ServisFirst Bancshares Inc

SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

ServisFirst Bancshares, Inc. (the “Company”) was formed on* August 16, 2007and 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, Tallahassee, and Tampa Bay, Florida; Atlanta, Georgia; Charleston, South Carolina; Charlotte and Asheville, North Carolina; Nashville, Tennessee; and Virginia Beach, Virginia markets. The Bank owns all of the stock of SF Intermediate Holding Company, Inc., which, in turn, owns all of the stock of SF TN Realty Holdings, Inc., which, in turn, owns all of the common stock of the Company’s real estate investment trusts, SF Realty1,* 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 Note11.

Reclassification

Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These reclassifications hadno 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 (“GAAP”), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for 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 forone-day periods. Cash flows from loans, mortgage loans held for sale, federal funds sold, and deposits are reported net.

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.

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.

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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 athird-party investor within a very short time period. The loans are sold without recourse and servicing isnot 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 wereno expenses incurred as part of these buyback obligations for the years ended* December 31, 2023and2022.*

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* maybe 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 leastsix* 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 doesnot have a concentration of loans to anyone 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 isnot expected or the principal or interest is more than120 days past due, unless the loan is both well-collateralized and in the process of collection. Generally, all interest accrued butnot 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.

Loan modifications are concessions granted to borrowers in the normal course of business, which wouldnot otherwise be considered, where the borrowers are experiencing financial difficulty. The concessions granted most frequently 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.

ACL– Debt Securities Held to Maturity

Management uses a systematic methodology to determine its ACL for held-to-maturity debt securities. The ACL is a contra-asset 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* mayresult in a range of expected credit losses. Management monitors the held-to-maturity portfolio to determine whether an ACL would need to be recorded. As of December 31, 2023and2022,* the Company had $982.7 million and $1.03 billion, respectively, of held-to-maturity securities andno related ACL recorded for either year.

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Impairment of Debt Securities Available for Sale

For available-for-sale debt securities in an unrealized loss position, the Company willfirst assess whether i) it intends to sell or ii) it is more likely thannot 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 hasnot 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. 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 specifically for available-for-sale debt securities.

The Company excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on debt securities and doesnot 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* mayaffect 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 factorsnot 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 thatno 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 based onone 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. 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.

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ACL– Unfunded Loan Commitments

The ACL is a liability account 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 Consolidated Income Statements 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 within the Consolidated Balance Sheets.

Certain of the leases includeone 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 arenot included in the right-of-use assets and lease liabilities as they arenot 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 doesnot recognize short-term leases on its Consolidated Balance Sheets. A short-term operating lease has an original term of12 months or less and doesnot have a purchase option that is likely to be exercised.

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.

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Goodwill

The Company has recorded $13.6 million of goodwill at* December 31, 2023in connection with the acquisition of Metro Bancshares, Inc. in2015.* The Company tests its goodwill for impairment annually unless interim events or circumstances make it more likely thannot 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 onlyone reporting unit.

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. GAAP requires all derivative instruments to be carried at fair value on the Consolidated Balance Sheets. 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 (1) the fair value of a recognized asset or liability or of an unrecognized firm commitment (a “fair-value” hedge) or (2) the variability of cash flows to be received generally in a forecasted transaction 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 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 Consolidated Balance Sheets 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 isnot highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. The Company discontinues hedge accounting prospectively when: (1) it is determined that the derivative isno 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 commitmentno longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument isno longer appropriate.

When hedge accounting is discontinued because it is determined that the derivativeno 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 withno offsetting fair value adjustment being recorded on the hedged item. For a discontinued cash flow hedge the change in fair value isno longer recorded in other comprehensive income.

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, 2023and2022* werenot material and havenot been recorded.

Revenue Recognition

The Company records revenue from contracts with customers in accordance with ASC Topic606, Revenue from Contracts with Customers(“ASC606”**). 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.

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While the majority of the Company’s revenue-generating transactions are excluded from the scope of ASC606, including revenue generated from financial instruments, such as securities and loans, the relevant revenue-generating transactions are classified within non-interest income and are described as follows:

Other non-interest income primarily includes income on BOLI contracts, letter of credit fees and gains on sale of loans held for sale.

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 ASC740-10, Income Taxes.ASC740-10 establishes a single model to address accounting for uncertain tax positions and prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. There is atwo-step process in the evaluation of a tax position. Thefirst step is recognition. A Company determines whether it is more likely thannot 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. Thesecond step is measurement. A tax position that meets the more likely thannot recognition threshold is measured at the largest amount of benefit that is greater than50% likely of being realized upon ultimate settlement.

