UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q





(Mark one)


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


FOR
      THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2010





 ̈TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For
the transition period from _______to_______





Commission
file number 000-53149





SERVISFIRST
BANCSHARES, INC.


(Exact
Name of Registrant as Specified in Its Charter)





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





(205)
949-0302


(Registrant’s
Telephone Number, Including Area Code)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the 
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).


Yes  ̈ No  ̈





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





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





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





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





Class
                                
                                Outstanding as of October 29,
      2010Common
      stock, $.001 par value
                                
                                5,518,482













TABLE OF CONTENTS





PART I. FINANCIAL
    INFORMATIONItem
      1.
                        Consolidated
      Financial Statements
                        3Item
      2.
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        21Item
      3.
                        Quantitative
      and Qualitative Disclosure about Market Risk
                        38Item
      4.
                        Controls
      and Procedures
                        38PART II. OTHER INFORMATIONItem
      1
                        Legal
      Proceedings
                        39Item
      1A.
                        Risk
      Factors
                        39Item
      2.
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        39Item
      3.
                        Defaults
      Upon Senior Securities
                        40Item
      5.
                        Other
      Information
                        40Item
      6.
                        Exhibits
                        40EX-31.01
      SECTION 302, CERTIFICATION OF THE CEOEX-31.02
      SECTION 302, CERTIFICATION OF THE CFOEX-31.01
      SECTION 906, CERTIFICATION OF THE CEOEX-31.01
      SECTION 906, CERTIFICATION OF THE CFO





2





PART
1. FINANCIAL INFORMATION





ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
BALANCE SHEETS SEPTEMBER 30, 2010 AND DECEMBER 31, 2009


(In
thousands, except share and per share amounts)





September 30,
                  2010
                
                
                December 31,
                  2009(Unaudited)
                
                
                (Audited)ASSETSCash
      and due from banks
                
                $
                30,371
                
                
                $
                26,982Interest-bearing
      balances due from depository institutions
                
                
                119,470
                
                
                
                48,544Federal
      funds sold
                
                
                2,213
                
                
                
                680Cash
      and cash equivalents
                
                
                152,054
                
                
                
                76,206Debt
      securities:Available
      for sale
                
                
                249,207
                
                
                
                255,453Held
      to maturity
                
                
                2,631
                
                
                
                645Restricted
      equity securities
                
                
                3,510
                
                
                
                3,241Mortgage
      loans held for sale
                
                
                8,708
                
                
                
                6,202Loans
                
                
                1,345,502
                
                
                
                1,207,084Less
      allowance for loan losses
                
                
                (16,903
                )
                
                
                (14,737
                )Loans,
      net
                
                
                1,328,599
                
                
                
                1,192,347Premises
      and equipment, net
                
                
                4,484
                
                
                
                5,088Accrued
      interest and dividends receivable
                
                
                6,834
                
                
                
                6,200Deferred
      tax assets
                
                
                2,347
                
                
                
                4,872Other
      real estate owned
                
                
                8,170
                
                
                
                12,525Other
      assets
                
                
                9,980
                
                
                
                10,718Total
      assets
                
                $
                1,776,524
                
                
                $
                1,573,497LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Deposits:Noninterest-bearing
                
                $
                224,537
                
                
                $
                211,307Interest-bearing
                
                
                1,377,020
                
                
                
                1,221,048Total
      deposits
                
                
                1,601,557
                
                
                
                1,432,355Other
      borrowings
                
                
                24,933
                
                
                
                24,922Trust
      preferred securities
                
                
                30,384
                
                
                
                15,228Accrued
      interest payable
                
                
                914
                
                
                
                1,026Other
      liabilities
                
                
                2,559
                
                
                
                2,344Total
      liabilities
                
                
                1,660,347
                
                
                
                1,475,875Stockholders'
      equity:Common
      stock, par value $.001 per share; 15,000,000 shares authorized; 5,518,482
      shares issued and outstanding at September 30, 2010 and 5,513,482 shares
      issued and outstanding at December 31, 2009
                
                
                6
                
                
                
                6Preferred
      stock, par value $.001 per share; 1,000,000 shares authorized; no shares
      outstanding
                
                
                -
                
                
                
                -Additional
      paid-in capital
                
                
                75,637
                
                
                
                75,078Retained
      earnings
                
                
                33,798
                
                
                
                20,965Accumulated
      other comprehensive income
                
                
                6,736
                
                
                
                1,573Total
      stockholders' equity
                
                
                116,177
                
                
                
                97,622Total
      liabilities and stockholders' equity
                
                $
                1,776,524
                
                
                $
                1,573,497





See
Notes to Consolidated Financial  Statements.





