 30, 2021, as reported by the FDIC:
Alabama .............................................................
Florida ................................................................
Georgia ..............................................................
South Carolina ...................................................
Tennessee ...........................................................
64.5 %
8.5 %
7.8 %
14.0 %
25.8 %
Our retail and commercial divisions operate in highly competitive markets. We compete directly in retail and commercial
banking markets with other commercial banks, savings and loan associations, credit unions, mortgage brokers and mortgage
companies, mutual funds, securities brokers, consumer finance companies, other lenders and insurance companies, locally,
regionally and nationally. Many of our competitors compete by using offerings by mail, telephone, computer and/or the
Internet. Interest rates, both on loans and deposits, and prices of services are significant competitive factors among financial
institutions generally. Providing convenient locations, desired financial products and services, convenient office hours,
quality customer service, quick local decision making, a strong community reputation and long-term personal relationships
are all important competitive factors that we emphasize.
In our markets, our five largest competitors are Regions Bank, Wells Fargo Bank, PNC, Truist and Synovus Bank. These
institutions, as well as other competitors of ours, have greater resources, serve broader geographic markets, have higher
lending limits, offer various services that we do not offer and can better afford, and make broader use of, media advertising,
support services, and electronic technology than we can. To offset these competitive disadvantages, we depend on our
reputation for greater personal service, consistency, flexibility and the ability to make credit and other business decisions
quickly.
5
Lending Services
Commercial Loans
Our commercial lending activity is directed principally toward businesses and professional service firms whose demand for
funds falls within our legal lending limits. We make loans to small- and medium-sized businesses in our markets for the
purpose of upgrading plant and equipment, buying inventory and for general working capital. Typically, targeted business
borrowers have annual sales generally between $2 million and $250 million. This category of loans includes loans made to
individual, partnership and corporate borrowers, and such loans are obtained for a variety of business purposes. We offer a
variety of commercial lending products to meet the needs of business and professional service firms in our service areas.
These commercial lending products include seasonal loans, bridge loans and term loans for working capital, expansion of the
business, or acquisition of property, plant and equipment. We also offer commercial lines of credit. The repayment terms of
our commercial loans will vary according to the needs of each customer.
Our commercial loans usually are collateralized. Generally, collateral consists of business assets, including accounts
receivable, inventory, equipment, or real estate. Collateral is subject to the risk that we may have difficulty converting it to a
liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a
default situation. To mitigate this risk, we underwrite collateral to strict standards, including valuations and general
acceptability based on our ability to monitor its ongoing condition and value.
We underwrite our commercial loans primarily on the basis of the borrower’s cash flow, ability to service debt, and degree
of management expertise. As a general practice, we take as collateral a security interest in any available real estate, equipment
or personal property. Under limited circumstances, we may make commercial loans on an unsecured basis. 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. Perceived and actual risks may differ depending on the particular industry in which
a borrower operates. General risks to an industry, such as an economic downturn or instability in the capital markets, or to a
particular segment of an industry are monitored by senior management on an ongoing basis. When warranted, loans to
individual borrowers who may be at risk due to an industry condition may be more closely analyzed and reviewed by the
credit review committee or board of directors. Commercial and industrial borrowers are required to submit financial
statements to us on a regular basis. We analyze these statements, looking for weaknesses and trends, and will assign the loan
a risk grade accordingly. Based on this risk grade, the loan may receive an increased degree of scrutiny by management.
Real Estate Loans
We make commercial real estate loans, construction and development loans and residential real estate loans.
Commercial Real Estate. Commercial real estate loans are generally limited to terms of five years or less, although payments
are usually structured on the basis of a longer amortization. Interest rates may be fixed or adjustable, although rates generally
will not be fixed for a period exceeding five years. In addition, we generally will require personal guarantees from the
principal owners of the property supported by a review by our management of the principal owners’ personal financial
statements.
Commercial real estate lending presents risks not found in traditional residential real estate lending. Repayment is dependent
upon successful management and marketing of properties and on the level of expense 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. To mitigate these risks, we
closely monitor our borrower concentration. These loans generally have shorter maturities than other loans, giving us an
opportunity to reprice, restructure or decline renewal. As with other loans, all commercial real estate loans are graded
depending upon strength of credit and performance. A higher risk grade will bring increased scrutiny by our management,
the credit review committee and the board of directors.
Construction and Development Loans. We make construction and development loans both on a pre-sold and speculative
basis. If the borrower has entered into an agreement to sell the property prior to beginning construction, then the loan is
considered to be on a pre-sold basis. If the borrower has not entered into an agreement to sell the property prior to beginning
construction, then the loan is considered to be on a speculative basis. Construction and development loans are generally made
with a term of 12 to 36 months, with interest payable monthly. The ratio of the loan principal to the value of the collateral as
established by independent appraisal typically will not exceed 80% of residential construction loans. Speculative construction
loans will be based on the borrower’s financial strength and cash flow position. Development loans are generally limited to
75% of appraised value. Loan proceeds will be disbursed based on the percentage of completion and only after the project
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has been inspected by an experienced construction lender or third-party inspector. During times of economic stress,
construction and development loans typically have a greater degree of risk than other loan types.
To mitigate the risk of construction loan defaults in our portfolio, the board of directors and management tracks and monitors
these loans closely. Total construction loans increased $509.5 million to $1.1 billion at December 31, 2021. There were
$14,000 in charge-offs on construction loans during 2021 and $1.0 million in charge-offs during 2020. There were no
construction loans rated as substandard at December 31, 2021 and $235,000 at December 31, 2020.
Residential Real Estate Loans. Our residential real estate loans consist primarily of residential second mortgage loans,
residential construction loans and traditional mortgage lending for one-to-four family residences. We will originate fixed-rate
mortgages with long-term maturities. The majority of our fixed-rate loans are sold in the secondary mortgage market. All
loans are made in accordance with our appraisal policy, with the ratio of the loan principal to the value of collateral as
established by independent appraisal generally not exceeding 85%. Risks associated with these loans are generally less
significant than those of other loans and involve bankruptcies, economic downturn, customer financial problems and
fluctuations in the value of real estate, and homes in our primary service areas may experience significant price declines in
the future. We have not made and do not expect to make any “Alt-A” or subprime loans.
Consumer Loans
We offer a variety of loans to retail customers in the communities we serve. Consumer loans in general 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. Risk on consumer-type loans is generally managed through policy limitations on debt levels
consumer borrowers may carry and limitations on loan terms and amounts depending upon collateral type.
Our consumer loans include home equity loans (open- and closed-end), vehicle financing, loans secured by deposits, and
secured and unsecured personal loans. These various types of consumer loans all carry varying degrees of risk.
Commitments and Contingencies
As of December 31, 2021, we had commitments to extend credit beyond current amounts funded of $3.5 billion, had issued
standby letters of credit in the amount of $61.9 million, and had commitments for credit card arrangements of $366.5 million.
Investments
In addition to loans, we purchase investments in securities, primarily in mortgage-backed securities and state and municipal
securities. No investment in any of those instruments will exceed any applicable limitation imposed by law or regulation. Our
board of directors reviews the investment portfolio on an ongoing basis in order to ensure that the investments conform to
the policy as set by the board of directors. Our investment policy provides that no more than 30% of our total investment
portfolio may be composed of municipal securities. All securities held are traded in liquid markets, and we have no auction-
rate securities. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity
at December 31, 2021.
Deposit Services
We seek to establish solid core deposits, including checking accounts, money market accounts, savings accounts and a variety
of certificates of deposit and IRA accounts. To attract deposits, we employ an aggressive marketing plan throughout our
service areas that features a broad product line and competitive services. The primary sources of core deposits are residents
of, and businesses and their employees located in, our market areas. We have obtained deposits primarily through personal
solicitation by our officers and directors, through reinvestment in the community, and through our stockholders, who have
been a substantial source of deposits and referrals. We make deposit services accessible to customers by offering direct
deposit, wire transfer, night depository, banking-by-mail and remote capture for non-cash items. Our bank is a member of
the FDIC, and thus our deposits (subject to applicable FDIC limits) are FDIC-insured.
Other Banking Services
Given client demand for increased convenience and account access, we offer a range of products and services, including 24-
hour telephone banking, direct deposit, Internet banking, mobile banking, traveler’s checks, safe deposit boxes, attorney trust
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accounts and automatic account transfers. We also participate in a shared network of automated teller machines and a debit
card system that our customers are able to use, and, in certain accounts subject to certain conditions, we rebate to the customer
the ATM fees automatically after each business day. Additionally, we offer Visa® credit cards.
Asset, Liability and Risk Management
We manage our assets and liabilities with the aim of providing an optimum and stable net interest margin, a profitable after-
tax return on assets and return on equity, and adequate liquidity. These management functions are conducted within the
framework of written loan and investment policies. To monitor and manage the interest rate margin and related interest rate
risk, we have established policies and procedures to monitor and report on interest rate risk, devise strategies to manage
interest rate risk, monitor loan originations and deposit activity and approve all pricing strategies. We attempt to maintain a
balanced position between rate-sensitive assets and rate-sensitive liabilities. Specifically, we chart assets and liabilities on a
matrix by maturity, effective duration, and interest adjustment period, and endeavor to manage any gaps in maturity ranges.
Seasonality and Cycles
We do not consider our commercial banking business to be seasonal.
Supervision and Regulation
Both we and our bank are subject to extensive state and federal banking laws and regulations that impose restrictions on, and
provide for general regulatory oversight of, our operations. These laws and regulations restrict our permissible activities and
investments, impose conditions and requirements on the products and services we offer and the manner in which they are
offered and sold, and require compliance with protections for loan, deposit, brokerage, fiduciary, and other customers, among
other things. They also restrict our ability to repurchase stock or pay dividends, or to receive dividends from our bank
subsidiary, and they impose capital adequacy and liquidity requirements. These laws and regulations generally are intended
to protect customers (including depositors), the FDIC’s Deposit Insurance Fund and the banking system as a whole, and
generally are not intended for the protection of stockholders or other investors. The consequences of noncompliance with
these, or other applicable laws or regulations, can include substantial monetary and nonmonetary sanctions.
In addition, we and the bank are subject to comprehensive supervision and periodic examination by the Federal Reserve, the
FDIC, the Alabama State Banking Department (the “Alabama Banking Department”), and the U.S. Consumer Financial
Protection Bureau (the “CFPB”), among other regulatory bodies. Those agencies consider not only compliance with
applicable laws, regulations and supervisory policies, but also capital levels, asset quality, risk management effectiveness,
the ability and performance of management and the board of directors, the effectiveness of internal controls, earnings,
liquidity and various other factors. Regarding the CFPB, we became subject to more comprehensive regulation by the CFPB
in 2021, when our assets exceeded $10 billion for the fourth consecutive quarter (our assets were greater than $10 billion at
the end of the second, third, and fourth quarters of 2020, and all four quarters of 2021). The CFPB’s supervisory focus
primarily involves an institution’s compliance with federal consumer protection laws
The results of examination activity by any of our federal or state bank regulators potentially can result in the imposition of
significant limitations on our activities and growth. These regulatory agencies generally have broad discretion to impose
restrictions and limitations on the operations of a regulated entity and take enforcement action, including the imposition of
substantial monetary penalties and nonmonetary requirements, against a regulated entity where the relevant agency
determines, among other things, that such operations fail to comply with applicable law or regulations or are conducted in an
unsafe or unsound manner. This supervisory framework, including the examination reports and supervisory ratings (which
are not publicly available) of the agencies, could materially impact the conduct, growth and profitability of our operations.
The following discussion describes select material elements of the regulatory framework that applies to us. The description
is not intended to summarize all laws, regulations and supervisory policies applicable to us and is qualified in its entirety by
reference to the full text of the statutes, regulations and supervisory policies described. Further, the following discussion
addresses the select material elements of the regulatory framework as in effect as of the date of this annual report on Form
10-K. Legislation and regulatory action to revise federal and state banking laws and regulations, sometimes in a substantial
manner, are continually under consideration by the U.S. Congress, state legislatures and federal and state regulatory agencies.
Accordingly, the following discussion must be read in light of the enactment of any new federal or state banking laws or
regulations or any amendment or repeal of existing laws or regulations, or any change in the policies of the regulatory agencies
with jurisdiction over our operations, after the date of this annual report on Form 10-K.
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Bank Holding Company Supervision and Regulation
Because we own all of the capital stock of the bank, we are a bank holding company under the federal Bank Holding Company
Act of 1956, as amended (the “BHC Act”). As a result, we are primarily subject to the supervision, examination and reporting
requirements of the BHC Act and the regulations of the Federal Reserve.
Acquisition of Banks
The BHC Act requires every bank holding company to obtain the Federal Reserve’s prior approval before:
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acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the
bank holding company will, directly or indirectly, own or control more than 5% of the bank’s voting shares;
acquiring all or substantially all of the assets of any bank; or
merging or consolidating with any other bank holding company.
In reviewing merger and other acquisition transactions, the Federal Reserve is required to consider the financial and
managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and
needs of the community to be served. The Federal Reserve’s consideration of financial resources generally focuses on capital
adequacy, which is discussed in the section below titled “Supervision and Regulation—Bank Supervision and Regulation –
Capital Adequacy.” The consideration of convenience and needs of the community to be served includes the institution’s
performance under the Community Reinvestment Act (the “CRA”).
Additionally, the BHC Act provides that the Federal Reserve may not approve a merger or other acquisition transaction if the
transaction would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint
of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in
meeting the convenience and needs of the community to be served. In July 2021, President Biden issued an Executive Order
on Promoting Competition in the American Economy. Among other initiatives, the Executive Order encouraged the federal
banking agencies to review their current merger oversight practices under the BHC Act and the Bank Merger Act and adopt
a plan for revitalization of such practices. There are many steps that must be taken by the agencies before any formal changes
to the framework for evaluating bank mergers can be finalized, and the prospects for such action are uncertain at this time.
However, the adoption of more expansive or prescriptive standards may have an impact on the merger and other acquisition
activities of U.S. financial institutions like us.
Change in Bank Control
Subject to various exceptions, the BHC Act and the Change in Bank Control Act, together with related regulations, require
Federal Reserve approval prior to any person’s or company’s acquiring “control” of a bank holding company. Under a
rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a
bank holding company would, under the circumstances set forth in the presumption, constitute acquisition of control of the
bank holding company. In addition, any person or group of persons must obtain the approval of the Federal Reserve before
acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common
stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over the bank holding company.
Permissible Activities Under the BHC Act
Under the BHC Act, a bank holding company is generally permitted to engage in or acquire direct or indirect control of more
than 5% of the voting shares of any company engaged in the following activities:
● banking or managing or controlling banks; and
● any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident
to the business of banking.
Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of
banking include: factoring accounts receivable; making, acquiring, brokering or servicing loans and usual related activities;
leasing personal property; operating a non-bank depository institution, such as a savings association; trust company functions;
financial and investment advisory activities; certain agency securities brokerage activities; underwriting and dealing in
government obligations and money market instruments; providing specified management consulting and counseling
activities; performing selected data processing services and support services; acting as an agent or broker in selling credit life
insurance and other types of insurance in connection with credit transactions; and performing selected insurance underwriting
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activities. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any
of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the
bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness,
or stability of it or any of its bank subsidiaries.
In addition to the permissible bank holding company activities listed above, a bank holding company may qualify and elect
to become a financial holding company, permitting the bank holding company to engage in activities that are financial in
nature or incidental or complementary to financial activity without posing a substantial risk to the safety and soundness of a
depository institution or to the financial system generally. The BHC Act expressly lists the following activities as financial
in nature: lending, trust and other banking activities; insuring, guaranteeing, or indemnifying against loss or harm, or
providing and issuing annuities, and acting as principal, agent, or broker for these purposes, in any state; providing financial,
investment, or advisory services; issuing or selling instruments representing interests in pools of assets permissible for a bank
to hold directly; underwriting, dealing in or making a market in securities; other activities that the Federal Reserve may
determine to be so closely related to banking or managing or controlling banks as to be a proper incident to managing or
controlling banks; activities permitted outside of the United States if the Federal Reserve has determined them to be usual in
connection with banking operations abroad; merchant banking through securities or insurance affiliates; and insurance
company portfolio investments. For us to qualify to become a financial holding company, the bank and any other depository
institution subsidiary of ours must be well-capitalized and well-managed and must have a CRA rating of at least
“satisfactory”. Additionally, we must file an election with the Federal Reserve to become a financial holding company and
must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity. We have not
elected to become a financial holding company at this time.
Support of Subsidiary Institutions
The Federal Deposit Insurance Act and Federal Reserve policy require a bank holding company to act as a source of financial
and managerial strength to its bank subsidiaries. Under these requirements, a bank holding company is expected to commit
financial resources and take other measures to support its bank subsidiaries even at times when the holding company may not
be in a financial position to provide such resources or when the holding company may not be inclined to provide them. In
addition, where a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company’s
subsidiary depository institutions is responsible for any losses to the FDIC as a result of an affiliated depository institution’s
failure. As a result of these requirements, a bank holding company may, among other things, be compelled to loan money to
a bank subsidiary in the form of subordinate capital notes or other instruments which qualify as capital under bank regulatory
rules. Any loans from the holding company to such subsidiary banks likely would be unsecured and subordinated to such
bank’s depositors and perhaps to other creditors of the bank.
Repurchase or Redemption of Securities
A bank holding company is generally required to give the Federal Reserve prior written notice of any purchase or redemption
of its own then-outstanding equity securities if the gross consideration for the purchase or redemption, when combined with
the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of
the company’s consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines
that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve
order or directive, or any condition imposed by, or written agreement with, the Federal Reserve. The Federal Reserve has
adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain conditions.
Bank Supervision and Regulation
Generally
The bank is an Alabama state-chartered bank and, as such, is subject to examination and regulation by the Alabama Banking
Department. The bank is not a member of the Federal Reserve System but is subject to various regulations and requirements
promulgated by the Federal Reserve, the CFPB, the Federal Trade Commission, the Financial Crimes Enforcement Network,
the Office of Foreign Assets Control (“OFAC”), and other federal regulatory agencies. State non-member banks are, in
addition to regulation by the applicable state regulatory authority, subject to supervision and regular examination by the
FDIC. The FDIC and the Alabama Banking Department regularly examine the bank’s operations and have the authority to
approve or disapprove mergers, the establishment of branches and similar corporate actions. Both regulatory agencies have
the power to prevent the development or continuance of unsafe or unsound banking practices or other violations of law.
Additionally, the bank’s deposits are insured by the FDIC to the maximum extent provided by law. The extensive state and
federal banking laws and regulations to which the bank is subject are generally intended to protect the bank’s customers
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(including depositors), the FDIC’s Deposit Insurance Fund and the banking system as a whole, and generally is not intended
for the protection of stockholders or other investors. The following discussion describes the material elements of the
regulatory framework that applies to the bank.
FDIC Insurance Assessments
The bank’s deposits are insured by the FDIC to the full extent provided in the Federal Deposit Insurance Act, and the bank
pays assessments to the FDIC for that coverage. Under the FDIC’s risk-based deposit insurance assessment system, an insured
institution’s deposit insurance premium is computed by multiplying the institution’s assessment base by the institution’s
assessment rate. An institution's assessment base and assessment rate are determined each quarter.
An institution’s assessment base equals the institution’s average consolidated total assets during a particular assessment
period, minus the institution’s average tangible equity capital (that is, Tier 1 capital) during such period. The method for
determining an institution's risked-based assessment rate differs for small banks and large banks. Small banks (generally,
those with less than $10 billion in assets over four consecutive quarters) are assigned an individual rate based on a formula
using financial data and ratings on capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market
risks, or so-called “CAMELS” ratings. Large banks (generally, those with $10 billion or more in assets over four consecutive
quarters) are assigned an individual rate based on a scorecard. The scorecard combines the following measures to produce a
score that is converted to an assessment rate: CAMELS component ratings, financial measures used to measure a bank's
ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative
magnitude of potential losses to the FDIC in the event of the bank's failure. Assessment rates for both large and small banks
are subject to adjustment. Assessment rates: (1) decrease for issuance of long-term unsecured debt, including senior unsecured
debt and subordinated debt; (2) increase for holdings of long-term unsecured or subordinated debt issued by other insured
banks (the Depository Institution Debt Adjustment or DIDA); and (3) for large banks that are not well-rated or not well-
capitalized, increase for significant holdings of brokered deposits. The bank became subject to the large bank scorecard
methodology in the second quarter of 2021.
The amount the bank pays to the FDIC in assessments is affected not only by the risk the bank poses to the Deposit Insurance
Fund, but also by the adequacy of the fund to cover the risk posed by all insured institutions. From 2008 to 2013, the United
States experienced an unusually high number of bank failures, resulting in significant losses to the Deposit Insurance Fund.
Moreover, the Dodd-Frank Act permanently increased the standard maximum deposit insurance amount from $100,000 to
$250,000, and raised the minimum required Deposit Insurance Fund reserve ratio (i.e., the ratio of the amount on reserve in
the Deposit Insurance Fund to the total estimated insured deposits) from 1.15% to 1.35%. To support the Deposit Insurance
Fund in response to those circumstances, the FDIC took several extraordinary actions, including imposing a one-time special
assessment on insured institutions and requiring institutions to prepay quarterly assessments attributable to a three-year
period. The FDIC also has established a higher long-term target Deposit Insurance Fund ratio of 2%. We cannot predict
whether, as a result of an adverse change in economic conditions or other reasons, the FDIC will take similar extraordinary
actions or otherwise increase deposit insurance assessment levels in the future. Any future increases could have a negative
impact on our bank’s earnings.
Termination of Deposit Insurance
The FDIC may terminate its insurance of deposits of a bank if it finds that the bank has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC.
Liability of Commonly Controlled Depository Institutions
Under the Federal Deposit Insurance Act, an FDIC-insured depository institution can be held liable for any loss incurred by,
or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository
institution in danger of default. “Default” is defined generally as the appointment of a conservator or receiver, and “in danger
of default” is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance. The FDIC’s claim for damage is superior to claims of stockholders of the insured depository
institution but is subordinate to claims of depositors, secured creditors, other general and senior creditors, and holders of
subordinated debt (other than affiliates) of the institution.
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Community Reinvestment Act
The CRA requires that, in connection with examinations of financial institutions within their respective jurisdictions, the
Federal Reserve or the FDIC will evaluate the record of each financial institution in meeting the needs of its local community,
including low and moderate-income neighborhoods. These factors are also considered in evaluating mergers, acquisitions,
and applications to open an office or facility. Failure to adequately meet these criteria could impose additional requirements
and limitations on the bank. Additionally, we must publicly disclose the terms of various CRA-related agreements.
In recent years, the federal banking agencies have indicated an intent, including through notices of proposed rulemaking, to
modernize or otherwise modify their implementation of the CRA. The effects of any potential changes to the agencies’ CRA
rules will depend on the final form of any federal rulemaking and cannot be predicted at this time. Management will continue
to evaluate any changes to the CRA’s regulations and the impact they may have on us or the bank.
Interest Rate Limitations
Interest and other charges collected or contracted for by the bank are subject to state usury laws and federal laws concerning
interest rates.
Federal Laws Applicable to Consumer Credit and Deposit Transactions
The bank’s loan and deposit operations are subject to a number of federal consumer protection laws and regulations,
including, among others:
● the Truth-In-Lending Act, as implemented by Regulation Z issued by the CFPB, governing, among other
things, the disclosure of credit terms to consumers;
● the Real Estate Settlement Procedures Act, as implemented by Regulation X issued by the CFPB,
prescribing, among other things, requirements in connection with residential mortgage loan applications,
settlements, and servicing;
● the Home Mortgage Disclosure Act, as implemented by Regulation C issued by the CFPB, requiring
financial institutions to provide information to enable the public and public officials to determine whether
a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
● the Equal Credit Opportunity Act, as implemented by Regulation B issued by the CFPB, prohibiting
discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or certain other
prohibited factors in all aspects of credit transactions, imposing certain requirements regarding credit
applications, and prescribing certain disclosure obligations;
● the Fair Credit Reporting Act, as implemented in part by Regulation V issued by the CFPB, governing the
use and provision of information to credit reporting agencies by imposing, among other things,
requirements for financial institutions to develop policies and procedures to identify potential identity theft,
requirements for entities that furnish information to consumer reporting agencies (which would include the
bank) to implement procedures and policies regarding the accuracy and integrity of the furnished
information and respond to disputes from consumers regarding credit reporting issues, requirements for
mortgage lenders to disclose credit scores to consumers, and limitations on the ability of a business that
receives consumer information from an affiliate to use that information for marketing purposes;
● the Fair Debt Collection Practices Act, as implemented in part by Regulation F issued by the CFPB,
governing the manner in which consumer debts may be collected by debt collectors;
● the Servicemembers’ Civil Relief Act, governing the repayment terms of, and property rights underlying,
secured obligations of persons in military service;
● the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer
financial records and prescribes procedures for complying with administrative subpoenas of financial
records;
● the Electronic Funds Transfer Act, as implemented by Regulation E issued by the CFPB, governing
automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising
from the use of automated teller machines and other electronic banking services; and
● the Truth in Savings Act, as implemented by Regulation DD issued by the CFPB, governing, among other
things, the disclosure of deposit terms to consumers.
Additionally, the Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than
those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with
both the state and federal laws and regulations.
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Capital Adequacy
General Information. The federal banking agencies view capital levels as important indicators of an institution’s financial
soundness. In this regard, we and the bank are required to comply with the capital adequacy standards established by the
Federal Reserve (in our case) and the FDIC and the Alabama Banking Department (in the case of the bank). Such standards
are based on the December 2010 final capital framework for strengthening international capital standards, known as Basel
III, of the Basel Committee on Banking Supervision (the “Basel Committee”). The implementation of Basel III for United
States institutions began on January 1, 2015. Prior to that date, the risk-based capital rules applicable to us and the bank were
based on the 1988 Capital Accord, known as Basel I, of the Basel Committee
Current capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for
holding liquid assets. Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are
assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance-sheet items.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies,
including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered
deposits, and certain other restrictions on its business. Significant additional restrictions can be imposed on FDIC-insured
depository institutions that fail to meet applicable capital requirements.
United States Implementation of Basel III. In July 2013, the federal banking agencies published final rules (the “Basel III
Capital Rules”) to implement, in part, the Basel III framework issued by the Basel Committee and certain provisions of the
Dodd-Frank Act. The Basel III Capital Rules apply to banking organizations, including us and the bank.
Among other things, the Basel III Capital Rules: (i) emphasize common equity tier 1 capital, or “CET1,” which is
predominately made up of retained earnings and common stock instruments; (ii) specify that an institution’s tier 1 capital
consists of CET1 and additional financial instruments satisfying specified requirements that permit inclusion in tier 1 capital;
(iii) define CET1 narrowly by requiring that most deductions or adjustments to regulatory capital measures be made to CET1
and not to the other components of capital; and (iv) expand the scope of the deductions or adjustments from capital as
compared to the previous regulations. The Basel III Capital Rules also provide a permanent exemption from a proposed phase
out of existing trust preferred securities and cumulative perpetual preferred stock from regulatory capital for banking
organizations with less than $15 billion in total consolidated assets as of December 31, 2009.
The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios:
● 4.5% based upon CET1;
● 6.0% based upon tier 1 capital; and
● 8.0% based upon total regulatory capital.
A minimum leverage ratio (tier 1 capital as a percentage of total assets) of 4.0% is also required under the Basel III Capital
Rules. The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer of 2.5% above these
required minimum capital ratio levels. The capital conservation buffer, which must consist of CET1, is designed to absorb
losses during periods of economic stress. Banking organizations that fail to maintain the minimum 2.5% capital conservation
buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers.
The Basel III Capital Rules became effective as applied to us and the bank on January 1, 2015, with a phase in period that
generally extended from January 1, 2015 through January 1, 2019. We and the bank are currently in compliance with Basel
III Capital Rules.
Since the initial implementation of the Basel III Capital Rules, the U.S. federal banking agencies and other interested parties
have proposed and, in certain cases, made changes to the rules based on a number of factors, including prevailing economic
conditions and policy initiatives. For example, in September 2017 the U.S. federal banking agencies proposed revisions to
the Basel III Capital Rules to simplify the capital treatment of certain types of assets, including certain types of mortgage
servicing rights and tax deferred assets. Those revisions, with certain modifications, took effect in April 2020. Similarly, in
December 2017, the Basel Committee published revisions to its regulatory framework that it described as the finalization of
the Basel III post-crisis regulatory reforms. Among other things, these revisions were meant to strengthen credibility in the
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calculation of risk-weighted assets by enhancing the robustness and risk sensitivity of the standardized approaches for credit
risk and operational risk and to add new capital requirements for certain “unconditional cancellable commitments,” such as
credit card lines. Many of the December 2017 proposals are still under consideration by the U.S. federal banking agencies,
and the impact of the proposals on us and the bank will depend on the manner in which they ultimately are implemented.
In December 2017, the Basel Committee published revisions to its regulatory framework that it described as the finalization
of the Basel III post-crisis regulatory reforms. Among other things, these revisions are meant to strengthen credibility in the
calculation of risk-weighted assets by enhancing the robustness and risk sensitivity of the standardized approaches for credit
risk and operational risk and to add new capital requirements for certain “unconditional cancellable commitments,” such as
credit card lines. These revisions were generally effective on January 1, 2022, with an aggregate output floor phasing in
through January 1, 2027. Operational risk capital requirements and a capital floor only apply to advanced approaches
institutions under current U.S. capital rules.
New proposals for changes to bank capital rules will continue to be made over time. We will monitor and adapt to changes
to those rules as they occur.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 established a system of
“prompt corrective action” to resolve the problems of undercapitalized financial institutions. Under this system, which was
modified by the Basel III Capital Rules, the federal banking agencies have established five capital categories (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) into which all
institutions are placed. The federal banking agencies have also specified by regulation the relevant capital thresholds for each
of those categories. At December 31, 2021, the bank was well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the bank had to maintain minimum total risk-based, tier 1 risk-based,
CET1 risk-based, and tier 1 leverage ratios of 10%, 8%, 6.5% and 5%, respectively.
Federal banking agencies are required to take various mandatory supervisory actions and are authorized to take other
discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends
upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator
must appoint a receiver or conservator for an institution that is critically undercapitalized.
An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required
to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must
guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The
controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an
undercapitalized subsidiary’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory
capital requirements. An undercapitalized institution also is generally prohibited from increasing its average total assets,
making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital
restoration plan or with FDIC approval. The regulations also establish procedures for downgrading an institution to a lower
capital category based on supervisory factors other than capital.
Liquidity
Financial institutions are subject to significant regulatory scrutiny regarding their liquidity positions. This scrutiny has
increased over the last decade, as the economic downturn that began in the late 2000’s negatively affected the liquidity of
many financial institutions. Various bank regulatory publications, including FDIC Financial Institution Letter FIL-13-2010
(Funding and Liquidity Risk Management) and FDIC Financial Institution Letter FIL-84-2008 (Liquidity Risk Management),
address the identification, measurement, monitoring and control of funding and liquidity risk by financial institutions.
Basel III also addresses liquidity management by proposing two new liquidity metrics for financial institutions. The first
metric is the “Liquidity Coverage Ratio”, and it aims to require a financial institution to maintain sufficient high quality liquid
resources to survive an acute stress scenario that lasts for one month. The second metric is the “Net Stable Funding Ratio,”
and its objective is to require a financial institution to maintain a minimum amount of stable sources relative to the liquidity
profiles of the institution’s assets, as well as the potential for contingent liquidity needs arising from off-balance sheet
commitments, over a one-year horizon.
In the Basel III Capital Rules, the federal banking agencies did not address either the Liquidity Coverage Ratio or the Net
Stable Funding Ratio. However, in September 2014, the federal banking agencies adopted final rules implementing a
Liquidity Coverage Ratio requirement in the United States for larger banking organizations. In February 2021, the federal
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banking agencies adopted final rules implementing a Net Stable Funding Ratio requirement, also for larger U.S. banking
organizations. Neither we nor the bank is subject to either set of rules.
While we are not subject to the Liquidity Coverage Ratio or the Net Stable Funding Ratio rules, increased liquidity
requirements generally would be expected to cause the bank to invest its assets more conservatively—and therefore at lower
yields—than it otherwise might invest. Such lower-yield investments likely would reduce the bank’s revenue stream, and in
turn its earnings potential.
Payment of Dividends
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, is dividends the bank pays to us as the bank’s sole shareholder. Statutory and regulatory
limitations apply to the bank’s payment of dividends to us as well as 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 such 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. Based on this, our bank would
be limited to paying $449.8 million in dividends as of December 31, 2021, subject to maintaining certain required capital
levels. 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 agencies, the bank were engaged in or about to
engage in an unsafe or unsound practice, the federal banking agencies could require, after notice and a hearing, that the bank
stop or refrain from engaging in the questioned practice.
Restrictions on Transactions with Affiliates and Insiders
We are subject to Section 23A of the Federal Reserve Act, which places limits on the amount of: a bank’s loans or extensions
of credit to affiliates; a bank’s investment in affiliates; assets a bank may purchase from affiliates, except for real and personal
property exempted by the Federal Reserve; loans or extensions of credit made by a bank to third parties collateralized by the
securities or obligations of affiliates; a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate; a bank’s
transactions with an affiliate involving the borrowing or lending of securities to the extent they create credit exposure to the
affiliate; and a bank’s derivative transactions with an affiliate to the extent they create credit exposure to the affiliate. The
total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus
and, as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these
transactions, certain of these transactions must also meet specified collateral requirements. The bank must also comply with
other provisions designed to avoid the taking of low-quality assets.
We are also subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an institution from
engaging in these transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable
to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.
The bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and
their related interests. These extensions of credit (i) must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more
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than the normal risk of repayment or present other unfavorable features. There is also an aggregate limitation on all loans to
insiders and their related interests. These loans cannot exceed the institution’s total unimpaired capital and surplus, and the
FDIC may determine that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting
loans in violation of applicable restrictions. Alabama state banking laws also have similar provisions.
Lending Limits
Under Alabama law, the amount of loans which may be made by a bank in the aggregate to one person is limited. Alabama
law provides that unsecured loans by a bank to one person may not exceed an amount equal to 10% of the capital and
unimpaired surplus of the bank or 20% in the case of secured loans. For purposes of calculating these limits, loans to various
business interests of the borrower, including companies in which a substantial portion of the stock is owned or partnerships
in which a person is a partner, must be aggregated with those made to the borrower individually. Loans secured by certain
readily marketable collateral are exempt from these limitations, as are loans secured by deposits and certain government
securities.
Commercial Real Estate Concentration Limits
The Federal Reserve and other federal banking agencies promulgated guidance governing financial institutions with
concentrations in commercial real estate lending entitled “Concentrations in Commercial Real Estate Lending, Sound Risk
Management Practices”. The guidance describes the criteria the agencies will use as indicators to identify institutions
potentially exposed to commercial real estate (“CRE”) concentration risk. An institution that has (i) experienced rapid growth
in CRE lending, (ii) notable exposure to a specific type of CRE, (iii) total reported loans for construction, land development,
and other land representing 100% or more of the institution’s capital, or (iv) total CRE loans representing 300% or more of
the institution’s capital, and the outstanding balance of the institution’s CRE portfolio has increased by 50% or more in the
prior 36 months, may be identified for further supervisory analysis of the level and nature of its CRE concentration risk. The
U.S. bank regulatory agencies issued additional guidance titled “Statement on Prudent Risk Management for Commercial
Real Estate Lending” to remind financial institutions of existing guidance on prudent risk management practices for CRE
lending activity. The agencies noted their belief that financial institutions had eased CRE underwriting standards in recent
years and went on to identify actions that financial institutions should take to protect themselves from CRE-related credit
losses during difficult economic cycles. The guidance also indicated that the agencies would pay special attention in the future
to potential risks associated with CRE lending.