Stock-Based Compensation

At* December 31, 2023,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 ASC718*-10, Compensation–* Stock Compensation* with respect to employee stock options, restricted stock and performance-based stock units (“PSUs”). 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. PSUs 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 continued employment through the end of the performance period. The actual shares earned under the PSUs 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 PSUs as of the valuation date. Compensation expense for PSUs 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, and accounted for as, financial guarantees. The fair value of these financial guarantees isnot material.

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Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note21. 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 (loss) 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, 2023,*2022 and2021 was $768,000, $447,000 and $499,000, 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.

Recent Accounting Pronouncements

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, 2020through December 31, 2024as recently amended by the FASB.* 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 is applying the guidance provided by this ASU in transitioning to the new reference rate.

In* August 2021,the FASB issued ASU**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 ReleasesNo. 33-10786 andNo. 33-10835 issued to improve disclosure rules. The ASU was effective upon issuance. The adoption of this disclosure guidance didnot have a material impact on the Company's consolidated financial statements.

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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 areno* longer required to record a selling loss at lease commencement for a lease with any variable lease payments that donot 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 adoption of ASU2021-05 as of* January 1, 2022didnot* have a material impact on the Company’s consolidated financial statements.

In* March 2022,the FASB issued ASU**2022-02, Financial Instruments*—Credit Losses (Topic326*): Troubled Debt Restructurings and Vintage Disclosure.For public business entities, the amendments require disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic326*-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The Company adopted ASU2022-02 effective* January 1, 2023on a prospective basis. Adoption of ASU2022*-02 didnot have a material impact on the Company’s consolidated financial statements other than providing the new required disclosures.

In* June 2022,the FASB issued ASU2022*-03, Fair Value Measurement (Topic820*): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions*. The update clarifies that a contractual restriction on the sale of an equity security isnot considered part of the unit of account of the equity security and, therefore, isnot considered in measuring fair value. This update is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after* December 15, 2023.*Early adoption is permitted. The Company is assessing the impact of adopting the update on its financial statements and disclosures.

In* March 2023,the Financial Accounting Standards Board issued ASU2023*-02, Investments-Equity Method and Joint Ventures (Topic323*): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.* These amendments allow entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits. ASU2023-02 is effective for public entities for fiscal years beginning after* December 15, 2023,including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company is assessing its tax credit investments for whether they qualify for proportional amortization treatment and plans to adopt the amendments soon after. The Company doesnot* currently believe the amendments will have a material impact on its consolidated financial statements.

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting—Improvements to Reportable Segment Disclosures. This amendment is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other decision makers for additional, more detailed information about a reportable segment’s expenses. The amendment applies to all public entities that are required to report segment information in accordance with Topic280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 31, 2024.Early adoption is permitted. The amendments are to be applied retrospectively to all periods presented and segment expense categories should be based on the categories identified at adoption. The Company doesnot* currently expect adoption of the amendment to have a material impact on its consolidated financial statements.

In* December 2023,the FASB issued ASUNo.* 2023-09,* Income Taxes (Topic740): Improvements to Income Tax Disclosures*. ASU2023-09 requires enhanced income tax disclosures primarily related to the rate reconciliation and income taxes paid information to provide more transparency by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation table and (ii) income taxes paid, net of refunds, to be disaggregated by jurisdiction based on an established threshold. The amendments in this standard will be effective for the Company on* January 1, 2025.*The Company is currently evaluating the impact the amendments will have the consolidated financial statements and related disclosures.

NOTE2. DEBT SECURITIES

The amortized cost and fair values of available-for-sale and held-to-maturity debt securities at* December 31, 2023and2022* are summarized as follows:

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

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, 2023and2022* was $1.49 billion and $789.3 million, respectively.

Restricted equity securities is comprised entirely of a restricted investment in Federal Home Loan Bank of Atlanta stock for membership requirement.

At* December 31, 2023and2022,* there wereno holdings of debt securities of any issuer, other than the U.S. government and its agencies, in an amount greater than10% of stockholders’ equity.

The amortized cost and fair value of debt securities as of* December 31, 2023and2022* by contractual maturity are shown below. Actual maturities* maydiffer from contractual maturities because the issuers may*have the right to call or prepay obligations with or without call or prepayment penalties.