3





SERVISFIRST BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)


(In
thousands, except share and per share amounts)





Three Months Ended
                  September 30,
                
                
                Nine Months Ended
                  September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Interest
      income:Interest
      and fees on loans
                
                $
                17,715
                
                
                $
                14,598
                
                
                $
                50,669
                
                
                $
                40,690Taxable
      securities
                
                
                1,575
                
                
                
                1,006
                
                
                
                4,997
                
                
                
                3,117Nontaxable
      securities
                
                
                582
                
                
                
                402
                
                
                
                1,650
                
                
                
                1,022Federal
      funds sold
                
                
                23
                
                
                
                77
                
                
                
                41
                
                
                
                148Other
      interest and dividends
                
                
                64
                
                
                
                9
                
                
                
                100
                
                
                
                30Total
      interest income
                
                
                19,959
                
                
                
                16,092
                
                
                
                57,457
                
                
                
                45,007Interest
      expense:Deposits
                
                
                3,113
                
                
                
                4,031
                
                
                
                8,795
                
                
                
                12,391Borrowed
      funds
                
                
                859
                
                
                
                617
                
                
                
                2,461
                
                
                
                1,626Total
      interest expense
                
                
                3,972
                
                
                
                4,648
                
                
                
                11,256
                
                
                
                14,017Net
      interest income
                
                
                15,987
                
                
                
                11,444
                
                
                
                46,201
                
                
                
                30,990Provision
      for loan losses
                
                
                2,537
                
                
                
                3,209
                
                
                
                7,612
                
                
                
                8,277Net
      interest income after provision for loan losses
                
                
                13,450
                
                
                
                8,235
                
                
                
                38,589
                
                
                
                22,713Noninterest
      income:Service
      charges on deposit accounts
                
                
                564
                
                
                
                419
                
                
                
                1,718
                
                
                
                1,151Securities
      gains
                
                
                -
                
                
                
                -
                
                
                
                53
                
                
                
                -Other
      operating income
                
                
                784
                
                
                
                548
                
                
                
                1,713
                
                
                
                2,018Total
      noninterest income
                
                
                1,348
                
                
                
                967
                
                
                
                3,484
                
                
                
                3,169Noninterest
      expenses:Salaries
      and employee benefits
                
                
                3,547
                
                
                
                3,398
                
                
                
                10,176
                
                
                
                10,354Equipment
      and occupancy expense
                
                
                814
                
                
                
                767
                
                
                
                2,368
                
                
                
                1,977Professional
      services
                
                
                220
                
                
                
                228
                
                
                
                625
                
                
                
                657Other
      operating expenses
                
                
                2,886
                
                
                
                2,579
                
                
                
                9,291
                
                
                
                7,299Total
      noninterest expenses
                
                
                7,467
                
                
                
                6,972
                
                
                
                22,460
                
                
                
                20,287Income
      before income taxes
                
                
                7,331
                
                
                
                2,230
                
                
                
                19,613
                
                
                
                5,595Provision
      for income taxes
                
                
                2,532
                
                
                
                622
                
                
                
                6,780
                
                
                
                1,708Net
      income
                
                $
                4,799
                
                
                $
                1,608
                
                
                $
                12,833
                
                
                $
                3,887Basic
      earnings per share
                
                $
                0.87
                
                
                $
                0.29
                
                
                $
                2.33
                
                
                $
                0.71Diluted
      earnings per share
                
                $
                0.77
                
                
                $
                0.28
                
                
                $
                2.11
                
                
                $
                0.67





See
Notes to Consolidated Financial  Statements.





