# ServisFirst Bancshares, Inc. (SFBS) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ServisFirst Bancshares, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1430723/000117184322001394/sfbs20211231_10k.htm
Accession: 0001171843-22-001394
Filing date: 2022-02-25
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/SFBS/
All MD&A years: /company/SFBS/mda/
Next year: /company/SFBS/mda/fy2022/ (FY 2022)

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

[[GREPCENT_TABLE]]
[["\u25cf","Diluted earnings per common share of $3.82 in 2021 increased $0.69, or 22%, from 2020."],["\u25cf","Average loans of $8.73 billion for 2021 increased $570.6 million, or 7%, from a year ago."],["\u25cf","Average deposits of $11.20 billion for 2021 increased $2.22 billion, or 25%, from a year ago."]]
[[/GREPCENT_TABLE]]

40

[[GREPCENT_TABLE]]
[["\u25cf","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."],["\u25cf","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."],["\u25cf","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."]]
[[/GREPCENT_TABLE]]

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.

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.

41

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.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020","","","Change from the Prior Year"],["","","(Dollars in Thousands)"],["Interest income","","$","416,305","","","$","389,022","","","","7.01","%"],["Interest expense","","","31,802","","","","50,985","","","","(37.62","%)"],["Net interest income","","","384,503","","","","338,037","","","","13.75","%"],["Provision for credit losses","","","31,517","","","","42,434","","","","(25.73","%)"],["Net interest income after provision for credit losses","","","352,986","","","","295,603","","","","19.41","%"],["Noninterest income","","","33,452","","","","30,116","","","","11.08","%"],["Noninterest expense","","","133,089","","","","111,511","","","","19.35","%"],["Income before income taxes","","","253,349","","","","214,208","","","","18.27","%"],["Income taxes","","","45,615","","","","44,639","","","","2.19","%"],["Net income","","","207,734","","","","169,569","","","","22.51","%"],["Dividends on preferred stock","","","62","","","","63","","","","(1.59","%)"],["Net income available to common stockholders","","$","207,672","","","$","169,506","","","","22.52","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2020","","","2019","","","Change from the Prior Year"],["","","(Dollars in Thousands)"],["Interest income","","$","389,022","","","$","390,803","","","","(0.46","%)"],["Interest expense","","","50,985","","","","103,158","","","","(50.58","%)"],["Net interest income","","","338,037","","","","287,645","","","","17.52","%"],["Provision for credit losses","","","42,434","","","","22,638","","","","87.45","%"],["Net interest income after provision for credit losses","","","295,603","","","","265,007","","","","11.55","%"],["Noninterest income","","","30,116","","","","23,982","","","","25.58","%"],["Noninterest expense","","","111,511","","","","102,128","","","","9.19","%"],["Income before income taxes","","","214,208","","","","186,861","","","","14.63","%"],["Income taxes","","","44,639","","","","37,618","","","","18.66","%"],["Net income","","","169,569","","","","149,243","","","","13.62","%"],["Dividends on preferred stock","","","63","","","","63","","","","-","%"],["Net income available to common stockholders","","$","169,506","","","$","149,180","","","","13.63","%"]]
[[/GREPCENT_TABLE]]

Performance Ratios

The following table presents selected ratios of our results of operations for the years ended December 31, 2021, 2020 and 2019.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2021","","","2020","","","2019"],["Return on average assets","","","1.53","%","","","1.59","%","","","1.73","%"],["Return on average stockholders' equity","","","19.27","%","","","18.55","%","","","19.16","%"],["Dividend payout ratio","","","20.98","%","","","22.39","%","","","21.76","%"],["Net interest margin (1)","","","2.94","%","","","3.31","%","","","3.46","%"],["Efficiency ratio (2)","","","31.84","%","","","30.29","%","","","32.75","%"],["Average stockholders' equity to average total assets","","","7.95","%","","","8.59","%","","","9.02","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."]]
[[/GREPCENT_TABLE]]

42

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.

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.