Privacy and Data Security
We are subject to a number of U.S. federal, state, local and foreign laws and regulations relating to consumer privacy and
data protection. Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and its implementing
regulations and guidance, we are limited in our ability to disclose certain non-public information about consumers to
nonaffiliated third parties. Financial institutions, such as the bank, are required by statute and regulation to notify consumers
of their privacy policies and practices and, in some circumstances, allow consumers to prevent disclosure of certain personal
information to a nonaffiliated third party. In addition, such financial institutions must appropriately safeguard their customers’
nonpublic, personal information.
In recent years, privacy laws have been a particular focus in the United States, Europe, and elsewhere. Many new privacy
laws, including the California Consumer Privacy Act and the Virginia Consumer Data Protection Act, create new individual
privacy rights and impose increased obligations on companies handling personal data. In addition, multiple other states, the
U.S. Congress, and regulators in and outside the United States are considering similar laws or regulations which could create
new individual privacy rights and impose increased obligations on companies handling personal data. For example, in
November 2021, the U.S. federal banking agencies adopted a rule regarding notification requirements for banking
organizations related to significant computer security incidents. Under the final rule, a banking organization must notify its
primary federal regulator within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to
materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base,
jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector. The rule
becomes effective on April 1, 2022, with compliance required by May 1, 2022.
From an operational standpoint, cyberattacks and similar attempts to gain access to confidential customer information
maintained by banks and other financial institutions have prompted the federal banking agencies to issue extensive guidance
on cybersecurity. Among other things, financial institutions are expected to design multiple layers of security controls to
establish lines of defense and ensure that their risk management processes address the risks posed by compromised customer
credentials, including security measures to authenticate customers accessing internet-based services. A financial institution
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also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the
security of third-party service providers that may have access to nonpublic data at the institution.
We take privacy and data security matters very seriously, and we work hard to protect confidential customer information. We
will continue to monitor these areas, including applicable laws, rules, and regulatory guidance, very closely.
Anti-Terrorism and Money Laundering Legislation
Our bank is subject to federal laws that are designed to counter money laundering and terrorist financing, and transactions
with persons, companies, or foreign governments sanctioned by the United States. These include the USA Patriot Act, the
Bank Secrecy Act, the Money Laundering Control Act, and the requirements of the OFAC. These statutes and related rules
and regulations impose requirements and limitations on specified financial transactions and account or other relationships,
including obligations of a depository institution to verify customer identity, conduct customer due diligence, report on
suspicious activity file reports of transactions in currency, and conduct enhanced due diligence on certain accounts. They also
prohibit us from engaging in transactions with certain designated restricted countries and persons. We are required by our
regulators to maintain policies and procedures to comply with the foregoing restrictions.
Failure to comply with these statutes, rules and regulations, or failure to maintain an adequate compliance program, could
lead to monetary penalties and reputational damage to our bank. Our banking regulators evaluate the effectiveness of our
policies and procedures when determining whether to approve certain proposed banking activities. We believe the policies
and procedures implemented by our board of directors are sufficient to be compliant with these laws.
Effect of Governmental Monetary Policies
Our bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States
government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an
important impact on the operating results of commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve affect the
levels of bank loans, investments and deposits through its control over the issuance of United States government securities,
its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member
banks are subject. We cannot predict, and have no control over, the nature or impact of future changes in monetary and fiscal
policies.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations
and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered, or that file
reports, under the Exchange Act. In particular, the act established (i) requirements for audit committees, including
independence, expertise and responsibilities; (ii) responsibilities regarding financial statements for the chief executive officer
and chief financial officer of the reporting company and new requirements for them to certify the accuracy of periodic reports;
(iii) standards for auditors and regulation of audits; (iv) disclosure and reporting obligations for the reporting company and
its directors and executive officers; and (v) civil and criminal penalties for violations of the federal securities laws. The
legislation also established a new accounting oversight board to enforce auditing standards and restrict the scope of services
that accounting firms may provide to their public company audit clients.
Overdraft Fees
Regulation E imposes restrictions on banks’ abilities to charge overdraft fees. The rule prohibits financial institutions from
charging fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or opts in, to
the overdraft service for those types of transactions.
In recent months, certain members of Congress and the leadership of certain federal banking agencies have expressed a
heightened interest in the overdraft programs of U.S. banking organizations. In December 2021, the CFPB published a report
providing data on banks’ overdraft and non-sufficient funds fee revenues as well as observations regarding consumer
protection issues relating to participation in such programs. In addition, the U.S. Office of the Comptroller of the Currency
has identified potential options for reform of national bank overdraft protection practices, including providing a grace period
before the imposition of a fee, refraining from charging multiple fees in a single day and eliminating fees altogether. We
continue to monitor developments in the rules and regulations that apply to overdraft fees charged by banking institutions.
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Interchange Fees
The Dodd-Frank Act, through a provision known as the Durbin Amendment, required the Federal Reserve to establish
standards for interchange fees that are “reasonable and proportional” to the cost of processing a debit card transaction and
imposes other requirements on card networks. In June 2011, the Federal Reserve implemented a rule, which includes a cap
of 21 cents plus .05% of the transaction on the interchange fee for debit card issuers with $10 billion or more in assets. The
Bank exceeded $10 billion in assets for the first time as of June 30, 2020, and the Durbin Amendment rules become effective
for us on July 1, 2022. We do not anticipate those rules to have a material impact on our revenue.
Compensation Practices
Our compensation practices are subject to guidance provided by federal banking agencies designed to ensure that incentive
compensation arrangements at banking organizations take into account risk and are consistent with safe and sound practices.
Agency guidance is subject to change from time to time. For example, in 2016, several financial regulators jointly issued a
proposed rule designed to prohibit incentive-based compensation arrangements that could encourage inappropriate risks by
providing excessive compensation or that could lead to a material financial loss. The proposed rule would have required
incentive-based compensation arrangements to adhere to three basic principles; (1) a balance between risk and reward, (2)
effective risk management and controls, and (3) effective governance. It also would require appropriate board of directors (or
committee) oversight and recordkeeping and disclosures to the appropriate agency. The proposed rule, which would have
applied to banking institutions on a tiered basis based on asset size, has not yet been finalized.
The scope and content of the U.S. banking agencies’ policies on compensation may continue to evolve in the near future. It
cannot be determined at this time whether compliance with such policies will adversely affect the company’s or the bank’s
ability to hire, retain and motivate its key employees.
The Volcker Rule
In December 2013, five U.S. financial regulators, including the Federal Reserve and the FDIC, adopted a final rule
implementing the so-called “Volcker Rule.” The Volcker Rule was created by Section 619 of the Dodd-Frank Act and
prohibits “banking entities” from engaging in “proprietary trading” and making investments and conducting certain other
activities with “private equity funds and hedge funds.” Although the final rule provides some tiering of compliance and
reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size,
including us and the bank.
Since the adoption of the final rule in 2013, U.S. financial regulators and other federal agencies have further adopted several
changes to the final rule. On January 14, 2014, the agencies adopted an interim final rule permitting banking entities to retain
interests in certain collateralized debt obligations backed primarily by trust preferred securities if certain qualifications are
met. On July 9, 2019, the agencies adopted a final rule excluding community banks (i.e., those banks having $10 billion or
less in total consolidated assets and trading assets and liabilities of 5% or less of total consolidated assets) from the Volcker
Rule. On October 8, 2019, the agencies finalized revisions to the Volcker rule that simplified and streamlined compliance
requirements for banking entities that do not have significant trading activities, while banking entities with significant trading
activity would become subject to more stringent compliance requirements. The revisions continue to prohibit proprietary
trading, while providing greater clarity and certainty for activities allowed under the law. With the changes, the agencies
expect that the universe of trades that are considered prohibited proprietary trading will remain generally the same as under
the agencies' 2013 final rule. These revisions became effective on January 1, 2020, with a required compliance date of January
1, 2021.
To date, the prohibitions under the Volcker Rule and the final rule adopted thereunder have not had, and we do not currently
expect them to have in the future, a material effect on our businesses or revenue, but they do limit the scope of permissible
activities in which we might engage.
The Dodd-Frank Act
The Dodd-Frank Act was signed into law in July 2010 and has significantly changed the bank regulatory environment and
the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The
Dodd-Frank Act required various federal agencies to adopt a broad range of new implementing rules and regulations and to
prepare numerous studies and reports for Congress. The federal agencies were given significant discretion in drafting the
implementing rules and regulations.
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In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”) was signed into law.
In many instances the EGRRCPA increased the Dodd-Frank mandated asset thresholds, to which enhanced supervision and
prudential standards are applied. Previously, bank holding companies with assets of $10 billion or more were subject to stress
testing. The asset threshold has been increased to $250 billion.
A number of the effects of the Dodd-Frank Act are described or otherwise accounted for in various parts of this Supervision
and Regulation section. The following items provide a brief description of certain other provisions of the Dodd-Frank Act
that may be relevant to us and the bank.
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The Dodd-Frank Act created the CFPB and gave it broad powers to supervise and enforce consumer
protection laws. The CFPB now has broad rule-making authority for a wide range of consumer protection
laws that apply to all banks, including the authority to prohibit “unfair, deceptive or abusive” acts and
practices. The CFPB has examination and enforcement authority over all banks with more than $10 billion
in assets for four consecutive quarters. Institutions with less than $10 billion in assets for four consecutive
quarters will continue to be examined for compliance with consumer laws by their primary bank regulator.
Our total assets were greater than $10 billion at the end of the second, third, and fourth quarters of 2020,
and for all four quarters of 2021. We are now subject to CFPB supervisory and enforcement authority and
expenses related to regulatory compliance are likely to increase as a result.
The Dodd-Frank Act imposed new requirements regarding the origination and servicing of residential
mortgage loans. The law created a variety of new consumer protections, including limitations on the manner
by which loan originators may be compensated and an obligation on the part of lenders to verify a
borrower’s “ability to repay” a residential mortgage loan.
The Dodd-Frank Act imposes many investor protection, corporate governance and executive compensation
rules that have affected most U.S. publicly traded companies. The Dodd-Frank Act (i) requires publicly
traded companies to give stockholders a non-binding vote on executive compensation and golden parachute
payments; (ii) enhances independence requirements for compensation committee members; (iii) requires
companies listed on national securities exchanges to adopt incentive-based compensation clawback policies
for executive officers; (iv) authorizes the U.S. Securities and Exchange Commission (the “SEC”) to
promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy
materials; and (v) directs the federal banking agencies to issue rules prohibiting incentive compensation
that encourages inappropriate risks.
Although insured depository institutions have long been subject to the FDIC’s resolution process, the Dodd-
Frank Act creates a new mechanism for the FDIC to conduct the orderly liquidation of certain “covered
financial companies,” including bank holding companies and systemically significant non-bank financial
companies. Upon certain findings being made, the FDIC may be appointed receiver for a covered financial
company, and would conduct an orderly liquidation of the entity. The FDIC liquidation process is modeled
on the existing Federal Deposit Insurance Act bank resolution process, and generally gives the FDIC more
discretion than in the traditional bankruptcy context.
Pursuant to the Dodd-Frank Act, national and state-chartered banks may open an initial branch in a state
other than its home state (e.g., a host state) by establishing a de novo branch at any location in such host
state at which a bank chartered in such host state could establish a branch. Applications to establish such
branches must still be filed with the appropriate primary state and federal banking agencies.
As noted above, the implementation of the Dodd-Frank Act is ongoing, and certain provisions of the Dodd-Frank Act are still
subject to rulemaking. In addition, we are subject to heightened regulatory scrutiny and requirements as a result of our total
assets exceeding $10 billion for four consecutive quarters ending with the first quarter in 2021. It is difficult to anticipate the
overall financial impact of the Dodd-Frank Act on the bank and us. However, compliance with the Dodd-Frank Act and its
implementing regulations has resulted in, and is expected to continue to result in, additional operating and compliance costs
that could have a material adverse effect on our business, financial condition and results of operations.
Regulation Extends Beyond Banking Agencies
In addition to regulations issued by the Alabama Banking Department and federal banking agencies, we are subject to
regulations issued by other state and federal agencies with respect to certain financial products and services we offer and our
operations generally. These include, for example, the SEC, various taxing authorities, and various state insurance regulators.
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Other Legislation and Regulatory Action relating to Financial Institutions
Government efforts made over the last decade to strengthen the United States financial system, including the Dodd-Frank
Act and its related rules and regulations, subject us and the bank to a number of new regulatory compliance obligations, many
of which may impose additional fees, costs, requirements, and restrictions. These fees, costs, requirements, and restrictions,
as well as any others that may be imposed in the future, may have a material adverse effect on our business, financial
condition, and results of operations.
New proposals to change the laws and regulations governing the banking industry are frequently introduced in the United
States Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any
such changes and the impact such changes might have on us and the bank, however, cannot be determined at this time. In this
regard, bills are presently pending before Congress and certain state legislatures, and additional bills may be introduced in
the future in Congress and state legislatures, to alter the structure, regulation and competitive relationships of financial
institutions. We cannot predict whether or in what form any of these proposals will be adopted or the extent to which our
business may be affected by any new regulation or statute.
Human Capital Resources
At ServisFirst Bancshares, we believe that our employees are truly our most valuable asset and that each of us directly
contributes to our continued mutual success. As of December 31, 2021, we had 502 full-time equivalent employees. We have
191 employees located in our corporate office, including sales and operations, and 322 in our regional offices and branches.
Our management believes that we have good relations with our employees.
Hiring, Promotion & Talent Development
We are always looking to build our workforce from within and promote from our current talent pool whenever possible.
When this is not the case, we look to career fairs and local colleges to network on an ongoing basis, as well as utilizing
professional networking platforms, such as LinkedIn. We also have a referral bonus program for current employees, which
we believe helps us to diversify our workforce at the same time. We are also committed to the continued development of our
employees. Compliance, information technology and other banking industry-related trainings are completed by employees
throughout the year. We also aim to assist our employees with position-related training and development when available.
Health and Safety
The success of our business is fundamentally connected to the well-being of our employees. Accordingly, we are committed
to the health, safety and wellness of our employees. In response to local government and health guidelines around the COVID-
19 pandemic, glass barriers have been installed where necessary, and we regularly encourage our employees to utilize video
conferencing platforms when possible. All branches and internal corporate offices have been provided with cleaning supplies
and are encouraged to disinfect surface areas consistently. We maintain a social distancing policy and update our procedures
as federal and state agencies make new recommendations.
Compensation and Benefits
We provide robust compensation and benefits programs to help meet the needs of our employees. In addition to competitive
salaries, these programs include annual bonuses, a 401(k) Retirement Plan, full medical, dental and vision insurance, life
insurance and paid time off. As part of our compensation philosophy, we believe that we must offer and maintain market
competitive total rewards programs for our employees in order to attract and retain superior talent.
Diversity and Inclusion
We are committed to our continued efforts to increase diversity and foster an inclusive work environment that supports our
employees and the communities we serve. We recruit the best people for the job regardless of gender, race, ethnicity, age,
disability, sexual orientation, gender identity, cultural background or religious belief. It is our policy to fully comply with all
state and federal laws applicable to discrimination in the workplace.
A brief description of the background of each of our named executive officers as of December 31, 2021 is set forth below.
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Thomas A. Broughton, III (66) – Mr. Broughton has served as our President and Chief Executive Officer and a director
since 2007 and as President, Chief Executive Officer and a director of the Bank since its inception in May 2005. Mr.
Broughton was appointed Chairman of the Board effective January 1, 2019, following the retirement of our former Chairman.
Mr. Broughton has spent the entirety of his banking career in the Birmingham area. In 1985, Mr. Broughton was named
President of the de novo First Commercial Bank. When First Commercial Bank was acquired by Synovus Financial Corp. in
1992, Mr. Broughton continued as President and was named Chief Executive Officer of First Commercial Bank. In 1998, he
became Regional Chief Executive Officer of Synovus Financial Corp., responsible for the Alabama and Florida markets. In
2001, Mr. Broughton’s Synovus region shifted, and he became Regional Chief Executive Officer for the markets of Alabama,
Tennessee and parts of Georgia. He continued his work in this position until his retirement from Synovus in August 2004.
Mr. Broughton’s experience in banking has afforded him opportunities to work in many areas of banking and has given him
exposure to all bank functions. Mr. Broughton served on the Board of Directors of Cavalier Homes, Inc. from 1986 until
2009, when the company was sold to a subsidiary of Berkshire Hathaway.
William M. Foshee (67) – Mr. Foshee has served as our Executive Vice President, Chief Financial Officer, Treasurer and
Secretary since 2007 and as Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Bank since
2005. Mr. Foshee served as the Chief Financial Officer of Heritage Financial Holding Corporation, a publicly traded bank
holding company headquartered in Decatur, Alabama, from 2002 until it was acquired in 2005. Mr. Foshee is a Certified
Public Accountant.
Rodney E. Rushing (64) – Mr. Rushing has served as our Executive Vice President, and Chief Operating Officer since
February 2021. From 2011 to 2021, he served as the Executive Vice President and Executive for Correspondent Banking for
us and the bank. Prior to joining us, Mr. Rushing was employed at BBVA Compass from 1982 to 2011, most recently serving
as Executive Vice President of Correspondent Banking. At the time of his departure in March 2011, the correspondent
banking division of BBVA Compass provided correspondent banking services to over 600 financial institutions.
Henry Abbott (41) – Mr. Abbott has served as Senior Vice President and Chief Credit Officer for us and the bank since
April 2018. From 2013 to 2018, he served as Senior Vice President and Chief Credit Officer for our Correspondent Banking
Division. Prior to joining us, Mr. Abbott was employed at BB&T (now Truist) from 2004 to 2013 in various senior lending
and credit administration roles.
Available Information
Our corporate website is www.servisfirstbank.com. We have direct links on this website to our Code of Ethics and the charters
for our Audit, Compensation and Corporate Governance and Nominations Committees, accessible by clicking on “Investor
Relations” in the drop down menu. We also have direct links to our filings with the SEC, including, but not limited to, our
annual reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and any
amendments to these filings, which are available free of charge through our corporate website as soon as reasonably
practicable after they are electronically filed with, or furnished to, the SEC. Stockholders may request hard copies of our
filings, free of charge, by contacting our Senior Vice President of Investor Relations, Davis Mange, at 2500 Woodcrest Place,
Birmingham, AL 35209, telephone (205) 949-3420.
ITEM 1A. RISK FACTORS.
Our business, financial condition and results of operations could be harmed by any of the following risks or by other risks
identified in this annual report, as well as by other risks we may not have anticipated or viewed as material. Such risks and
uncertainties could cause actual results to differ materially from those contained in forward-looking statements presented
elsewhere by management. The following list identifies and briefly summarizes certain risk factors. This list should not be
viewed as complete or comprehensive, and the risks identified below are not the only risks facing our company. See also
“Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to Our Business
We are dependent on the services of our management team and board of directors, and the unexpected loss of key officers
or directors may adversely affect our business and operations.
We are led by an experienced core management team with substantial experience in the markets that we serve, and our
operating strategy focuses on providing products and services through long-term relationship managers. Accordingly, our
success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate and retain
highly qualified senior and middle management. Competition for employees is intense, and the process of locating key
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personnel with the combination of skills and attributes required to execute our business plan may be lengthy. If any of our or
the bank’s executive officers, other key personnel, or directors leaves us or the bank, our operations may be adversely affected.
In particular, we believe that our named executive officers and our regional chief executive officers are extremely important
to our success and the success of our bank. If any of them leaves for any reason, our results of operations could suffer in such
markets. Additionally, our directors’ and advisory board members’ community involvement and diverse and extensive local
business relationships are important to our success. Any material changes in the composition of our board of directors or the
respective advisory boards of the bank could have a material adverse effect on our business, financial condition, results of
operations and prospects.
We may not be able to expand successfully into new markets.
We have opened new offices in Fairhope, Alabama, Fort Walton, Florida, Venice, Florida, Sarasota, Florida, Orlando, Florida
and Columbus, Georgia in the past five years. We may not be able to successfully manage this growth with sufficient human
resources, training and operational, financial and technological resources. Any such failure could limit our ability to be
successful in these new markets and may have a material adverse effect on our business, financial condition, results of
operations and prospects.
Because our total assets exceed $10 billion, we are subject to heightened regulatory requirements, which could have an
adverse effect on our financial condition or results of operations.
Various federal banking laws and regulations, including rules adopted by the Federal Reserve pursuant to the requirements
of the Dodd-Frank Act, impose additional requirements on bank holding companies with total assets of at least $10 billion.
In addition, banks with total assets of at least $10 billion are primarily examined by the CFPB with respect to federal consumer
protection laws and regulations. As of September 30, 2021, we were reclassified as a large financial institution by the FDIC,
and now are subject to additional requirements including, but not limited to, establishing a dedicated risk committee of our
board of directors, calculating our FDIC deposit insurance assessment using the large bank pricing rule, and more frequent
regulatory examinations. As a result of these additional compliance obligations, we have incurred significant expenses and
expect to continue to incur expenses to address heightened regulatory requirements. These additional regulatory requirements
and increased compliance expenses could have a material adverse effect on our business, financial condition and results of
operations.
A prolonged downturn in the real estate market, especially in our primary markets, could result in losses and adversely
affect our profitability.
As of December 31, 2021, 56.4% of our loan portfolio was composed of commercial and consumer real estate loans, of which
50.2% was owner-occupied commercial or 1-4 family mortgage loans. The real estate collateral in each case provides an
alternate source of repayment in the event of default by the borrower and may deteriorate in value after the time the credit is
initially extended. A decline in real estate values, either in the regions we serve or across the country as occurred in the U.S.
recession from 2007 to 2009, could impair the value of our collateral and our ability to sell the collateral upon foreclosure,
which would likely require us to increase our provision for credit losses. In the event of a default with respect to any of these
loans, the amounts we receive upon sale of the collateral may be insufficient to recover the outstanding principal and interest
on the loan. If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real
estate values or to increase our allowance for credit losses, our profitability could be adversely affected, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
Our largest loan relationships currently make up a significant percentage of our total loan portfolio.
As of December 31, 2021, our 10 largest borrowing relationships totaled $728.7 million in commitments (including unfunded
commitments), or approximately 7.6% of our total loan portfolio. The concentration risk associated with having a small
number of relatively large loan relationships is that, if one or more of these relationships were to become delinquent or suffer
default, we could be at risk of material losses. The allowance for credit losses may not be adequate to cover losses associated
with any of these relationships, and any loss or increase in the allowance could have a material adverse effect on our business,
financial condition, results of operations and prospects.
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Our decisions regarding credit risk could be inaccurate and our allowance for credit losses may be inadequate, which
could have a material adverse effect on our business, financial condition, results of operations and future prospects.
Our earnings are affected by our ability to make loans, and thus we could sustain significant loan losses and consequently
significant net losses if we incorrectly assess the creditworthiness of our borrowers resulting in loans to borrowers who fail
to repay their loans in accordance with the loan terms, the value of the collateral securing the repayment of their loans, or we
fail to detect or respond to a deterioration in our loan quality in a timely manner. Management makes various assumptions
and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of
the real estate and other assets serving as collateral for the repayment of many of our loans. We maintain an allowance for
credit losses that we consider adequate to absorb losses inherent in the loan portfolio based on our assessment of the
information available. In determining the size of our allowance for credit losses, we rely on an analysis of our loan portfolio
based on historical loss experience, current conditions, reasonable and supportable forecasts, and other pertinent information.
We target small and medium-sized businesses as loan customers. Because of their size, these borrowers may be less able to
withstand competitive or economic pressures than larger borrowers in periods of economic weakness. Also, as we expand
into new markets, our determination of the size of the allowance could be understated due to our lack of familiarity with
market-specific factors. We believe our allowance for credit losses is adequate. Our allowance for credit losses as of
December 31, 2021 was $116.7 million, or 1.22% of total gross loans. If our assumptions are inaccurate, we may incur loan
losses in excess of our current allowance for credit losses and be required to make material additions to our allowance for
credit losses, which could have a material adverse effect on our business, financial condition, results of operations and
prospects. However, even if our assumptions are accurate, federal and state regulators periodically review our allowance for
credit losses and could require us to materially increase our allowance for credit losses or recognize further loan charge-offs
based on judgments different than those of our management. Any material increase in our allowance for credit losses or loan
charge-offs as required by these regulatory agencies could have a material adverse effect on our business, financial condition,
results of operations and prospects. In addition, the adoption of Accounting Standards Update (“ASU”) 2016-13, as amended,
effective as of January 1, 2020 impacted our methodology for estimating the allowance for credit losses. The Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) gave financial institutions the option to delay adoption of ASU
2016-13 and we delayed our adoption of the update until December 31, 2020, with an effective retrospective adoption date
of January 1, 2020. Based on prevailing economic conditions and forecasts as of the January 1, 2020 adoption date, we
recorded a net $2.0 million decrease in our allowance for credit losses in connection with our adoption of ASU 2016-13. See
Note 1 – “Summary of Significant Accounting Policies” in the notes to consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data elsewhere in this report.
The internal controls that we have implemented in order to mitigate risks inherent to the business of banking might fail
or be circumvented, which could have a material adverse effect on our business, financial condition, results of operations
and prospects.
Management regularly reviews and updates our internal controls and procedures that are designed to identify, measure,
monitor, report and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, legal
risk, compliance risk, strategic risk, reputational risk and operational risk related to our employees, systems and vendors,
among others. Any system of control and any system to reduce risk exposure, however well designed and operated, is based
in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are
met. A failure in our internal controls could have a significant negative impact not only on our earnings, but also on our
reputation with our customers, regulators and investors. In addition, a failure of our internal controls, or a circumvention of
such controls, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our corporate structure provides for decision-making authority by our regional chief executive officers and banking
teams. Our business, financial condition, results of operations and prospects could be negatively affected if our employees
do not follow our internal policies or are negligent in their decision-making.
We attract and retain our management talent by empowering them to make certain business decisions on a local level. Lending
authorities are assigned to regional chief executive officers and their banking teams based on their experience. Additionally,
all loan relationships in excess of $5.0 million and every loan internally risk-grade as special mention or below are reviewed
by our centralized credit administration department in Birmingham, Alabama. Moreover, for decisions that fall outside of the
assigned authorities, our regional chief executive officers are required to obtain approval from our senior management team.
Our local bankers may not follow our internal procedures or otherwise act in our best interests with respect to their decision-
making. A failure of our employees to follow our internal policies, or actions taken by our employees that are negligent could
have a material adverse effect on our business, financial condition, results of operations and prospects.
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Our business strategy includes the continuation of our growth plans, and our business, financial condition, results of
operations and prospects could be negatively affected if we fail to grow or fail to manage our growth effectively.
Our current strategy is to grow organically and, if appropriate, supplement that growth with select acquisitions. Our ability
to grow organically depends primarily on generating loans and deposits of acceptable risk and expense, and we may not be
successful in continuing this organic growth. Our ability to identify appropriate markets for expansion, recruit and retain
qualified personnel, and fund growth at a reasonable cost depends upon prevailing economic conditions, maintenance of
sufficient capital, competitive factors, and changes in banking laws, among other factors. Failure to manage our growth
effectively could adversely affect our ability to successfully implement our business strategy, which could have a material
adverse effect on our business, financial condition, results of operations and prospects.
Our continued pace of growth may require us to raise additional capital in the future to fund such growth, and the
unavailability of additional capital on terms acceptable to us could adversely affect our growth and/or our financial
condition and results of operations.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations.
To support our recent and ongoing growth, we have completed a series of capital transactions during the past seven years,
including:
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the sale of $34,750,000 in 5% subordinated notes due July 15, 2025 to accredited investor purchasers in
July 2015;
the sale of $30,000,000 in 4.5% subordinated notes due November 8, 2027 to accredited investor purchasers
in November 2017 and concurrent redemption of $20,000,000 in 5.5% subordinated notes due November
9, 2022; and.
the sale of $34,750,000 in 4% subordinated notes due October 21, 2030 to accredited investor purchasers
in October 2020 and concurrent redemption of $34,750,000 in 5% subordinated notes due July 15, 2025.
After giving effect to these transactions, we believe that we will have sufficient capital to meet our capital needs for our
immediate growth plans. However, we will continue to need capital to support our longer-term growth plans. Our ability to
access the capital markets, if needed, on a timely basis or at all will depend on a number of factors, such as the state of the
financial markets, including prevailing interest rates, a loss of confidence in financial institutions generally, negative
perceptions of our business or our financial strength, or other factors that would increase our cost of borrowing. If capital is
not available on favorable terms when we need it, we will either have to issue common stock or other securities on less than
desirable terms or reduce our rate of growth until market conditions become more favorable. Either of such events could have
a material adverse effect on our business, financial condition, results of operations and prospects.
Competition from financial institutions and other financial service providers may adversely affect our profitability.
The banking business is highly competitive, and we experience competition in our markets from many other financial
institutions. We compete with these other financial institutions both in attracting deposits and in making loans. In addition,
we must attract our customer base from other existing financial institutions and from new residents. Our profitability depends
upon our continued ability to successfully compete with an array of financial institutions in our service areas.
Our ability to compete successfully will depend on a number of factors, including, among other things:
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our ability to build and maintain long-term customer relationships while ensuring high ethical standards
and safe and sound banking practices;
the scope, relevance and pricing of products and services that we offer;
customer satisfaction with our products and services;
industry and general economic trends; and
our ability to keep pace with technological advances and to invest in new technology
Increased competition could require us to increase the rates that we pay on deposits or lower the rates that we offer on loans,
which could reduce our profitability. Our failure to compete effectively in our markets could restrain our growth or cause us
to lose market share, which could have a material adverse effect on our business, financial condition, results of operations
and prospects.
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Unpredictable economic conditions or a natural disaster in any of our market areas may have a material adverse effect
on our financial performance.
Substantially all of our borrowers and depositors are individuals and businesses located and doing business in our markets.
Therefore, our success will depend on the general economic conditions in these areas, which we cannot predict with certainty.
Unlike with many of our larger competitors, the majority of our borrowers are commercial firms, professionals and affluent
consumers located and doing business in such local markets. As a result, our operations and profitability may be more
adversely affected by a local economic downturn or natural disaster in such markets than those of larger, more geographically
diverse competitors. Our entry into Pensacola and Tampa Bay, Florida, Mobile, Alabama and Charleston, South Carolina
increased our exposure to potential losses associated with hurricanes and similar natural disasters that are more common in
coastal areas than in our other markets. Accordingly, any regional or local economic downturn, or natural or man-made
disaster, that affects any of the markets in which we operate, including existing or prospective property or borrowers in such
markets may affect us and our profitability more significantly and more adversely than our more geographically diversified
competitors, which could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Our operations and financial performance could be adversely affected by natural disasters, and climate change can
increase those risks while adding regulatory, compliance, reputational and other risks.
Natural disasters could have a material adverse effect on our financial position and results of operations. Natural disasters,
such as hurricanes, tornados, earthquakes and similar unpredictable weather events, could affect us directly (by interrupting
our systems, damaging our offices or otherwise preventing us from operating our business in the ordinary course) or indirectly
(by damaging or destroying the businesses or properties of our customers or otherwise impairing our customers’ ability to
make loan payments on a timely basis or destroying property pledged as collateral for loans). Our entry into Pensacola and
Tampa Bay, Florida, Mobile, Alabama and Charleston, South Carolina increased our exposure to potential losses associated
with hurricanes and similar natural disasters that are more common in coastal areas than in our other markets.
Climate change may result in new or increased regulatory burdens, which could materially affect our results of operations by
requiring us to implement costly measures to comply with any new laws and regulations related to climate change. Changes
to regulations or market shifts in response to climate change may also impact the businesses of some of our customers, which
may require us to adjust our lending portfolios and business strategies with respect to such customers.
In addition, the investing public is increasingly focused on the financial services industry’s ability to manage environmental
impact. We recently have adopted an Environmental, Social and Governance (“ESG”) Policy in an effort to refine and track
our compliance efforts; however, failure to appropriately manage our environmental impact could have a material adverse
effect on our reputation and harm our ability to attract and retain customers and employees.
We encounter technological change continually and have fewer resources than many of our competitors to invest in
technological improvements.
The banking and financial services industries are undergoing rapid technological changes, with frequent introductions of new
technology-driven products and services. In addition to serving customers better, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our success will depend in part on our ability to address our
customers’ needs by using technology to provide products and services that will satisfy customer demands for convenience,
as well as to create additional efficiencies in our operations. Many of our competitors have greater resources to invest in
technological improvements, and we may not be able to implement new technology-driven products and services, which
could reduce our ability to effectively compete or increase our overall expenses and have a material adverse effect on our net
income.
Our information systems may experience a failure or interruption.
We rely heavily on communications and information systems to conduct our business. Any failure or interruption in the
operation of these systems could impair or prevent the effective operation of our customer relationship management, general
ledger, deposit, lending, or other functions. While we have policies and procedures designed to prevent or limit the effect of
a failure or interruption in the operation of our information systems, there can be no assurance that any such failures or
interruptions will not occur or, if they do occur, that they will be adequately addressed. We will from time to time convert
from one system to another in the normal course of business. Ineffective conversions could cause failure or interruption in
the operation of our information systems. The occurrence of any failures or interruptions impacting our information systems
could damage our reputation, result in a loss of customer business, and expose us to additional regulatory scrutiny, civil
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litigation, and possible financial liability, any of which could have a material adverse effect on our financial condition and
results of operations.
We use information technology in our operations and offer online banking services to our customers. Unauthorized access
to our or our customers’ confidential or proprietary information could expose us to reputational harm and litigation and
adversely affect our ability to attract and retain customers.
Information security risks for financial institutions have increased in recent years, in part because of the proliferation of new
technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased
sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. We are under
continuous threat of loss due to hacking and cyber-attacks. Our risk and exposure to these matters remains heightened because
of the evolving nature and complexity, and the increasing frequency, of these threats from cybercriminals and hackers, our
plans to continue to provide internet banking and mobile banking channels, and our plans to continue to develop additional
remote connectivity solutions to serve our customers. Therefore, the secure processing, transmission, and storage of
information in connection with our online banking services are critical elements of our operations. However, our network is
vulnerable to unauthorized access, computer viruses and other malware, phishing schemes, human error or other security
failures. In addition, our customers may use personal smartphones, tablet PCs, or other mobile devices that are beyond our
control systems in order to access our products and services. Our technologies, systems and networks, and our customers’
devices, have been and will continue to be the target of cyber-attacks, electronic fraud, or information security breaches that
could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of our or our customers’
confidential, proprietary, and other information, or otherwise disrupt our or our customers’ or other third parties’ business
operations. As cyber threats continue to evolve, we continue to spend significant capital and other resources to protect against
these threats or to alleviate or investigate problems caused by such threats. To the extent that our activities or the activities of
our customers involve the processing, storage, or transmission of confidential customer information, any breaches or
unauthorized access to such information would present significant regulatory costs and expose us to litigation and other
possible liabilities. Any inability to prevent these types of security threats could also cause existing customers to lose
confidence in our systems and could adversely affect our reputation and ability to generate deposits. Additionally, our
insurance may be inadequate to compensate us for losses due to a cyber-attack, hacking, or similar technology security breach.