4





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)


(In
thousands)





Three Months Ended
                  September 30,
                
                
                Nine Months Ended
                  September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      income
                
                $
                4,799
                
                
                $
                1,608
                
                
                $
                12,833
                
                
                $
                3,887Other
      comprehensive income, net of tax:Unrealized
      holding gains arising during period from securities available for sale,
      net of tax of $1,124 and $2,817 for the three and nine months ended
      September 30, 2010, respectively, and $1,304 and $1,330 for the three and
      nine months ended September 30, 2009
                
                
                2,087
                
                
                
                2,532
                
                
                
                5,197
                
                
                
                2,582Reclassification
      adjustment for net gains on sale of securities in net income, net of tax
      of $19 for the nine months ended September 30, 2010
                
                
                -
                
                
                
                -
                
                
                
                (34
                )
                
                
                -Reclassification
      adjustment for net gains realized on derivatives in net income, net of tax
      benefit of $93 for the nine months ended September 30,
2009
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (180
                )Other
      comprehensive income, net of tax
                
                
                2,087
                
                
                
                2,532
                
                
                
                5,163
                
                
                
                2,402Comprehensive
      income
                
                $
                6,886
                
                
                $
                4,140
                
                
                $
                17,996
                
                
                $
                6,289





See
Notes to Consolidated Financial Statements





5





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


NINE
MONTHS ENDED SEPTEMBER 30, 2010


(Unaudited)


(In
thousands, except share amounts)





Common
                  Stock
                
                
                Additional
                  Paid-in
                  Capital
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income
                
                
                Total
                  Stockholders'
                  EquityBalance,
      December 31, 2009
                
                
                6
                
                
                
                75,078
                
                
                
                20,965
                
                
                
                1,573
                
                
                
                97,622Other
      comprehensive income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,163
                
                
                
                5,163Exercise
      of stock options
                
                
                -
                
                
                
                50
                
                
                
                -
                
                
                
                -
                
                
                
                50Stock-based
      compensation expense
                
                
                -
                
                
                
                509
                
                
                
                -
                
                
                
                -
                
                
                
                509Net
      income
                
                
                -
                
                
                
                -
                
                
                
                12,833
                
                
                
                -
                
                
                
                12,833Balance,
      September 30, 2010
                
                $
                6
                
                
                $
                75,637
                
                
                $
                33,798
                
                
                $
                6,736
                
                
                $
                116,177





See
Notes to Consolidated Financial Statements





6





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


NINE
MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(In
thousands) (Unaudited)


2010
                      
                      
                      2009OPERATING
      ACTIVITIESNet
      income
                      
                      $
                      12,833
                      
                      
                      $
                      3,887Adjustments
      to reconcile net income to net cash provided by operating
      activities:Deferred
      tax benefit
                      
                      
                      (292
                      )
                      
                      
                      (909
                      )Provision
      for loan losses
                      
                      
                      7,612
                      
                      
                      
                      8,277Depreciation
      and amortization
                      
                      
                      800
                      
                      
                      
                      802Net
      amortization (accretion) of investments
                      
                      
                      565
                      
                      
                      
                      (326
                      )Amortized
      gain on derivative
                      
                      
                      -
                      
                      
                      
                      (272
                      )Market
      value adjustment of interest rate cap
                      
                      
                      40
                      
                      
                      
                      -Increase
      in accrued interest and dividends receivable
                      
                      
                      (634
                      )
                      
                      
                      (1,137
                      )Stock
      compensation expense
                      
                      
                      509
                      
                      
                      
                      584Decrease
      in accrued interest payable
                      
                      
                      (112
                      )
                      
                      
                      (177
                      )Proceeds
      from sale of mortgage loans held for sale
                      
                      
                      112,068
                      
                      
                      
                      148,071Originations
      of mortgage loans held for sale
                      
                      
                      (115,361
                      )
                      
                      
                      (151,699
                      )Gain
      on sale of securities available for sale
                      
                      
                      (53
                      )
                      