[[GREPCENT_TABLE]]
[["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)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","Average Balance","","","Interest Earned / Paid","","","Average Yield / Rate","","","Average Balance","","","Interest Earned / Paid","","","Average Yield / Rate","","","Average Balance","","","Interest Earned / Paid","","","Average Yield / Rate"],["Assets:"],["Interest-earning assets:"],["Loans, net of unearned income (1)(2):"],["Taxable","","$","8,698,782","","","$","384,675","","","","4.42","%","","$","8,123,927","","","$","361,370","","","","4.45","%","","$","6,831,998","","","$","352,996","","","","5.17","%"],["Tax-exempt (3)","","","26,779","","","","1,094","","","","4.09","","","","31,064","","","","1,274","","","","4.10","","","","33,131","","","","1,338","","","","4.04"],["Total loans, net of unearned 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","","","980,462","","","","25,413","","","","2.59","","","","801,134","","","","22,122","","","","2.76","","","","588,082","","","","17,008","","","","2.89"],["Tax-exempt (3)","","","14,983","","","","369","","","","2.46","","","","34,975","","","","870","","","","2.49","","","","68,805","","","","1,563","","","","2.27"],["Total debt securities (4)","","","995,445","","","","25,782","","","","2.59","","","","836,109","","","","22,992","","","","2.75","","","","656,887","","","","18,571","","","","2.83"],["Federal funds sold","","","17,091","","","","29","","","","0.17","","","","61,712","","","","332","","","","0.54","","","","267,327","","","","6,038","","","","2.26"],["Restricted equity securities","","","220","","","","7","","","","3.18","","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Interest-bearing balances with banks","","","3,351,462","","","","4,840","","","","0.14","","","","1,170,095","","","","3,165","","","","0.27","","","","536,765","","","","12,020","","","","2.24"],["Total interest-earning assets","","$","13,098,021","","","$","416,582","","","","3.18","%","","$","10,237,244","","","$","389,364","","","","3.80","%","","","8,331,078","","","","391,119","","","","4.69","%"],["Non-interest-earning assets:"],["Cash and due from banks","","","81,539","","","","","","","","","","","","77,413","","","","","","","","","","","","73,226"],["Net premises and equipment","","","60,798","","","","","","","","","","","","57,310","","","","","","","","","","","","58,419"],["Allowance for loan losses, accrued interest and other assets","","","314,863","","","","","","","","","","","","272,900","","","","","","","","","","","","175,881"],["Total assets","","$","13,555,221","","","","","","","","","","","$","10,644,867","","","","","","","","","","","$","8,638,604"]]
[[/GREPCENT_TABLE]]