While we have not experienced any material losses relating to cyber-attacks or other information security breaches to date,
we may suffer such losses in the future. The occurrence of any cyber-attack or information security breach could result in
potential liability to clients, reputational damage, damage to our competitive position, and the disruption of our operations,
all of which could adversely affect our financial condition or results of operations.
We are dependent upon outside third parties for the processing and handling of our records and data.
We rely on software developed by third-party vendors to process various transactions. In some cases, we have contracted
with third parties to run their proprietary software on our behalf. These systems include, but are not limited to, general ledger,
payroll, employee benefits, loan and deposit processing, and securities portfolio accounting. While we perform a review of
controls instituted by the applicable vendors over these programs in accordance with industry standards and perform our own
testing of user controls, we must rely on the continued maintenance of controls by these third-party vendors, including
safeguards over the security of customer data. In addition, we maintain, or contract with third parties to maintain daily backups
of key processing outputs in the event of a failure on the part of any of these systems. Nonetheless, we may incur a temporary
disruption in our ability to conduct business or process transactions, or incur damage to our reputation, if the third-party
vendor fails to adequately maintain internal controls or institute necessary changes to systems. Such a disruption or breach
of security may have a material adverse effect on our business.
A security breach related to use of third-party software or systems, or the loss or corruption of confidential customer
information could adversely affect our ability to provide timely and accurate financial information in compliance with legal
and regulatory requirements. Any such failures could result in sanctions from regulatory authorities, significant reputational
harm and a decrease in our customers’ confidence in us. Additionally, security breaches or the loss, theft or corruption of
customer information such as social security numbers, credit card numbers, or other information could result in customer
losses, litigation, regulatory sanctions, losses in revenue, increased costs and reputational harm. Our agreements with outside
third parties include indemnification obligations in the event of any such security breaches; however, there is no assurance
that such third-parties will have sufficient resources to provide full indemnification of all of their customers in the event such
a security breach occurs.
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Our recent results may not be indicative of our future results and may not provide guidance to assess the risk of an
investment in our common stock.
We may not be able to sustain our historical rate of growth and may not be able to further expand our business. In addition,
our recent growth may distort some of our historical financial ratios and statistics. Various factors, such as economic
conditions including inflation rates, regulatory and legislative considerations and competition, may impede or prohibit our
ability to expand our market presence. We have different lending risks than larger banks. We provide services to our local
communities; thus, our ability to diversify our economic risks is limited by our own local markets and economies. We lend
to primarily small to medium-sized businesses, which may expose us to greater lending risks than those faced by other banks
that lend to larger, better-capitalized businesses with longer operating histories. We manage our credit exposure through
careful monitoring of loan applicants and loan concentrations in particular industries, and through our loan approval and
review procedures. Our use of historical and objective information in determining and managing credit exposure may not be
accurate in assessing our risk. Our failure to sustain our historical rate of growth or adequately manage the factors that have
contributed to our growth could have a material adverse effect on our business, financial condition, results of operations and
prospects.
We may have more credit risk and higher credit losses to the extent loans are concentrated by location or industry of the
borrowers or collateral.
Our credit risk and credit losses could increase if our loans are concentrated to borrowers engaged in the same or similar
activities or to borrowers who as a group may be uniquely or disproportionately affected by economic or market conditions.
Deterioration in economic conditions, housing conditions and commodity and real estate values in certain states or locations
could result in materially higher credit losses if loans are concentrated in those locations.
We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real
estate, subjecting us to the costs associated with the ownership of the real property.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment
and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of
real estate. As of December 31, 2021, we held $1.2 million in other real estate owned. The amount that we, as a mortgagee,
may realize after a default is dependent upon factors outside of our control, including, but not limited to: general or local
economic conditions; environmental cleanup liability; neighborhood assessments; interest rates; real estate tax rates;
operating expenses of the mortgaged properties; supply of, and demand for, rental units or properties; ability to obtain and
maintain adequate occupancy of the properties; zoning laws; governmental and regulatory rules; fiscal policies; and natural
disasters. Our inability to manage the amount of costs or size of the risks associated with the ownership of real estate could
have a material adverse effect on our business, financial condition, results of operations and prospects.
Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our
capital and adversely affect our growth and profitability.
The federal bank regulatory agencies have indicated their view that banks with high concentrations of loans secured by
commercial real estate are subject to increased risk and should hold higher capital than regulatory minimums to maintain an
appropriate cushion against loss that is commensurate with the perceived risk. Because a significant portion of our loan
portfolio is dependent on commercial real estate, a change in the regulatory capital requirements applicable to us as a result
of these policies could limit our ability to leverage our capital, which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
We are subject to interest rate risk, which could adversely affect our profitability.
Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the
difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest
expense on interest-bearing liabilities, such as deposits and borrowings. We have positioned our asset portfolio to perform
adequately in both a higher or lower interest rate environment, but this may not remain true in the future. Our interest
sensitivity profile was somewhat asset sensitive as of December 31, 2021, generally meaning that our net interest income
would increase more from rising interest rates than from falling interest rates. Interest rates are highly sensitive to many
factors that are beyond our control, including general economic conditions and policies of various governmental and
regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates,
could influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings,
but such changes could also affect our ability to originate loans and obtain or retain deposits, customer demand for loans, the
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fair value of our financial assets and liabilities, and the average duration of our assets. If the interest rates paid on deposits
and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest
income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates
received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Any
substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business,
financial condition, results of operations and prospects.
In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability
of borrowers to repay their current loan obligations. These circumstances could not only result in increased loan defaults,
foreclosures and charge-offs, but also necessitate further increases to the allowance for credit losses which could have a
material adverse effect on our business, results of operations, financial condition and prospects.
Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.
Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they
come due because of an inability to liquidate assets or obtain adequate funding. An inability to raise funds through deposits,
borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. In particular,
approximately 81% of the bank’s liabilities as of December 31, 2021 were checking accounts and other liquid deposits, which
are payable on demand or upon several days’ notice, while by comparison, 62% of the assets of the bank were loans, which
cannot be called or sold in the same time frame. Our deposit accounts have seen tremendous growth during the COVID-19
pandemic and associated economic downturn, with many of our customers choosing to increase their cash reserves, even
though interest rates have stayed relatively low. Our access to funding sources in amounts adequate to finance our activities
or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry
or economy in general. Market conditions or other events could also negatively affect the level or cost of funding, affecting
our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, satisfy
regulatory capital requirements, and fund asset growth and new business transactions at a reasonable cost, in a timely manner
and without adverse consequences. Any substantial, unexpected or prolonged change in the level or cost of liquidity could
have a material adverse effect on our ability to meet deposit withdrawals and other customer needs, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
The fair value of our investment securities can fluctuate due to factors outside of our control.
As of December 31, 2021, the fair value of our investment securities portfolio was approximately $1.31 billion. Factors
beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse
changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of
the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates or
instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and
realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and
adversely affect our business, results of operations, financial condition and prospects. The process for determining whether
impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial
performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving
all contractual principal and interest payments on the security. Our failure to assess any currency impairments or losses with
respect to our securities could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Deterioration in the fiscal position of the U.S. federal government and downgrades in Treasury and federal agency
securities could adversely affect us and our banking operations.
The long-term outlook for the fiscal position of the U.S. federal government is uncertain, as illustrated by the 2011 downgrade
by certain rating agencies of the credit rating of the U.S. government and federal agencies and questions concerning the
impact of the Tax Cuts and Jobs Act on the long-term fiscal position of the U.S. federal government. Certain credit rating
agencies have highlighted that the U.S. federal government had the highest debt of any AAA-rated sovereign nation, and
there was no credible fiscal consolidation plan in light of the economic shock caused by the COVID-19 pandemic. However,
in addition to causing economic and financial market disruptions, any future downgrade, failure to continue to raise the U.S.
statutory debt limit as needed, or deterioration in the fiscal outlook of the U.S. federal government, could, among other things,
materially adversely affect the market value of the U.S. and other government and governmental agency securities that we
hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable
terms. In particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term
fixed income markets, adversely affecting the cost and availability of funding, which could negatively affect our profitability.
28
Also, the adverse consequences of any downgrade could extend to those to whom we extend credit and could adversely affect
their ability to repay their loans. Any of these developments could have a material adverse effect on our business, financial
condition, results of operations and prospects.
We may be adversely affected by the soundness of other financial institutions.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness
of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and
other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties
in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional
clients. Our transactions with other financial institutions expose us to credit risk in the event of a default of a counterparty.
The soundness of many financial services companies may be closely interrelated as a result of credit, trading, clearing and
other relationships between such financial services companies. As a result, defaults by, or even rumors or questions about,
one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity
problems and could lead to losses or defaults by us or by other institutions. These losses or defaults could have a material
adverse effect on our business, financial condition, results of operations and prospects.
We are subject to environmental liability risk associated with our lending activities.
In the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate. As a result,
we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental
entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in
connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or
chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In
addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination emanating from the property. Any significant
environmental liabilities could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Risks Related to Our Industry
We are subject to extensive regulation in the conduct of our business, which imposes additional costs on us and adversely
affects our profitability.
As a bank holding company, we are subject to federal regulation under the BHC Act, as amended, and the examination and
reporting requirements of various federal and state agencies, including the FDIC and the Alabama Banking Department.
Federal regulation of the banking industry, along with tax and accounting laws, regulations, rules, and standards, may limit
our operations significantly and control the methods by which we conduct business, as they limit those of other banking
organizations. Banking regulations are primarily intended to protect depositors, deposit insurance funds, and the banking
system as a whole, and not stockholders or other creditors. These regulations affect lending practices, capital structure,
investment practices, dividend policy, and overall growth, among other things. For example, federal and state consumer
protection laws and regulations limit the manner in which we may offer and extend credit. In addition, the laws governing
bankruptcy generally favor debtors, making it more expensive and more difficult to collect from customers who become
subject to bankruptcy proceedings.
We also may be required to invest significant management attention and resources to evaluate and make any changes
necessary to comply with applicable laws and regulations, particularly as a result of regulations adopted under the Dodd-
Frank Act resulting from our recent growth in total assets to over $10.0 billion. This allocation of resources, as well as any
failure to comply with applicable requirements, may negatively impact our financial condition and results of operations.
As a bank holding company, we are subject to certain capital requirements that may limit our operations.
As a bank holding company, we are subject to supervision and regulation by the Federal Reserve, including risk-based and
leverage capital requirements. We must maintain certain risk-based and leverage capital ratios as required by the Federal
Reserve, which can change depending on certain economic conditions and our risk profile and growth plans. Compliance
with the capital requirements, including leverage ratios, may limit operations that require the intensive use of capital and
could adversely affect our ability to expand or maintain present business levels. Additionally, failure by our bank to meet
applicable capital requirements could subject us to a variety of regulatory sanctions, up to and including termination of deposit
insurance by the FDIC.
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Changes in laws, government regulation, monetary policy or accounting standards may have a material adverse effect on
our results of operations.
Changes to statutes, regulations, accounting standards or regulatory policies, including changes in their interpretation or
implementation by regulators, could affect us in substantial and unpredictable ways. Such changes could, among other things,
subject us to additional costs and lower revenues, limit the types of financial services and products that we may offer, ease
restrictions on non-banks and thereby enhance their ability to offer competing financial services and products, increase
compliance costs, and require a significant amount of management’s time and attention. Changes in accounting standards
could materially impact, potentially even retroactively, how we report our financial condition and results of our operations.
Failure to comply with statutes, regulations, or policies could result in sanctions by regulatory agencies, civil monetary
penalties, or reputational damage, each of which could have a material adverse effect on our business, financial condition,
and results of operations.
Additionally, like all regulated financial institutions, we are affected by monetary policies implemented by the Federal
Reserve and other federal instrumentalities. A primary instrument of monetary policy employed by the Federal Reserve is
the restriction or expansion of the money supply through open market operations. This instrument of monetary policy
frequently causes volatile fluctuations in interest rates, and it can have a direct, material adverse effect on the operating results
of financial institutions including our business. Borrowings by the United States government to finance government debt may
also cause fluctuations in interest rates and have similar effects on the operating results of such institutions. We do not have
any control over monetary policies implemented by the Federal Reserve or otherwise and any changes in these policies could
have a material adverse effect on our business, financial condition, results of operations and prospects.
Federal and state regulators periodically examine our business and we may be required to remediate adverse examination
findings.
The Federal Reserve, the FDIC and the Alabama Banking Department periodically examine our business, including our
compliance with laws and regulations. If, as a result of an examination, a federal or state banking agency were to determine
that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity, compliance with
various regulations or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any
law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power
to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation
or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our
growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is
concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit
insurance and place us into receivership or conservatorship. Any regulatory action against us could have a material adverse
effect on our business, results of operations, financial condition and prospects.
FDIC deposit insurance assessments may materially increase in the future, which would have an adverse effect on
earnings.
As an FDIC-insured institution, the bank is assessed a quarterly deposit insurance premium. The amount of the premium is
affected by a number of factors, including the risk the bank poses to the Deposit Insurance Fund and the adequacy of the fund
to cover the risk posed by all insured institutions. If either the bank or insured institutions as a whole present a greater risk
to the Deposit Insurance Fund in the future than they do today, if the Deposit Insurance Fund becomes depleted in any material
respect, or if other circumstances arise that lead the FDIC to determine that the Deposit Insurance Fund should be
strengthened, the bank could be required to pay significantly higher deposit insurance premiums and/or additional special
assessments to the FDIC. Those premiums and/or assessments could have a material adverse effect on the bank’s earnings,
thereby reducing the availability of funds to pay dividends to us.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair
lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. The CFPB, the U.S. Department of Justice and other federal
agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s
performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages
and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and
restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance
30
under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business,
financial condition, results of operations and prospects.
Legal and regulatory proceedings and related matters with respect to the financial services industry, including those
directly involving the Company or the Bank, could adversely affect us or the financial services industry in general.
We have been, and may in the future be, subject to various legal and regulatory proceedings. It is inherently difficult to assess
the outcome of these matters, and there can be no assurance that we will prevail in any proceeding or litigation. Any such
matter could result in substantial cost and diversion of our management’s efforts, which could have a material adverse effect
on our financial condition and operating results. Further, adverse determinations in such matters could result in actions by
our regulators that could materially adversely affect our business, financial condition or results of operations.
We establish reserves for legal claims when payments associated with the claims become probable and the costs can be
reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, due
to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings, the actual cost of
resolving a legal claim may be substantially higher than any amounts reserved for that matter. The ultimate resolution of a
pending legal proceeding, depending on the remedy sought and granted, could adversely affect our financial condition and
results of operations.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering
statutes and regulations.
The Bank Secrecy Act, the USA Patriot Act, and other laws and regulations require financial institutions, among other duties,
to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction
reports as appropriate. The Federal Financial Crimes Enforcement Network is authorized to impose significant civil money
penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal
banking agencies, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service.
We are also subject to increased scrutiny of compliance with the rules enforced by the OFAC. If our policies, procedures and
systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include
restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of
our business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money
laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have
a material adverse effect on our business, financial condition, results of operations and prospects.
The replacement of LIBOR as an interest rate index could adversely affect our business and results of operations.
As of December 31, 2021, approximately 5% of our loan portfolio was indexed to the London Interbank Offered Rate
(LIBOR) to calculate interest on the loans. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which
regulates LIBOR, publicly announced that it intended to cease persuading or compelling banks to submit LIBOR rates by the
end of 2021. In subsequent announcements, the Financial Conduct Authority stated that the publication of one-week and two-
month U.S. Dollar LIBOR rates would cease after December 31, 2021, but that the publication of other durations of U.S.
Dollar LIBOR rates would continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, banking
regulators have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would
create safety and soundness risks and that they will examine bank practices accordingly. Regulators therefore discouraged
banks from entering into new contracts that used LIBOR as a reference rate as soon as practicable and in any event by
December 31, 2021.
These announcements and regulatory guidance indicate that the continuation of LIBOR on the current basis cannot be
guaranteed far after 2021 and may cause the LIBOR benchmark to perform differently than it has in the past. Financial
institutions, including our bank, have begun to transition credit and other arrangements which currently utilize LIBOR as a
reference rate to new indices for interest rates. Regulators, industry groups and certain committees have, among other things,
published recommended fall-back language for LIBOR-referenced financial instruments, identified recommended
alternatives for certain LIBOR rates (for example, Ameribor® or the Secured Overnight Financing Rate), and proposed
implementations of the recommended alternatives in floating rate instruments. It is not yet possible to predict whether these
specific recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect
of their implementation may be on the markets for floating-rate financial instruments.
The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our
customers may result in the incurrence of additional expense as part of the transition and may result in disputes with customers
31
over the appropriate substitute index or indices, which could adversely affect our reputation. Although we are currently unable
to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could
have a material adverse effect on our business and results of operations.
Risks Related to Our Common Stock
The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to
sell your shares at the volume, prices and times desired.
The market price of our common stock may be highly volatile, which may make it difficult for you to resell your shares at
the volume, prices and times desired. There are many factors that may impact the market price and trading volume of our
common stock, including, without limitation:
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actual or anticipated fluctuations in our operating results, financial condition or asset quality;
changes in economic or business conditions;
the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the
Federal Reserve;
publication of research reports about us, our competitors, or the financial services industry generally, or
changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or
lack of research reports by industry analysts or ceasing of coverage;
operating and stock price performance of companies that investors deemed comparable to us;
future issuances of our common stock or other securities;
additions to or departures of key personnel;
proposed or adopted changes in laws, regulations or policies affecting us;
perceptions in the marketplace regarding our competitors and/or us;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving our competitors or us;
other economic, competitive, governmental, regulatory and technological factors affecting our operations,
pricing, products and services; and
other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core
market or the financial services industry.
The stock market and, in particular, the market for financial institution stocks, may experience substantial fluctuations, which
may be unrelated to the operating performance and prospects of particular companies. In addition, significant fluctuations in
the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may
materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the
volume, prices and times desired.
The rights of our common stockholders are subordinate to the rights of the holders of our outstanding debt and will be
subordinate to the rights of the holders of any preferred securities or any debt that we may issue in the future.
Our board of directors has the authority to issue in the aggregate up to 1,000,000 shares of preferred stock, and to determine
the terms of each issue of preferred stock, without stockholder approval. Accordingly, you should assume that any shares of
preferred stock that we may issue in the future will also be senior to our common stock. Because our decision to issue debt
or equity securities or incur other borrowings in the future will depend on market conditions and other factors beyond our
control, the amount, timing, nature or success of our future capital raising efforts is uncertain. Because our ability to pay
dividends on our common stock in the future will depend on our and our bank’s financial condition as well as factors outside
of our control, our common stockholders bear the risk that no dividends will be paid on our common stock in future periods
or that, if paid, such dividends will be reduced or eliminated, which may negatively impact the market price of our common
stock.
We and our bank are subject to capital and other requirements which restrict our ability to pay dividends.
In 2014, we began paying quarterly cash dividends. Future declarations of quarterly dividends will be subject to the approval
of our board of directors, subject to limits imposed on us by our regulators. In order to pay any dividends, we will need to
receive dividends from our bank or have other sources of funds. 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 for its payment of dividends if the total of all dividends declared by our bank in any calendar year will exceed
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the total of (1) our bank’s net earnings (as defined by statute) for that year, plus (2) its retained net earnings for the preceding
two years, less any required transfers to surplus. In addition, the bank must maintain certain capital levels, which may restrict
the ability of the bank to pay dividends to us and our ability to pay dividends to our stockholders. As of December 31, 2021,
our bank could pay approximately $449.8 million of dividends to us without prior approval of the Superintendent. However,
the payment of dividends is also subject to declaration by our board of directors, which takes into account our financial
condition, earnings, general economic conditions and other factors, including statutory and regulatory restrictions. There can
be no assurance that dividends will in fact be paid on our common stock in future periods or that, if paid, such dividends will
not be reduced or eliminated. Limitations on our ability to receive dividends from our bank subsidiary could have a material
adverse effect on our liquidity and ability to pay dividends on our common stock or interest and principal on our debt.
Alabama and Delaware law limit the ability of others to acquire the bank, which may restrict your ability to fully realize
the value of your common stock.
In many cases, stockholders receive a premium for their shares when one company purchases another. Alabama and Delaware
law make it difficult for anyone to purchase the bank or us without approval of our board of directors. Thus, your ability to
realize the potential benefits of any sale by us may be limited, even if such sale would represent a greater value for
stockholders than our continued independent operation.
An investment in our common stock is not an insured deposit and is subject to risk of loss.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any deposit insurance fund
or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this
“Risk Factors” section and is subject to the same market forces that affect the price of common stock in any company. As a
result, an investor may lose some or all of their investment in our common stock.
Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a takeover
more difficult.
Certain provisions of our certificate of incorporation, as amended (or our “charter”), and bylaws, as amended, and corporate
and federal banking laws, could make it more difficult for a third party to acquire control of our organization, even if those
events were perceived by many of our stockholders as beneficial to their interests. These provisions, and the corporate and
banking laws and regulations applicable to us:
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provide that special meetings of stockholders may be called at any time by the Chairman of our board of
directors, by the President or by order of the board of directors;
enable our board of directors to issue preferred stock up to the authorized amount, with such preferences,
limitations and relative rights, including voting rights, as may be determined from time to time by the
board;
enable our board of directors to increase the number of persons serving as directors and to fill the vacancies
created as a result of the increase by a majority vote of the directors present at the meeting;
enable our board of directors to amend our bylaws without stockholder approval; and
do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of
common stock entitled to vote in any election of directors to elect all of the directors standing for election,
if they should so choose).
These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including
under circumstances in which our stockholders might otherwise receive a premium over the market price of our shares.
General Risk Factors
The ongoing COVID-19 pandemic and measures intended to prevent its spread may adversely affect our business,
financial condition and operations, and such effects will depend on future developments, which are highly uncertain and
are difficult to predict.
Global health and economic concerns relating to the COVID-19 outbreak and government actions taken to reduce the spread
of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly
increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern
the markets in which we operate, implementing numerous measures to try to contain the virus. Such measures have included
travel bans and restrictions, curfews, quarantines, shelter in place or total lock-down orders and business limitations and
33
shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and
business spending. The availability of vaccines and rates of vaccination have generally been effective in curtailing rates of
infection in many parts of the United States. However, a significant portion of the population remain unvaccinated and the
efficacy of the vaccines in preventing infection and serious illness is believed to deteriorate over time and may be ineffective
against new variants of the virus. The United States government has taken steps to attempt to mitigate some of the more
severe anticipated economic effects of the virus, including the passage of the CARES Act in March of 2020 and, more
recently, an Omnibus COVID Relief Deal in December 2020. There can be no assurance that such steps taken by the United
States government will be effective or achieve their desired results in the near future.
The outbreak has adversely impacted and is likely to continue to adversely impact our workforce and operations and the
operations of our customers and business partners. In particular, we may experience financial losses due to a number of
operational factors impacting us or our customers or business partners, including but not limited to:
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Credit losses resulting from financial stress experienced by our borrowers, especially those operating in
industries most hard hit by government measures to contain the spread of the virus;
Possible business disruptions experienced by our vendors and business partners in carrying out work that
supports our operations;
Heightened levels of cyber and payment fraud, as cyber criminals try to take advantage of the disruption
and increased online activity brought about by the pandemic; and,
Operational failures due to changes in our normal business practices necessitated by our internal measures
to protect our employees and government-mandated measures intended to slow the spread of the virus.
These factors may exist for an extended period of time and may continue to adversely affect our business, financial condition
and operations even after the COVID-19 outbreak has subsided.
The extent to which the pandemic impacts our business, financial condition and operations will depend on future
developments, which are highly uncertain and are difficult to predict, including, but not limited to, its duration and severity,
the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions
can resume. Even after the pandemic has subsided, we may continue to experience materially adverse impacts to our business
as a result of its economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that
has occurred or may occur in the future. Additionally, future outbreaks of COVID-19, or other viruses, may occur.
Among other relief programs, we participated in the PPP and originated almost 7,500 loans for an aggregate balance of
approximately $1.50 billion under the program during 2020 and 2021. PPP loans are fixed, low interest rate loans that are
guaranteed by the SBA and subject to numerous other regulatory requirements, and a borrowers applied to have all or a
portion of the loan forgiven. If PPP borrowers fail to qualify for loan forgiveness, we face a heightened risk of holding these
loans at unfavorable interest rates for an extended time period. While PPP loans are guaranteed by the SBA, various regulatory
requirements will apply to our ability to seek recourse under the guarantees, and related procedures are currently subject to
uncertainty. If a borrower defaults on a PPP loan, these requirements and uncertainties may limit our ability to fully recover
against the loan guarantee or to seek full recourse against the borrower.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic
may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know
the full extent of the impacts on our business, our operations or the global economy as a whole. Therefore, the risk factors
discussed in this Annual Report on Form 10-K could be heightened, changed or be added to in the future. For other factors
that may cause actual results to differ materially from those indicated in any forward-looking statement or projection
contained in this report, see “Forward-Looking Statements” under Part 1, Item 2 above.
Financial disruption or a prolonged economic downturn could materially and adversely affect our business.
Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which has been
exacerbated by the COVID-19 pandemic, resulting in heightened credit risk, reduced valuation of investments and decreased
economic activity. Moreover, many companies have experienced reduced liquidity and uncertainty as to their ability to raise
capital during such periods of market disruption and volatility. In the event that these conditions recur or result in a prolonged
economic downturn, our results of operations, financial position and/or liquidity could be materially and adversely affected.
Many of the other risk factors discussed herein identify risks that result from, or are exacerbated by, financial economic
downturn. These include risks related to our investments portfolio, the competitive environment and regulatory developments.
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As a business operating in the financial services industry, our business and operations may be adversely affected in
numerous and complex ways by weak economic conditions.
Our businesses and operations are sensitive to general business and economic conditions in the United States. If the U.S.
economy weakens, our growth and profitability could be constrained. Uncertainty about the federal fiscal policymaking
process and the medium and long-term fiscal outlook of the federal government is a concern for businesses, consumers and
investors in the United States. In addition, economic conditions in foreign countries could affect the stability of global
financial markets, which could hinder U.S. economic growth. Weak economic conditions are characterized by deflation,
fluctuations in debt and equity capital markets, a lack of liquidity and/or depressed prices in the secondary market for
mortgage loans, increased delinquencies on mortgage, consumer and commercial loans, residential and commercial real estate
price declines and lower home sales and commercial activity. The current economic environment is characterized by rising
interest rates, although rates currently remain at near historic lows, which may impact our ability to generate attractive
earnings through our investment portfolio. Although interest rates are low, deposit levels are high as our customers increase
their cash balances in light of current economic uncertainties. An increase in interest rates could increase competition for
deposits, decrease customer demand for loans due to the higher cost of obtaining credit, result in an increased number of
delinquent loans and defaults or reduce the value of securities held for investment. As domestic inflation continues to increase,
the Federal Reserve is increasingly likely to raise interest rates. All of these factors can individually or in the aggregate be
detrimental to our business, and the interplay between these factors can be complex and unpredictable. Our business also is
significantly affected by monetary and related policies of the U.S. federal government and its agencies. Changes in any of
these policies are influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic
conditions and government policy responses to such conditions could have a material adverse effect on our business, financial
condition, results of operations and prospects.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
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ITEM 2. PROPERTIES.
As of December 31, 2021, we operated through 23 banking offices and 2 loan production offices. Our Woodcrest Place office
also includes our corporate headquarters. Due to our focus on service-oriented banking with limited branch locations, each
of these locations serves as a hub in our banking markets. We believe that our banking offices are in good condition, are
suitable to our needs and, for the most part, are relatively new or refurbished. The following table gives pertinent details about
our banking offices.
State, MSA, Office Address
City
Zip Code
Owned or
Leased
Date Opened
Alabama:
Birmingham-Hoover:
2500 Woodcrest Place (1) ........................................... Birmingham
324 Richard Arrington Jr. Boulevard North ................ Birmingham
5403 Highway 280, Suite 401 ..................................... Birmingham
35209
35203
35242
Owned
Leased
Leased
3/2/2005
12/19/2005
8/15/2006
Total ................................................................................
3 Offices
Huntsville:
401 Meridian Street, Suite 100 .................................... Huntsville
1267 Enterprise Way, Suite A (1) ............................... Huntsville
35801
35806
Leased
Leased
11/21/2006
8/21/2006
Total ................................................................................
2 Offices
Montgomery:
1 Commerce Street, Suite 200 ..................................... Montgomery
7256 Halcyon Park Drive (1) ...................................... Montgomery
36104
36117
Leased
Leased
6/4/2007
9/26/2007
Total ................................................................................
2 Offices
Dothan:
4801 West Main Street (1) .......................................... Dothan
1640 Ross Clark Circle, Suite 307 .............................. Dothan
36305
36301
Leased
Leased
10/17/2008
2/1/2011
Total ................................................................................
2 Offices
Mobile:
2 North Royal Street (1) .............................................. Mobile
4400 Old Shell Road ................................................... Mobile
Total ................................................................................
Daphne-Fairhope-Foley:
36602
36608
Leased
Leased
7/9/2012
9/3/2014
2 Offices
561 Fairhope Ave. Suite 101 (1) ................................. Fairhope
36532
Leased
9/29/2017
Total ................................................................................
Total Offices in Alabama ................................................
1 Office
12 Offices
Florida:
Pensacola-Ferry Pass-Brent:
219 East Garden Street Suite 100 (1) .......................... Pensacola
4980 North 12th Avenue ............................................. Pensacola
32502
32504
Leased
Owned
4/1/2011
8/27/2012
Total ................................................................................
2 Offices
Crestview-Fort Walton Beach-Destin
316 Racetrack Rd Ne .................................................. Ft. Walton Bch.
32547
Owned
8/3/2020
Total ................................................................................
1 Offices
Tampa-St. Petersburg-Clearwater:
4221 West Boy Scout Blvd. (1) .................................. Tampa
33607
Leased
1/4/2016
Total ................................................................................
1 Office
Orlando-Kissimmee-Sanford
485 North Keller Road (2) .......................................... Orlando
32751
Leased
7/1/2021
Total ................................................................................
1 Office
North Port-Sarasota-Bradenton:
247 Tamiami Trail South
Suite 100 ..................................................................... Venice
240 South Pineapple Ave. (2) ..................................... Sarasota
Total ................................................................................
Total Offices in Florida ...................................................
34285
34236
Leased
Leased
1/3/2021
8/1/2019
2 Office
7 Offices
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Georgia:
Atlanta-Sandy Springs-Roswell:
300 Galleria Parkway SE, Suite 100 ........................... Atlanta
2801 Chapel Hill Road ................................................ Douglasville
30339
30135
Leased
Owned
7/1/2015
1/28/2008
Columbus:
6400 Bradley Park Drive, Suite A ............................... Columbus
31904
Leased
8/12/2020
Total Offices in Georgia ..................................................
3 Offices
South Carolina:
Charleston-North Charleston:
701 East Bay Street Suite 503 (1) ............................... Charleston
100 S Main Street Suite I ............................................ Summerville
29403
29483
Leased
Leased
4/20/2015
7/1/2016
Total Offices in South Carolina .......................................
2 Offices
Tennessee:
Nashville:
1801 West End Avenue, Suite 850 (1) ........................ Nashville
37203
Leased
6/4/2013
Total Offices in Tennessee ..............................................
Total Offices ....................................................................
1 Office
25 Offices
(1) Offices relocated to this address. Original offices opened on date indicated.
(2) Property serves as a loan production office.
ITEM 3. LEGAL PROCEEDINGS.
Neither we nor the bank is currently subject to any material legal proceedings. In the ordinary course of business, the bank is
involved in routine litigation, such as claims to enforce liens, claims involving the making and servicing of real property
loans, and other issues incident to the bank’s business. Management does not believe that there are any threatened proceedings
against us or the bank which will have a material effect on our or the bank’s business, financial position or results of
operations.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
37
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is listed on the New York Stock Exchange under the symbol “SFBS.” As of February 22, 2022, there
were 478 holders of record of our common stock. As of the close of business on February 23, 2022, the price of our common
stock was $85.30 per share.
Dividends
On December 20, 2021, our board of directors increased our quarterly cash dividend from $0.20 per share to $0.23 per share.
Subject to the board of directors’ approval and applicable regulatory requirements, we expect to continue paying cash
dividends on a quarterly basis.
The principal source of our cash flow, including cash flow to pay dividends, comes from dividends that the bank pays to us
as its sole shareholder. Statutory and regulatory limitations apply to the bank’s payment of dividends to us, as well as our
payment of dividends to our stockholders. For a more complete discussion on the restrictions on dividends, see “Supervision
and Regulation - Payment of Dividends” in Item 1.
Recent Sales of Unregistered Securities
We had no sales of unregistered securities in 2021 other than those previously reported in our reports filed with the SEC.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers
We made no repurchases of our equity securities, and no “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the
Securities Exchange Act of 1934) purchased any shares of our equity securities during the fourth quarter of the fiscal year
ended December 31, 2021.
Equity Compensation Plan Information
The following table sets forth certain information as of December 31, 2021 relating to stock options, restricted stock and
performance shares granted under our 2009 Amended and Restated Stock Incentive Plan and other options or restricted shares
issued outside of such plans, if any.
Plan Category
Equity Compensation Plans Approved by Security Holders ..............
Equity Compensation Plans Not Approved by Security Holders .......
Total ................................................................................................
Number of
Securities To
Be Issued Upon
Exercise of
Outstanding
Awards (1)
Weighted-
average
Exercise Price
of Outstanding
Awards (2)
499,381 $
-
499,381 $
19.28
-
19.28
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans
3,120,142
-
3,120,142
(1) Includes 353,250 shares related to stock options, 127,478 shares related to non-vested restricted stock and 18,653 shares
related to performance shares (assuming attainment of the maximum payout rate as set forth by the performance criteria).
(2) Excludes restricted shares and performance shares.
ITEM 6. [Reserved].
38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section of the Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and
2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form
10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II,
Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a
reader of the Company’s financial statements with a narrative from the perspective of management on the Company’s
financial condition, results of operations, liquidity and certain other factors that may affect future results. In certain
instances, parenthetical references are made to relevant sections of the Notes to Consolidated Financial Statements to direct
the reader to a further detailed discussion. This section should be read in conjunction with the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Overview
The Company
We are a bank holding company within the meaning of the BHC Act headquartered in Birmingham, Alabama. Through our
wholly-owned subsidiary bank, we operate full service banking offices located in Alabama, Florida, Georgia, South Carolina
and Tennessee. We also operate loan production offices in Florida. Our principal business is to accept deposits from the
public and to make loans and other investments. Our principal source of funds for loans and investments are demand, time,
savings, and other deposits and the amortization and prepayment of loans and borrowings. 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.
2021 Highlights
● Diluted earnings per common share of $3.82 in 2021 increased $0.69, or 22%, from 2020.
● Average loans of $8.73 billion for 2021 increased $570.6 million, or 7%, from a year ago.
● Average deposits of $11.20 billion for 2021 increased $2.22 billion, or 25%, from a year ago.
● Net interest income of $384.8 million in 2021 increased $46.4 million, or 14%, from 2020. Net interest margin of
2.94% in 2021 decreased 37 bps from 3.31% in 2020. The decrease was primarily driven by the continued low
interest rate environment as well as increased liquidity during 2021.
● Noninterest income of $33.5 million in 2021 increased $3.3 million, or 11%, from 2020, primarily due to increases in
credit card income and the value of our interest rate cap, partially offset by decreases in mortgage banking income
and deposit service charges.
● Noninterest expense of $133.1 million in 2021 increased $21.6 million, or 19%, from 2020, primarily driven by a
$9.2 million write down of investments in certain tax credit partnerships.