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The following table identifies the Company’s investment securities that have been in a continuous unrealized loss position for less than12 months and those that have been in a continuous unrealized loss position for12 or more months, as of* December 31, 2023and2022.*

At* December 31, 2023and2022,* no allowance for credit losses has been recognized on available-for-sale debt securities in an unrealized loss position as the Company doesnot 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 doesnot intend to sell these debt securities and it is more likely thannot that the Company willnot be required to sell the debt securities before recovery of their amortized cost, which* maybe at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to U.S. Treasury and residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities willnot* be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Historical loss rates associated with securities having similar grades as those in our portfolio have generallynot been significant. Furthermore, as of* December 31, 2023and2022,* there wereno past due principal or interest payments associated with these securities. Based upon (i) the issuer’s strong bond ratings and (ii) azero historical loss rate, no allowance for credit losses has been recorded for held-to-maturity State and Municipal Securities as such amount isnot material at* December 31, 2023and2022.* All debt securities in an unrealized loss position as of* December 31, 2023continue to perform as scheduled and the Company doesnot* believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.

The following table summarizes information about sales and calls of debt securities.

NOTE3. 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 individualsnot secured by real estate. Repayment is dependent upon the personal cash flow of the borrower.

The composition of loans at* December 31, 2023and2022* is summarized as follows:

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Changes in the ACL during the years ended* December 31, 2023,*2022 and2021 are as follows:

GAAP requires a 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 donot 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 factorsnot inherently considered in the quantitative analyses.

The Company uses the discounted cash flow (“DCF”) method to estimate ACL for all loan pools except for commercial and industrial (“C&I”) revolving lines of credit and credit cards. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment rate and gross domestic product (“GDP”) as loss drivers. Consistent forecasts of the loss drivers are used across the loan segments. At* December 31, 2023and2022,* the Company utilized a reasonable and supportable forecast period oftwelve months followed by asix-month straight-line reversion to long-term averages. The Company leveraged economic projections from reputable and independent sources to inform its loss driver forecasts. At* December 31, 2023,the Company expects the national unemployment rate to fall during the forecast period with a rising national GDP growth rate, with both economic indicators showing improvement when compared to the forecast at December 31, 2022.*

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

Each loan pool is adjusted for qualitative factorsnot 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, risks within new markets, 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* mayhave 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 loansinclude 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.* *

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Real estate mortgage loansconsist 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.

Changes in the allowance for credit losses, segregated by loan type, during the years ended* December 31, 2023and2022,* respectively, are as follows:

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 Consolidated Balance Sheets 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 $575,000 at both* December 31, 2023and2022.* The provision expense for unfunded commitments waszero for the year ended* December 31, 2023and was reduced by $725,000 for the year ended December 31, 2022compared to December 31, 2021.*

The credit quality of the loan portfolio is determinedno 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:

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The tables below presents loan balances classified by credit quality indicator, loan type and based on year of origination as of* December 31, 2023and2022:*

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Nonperforming loans include nonaccrual loans and loans90 or more days past due and still accruing. Loans by performance status as of* December 31, 2023and2022* are as follows:

Loans by past due status as of* December 31, 2023and2022* are as follows:

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There wasno interest earned on nonaccrual loans for the years ended* December 31, 2023and2022.*

Loans thatno 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:

On* March 22, 2020,an Interagency Statement was issued by banking regulators that encouraged financial institutions to work prudently with borrowers who are or maybe unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section4013* of the CARES Act further provided 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, 2020until the earlier of December 31, 2020or the date that is60* 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 terminated. The Interagency Statement was subsequently revised in* April 2020to clarify the interaction of the original guidance with Section4013* 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 Act2021,* which extended the period established by Section4013 of the CARES Act to the earlier of* January 1, 2022or the date that is60* days after the date on which the national COVID-19 emergency terminated. In accordance with such guidance, the Bank offered short-term modifications made in response to COVID-19 to borrowers who were current and otherwisenot past due. These included 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.

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The Bank adopted ASU2022-02, Financial Instruments - Credit Losses (Topic326*) Troubled Debt Restructurings and Vintage Disclosures* effective* January 1, 2023.The amendments in ASU2022*-02 eliminated the recognition and measure of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The table below details the amortized cost basis at the end of the reporting period for loans made to borrowers experiencing financial difficulty that were modified during the year ended* December 31, 2023:*

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during thetwelve months ended* December 31, 2023:*

TDRs at* December 31, 2022*totaled $2.5 million. The following tables present loans modified in a TDR during the period presented by portfolio segment and the financial impact of those modifications. The table includes modifications made to new TDRs, as well as renewals of existing TDRs.