                      
                      (42
                      )Net
      loss on sale of other real estate owned
                      
                      
                      180
                      
                      
                      
                      817Write
      down of other real estate owned
                      
                      
                      853
                      
                      
                      
                      622Decrease
      in special prepaid FDIC insurance assessments
                      
                      
                      1,963
                      
                      
                      
                      -Loss
      on disposal of premises and equipment
                      
                      
                      -
                      
                      
                      
                      2Net
      change in other assets, liabilities, and other operating
      activities
                      
                      
                      (773
                      )
                      
                      
                      (1,079
                      )Net
      cash provided by operating activities
                      
                      
                      20,198
                      
                      
                      
                      7,421INVESTMENT
      ACTIVITIESPurchase
      of securities available for sale
                      
                      
                      (40,817
                      )
                      
                      
                      (45,913
                      )Proceeds
      from maturities, calls and paydowns of securities available for
      sale
                      
                      
                      23,517
                      
                      
                      
                      12,825Purchase
      of securities held to maturity
                      
                      
                      (1,986
                      )
                      
                      
                      -Increase
      in loans
                      
                      
                      (147,150
                      )
                      
                      
                      (197,275
                      )Purchase
      of premises and equipment
                      
                      
                      (196
                      )
                      
                      
                      (2,144
                      )Purchase
      of restricted equity securities
                      
                      
                      (269
                      )
                      
                      
                      (582
                      )Purchase
      of interest rate cap
                      
                      
                      (160
                      )
                      
                      
                      -Proceeds
      from sale of securities available for sale
                      
                      
                      31,014
                      
                      
                      
                      2,083Proceeds
      from disposal of premises and equipment
                      
                      
                      -
                      
                      
                      
                      1Proceeds
      from sale of other real estate owned and repossessions
                      
                      
                      7,470
                      
                      
                      
                      5,249Additions
      to other real estate owned
                      
                      
                      (75
                      )
                      
                      
                      -Net
      cash used in investing activities
                      
                      
                      (128,652
                      )
                      
                      
                      (225,756
                      )FINANCING
      ACTIVITIESNet
      increase in noninterest-bearing deposits
                      
                      
                      13,230
                      
                      
                      
                      53,630Net
      increase in interest-bearing deposits
                      
                      
                      155,972
                      
                      
                      
                      270,534Proceeds
      from issuance of trust preferred securities
                      
                      
                      15,050
                      
                      
                      
                      -Proceeds
      from other borrowings
                      
                      
                      -
                      
                      
                      
                      5,000Proceeds
      from sale of stock, net
                      
                      
                      -
                      
                      
                      
                      3,479Proceeds
      from exercise of stock options
                      
                      
                      50
                      
                      
                      
                      -Net
      cash provided by financing activities
                      
                      
                      184,302
                      
                      
                      
                      332,643Net
      increase in cash and cash equivalents
                      
                      
                      75,848
                      
                      
                      
                      114,308Cash
      and cash equivalents at beginning of year
                      
                      
                      76,206
                      
                      
                      
                      72,918Cash
      and cash equivalents at end of year
                      
                      $
                      152,054
                      
                      
                      $
                      187,226SUPPLEMENTAL
      DISCLOSURECash
      paid for:Interest
                      
                      $
                      11,368
                      
                      
                      $
                      14,194Income
      taxes
                      
                      
                      6,958
                      
                      
                      
                      3,117NONCASH
      TRANSACTIONSTransfers
      of loans from held for sale to held for investment
                      
                      $
                      787
                      
                      
                      $
                      1,861Other
      real estate acquired in settlement of loans
                      
                      
                      5,156
                      
                      
                      
                      9,464Internally
      financed sales of other real estate owned
                      
                      
                      1,083
                      
                      
                      
                      468




See
Notes to Consolidated Financial Statements.