Impact of the Coronavirus/COVID-19 Pandemic
The COVID-19 pandemic has resulted in government authorities and businesses throughout the world implementing
numerous measures intended to contain and limit the spread of COVID-19, including travel restrictions, border closures,
quarantines, shelter-in-place and lock-down orders, mask and social distancing requirements, and business limitations and
shutdowns. The spread of COVID-19 and increased variants has caused and may continue to cause us to make significant
modifications to our business practices, including establishing strict health and safety protocols for our offices, restricting
physical participation in meetings, events, and conferences. We will continue to actively monitor the situation and may take
further actions that alter our business practices as may be required by federal, state, or local authorities or that we determine
are in the best interest of our employees, customers, or business partners.
The rapidly changing global market and economic conditions as a result of the COVID-19 pandemic have impacted, and are
expected to continue to impact, our operations and business. The broader implications of the COVID-19 pandemic and related
global economic unpredictability on our business, financial condition, and results of operations remain uncertain. For
additional information on how the COVID-19 pandemic has impacted and could continue to negatively impact our business,
see below for specific discussion in the respective areas, and also refer to “Part I, Item 1A, Risk Factors” in this Form 10-K.
39
Results of Operations
The following discussion and analysis presents the more significant factors that affected our financial condition as of
December 31, 2021 and 2020 and results of operations for each of the years then ended. Refer to Management’s Discussion
and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the
SEC on February 25, 2021 (2020 FORM 10-K) for a discussion and analysis of the more significant factors that affected
periods prior to 2020.
Net Income Available to Common Stockholders
Net income available to common stockholders was $207.7 million for the year ended December 31, 2021, compared to $169.5
million for the year ended December 31, 2020. As discussed herein, this increase in net income is primarily attributable to an
increase in noninterest income and a decrease in interest expense, partially offset by an increase in noninterest expense. Basic
and diluted net income per common share were $3.83 and $3.82, respectively, for the year ended December 31, 2021,
compared to $3.15 and $3.13, respectively, for the year ended December 31, 2020. Return on average assets was 1.53% in
2021, compared to 1.59% in 2020, and return on average common stockholders’ equity was 19.26% in 2021, compared to
18.55% in 2020.
The following tables present a summary of our statements of income, including the percent change in each category, for the
years ended December 31, 2021 compared to 2020, and for the years ended December 31, 2020 compared to 2019,
respectively.
Year Ended December 31,
2020
2021
(Dollars in Thousands)
Change from
the Prior Year
Interest income ............................................................................. $
Interest expense ............................................................................
Net interest income ...................................................................
Provision for credit losses ............................................................
Net interest income after provision for credit losses ................
Noninterest income ......................................................................
Noninterest expense .....................................................................
Income before income taxes .....................................................
Income taxes ................................................................................
Net income ...............................................................................
Dividends on preferred stock .......................................................
Net income available to common stockholders ........................ $
416,305 $
31,802
384,503
31,517
352,986
33,452
133,089
253,349
45,615
207,734
62
207,672 $
389,022
50,985
338,037
42,434
295,603
30,116
111,511
214,208
44,639
169,569
63
169,506
7.01 %
(37.62 %)
13.75 %
(25.73 %)
19.41 %
11.08 %
19.35 %
18.27 %
2.19 %
22.51 %
(1.59 %)
22.52 %
Year Ended December 31,
2020
2019
(Dollars in Thousands)
Change from
the Prior Year
Interest income ............................................................................. $
Interest expense ............................................................................
Net interest income ...................................................................
Provision for credit losses ............................................................
Net interest income after provision for credit losses ................
Noninterest income ......................................................................
Noninterest expense .....................................................................
Income before income taxes .....................................................
Income taxes ................................................................................
Net income ...............................................................................
Dividends on preferred stock .......................................................
Net income available to common stockholders ........................ $
389,022 $
50,985
338,037
42,434
295,603
30,116
111,511
214,208
44,639
169,569
63
169,506 $
390,803
103,158
287,645
22,638
265,007
23,982
102,128
186,861
37,618
149,243
63
149,180
(0.46 %)
(50.58 %)
17.52 %
87.45 %
11.55 %
25.58 %
9.19 %
14.63 %
18.66 %
13.62 %
- %
13.63 %
40
Performance Ratios
The following table presents selected ratios of our results of operations for the years ended December 31, 2021, 2020 and
2019.
For the Years Ended December 31,
2020
2021
2019
Return on average assets ................................................
Return on average stockholders' equity ..........................
Dividend payout ratio .....................................................
Net interest margin (1) ...................................................
Efficiency ratio (2) .........................................................
Average stockholders' equity to average total assets ......
1.53%
19.27%
20.98%
2.94%
31.84%
7.95%
1.59%
18.55%
22.39%
3.31%
30.29%
8.59%
1.73%
19.16%
21.76%
3.46%
32.75%
9.02%
(1) Net interest margin in 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.
Net Interest Income
Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing
liabilities used to support such assets. Net interest income is the single largest component of operating revenues. Management
seeks to optimize this revenue while balancing interest rate, credit, and liquidity risks. 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.
Net interest income increased 13.7% for the year ended December 31, 2021 from the year ended December 31, 2020. Net
interest income increased primarily due to the large increase in average earning assets discussed below. Total interest expense
decreased 37.6% year-over-year, which also factored into the increase in net interest income. The primary driver of the
decrease in our interest expense was the decrease in average rates paid on interest-bearing liabilities. As reflected in the net
interest margin discussion below, average interest rate yields on average earning assets negatively impacted our interest
income to a lesser amount.
Average earning assets increased 27.9% in 2021 from 2020, which was primarily driven by the increase in loans and interest-
bearing deposits in the bank. Excluding the impact of PPP loan forgiveness, all of our regional markets grew loans during
2021. All of our regional markets grew deposits during 2021.
Average interest-bearing liabilities increased 21.6% in 2021 from 2020, which reflects the increase in interest-bearing
deposits. The increase in interest-bearing deposits was mostly attributable to PPP loan proceeds remaining in customer deposit
accounts and organic growth of our deposit base. Despite the increase in average interest-bearing liabilities, interest expense
decreased 37.6% primarily due to the low rate environment and a more favorable deposit mix.
41
Net Interest Margin Analysis
The banking industry uses two key ratios to measure relative profitability of net interest revenue, which are the net interest
spread and the net interest margin. The net interest spread measures the difference between the average yield on interest-
earning assets and the average rate paid on interest-bearing liabilities. The net interest spread eliminates the effect of
noninterest-earning assets as well as noninterest-bearing deposits and other noninterest-bearing funding sources and gives a
direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability
of a company’s balance sheet and is defined as net interest revenue as a percentage of total average interest-earning assets,
which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and
stockholders’ equity.
The net interest margin is impacted by the average volumes of interest-sensitive assets and interest-sensitive liabilities and
by the difference between the yield on interest-sensitive assets and the cost of interest-sensitive liabilities (spread). Loan fees
collected at origination represent an additional adjustment to the yield on loans. Our spread can be affected by economic
conditions, the competitive environment, loan demand, and deposit flows. The net yield on earning assets is an indicator of
effectiveness of our ability to manage the net interest margin by managing the overall yield on assets and cost of funding
those assets.
The following table shows, for the years ended December 31, 2021, 2020 and 2019, the average balances of each principal
category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue, and the change in interest
income and interest expense segregated into amounts attributable to changes in volume and changes in rates. This table is
presented on a taxable equivalent basis, if applicable.
Average Balance Sheets and Net Interest Analysis
On a Fully Taxable-Equivalent Basis
For the Year Ended December 31,
(In thousands, except Average Yields and Rates)
2021
Interest
Earned /
Paid
Average
Yield /
Rate
Average
Balance
2020
Interest
Earned /
Paid
Average
Yield /
Rate
2019
Interest
Earned /
Paid
Average
Balance
Average
Yield /
Rate
Average
Balance
Assets:
Interest-earning assets:
Loans, net of unearned
income (1)(2):
Taxable ............................. $ 8,698,782 $384,675
1,094
Tax-exempt (3) .................
26,779
Total loans, net of unearned
4.42% $ 8,123,927 $ 361,370
1,274
31,064
4.09
4.45% $ 6,831,998 $ 352,996
1,338
33,131
4.10
5.17%
4.04
income .............................. 8,725,561 385,769
4.42 8,154,991 362,644
4.45 6,865,129 354,334
5.16
Mortgage loans held for
sale ...................................
8,242
155
1.88
14,337
231
1.61
4,970
156
3.14
Debt securities:
Taxable .............................
Tax-exempt (3) .................
Total debt securities (4) ........
Federal funds sold ................
Restricted equity securities ...
Interest-bearing balances
980,462 25,413
14,983
369
995,445 25,782
29
7
17,091
220
2.59
2.46
2.59
0.17
3.18
34,975
801,134 22,122
870
836,109 22,992
332
-
61,712
-
2.76 588,082 17,008
2.49
1,563
68,805
2.75 656,887 18,571
6,038
0.54 267,327
-
-
-
2.89
2.27
2.83
2.26
-
with banks ........................ 3,351,462
4,840
Total interest-earning assets . $13,098,021 $416,582
0.14 1,170,095
3,165
3.18% $10,237,244 $ 389,364
0.27 536,765 12,020
3.80% 8,331,078 391,119
2.24
4.69%
Non-interest-earning assets:
Cash and due from banks .....
Net premises and
81,539
equipment .........................
60,798
Allowance for loan losses,
accrued interest and other
assets ................................
314,863
Total assets ............................... $13,555,221
77,413
57,310
73,226
58,419
272,900
$10,644,867
175,881
$ 8,638,604
42
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
deposits ............................... $ 1,394,678
110,968
7,585 0.82%
Savings ....................................
320 0.56
Money market ......................... 5,202,374 13,697 0.26 4,519,170 25,758 0.57 4,038,143 67,998 1.68
Time deposits (5) ....................
836,098 15,446 1.85 702,245 15,055 2.14
Total interest-bearing
2,687 0.19% 1,059,629
77,364
3,752 0.35% 928,611
57,078
9,988 1.24
274 0.35
197 0.18
805,982
deposits ............................... 7,514,002 26,569 0.35 6,492,261 45,230 0.70 5,726,077 90,958 1.59
9,076 2.28
3,124 4.83
2,700 0.43 398,679
64,684
3,055 4.72
2,473 0.21
2,760 4.27
627,561
64,709
Federal funds purchased .......... 1,160,745
Other borrowings ....................
64,696
Total interest-bearing
liabilities .............................. $ 8,739,443 $ 31,802 0.36% $ 7,184,531 $ 50,985 0.71% 6,189,440 103,158 1.67%
Non-interest-bearing liabilities:
Non-interest-bearing
checking .............................. 3,689,311
Other liabilities ........................
48,392
Stockholders' equity ................ 1,059,317
Unrealized gains on
securities .............................
Total liabilities and
18,758
2,492,500
53,874
898,023
1,632,385
37,708
777,757
15,939
1,314
stockholders' equity ......... $ 13,555,221
$ 10,644,867
$ 8,638,604
Net interest income .....................
Net interest spread .......................
Net interest margin (6) ................
$ 384,780
$ 338,379
$ 287,961
2.82%
2.94%
3.09%
3.31%
3.02%
3.46%
(1) Non-accrual loans are included in average loan balances in all periods. Loan fees of $35,204, $19,408 are included in interest income
in 2021 and 2020, respectively.
(2) Accretion on acquired loan discounts of $100 is included in interest income in 2020.
(3) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.
(4) Unrealized gains of $25,276 and $18,955 are excluded from the yield calculation in 2021 and 2020, respectively.
(5) Accretion on acquired CD premiums of $75 and $63 are included in interest expense in 2021 and 2020, respectively.
(6) Net interest margin is net interest revenue divided by average interest-earning assets.
43
The following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-
bearing assets and liabilities.
For the Year Ended December 31,
2021 Compared to 2020 Increase
(Decrease) in Interest Income and
Expense Due to Changes in:
Rate
Total
Volume
2020 Compared to 2019 Increase
(Decrease) in Interest Income and
Expense Due to Changes in:
Rate
Total
Volume
Interest-earning assets:
Loans, net of unearned income:
Taxable ................................... $
Tax-exempt ............................
Total loans, net of unearned
income ....................................
Mortgage loans held for sale ......
Debt securities:
Taxable ...................................
Tax-exempt ............................
Total debt securities ...................
Federal funds sold ......................
Restricted equity securities ........
Interest-bearing balances with
25,432 $
(175)
(2,127) $
(5)
23,305 $
(180)
61,402 $
(85)
(53,028) $
21
25,257
(110)
(2,132)
34
23,125
(76)
61,317
180
(53,007)
(105)
4,713
(492)
4,221
(156)
7
(1,422)
(9)
(1,431)
(147)
-
3,291
(501)
2,790
(303)
7
5,914
(830)
5,084
(2,867)
-
(800)
137
(663)
(2,839)
-
8,374
(64)
8,310
75
5,114
(693)
4,421
(5,706)
-
banks ......................................
Total interest-earning assets ...
3,700
32,919
(2,025)
(5,701)
1,675
27,218
7,037
70,751
(15,892)
(72,506)
(8,855)
(1,755)
Interest-bearing liabilities:
Interest-bearing demand
deposits...................................
Savings.......................................
Money market ............................
Time deposits .............................
Total interest-bearing deposits ...
Federal funds purchased ............
Other borrowed funds ................
Total interest-bearing
965
92
3,435
(538)
3,954
1,568
(1)
(2,030)
(169)
(15,496)
(4,920)
(22,615)
(1,795)
(294)
(1,065)
(77)
(12,061)
(5,458)
(18,661)
(227)
(295)
949
93
7,282
2,640
10,964
3,459
1
(4,782)
(139)
(49,522)
(2,249)
(56,692)
(9,835)
(70)
(3,833)
(46)
(42,240)
391
(45,728)
(6,376)
(69)
liabilities ..........................
5,521
(24,704)
(19,183)
14,424
(66,597)
(52,173)
Increase (decrease) in net interest
income ....................................... $
27,398 $
19,003 $
46,401 $
56,327 $
(5,909) $
50,418
* The rate/volume variance is allocated on a pro rata basis between the volume variance and the rate variance in the table
above.
In the table above, changes in net interest income are attributable to (a) changes in average balances (volume variance), (b)
changes in rates (rate variance), or (c) changes in rate and average balances (rate/volume variance). The volume variance is
calculated as the change in average balances times the previous period. The rate variance is calculated as the change in rates
times the previous period average balance. The rate/volume variance is calculated as the change in rates times the change in
average balances.
From 2020 to 2021, growth in loans was the primary driver of our volume component change. Growth in average balances
of interest-bearing balances with banks was a significant contributor to our overall unfavorable volume change. The rate
component was unfavorable as average rates paid on interest-bearing liabilities decreased 35 basis points while yields on
average earning assets decreased 62 basis points.
The two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits.
We have been responsive to market declines in deposit rates as federal aid money has been inserted into the banking system
in response to the COVID-19 outbreak. We dropped our deposit rates five times during 2020, while our deposit rates remained
unchanged during 2021. Also, we have not competed for new loans on interest rate alone, but rather we have relied
significantly on effective marketing to attract business customers.
44
Our net interest spread and net interest margin were 2.82% and 2.94%, respectively, for the year ended December 31, 2021,
compared to 3.09% and 3.31%, respectively, for the year ended December 31, 2020. The decrease in net interest spread and
net interest margin was primarily attributable to increases in average interest-bearing balances with banks, which more than
tripled to $3.4 billion in 2021. The majority of these funds were kept at the Federal Reserve, which only earned an average
interest rate of 0.127% during 2021. Our average interest-earning assets for the year ended December 31, 2021 increased
$2.86 billion, or 27.9%, to $13.1 billion from $10.24 billion for the year ended December 31, 2020. Average loans grew
$570.6 million, or 7.0%, average debt securities grew $159.6 million, or 19.1%, and average federal funds sold and interest-
bearing balances with banks grew $2.14 billion, or 173.5%. Our average interest-bearing liabilities increased $1.55 billion,
or 21.6%, to $8.74 billion for the year ended December 31, 2021 from $7.18 billion for the year ended December 31, 2020.
All of our markets had an increase in total deposits during 2021. The ratio of our average interest-earning assets to average
interest-bearing liabilities increased from 142.5% for the year ended December 31, 2020 to 149.9% for the year ended
December 31, 2021, as average noninterest-bearing deposits and stockholders’ equity grew by a combined $1.36 billion, or
40.0%, from 2020 to 2021.
Our average interest-earning assets produced a taxable equivalent yield of 3.18% for the year ended December 31, 2021,
compared to 3.80% for the year ended December 31, 2020. The average rate paid on interest-bearing liabilities was 0.36%
for the year ended December 31, 2021, compared to 0.71% for the year ended December 31, 2020.
Provision for Credit Losses
The provision for credit losses represents the amount determined by management to be necessary to maintain the allowance
for credit losses (“ACL”) at a level capable of absorbing expected credit losses over the contractual life of loans in the loan
portfolio. See the section captioned “Allowance for Credit Losses” located elsewhere in this item for additional discussion
related to provision for credit losses.
The provision expense for credit losses decreased 25.7% for the year ended December 31, 2021 when compared to the year-
ended December 31, 2020. The decrease in provision expense is primarily the result of a $26.3 million decrease in net charge-
offs as well as improvement in economic projections used to inform loss driver forecasts with the ACL model. Nonperforming
loans decreased to $12.1 million, or 0.13% of total loans, at December 31, 2021 from $19.0 million, or 0.22% of total loans,
at December 31, 2020. During 2021, we had net charged-off loans totaling $2.8 million, compared to net charged-off loans
of $29.1 million for 2020. The ratio of net charged-off loans to average loans was 0.03% for 2021 compared to 0.36% for
2020. The ACL for December 31, 2021 totaled $116.7 million, or 1.22% of loans, net of unearned income. The ACL totaled
$87.9 million, or 1.04% of loans, net of unearned income, at December 31, 2020.
Noninterest Income
Noninterest income for the years ended December 31, 2021 and 2020 were as follows.
2021
2020
Change
Percentage
change
Service charges on deposit accounts ..................... $
Mortgage banking .................................................
Credit card income ................................................
Securities gains .....................................................
Increase in cash surrender value life insurance .....
Other operating income .........................................
Total noninterest income ................................... $
6,839 $
7,340
7,347
620
6,642
4,664
33,452 $
7,528 $
8,747
5,916
-
6,310
1,615
30,116 $
(689 )
(1,407 )
1,431
620
332
3,049
3,336
(9.2 %)
(16.1 %)
24.2 %
N/M
5.3 %
188.8 %
11.1 %
Noninterest income increased $3.3 million, or 11.1%, to $33.5 million in 2021 from $30.1 million in 2020, primarily due to
increases in credit card income and the value of our interest rate cap, partially offset by decreases in mortgage banking income
and deposit service charges. The value of our interest rate cap derivative increased from $139,000 as of December 31, 2020
to $1.2 million as of December 31, 2021, primarily a result of increased probabilities of rate hikes by the Federal Reserve
during 2022. Merchant service revenue increased $666,000, or 118.1%, to $1.2 million in 2021 compared to 2020. Service
charges on deposit accounts decreased $689,000, or 9.2%, to $6.8 million in 2021 compared to $7.5 million 2020 due to
analyzed costs that supported the growth in non-interest deposits, settlement services, and correspondent banks added during
2021. Mortgage banking income decreased $1.4 million, or 16.1%, to $7.3 million in 2021 compared to $8.7 million in 2020.
The bank began retaining mortgage loans otherwise originated for sale during the third quarter of 2021 to leverage our excess
liquidity and increase yields on earning assets. As of December 31, 2021, we had retained a total of 202 1-4 family mortgages
45
for an aggregate balance of $76.9 million. Credit card income increased $1.4 million, or 24.2%, to $7.3 million in 2021
compared to $5.9 million in 2020. The number of credit card accounts increased 31.5% from 2020 to 2021 while the aggregate
amount of spend on all credit card accounts increased 36%. The increase in cash surrender value of bank-owned life insurance
contracts increased $332,000, or 5.3%, to $6.6 million in 2021 compared to $6.3 million 2020. We purchased multiple life
insurance contracts totaling $60.7 million during the second half of 2020. Other operating income increased 188.8% in 2021
compared to 2020.
Noninterest Expense
Noninterest expense for the years ended December 31, 2021 and 2020 were as follows.
$
Salaries and employee benefits
Equipment and occupancy expense
Third party processing and other services
Professional services
FDIC and other regulatory assessments
Other real estate owned expense
Other operating expenses
Total noninterest expenses
$
2021
2020
Change
67,728 $
11,404
16,362
3,891
5,679
868
27,157
133,089 $
61,414 $
10,070
13,778
4,242
4,354
2,163
15,490
111,511 $
6,314
1,334
2,584
(351 )
1,325
(1,295 )
11,667
21,578
Percentage
change
10.3 %
13.2 %
18.8 %
(8.3 %)
30.4 %
(59.9 %)
75.3 %
19.4 %
Noninterest expenses increased $21.6 million, or 19.4%, to $133.1 million for the year ended December 31, 2021 from $111.5
million for the year ended December 31, 2020. Increased salaries and employee benefits expenses, deconversion expense
associated with our change in system hosting vendors and write-downs of certain tax credit equity investments were the
primary drivers of the increase in noninterest expense. Salary and employee benefits expenses increased $6.3 million, or
10.3%, to $67.7 million in 2021 compared to 2020. We had 502 full-time equivalent employees as of December 31, 2021
compared to 493 as of December 31, 2020, a 1.8% increase. Incentive expense increased 37.4% year over year. We increased
our annual incentive accrual based on the increased loan production in 2021 and on final anticipated payouts for 2021 PPP
loan originations. Equipment and occupancy expense increased $1.3 million, or 13.2%, to $11.4 million in 2021 compared
to 2020. Third party processing and other services increased $2.6 million or 18.8%, to $16.4 million in 2021 compared to
2020. We incurred a 25% increase in core system hosting charges with our current vendor when we notified them that we
would be converting to another vendor in 2022. Increased service charges from the Federal Reserve Bank of Atlanta are the
result of increased processing of transactions by us for our correspondent banking clients. Professional services expense
decreased $351,000, or 8.3%, in 2021 compared to 2020. FDIC assessments increased $1.3 million, or 30.4% to $5.7 million
from 2020 to 2021. This increase was primarily the result of increased assets which increases our assessment base. Expenses
on other real estate owned decreased $1.3 million to $868,000 in 2021 compared to $2.1 million in 2020. Other operating
expenses increased $11.7 million, or 75.3%, to $27.2 million in 2021 compared to 2020. The primary driver of the increase
in other operating expense was an $8.8 million write down of equity investments totaling $40.0 million in two Federal New
Market Tax Credit partnerships during 2021. We recognized $10.5 million in tax credits related to these Federal New Market
Tax Credit partnerships in 2021, which is recorded in provision for income taxes on the consolidated statement of income.
Changes in other operating expenses from 2020 to 2021 are detailed in Note 15 - “Other Operating Income and Expenses,”
to the Consolidated Financial Statements.
Income Tax Expense
Income tax expense was $45.6 million for the year ended December 31, 2021 compared to $44.6 million in 2020. Our effective
tax rates for 2021 and 2020 were 18.00% and 20.84%, respectively. We recognized $10.5 million in credits during 2021
related to new investments in two Federal New Market Tax Credits. We also 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 2021 of $2.8
million, compared to $1.6 million during 2020. Our primary permanent differences are related to tax exempt income on debt
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 have invested $248.2 million in bank-owned life insurance for certain officers of the Bank. The periodic increases in cash
surrender value of those policies are tax exempt and therefore contribute to a larger permanent difference between book
income and taxable income.
46
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 majority-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.
Financial Condition
Assets
Total assets as of December 31, 2021, were $15.45 billion, an increase of $3.52 billion, or 29.5%, over total assets of $11.93
billion as of December 31, 2020. Average assets for the year ended December 31, 2021 were $13.56 billion, an increase of
$2.91 billion, or 27.3%, over average assets of $10.64 billion for the year ended December 31, 2020. Growth in loans, interest-
bearing balances with banks, and federal funds sold were the primary reasons for the increase in ending and average total
assets. Year-end 2021 loans were $9.53 billion, up $1.07 billion, or 12.6%, over year-end 2020 total loans of $8.47 billion.
Paycheck Protection Program (“PPP”) loans decreased from $900.5 million at December 31, 2020 to $230.2 million at
December 31, 2021. Excluding this decrease in PPP loans, total loans increased $1.74 billion, or 23.0% during 2021.
Earning assets include loans, securities, short-term investments and bank-owned life insurance contracts. We maintain a
higher level of earning assets in our business model than do our peers because we allocate fewer of our resources to facilities,
ATMs, and cash and due-from-bank accounts used for transaction processing. Earning assets as of December 31, 2021 were
$15.30 billion, or 99.0% of total assets of $15.45 billion. Earning assets as of December 31, 2020 were $11.76 billion, or
98.6% of total assets of $11.93 billion. We believe this ratio is expected to generally continue at these levels, although it may
be affected by economic factors beyond our control.
Investment Portfolio
We view the investment portfolio as a source of income and liquidity. Our investment strategy is to accept a lower immediate
yield in the investment portfolio by targeting shorter term investments. At December 31, 2021, mortgage-backed securities
represented 56.6% of the investment portfolio, corporate debt represented 29.1% of the investment portfolio, state and
municipal securities represented 1.7% of the investment portfolio, government agency securities represented 0.5%, and U.S.
Treasury securities represented 12.1% of the investment portfolio.
All of our investments in mortgage-backed securities are pass-through mortgage-backed securities. We do not have currently,
and did not have at December 31, 2021, any structured investment vehicles or any private-label mortgage-backed securities.
The amortized cost of securities in our portfolio totaled $1.29 billion at December 31, 2021, compared to $861.2 million at
December 31, 2020.
47
The following table presents the book value and weighted average yield of our securities as of December 31, 2021 by their
stated maturities (this maturity schedule excludes security prepayment and call features).
After One
Year
through
Maturity of Debt Securities - Weighted Average Yield
After Five
Years
through Ten
Years
(In Thousands)
More Than
Ten Years
Five Years
One Year or
Less
Total
At December 31, 2021:
Securities Available for Sale:
U.S. Treasury Securities .......................... $
Government Agency Securities ...............
Mortgage-backed securities .....................
State and municipal securities .................
Corporate debt .........................................
Total ............................................................ $
5,997 $
6,001
23
5,934
14,981
32,936 $
3,006 $
21
2,562
6,709
22,025
34,323 $
- $
-
80,729
8,793
329,613
419,135 $
- $
-
341,058
94
3,000
344,152 $
9,003
6,022
424,372
21,530
369,619
830,546
Tax-equivalent Yield (1)
U.S. Treasury Securities ..........................
Government Agency Securities ...............
Mortgage-backed securities .....................
State and municipal securities .................
Corporate debt .........................................
Total weighted average yield (2) ................
Securities Held to Maturity:
2.07%
2.10
2.97
2.13
3.69
2.82%
1.59%
5.09
2.63
2.30
4.63
3.76%
-%
-
2.43
1.94
4.37
3.95%
-%
-
1.30
5.96
4.50
1.33%
1.91%
2.11
1.52
2.12
4.36
2.81%
U.S. Treasury Securities .......................... $
Mortgage-backed securities .....................
State and municipal securities .................
Total ............................................................ $
- $
-
250
250 $
49,663 $
-
-
49,663 $
99,600 $
-
2,803
102,403 $
- $
310,641
-
310,641 $
149,263
310,641
3,053
462,957
Tax-equivalent Yield (1)
U.S. Treasury Securities ..........................
Mortgage-backed securities .....................
State and municipal securities .................
Total weighted average yield (2) ................
-%
-
3.21
3.21%
1.15%
-
-
1.15%
1.31%
-
1.85
1.33%
-%
2.23
-
2.23%
1.26%
2.23
1.96
1.91%
(1) Yields on tax-exempt securities are computed on a fully tax-equivalent basis using a tax rate of 21% and are net of the
effects of certain disallowed interest deductions.
(2) Weighted Average Yield is calculated by taking the sum of each category of securities multiplied by the respective tax-
equivalent yield for a given maturity, and dividing by the sum of the securities for the same maturity.
As of December 31, 2021, we had $58.4 million in federal funds sold, compared with $1.8 million at December 31, 2020. At
year-end 2021, there were no holdings of securities of any issuer, other than the U.S. government and its agencies, in an
amount greater than 10% of stockholders’ equity.
During the fourth quarter of 2021, the bank began buying U.S. Treasury Securities and Mortgage-backed securities to absorb
excess liquidity. The bank is currently targeting the addition of $50 million per month, net of paydowns and maturities, of
each of these categories of debt securities during 2022.
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.
48
Loan Portfolio
The following is a condensed overview of changes in our loan portfolio. Please see Note 3 - “Loans” in the Notes to
Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data elsewhere in this report
for a more detailed analysis of our loan portfolio by type of loan.
Section 1102 of the CARES Act created the Paycheck Protection Program, a program administered by the SBA to provide
loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Our bank participated in the
PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA.
Additionally, loan payments will also be deferred for the first six months of the loan term. The PPP commenced on April 3,
2020 and was available to qualified borrowers through August 8, 2020. No collateral or personal guarantees were required
from borrowers and neither the government nor lenders were permitted to charge the recipients any fees.
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act (“CAA”). The CAA, among
other things, extended the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. Effective
May 28, 2021, the PPP was closed to new applications. Additionally, section 541 of the CAA extended the relief provided
by the CARES Act for financial institutions to suspend the GAAP accounting treatment for troubled debt restructuring to
January 1, 2022.
We funded approximately 7,400 loans for a total amount of $1.5 billion for clients under the PPP since April 2020. To the
extent the PPP loans are forgiven, this represents outside funds to our borrowers; and, especially with respect to vulnerable
industries, we believe these capital injections have been instrumental in assisting our borrowers in navigating through the
pandemic. This capital injection, along with the level of capital each borrower had immediately prior to the beginning of the
COVID-19 pandemic, are critical factors in determining the continued business viability of our borrowers. As of January 31,
2022, we have received payment from the SBA on almost 6,300 of our loans totaling $1.3 billion.
We had total loans of approximately $9.5 billion at December 31, 2021. A large majority of our loan customers are located
within our market MSAs, as is the collateral for their loans. With our loan portfolio concentrated in a limited number of
markets, there is a risk that our borrowers’ ability to repay their loans from us could be affected by changes in local and
regional economic conditions.
The following table details our loans at December 31, 2021, 2020 and 2019:
2021
2020
(Dollars in Thousands)
3,295,900 $
593,614
2,984,053 $
1,103,076
1,874,103
826,765
2,678,084
5,378,952
66,853
9,532,934
(116,660)
9,416,274 $
1,693,428
711,692
2,106,184
4,511,304
64,870
8,465,688
(87,942)
8,377,746 $
2019
2,696,210
521,392
1,587,478
644,188
1,747,394
3,979,060
64,789
7,261,451
(76,584)
7,184,867
Commercial, financial and agricultural ......................................... $
Real estate – construction ..............................................................
Real estate - mortgage:
Owner-occupied commercial .....................................................
1-4 family mortgage ..................................................................
Other mortgage ..........................................................................
Total real estate – mortgage ...................................................
Consumer ......................................................................................
Total Loans ................................................................................
Less: Allowance for credit losses ..................................................
Net Loans ................................................................................... $
49
The following table details the percentage composition of our loan portfolio by type at December 31, 2021, 2020 and 2019:
2021
2020
2019
Commercial, financial and agricultural ........................................
Real estate – construction .............................................................
Real estate - mortgage:
Owner-occupied commercial ....................................................
1-4 family mortgage .................................................................
Other mortgage .........................................................................
Total real estate – mortgage ..................................................
Consumer .....................................................................................
Total Loans ...............................................................................
31.30%
11.57
19.66
8.67
28.10
56.43
0.70
100.00%
38.93%
7.01
20.00
8.41
24.88
53.29
0.77
100.00%
37.13%
7.18
21.86
8.87
24.07
54.80
0.89
100.00%
The following table details maturities and sensitivity to interest rate changes for our loan portfolio at December 31, 2021:
Due in 1
year or less
After 1 year
After 5
years
to 5 years to 15 years 15 years
(in Thousands)
After
Total
308,656 $
110,032
1,505 $ 2,984,053
2,398 1,103,076
Commercial, financial and agricultural ............ $ 1,225,142 $ 1,448,750 $
Real estate – construction .................................
661,448
Real estate - mortgage:
Owner-occupied commercial ...........................
1-4 family mortgage .....................................
Other mortgage
767,001
866,574
229,010
212,248
75,456
251,122
398,939 1,760,865
494,468
703,405 2,878,561 1,473,717
2,046
22,211
42,596
Total Loans ................................................... $ 2,300,341 $ 5,010,970 $ 1,894,451 $
Total real estate – mortgage ......................
Consumer .........................................................
329,198
11,518 1,874,103
826,765
287,939
23,812 2,678,084
323,269 5,378,952
66,853
327,172 $ 9,532,934
(116,660)
$ 9,416,274
-
Less: Allowance for loan losses .......................
Net Loans ......................................................
Amount due after one year at
fixed interest rates:
Commercial, financial and agricultural ............ $ 1,152,531
Real estate – construction .................................
343,010
Real estate - mortgage:
Owner-occupied commercial ........................ 1,476,554
1-4 family mortgage .....................................
394,915
Other mortgage ............................................. 1,940,535
Total real estate – mortgage ...................... 3,812,004
14,583
Total loans .................................................... $ 5,322,128
Consumer .........................................................
Amount due after one year at
variable interest rates:
Commercial, financial and agricultural ............ $
Real estate – construction .................................
Real estate - mortgage:
606,380
430,868
Owner-occupied commercial ........................
1-4 family mortgage .....................................
Other mortgage .............................................
Total real estate – mortgage ......................
Consumer .........................................................
168,539
356,394
338,610
863,543
9,674
Total loans .................................................... $ 1,910,465
50
Asset Quality
The following table presents a summary of the allowance for credit losses, net charge-offs and certain credit ratios for the
years ended December 31, 2021, 2020 and 2019.
Allowance for credit losses to total loans outstanding ................
Allowance for credit losses (1) ................................................ $
Total loans outstanding ............................................................ $
As of and for the Years Ended December 31,
2020
2021
(Dollars in Thousands)
1.04%
87,942 $
8,465,688 $
1.22%
116,660 $
9,532,934 $
76,584
7,261,451
2019(1)
1.05 %
Nonaccrual loans to total loans outstanding ................................
Nonaccrual loans ..................................................................... $
Total loans outstanding ............................................................ $
0.07%
6,762 $
9,532,934 $
0.17%
13,973 $
8,465,688 $
0.41 %
30,091
7,261,451
Allowance for credit losses to nonaccrual loans .........................
Allowance for credit losses (1) ................................................ $
Nonaccrual loans ..................................................................... $
1,725.23%
116,660 $
6,762 $
629.37%
87,942 $
13,973 $
254.51 %
76,584
30,091
Net charge-offs during the period to average loans outstanding:
Commercial, financial and agricultural .......................................
Net charge-offs during the period ............................................ $
Average amount outstanding ................................................... $
0.07%
2,318 $
3,127,227 $
0.75%
23,684 $
3,145,647 $
0.56 %
14,709
2,603,807
Real estate – construction ............................................................
Net charge-offs (recoveries) during the period ........................ $
Average amount outstanding ................................................... $
-%
(38) $
806,705 $
0.18%
1,000 $
547,818 $
- %
(3)
553,091
Real estate - mortgage:
Owner-occupied commercial ...................................................