43

[[GREPCENT_TABLE]]
[["Interest-bearing liabilities:"],["Interest-bearing deposits:"],["Interest-bearing demand deposits","","$","1,394,678","","","","2,687","","","","0.19","%","","","1,059,629","","","","3,752","","","","0.35","%","","","928,611","","","","7,585","","","","0.82","%"],["Savings","","","110,968","","","","197","","","","0.18","","","","77,364","","","","274","","","","0.35","","","","57,078","","","","320","","","","0.56"],["Money market","","","5,202,374","","","","13,697","","","","0.26","","","","4,519,170","","","","25,758","","","","0.57","","","","4,038,143","","","","67,998","","","","1.68"],["Time deposits (5)","","","805,982","","","","9,988","","","","1.24","","","","836,098","","","","15,446","","","","1.85","","","","702,245","","","","15,055","","","","2.14"],["Total interest-bearing deposits","","","7,514,002","","","","26,569","","","","0.35","","","","6,492,261","","","","45,230","","","","0.70","","","","5,726,077","","","","90,958","","","","1.59"],["Federal funds purchased","","","1,160,745","","","","2,473","","","","0.21","","","","627,561","","","","2,700","","","","0.43","","","","398,679","","","","9,076","","","","2.28"],["Other borrowings","","","64,696","","","","2,760","","","","4.27","","","","64,709","","","","3,055","","","","4.72","","","","64,684","","","","3,124","","","","4.83"],["Total interest-bearing liabilities","","$","8,739,443","","","$","31,802","","","","0.36","%","","$","7,184,531","","","$","50,985","","","","0.71","%","","","6,189,440","","","","103,158","","","","1.67","%"],["Non-interest-bearing liabilities:"],["Non-interest-bearing checking","","","3,689,311","","","","","","","","","","","","2,492,500","","","","","","","","","","","","1,632,385"],["Other liabilities","","","48,392","","","","","","","","","","","","53,874","","","","","","","","","","","","37,708"],["Stockholders' equity","","","1,059,317","","","","","","","","","","","","898,023","","","","","","","","","","","","777,757"],["Unrealized gains on securities","","","18,758","","","","","","","","","","","","15,939","","","","","","","","","","","","1,314"],["Total liabilities and stockholders' equity","","$","13,555,221","","","","","","","","","","","$","10,644,867","","","","","","","","","","","$","8,638,604"],["Net interest income","","","","","","$","384,780","","","","","","","","","","","$","338,379","","","","","","","","","","","$","287,961"],["Net interest spread","","","","","","","","","","","2.82","%","","","","","","","","","","","3.09","%","","","","","","","","","","","3.02","%"],["Net interest margin (6)","","","","","","","","","","","2.94","%","","","","","","","","","","","3.31","%","","","","","","","","","","","3.46","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021 Compared to 2020 Increase (Decrease) in Interest Income and Expense Due to Changes in:","","","2020 Compared to 2019 Increase (Decrease) in Interest Income and Expense Due to Changes in:"],["","","Volume","","","Rate","","","Total","","","Volume","","","Rate","","","Total"],["Interest-earning assets:"],["Loans, net of unearned income:"],["Taxable","","$","25,432","","","$","(2,127",")","","$","23,305","","","$","61,402","","","$","(53,028",")","","$","8,374"],["Tax-exempt","","","(175",")","","","(5",")","","","(180",")","","","(85",")","","","21","","","","(64",")"],["Total loans, net of unearned income","","","25,257","","","","(2,132",")","","","23,125","","","","61,317","","","","(53,007",")","","","8,310"],["Mortgage loans held for sale","","","(110",")","","","34","","","","(76",")","","","180","","","","(105",")","","","75"],["Debt securities:"],["Taxable","","","4,713","","","","(1,422",")","","","3,291","","","","5,914","","","","(800",")","","","5,114"],["Tax-exempt","","","(492",")","","","(9",")","","","(501",")","","","(830",")","","","137","","","","(693",")"],["Total debt securities","","","4,221","","","","(1,431",")","","","2,790","","","","5,084","","","","(663",")","","","4,421"],["Federal funds sold","","","(156",")","","","(147",")","","","(303",")","","","(2,867",")","","","(2,839",")","","","(5,706",")"],["Restricted equity securities","","","7","","","","-","","","","7","","","","-","","","","-","","","","-"],["Interest-bearing balances with banks","","","3,700","","","","(2,025",")","","","1,675","","","","7,037","","","","(15,892",")","","","(8,855",")"],["Total interest-earning assets","","","32,919","","","","(5,701",")","","","27,218","","","","70,751","","","","(72,506",")","","","(1,755",")"],["Interest-bearing liabilities:"],["Interest-bearing demand deposits","","","965","","","","(2,030",")","","","(1,065",")","","","949","","","","(4,782",")","","","(3,833",")"],["Savings","","","92","","","","(169",")","","","(77",")","","","93","","","","(139",")","","","(46",")"],["Money market","","","3,435","","","","(15,496",")","","","(12,061",")","","","7,282","","","","(49,522",")","","","(42,240",")"],["Time deposits","","","(538",")","","","(4,920",")","","","(5,458",")","","","2,640","","","","(2,249",")","","","391"],["Total interest-bearing deposits","","","3,954","","","","(22,615",")","","","(18,661",")","","","10,964","","","","(56,692",")","","","(45,728",")"],["Federal funds purchased","","","1,568","","","","(1,795",")","","","(227",")","","","3,459","","","","(9,835",")","","","(6,376",")"],["Other borrowed funds","","","(1",")","","","(294",")","","","(295",")","","","1","","","","(70",")","","","(69",")"],["Total interest-bearing 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"]]
[[/GREPCENT_TABLE]]

* The rate/volume variance is allocated on a pro rata basis between the volume variance and the rate variance in the table above.

44

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.

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.

45

Noninterest Income

Noninterest income for the years ended December 31, 2021 and 2020 were as follows.