7





SERVISFIRST
BANCSHARES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2010


(Unaudited)





NOTE
1 - GENERAL





The
accompanying condensed consolidated financial statements in this report have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission, including Regulation S-X and the instructions for Form
10-Q, and have not been audited. These consolidated financial statements do not
include all of the information and footnotes required by U. S. generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments necessary to present fairly the consolidated
financial position and the consolidated results of operations for the interim
periods have been made. All such adjustments are of a normal nature. The
consolidated results of operations are not necessarily indicative of the
consolidated results of operations which ServisFirst Bancshares, Inc. (the
“Company”) may achieve for future interim periods or the entire year. For
further information, refer to the consolidated financial statements and
footnotes included in the Company’s Form 10-K for the year ended December 31,
2009.





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





Certain
reclassifications have been made in the December 31, 2009 Consolidated Balance
Sheet to conform to classifications used in 2010.  There was no effect
on total assets, liabilities or stockholders’ equity.





NOTE
2 - CASH AND CASH FLOWS





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





NOTE
3 - EARNINGS PER COMMON SHARE





Basic
earnings per common share are computed by dividing net income by the weighted
average number of common shares outstanding during the
period.  Diluted earnings per common share include the dilutive effect
of additional potential common shares issuable under stock options and warrants,
as well as the potential common stock issuable upon possible conversion of the
preferred securities described in Note 10 to the Consolidated Financial
Statements.





8




Three Months Ended
                    September 30,
                  
                  
                  Nine Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(In Thousands, Except Shares and Per Share Data)Earnings
      Per ShareWeighted
      average common shares outstanding
                  
                  
                  5,515,384
                  
                  
                  
                  5,513,482
                  
                  
                  
                  5,513,482
                  
                  
                  
                  5,476,701Net
      income
                  
                  $
                  4,799
                  
                  
                  $
                  1,608
                  
                  
                  $
                  12,833
                  
                  
                  $
                  3,887Basic
      earnings per share
                  
                  $
                  0.87
                  
                  
                  $
                  0.29
                  
                  
                  $
                  2.33
                  
                  
                  $
                  0.71Weighted
      average common shares outstanding
                  
                  
                  5,515,384
                  
                  
                  
                  5,513,482
                  
                  
                  
                  5,513,482
                  
                  
                  
                  5,476,701Dilutive
      effects of assumed conversions and exercise of stock options, warrants,
      and convertible debt
                  
                  
                  902,563
                  
                  
                  
                  307,849
                  
                  
                  
                  735,377
                  
                  
                  
                  297,740Weighted
      average common and dilutive potential common shares
      outstanding
                  
                  
                  6,417,947
                  
                  
                  
                  5,821,331
                  
                  
                  
                  6,248,859
                  
                  
                  
                  5,774,441Net
      income
                  
                  $
                  4,799
                  
                  
                  $
                  1,608
                  
                  
                  $
                  12,833
                  
                  
                  $
                  3,887Effect
      of interest expense on convertible debt, net of tax and discretionary
      expenditures related to conversion
                  
                  
                  150
                  
                  
                  
                  -
                  
                  
                  
                  323
                  
                  
                  
                  -Net
      income, adjusted for effect of debt conversion
                  
                  $
                  4,949
                  
                  
                  $
                  1,608
                  
                  
                  $
                  13,156
                  
                  
                  $
                  3,887Diluted
      earnings per share
                  
                  $
                  0.77
                  
                  
                  $
                  0.28
                  
                  
                  $
                  2.11
                  
                  
                  $
                  0.67





NOTE
4 - SECURITIES




The
amortized cost and fair value of available-for-sale and held-to-maturity
securities at September 30, 2010 and December 31, 2009 are summarized as
follows:




Amortized
                            Cost
                          
                          
                          Gross
                            Unrealized
                            Gain
                          
                          
                          Gross
                            Unrealized
                            Loss
                          
                          
                          FairValue(In
      Thousands)September
      30, 2010:Securities
      Available for SaleU.S.
      Treasury and government sponsored agencies
                          
                          $
                          60,648
                          
                          
                          $
                          3,465
                          
                          
                          $
                          -
                          
                          
                          $
                          64,113Mortgage-backed
      securities
                          
                          
                          110,381
                          
                          
                          
                          4,079
                          
                          
                          
                          (81
                          )
                          