Net charge-offs during the period ........................................ $
Average amount outstanding ................................................ $
-%
54 $
1,760,591 $
0.23%
3,884 $
1,663,831 $
0.25 %
3,882
1,523,430
1-4 family mortgage ................................................................
Net charge-offs during the period ........................................ $
Average amount outstanding ................................................ $
0.02%
132 $
739,389 $
0.06%
373 $
673,895 $
Other mortgage ........................................................................
Net charge-offs during the period ........................................ $
Average amount outstanding ................................................ $
-%
7 $
2,294,574 $
-%
- $
1,931,130 $
Total real estate – mortgage ........................................................
Net charge-offs during the period ........................................ $
Average amount outstanding ................................................ $
-%
193 $
4,794,554 $
0.10%
4,257 $
4,268,856 $
Consumer ....................................................................................
Net charge-offs during the period ........................................ $
Average amount outstanding ................................................ $
0.50%
326 $
64,736 $
0.22%
135 $
61,661 $
0.04 %
263
631,683
0.18 %
2,724
1,513,531
0.19 %
6,869
3,668,644
0.76 %
485
63,421
Total loans ...................................................................................
Net charge-offs during the period ........................................ $
Average amount outstanding ................................................ $
0.03%
2,799 $
8,725,561 $
0.36%
29,076 $
8,154,991 $
0.32 %
22,060
6,865,129
(1) The year 2019 was accounted for under the incurred loss methodology and not restated to reflect the adoption of ASC
326.
51
Effective January 1, 2020, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 326, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which replaced the incurred loss methodology for determining our provision for credit losses and
allowance for credit losses with the current expected credit loss (“CECL”) model. Upon the adoption of ASC 326 the total
amount of the allowance for credit losses (“ACL”) on loans estimated using the CECL methodology decreased $2.0 million
compared to the total amount of the allowance recorded as of December 31, 2019 using the prior incurred loss model.
Fluctuations in the estimated allowances by portfolio segment offset one another, for the most part, and, as a result, the overall
estimated amount of ACL did not significantly change as a result of the change in methodology. Peer historical loss rates
were utilized to better align with loss expectations given the Company’s low historical loss experience. The ACL is
established and maintained at levels needed to absorb anticipated credit losses from identified and otherwise inherent risks in
the loan portfolio as of the balance sheet date. In assessing the adequacy of the ACL, management considers its evaluation of
the loan portfolio, past due loan experience, collateral values, current economic conditions and other factors considered
necessary to maintain the allowance at an adequate level. Our management feels that the allowance is adequate at December
31, 2021.
The ACL for December 31, 2021 and 2020 was calculated under the CECL methodology and totaled $116.7 million and
$87.9 million, or 1.22% and 1.04% of loans, net of unearned income, respectively. The allowance for loan losses totaled
$76.6 million, or 1.05% of loans, net of unearned income, at December 31, 2019 and was calculated under the incurred loss
methodology. Excluding PPP loans, the allowance for credit losses as a percentage of total loans at December 30, 2021 and
2020 was 1.25% and 1.16%, respectively. The increase in the ACL as a percent of total loans at December 31, 2021 from
December 31, 2020 is largely the result of a net decrease in PPP loans totaling $670 million, which were excluded from the
ACL, and $1.7 billion in net loan growth, excluding PPP loans, during 2021. This loan growth was primarily within our real
estate – mortgage and real estate – construction loan categories which have increased $868 million and $509 million,
respectively. We added a new qualitative environmental factor to address the termination of the PPP for the effect it could
have on various businesses that will need to be self-sustaining without the assistance of PPP as well as potential risk of
nonpayment from SBA due to fraud within PPP loans. This new qualitative factor totaled $1.4 million at December 31,
2021. Additionally, we added a qualitative factor totaling $2.0 million to address the risk associated with a high level of loan
growth within our newest market, West Central Florida. Net credit charge-offs to average loans were 0.03% for the year
ended December 31, 2021, compared to 0.36% and 0.32% for the years ended December 31, 2020 and 2019, respectively.
Nonaccrual loans decreased to $6.8 million, or 0.07% of total loans, at December 31, 2021 from $14.0 million, or 0.17% of
total loans, at December 31, 2020, and were $30.1 million, or 0.31% of total loans, at December 31, 2019. The improvement
in net credit charge-offs and nonaccrual loan totals at December 31, 2021 compared to December 31, 2020 and 2019 is the
result of the improving economic environment within the markets we serve as well as the overall credit quality of our loan
portfolio.
We maintain an ACL on unfunded commercial 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,
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 balance sheet within other liabilities, while the corresponding provision for these
credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded commitments was
$1.3 million at December 31, 2021. At December 31, 2020, the allowance for unfunded commitments was $2.2 million.
The following table presents the allocation of the allowance for loan losses for each respective loan category with the
corresponding percent of loans in each category to total loans.
2021
For the Years Ended December 31,
2020
2019
Percentage
of loans in
each
category to
total loans Amount
Percentage
of loans in
each
category to
total loans Amount
Percentage
of loans in
each
category to
total loans
Amount
(Dollars in Thousands)
Commercial, financial and
agricultural ........................................ $
Real estate – construction .....................
Real estate – mortgage .........................
Consumer .............................................
41,869
26,994
45,829
1,968
Total .................................................. $ 116,660
31.30% $
11.57
56.43
0.70
100.00% $
36,370
16,057
33,722
1,793
87,942
38.93% $
7.01
53.29
0.77
100.00% $
43,666
2,768
29,653
497
76,584
37.13 %
7.18
54.80
0.89
100.00 %
52
We use the discounted cash flow (“DCF”) method to estimate ACL for all loan pools except for commercial revolving lines
of credit and credit cards. For all loan pools utilizing the DCF method, we utilize and forecast national unemployment rate as
a loss driver. We also utilize and forecast GDP growth as a second loss driver for our agricultural and consumer loan pools.
Consistent forecasts of the loss drivers are used across the loan segments. A reasonable and supportable period of twelve
months was utilized followed by a six-month straight-line reversion to long term averages at December 31, 2021, December
31, 2020 and upon implementation of CECL on January 1, 2020. We leveraged economic projections from reputable and
independent sources to inform our loss driver forecasts. At December 31, 2021, we forecasted a national unemployment rate
and national GDP growth rate similar to levels experienced just prior to the pandemic. At December 31, 2020, we forecasted
a significantly higher national unemployment rate as well as a slightly higher national GDP growth rate. We expect national
unemployment rate and GDP growth rate to remain at pre-pandemic levels over the forecast period.
We use a loss-rate method to estimate expected credit losses for our commercial revolving lines of credit and credit card
pools. 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. We consider 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, including inflation.
PPP loans outstanding totaled $230.2 million and $900.5 million at December 31, 2021 and December 31, 2020, respectively,
and are included within the Commercial, financial and agricultural loan category.
The bank has procedures and processes in place intended to ensure that losses do not exceed the potential amounts
documented in the bank’s analysis of loans individually evaluated and reduce potential losses in the remaining performing
loans within our real estate construction portfolio. These include the following:
● We closely monitor the past due and overdraft reports on a weekly basis to identify deterioration as early as
possible and the placement of identified loans on the watch list.
● We perform extensive quarterly credit reviews for all watch list/classified loans, including formulation of
aggressive workout or action plans. When a workout is not achievable, we move to collection/foreclosure
proceedings to obtain control of the underlying collateral as rapidly as possible to minimize the deterioration of
collateral and/or the loss of its value.
● We require updated financial information, global inventory aging and interest carry analysis for existing customers
to help identify potential future loan payment problems.
● We generally limit loans for new construction to established builders and developers that have an established
record of turning their inventories, and we restrict our funding of undeveloped lots and land.
53
Nonperforming Assets
The table below summarizes our nonperforming assets at December 31, 2021, 2020 and 2019:
2021
Number
Number
Balance of Loans Balance of Loans Balance of Loans
(Dollars in Thousands)
Number
2020
2019
Nonaccrual loans:
Commercial, financial and agricultural ............. $ 4,343
Real estate – construction ..................................
-
Real estate - mortgage:
Owner-occupied commercial ......................
1-4 family mortgage ...................................
Other mortgage ...........................................
Total real estate – mortgage ...............................
Consumer ...........................................................
1,021
1,398
-
2,419
-
Total nonaccrual loans.................................................. $ 6,762
17 $ 11,709
234
-
22 $ 14,729
1,588
1
2
12
-
14
-
1,259
771
-
2,030
-
31 $ 13,973
4 10,826
1,440
7
1,507
-
11 13,773
-
34 $ 30,091
-
90+ days past due and accruing:
Commercial, financial and agricultural ............. $
Real estate – construction ..................................
Real estate - mortgage:
39
-
4 $
-
11
-
2 $
-
201
-
Owner-occupied commercial ......................
1-4 family mortgage ...................................
Other mortgage ...........................................
Total real estate – mortgage ...............................
Consumer ...........................................................
-
611
4,656
5,267
29
Total 90+ days past due and accruing .......................... $ 5,335
Total nonperforming loans ........................................... $ 12,097
Plus: Other real estate owned and repossessions ..........
1,208
Total nonperforming assets .......................................... $ 13,305
-
-
104
3
4,805
1
4,909
4
22
61
30 $ 4,981
61 $ 18,954
6,497
66 $ 25,451
5
-
-
873
1
4,924
1
5,797
2
25
23
29 $ 6,021
63 $ 36,112
11
8,178
74 $ 44,290
Restructured accruing loans:
Commercial, financial and agricultural ............. $
Real estate – construction ..................................
Real estate - mortgage:
Owner-occupied commercial ......................
1-4 family mortgage ...................................
Other mortgage ...........................................
Total real estate – mortgage ...............................
Consumer ...........................................................
Total restructured accruing loans .............................. $
Total nonperforming assets and restructured
431
-
-
-
-
-
-
431
2 $
-
-
-
-
-
-
2 $
818
-
-
-
-
-
-
818
3 $
-
-
-
-
-
-
3 $
625
-
-
-
-
-
-
625
29
2
3
5
1
9
-
40
3
-
-
5
1
6
8
17
57
12
69
2
-
-
-
-
-
-
2
accruing loans ....................................................... $ 13,736
68 $ 26,269
77 $ 44,915
71
Ratios:
Nonperforming loans to total loans ..............................
Nonperforming assets to total loans plus other ............
Nonperforming assets to total loans plus other real
0.13%
0.22 %
0.50%
estate owned and repossessions ................................
0.14%
0.30 %
0.61%
Nonperforming assets and restructured accruing loans
to total loans plus other real estate owned and
repossessions ............................................................
0.14%
0.31 %
0.62%
54
The accrual of interest on loans is discontinued when there is a significant deterioration in the financial condition of the
borrower and full repayment of principal and interest is not expected or the principal or interest is more than 90 days past
due, unless the loan is both well-collateralized and in the process of collection. 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. There are not any loans, outside of those included in the table above, that
cause management to have serious doubts as to the ability of borrowers to comply with present repayment terms.
On December 27, 2020, the CAA was signed into law and extended the period established by Section 4013 of the CARES
Act to the earlier of January 1, 2022 or the date that is 60 days after the date on which the national COVID-19 emergency
terminates. In keeping with this guidance from regulators, the bank offered short-term modifications made in response to
COVID-19 to borrowers who were current and otherwise not past due. Should eventual credit losses on these deferred
payments emerge, the related loans would be placed on nonaccrual status and interest income accrued would be reversed. In
such a scenario, interest income in future periods could be negatively impacted. As of December 31, 2021, we carry $4.0
million of accrued interest income on deferrals made to COVID-19 affected borrowers compared to $5.8 million at December
31, 2020. At this time, we are unable to project the materiality of such an impact on future deferrals to COVID-19 affected
borrowers, but we recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.
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. The
following table presents the average balance and average rate paid on each of the following deposit categories at the bank
level for years ended December 31, 2021, 2020 and 2019:
2021
For Year Ended December 31,
2020
Average
Balance
Yields/Rates
Average
Balance Yields/Rates
(Dollars in Thousands)
2019
Average
Balance Yields/Rates
Types of Deposits:
Non-interest-bearing demand
deposits ........................................... $ 3,689,311
Interest-bearing demand deposits ....... 1,394,678
Money market accounts ...................... 5,202,374
Savings accounts ................................
110,968
755,982
Time deposits .....................................
Brokered time deposits .......................
50,000
Total deposits ..................................... $11,203,313
-% $ 2,492,500
0.19% 1,059,629
0.26% 4,519,170
0.18%
77,364
1.24% 768,016
68,082
1.68%
$ 8,984,761
-% $ 1,632,385
0.35% 928,611
0.57% 4,038,143
0.35%
57,078
1.90% 702,245
-
1.68%
$ 7,358,462
-%
0.82%
1.68%
0.56%
2.20%
-%
The following table presents the portion of our total deposits in excess of insurance limit as of December 31, 2021, 2020, and
2019, respectively.
Uninsured Deposits
For the Year Ended December 31,
2020
7,718,687 $
2021
10,650,189 $
2019
5,251,424
Uninsured deposits ............................................................................. $
55
The following table presents the maturities of our time deposits in excess of insurance limit as of December 31, 2021.
Time deposits otherwise uninsured with a maturity of:
Portion of time
deposits in
excess of
insurance limit
December 31,
2021
(In Thousands)
3 months or less ..................................................................................... $
Over 3 months through 6 months ..........................................................
Over 6 months through 12 months ........................................................
Over 12 months .....................................................................................
Total ....................................................................................................... $
68,392
69,277
72,076
76,531
286,276
The uninsured deposit data for 2021, 2020, and 2019 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.
Total average deposits for the year ended December 31, 2021 were $11.20 billion, an increase of $2.20 billion, or 24.7%,
over total average deposits of $8.98 billion for the year ended December 31, 2020. Average noninterest-bearing deposits
increased by $1.20 billion, or 48%, from $2.49 billion for the year ended December 31, 2020 to $3.69 billion for the year
ended December 31, 2021.
Borrowed Funds
We had available $986.0 million in unused federal funds lines of credit with regional banks as of December 31, 2021,
compared to $923.0 million as of December 31, 2020. The increase was attributable to additional lines of credit initiated with
new banks during 2021. These lines are subject to certain restrictions.
Federal funds purchased from correspondent banks averaged $1.16 billion, $627.6 million and $398.7 million for 2021, 2020
and 2019, respectively. We paid average interest rates on these funds of 0.21%, 0.43% and 2.28% for the same three years,
respectively. The maximum amount outstanding at a month-end during 2021 and 2020 was $1.71 billion and $851.5 million,
respectively.
Stockholders’ Equity
Stockholders’ equity increased $159.2 million during 2021, to $1.15 billion at December 31, 2021 from $992.9 million at
December 31, 2020. The increase in stockholders’ equity resulted primarily from net income of $207.7 million during the
year ended December 31, 2021, less dividends paid or declared on our common stock of $45.0 million during the year ended
December 31, 2021.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to financial credit arrangements with off-balance sheet risk to meet the
financing needs of our customers. These financial credit arrangements include commitments to extend credit beyond current
fundings, credit card arrangements, standby letters of credit and financial guarantees. Those credit arrangements involve, to
varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement we have in those particular financial credit arrangements. All
such credit arrangements bear interest at variable rates and we have no such credit arrangements which bear interest at fixed
rates.
Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments
to extend credit, credit card arrangements and standby letters of credit is represented by the contractual or notional amount
of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-
balance sheet instruments.
56
The following table sets forth our credit arrangements and financial instruments whose contract amounts represent credit risk
as of December 31, 2021, 2020 and 2019:
Commitments to extend credit ........................................ $
Credit card arrangements ................................................
Standby letters of credit and financial guarantees ..........
Total ............................................................................... $
3,515,818 $
366,525
61,856
3,944,199 $
2,606,258 $
286,128
66,208
2,958,594 $
2,303,788
248,617
48,394
2,600,799
2021
2020
(In Thousands)
2019
Commitments to extend credit beyond current fundings are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. 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.
Derivatives
The bank periodically enters into derivative contracts to manage exposures to movements in interest rates. The bank
purchased an interest rate cap in May of 2020 to limit exposures to increases in interest rates. The interest rate cap
is not designated as a hedging instrument but rather is a stand-alone derivative. The interest rate cap has an original term
of 3 years, a notional amount of $300 million and is tied to the one-month LIBOR rate with a strike rate of 0.50%. The fair
value of the interest rate cap is carried on the balance sheet in other assets and the change in fair value is recognized in
noninterest income each quarter. At December 31, 2021 the interest rate cap had a fair value of $1.2 million and remaining
term of 1.3 years.
The bank has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis.
When a rate is committed to a borrower, it is based on the best price that day and locked with our investor for our customer
for a 30-day period. In the event the loan is not delivered to the investor, the bank has no risk or exposure with the investor.
The interest rate lock commitments to customers related to loans that are originated for later sale are classified as derivatives.
The fair values of our agreements with investors and rate lock commitments to customers as of December 31, 2021 and 2020
were not material.
Asset and Liability Management
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest
rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap 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. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-
sensitive liabilities exceeds the amount of interest rate-sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest
income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income
while a positive gap would tend to adversely affect net interest income.
Our asset liability and investment committee is charged with monitoring our liquidity and funds position. The committee
regularly reviews the rate sensitivity position on a three-month, six-month and one-year time horizon; loans-to-deposits ratios;
and average maturities for certain categories of liabilities. The asset liability committee uses a model to analyze the maturities
of rate-sensitive assets and liabilities. The model 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
57
period. Gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities. If the ratio is greater than
“one,” then the dollar value of assets exceeds the dollar value of liabilities and the balance sheet is “asset sensitive.”
Conversely, if the value of liabilities exceeds the dollar value of assets, then the ratio is less than one and the balance sheet is
“liability sensitive.” Our internal policy requires our management to maintain the gap such that net interest margins will not
change more than 10% if interest rates change by 100 basis points or more than 15% if interest rates change by 200 basis
points. As of December 31, 2021, our gap was within such ranges. See “—Quantitative and Qualitative Analysis of Market
Risk” below in Item 7A for additional information.
Liquidity and Capital Adequacy
Sources and Uses of Funds
The following table illustrates, during the years 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 $13.55 billion in 2021
compared to $10.64 billion in 2020, and to $8.64 billion in 2019.
Sources of Funds:
Deposits:
Non-interest-bearing .............................................
Interest-bearing .....................................................
Federal funds purchased ..........................................
Long term debt and other borrowings ......................
Other liabilities ........................................................
Equity capital ...........................................................
Total sources .....................................................
Uses of Funds:
Loans ........................................................................
Securities ..................................................................
Interest-bearing balances with banks .......................
Federal funds sold ....................................................
Other assets ..............................................................
Total uses ..........................................................
2021
For the Year Ended
2020
2019
27.3%
55.5
8.6
0.5
0.3
7.8
100.0%
64.4%
7.3
24.7
0.1
3.4
100.0%
23.5%
61.1
5.9
0.6
0.5
8.4
100.0%
76.7%
7.9
11.0
0.6
3.8
100.0%
18.9%
66.3
4.6
0.8
0.4
9.0
100.0%
79.5%
7.6
6.2
3.1
3.6
100.0%
Liquidity
Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, or other cash
demands and disbursement needs, and otherwise to operate on an ongoing basis.
Liquidity is managed at two levels. The first is the liquidity of the Company. The second is the liquidity of the bank. The
management of liquidity at both levels is critical, because the Company and the bank have different funding needs and
sources, and each are subject to regulatory guidelines and requirements. We are subject to general FDIC guidelines which
require a minimum level of liquidity. Management believes our liquidity ratios meet or exceed these guidelines. Our
management is not currently aware of any trends or demands that are reasonably likely to result in liquidity increasing or
decreasing in any material manner.
The Bank’s main source of liquidity is customer interest-bearing and noninterest bearing deposit accounts. 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. Liquidity is also available from funding sources consisting primarily of federal funds
purchased, FHLB loan advances and available-for-sale securities. The retention of existing deposits and attraction of new
deposit sources through new and existing customers is critical to our liquidity position. In the event of compression in liquidity
due to a run-off in deposits, we have a liquidity policy and procedure that provides for certain actions under varying liquidity
conditions. These actions include borrowing from existing correspondent banks, selling or participating loans and the
curtailment of loan commitments and funding. At December 31, 2021, our liquid assets, represented by cash and due from
banks, federal funds sold and unpledged available-for-sale securities, totaled $5.1 billion. Additionally, at such date we had
58
available to us approximately $986.0 million in unused federal funds lines of credit with regional banks, subject to certain
restrictions and collateral requirements, to meet short term funding needs.
As a separate entity from the bank, we also have separate liquidity obligations. We are responsible for the payment of
dividends to our stockholders and interest and principal on our outstanding indebtedness. As a source of internal liquidity,
we have access to the capital markets. We also may continue periodic offerings of debt and equity securities. However, our
ultimate source of liquidity consists of dividends from the Bank, which are limited by applicable law and regulations. In 2021
and 2020, the Bank paid dividends of $46.0 million and $45.0 million to us, respectively. For a detailed discussion on the
regulatory limitation on Bank dividends, see “Supervision and Regulation - Payment of Dividends” in Item 1.
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. Our management meets on a weekly basis to review sources and uses of funding to determine
the appropriate strategy to ensure an appropriate level of liquidity, and we have increased our focus on the generation of core
deposit funding to supplement our liquidity position. At the current time, our long-term liquidity needs primarily relate to
funds required to support loan originations and commitments and deposit withdrawals.
Capital Adequacy
As of December 31, 2021, 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 risk-based, 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 December 31, 2021. In
addition, the Alabama Banking Department has required that the bank maintain a leverage ratio of 8.00%.
The following table sets forth (i) the capital ratios of the bank required by the FDIC to maintain “well-capitalized” status and
(ii) our actual ratios of capital to total regulatory or risk-weighted assets, as of December 31, 2021.
CET 1 Capital Ratio .................................................................................
Tier 1 Capital Ratio ..................................................................................
Total Capital Ratio ...................................................................................
Leverage ratio ...........................................................................................
Well-
Capitalized
6.50%
8.00%
10.00%
5.00%
Actual at
December 31,
2021
10.50%
10.50%
11.55%
7.79%
For a description of capital ratios see Note 14 - “Regulatory Matters” to the Consolidated Financial Statements.
Critical Accounting Estimates
Our consolidated financial statements are prepared based on the application of certain accounting policies, the most significant
of which are described in the Notes to the Consolidated Financial Statements. Certain of these policies require numerous
estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect
our reported results and financial position for the current period or in future periods. The use of estimates, assumptions, and
judgments are necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect, fair value.
Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record
valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other
independent third-party sources, when available. When such information is not available, management estimates valuation
adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on
our future financial condition and results of operations.
Allowance for Credit Losses
The Company assesses the adequacy of its allowance for credit losses at the end of each calendar quarter. The level of
allowance 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 allowance is increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs,
net of recoveries. The allowance for credit losses is believed adequate to absorb all expected future losses to be recognized
over the contractual life of the loans in the portfolio. If our assumptions regarding the adequacy of our allowance for credit
59
losses are not accurate, we may incur credit losses in excess of our current allowance for credit losses and be required to make
material additions to our allowance. Such additional provision for credit losses could have a material adverse effect on our
business and results of operations. Our regulators may disagree with our assumptions and could require us to materially
increase our allowance for credit losses.
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 – “Summary of Significant Accounting Policies” in the notes to consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data 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 modified loans classified as troubled debt restructurings. Specific allocations
of the allowance for credit losses 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.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between
carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
The Company follows the provisions of ASC 740-10, Income Taxes. ASC 740-10 establishes a single model to address
accounting for uncertain tax positions. ASC 740-10 clarifies the accounting for income taxes by prescribing a minimum
recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740-10 also
provides guidance on derecognition measurement classification interest and penalties, accounting in interim periods,
disclosure, and transition. ASC 740-10 provides a two-step process in the evaluation of a tax position. The first step is
recognition. A company determines whether it is more likely than not that a tax position will be sustained upon examination,
including a resolution of any related appeals or litigation processes, based upon the technical merits of the position. The
second step is measurement. A tax position that meets the more likely than not recognition threshold is measured at the largest
amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Because of the uncertainty of
estimates involved, the ultimate resolution may result in a payment that is different from the current estimate of the tax
liabilities and can be significant to the Company’s consolidated financial position, results of operations or cash flows.
Adoption of Recent Accounting Pronouncements
New accounting standards are discussed in Note 1, “Summary of Significant Accounting Policies” to the Consolidated
Financial Statements.
60
ITEM 7A. 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 twelve 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 employs multiple modeling scenarios to analyze the maturities of rate-sensitive assets and
liabilities. The model 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. As of December 31, 2021, our gap was within
such ranges.
The model measures scheduled maturities in periods of three months, four to twelve months, one to five years and over five
years. The chart below illustrates our rate-sensitive position at December 31, 2021. Management uses the one-year gap as the
appropriate time period for setting strategy.
Rate Sensitive Gap Analysis
1-3 Months
4-12
Months
1-5 Years
(Dollars in Thousands)
Over 5
Years
Total
Interest-earning assets:
Loans, including mortgages held for sale ........ $ 3,893,883
78,363
Securities .........................................................
Federal funds sold ...........................................
58,372
Interest bearing balances with banks ............... 4,106,790
Total interest-earning assets ............................ $ 8,137,408
$ 1,700,971 $ 3,598,005 $ 224,529 $ 9,417,388
383,783 1,312,838
697,149
-
58,372
-
- 4,106,790
-
$ 1,854,514 $ 4,295,154 $ 608,312 $14,895,388
153,543
-
-
Interest-bearing liabilities:
Deposits:
Interest-bearing checking ............................. $ 1,613,567
Money market and savings .......................... 5,225,021
204,797
Time deposits ...............................................
Federal funds purchased ..................................
-
Other borrowings ............................................. 1,711,777
Total interest-bearing liabilities ....................... 8,755,162
Interest sensitivity gap ..................................... $ (617,754)
Cumulative sensitivity gap .............................. $ (617,754)
Percent of cumulative sensitivity Gap to total
$
- $
-
361,898
-
-
361,898
- $ 1,613,567
- 5,225,021
813,337
-
64,706
64,706
- 1,711,777
64,706 9,428,408
$ 1,492,616 $ 4,048,512 $ 543,606 $ 5,466,980
-
$ 874,862 $ 4,923,374 $ 5,466,980 $
- $
-
246,642
-
-
246,642
interest-earning assets ..................................
(4.15)%
5.87%
33.05%
36.70%
61
The interest rate risk model that defines the gap position also performs a “rate shock” test of the balance sheet. The rate
shock procedure measures the impact on the economic value of equity (EVE) which is a measure of long term interest rate
risk. EVE is the difference between the market value of our assets and the liabilities and is our liquidation value. In this
analysis, the model calculates the discounted cash flow or market value of each category on the balance sheet. The percentage
change in EVE is a measure of the volatility of risk. Regulatory guidelines specify a maximum change of 30% for a 200 basis
points rate change. After starting the year at a rate of 0.10%, the Federal Reserve increased its targeted federal funds rate by
5 basis points to its current rate of 0.15%. At December 31, 2021, the model shows an increase in our EVE for all upward
shifts in rates.
The chart below identifies the EVE impact of a downward shift in rates of 100 basis points and an upward shift in rates of
100, 200, 300 and 400 basis points.
Economic Value of Equity Under Rate Shock
At December 31, 2021
0 bps
-100 bps
+100 bps +200 bps +300 bps +400 bps
(Dollars in Thousands)
Economic value of equity ............. $ 1,152,015 $
Actual dollar change .....................
Percent change ..............................
944,652
$ (207,363)
$ 1,241,872 $ 1,321,361 $ 1,388,178 $ 1,440,019
288,004
$
25.00%
(18.00)%
169,346 $ 236,163 $
20.50%
89,857 $
7.80%
14.70%
The one-year gap ratio of positive 5.87% indicates that we would show an increase in net interest income in a rising rate
environment, and the EVE rate shock shows that the EVE would increase in a rising rate environment. The EVE simulation
model is a static model which provides information only at a certain point in time. For example, in a rising rate environment,
the model does not take into account actions which management might take to change the impact of rising rates on us. Given
that limitation, it is still useful in assessing the long-range impact of unanticipated movements in interest rates.
The above analysis may not on its own be an entirely accurate indicator of how net interest income or EVE will be affected
by changes in interest rates. Income associated with interest earning assets and costs associated with interest bearing liabilities
may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market rates, while interest rates on other types may lag behind changes in general market
rates. Our asset liability committee develops its view of future rate trends by monitoring economic indicators, examining the
views of economists and other experts, and understanding the current status of our balance sheet and conducts a quarterly
analysis of the rate sensitivity position. The results of the analysis are reported to our board of directors on a quarterly basis.
62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulations S-X and by Item 302 of Regulation S-K are set
forth in the pages listed below.
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements ......................
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting ...........
Consolidated Balance Sheets at December 31, 2021 and 2020 ..............................................................................
Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019.............................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019 ...
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2021, 2020 and 2019 .......
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 ......................
Notes to Consolidated Financial Statements ..........................................................................................................
64
66
67
68
69
70
71
72
Page
63
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors
ServisFirst Bancshares, Inc.
Birmingham, Alabama
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of ServisFirst Bancshares, Inc. and subsidiaries (the
"Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income,
stockholders’ equity and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
("PCAOB"), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2022, expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Notes 1 and 3 to the financial statements, the Company changed its method of accounting for credit losses
effective January 1, 2020, due to the adoption of Accounting Standards Codification Topic 326 Financial Instruments –
Credit Losses.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or
on the accounts or disclosures to which it relates.
64
Allowance for Credit Losses on Loans
As described in Notes 1 and 3 to the financial statements, the Company’s loan portfolio and the associated allowance for
credit losses (“allowance”) were $9.5 billion and $116.7 million as of December 31, 2021, respectively. The amount of the
allowance represents management’s best estimate of current expected credit losses on loans considering the loan portfolios,
past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may
affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying
collateral, composition of the loan portfolio, current and projected economic conditions, industry and peer bank loan quality
indications and other pertinent factors, including regulatory recommendations. As further described in Notes 1 and 3 to the
financial statements, to calculate the allowance for credit losses, loans with similar risk characteristics are collectively
evaluated in pools and loans that do not share similar risk characteristics are excluded from the collective pools and evaluated
on an individual basis. Management evaluates each loan pool utilizing a discounted cash flow (DCF), probability of default
/ loss given default (“PD/LGD”) or remaining life method, depending on the nature of the loan pool. Losses are predicted
over a period of time determined to be reasonable and supportable, and after such period, losses are reverted to long term
historical averages. The estimated credit losses for each loan pool are then adjusted for qualitative factors not inherently
considered in the quantitative analyses. Consideration is given to the following factors: 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. Estimating qualitative factor
adjustments requires significant judgment and can either increase or decrease the quantitative model estimation.
We identified the allowance for credit losses on loans, and more specifically the qualitative factor adjustments applied in the
allowance, as a critical audit matter. The principal considerations for our determination of the qualitative factor adjustments
as a critical audit matter are the subjectivity of the assumptions that management utilized in determining and applying
qualitative factors in the allowance model. Furthermore, certain inputs and assumptions lack observable data and, therefore,
applying audit procedures required a higher degree of auditor judgment and subjectivity due to the nature and extent of audit
evidence and effort required to address this matter.
The primary audit procedures we performed to address this critical audit matter included:
● Evaluated the design and tested the operating effectiveness of key controls relating to the Company’s
allowance, including controls over the determination of qualitative factor adjustments, the precision of
management’s review and approval of the resulting estimate, and the third-party model validation and
testing of the model’s performance.
● Assessed the appropriateness and reasonableness of the qualitative factor adjustment framework,
including evaluating management’s judgments as to which factors and relevant assessed risks impacted
the qualitative adjustments for each loan pool.
● Evaluated and tested the reasonableness and relevance of data utilized in the qualitative factor
adjustments, including considering the data’s completeness and accuracy and testing the mathematical
accuracy of the calculations.
● Utilized the assistance of the firm’s internal specialists to test the mathematical operation of the model,
evaluate the reasonableness of assumptions and judgments used in forecast components, and evaluate
the adequacy of the third-party model validation of the allowance model.
● Analyzed the total qualitative factor adjustment applied to each loan pool, in comparison to changes in
the Company’s quantitatively driven expected credit losses and loan pools and evaluated the
appropriateness and level of the total qualitative factor adjustment applied in the overall allowance.
/s/ Dixon Hughes Goodman LLP
We have served as the Company's auditor since 2014.
Atlanta, Georgia
February 25, 2022
65
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors
ServisFirst Bancshares, Inc.
Birmingham, Alabama
Opinion on Internal Control Over Financial Reporting
We have audited ServisFirst Bancshares, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as
of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of December 31, 2021 and 2020, and for each of the
three years in the period ended December 31, 2021, and our report dated February 25, 2022, expressed an unqualified opinion
on those consolidated financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Dixon Hughes Goodman LLP
Atlanta, Georgia
February 25, 2022
66
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
2021
December 31,
2020
ASSETS
Cash and due from banks ................................................................................................ $
Interest-bearing balances due from depository institutions .............................................
Federal funds sold ...........................................................................................................
Cash and cash equivalents ...........................................................................................
Available for sale debt securities, at fair value ................................................................
Held to maturity debt securities (fair value of $466,286 at December 31, 2021 and
$250 at December 31, 2020) ........................................................................................
Restricted equity securities ..............................................................................................
Mortgage loans held for sale ...........................................................................................
Loans ...............................................................................................................................
Less allowance for credit losses ......................................................................................
Loans, net .....................................................................................................................
Premises and equipment, net ...........................................................................................
Accrued interest and dividends receivable ......................................................................
Deferred tax asset, net .....................................................................................................
Other real estate owned and repossessed assets ..............................................................
Bank owned life insurance contracts ...............................................................................
Goodwill and other identifiable intangible assets ............................................................
Other assets .....................................................................................................................
Total assets .................................................................................................................. $
56,934 $
4,106,790
58,372
4,222,096
842,570
462,957
7,311
1,114
9,532,934
(116,660)
9,416,274
60,300
34,831
37,772
1,208
283,074
13,638
65,661
15,448,806 $
93,655
2,115,985
1,771
2,211,411
886,688
250
-
14,425
8,465,688
(87,942 )
8,377,746
54,969
36,841
31,072
6,497
276,387
13,908
22,460
11,932,654
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing demand ...................................................................................... $
Interest-bearing ............................................................................................................
Total deposits ...........................................................................................................
Federal funds purchased ..................................................................................................
Other borrowings .............................................................................................................
Accrued interest and dividends payable ..........................................................................
Other liabilities ................................................................................................................
Total liabilities .............................................................................................................
4,799,767 $
7,653,069
12,452,836
1,711,777
64,706
13,619
53,853
14,296,791
2,788,772
7,186,952
9,975,724
851,545
64,748
12,321
35,464
10,939,802
Stockholders' equity:
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated
at December 31, 2021 and December 31, 2020 ........................................................
-
-
Common stock, par value $0.001 per share; 100,000,000 shares authorized;
54,227,060 shares issued and outstanding at December 31, 2021, and 53,943,751
shares issued and outstanding at December 31, 2020 ..............................................
Additional paid-in capital ............................................................................................
Retained earnings .........................................................................................................
Accumulated other comprehensive income .................................................................
Total stockholders' equity attributable to ServisFirst Bancshares, Inc. ....................
Noncontrolling interest ................................................................................................