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","Change","","","Percentage change"],["Service charges on deposit accounts","","$","6,839","","","$","7,528","","","$","(689",")","","","(9.2","%)"],["Mortgage banking","","","7,340","","","","8,747","","","","(1,407",")","","","(16.1","%)"],["Credit card income","","","7,347","","","","5,916","","","","1,431","","","","24.2","%"],["Securities gains","","","620","","","","-","","","","620","","","N/M"],["Increase in cash surrender value life insurance","","","6,642","","","","6,310","","","","332","","","","5.3","%"],["Other operating income","","","4,664","","","","1,615","","","","3,049","","","","188.8","%"],["Total noninterest income","","$","33,452","","","$","30,116","","","$","3,336","","","","11.1","%"]]
[[/GREPCENT_TABLE]]

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 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.

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","Change","","","Percentage change"],["Salaries and employee benefits","","$","67,728","","","$","61,414","","","$","6,314","","","","10.3","%"],["Equipment and occupancy expense","","","11,404","","","","10,070","","","","1,334","","","","13.2","%"],["Third party processing and other services","","","16,362","","","","13,778","","","","2,584","","","","18.8","%"],["Professional services","","","3,891","","","","4,242","","","","(351",")","","","(8.3","%)"],["FDIC and other regulatory assessments","","","5,679","","","","4,354","","","","1,325","","","","30.4","%"],["Other real estate owned expense","","","868","","","","2,163","","","","(1,295",")","","","(59.9","%)"],["Other operating expenses","","","27,157","","","","15,490","","","","11,667","","","","75.3","%"],["Total noninterest expenses","","$","133,089","","","$","111,511","","","$","21,578","","","","19.4","%"]]
[[/GREPCENT_TABLE]]

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.

46

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.

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).

[[GREPCENT_TABLE]]
[["","","Maturity of Debt Securities - Weighted Average Yield"],["","","One Year or Less","","","After One Year through Five Years","","","After Five Years through Ten Years","","","More Than Ten Years","","","Total"],["At December 31, 2021:","","(In Thousands)"],["Securities Available for Sale:"],["U.S. Treasury Securities","","$","5,997","","","$","3,006","","","$","-","","","$","-","","","$","9,003"],["Government Agency Securities","","","6,001","","","","21","","","","-","","","","-","","","","6,022"],["Mortgage-backed securities","","","23","","","","2,562","","","","80,729","","","","341,058","","","","424,372"],["State and municipal securities","","","5,934","","","","6,709","","","","8,793","","","","94","","","","21,530"],["Corporate debt","","","14,981","","","","22,025","","","","329,613","","","","3,000","","","","369,619"],["Total","","$","32,936","","","$","34,323","","","$","419,135","","","$","344,152","","","$","830,546"],["Tax-equivalent Yield (1)"],["U.S. Treasury Securities","","","2.07","%","","","1.59","%","","","-","%","","","-","%","","","1.91","%"],["Government Agency Securities","","","2.10","","","","5.09","","","","-","","","","-","","","","2.11"],["Mortgage-backed securities","","","2.97","","","","2.63","","","","2.43","","","","1.30","","","","1.52"],["State and municipal securities","","","2.13","","","","2.30","","","","1.94","","","","5.96","","","","2.12"],["Corporate debt","","","3.69","","","","4.63","","","","4.37","","","","4.50","","","","4.36"],["Total weighted average yield (2)","","","2.82","%","","","3.76","%","","","3.95","%","","","1.33","%","","","2.81","%"],["Securities Held to Maturity:"],["U.S. Treasury Securities","","$","-","","","$","49,663","","","$","99,600","","","$","-","","","$","149,263"],["Mortgage-backed securities","","","-","","","","-","","","","-","","","","310,641","","","","310,641"],["State and municipal securities","","","250","","","","-","","","","2,803","","","","-","","","","3,053"],["Total","","$","250","","","$","49,663","","","$","102,403","","","$","310,641","","","$","462,957"],["Tax-equivalent Yield (1)"],["U.S. Treasury Securities","","","-","%","","","1.15","%","","","1.31","%","","","-","%","","","1.26","%"],["Mortgage-backed securities","","","-","","","","-","","","","-","","","","2.23","","","","2.23"],["State and municipal securities","","","3.21","","","","-","","","","1.85","","","","-","","","","1.96"],["Total weighted average yield (2)","","","3.21","%","","","1.15","%","","","1.33","%","","","2.23","%","","","1.91","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","(Dollars in Thousands)"],["Commercial, financial and agricultural","","$","2,984,053","","","$","3,295,900","","","$","2,696,210"],["Real estate - construction","","","1,103,076","","","","593,614","","","","521,392"],["Real estate - mortgage:"],["Owner-occupied commercial","","","1,874,103","","","","1,693,428","","","","1,587,478"],["1-4 family mortgage","","","826,765","","","","711,692","","","","644,188"],["Other mortgage","","","2,678,084","","","","2,106,184","","","","1,747,394"],["Total real estate - mortgage","","","5,378,952","","","","4,511,304","","","","3,979,060"],["Consumer","","","66,853","","","","64,870","","","","64,789"],["Total Loans","","","9,532,934","","","","8,465,688","","","","7,261,451"],["Less: Allowance for credit losses","","","(116,660",")","","","(87,942",")","","","(76,584",")"],["Net Loans","","$","9,416,274","","","$","8,377,746","","","$","7,184,867"]]
[[/GREPCENT_TABLE]]