                          
                          114,379State
      and municipal securities
                          
                          
                          65,804
                          
                          
                          
                          2,907
                          
                          
                          
                          (216
                          )
                          
                          
                          68,495Corporate
      debt
                          
                          
                          2,011
                          
                          
                          
                          209
                          
                          
                          
                          -
                          
                          
                          
                          2,220Total
                          
                          $
                          238,844
                          
                          
                          $
                          10,660
                          
                          
                          $
                          (297
                          )
                          
                          $
                          249,207Securities
      Held to MaturityState
      and municipal securities
                          
                          $
                          2,631
                          
                          
                          $
                          76
                          
                          
                          $
                          (3
                          )
                          
                          $
                          2,704Total
                          
                          $
                          2,631
                          
                          
                          $
                          76
                          
                          
                          $
                          (3
                          )
                          
                          $
                          2,704December
      31, 2009:Securities
      Available for SaleU.S.
      Treasury and government sponsored agencies
                          
                          $
                          92,368
                          
                          
                          $
                          412
                          
                          
                          $
                          (453
                          )
                          
                          $
                          92,327Mortgage-backed
      securities
                          
                          
                          99,608
                          
                          
                          
                          2,717
                          
                          
                          
                          (625
                          )
                          
                          
                          101,700State
      and municipal securities
                          
                          
                          58,090
                          
                          
                          
                          876
                          
                          
                          
                          (567
                          )
                          
                          
                          58,399Corporate
      debt
                          
                          
                          3,004
                          
                          
                          
                          36
                          
                          
                          
                          (13
                          )
                          
                          
                          3,027Total
                          
                          $
                          253,070
                          
                          
                          $
                          4,041
                          
                          
                          $
                          (1,658
                          )
                          
                          $
                          255,453Securities
      Held to MaturityState
      and municipal securities
                          
                          $
                          645
                          
                          
                          $
                          1
                          
                          
                          $
                          (3
                          )
                          
                          $
                          643Total
                          
                          $
                          645
                          
                          
                          $
                          1
                          
                          
                          $
                          (3
                          )
                          
                          $
                          643





9





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





The
following table identifies, as of September 30, 2010 and December 31, 2009, the
Company’s investment securities that have been in a continuous unrealized loss
position for less than 12 months and those that have been in a continuous
unrealized loss position for 12 or more months.  The Company has the
ability and intent to hold its securities until such time as lost value is
recovered, or the securities mature.  Further, the Company believes
any deterioration in value on its current investment securities is attributable
to changes in market interest rates and not credit quality of the
issuer.





LessThanTwelveMonths
                  
                  
                  TwelveMonthsorMoreGross
                    Unrealized
                    Losses
                  
                  
                  FairValue
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  FairValue(In
      Thousands)September
      30, 2010:Mortgage-backed
      securities
                  
                  $
                  (81
                  )
                  
                  $
                  13,292
                  
                  
                  $
                  -
                  
                  
                  $
                  -State
      and municipal securities
                  
                  
                  (131
                  )
                  
                  
                  4,269
                  
                  
                  
                  (88
                  )
                  
                  
                  3,028$
                  (212
                  )
                  
                  $
                  17,561
                  
                  
                  $
                  (88
                  )
                  
                  $
                  3,028December
      31, 2009:U.S.
      Treasury and government sponsored agencies
                  
                  $
                  (453
                  )
                  
                  $
                  44,910
                  
                  
                  $
                  -
                  
                  
                  $
                  -Mortgage-backed
      securities
                  
                  
                  (625
                  )
                  
                  
                  44,993
                  
                  
                  
                  -
                  
                  
                  
                  -State
      and municipal securities
                  
                  
                  (570
                  )
                  
                  
                  20,479
                  
                  
                  
                  -
                  
                  
                  
                  -Corporate
      debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (13
                  )
                  
                  
                  986$
                  (1,648
                  )
                  
                  $
                  110,382
                  
                  
                  $
                  (13
                  )
                  
                  $
                  986





At
September 30, 2010, 14 of the Company’s 375 debt securities had been in an
unrealized loss position for 12 or more months.  The Company does not
believe these unrealized losses are “other than temporary” since it has the
ability and intent to hold the investments for a period of time sufficient to
allow for a recovery in market value, and it is not probable that the Company
will be unable to collect all of the amounts contractually due.  The
Company has not identified any issues related to the ultimate repayment of
principal as a result of credit concerns on these securities.