Total stockholders' equity ........................................................................................
Total liabilities and stockholders' equity ...................................................................... $
54
226,397
911,008
14,056
1,151,515
500
1,152,015
15,448,806 $
54
223,856
748,224
20,218
992,352
500
992,852
11,932,654
See Notes to Consolidated Financial Statements.
67
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
2021
Year Ended December 31,
2020
2019
Interest income:
Interest and fees on loans ............................................................ $
Taxable securities .......................................................................
Nontaxable securities ..................................................................
Federal funds sold .......................................................................
Other interest and dividends .......................................................
Total interest income ...............................................................
Interest expense:
Deposits ......................................................................................
Borrowed funds ..........................................................................
Total interest expense ..............................................................
Net interest income .................................................................
Provision for credit losses ..............................................................
Net interest income after provision for credit losses ...............
Noninterest income:
Service charges on deposit accounts ...........................................
Mortgage banking .......................................................................
Credit card income ......................................................................
Securities gains ...........................................................................
Increase in cash surrender value life insurance ...........................
Other operating income ..............................................................
Total noninterest income .........................................................
Noninterest expenses:
Salaries and employee benefits ...................................................
Equipment and occupancy expense ............................................
Third party processing and other services ...................................
Professional services ...................................................................
FDIC and other regulatory assessments ......................................
Other real estate owned expense .................................................
Other operating expenses ............................................................
Total noninterest expenses ......................................................
Income before income taxes ....................................................
Provision for income taxes .............................................................
Net income ...........................................................................
Dividends on preferred stock ..................................................
Net income available to common stockholders ................... $
Basic earnings per common share .................................................. $
Diluted earnings per common share ............................................... $
See Notes to Consolidated Financial Statements.
385,721 $
25,413
302
29
4,840
416,305
26,569
5,233
31,802
384,503
31,517
352,986
6,839
7,340
7,347
620
6,642
4,664
33,452
67,728
11,404
16,362
3,891
5,679
868
27,157
133,089
253,349
45,615
207,734
62
207,672 $
3.83 $
3.82 $
362,664 $
22,122
739
332
3,165
389,022
45,230
5,755
50,985
338,037
42,434
295,603
7,528
8,747
5,916
-
6,310
1,615
30,116
61,414
10,070
13,778
4,242
4,354
2,163
15,490
111,511
214,208
44,639
169,569
63
169,506 $
3.15 $
3.13 $
354,308
17,008
1,429
6,038
12,020
390,803
90,958
12,200
103,158
287,645
22,638
265,007
7,029
4,361
7,076
27
3,746
1,743
23,982
57,783
9,272
11,234
4,235
2,975
415
16,214
102,128
186,861
37,618
149,243
63
149,180
2.79
2.76
68
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income ....................................................................................... $
Other comprehensive (loss) income, net of tax:
Unrealized net holding (losses) gains arising during period from
securities available for sale, net of tax of $(2,966), $3,845 and
$2,788 for 2021, 2020, and 2019, respectively .........................
Amortization of net unrealized gains on securities transferred
from available-for-sale to held-to-maturity, net of tax of $319
for 2021 .....................................................................................
Reclassification adjustment for securities transferred from
available-for-sale to held-to-maturity net of tax of $1,480 for
2021 ...........................................................................................
Reclassification adjustment for net gains (losses) on call and
sale of securities, net of tax of $130 and $(6), 2021 and 2019,
respectively ...............................................................................
Other comprehensive (loss) income, net of tax .............................
Comprehensive income .................................................................... $
See Notes to Consolidated Financial Statements.
Year Ended December 31,
2020
2021
2019
207,734 $
169,569 $
149,243
(11,161)
14,469
10,511
(1,196)
5,705
-
-
-
-
490
(6,162)
201,572 $
-
14,469
184,038 $
(21)
10,490
159,733
69
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Year Ended December 31,
Common
Shares
Preferred
Stock
Common
Stock
Accumulated
Other
Comprehensive
Income
Non-
controlling
Interest
Total
Stockholders'
Equity
Additional
Paid-in
Capital
Retained
Earnings
53 $ 218,521 $500,868 $
- (24,053)
(9,384)
-
(63)
-
-
-
-
-
-
1
2,122
-
-
-
-
-
-
-
(1,977)
-
1,100
-
-
- 149,243
54 $ 219,766 $616,611 $
- (28,230)
- (10,787)
(63)
-
-
-
1,124
-
-
-
-
-
-
-
-
-
3,487
-
-
-
-
-
-
-
(729)
-
1,332
-
-
- 169,569
54 $ 223,856 $748,224 $
- (32,520)
- (12,472)
(62)
-
-
-
-
-
-
-
104
-
-
-
-
3,534
(4,741) $
-
-
-
502 $
-
-
-
715,203
(24,053)
(9,384)
(63)
-
-
-
-
10,490
-
5,749 $
-
-
-
-
-
-
-
-
-
14,469
-
20,218 $
-
-
-
-
-
-
-
-
-
-
-
-
502 $
-
-
-
(2)
-
-
-
-
-
-
-
500 $
-
-
-
-
-
-
-
2,123
(1,977)
1,100
10,490
149,243
842,682
(28,230)
(10,787)
(63)
(2)
1,124
-
3,487
(729)
1,332
14,469
169,569
992,852
(32,520)
(12,472)
(62)
104
-
3,534
-
-
-
-
-
(2,848)
-
1,855
-
-
- 207,734
54 $ 226,397 $911,008 $
-
-
(6,162)
-
14,056 $
-
-
-
-
(2,848)
1,855
(6,162)
207,734
500 $ 1,152,015
Balance, January 1, 2019 ........................................ 53,375,195 $
-
-
-
Common dividends paid, $0.45 per share .........
Common dividends declared, $0.175 per share .
Preferred dividends paid ....................................
Issue restricted shares pursuant to stock
incentives, net of forfeitures ..........................
20,164
Issue shares of common stock upon exercise of
228,381
stock options ..................................................
60,419 shares of common stock withheld in net
settlement upon exercise of stock options .....
Stock-based compensation expense ...................
Other comprehensive income, net of tax ...........
Net income .........................................................
-
-
-
-
Balance, December 31, 2019 .................................. 53,623,740 $
-
-
-
-
-
Common dividends paid, $0.525 per share .......
Common dividends declared, $0.20 per share ...
Preferred dividends paid ....................................
Exit tax credit partnership ..................................
Impact of adopting ASC 326 .............................
Issue restricted shares pursuant to
33,195
286,816
stock incentives, net of forfeitures ................
Issue shares of common stock upon exercise
of stock options .........................................
19,484 shares of common stock withheld in net
settlement upon exercise of stock options .....
Stock-based compensation expense ...................
Other comprehensive income, net of tax ...........
Net income .........................................................
-
-
-
-
Balance, December 31, 2020 .................................. 53,943,751 $
-
-
-
Common dividends paid, $0.60 per share .........
Common dividends declared, $0.23 per share ...
Preferred dividends paid ....................................
Dividends on nonvested restricted stock
recognized as compensation expense ............
-
Issue restricted shares pursuant to
stock incentives, net of forfeitures ................
57,570
Issue shares of common stock upon exercise of
stock options ..................................................
52,261 shares of common stock withheld in net
settlement upon exercise of stock options .....
Stock-based compensation expense ...................
Other comprehensive (loss), net of tax ..............
Net income .........................................................
-
-
-
-
Balance, December 31, 2021 .................................. 54,227,060 $
225,739
See Notes to Consolidated Financial Statements.
- $
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
- $
70
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income .................................................................................................................. $
Adjustments to reconcile net income to net cash provided by
Deferred tax ............................................................................................................
Provision for credit losses ......................................................................................
Depreciation ...........................................................................................................
Accretion on acquired loans ...................................................................................
Amortization of core deposit intangible .................................................................
Net amortization of debt securities available for sale ............................................
Decrease (increase) in accrued interest and dividends receivable .........................
Stock-based compensation expense .......................................................................
Increase in accrued interest payable .......................................................................
Proceeds from sale of mortgage loans held for sale ..............................................
Originations of mortgage loans held for sale .........................................................
Gain on call of securities available for sale ...........................................................
Gain on sale of mortgage loans held for sale .........................................................
Net loss (gain) on sale of other real estate owned and repossessed assets ............
Write down of other real estate owned and repossessed assets .............................
Operating losses of tax credit partnerships ............................................................
Increase in cash surrender value of life insurance contracts ..................................
Net change in other assets, liabilities, and other operating activities ....................
Net cash provided by operating activities .........................................................
INVESTMENT ACTIVITIES
Purchase of debt securities available for sale .............................................................
Proceeds from maturities, calls and paydowns of debt securities available for sale .
Proceeds from sale of debt securities available for sale .............................................
Purchases of debt securities held to maturity .............................................................
Proceeds from maturities, calls and paydowns of debt securities held to maturity ...
Purchases of restricted equity securities .....................................................................
Investment in tax credit partnership and SBIC ...........................................................
Increase in loans ..........................................................................................................
Purchase of premises and equipment ..........................................................................
Purchase of bank owned life insurance contracts .......................................................
Proceeds from sale of other real estate owned and repossessed assets ......................
Net cash used in investing activities ......................................................................
FINANCING ACTIVITIES
Net increase in non-interest-bearing deposits .............................................................
Net increase in interest-bearing deposits ....................................................................
Net increase in federal funds purchased .....................................................................
Proceeds from issuance of 4% Subordinated Notes due October 21, 2030, net of
issuance cost ...........................................................................................................
Repayment of 5% Subordinated Notes due July 15, 2025 .........................................
Proceeds from exercise of stock options ....................................................................
Taxes paid in net settlement of tax obligation upon exercise of stock options ..........
Dividends paid on common stock ...............................................................................
Dividends paid on preferred stock ..............................................................................
Net cash provided by financing activities ..............................................................
Net increase in cash and cash equivalents .......................................................................
Cash and cash equivalents at beginning of period ..........................................................
Cash and cash equivalents at end of period .................................................................... $
SUPPLEMENTAL DISCLOSURE
Cash paid/(received) for:
Interest .................................................................................................................... $
Income taxes ...........................................................................................................
Income tax refund ...................................................................................................
NONCASH TRANSACTIONS
Other real estate acquired in settlement of loans ........................................................ $
Internally financed sale of other real estate owned ....................................................
Available-for-sale securities transferred to held-to-maturity portfolio ......................
Dividends declared ......................................................................................................
See Notes to Consolidated Financial Statements.
71
2021
Year Ended December 31,
2020
2019
207,734 $
169,569 $
149,243
(5,061)
31,517
4,118
-
270
14,665
2,010
1,855
1,298
234,086
(213,435)
(620)
(7,340)
288
845
4
(6,642)
739
266,331
(416,903)
177,166
5,000
(290,769)
94,797
(7,311)
(43,912)
(1,072,363)
(9,449)
(45)
2,695
(1,561,094)
2,010,995
466,117
860,232
-
-
3,534
(2,848)
(32,520)
(62)
3,305,448
2,010,685
2,211,411
4,222,096 $
30,504 $
56,651
(3)
2,318 $
3,779
261,026
12,472
(9,727 )
42,434
3,832
(100 )
271
5,605
(10,579 )
1,332
387
284,881
(284,247 )
-
(8,747 )
(8 )
1,861
4
(6,310 )
832
191,290
(334,596 )
220,993
-
-
-
-
(636 )
(1,236,698 )
(2,305 )
(60,682 )
2,853
(1,411,071 )
1,038,893
1,406,398
380,796
34,750
(34,710 )
3,487
(729 )
(28,230 )
(63 )
2,800,592
1,580,811
630,600
2,211,411 $
50,598 $
50,867
(47 )
2,945 $
40
-
10,787
(1,077 )
22,638
3,682
(90 )
270
3,095
(2,192 )
1,100
1,553
135,359
(137,190 )
(27 )
(4,361 )
(122 )
287
8
(3,746 )
(4,155 )
164,275
(293,832 )
117,265
18,920
(250 )
-
-
-
(754,533 )
(2,356 )
(75,000 )
1,437
(988,349 )
192,538
422,187
182,024
-
-
2,123
(1,977 )
(24,053 )
(63 )
772,779
(51,295 )
681,895
630,600
101,605
42,232
(86 )
4,611
-
-
9,384
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
ServisFirst Bancshares, Inc. (the “Company”) was formed on August 16, 2007 and is a bank holding company whose business
is conducted by its wholly owned subsidiary ServisFirst Bank (the “Bank”). The Bank is headquartered in Birmingham,
Alabama, and has provided a full range of banking services to individual and corporate customers throughout the Birmingham
market since opening for business in May 2005. The Bank has since expanded into the Huntsville, Montgomery, Dothan and
Mobile, Alabama, Pensacola, Sarasota and Tampa Bay, Florida, Atlanta, Georgia, Charleston, South Carolina and Nashville,
Tennessee markets. The Bank owns all of the stock of SF Intermediate Holding Company, Inc., which, in turn, owns all of
the stock of SF Holding 1, Inc., which, in turn, owns all of the common stock of the Company’s real estate investment trusts,
SF Realty 1, Inc., SF FLA Realty, Inc., SF GA Realty, Inc. and SF TN Realty, Inc. More details about SF Intermediate
Holding Company, Inc. and its subsidiaries are included in Note 11.
Reclassification
Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These
reclassifications had no effect on the Company’s results of operations, financial position, or net cash flow.
Basis of Presentation and Accounting Estimates
To prepare consolidated financial statements in conformity with U.S. generally accepted accounting principles, management
makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future results could differ. The allowance for credit
losses, valuation of deferred tax assets and the fair value of financial instruments are particularly subject to change. All
numbers are in thousands except share and per share data.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and other entities in which it has a controlling
financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash, Due from Banks, Interest-Bearing Balances due from Financial Institutions
Cash and due from banks include cash on hand, cash items in process of collection, amounts due from banks and interest
bearing balances due from financial institutions. For purposes of cash flows, cash and cash equivalents include cash and due
from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Cash flows from
loans, mortgage loans held for sale, federal funds sold, and deposits are reported net.
The Bank is generally required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank based on a
percentage of deposits. However, in March 2020 the Federal Reserve Bank announced that it had reduced the required reserve
ratio to zero percent effective March 26, 2020.
Debt Securities
Debt securities are classified based on the Company’s intention on the date of purchase. All debt securities classified as
available-for-sale are recorded at fair value with any unrealized gains and losses reported in accumulated other comprehensive
income (loss), net of the deferred income tax effects. Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity and are carried at historical cost and adjusted for amortization of premiums
and accretion of discounts.
Transfers of debt securities into the held-to-maturity category from available-for-sale category are made at fair value at the
date of transfer. The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in
the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security.
72
Interest and dividends on securities, including amortization of premiums and accretion of discounts calculated under the
effective interest method, are included in interest income. For certain securities, amortization of premiums and accretion of
discounts is computed based on the anticipated life of the security which may be shorter than the stated life of the security.
Realized gains and losses from the sale of securities are determined using the specific identification method and are recorded
on the trade date of the sale.
Restricted Equity Securities
Investments in restricted equity securities without a readily determinable market value are carried at cost.
Mortgage Loans Held for Sale
The Company classifies certain residential mortgage loans as held for sale. Typically, mortgage loans held for sale are sold
to a third-party investor within a very short time period. The loans are sold without recourse and servicing is not retained.
Net fees earned from this banking service are recorded in noninterest income.
In the course of originating mortgage loans and selling those loans in the secondary market, the Company makes various
representations and warranties to the purchaser of the mortgage loans. Each loan is underwritten using government agency
guidelines. Any exceptions noted during this process are remedied prior to sale. These representations and warranties also
apply to underwriting the real estate appraisal opinion of value for the collateral securing these loans. Under the
representations and warranties, failure by the Company to comply with the underwriting and/or appraisal standards could
result in the Company being required to repurchase the mortgage loan or to reimburse the investor for losses incurred (make
whole requests) if such failure cannot be cured by the Company within the specified period following discovery. The
Company continues to experience an insignificant level of investor repurchase demands. There were no expenses incurred as
part of these buyback obligations for the years ended December 31, 2021 and 2020.
Loans
Loans are reported at unpaid principal balances, less unearned fees and the allowance for credit losses. Interest on all loans
is recognized as income based upon the applicable rate applied to the daily outstanding principal balance of the loans. Interest
income on nonaccrual loans is recognized on a cash basis or cost recovery basis until the loan is returned to accrual status. A
loan may be returned to accrual status if the Company is reasonably assured of repayment of principal and interest and the
borrower has demonstrated sustained performance for a period of at least six months. Loan fees, net of direct costs, are
reflected as an adjustment to the yield of the related loan over the term of the loan. The Company does not have a concentration
of loans to any one industry.
The accrual of interest on loans is discontinued when there is a significant deterioration in the financial condition of the
borrower and full repayment of principal and interest is not expected or the principal or interest is more than 90 days past
due, unless the loan is both well-collateralized and in the process of collection. Generally, all interest accrued but not collected
for loans that are placed on nonaccrual status are reversed against current interest income. Interest collections on nonaccrual
loans are generally applied as principal reductions. The Company determines past due or delinquency status of a loan based
on contractual payment terms.
Troubled debt restructurings (“TDRs”) are concessions granted to borrowers in the normal course of business, which would
not otherwise be considered, where the borrowers are experiencing financial difficulty. The concessions granted most
frequently for TDRs involve reductions or delays in required payments of principal and interest for a specified time, the
rescheduling of payments in accordance with a bankruptcy plan or the charge-off of a portion of the loan. In some cases, the
conditions of the credit also warrant nonaccrual status, even after the restructure occurs. As part of the credit approval process,
the restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual status at the time
of restructure. TDR loans may be returned to accrual status if there has been at least a six-month sustained period of repayment
performance by the borrower.
Allowance for Credit Losses (“ACL”)
As described below under Recently Adopted Accounting Pronouncements, the Company adopted Accounting Standard
Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (“CECL”) Accounting Standard Codification (“ASC”) 326 effective January 1, 2020.
73
ACL – Debt Securities
Management uses a systematic methodology to determine its ACL for held-to-maturity debt securities. The ACL is a valuation
account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held-to-
maturity portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable
forecasts on the collectability of the portfolio. The Company’s estimate of its ACL involves a high degree of judgment;
therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses.
Management monitors the held-to-maturity portfolio to determine whether a valuation account would need to be recorded.
As of December 31, 2021, the Company had $463.0 million of held-to-maturity securities and no related valuation account.
For available-for-sale debt securities in an unrealized loss position, the Company will first assess whether i) it intends to sell
or ii) it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. If
either case is applicable, any previously recognized allowances are charged off and the debt security’s amortized cost is
written down to fair value through income. If neither case is applicable, the debt security is evaluated to determine whether
the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers
the extent to which fair value is less than amortized cost, any changes to the rating of the debt security by a rating agency and
any adverse conditions specifically related to the debt security, among other factors. If this assessment indicates that a credit
loss exists, the present value of cash flows expected to be collected from the debt security are compared to the amortized cost
basis of the debt security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a
credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount by which the fair
value is less than the amortized cost basis. Any impairment that has not been recorded through allowance for credit losses is
recognized in other comprehensive income, net of tax. Adjustments to the allowance are reported in the income statement as
a component of credit loss expense. Available-for-sale debt securities are charged off against the allowance or, in the absence
of any allowance, written down through income when deemed uncollectible by the Company or when either of the
aforementioned criteria regarding intent or requirement to sell is met.
The Company excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit
losses on debt securities and does not record an ACL on accrued interest receivable.
ACL – Loans
The ACL is based on the Company’s evaluation of the loan portfolios, past loan loss experience, current asset quality trends,
known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the
timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic
conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.
The process is inherently subjective and subject to significant change as it requires material estimates. The allowance is
increased by a provision for credit losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In
addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for
credit losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments
about information available to them at the time of their examination.
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.
The estimated 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.
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 modified loans classified as troubled debt restructurings. Specific allowances were estimated
74
based 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.
The Company measures expected credit losses over the contractual term of a loan, adjusted for estimated prepayments. The
contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a
troubled debt restructuring will be executed. Credit losses are estimated on the amortized cost basis of loans, which includes
the principal balance outstanding, purchase discounts and premiums and deferred loan fees and costs. Accrued interest
receivable on loans is excluded from the estimate of credit losses.
ACL – Unfunded Loan Commitments
The ACL is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the
contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit.
No allowance is recognized if the Company has the unconditional right to cancel the obligation. The ACL is reported as a
component of other liabilities within the consolidated balance sheets. Adjustments to the ACL for unfunded commitments
are reported in the income statement as a component of other operating expense.
Foreclosed Real Estate
Foreclosed real estate includes both formally foreclosed property and in-substance foreclosed property. At the time of
foreclosure, foreclosed real estate is recorded at fair value less cost to sell, which becomes the property’s new basis. Any
write downs based on the asset’s fair value at date of acquisition are charged to the allowance for credit losses. After
foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs incurred in
maintaining foreclosed real estate and subsequent adjustments to the carrying amount of the property are included in other
operating expenses.
Premises and Equipment
Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. Expenditures for additions
and major improvements that significantly extend the useful lives of the assets are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. Assets which are disposed of are removed from the accounts and the resulting
gains or losses are recorded in operations. Depreciation is calculated on a straight-line basis over the estimated useful lives
of the related assets (3 to 39.5 years).
Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives
of the improvements.
Leases
The Company leases certain office space and equipment under operating leases. Leases are recognized as a liability to make
lease payments and as an asset representing the right to use the asset during the lease term, or “lease liability” and “right-of-
use asset”, respectively. The lease liability is measured as the present value of remaining lease payments, discounted at the
Company’s incremental borrowing rate. The Company reports its right-of-use assets in other assets and its lease liabilities in
other liabilities.
Certain of the leases include one or more renewal options that extend the initial lease term 1 to 5 years. The exercise of lease
renewal options is typically at the Company’s sole discretion; therefore, a majority of renewals to extend lease terms
are not included in the right-of-use assets and lease liabilities as they are not reasonably certain to be exercised. Renewal
options are regularly evaluated and when they are reasonably certain to be exercised, are included in lease terms.
None of the Company’s leases provide an implicit discount rate. The Company uses its incremental collateralized borrowing
rate based on the information available at the lease commencement date in determining the present value of the lease
payments.
The Company does not recognize short-term leases on its balance sheet. A short-term operating lease has an original term of
12 months or less and does not have a purchase option that is likely to be exercised.
75
Bank Owned Life Insurance (“BOLI”)
BOLI is comprised of long-term life insurance contracts on the lives of certain current and past employees where the insurance
policy benefit and ownership are retained by the employer. Its cash surrender value is an asset that the Company uses to
partially offset the future cost of employee benefits. The cash surrender value accumulation on BOLI is permanently tax
deferred if the policy is held to the insured person’s death and certain other conditions are met.
Goodwill and Other Identifiable Intangible Assets
The Company has recorded $13.6 million of goodwill at December 31, 2021 in connection with the acquisition of Metro
Bancshares, Inc. in 2015. The Company tests its goodwill for impairment annually unless interim events or circumstances
make it more likely than not that an impairment loss has occurred. Impairment is defined as the amount by which the carrying
value of a reporting unit exceeds its fair value. Impairment losses, if incurred, would be charged to operating expense. For
the purposes of evaluating goodwill, the Company has determined that it operates only one reporting unit.
Other identifiable intangible assets include a core deposit intangible recorded in connection with the acquisition of Metro
Bancshares, Inc. The core deposit intangible is being amortized over 7 years and the estimated useful life is periodically
reviewed for reasonableness.
Derivatives and Hedging Activities
As part of its overall interest rate risk management, the Company uses derivative instruments, which can include interest rate
swaps, caps, and floors. ASC 815-10, Derivatives and Hedging, requires all derivative instruments to be carried at fair value
on the balance sheet. This accounting standard provides special accounting provisions for derivative instruments that qualify
for hedge accounting. To be eligible, the Company must specifically identify a derivative as a hedging instrument and identify
the risk being hedged. The derivative instrument must be shown to meet specific requirements under this accounting standard.
The Company designates the derivative on the date the derivative contract is entered into as a hedge of the (1) fair value of a
recognized asset or liability or of an unrecognized firm commitment (a “fair-value” hedge) or (2) a forecasted transaction of
the variability of cash flows to be received or paid related to a recognized asset or liability (a “cash-flow” hedge). Changes
in the fair value of a derivative that is highly effective as a fair-value hedge, and that is designated and qualifies as a fair-
value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses
or gains on firm commitments), are recorded in current-period earnings. The changes in a derivative’s fair value that are
included in the assessment of hedge effectiveness for a derivative that is highly effective and that is designated and qualifies
as a cash-flow hedge are recorded in other comprehensive income until earnings are affected by the variability of cash flows
(e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). The remaining gain or loss on
the derivative, if any, in excess of the cumulative change in the present value of future cash flows of the hedged item is
recognized in earnings.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-
management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives
that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an
ongoing basis, as necessary, whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge
or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively, as discussed
below. The Company discontinues hedge accounting prospectively when: (1) it is determined that the derivative is no longer
effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted
transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is re-designated as a hedge
instrument, because it is unlikely that a forecasted transaction will occur; (4) a hedged firm commitment no longer meets the
definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is
no longer appropriate.
When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-
value hedge, hedge accounting is discontinued prospectively and the derivative will continue to be carried on the balance
sheet at its fair value with all changes in fair value being recorded in earnings but with no offsetting being recorded on the
hedged item or in other comprehensive income for cash flow hedges.
76
The Company uses derivatives to hedge interest rate exposures associated with mortgage loan originations. Interest rate lock
commitments related to loans that are originated for later sale are classified as derivatives. In the normal course of business,
the Company regularly extends these rate lock commitments to customers during the loan origination process. The fair values
of the Company’s rate lock commitments to customers as of December 31, 2021 and 2020 were not material and have not
been recorded.
Revenue Recognition
The Company records revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts
with Customers (“ASC 606”). The guidance requires recognition of revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or
services recognized as performance obligations are satisfied.
The majority of revenue-generating transactions are excluded from the scope of ASC 606, including revenue generated from
financial instruments, such as securities and loans. Revenue-generating transactions that are within the scope of ASC 606,
classified within non-interest income, are described as follows:
• Deposit account service charges – represent service fees for monthly activity and maintenance on customer accounts.
Attributes can be transaction-based, item-based or time-based. Revenue is recognized when our performance
obligation is completed which is generally monthly for maintenance services or when a transaction is processed.
Payment for such performance obligations are generally received at the time the performance obligations are
satisfied.
• Credit card rewards program membership fees – represent memberships in our credit card rewards program and are
paid annually by our cardholders at the time they open an account and on each anniversary. Revenue is recognized
ratably over the membership period.
Other non-interest income primarily includes income on bank owned life insurance contracts, letter of credit fees and gains
on sale of loans held for sale, none of which are within the scope of ASC 606.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between
carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
The Company follows the provisions of ASC 740-10, Income Taxes. ASC 740-10 establishes a single model to address
accounting for uncertain tax positions. ASC 740-10 clarifies the accounting for income taxes by prescribing a minimum
recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740-10 also
provides guidance on derecognition measurement classification interest and penalties, accounting in interim periods,
disclosure, and transition. ASC 740-10 provides a two-step process in the evaluation of a tax position. The first step is
recognition. A Company determines whether it is more likely than not that a tax position will be sustained upon examination,
including a resolution of any related appeals or litigation processes, based upon the technical merits of the position. The
second step is measurement. A tax position that meets the more likely than not recognition threshold is measured at the largest
amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
Stock-Based Compensation
At December 31, 2021, the Company had a stock-based compensation plan for grants of equity compensation to key
employees and directors. The plan has been accounted for under the provisions of ASC 718-10, Compensation – Stock
Compensation with respect to employee stock options, restricted stock and performance-based stock. Specifically, awards
are accounted for using the fair value-based method of accounting. Stock compensation costs are recognized prospectively
for all new awards granted under the stock-based compensation plans. Compensation expense related to stock options is
calculated using a method that is based on the underlying assumptions of the Black-Scholes-Merton option pricing model
and is charged to expense over the requisite service period (e.g. vesting period). Compensation expense related to restricted
stock awards is based upon the fair value of the awards on the date of grant and is charged to earnings over the requisite
service period of the award. Performance shares represent the opportunity to earn shares of the Company’s common stock
after a prescribed period and based on the relative market performance of the Company’s stock, subject to the recipient’s
77
continued employment through the end of the performance period. The actual shares earned under the performance shares
units generally range between zero and 150% of the target level award, depending on the total stockholder return (TSR) of
the Company over the performance period ranked relative to the TSR of a defined peer group of companies. A Monte Carlo
simulation is used to estimate the fair value of the performance shares as of the valuation date. Compensation expense is
recognized regardless of the extent to which the market condition is satisfied.
Earnings per Common Share
Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive
effect of additional potential common shares issuable under stock options and performance shares.
Loan Commitments and Related Financial Instruments
Financial instruments, which include credit card arrangements, commitments to make loans and standby letters of credit, are
issued to meet customer financing needs. The face amount for these items represents the exposure to loss before considering
customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Instruments such as
stand-by letters of credit are considered financial guarantees in accordance with FASB ASC 460-10. The fair value of these
financial guarantees is not material.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully
disclosed in Note 21. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates,
credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Accumulated comprehensive income, which
is recognized as a separate component of equity, includes unrealized gains and losses on available-for-sale debt securities and
amortization of unrealized gains and losses on debt securities transferred from available-for-sale to held-to-maturity at the
time of transfer. Amounts reported as accumulated comprehensive income are shown net of taxes.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2021, 2020 and 2019 was
$498,000, $338,000 and $581,000, respectively. Advertising typically consists of local print media aimed at businesses that
the Company targets as well as sponsorships of local events in which the Company’s clients and prospects are involved.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, which is essentially the final rule on use of the so-
called CECL model, or current expected credit losses. Among other things, ASC 326 requires the measurement of all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable
and supportable forecasts that affect the collectability of the reported amount. Financial institutions and other organizations
will now use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the
accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The
Company adopted ASC 326 effective January 1, 2020. Amounts reported for periods beginning on or after January 1,
2020 are presented under ASC 326, except quarterly periods in 2020, which were not restated under CECL and all prior
period information is presented in accordance with previously applicable GAAP. Based on prevailing economic conditions
and forecasts as of January 1, 2020, the Company recognized a cumulative net increase to retained earnings of $1.1 million,
net of tax, attributable to a decrease in the allowance for credit losses of $2.0 million, an increase in the allowance for off
balance sheet credit exposures of $500,000, and a decrease in deferred tax assets of $376,000. This was the result of
implementing a more quantitative methodology. The commercial, financial, and agricultural loan category decreased
$8.2 million due to the portfolio primarily consisting of loans with generally short contractual maturities. This was partially
offset by an increase of $6.2 million in the real estate – construction loan category due to the application of peer loss rates
78
within the discounted cash flow pool reserve methodology. Peer historical loss rates were utilized to better align with loss
expectations given the Company’s low historical loss experience in this category.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting. The update provides temporary optional guidance to ease the potential burden in
accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally
accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that
reference LIBOR or another reference rate expected to be discontinued. The guidance is intended to help stakeholders during
the global market-wide reference rate transition period. Therefore, it will be effective for a limited time, starting March 12,
2020 through December 31, 2022. The Company has identified a replacement reference rate established by the American
Financial Exchange. This rate is based on an active market of daily fund trading among participant banks. The Company will
apply the guidance provided by this ASU in transitioning to the new reference rate.
In August 2021, the FASB issued ASU No. 2021-06 Presentation of Financial Statements (Topic 205), Financial Services—
Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC
Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and
Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This
ASU amends and adds various SEC paragraphs to the codification pursuant to the issuance of SEC Final Rule
Releases No. 33-10786 and No. 33-10835 issued to improve disclosure rules. The ASU was effective upon issuance. The
adoption of this disclosure guidance did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements
In July 2021, the FASB
issued ASU 2021-05, Leases (Topic 842): Lessors-Certain Leases with Variable Lease
Payments, which amends guidance so that lessors are no longer required to record a selling loss at lease commencement for
a lease with any variable lease payments that do not depend on an index or rate. A lessor would classify such leases as an
operating lease rather than a sales-type or direct financing lease. The update is effective for the Company for its fiscal year
beginning after December 15, 2021, including interim periods within those years. The Company does not expect adoption of
ASU 2021-05 to have an impact on its consolidated financial statements.
79
NOTE 2. DEBT SECURITIES
The amortized cost and fair values of available-for-sale and held-to-maturity debt securities at December 31, 2021 and 2020
are summarized as follows:
Gross
Gross
Amortized Unrealized Unrealized Market
Value
Gain
Loss
Cost
December 31, 2021
Debt Securities Available for Sale
(In Thousands)
U.S. Treasury Securities .............................................. $
Government Agency Securities ...................................
Mortgage-backed securities .........................................
State and municipal securities .....................................
Corporate debt .............................................................
Total ................................................................................ $
Debt Securities Held to Maturity
U.S. Treasury Securities .............................................. $
Mortgage-backed securities .........................................
State and municipal securities .....................................
Total ................................................................................ $
9,003 $
6,022
424,372
21,531
369,618
830,546 $
149,263 $
310,641
3,053
462,957 $
101 $
19
3,474
173
11,659
15,426 $
25 $
5,251
2
5,278 $
- $
-
(2,685)
(70)
(647)
(3,402) $
(668) $
(1,271)
(10)
(1,949) $
9,104
6,041
425,161
21,634
380,630
842,570
148,620
314,621
3,045
466,286
December 31, 2020
Debt Securities Available for Sale
U.S Treasury Securities ............................................... $
Government Agency Securities ...................................
Mortgage-backed securities .........................................
State and municipal securities .....................................
Corporate debt .............................................................
Total ................................................................................ $
Debt Securities Held to Maturity
State and municipal securities .....................................
Total ................................................................................ $
13,993 $
15,228
477,407
37,671
316,857
861,156 $
364 $
230
17,720
444
7,296
26,054 $
- $
-
(18)
-
(504)
(522) $
14,357
15,458
495,109
38,115
323,649
886,688
250
250 $
-
- $
-
- $
250
250
During the third quarter of 2021, the company transferred, at fair value, $261.3 million of mortgage-backed securities from
the available-for-sale portfolio to the held-to-maturity portfolio. The related unrealized after-tax gains of $5.6 million
remained in accumulated other comprehensive income and will be amortized over the remaining life of the securities,
offsetting the related amortization of discount on the transferred securities. No gains or losses were recognized at the time of
the transfer.
All mortgage-backed debt securities are issued by government sponsored enterprises (GSEs) such as Federal National
Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, and Federal Home Loan
Mortgage Corporation.
At year-end 2021 and 2020, there were no holdings of debt securities of any issuer, other than the U.S. government and its
agencies, in an amount greater than 10% of stockholders’ equity.
The amortized cost and fair value of debt securities as of December 31, 2021 and 2020 by contractual maturity are shown
below. Actual maturities may differ from contractual maturities because the issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
80
December 31, 2021
December 31, 2020
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
(In Thousands)
Debt securities available for sale
Due within one year ............................................................... $
Due from one to five years ....................................................
Due from five to ten years .....................................................
Due after ten years .................................................................
Mortgage-backed securities ...................................................
$
32,913 $
31,760
338,407
3,094
424,372
830,546 $
33,232 $
32,307
348,594
3,276
425,161
842,570 $
30,797 $
59,828
288,002
5,122
477,407
861,156 $
31,060
61,481
293,886
5,152
495,109
886,688
Debt securities held to maturity
Due within one year ............................................................... $
Due from one to five years ....................................................