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There wereno loans that were modified in the previoustwelve months (i.e., thetwelve months prior to default) that defaulted during the years ended* December 31, 2023.For purposes of this disclosure, default is defined as90* 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, 2023and2022* are as follows:

NOTE4. 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, 2023,*2022 and2021 follows:

NOTE5. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

The provisions for depreciation charged to occupancy and equipment expense for the years ended* December 31, 2023,*2022 and2021 were $4.4 million,$4.1million, and $4.1 million, respectively.

NOTE6. 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 Sheets.

Supplemental balance sheet information related to operating leases is as follows:

Lease costs during the years ended* December 31, 2023and2022* were as follows (in thousands):

The following table reconciles future undiscounted lease payments due under non-cancelable leases to the aggregate lease liability as of* December 31, 2023:*

NOTE7. 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 has both power over governance and 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 and, if so, whether it has power to direct the activities that most significantly impact the economic performance of the entity.

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 Section45D, as amended, or Historic Rehabilitation Tax Credits under Code Section47, as amended, or Low-Income Housing Tax Credits under Code Section42, as amended. For each of the partnerships, the Company acts strictly in a limited partner capacity. The Company has determined that it isnot the primary beneficiary of these partnerships because it doesnot have the power to direct the activities of the entity that most significantly impact the entities’ economic performance and therefore the partnerships arenot consolidated in our financial statements. The amount of recorded investment in these partnerships as of* December 31, 2023and2022* was $42.8 million and $46.3 million, respectively. During2023, the Company invested intwo Federal Historic Tax Credit partnerships andsix Low-Income Housing Tax Credit partnerships with recorded investment in each totaling $754,000 and $7.8 million, respectively, at* December 31, 2023.Additionally, the Company funded an existing investment obligation of $2.4 million forone* Federal Historic Tax Credit partnership. There wasno recorded investment included in loans of the Company at either* December 31, 2023*or 2022. The remaining amounts are included in other assets.

NOTE8. DEPOSITS

Deposits at* December 31, 2023and2022* were as follows:

The scheduled maturities of time deposits at* December 31, 2023*were as follows:

At* December 31, 2023and2022,* overdraft deposits reclassified to loans were $1.1 million and $1.9 million, respectively.

**NOTE9. ** FEDERAL FUNDS PURCHASED

At* December 31, 2023,the Company had $1.26 billion in federal funds purchased from its correspondent banks that are clients of its correspondent banking unit, compared to $1.35 billion (excludes the Company’s federal funds purchases reported in the next paragraph) at December 31, 2022.Rates paid on these funds were between 5.40% and 5.50% as of December 31, 2023and 4.40% and 4.50% as of December 31, 2022.*

At* December 31, 2023,the Company had available lines of credit totaling approximately $880.0 million with various financial institutions for borrowing on a short-term basis, compared to $963.0 million at December 31, 2022.The Company hadno outstanding borrowings from these lines at December 31, 2023,compared to $265.0 million outstanding borrowings from these lines at December 31, 2022.*

NOTE10. OTHER BORROWINGS

Other borrowings are comprised of:

Debt is reported net of unamortized issuance costs of $15,000 and $24,000 as of* December 31, 2023and2022,* respectively.

**NOTE11. ** SF INTERMEDIATE HOLDING COMPANY, INC., SF HOLDING1, INC., SF TN REALTY HOLDINGS, INC., SF REALTY1, INC., SF FLA REALTY, INC., SF GA REALTY, INC. AND SF TN REALTY, INC. ** **

In* January 2012,the Company formed SF Holding1,* Inc., an Alabama corporation, and its subsidiary, SF Realty1, Inc., an Alabama corporation. In* September 2013,the Company formed SF FLA Realty, Inc., an Alabama corporation and a subsidiary of SF Holding1,* Inc. In* May 2014,the Company formed SF GA Realty, Inc., an Alabama corporation and a subsidiary of SF Holding1,* Inc. In* February 2016,the Company formed SF TN Realty, Inc., an Alabama corporation and a subsidiary of SF Holding1,* 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 Holding1,* Inc. to SF Intermediate Holding Company, Inc., such that SF Holding1, Inc. became a wholly-ownedfirst tier subsidiary of SF Intermediate Holding Company, Inc. In* November 2022,SF Intermediate Holding Company, Inc. formed SF TN Realty Holdings, Inc., a Delaware corporation. In December 2022,SF Holding1,* Inc. merged with and into SF TN Realty Holdings, Inc., with SF TN Realty Holdings, Inc, being the surviving entity. Following the merger, SF Realty1, SF FLA Realty, SF GA Realty and SF TN Realty are all subsidiaries of SF TN Realty Holdings, Inc. SF Realty1, 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 TN Realty Holdings, Inc., SF Realty1, Inc., SF FLA Realty, Inc., SF GA Realty, Inc. and SF TN Realty, Inc. are all consolidated into the Company.