NOTE
5 - EMPLOYEE AND DIRECTOR BENEFITS





Stock Options





At
September 30, 2010, the Company had stock-based compensation plans, as described
below. The compensation cost that has been charged to earnings for the plans was
approximately $195,000 and $509,000 for the three and nine months ended
September 30, 2010 and $189,000 and $584,000 for three and nine months ended
September 30, 2009, respectively.





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





10





The
Company has granted non-plan options to certain persons representing key
business relationships to purchase up to an aggregate amount of 55,000 shares of
the Company’s common stock at between $15.00 and $20.00 per share for 10 years.
These options are non-qualified and not part of either Plan.





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





2010
                  
                  
                  2009Expected
      volatility
                  
                  
                  26.00
                  %
                  
                  
                  20.00
                  %Expected
      dividends
                  
                  
                  0.00
                  %
                  
                  
                  0.50
                  %Expected
      term (in years)
                  
                  7
      years
                  
                  
                  7
      yearsRisk-free
      rate
                  
                  
                  2.10
                  %
                  
                  
                  1.70
                  %




The
following table summarizes stock option activity during the nine months ended
September 30, 2010 and 2009:





Shares
                                            
                                            
                                            Weighted
                                              Average
                                              Exercise
                                              Price
                                            
                                            
                                            Weighted
                                              Average
                                              Remaining
                                              Contractual
                                              Term(years)
                                            
                                            
                                            Aggregate
                                              IntrinsicValue(In Thousands)Nine
      Months Ended September 30, 2010:Outstanding
      at January 1, 2010
                                            
                                            
                                            863,500
                                            
                                            
                                            $
                                            15.17
                                            
                                            
                                            
                                            6.8
                                            
                                            
                                            $
                                            8,488Granted
                                            
                                            
                                            37,500
                                            
                                            
                                            
                                            25.00
                                            
                                            
                                            
                                            9.8
                                            
                                            
                                            
                                            -Exercised
                                            
                                            
                                            (5,000
                                            )
                                            
                                            
                                            10.00
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Forfeited
                                            
                                            
                                            (10,000
                                            )
                                            
                                            
                                            15.00
                                            
                                            
                                            
                                            6.6
                                            
                                            
                                            
                                            -Outstanding
      at September 30, 2010
                                            
                                            
                                            886,000
                                            
                                            
                                            
                                            15.62
                                            
                                            
                                            
                                            6.3
                                            
                                            
                                            $
                                            8,313Exercisable
      at September 30, 2010
                                            
                                            
                                            272,627
                                            
                                            
                                            $
                                            11.96
                                            
                                            
                                            
                                            5.3
                                            
                                            
                                            $
                                            3,555Nine
      Months Ended September 30, 2009:Outstanding
      at January 1, 2009
                                            
                                            
                                            826,000
                                            
                                            
                                            $
                                            14.70
                                            
                                            
                                            
                                            7.7
                                            
                                            
                                            $
                                            8,513Granted
                                            
                                            
                                            40,000
                                            
                                            
                                            
                                            25.00
                                            
                                            
                                            
                                            9.4
                                            
                                            
                                            
                                            -Exercised
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Forfeited
                                            
                                            
                                            (2,500
                                            )
                                            
                                            
                                            15.00
                                            
                                            
                                            
                                            7.2
                                            
                                            
                                            
                                            -Outstanding
      at September 30, 2009
                                            
                                            
                                            863,500
                                            
                                            
                                            
                                            15.17
                                            
                                            
                                            
                                            7.1
                                            
                                            
                                            $
                                            8,488Exercisable
      at September 30, 2009
                                            
                                            
                                            146,862
                                            
                                            
                                            $
                                            12.40
                                            
                                            
                                            
                                            6.5
                                            
                                            
                                            $
                                            1,851





11





Restricted
Stock





During
the first quarter of 2010, 10,000 shares of restricted stock were awarded to
employees.  During the fourth quarter of 2009, 20,000 shares of
restricted stock were awarded to a key executive.  The value of
restricted stock awards is determined to be the current value of the Company’s
stock, and this total value will be recognized as compensation expense over the
vesting period, which is five years from the date of grant.  As of
September 30, 2010, there was $623,000 of total unrecognized compensation cost
related to non-vested restricted stock.  The cost is expected to be
recognized evenly over the remaining 4.2 years of the restricted stock’s vesting
period.