Due from five to ten years .....................................................
Mortgage-backed securities ...................................................
$
250 $
49,663
102,403
310,641
462,957 $
250 $
49,419
101,996
314,621
466,286 $
250 $
-
-
-
250 $
250
-
-
-
250
The following table shows the gross unrealized losses and fair value of debt securities, aggregated by category and length of
time that securities have been in a continuous unrealized loss position at December 31, 2021 and 2020.
Less Than Twelve Months Twelve Months or More
Gross
Unrealized
Losses
Gross
Unrealized
Fair Value Losses
Total
Gross
Unrealized
Fair Value Losses
Fair Value
December 31, 2021
U.S. Treasury Securities .............. $
Government Agency Securities ...
Mortgage-backed securities .........
State and municipal securities .....
Corporate debt .............................
Total ......................................... $
December 31, 2020
U.S. Treasury Securities .............. $
Government Agency Securities ...
Mortgage-backed securities .........
State and municipal securities .....
Corporate debt .............................
Total ......................................... $
(668) $
-
(3,956)
(71)
(647)
(5,342) $
123,698 $
-
437,489
5,680
61,677
628,544 $
- $
-
(18)
-
(504)
(522) $
- $
-
3,667
-
59,576
63,243 $
(In Thousands)
- $
-
-
(9)
-
(9) $
- $
-
-
-
-
- $
- $
-
-
228
-
228 $
(668) $
-
(3,956)
(80)
(647)
(5,351) $
123,698
-
437,489
5,908
61,677
628,772
- $
-
-
-
-
- $
- $
-
(18)
-
(504)
(522) $
-
-
3,667
-
59,576
63,243
At December 31, 2021, no allowance for credit losses 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. Furthermore, the Company performed an analysis that determined that the following securities have a zero
expected credit loss: U.S. Treasury Securities; and, Agency-Backed Securities, including securities issued by GNMA, FNMA,
FHLB, FFCB and SBA. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the
United States Government or one of its agencies. All debt securities in an unrealized loss position as of December 31, 2021
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.
81
The following table summarizes information about sales and calls of debt securities.
2021
Years Ended December 31,
2020
(In Thousands)
2019
Sale and call proceeds ......................................................... $
Gross realized gains ............................................................. $
Gross realized losses............................................................
Net realized gain .................................................................. $
56,780 $
620 $
-
620 $
27,857 $
- $
-
- $
35,220
42
15
27
The carrying value of debt securities pledged to secure public funds on deposits and for other purposes as required by law as
of December 31, 2021 and 2020 was $481.3 million and $477.6 million, respectively.
Restricted equity securities is comprised entirely of a restricted investment in Federal Home Loan Bank of Atlanta stock for
membership requirement.
NOTE 3. 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 ServisFirst 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.
In light of the U.S. and global economic crisis brought about by the COVID-19 pandemic, the Company has prioritized
assisting its clients through this troubled time. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)
provided for Paycheck Protection Program (“PPP”) loans to be made by banks to employers with less than 500 employees if
they continued to employ their existing workers. The American Rescue Plan Act of 2021, which was signed into law on
March 21, 2021, provided additional relief for businesses, states, municipalities and individuals by, among other things,
allocating additional funds for the PPP. Effective May 28, 2021, the PPP was closed to new applications. The Company
funded approximately 7,400 loans for a total amount of $1.5 billion for clients under the PPP since April 2020. At December
31, 2021 and December 31, 2020, unaccreted deferred loan origination fees, net of costs, related to PPP loans totaled $7.2
million and $17.8 million, respectively. PPP loan origination fees recorded to interest income totaled $27.3 million and $14.1
million for the years ended December 31, 2021 and 2020, respectively. PPP loans outstanding totaled $230.2 million and
$900.5 million at December 31, 2021 and 2020, respectively. PPP loans are included within the commercial, financial and
agricultural loan category in the table below.
82
The composition of loans at December 31, 2021 and 2020 is summarized as follows:
Commercial, financial and agricultural ...................................................... $
Real estate – construction ...........................................................................
Real estate - mortgage:
Owner-occupied commercial ..................................................................
1-4 family mortgage ................................................................................
Other mortgage .......................................................................................
Total real estate – mortgage ....................................................................
Consumer ...................................................................................................
Total Loans .............................................................................................
Less: Allowance for credit losses ...............................................................
Net Loans ................................................................................................ $
December 31,
2021
2020
(In Thousands)
2,984,053 $
1,103,076
3,295,900
593,614
1,874,103
826,765
2,678,084
5,378,952
66,853
9,532,934
(116,660 )
9,416,274 $
1,693,428
711,692
2,106,184
4,511,304
64,870
8,465,688
(87,942)
8,377,746
Changes in the ACL during the years ended December 31, 2021, 2020 and 2019 are as follows:
Years Ended December 31,
2020
2021
2019
(In Thousands)
Balance, beginning of year ............................................... $
Impact of adopting ASC 326 ........................................
Loans charged off .........................................................
Recoveries .....................................................................
Allocation from LGP (1) ...............................................
Provision for credit losses .............................................
Balance, end of year ......................................................... $
87,942 $
-
(4,114)
1,315
-
31,517
116,660 $
76,584 $
(2,000)
(29,568)
492
-
42,434
87,942 $
68,600
-
(22,489)
429
7,406
22,638
76,584
(1)
In 2019, the Company recorded a $7.4 million payment resulting from the termination of a Loan
Guarantee Program (“LGP”) operated by the State of Alabama.
As described in Note 1, “Summary of Significant Accounting Policies”, the Company adopted ASU 2016-13 on January 1,
2020, which introduced the CECL methodology for estimating all expected losses over the life of a financial asset. Under the
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
revolving lines of credit and credit cards. 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
December 31, 2021 and 2020, 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 national unemployment and national GDP
growth to be at levels experienced prior to the pandemic as the economy continues to come back on-line over the next year.
The Company uses a loss-rate method to estimate expected credit losses for its C&I lines of credit and credit card pools. The
commercial 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
83
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 and industrial loans include risks associated with 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 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 credit-worthiness, 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.
84
Changes in the allowance for credit losses, segregated by loan type, during the years ended December 31, 2021 and 2020,
respectively, are as follows:
Commercial,
financial and Real estate - Real estate -
agricultural construction mortgage Consumer
Total
(In Thousands)
Year Ended December 31, 2021
Allowance for credit losses:
Balance at December 31, 2020 .......................... $
Charge-offs ....................................................
Recoveries .....................................................
Provision ........................................................
Balance at December 31, 2021 .......................... $
36,370 $
(3,453)
1,135
7,817
41,869 $
16,057 $
(14)
52
10,899
26,994 $
33,722 $
(279)
86
12,300
45,829 $
1,793 $
(368)
42
501
1,968 $
87,942
(4,114)
1,315
31,517
116,660
Year Ended December 31, 2020
Allowance for loan losses:
Balance at December 31, 2019 .......................... $
Impact of adopting ASC 326 .........................
Charge-offs ....................................................
Recoveries .....................................................
Provision ........................................................
Balance at December 31, 2020 .......................... $
43,666 $
(8,211)
(23,936)
252
24,599
36,370 $
2,768 $
6,212
(1,032)
32
8,077
16,057 $
29,653 $
(966)
(4,397)
140
9,292
33,722 $
497 $
965
(203)
68
466
1,793 $
76,584
(2,000)
(29,568)
492
42,434
87,942
We maintain an ACL for credit losses on unfunded commercial 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 balance sheet within other liabilities, while the corresponding
provision for these credit losses is recorded as a component of other expense. The allowance for credit losses on unfunded
commitments was $1.3 million and $2.2 million at December 31, 2021 and 2020, respectively. The provision expense for
unfunded commitments was reduced by $900,000 for the year ended December 31, 2021 and was $1.2 million for the year
ended December 31, 2020. Prior to January 1, 2020, except quarterly periods in 2020 which were not restated, the allowance
for losses on unfunded loan commitments was calculated using an incurred losses methodology.
The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard
asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the
loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for 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.
85
The tables below presents loan balances classified by credit quality indicator, loan type and based on year of origination as
of December 31, 2021 and 2020:
December 31, 2021
2021
2020
2019
Commercial, financial and
2018
2017
(In Thousands)
Prior
Revolving
Loans
Total
agricultural
Pass ................................... $ 800,822 $ 294,841 $ 209,086 $ 130,579 $ 114,870 $ 127,572 $ 1,216,153 $ 2,893,923
25,856
Special Mention ................
Substandard ......................
64,274
-
Doubtful ............................
19,801
42,640
-
942
10,039
-
1,245
-
-
915
1,501
-
1,323
387
-
784
7,966
-
846
1,741
-
Total Commercial, financial
and agricultural ................. $ 802,067 $ 296,551 $ 220,067 $ 133,166 $ 117,286 $ 136,322 $ 1,278,594 $ 2,984,053
Real estate - construction
Pass ................................... $ 597,497 $ 260,723 $ 110,671 $ 16,452 $ 13,704 $ 17,356 $
917
Special Mention ................
Substandard ......................
-
-
Doubtful ............................
6,594
-
-
2,500
-
-
-
-
-
-
-
-
-
-
-
76,662 $ 1,093,065
10,011
-
-
-
-
-
Total Real estate –
construction ...................... $ 597,497 $ 260,723 $ 117,265 $ 18,952 $ 13,704 $ 18,273 $
76,662 $ 1,103,076
Owner-occupied commercial
Pass ................................... $ 406,473 $ 352,642 $ 231,197 $ 182,812 $ 162,648 $ 430,638 $
2,688
Special Mention ................
Substandard ......................
4,372
-
Doubtful ............................
2,417
-
-
101
-
-
476
-
-
779
-
-
-
-
-
96,860 $ 1,863,270
6,461
4,372
-
-
-
-
Total Owner-occupied
commercial ....................... $ 406,574 $ 352,642 $ 233,614 $ 183,591 $ 163,124 $ 437,698 $
96,860 $ 1,874,103
1-4 family mortgage
Pass ................................... $ 299,686 $ 117,579 $
1,000
Special Mention ................
Substandard ......................
150
-
Doubtful ............................
Total 1-4 family mortgage .... $ 299,686 $ 118,729 $
-
-
-
Other mortgage
68,044 $ 46,954 $ 37,374 $ 37,970 $ 210,338 $ 817,945
5,838
2,982
-
69,154 $ 47,311 $ 37,865 $ 39,493 $ 214,527 $ 826,765
3,033
1,156
-
517
593
-
260
231
-
116
241
-
912
611
-
Pass ................................... $ 882,849 $ 481,012 $ 411,426 $ 174,700 $ 272,555 $ 353,621 $
4,656
Special Mention ................
Substandard ......................
-
-
Doubtful ............................
Total Other mortgage ........... $ 882,849 $ 481,012 $ 411,556 $ 179,573 $ 283,615 $ 358,277 $
2,720
8,340
-
376
4,497
-
130
-
-
-
-
-
-
-
-
81,202 $ 2,657,365
7,882
12,837
-
81,202 $ 2,678,084
-
-
-
Consumer
Pass ................................... $
Special Mention ................
Substandard ......................
Doubtful ............................
Total Consumer .................... $
16,303 $
-
-
-
16,303 $
4,845 $
-
-
-
4,845 $
2,896 $
-
-
-
2,896 $
983 $
-
-
-
983 $
903 $ 3,649 $
24
-
-
903 $ 3,673 $
-
-
-
37,250 $
-
-
-
37,250 $
66,829
24
-
-
66,853
Total Loans
Pass ................................... $3,003,630 $1,511,642 $ 1,033,320 $ 552,480 $ 602,054 $ 970,806 $ 1,718,465 $ 9,392,397
56,072
10,600
Special Mention ................
Substandard ......................
84,465
10,632
-
-
Doubtful ............................
Total Loans ........................... $3,004,976 $1,514,502 $ 1,054,552 $ 563,576 $ 616,497 $ 993,736 $ 1,785,095 $ 9,532,934
4,617
9,981
4,371
6,479 10,072 12,949
-
22,834
43,796
-
2,323
537
-
1,346
-
-
-
-
86
December 31, 2020
2020
2019
2018
Commercial, financial and
2017
2016
(In Thousands)
Prior
Revolving
Loans
Total
agricultural
Pass ...................................... $1,260,341 $ 332,690 $ 229,838 $ 169,616 $ 89,893 $ 137,021 $ 988,093 $ 3,207,492
19,610
Special Mention ...................
Substandard .........................
68,798
-
Doubtful ...............................
14,948
48,525
-
1,404
10,639
-
2,551
569
-
253
5,447
-
281
2,038
-
163
963
-
10
617
-
Total Commercial, financial
and agricultural .................... $1,263,461 $ 344,733 $ 230,465 $ 175,316 $ 91,019 $ 139,340 $ 1,051,566 $ 3,295,900
Real estate – construction
Pass ...................................... $ 230,931 $ 222,357 $ 53,981 $ 16,361 $ 7,677 $ 13,816 $
-
Special Mention ...................
Substandard .........................
235
-
Doubtful ...............................
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48,256 $ 593,379
-
235
-
-
-
-
Total Real estate –
construction ......................... $ 230,931 $ 222,357 $ 53,981 $ 16,361 $ 7,677 $ 14,051 $
48,256 $ 593,614
Owner-occupied commercial
Pass ...................................... $ 351,808 $ 271,645 $ 221,513 $ 198,935 $ 158,531 $ 417,743 $
1,873
Special Mention ...................
Substandard .........................
1,962
-
Doubtful ...............................
6,524
780
-
543
-
-
-
12
-
-
-
-
-
-
-
61,119 $ 1,681,294
9,140
2,994
-
200
240
-
Total Owner-occupied
commercial .......................... $ 351,808 $ 271,645 $ 221,525 $ 206,239 $ 159,074 $ 421,578 $
61,559 $ 1,693,428
1-4 family mortgage
Pass ...................................... $ 179,314 $ 111,016 $ 70,381 $ 60,774 $ 27,985 $ 44,111 $ 212,616 $ 706,197
2,206
Special Mention ...................
Substandard .........................
3,289
-
Doubtful ...............................
Total 1-4 family mortgage ....... $ 180,172 $ 111,142 $ 70,381 $ 61,114 $ 28,684 $ 44,111 $ 216,088 $ 711,692
1,112
2,360
-
508
350
-
-
126
-
105
235
-
481
218
-
-
-
-
-
-
-
Other mortgage
Pass ...................................... $ 470,086 $ 470,092 $ 250,945 $ 368,283 $ 180,244 $ 272,722 $
8,566
Special Mention ...................
Substandard .........................
-
-
Doubtful ...............................
Total Other mortgage .............. $ 470,086 $ 470,142 $ 255,534 $ 379,628 $ 180,785 $ 281,288 $
-
4,589
-
2,793
8,552
-
541
-
-
-
50
-
-
-
-
Consumer
Pass ...................................... $
Special Mention ...................
Substandard .........................
Doubtful ...............................
Total Consumer ....................... $
20,410 $
-
-
-
20,410 $
Total Loans
4,421 $ 1,551 $ 1,671 $ 1,031 $ 3,615 $
-
-
-
4,421 $ 1,566 $ 1,671 $ 1,062 $ 3,615 $
31
-
-
15
-
-
-
-
-
-
-
-
68,721 $ 2,081,093
11,900
13,191
-
68,721 $ 2,106,184
-
-
-
32,125 $
-
-
-
32,125 $
64,824
46
-
-
64,870
Pass ...................................... $2,512,890 $1,412,221 $ 828,209 $ 815,640 $ 465,361 $ 889,028 $ 1,410,930 $ 8,334,279
42,902
Special Mention ...................
Substandard .........................
88,507
-
Doubtful ...............................
Total Loans .............................. $2,516,868 $1,424,440 $ 833,452 $ 840,329 $ 468,301 $ 903,983 $ 1,478,315 $ 8,465,688
1,759 10,720
4,235
1,181
-
-
9,675
5,218 15,014
-
16,260
51,125
-
1,404
10,815
-
3,059
919
-
25
-
87
Nonperforming loans include nonaccrual loans and loans 90 or more days past due and still accruing. Loans by performance
status as of December 31, 2021 and 2020 are as follows:
December 31, 2021
Performing
Nonperforming
(In Thousands)
Total
Commercial, financial and agricultural .............. $
Real estate – construction ...................................
Real estate - mortgage:
Owner-occupied commercial ..........................
1-4 family mortgage ........................................
Other mortgage ...............................................
Total real estate – mortgage................................
Consumer ...........................................................
Total ............................................................ $
2,979,671 $
1,103,076
1,873,082
824,756
2,673,428
5,371,266
66,824
9,520,837 $
4,382 $
-
2,984,053
1,103,076
1,021
2,009
4,656
7,686
29
12,097 $
1,874,103
826,765
2,678,084
5,378,952
66,853
9,532,934
December 31, 2020
Commercial, financial and agricultural .............. $
Real estate – construction ...................................
Real estate - mortgage:
Owner-occupied commercial ..........................
1-4 family mortgage ........................................
Other mortgage ...............................................
Total real estate – mortgage................................
Consumer ...........................................................
Total ............................................................ $
Performing
Nonperforming
(In Thousands)
Total
3,284,180 $
593,380
11,720 $
234
3,295,900
593,614
1,692,169
710,817
2,101,379
4,504,365
64,809
8,446,734 $
1,259
875
4,805
6,939
61
18,954 $
1,693,428
711,692
2,106,184
4,511,304
64,870
8,465,688
Loans by past due status as of December 31, 2021 and 2020 are as follows:
December 31, 2021
Past Due Status (Accruing Loans)
Total
Past
Due
30-59
Days
60-89
Days
90+
Days
Total
Nonaccrual Current
Total
Loans
Nonaccrual
With No ACL
Commercial, financial and
agricultural .............................. $
Real estate – construction ...........
Real estate - mortgage:
Owner-occupied commercial ..
1-4 family mortgage ...............
Other mortgage .......................
Total real estate – mortgage ....
Consumer ...................................
Total ........................................... $
(In Thousands)
516 $
-
77 $
-
39 $
-
632 $
-
4,343 $2,979,078 $2,984,053 $
- 1,103,076 1,103,076
143
-
-
143
93
752 $
-
-
703
143
611 1,314
- 4,656 4,656
703 5,267 6,113
145
29
23
803 $ 5,335 $ 6,890 $
1,021 1,872,939 1,874,103
1,398 824,053 826,765
- 2,673,428 2,678,084
2,419 5,370,420 5,378,952
66,853
66,708
6,762 $9,519,282 $9,532,934 $
-
2,059
-
1,021
483
-
1,504
-
3,563
88
December 31, 2020
Past Due Status (Accruing Loans)
30-59
Days
60-89
Days
90+ Days
Total Past
Due
Total
Nonaccrual Current
Total
Loans
Nonaccrual
With No
ACL
(In Thousands)
Commercial,
financial and
agricultural ......... $
Real estate –
92 $
1,738 $
11 $
1,841 $
11,709 $3,282,350 $3,295,900 $
5,101
construction .......
-
-
-
-
234 593,380 593,614
-
Real estate -
mortgage:
Owner-occupied
commercial .....
-
995
-
995
1,259 1,691,174 1,693,428
467
1-4 family
mortgage .........
Other mortgage ..
Total real estate –
61
18
1,073
-
104
4,805
1,238
4,823
771 709,683 711,692
- 2,101,361 2,106,184
mortgage .........
Consumer ..............
Total ...................... $
79
64
235 $
2,068
13
3,819 $
4,909
61
4,981 $
7,056
138
9,035 $
2,030 4,502,218 4,511,304
64,870
64,732
13,973 $8,442,680 $8,465,688 $
-
There was no interest earned on nonaccrual loans for the years ended December 31, 2021 and 2020.
512
-
979
-
6,080
Loans that no longer share similar risk characteristics with the 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:
December 31, 2021
Commercial, financial and
Accounts
Real Estate Receivable Equipment
Other
Total
ACL
Allocation
(In Thousands)
agricultural ......................... $
13,067 $
5,075 $
18,533 $
27,599 $
64,274 $
9,727
Real estate - mortgage:
Owner-occupied
commercial .....................
1-4 family mortgage ..........
Other mortgage ..................
Total real estate –
4,372
2,982
12,837
-
-
-
-
-
-
-
-
-
4,372
2,982
12,837
1,371
163
31
mortgage .........................
Total ...................................... $
20,191
33,258 $
-
5,075 $
-
18,533 $
-
27,599 $
20,191
84,465 $
1,565
11,292
December 31, 2020
Accounts
Real Estate Receivable Equipment
Other
Total
ACL
Allocation
(In Thousands)
Commercial, financial and
agricultural ......................... $
Real estate – construction ......
Real estate - mortgage:
Owner-occupied
commercial .....................
1-4 family mortgage ..........
Other mortgage ..................
Total real estate –
19,373 $
235
27,952 $
-
16,877 $
-
4,594 $
-
68,796 $
235
7,142
1
2,012
3,264
13,191
971
-
-
-
-
-
12
24
-
2,995
3,288
13,191
499
48
-
mortgage .........................
Total ...................................... $
18,467
38,075 $
971
28,923 $
-
16,877 $
36
4,630 $
19,474
88,505 $
547
7,690
89
On March 22, 2020, an Interagency Statement was issued by banking regulators that encourages financial institutions to work
prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of
COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by
law from classification as a Troubled Debt Restructuring (“TDR”) as defined by GAAP, from the period beginning March 1,
2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency
concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act
terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original
guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection
considerations. On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act 2021, which
extended the period established by Section 4013 of the CARES Act to the earlier of January 1, 2022 or the date that is 60
days after the date on which the national COVID-19 emergency terminates. In accordance with such guidance, the Bank
offered short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due.
These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of
repayment terms, or other delays in payment that are insignificant. As of December 31, 2021, there were 12 loans outstanding
totaling $1.5 million that have payment deferrals in connection with the COVID-19 relief provided by the CARES Act. All
of these remaining deferrals are principal and interest deferrals. The CARES Act precluded all of the Company’s COVID-19
loan modifications from being classified as a TDR as of December 31, 2021.
TDRs at December 31, 2021 and 2020 totaled $2.6 million and $1.5 million, respectively. The following tables present loans
modified in a TDR during the periods presented by portfolio segment and the financial impact of those modifications. The
tables include modifications made to new TDRs, as well as renewals of existing TDRs.
Year Ended December 31, 2021
Pre-
Post-
Modification Modification
Outstanding Outstanding
Recorded
Investment
Recorded
Investment
Number of
Contracts
Troubled Debt Restructurings
Commercial, financial and agricultural ........................
Real estate – construction ............................................
Real estate - mortgage:
Owner-occupied commercial ...................................
1-4 family mortgage .................................................
Other mortgage .........................................................
Total real estate – mortgage .........................................
Consumer .....................................................................
(In Thousands)
2 $
-
1
-
-
1
-
3 $
1,155 $
-
991
-
-
991
-
2,146 $
1,155
-
991
-
-
991
-
2,146
Year ended December 31, 2020
Pre-
Post-
Modification Modification
Outstanding Outstanding
Number of Recorded
Contracts
Investment Investment
Recorded
Troubled Debt Restructurings
Commercial, financial and agricultural ..........................
Real estate – construction ..............................................
Real estate - mortgage:
Owner-occupied commercial .....................................
1-4 family mortgage ...................................................
Other mortgage ...........................................................
Total real estate – mortgage ...........................................
Consumer .......................................................................
90
(In Thousands)
2 $
1
1
-
-
1
-
4 $
564 $
357
611
-
-
611
-
1,532 $
564
357
611
-
-
611
-
1,532
There were no loans which were modified in the previous twelve months (i.e., the twelve months prior to default) that
defaulted during the years ended December 31, 2021 and December 31, 2020, respectively. For purposes of this disclosure,
default is defined as 90 days past due and still accruing or placement on nonaccrual status.
In the ordinary course of business, the Company has granted loans to certain related parties, including directors, and their
affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and
repayment terms are customary for the type of loan. Changes in related party loans for the years ended December 31, 2021
and 2020 are as follows:
Balance, beginning of year ............................ $
Additions ...................................................
Advances ...................................................
Repayments ...............................................
Removal ....................................................
Balance, end of year ...................................... $
Years Ended December 31,
2020
2021
(In Thousands)
36,969 $
3,168
90,553
(79,445)
(65)
51,180 $
24,681
-
41,183
(28,895)
-
36,969
NOTE 4. FORECLOSED PROPERTIES
Other real estate and certain other assets acquired in foreclosure are carried at the lower of the recorded investment in the
loan or fair value less estimated costs to sell the property.
An analysis of foreclosed properties for the years ended December 31, 2021, 2020 and 2019 follows:
Balance at beginning of year .......................................................... $
Transfers from loans and capitalized expenses ...........................
Foreclosed properties sold ..........................................................
Write downs and partial liquidations ..........................................
Balance at end of year .................................................................... $
2021
2020
(In Thousands)
2019
6,497 $
2,318
(6,474)
(1,133)
1,208 $
8,178 $
2,985
(2,813 )
(1,853 )
6,497 $
5,169
4,611
(1,437 )
(165 )
8,178
NOTE 5. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
Land ............................................................................................................... $
Building .........................................................................................................
Furniture and equipment ................................................................................
Leasehold improvements ...............................................................................
Construction in progress ................................................................................
Total premises and equipment, cost ...........................................................
Accumulated depreciation .............................................................................
Total premises and equipment, net ............................................................ $
December 31,
2021
2020
(In Thousands)
5,830 $
38,261
31,183
13,400
62
88,736
(28,436)
60,300 $
5,830
36,365
27,466
10,789
867
81,317
(26,348)
54,969
The provisions for depreciation charged to occupancy and equipment expense for the years ended December 31, 2021, 2020
and 2019 were $4.1 million, $3.8 million, and $3.7 million, respectively.
91
NOTE 6. LEASES
The Company leases space under non-cancelable operating leases for several of its banking offices and certain office
equipment. The Company reports its right-of-use asset in other assets and its lease liabilities in other liabilities in its
Consolidated Balance Sheet.
Supplemental balance sheet information related to operating leases is as follows:
Right-of-use assets ................................................................... $
Lease liabilities ........................................................................ $
Weighted average remaining lease term ..................................
Weighted average discount rate ...............................................
17,916 $
18,549 $
6.8
2.46%
10,452
10,645
4.9
3.2%
December 31,
2021
December 31,
2020
Lease costs during the years ended December 31, 2021 and 2020 were as follows (in thousands):
Operating lease cost ................................................................ $
Short-term lease cost...............................................................
Variable lease cost ..................................................................
Sublease income .....................................................................
Net lease cost ...................................................................... $
4,009 $
-
430
(94)
4,345 $
3,476
45
151
(93 )
3,579
2021
2020
The following table reconciles future undiscounted lease payments due under non-cancelable leases to the aggregate lease
liability as of December 31, 2021:
2022 .................................................................................. $
2023 ..................................................................................
2024 ..................................................................................
2025 ..................................................................................
2026 ..................................................................................
Thereafter ..........................................................................
Total lease payments ..................................................... $
Less: imputed interest ....................................................
Present value of operating lease liabilities ........................ $
(In Thousands)
4,084
3,520
2,566
2,481
1,903
5,509
20,063
(1,514 )
18,549
NOTE 7. VARIABLE INTEREST ENTITIES (VIEs)
The Company utilizes special purpose entities (SPEs) that constitute investments in limited partnerships that undertake certain
development projects to achieve federal and state tax credits. These SPEs are typically structured as VIEs and are thus subject
to consolidation by the reporting enterprise that absorbs the majority of the economic risks and rewards of the VIE. To
determine whether it must consolidate a VIE, the Company analyzes the design of the VIE to identify the sources of variability
within the VIE, including an assessment of the nature of risks created by the assets and other contractual obligations of the
VIE, and determines whether it will absorb a majority of that variability.
The Company has invested in limited partnerships as a funding investor. The partnerships are single purpose entities that lend
money to real estate investors for the purpose of acquiring and operating, or rehabbing, commercial property. The investments
qualify for New Market Tax Credits under Internal Revenue Code Section 45D, as amended, or Historic Rehabilitation Tax
Credits under Code Section 47, as amended, or Low-Income Housing Tax Credits under Code Section 42, as amended. For
each of the partnerships, the Company acts strictly in a limited partner capacity. The Company has determined that it is not
the primary beneficiary of these partnerships because it does not have the power to direct the activities of the entity that most
significantly impact the entities’ economic performance and therefore the partnerships are not consolidated in our financial
statements. The amount of recorded investment in these partnerships as of December 31, 2021 and 2020 was $69.9 million
and $4.0 million, respectively. During 2021, the Company invested in two Federal New Market Tax Credit partnerships, two
Federal Historic Tax Credit partnerships and two Low-Income Housing Tax Credit partnerships with recorded investment in
92
each totaling $63.3 million, $1.5 million and $1.1 million, respectively, at December 31, 2021. The amount of recorded
investment included in loans of the Company totaled $32.0 million at December 31, 2021. There were no loans included in
the Company’s recorded investment at December 31, 2020. The remaining amounts are included in other assets.
NOTE 8. DEPOSITS
Deposits at December 31, 2021 and 2020 were as follows:
December 31,
2021
2020
(In Thousands)
Noninterest-bearing demand ............................. $
Interest-bearing checking ..................................
Savings ..............................................................
Time deposits, $250,000 and under ..................
Time deposits, over $250,000 ...........................
Brokered time deposits ......................................
$
4,799,767 $
6,707,778
131,955
256,185
507,151
50,000
12,452,836 $
2,788,772
6,276,910
89,418
273,301
497,323
50,000
9,975,724
The scheduled maturities of time deposits at December 31, 2021 were as follows:
2022 ................................................................... $
2023 ...................................................................
2024 ...................................................................
2025 ...................................................................
2026 ...................................................................
Total ............................................................... $
(In Thousands)
566,698
174,332
26,993
10,039
35,275
813,336
At December 31, 2021 and 2020, overdraft deposits reclassified to loans were $4.0 million and $1.4 million, respectively.
NOTE 9. FEDERAL FUNDS PURCHASED
At December 31, 2021, the Company had $1.71 billion in federal funds purchased from its correspondent banks that are
clients of its correspondent banking unit, compared to $851.5 million at December 31, 2020. Rates paid on these funds were
between 0.15% and 0.25% as of December 31, 2021 and 0.15% and 0.25% as of December 31, 2020.
At December 31, 2021, the Company had available lines of credit totaling approximately $986.0 million with various financial
institutions for borrowing on a short-term basis, compared to $923.0 million at December 31, 2020. At December 31, 2021,
the Company had no outstanding borrowings from these lines.
NOTE 10. OTHER BORROWINGS
Other borrowings are comprised of:
● $30.0 million on 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 not be prepaid by the Company prior
to November 8, 2022.
● $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.
Debt is reported net of unamortized issuance costs of $44,000 and $64,000 as of December 31, 2021 and 2020, respectively.
93
NOTE 11.
SF INTERMEDIATE HOLDING COMPANY, INC., SF HOLDING 1, INC., SF REALTY 1, INC.,
SF FLA REALTY, INC., SF GA REALTY, INC. AND SF TN REALTY, INC.
In January 2012, the Company formed SF Holding 1, Inc., an Alabama corporation, and its subsidiary, SF Realty 1, Inc., an
Alabama corporation. In September 2013, the Company formed SF FLA Realty, Inc., an Alabama corporation and a
subsidiary of SF Holding 1, Inc. In May 2014, the Company formed SF GA Realty, Inc., an Alabama corporation and a
subsidiary of SF Holding 1, Inc. In February 2016, the Company formed SF TN Realty, Inc., an Alabama corporation and a
subsidiary of SF Holding 1, Inc. Also in February 2016, the Company formed SF Intermediate Holding Company, Inc., an
Alabama corporation. Immediately following the formation of SF Intermediate Holding Company, Inc., ServisFirst Bank
assigned all of the outstanding capital stock of SF Holding 1, Inc. to SF Intermediate Holding Company, Inc., such that SF
Holding 1, Inc. now is a wholly-owned first tier subsidiary of SF Intermediate Holding Company, Inc. SF Realty 1, SF FLA
Realty, SF GA Realty and SF TN Realty all hold and manage participations in residential mortgages and commercial real
estate loans originated by ServisFirst Bank and have elected to be treated as real estate investment trusts (“REIT”) for U.S.
income tax purposes. SF Intermediate Holding Company, Inc., SF Holding 1, Inc., SF Realty 1, Inc., SF FLA Realty, Inc.,
SF GA Realty, Inc. and SF TN Realty, Inc. are all consolidated into the Company.
NOTE 12. DERIVATIVES
The Company periodically enters into derivative contracts to manage exposures to movements in interest rates. The Company
purchased an interest rate cap in May of 2020 to limit exposures to increases in interest rates. The interest rate cap
is not designated as a hedging instrument but rather as a stand-alone derivative. The interest rate cap has an original term
of 3 years, a notional amount of $300 million and is tied to the one-month LIBOR rate with a strike rate of 0.50%. The fair
value of the interest rate cap is carried on the balance sheet in other assets and the change in fair value is recognized in
noninterest income each quarter. At December 31, 2021, the interest rate cap had a fair value of $1.15 million and remaining
term of 1.4 years.
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
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 December 31, 2021 and December 31, 2020 were not material.
NOTE 13. EMPLOYEE AND DIRECTOR BENEFITS
The Company has a stock incentive plan, which is described below. The compensation cost that has been charged against
income for the plan was approximately $1.9 million, $1.3 million and $1.1 million for the years ended December 31, 2021,
2020 and 2019, respectively.
Stock Incentive Plan
On March 23, 2009, the Company’s board of directors adopted the 2009 Stock Incentive Plan (the “Plan”), which was
effective upon approval by the stockholders at the 2009 Annual Meeting of Stockholders. The 2009 Plan originally permitted
the grant of up to 2,550,000 shares of common stock. However, upon stockholder approval during 2014, the Plan was
amended in order to allow the Company to grant stock options for up to 5,550,000 shares of common stock. The Plan
authorizes the grant of stock appreciation rights, restricted stock, incentive stock options, non-qualified stock options, non-
stock share equivalents, performance shares or performance units and other equity-based awards. Option awards are generally
granted with an exercise price equal to the estimated fair market value of the Company’s stock at the date of grant.
As of December 31, 2021, there are a total of 3,140,562 shares available to be granted under the Plan.
Stock-based compensation expense for stock-based awards is based on the grant-date fair value. For stock option awards, the
fair value is estimated at the date of grant using the Black-Scholes-Merton valuation model. This model requires the input of
highly subjective assumptions, changes to which can materially affect the fair value estimate. The fair value of each option
granted is estimated on the date of grant using the Black-Scholes-Merton model based on the weighted-average assumptions
for expected dividend yield, expected stock price volatility, risk-free interest rate and expected life of options granted.
94
There were no grants of stock options during the years ended December 31, 2021 and 2020. The assumptions used in
determining the fair value of 2019 stock option awards were as follows:
Expected price volatility ................................
Expected dividend yield .................................
Expected term (in years) ................................
Risk-free rate ..................................................
2019
40.00%
1.76%
7
1.96%
The weighted average grant-date fair value of options granted during the year ended December 31, 2019 was $12.40.
The following tables summarize stock option activity:
Weighted
Average
Shares
Exercise Price
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
(In Thousands)
Year Ended December 31, 2021:
Outstanding at beginning of year ................
Exercised .................................................
Forfeited ..................................................
Outstanding at end of year ..........................