NOTE12. ** DERIVATIVES**

The Company periodically enters into derivative contracts to manage exposures to movements in interest rates. The Company purchased an interest rate cap in* Mayof2020* to limit exposures to increases in interest rates. The interest rate cap wasnot designated as a hedging instrument but rather as a stand-alone derivative. The interest rate cap had an original term of 3 three years, a notional amount of $300 million and was tied to theone-month LIBOR rate with a strike rate of 0.50%. The fair value of the interest rate cap was carried on the Consolidated Balance Sheets in other assets and the change in fair value is recognized in noninterest income each quarter. The interest rate cap had a fair value of $4.2 million and remaining term of 0.3 years at* December 31, 2022,and expired on May 4, 2023.*

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 a30-day period. In the event the loan isnot delivered to the investor, the Bank hasno 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, 2023and2022* werenot material.

NOTE13. 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 $3.6 million, $3.2 million and $1.9 million for the years ended* December 31, 2023,*2022 and2021, respectively.

Stock Incentive Plan

On* March 23, 2009,the Company’s board of directors adopted the2009* Stock Incentive Plan (the “Plan”), which was effective upon approval by the stockholders at the2009 Annual Meeting of Stockholders. The2009 Plan originally permitted the grant of up to 2,550,000 shares of common stock. However, upon stockholder approval during2014, 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 fair market value of the Company’s stock at the date of grant.

As of* December 31, 2023,*there are a total of 3,031,065 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 Black-Scholes-Merton model is based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate and expected life of options granted.

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There wereno grants of stock options during the years ended* December 31, 2023,*2022, and2021.

The following tables summarize stock option activity:

Exercisable options at* December 31, 2023*were as follows:

As of* December 31, 2023,there was $52,000 of total unrecognized compensation cost related to non-vested stock options. As of December 31, 2023,*non-vested stock options had a weighted average remaining time to vest of 8 months.

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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, 2023,there was $5.1 million of total unrecognized compensation cost related to non-vested restricted stock. As of December 31, 2023,*non-vested restricted stock had a weighted average remaining time to vest of 2.1 years.

The Company periodically grants PSUs that give plan participants the opportunity to earn between 0% and 150% of the number of PSUs granted based on achieving certain performance metrics. The number of stock units earned upon vesting of PSUs is determined by reference to the Company’s total stockholder 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 PSUs is determined using a Monte Carlo simulation model on the grant date. As of* December 31, 2023,there was $744,000 of total unrecognized compensation cost related to non-vested PSUs. As of December 31, 2023,*non-vested performance stock had a weighted average remaining time to vest of 1.0 year.

The following table summarizes restricted stock and PSU activity:

Retirement Plans

The Company has a retirement savings401(k) and profit-sharing plan in which all employees21 years of age and older* mayparticipate after completion ofone* year of service. The Company matches employees’ contributions based on a percentage of salary contributed by participants and* maymake additional discretionary profit-sharing contributions. The Company’s expense for the plan was $2.1 million, $1.8 million, and $1.6 million for2023,* 2022 and2021, respectively.

NOTE14. 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 priortwo years. Based on these restrictions, the Bank would be limited to paying $573.9 million in dividends as of* December 31, 2023.*

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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 Tier1 capital, total risk-based capital and Tier1 capital to risk-weighted assets (as defined in the regulations), and Tier1 capital to adjusted total assets (as defined). Management believes, as of* December 31, 2023,*that the Bank meets all capital adequacy requirements to which it is subject.