The following table details the percentage composition of our loan portfolio by type at December 31, 2021, 2020 and 2019:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Commercial, financial and agricultural","","","31.30","%","","","38.93","%","","","37.13","%"],["Real estate - construction","","","11.57","","","","7.01","","","","7.18"],["Real estate - mortgage:"],["Owner-occupied commercial","","","19.66","","","","20.00","","","","21.86"],["1-4 family mortgage","","","8.67","","","","8.41","","","","8.87"],["Other mortgage","","","28.10","","","","24.88","","","","24.07"],["Total real estate - mortgage","","","56.43","","","","53.29","","","","54.80"],["Consumer","","","0.70","","","","0.77","","","","0.89"],["Total Loans","","","100.00","%","","","100.00","%","","","100.00","%"]]
[[/GREPCENT_TABLE]]

49

The following table details maturities and sensitivity to interest rate changes for our loan portfolio at December 31, 2021:

[[GREPCENT_TABLE]]
[["","","Due in 1","","","After 1 year","","","After 5 years","","","After"],["","","year or less","","","to 5 years","","","to 15 years","","","15 years","","","Total"],["","","(in Thousands)"],["Commercial, financial and agricultural","","$","1,225,142","","","$","1,448,750","","","$","308,656","","","$","1,505","","","$","2,984,053"],["Real estate - construction","","","329,198","","","","661,448","","","","110,032","","","","2,398","","","","1,103,076"],["Real estate - mortgage:"],["Owner-occupied commercial","","","229,010","","","","866,574","","","","767,001","","","","11,518","","","","1,874,103"],["1-4 family mortgage","","","75,456","","","","251,122","","","","212,248","","","","287,939","","","","826,765"],["Other mortgage","","","398,939","","","","1,760,865","","","","494,468","","","","23,812","","","","2,678,084"],["Total real estate - mortgage","","","703,405","","","","2,878,561","","","","1,473,717","","","","323,269","","","","5,378,952"],["Consumer","","","42,596","","","","22,211","","","","2,046","","","","-","","","","66,853"],["Total Loans","","$","2,300,341","","","$","5,010,970","","","$","1,894,451","","","$","327,172","","","$","9,532,934"],["Less: Allowance for loan losses","","","","","","","","","","","","","","","","","","","(116,660",")"],["Net Loans","","","","","","","","","","","","","","","","","","$","9,416,274"],["Amount due after one year at"],["fixed interest rates:"],["Commercial, financial and agricultural","","$","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"],["Consumer","","","14,583"],["Total loans","","$","5,322,128"],["Amount due after one year at"],["variable interest rates:"],["Commercial, financial and agricultural","","$","606,380"],["Real estate - construction","","","430,868"],["Real estate - mortgage:"],["Owner-occupied commercial","","","168,539"],["1-4 family mortgage","","","356,394"],["Other mortgage","","","338,610"],["Total real estate - mortgage","","","863,543"],["Consumer","","","9,674"],["Total loans","","$","1,910,465"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","","As of and for the Years Ended December 31,"],["","","2021","","","2020","","","","2019","(1)"],["","","(Dollars in Thousands)"],["Allowance for credit losses to total loans outstanding","","","1.22","%","","","1.04","%","","","1.05","%"],["Allowance for credit losses (1)","","$","116,660","","","$","87,942","","","$","76,584"],["Total loans outstanding","","$","9,532,934","","","$","8,465,688","","","$","7,261,451"],["Nonaccrual loans to total loans outstanding","","","0.07","%","","","0.17","%","","","0.41","%"],["Nonaccrual loans","","$","6,762","","","$","13,973","","","$","30,091"],["Total loans outstanding","","$","9,532,934","","","$","8,465,688","","","$","7,261,451"],["Allowance for credit losses to nonaccrual loans","","","1,725.23","%","","","629.37","%","","","254.51","%"],["Allowance for credit losses (1)","","$","116,660","","","$","87,942","","","$","76,584"],["Nonaccrual loans","","$","6,762","","","$","13,973","","","$","30,091"],["Net charge-offs during the period to average loans outstanding:"],["Commercial, financial and agricultural","","","0.07","%","","","0.75","%","","","0.56","%"],["Net charge-offs during the period","","$","2,318","","","$","23,684","","","$","14,709"],["Average amount outstanding","","$","3,127,227","","","$","3,145,647","","","$","2,603,807"],["Real estate - construction","","","-","%","","","0.18","%","","","-","%"],["Net charge-offs (recoveries) during the period","","$","(38",")","","$","1,000","","","$","(3",")"],["Average amount outstanding","","$","806,705","","","$","547,818","","","$","553,091"],["Real estate - mortgage:"],["Owner-occupied commercial","","","-","%","","","0.23","%","","","0.25","%"],["Net charge-offs during the period","","$","54","","","$","3,884","","","$","3,882"],["Average amount outstanding","","$","1,760,591","","","$","1,663,831","","","$","1,523,430"],["1-4 family mortgage","","","0.02","%","","","0.06","%","","","0.04","%"],["Net charge-offs during the period","","$","132","","","$","373","","","$","263"],["Average amount outstanding","","$","739,389","","","$","673,895","","","$","631,683"],["Other mortgage","","","-","%","","","-","%","","","0.18","%"],["Net charge-offs during the period","","$","7","","","$","-","","","$","2,724"],["Average amount outstanding","","$","2,294,574","","","$","1,931,130","","","$","1,513,531"],["Total real estate - mortgage","","","-","%","","","0.10","%","","","0.19","%"],["Net charge-offs during the period","","$","193","","","$","4,257","","","$","6,869"],["Average amount outstanding","","$","4,794,554","","","$","4,268,856","","","$","3,668,644"],["Consumer","","","0.50","%","","","0.22","%","","","0.76","%"],["Net charge-offs during the period","","$","326","","","$","135","","","$","485"],["Average amount outstanding","","$","64,736","","","$","61,661","","","$","63,421"],["Total loans","","","0.03","%","","","0.36","%","","","0.32","%"],["Net charge-offs during the period","","$","2,799","","","$","29,076","","","$","22,060"],["Average amount outstanding","","$","8,725,561","","","$","8,154,991","","","$","6,865,129"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The year 2019 was accounted for under the incurred loss methodology and not restated to reflect the adoption of ASC 326."]]
[[/GREPCENT_TABLE]]

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.

51

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.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2021","","","2020","","","2019"],["","","","","","","Percentage","","","","","","","Percentage","","","","","","","Percentage"],["","","","","","","of loans in","","","","","","","of loans in","","","","","","","of loans in"],["","","","","","","each","","","","","","","each","","","","","","","each"],["","","","","","","category to","","","","","","","category to","","","","","","","category to"],["","","Amount","","","total loans","","","Amount","","","total loans","","","Amount","","","total loans"],["","","(Dollars in Thousands)"],["Commercial, financial and agricultural","","$","41,869","","","","31.30","%","","$","36,370","","","","38.93","%","","$","43,666","","","","37.13","%"],["Real estate - construction","","","26,994","","","","11.57","","","","16,057","","","","7.01","","","","2,768","","","","7.18"],["Real estate - mortgage","","","45,829","","","","56.43","","","","33,722","","","","53.29","","","","29,653","","","","54.80"],["Consumer","","","1,968","","","","0.70","","","","1,793","","","","0.77","","","","497","","","","0.89"],["Total","","$","116,660","","","","100.00","%","","$","87,942","","","","100.00","%","","$","76,584","","","","100.00","%"]]
[[/GREPCENT_TABLE]]

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.