641,450 $
(278,200)
(10,000)
353,250 $
18.15
12.58
38.38
19.28
4.6 $
2.8
5.2
3.8 $
16,985
20,131
466
23,525
Exercisable at December 31, 2021: ................
264,000 $
12.89
2.8 $
19,353
Year Ended December 31, 2020:
Outstanding at beginning of year ................
Exercised .................................................
Forfeited ..................................................
Outstanding at end of year ..........................
965,750 $
(306,300)
(18,000)
641,450 $
15.20
11.38
30.79
18.15
4.9 $
2.9
6.1
4.6 $
21,914
8,854
171
16,985
Exercisable at December 31, 2020: ................
182,200 $
12.86
3.5 $
4,998
Year Ended December 31, 2019:
Outstanding at beginning of year ................
Granted ....................................................
Exercised .................................................
Forfeited ..................................................
Outstanding at end of year ..........................
1,238,750 $
36,000
(288,800)
(20,200)
965,750 $
13.02
34.04
7.56
24.88
15.20
5.2 $
9.6
2.5
6.2
4.9 $
23,355
132
8,534
259
21,914
Exercisable at December 31, 2019: ................
278,500 $
8.28
3.0 $
8,355
Exercisable options at December 31, 2021 were as follows:
Range of Exercise
Price
Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
(In Thousands)
$ 5.00 - 6.00 ............
6.00 - 7.00 ............
15.00 - 16.00 ........
17.00 - 18.00 ........
18.00 - 19.00 ........
19.00 - 20.00 ........
25.00 - 26.00 ........
49,000 $
53,500
81,000
21,500
6,000
49,000
4,000
264,000 $
5.41
6.92
15.41
17.17
18.49
19.16
25.41
12.89
95
1.1 $
2.6
3.0
3.3
3.7
4.1
4.7
2.8 $
3,897
4,174
5,632
1,457
732
3,223
238
19,353
As of December 31, 2021, there was $393,000 of total unrecognized compensation cost related to non-vested stock options.
As of December 31, 2021, non-vested stock options had a weighted average remaining time to vest of 1.6 years.
Restricted Stock and Performance Shares
The Company periodically grants restricted stock awards that vest upon 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 December 31, 2021, there was $2.8
million of total unrecognized compensation cost related to non-vested restricted stock. As of December 31, 2021, non-vested
restricted stock had a weighted average remaining time to vest of 2.0 years.
The Company periodically grants performance shares that give plan participants the opportunity to earn between 0% and
150% of the target number of performance shares granted based on the relative market performance of the Company’s stock,
and are subject to the recipient’s continued employment through the end of the performance period. 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 performance stock is determined using a Monte Carlo simulation
model on the grant date. As of December 31, 2021, there was $460,000 of total unrecognized compensation cost related to
non-vested performance stock. As of December 31, 2021, non-vested performance stock had a weighted average remaining
time to vest of 2.0 years.
The following table summarizes restricted stock and performance stock activity:
Restricted Stock
Performance Stock
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Year Ended December 31, 2021:
Non-vested at beginning of year ........................................
Granted ...........................................................................
Vested ............................................................................
Forfeited .........................................................................
Non-vested at end of year ..................................................
84,307 $
69,295
(14,274 )
(12,353 )
126,975 $
Year Ended December 31, 2020:
Non-vested at beginning of year ........................................
Granted ...........................................................................
Vested ............................................................................
Forfeited .........................................................................
Non-vested at end of year ..................................................
71,290 $
33,695
(20,178 )
(500 )
84,307 $
Year Ended December 31, 2019:
Non-vested at beginning of year ........................................
Granted ...........................................................................
Vested ............................................................................
Forfeited .........................................................................
Non-vested at end of year ..................................................
42,576 $
36,664
(5,450 )
(2,500 )
71,290 $
34.92
48.92
29.33
39.60
42.28
32.24
33.91
23.76
34.09
34.92
29.96
33.60
20.92
38.17
32.24
- $
12,437
-
-
12,437 $
-
37.05
-
-
37.05
- $
-
-
-
- $
- $
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
Retirement Plans
The Company has a retirement savings 401(k) and profit-sharing plan in which all employees age 21 and older may participate
after completion of one year of service. For employees in service with the Company at June 15, 2005, the length of service
and age requirements were waived. The Company matches employees’ contributions based on a percentage of salary
contributed by participants and may make additional discretionary profit-sharing contributions. The Company’s expense for
the plan was $1.6 million, $2.0 million, and $1.7 million for 2021, 2020 and 2019, respectively.
96
NOTE 14. REGULATORY MATTERS
The Bank is subject to dividend restrictions set forth in the Alabama Banking Code and by the Alabama State Banking
Department. Under such restrictions, the Bank may not, without the prior approval of the Alabama State Banking Department,
declare dividends in excess of the sum of the current year’s earnings plus the retained earnings from the prior two years.
Based on these restrictions, the Bank would be limited to paying $449.8 million in dividends as of December 31, 2021.
The Bank is subject to various regulatory capital requirements administered by the state and federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Bank and the financial statements. Under regulatory
capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective guidelines
are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of common equity Tier 1 capital, total risk-based capital and Tier 1 capital to risk-
weighted assets (as defined in the regulations), and Tier 1 capital to adjusted total assets (as defined). Management believes,
as of December 31, 2021, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2021, the most recent notification from the Federal Deposit Insurance Corporation categorized
ServisFirst Bank as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as
well capitalized, the Bank will have to maintain minimum CET1, total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as disclosed in the table below. Management believes that it is well capitalized under the prompt corrective action provisions
as of December 31, 2021.
97
The Company’s and Bank’s actual capital amounts and ratios are presented in the following table:
Actual
For Capital Adequacy
Purposes
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount Ratio
Amount Ratio
Amount Ratio
As of December 31, 2021:
CET I Capital to Risk Weighted Assets:
Consolidated ...................................... $ 1,123,826
ServisFirst Bank ................................ 1,185,161
9.95% $ 508,027
10.50% 507,969
4.50%
N/A
4.50% $ 733,733
Tier I Capital to Risk Weighted Assets:
Consolidated ...................................... 1,124,326
ServisFirst Bank ................................ 1,185,661
9.96% 677,370
10.50% 677,292
6.00%
N/A
6.00% 903,056
N/A
6.50%
N/A
8.00%
Total Capital to Risk Weighted Assets:
Consolidated ...................................... 1,306,992
ServisFirst Bank ................................ 1,303,621
11.58% 903,160
11.55% 903,056
N/A
8.00%
8.00% 1,128,821
N/A
10.00%
Tier I Capital to Average Assets:
Consolidated ...................................... 1,124,326
ServisFirst Bank ................................ 1,185,661
7.39% 608,883
7.79% 608,826
4.00%
N/A
4.00% 761,033
N/A
5.00%
As of December 31, 2020:
CET I Capital to Risk Weighted Assets:
Consolidated ...................................... $ 958,300
ServisFirst Bank ................................ 1,018,031
10.50% $ 410,816
11.15% 410,766
4.50%
N/A
4.50% $ 593,328
Tier I Capital to Risk Weighted Assets:
Consolidated ...................................... 958,800
ServisFirst Bank ................................ 1,018,531
10.50% 547,755
11.16% 547,688
6.00%
N/A
6.00% 730,250
Total Capital to Risk Weighted Assets:
N/A
6.50%
N/A
8.00%
Consolidated ...................................... 1,113,690
ServisFirst Bank ................................ 1,108,673
12.20% 730,340
12.15% 730,250
8.00%
N/A
8.00% 912,813
N/A
10.00%
Tier I Capital to Average Assets:
Consolidated ...................................... 958,800
ServisFirst Bank ................................ 1,018,531
8.23% 465,980
8.75% 465,448
N/A
4.00%
4.00% 581,810
N/A
5.00%
98
NOTE 15. OTHER OPERATING INCOME AND EXPENSES
The major components of other operating income and expense included in noninterest income and noninterest expense are as
follows:
Other Operating Income
ATM fee income ........................................................................... $
Mark to market interest rate cap derivative ..................................
Gain (loss) on sale of fixed assets .................................................
Merchant services fees ..................................................................
Other .............................................................................................
Total other operating income .................................................... $
Other Operating Expenses
Other loan expenses ...................................................................... $
Customer and public relations ......................................................
Sales and use tax ...........................................................................
Write-down investment in tax credit partnerships ........................
Telephone .....................................................................................
Donations and contributions .........................................................
Marketing ......................................................................................
Supplies ........................................................................................
Fraud and forgery losses ...............................................................
Directors fees ................................................................................
Postage ..........................................................................................
Other operational losses ................................................................
Core processing deconverison expense ........................................
Other .............................................................................................
Total other operating expenses .................................................. $
NOTE 16. INCOME TAXES
The components of income tax expense are as follows:
2021
Years Ended December 31,
2020
(In Thousands)
2019
1,443 $
1,013
433
1,231
544
4,664 $
2,744 $
1,840
1,016
9,152
453
544
498
504
425
659
290
144
3,007
5,881
27,157 $
1,234 $
(656 )
9
565
463
1,615 $
4,886 $
1,052
528
346
541
506
338
495
463
632
278
1,662
-
3,763
15,490 $
1,001
-
5
415
322
1,743
3,476
2,545
640
746
1,131
837
581
572
577
545
393
36
-
4,135
16,214
Current tax expense:
Federal ..................................................................................... $
State .........................................................................................
Total current tax expense ..................................................
Deferred tax (benefit) expense:
Federal .....................................................................................
State .........................................................................................
Total deferred tax (benefit) ...............................................
Total income tax expense .......................................... $
2021
Year Ended December 31,
2020
(In Thousands)
2019
45,248 $
5,428
50,676
(5,596)
535
(5,061)
45,615 $
50,016 $
4,350
54,366
(9,342 )
(385 )
(9,727 )
44,639 $
36,683
2,012
38,695
(166)
(911)
(1,077)
37,618
99
The Company’s total income tax expense differs from the amounts computed by applying the Federal income tax statutory
rates to income before income taxes. A reconciliation of the differences is as follows:
Year Ended December 31, 2021
Amount
% of Pre-tax
Earnings
Income tax at statutory federal rate ........................................ $
Effect on rate of:
State income tax, net of federal tax effect ...........................
Tax-exempt income, net of expenses ..................................
Bank-owned life insurance contracts ..................................
Excess tax benefit from stock compensation ..........................
Federal tax credits ...................................................................
Other .......................................................................................
Effective income tax and rate ................................................. $
(In Thousands)
53,203
4,952
(242)
(1,395)
(2,335)
(11,019)
2,451
45,615
21.00%
1.95%
(0.10)%
(0.55)%
(0.92)%
(4.35)%
0.97%
18.00%
Year Ended December 31, 2020
Amount
% of Pre-tax
Earnings
Income tax at statutory federal rate ......................................... $
Effect on rate of:
State income tax, net of federal tax effect ............................
Tax-exempt income, net of expenses ...................................
Bank-owned life insurance contracts ...................................
Excess tax benefit from stock compensation ...........................
Federal tax credits ....................................................................
Other ........................................................................................
Effective income tax and rate .................................................. $
(In Thousands)
44,984
3,230
(354)
(1,325)
(1,306)
(563)
(27)
44,639
21.00%
1.51%
(0.17)%
(0.62)%
(0.61)%
(0.26)%
(0.01)%
20.84%
Year Ended December 31, 2019
Amount
% of Pre-tax
Earnings
Income tax at statutory federal rate ......................................... $
Effect on rate of:
State income tax, net of federal tax effect ............................
Tax-exempt income, net of expenses ...................................
Bank-owned life insurance contracts ...................................
Excess tax benefit from stock compensation ...........................
Federal tax credits ....................................................................
Other ........................................................................................
Effective income tax and rate .................................................. $
(In Thousands)
39,241
822
(461)
(787)
(1,405)
(170)
378
37,618
21.00%
0.44%
(0.25)%
(0.42)%
(0.75)%
(0.09)%
0.20%
20.13%
100
The components of net deferred tax asset are as follows:
Deferred tax assets:
Allowance for credit losses ..................................................... $
Other real estate owned ...........................................................
Nonqualified equity awards ....................................................
Nonaccrual interest .................................................................
State tax credits .......................................................................
Deferred loan fees ...................................................................
Reserve for unfunded commitments .......................................
Accrued bonus ........................................................................
Capital loss carryforward ........................................................
Lease liability..........................................................................
Deferred revenue ....................................................................
Other deferred tax assets .........................................................
Total deferred tax assets ......................................................
Deferred tax liabilities:
Net unrealized gain on securities available for sale ................
Depreciation ............................................................................
Prepaid expenses .....................................................................
Investments .............................................................................
Right-of-use assets and other leasing transactions ..................
Acquired intangible assets ......................................................
Other deferred tax liabilities ...................................................
Total deferred tax liabilities ................................................
Net deferred tax assets ................................................................ $
December 31,
2021
2020
(In Thousands)
29,237 $
520
816
289
3,988
5,087
435
3,910
1,867
4,654
31
1,429
52,263
3,723
4,872
607
696
4,495
6
92
14,491
37,772 $
21,600
728
873
322
6,091
5,875
600
2,594
1,480
2,671
42
885
43,761
5,360
4,011
543
79
2,622
74
-
12,689
31,072
The Company believes its net deferred tax asset is recoverable as of December 31, 2021 based on the expectation of future
taxable income and other relevant considerations.
Pursuant to ASC 740-10-30-2 Income Taxes, deferred tax assets and liabilities are measured using enacted tax rates applicable
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
The Company and its subsidiaries file a consolidated U.S. Federal income tax return and various consolidated and separate
company state income tax returns. The Company is currently open to audit under the statute of limitations by the Internal
Revenue Service for the years ended December 31, 2018 through 2021. The Company is also currently open to audit by
several state departments of revenue for the years ended December 31, 2018 through 2021. The audit periods differ depending
on the date the Company began business activities in each state. Currently, there are no years for which the Company filed a
federal or state income tax return that are under examination by the IRS or any state department of revenue.
Accrued interest and penalties on unrecognized income tax benefits totaled $169,000 and $152,000 as of December 31, 2021
and 2020, respectively. Unrecognized income tax benefits as of December 31, 2021 and December 31, 2020, that, if
recognized, would impact the effective income tax rate totaled $3,659,000 and $3,238,000 (net of the federal benefit on state
income tax issues), respectively. The Company does not expect any of the uncertain tax positions to be settled or resolved
during the next twelve months.
101
The following table presents a summary of the changes during 2021, 2020 and 2019 in the amount of unrecognized tax
benefits that are included in the consolidated balance sheets.
Balance, beginning of year ............................................................. $
Increases related to prior year tax positions ................................
Decreases related to prior year tax positions ..............................
Increases related to current year tax positions ............................
Settlements ..................................................................................
Lapse of statute ...........................................................................
Balance, end of year ....................................................................... $
NOTE 17. COMMITMENTS AND CONTINGENCIES
Loan Commitments
2021
2020
(In Thousands)
2019
3,238 $
864
-
-
-
(443)
3,659 $
2,683 $
997
-
-
-
(442)
3,238 $
2,133
998
-
-
-
(448)
2,683
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit, credit card arrangements,
and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheets. A summary of the Company’s approximate commitments and contingent
liabilities is as follows:
2021
2020
(In Thousands)
2019
Commitments to extend credit....................................................... $
Credit card arrangements ...............................................................
Standby letters of credit and financial guarantees .........................
Total ........................................................................................... $
3,515,818 $
366,525
61,856
3,944,199 $
2,606,258 $
286,128
66,208
2,958,594 $
2,303,788
248,617
48,394
2,600,799
Commitments to extend credit, credit card arrangements, commercial letters of credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance of the customer. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet financial instruments. Because these
instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally
present any significant liquidity risk to the Company.
NOTE 18. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer loans to customers in the Company’s market area.
The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the
economy in the market area.
The Company’s loan portfolio is concentrated primarily in loans secured by real estate, principally secured by real estate in
the Company’s primary market areas. In addition, a substantial portion of the other real estate owned is located in that same
market. Accordingly, the ultimate collectability of the loan portfolio and the recovery of the carrying amount of other real
estate owned are susceptible to changes in market conditions in the Company’s primary market area.
NOTE 19. EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive
effect of additional potential common shares issuable pursuant to the exercise of stock options or vesting of performance
shares. The difference in earnings per share under the two-class method was not significant at December 31, 2021, 2020 and
2019.
102
2021
Year Ended December 31,
2020
(Dollar Amounts In Thousands Except Per Share
Amounts)
2019
Earnings Per Share
Weighted average common shares outstanding ...............................
Net income available to common stockholders ............................... $
Basic earnings per common share ................................................... $
54,160,990
207,672 $
3.83 $
53,844,482
169,506 $
3.15 $
53,530,766
149,180
2.79
Weighted average common shares outstanding ...............................
Dilutive effects of assumed exercise of stock options and vesting
54,160,990
53,844,482
53,530,766
of performance shares ..................................................................
273,583
374,555
572,308
Weighted average common and dilutive potential common shares
outstanding ...................................................................................
Net income available to common stockholders ............................... $
Diluted earnings per common share ................................................ $
54,434,573
207,672 $
3.82 $
54,219,037
169,506 $
3.13 $
54,103,074
149,180
2.76
NOTE 20. RELATED PARTY TRANSACTIONS
As more fully described in Note 3 “Loans”, the Company had outstanding loan balances, as made in the ordinary course of
business, to related parties as of December 31, 2021 and 2020 in the amount of $51.2 million and $37.0 million, respectively.
Deposits of related parties are also accepted in the ordinary course of business. The aggregate balances of related party
deposits are insignificant as of December 31, 2021 and 2020, respectively.
NOTE 21. 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:
Level 2:
Level 3:
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.
Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
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.
103
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 the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-
dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This
method of estimating fair value does not incorporate the exit-price concept of fair value described in 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 allowance for credit losses 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 adjustments as of December 31, 2021 was 0% to 75% and 24.1%,
respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2020 was 0% to 56%
and 22.3%, 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 $6.2 million and $25.8 million during
the years ended December 31, 2021 and 2020, respectively.
Other Real Estate Owned and Repossessed Assets. Other real estate assets (“OREO”) acquired through, or in lieu of,
foreclosure are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs
to fair value at the time of transfer to OREO are charged to the allowance for credit losses 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 December 31, 2021 was 0% to 100% and 40.6%, respectively. The range of fair value adjustments and
weighted average adjustment as of December 31, 2020 was 5% to 27% and 12.5%, respectively. These measurements are
classified as Level 3 within the valuation hierarchy. Net losses on the sale and write-downs of OREO of $1.1 million and
$2.5 million was recognized during the years ended December 31, 2021 and 2020, respectively. These charges were for write-
downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO is classified within Level
3 of the hierarchy.
There was one residential real estate loan foreclosure for $50,000 classified as OREO as of December 31, 2021, compared to
$209,000 as of December 31, 2020.
There was one residential real estate loan that was in the process of being foreclosed for $299,000 as of December 31, 2021.
104
The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis
as of December 31, 2021 and December 31, 2020. There were no liabilities measured at fair value on a recurring basis as of
December 31, 2021 and December 31, 2020.
Fair Value Measurements at December 31, 2021 Using
Quoted
Prices in
Active Markets Significant Other Significant
Assets Measured on a Recurring Basis:
Available-for-sale debt securities:
U.S. Treasury securities ............................................... $
Government agency securities .....................................
Mortgage-backed securities ..........................................
State and municipal securities ......................................
Corporate debt ..............................................................
Total available-for-sale debt securities .........................
Interest rate cap derivative ...............................................
Total assets at fair value ............................................... $
for Identical
Assets (Level 1)
Observable Inputs Unobservable
(Level 2)
Inputs (Level 3) Total
(In Thousands)
9,104 $
-
-
-
-
9,104
-
9,104 $
- $
6,041
425,161
21,634
363,638
816,474
1,152
817,626 $
9,104
- $
-
6,041
- 425,161
- 21,634
16,992 380,630
16,992 842,570
1,152
16,992 $843,722
-
Fair Value Measurements at December 31, 2020 Using
Quoted
Prices in
Active Markets Significant Other Significant
for Identical
Assets (Level 1)
Observable Inputs Unobservable
(Level 2)
Inputs (Level 3) Total
(In Thousands)
14,357 $
-
-
-
-
14,357
-
14,357 $
- $
15,458
495,109
38,115
323,649
872,331
139
872,470 $
- $ 14,357
- 15,458
- 495,109
- 38,115
- 323,649
- 886,688
139
-
- $886,827
Assets Measured on a Recurring Basis:
Available-for-sale debt securities:
U.S. Treasury securities ............................................... $
Government agency securities .....................................
Mortgage-backed securities ..........................................
State and municipal securities ......................................
Corporate debt ..............................................................
Total available-for-sale debt securities .........................
Interest rate cap derivative ..................................................
Total assets at fair value ............................................... $
105
The carrying amount and estimated fair value of the Company’s financial instruments measured on a nonrecurring basis
were as follows:
Fair Value Measurements at December 31, 2021 Using
Quoted
Prices in
Active Markets
for Identical
Significant
Other
Observable
Significant
Unobservable
Assets Measured on a Nonrecurring Basis:
Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Total
(In Thousands)
Loans individually evaluated ................................................ $
Other real estate owned and repossessed assets ....................
Total assets at fair value .................................................... $
- $
-
- $
- $
-
- $
73,173 $73,173
1,208 1,208
74,381 $74,381
Fair Value Measurements at December 31, 2020 Using
Quoted
Prices in
Active Markets
for Identical
Significant
Other
Observable
Significant
Unobservable
Assets Measured on a Nonrecurring Basis:
Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Total
(In Thousands)
Loans individually evaluated ................................................ $
Other real estate owned and repossessed assets ....................
Total assets at fair value .................................................... $
- $
-
- $
- $
-
- $
80,817 $80,817
6,497 6,497
87,314 $87,314
There were no liabilities measured at fair value on a non-recurring basis as of December 31, 2021 and December 31, 2020.
In the case of the debt securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels
have been affected. For the year ended December 31, 2021, there were four transfers between Levels 1, 2 or 3.
The table below includes a rollforward of the balance sheet amounts for the year ended December 31, 2021 and December
31, 2020 (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 year ended December 31,
2021
Available-for-
sale Securities
2020
Available-for-
sale Securities
Fair value, beginning of period ...................................................................................... $
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 ................................................................
Purchases ........................................................................................................................
Transfers out of Level 3 .................................................................................................
Fair value, end of period ................................................................................................. $
(In Thousands)
- $
6,000
-
492
18,000
(7,500)
16,992 $
6,596
-
-
(15)
-
(6,581)
-
106
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.
December 31,
2021
2020
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(In Thousands)
Financial Assets:
Level 1 Inputs:
Cash and cash equivalents ..................................................... $ 4,163,724 $ 4,163,724 $ 2,209,640 $ 2,209,640
Level 2 Inputs:
Federal funds sold ..................................................................
Held to maturity debt securities .............................................
Mortgage loans held for sale ..................................................
58,372
462,707
1,114
58,372
466,036
1,111
1,771
-
14,425
1,771
-
14,497
Level 3 Inputs:
Debt securities held to maturity .............................................
250
Loans, net ............................................................................... 9,416,274 9,403,012 8,377,746 8,387,718
250
250
250
Financial Liabilities:
Level 2 Inputs:
Deposits ................................................................................. $ 12,452,836 $ 12,454,140 $ 9,975,724 $ 9,987,665
Federal funds purchased ........................................................ 1,711,777 1,711,777
851,545
Other borrowings ...................................................................
65,560
65,476
851,545
64,748
64,706
107
NOTE 22. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet of the Company as of December 31, 2021 and 2020 and the
condensed statements of income and cash flows for the years ended December 31, 2021, 2020 and 2019.
CONDENSED BALANCE SHEETS
(In Thousands)
December 31,
2021
December 31,
2020
ASSETS
Cash and due from banks ............................................................................................... $
Investment in subsidiary .................................................................................................
Other assets ....................................................................................................................
Total assets ................................................................................................................. $
14,553 $
1,212,850
1,291
1,228,694 $
14,685
1,052,083
1,119
1,067,887
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other borrowings ............................................................................................................ $
Other liabilities ...............................................................................................................
Total liabilities ............................................................................................................
Stockholders' equity:
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated
64,706 $
12,473
77,179
64,748
10,787
75,535
at December 31, 2021 and December 31, 2020 ..........................................................
-
-
Common stock, par value $0.001 per share; 100,000,000 shares authorized;
54,227,060 shares issued and outstanding at December 31, 2021 and 53,943,751
shares issued and outstanding at December 31, 2020 .................................................
Additional paid-in capital ...............................................................................................
Retained earnings ...........................................................................................................
Accumulated other comprehensive income ....................................................................
Total stockholders' equity ...........................................................................................
Total liabilities and stockholders' equity ........................................................................ $
54
226,397
911,008
14,056
1,151,515
1,228,694 $
54
223,856
748,224
20,218
992,352
1,067,887
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 and 2019
(In Thousands)
Income:
Dividends received from subsidiary ............................................... $
Total income ...............................................................................
Expense:
Other expenses ...............................................................................
Total expenses ............................................................................
Equity in undistributed earnings of subsidiary ...............................
Net income .....................................................................................
Net income available to common stockholders .............................. $
2021
2020
2019
46,000 $
46,000
45,000 $
45,000
2,715
2,715
164,387
207,672
207,672 $
2,936
2,936
127,442
169,506
169,506 $
37,000
37,000
2,930
2,930
115,110
149,180
149,180
108
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019
(In Thousands)
Operating activities
Net income ...................................................................................... $
Adjustments to reconcile net income to net cash provided by
operating activities:
2021
2020
2019
207,672 $
169,506 $
149,180
Other ........................................................................................
Equity in undistributed earnings of subsidiary .........................
Net cash provided by operating activities ....................................
(93)
(164,387)
43,192
204
(127,442)
42,268
38
(115,110)
34,108
Investing activities
Other ........................................................................................
Net cash used in investing activities ............................................
(120)
(120)
-
-
Financing activities
Proceeds from issuance of subordinated notes .........................
Redemption of subordinated notes ...........................................
Dividends paid on common stock ............................................
Net cash used in financing activities ............................................
Net change in cash and cash equivalents .........................................
Cash and cash equivalents at beginning of year ..............................
Cash and cash equivalents at end of year ........................................ $
-
-
(43,204)
(43,204)
(132)
14,685
14,553 $
34,710
(34,750)
(37,614)
(37,654)
4,614
10,071
14,685 $
(1,000)
(1,000)
-
-
(32,071)
(32,071)
1,037
9,034
10,071
NOTE 23. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data derived from our consolidated financial statements.
Such data is only a summary and should be read in conjunction with our historical consolidated financial statements and
related notes continued in this annual report on Form 10-K.
2021 Quarter Ended
(Dollars in thousands, except per share data)
March 31
June 30
Interest income .................................................................. $
Interest expense .................................................................
Net interest income ............................................................
Provision for credit losses .................................................
Net income available to common stockholders .................
Net income per common share, basic ................................ $
Net income per common share, diluted ............................. $
100,396 $
8,031
92,365
7,451
51,455
0.95 $
0.95 $
September 30 December 31
108,954
7,804
101,150
8,451
53,722
0.99
0.99
104,236 $
7,916
96,320
5,963
52,499
0.97 $
0.96 $
102,719 $
8,051
94,668
9,652
49,996
0.92 $
0.92 $
2020 Quarter Ended
(Dollars in thousands, except per share data)
March 31
June 30
Interest income .................................................................. $
Interest expense .................................................................
Net interest income ............................................................
Provision for credit losses (1) ............................................
Net income available to common stockholders .................
Net income per common share, basic ................................ $
Net income per common share, diluted ............................. $
96,767 $
19,127
77,640
13,584
34,778
0.65 $
0.64 $
September 30 December 31
101,065
8,984
92,081
6,283
50,949
0.94
0.94
96,110 $
11,028
85,082
12,284
43,362
0.80 $
0.80 $
95,080 $
11,846
83,234
10,283
40,417
0.75 $
0.75 $
(1)
The first three quarters of 2020 were estimated and recorded under the incurred loss methodology and not restated
for the adoption of ASC 326. The Company elected to delay the adoption of CECL as allowed under the CARES
Act.
109
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no disagreements with accountants regarding accounting and financial disclosure matters during the year ended
December 31, 2021.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based
upon that evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
The Chief Executive Officer and Chief Financial Officer have concluded that there were no changes in our internal control
over financial reporting identified in the evaluation of the effectiveness of our disclosure controls and procedures that occurred
during the fiscal quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
All internal controls systems, no matter how well designed, have inherent limitations and may not prevent or detect
misstatements in the Company’s financial statements, including the possibility of circumvention or overriding of controls.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As of December 31, 2021, management assessed the effectiveness of our internal control over financial reporting based on
criteria for effective internal control over financial reporting established in “Internal Control – Integrated Framework (2013),”
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment,
management determined that the Company maintained effective internal control over financial reporting as of December 31,
2021, based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, has been audited by
Dixon Hughes Goodman LLP, an independent registered public accounting firm, as stated in their report herein — “Report
of Independent Registered Public Accounting Firm.”
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
110
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We respond to this Item by incorporating by reference the material responsive to this Item in our definitive proxy statement
to be filed with the Securities and Exchange Commission in connection with our 2022 Annual Meeting of Stockholders.
Information regarding the Company’s executive officers is provided in Part I, Item 1 of this Form 10-K.
Code of Ethics
Our Board of Directors has adopted a Code of Ethics that applies to all of our employees, officers and directors. The Code of
Ethics covers compliance with law; fair and honest dealings with us, with competitors and with others; fair and honest
disclosure to the public; and procedures for compliance with the Code of Ethics. A copy of the Code of Ethics is available on
our website at www.servisfirstbank.com. We will disclose any amendments or waivers, including implicit waivers, of the
Code of Ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, on our website.
ITEM 11. EXECUTIVE COMPENSATION
We respond to this Item by incorporating by reference the material responsive to this Item in our definitive proxy statement
to be filed with the Securities and Exchange Commission in connection with our 2022 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
We respond to this Item by incorporating by reference the material responsive to this Item in our definitive proxy statement
to be filed with the Securities and Exchange Commission in connection with our 2022 Annual Meeting of Stockholders. The
information called for by this item relating to “Securities Authorized for Issuance Under Equity Compensation Plans” is
provided in Part II, Item 5 of this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
We respond to this Item by incorporating by reference the material responsive to this Item in our definitive proxy statement
to be filed with the Securities and Exchange Commission in connection with our 2022 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
We respond to this Item by incorporating by reference the material responsive to this Item in our definitive proxy statement
to be filed with the Securities and Exchange Commission in connection with our 2022 Annual Meeting of Stockholders.
The Independent Registered Public Accounting Firm is Dixon Hughes Goodman LLP (PCAOB Firm ID NO. 57) located in
Atlanta, Georgia.
111
ITEM 15. Exhibits, Financial Statement Schedules
(a) The following statements are filed as a part of this Annual Report on Form 10-K
PART IV
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements ......................
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting ...........
Consolidated Balance Sheets at December 31, 2021 and 2020 ..............................................................................
Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019.............................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019 ...
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2021, 2020 and 2019 .......
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 ......................
Notes to Consolidated Financial Statements ..........................................................................................................
64
66
67
68
69
70
71
72
Page
The required schedules have been omitted as the information is included within the consolidated financial statements and
notes listed above.
(b) The following exhibits are furnished with this Annual Report on Form 10-K
EXHIBIT NO. NAME OF EXHIBIT
3.1
3.2
3.3
4.1
4.2
4.3
10.1*
10.2*
10.3*
Restated Certificate of Incorporation as amended (incorporated by reference to Exhibit 3.3 to the
Company's Current Report on Form 8-K, filed June 24, 2016).
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).
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).
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).
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).
Description of Capital Stock (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on
Form 10-K, filed on February 25, 2020).
2009 Amended and Restated Stock Incentive Plan (incorporated by reference to Appendix A to the
Company’s Definitive Proxy Statement on Schedule 14A, filed on March 18, 2014).
Note Purchase Agreement, dated November 8, 2017, between ServisFirst Bancshares, Inc. and certain
accredited investors (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K, filed on November 9, 2017).
Note Purchase Agreement, dated October 21, 2020, between ServisFirst Bancshares, Inc. and certain
accredited investors (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K, filed on October 22, 2020).
112
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
First Amendment to the ServisFirst Bancshares, Inc. Amended and Restated 2009 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed
November 1, 2016).
Form of Nonqualified Stock Option Award pursuant to the ServisFirst Bancshares, Inc. Amended and
Restated 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q, filed November 1, 2016).
Form of Restricted Stock Award Agreement pursuant to the ServisFirst Bancshares, Inc. Amended and
Restated 2009 Stock Incentive Plan (incorporated by reference to Exhibit 4.4 to the Company’s
Registration Statement on Form S-8, filed June 17, 2014).
Second Amendment to the ServisFirst Bancshares, Inc. Amended and Restated 2009 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed September
17, 2018).
Third Amendment to the ServisFirst Bancshares, Inc. Amended and Restated 2009 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed April
30, 2019).
Form of Nonqualified Stock Option Award (Revised 2019)(incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q, filed April 30, 2019).
Form of Restricted Stock Award Agreement (Revised 2019)(incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q, filed April 30, 2019).
Endorsement Split-Dollar Agreement with Thomas A. Broughton III dated November 9, 2020
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed November
13, 2020.
Endorsement Split-Dollar Agreement with William M. Foshee dated November 9, 2020 (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed November 13, 2020.
Endorsement Split-Dollar Agreement with Rodney E. Rushing dated November 9, 2020 (incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed November 13, 2020.
Form of Executive Officer Change in Control Agreement (filed as Exhibit 10 to the Company’s Current
Report on Form 8-K dated February 25, 2021)
ServisFirst Bancshares, Inc. Annual Incentive Plan, effective January 1, 2021 (filed as Exhibit 10 to the
Company’s Current Report on Form 8-K dated January 25, 2021)
113
10.16*
10.17*
21
23
24
Form of ServisFirst Bancshares, Inc. 2021 Performance Share Award Agreement (filed as Exhibit 10.4 to
the Company’s Quarterly Report on Form 10-Q, filed April 29, 2021).
Form of ServisFirst Bancshares, Inc. 2021 Restricted Stock Award Agreement (filed as Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q, filed April 29, 2021).
List of Subsidiaries
Consent of Dixon Hughes Goodman LLP
Power of Attorney
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Schema Documents
101.CAL
Inline XBRL Calculation Linkbase Document
101.LAB
Inline XBRL Label Linkbase Document
101.PRE
Inline XBRL Presentation Linkbase Document
101.DEF
Inline XBRL Definition Linkbase Document
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
* denotes management contract or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY
None.
114
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/Thomas A. Broughton, III_______
Thomas A. Broughton, III
President and Chief Executive Officer
Dated: February 25, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/Thomas A. Broughton, III
Thomas A. Broughton, III
/s/ William M. Foshee
William M. Foshee
Chairman, President, Chief
Executive Officer and Director
(Principal Executive Officer)
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
*
Irma L. Tuder
*
Michael D. Fuller
*
James J. Filler
*
Joseph R. Cashio
*
Hatton C. V. Smith
*
Christopher J. Mettler
Director
Director
Director
Director
Director
Director
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
_________________
*The undersigned, acting pursuant to a Power of Attorney, has signed this Annual Report on Form 10-K for and on behalf of
the persons indicated above as such persons’ true and lawful attorney-in-fact and in their names, places and stated, in the
capacities indicated above and on the date indicated below.
/s/ William M. Foshee
William M. Foshee
Attorney-in-Fact
February 25, 2022
115