As of* December 31, 2023,the most recent notification from the FDIC 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 minimumCET1,* total risk-based, Tier1 risk-based, and Tier1 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, 2023.*

The Company’s and Bank’s actual capital amounts and ratios are presented in the following table:

NOTE15. OTHER OPERATING INCOME AND EXPENSES

The major components of other operating income and expense included in noninterest income and noninterest expense are as follows:

NOTE16. INCOME TAXES

The components of income tax expense are as follows:

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:

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The components of net deferred tax asset are as follows:

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The Company believes its net deferred tax asset is recoverable as of* December 31, 2023and2022* based on the expectation of future taxable income and other relevant considerations.

Pursuant to ASC740-10-30-2 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, 2020through2023.* The Company is also currently open to audit by several state departments of revenue for the years ended* December 31, 2020through2023.* The audit periods differ depending on the date the Company began business activities in each state.

Accrued interest and penalties on unrecognized income tax benefits totaled $450,000 and $0 as of* December 31, 2023and2022,* respectively. Interest and penalties related to unrecognized income tax benefits are recorded in the provision for income taxes. The Company has $1,653,000 of unrecognized tax benefits (net of the federal benefit on state income tax issues) recorded as of* December 31, 2023.Unrecognized income tax benefits as of December 31, 2023,and December 31, 2022,*that, if recognized, would impact the effective income tax rate totaled $1,653,000 and $0 (net of the federal benefit on state income tax issues), respectively.

The following table presents a summary of the changes during2023, 2022 and2021 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets.

**NOTE17. ** COMMITMENTS AND CONTINGENCIES

Loan Commitments

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:

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 donot generally present any significant liquidity risk to the Company.

NOTE18. 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.

NOTE19. 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 and vesting of performance shares. The difference in earnings per share under thetwo-class method wasnot significant at* December 31, 2023,*2022 and2021.

NOTE20. RELATED PARTY TRANSACTIONS

As more fully described in Note3 “Loans”, the Company had outstanding loan balances, as made in the ordinary course of business, to related parties as of* December 31, 2023and2022* in the amount of $39.8 million and $52.6 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, 2023and2022,* respectively.

NOTE21. 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, intothree broad levels, which are described below:

Level1: 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 Level1 inputs.

Level2: Observable prices that are based on inputsnot quoted on active markets, but corroborated by market data.

Level3: Unobservable inputs are used when little orno market data is available. The fair value hierarchy gives the lowest priority to Level3 inputs.

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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 Level1 of the hierarchy. Level1 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 arenot 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* maybe 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 Level2* 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 Level1 or Level2 inputs arenot available, as in the case of certain corporate securities, these securities are classified in Level3 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 level2 within the valuation hierarchy.

Loans Individually Evaluated. Loans individually evaluated are measured and reported at fair value when full payment under the loan terms isnot 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 doesnot incorporate the exit-price concept of fair value described in ASC820-10 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 Level3 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, 2023was 0% to 66% and 25%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2022was 0% to 82% and 19.5%, 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 $16.6 million and $4.2 million during the years ended December 31, 2023and2022,* 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, 2023was 25% to 100% and 38.3%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2022was 0% to 100% and 53.3% respectively. These measurements are classified as Level3* within the valuation hierarchy. Net losses on the sale and write-downs of OREO of $7,000 and $153,000 was recognized during the years ended* December 31, 2023and2022,* 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 Level3 of the hierarchy.

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There werethree residential real estate loan foreclosures for $360,000 classified as OREO as of* December 31, 2023,compared totwo* residential real estate loan foreclosures for $248,000 as of* December 31, 2022.*

There werethree residential real estate loans $292,000 that were in the process of being foreclosed as of* December 31, 2023.There wereno residential real estate loan that was in the process of being foreclosed as of December 31, 2022.*

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of* December 31, 2023and2022.* There wereno liabilities measured at fair value on a recurring basis as of* December 31, 2023and2022.*

The carrying amount and estimated fair value of the Company’s financial instruments measured on a nonrecurring basis were as follows:

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There wereno liabilities measured at fair value on a non-recurring basis as of* December 31, 2023and2022.*

In the case of the debt securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the year ended* December 31, 2023,there wasone* transfer from Level3 to Level2.

The table below includes a rollforward of the balance sheet amounts for the years ended* December 31, 2023and2022* (including the change in fair value) for financial instruments classified by the Company within Level3 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:

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 areno quoted market prices for the Company’s various financial instruments. In cases where quoted market prices arenot 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* maynot* 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* maynot* necessarily represent the underlying fair value of the Company.

NOTE22. PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheet of the Company as of* December 31, 2023and2022* and the condensed statements of income and cash flows for the years ended* December 31, 2023,*2022 and2021.

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