52

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:

[[GREPCENT_TABLE]]
[["","\u25cf","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","We require updated financial information, global inventory aging and interest carry analysis for existing customers to help identify potential future loan payment problems."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","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."]]
[[/GREPCENT_TABLE]]

Nonperforming Assets

The table below summarizes our nonperforming assets at December 31, 2021, 2020 and 2019:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","","","","","Number","","","","","","","Number","","","","","","","Number"],["","","Balance","","","of Loans","","","Balance","","","of Loans","","","Balance","","","of Loans"],["","","(Dollars in Thousands)"],["Nonaccrual loans:"],["Commercial, financial and agricultural","","$","4,343","","","","17","","","$","11,709","","","","22","","","$","14,729","","","","29"],["Real estate - construction","","","-","","","","-","","","","234","","","","1","","","","1,588","","","","2"],["Real estate - mortgage:"],["Owner-occupied commercial","","","1,021","","","","2","","","","1,259","","","","4","","","","10,826","","","","3"],["1-4 family mortgage","","","1,398","","","","12","","","","771","","","","7","","","","1,440","","","","5"],["Other mortgage","","","-","","","","-","","","","-","","","","-","","","","1,507","","","","1"],["Total real estate - mortgage","","","2,419","","","","14","","","","2,030","","","","11","","","","13,773","","","","9"],["Consumer","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Total nonaccrual loans","","$","6,762","","","","31","","","$","13,973","","","","34","","","$","30,091","","","","40"],["90+ days past due and accruing:"],["Commercial, financial and agricultural","","$","39","","","","4","","","$","11","","","","2","","","$","201","","","","3"],["Real estate - construction","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Real estate - mortgage:"],["Owner-occupied commercial","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["1-4 family mortgage","","","611","","","","3","","","","104","","","","1","","","","873","","","","5"],["Other mortgage","","","4,656","","","","1","","","","4,805","","","","1","","","","4,924","","","","1"],["Total real estate - mortgage","","","5,267","","","","4","","","","4,909","","","","2","","","","5,797","","","","6"],["Consumer","","","29","","","","22","","","","61","","","","25","","","","23","","","","8"],["Total 90+ days past due and accruing","","$","5,335","","","","30","","","$","4,981","","","","29","","","$","6,021","","","","17"],["Total nonperforming loans","","$","12,097","","","","61","","","$","18,954","","","","63","","","$","36,112","","","","57"],["Plus: Other real estate owned and repossessions","","","1,208","","","","5","","","","6,497","","","","11","","","","8,178","","","","12"],["Total nonperforming assets","","$","13,305","","","","66","","","$","25,451","","","","74","","","$","44,290","","","","69"],["Restructured accruing loans:"],["Commercial, financial and agricultural","","$","431","","","","2","","","$","818","","","","3","","","$","625","","","","2"],["Real estate - construction","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Real estate - mortgage:"],["Owner-occupied commercial","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["1-4 family mortgage","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Other mortgage","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Total real estate - mortgage","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Consumer","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Total restructured accruing loans","","$","431","","","","2","","","$","818","","","","3","","","$","625","","","","2"],["Total nonperforming assets and restructured accruing loans","","$","13,736","","","","68","","","$","26,269","","","","77","","","$","44,915","","","","71"],["Ratios:"],["Nonperforming loans to total loans","","","0.13","%","","","","","","","0.22","%","","","","","","","0.50","%"],["Nonperforming assets to total loans plus other"],["Nonperforming assets to total loans plus other real 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","%"]]
[[/GREPCENT_TABLE]]

53

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:

[[GREPCENT_TABLE]]
[["","","For Year Ended December 31,"],["","","2021","","","2020","","","2019"],["","","Average Balance","","","Yields/Rates","","","Average Balance","","","Yields/Rates","","","Average Balance","","","Yields/Rates"],["Types of Deposits:","","(Dollars in Thousands)"],["Non-interest-bearing demand deposits","","$","3,689,311","","","","-","%","","$","2,492,500","","","","-","%","","$","1,632,385","","","","-","%"],["Interest-bearing demand deposits","","","1,394,678","","","","0.19","%","","","1,059,629","","","","0.35","%","","","928,611","","","","0.82","%"],["Money market accounts","","","5,202,374","","","","0.26","%","","","4,519,170","","","","0.57","%","","","4,038,143","","","","1.68","%"],["Savings accounts","","","110,968","","","","0.18","%","","","77,364","","","","0.35","%","","","57,078","","","","0.56","%"],["Time deposits","","","755,982","","","","1.24","%","","","768,016","","","","1.90","%","","","702,245","","","","2.20","%"],["Brokered time deposits","","","50,000","","","","1.68","%","","","68,082","","","","1.68","%","","","-","","","","-","%"],["Total deposits","","$","11,203,313","","","","","","","$","8,984,761","","","","","","","$","7,358,462"]]
[[/GREPCENT_TABLE]]

54

The following table presents the portion of our total deposits in excess of insurance limit as of December 31, 2021, 2020, and 2019, respectively.

[[GREPCENT_TABLE]]
[["","","Uninsured Deposits"],["","","For the Year Ended December 31,"],["","","2021","","","2020","","","2019"],["Uninsured deposits","","$","10,650,189","","","$","7,718,687","","","$","5,251,424"]]
[[/GREPCENT_TABLE]]

The following table presents the maturities of our time deposits in excess of insurance limit as of December 31, 2021.

[[GREPCENT_TABLE]]
[["","","Portion of time deposits in excess of insurance limit"],["","","December 31, 2021"],["Time deposits otherwise uninsured with a maturity of:","","(In Thousands)"],["3 months or less","","$","68,392"],["Over 3 months through 6 months","","","69,277"],["Over 6 months through 12 months","","","72,076"],["Over 12 months","","","76,531"],["Total","","$","286,276"]]
[[/GREPCENT_TABLE]]

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.

55

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.

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:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","(In Thousands)"],["Commitments to extend credit","","$","3,515,818","","","$","2,606,258","","","$","2,303,788"],["Credit card arrangements","","","366,525","","","","286,128","","","","248,617"],["Standby letters of credit and financial guarantees","","","61,856","","","","66,208","","","","48,394"],["Total","","$","3,944,199","","","$","2,958,594","","","$","2,600,799"]]
[[/GREPCENT_TABLE]]

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.

56

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 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.

[[GREPCENT_TABLE]]
[["","","For the Year Ended"],["","","2021","","","2020","","","2019"],["Sources of Funds:"],["Deposits:"],["Non-interest-bearing","","","27.3","%","","","23.5","%","","","18.9","%"],["Interest-bearing","","","55.5","","","","61.1","","","","66.3"],["Federal funds purchased","","","8.6","","","","5.9","","","","4.6"],["Long term debt and other borrowings","","","0.5","","","","0.6","","","","0.8"],["Other liabilities","","","0.3","","","","0.5","","","","0.4"],["Equity capital","","","7.8","","","","8.4","","","","9.0"],["Total sources","","","100.0","%","","","100.0","%","","","100.0","%"],["Uses of Funds:"],["Loans","","","64.4","%","","","76.7","%","","","79.5","%"],["Securities","","","7.3","","","","7.9","","","","7.6"],["Interest-bearing balances with banks","","","24.7","","","","11.0","","","","6.2"],["Federal funds sold","","","0.1","","","","0.6","","","","3.1"],["Other assets","","","3.4","","","","3.8","","","","3.6"],["Total uses","","","100.0","%","","","100.0","%","","","100.0","%"]]
[[/GREPCENT_TABLE]]

57

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 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.

[[GREPCENT_TABLE]]
[["","","Well-Capitalized","","","Actual at December 31, 2021"],["CET 1 Capital Ratio","","","6.50","%","","","10.50","%"],["Tier 1 Capital Ratio","","","8.00","%","","","10.50","%"],["Total Capital Ratio","","","10.00","%","","","11.55","%"],["Leverage ratio","","","5.00","%","","","7.79","%"]]
[[/GREPCENT_TABLE]]

For a description of capital ratios see Note 14 - “Regulatory Matters” to the Consolidated Financial Statements.

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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 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. 

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Adoption of Recent Accounting Pronouncements

New accounting standards are discussed in Note 1, “Summary of Significant Accounting Policies” to the Consolidated Financial Statements.