Stock Warrants





In
recognition of the efforts and financial risks undertaken by the organizers of
ServisFirst Bank (the “Bank”) in 2005, the Bank granted warrants to organizers
to purchase a total 60,000 shares of common stock at a price of $10.00 per
share, which was the fair market value of the Bank’s common stock at the date of
the grant. The warrants became warrants to purchase a like number of shares of
the Company’s common stock upon the formation of the Company as a holding
company for the Bank.  The warrants vest in equal annual increments
over a three-year period commencing on the first anniversary date of the Bank’s
incorporation and will terminate on the tenth anniversary of the incorporation
date. The total number of warrants outstanding at September 30, 2010 and 2009
was 60,000.





The
Company issued warrants for 75,000 shares of common stock at a price of $25 per
share in the third quarter of 2008. These warrants were issued in connection
with the trust preferred securities that are discussed in detail in Note
9.





The
Company issued warrants for 15,000 shares of common stock at a price of $25 per
share in the second quarter of 2009.  These warrants were issued in
connection with the issuance and sale of the Bank’s 8.25% Subordinated Note
discussed in detail in Note 11.





NOTE
6 - DERIVATIVES





During
2008, the Company entered into interest rate swaps (“swaps”) to facilitate
customer transactions and meet their financing needs. Upon entering into these
swaps, the Company entered into offsetting positions with a regional
correspondent bank in order to minimize the risk to the Company.  As
of September 30, 2010, the Company was party to two swaps with notional amounts
totaling approximately $12.0 million with customers, and two swaps with notional
amounts totaling approximately $12.0 million with a regional correspondent
bank.  These swaps qualify as derivatives, but are not designated as
hedging instruments.  The Company has recorded the value of these
swaps at $1,032,000 in offsetting entries in other assets and other
liabilities.





On August
24, 2010, the Company entered into an interest rate cap with a notional value of
$100,000,000.  The cap has a strike rate of 2.00% and is indexed to
the three month London Interbank Offered Rate (“LIBOR”).  The cap does
not qualify for hedge accounting treatment, and is marked to market, with
changes in market value reflected in interest expense.  The cap was
marked down by $40,000 during the quarter ended September 30, 2010, and is
currently valued at $120,000.





12





The
Company has entered into agreements with secondary market investors to deliver
loans on a “best efforts delivery” basis. When a rate is committed to a
borrower, it is based on the best price that day and locked with the investor
for the customer for a 30-day period. In the event the loan is not delivered to
the investor, the Company has no risk or exposure with the investor. The
interest rate lock commitments related to loans that are originated for later
sale are classified as derivatives. The fair values of the Company’s agreements
with investors and rate lock commitments to customers as of September 30, 2010
and December 31, 2009 were not material.





NOTE
7 - ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS





In June
2009, the Financial Accounting Standards Board (“FASB”) issued two related
accounting pronouncements changing the accounting principles and disclosure
requirements for securitizations and special purpose entities.  The
pronouncements remove the concept of a “qualifying special-purpose entity”,
change the requirements for derecognizing financial assets and change how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting should be consolidated.  These
pronouncements also expand existing disclosure requirements to include more
information about transfers of financial assets and where companies have
exposure to the risks related to transfers of financial assets.  The
Company adopted the provisions of these pronouncements as of January 1, 2010,
but neither had a material impact on the consolidated financial
statements.





During
January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06 –
“Improving Disclosures About
Fair Value Measurements”, which added disclosure requirements about
transfers in and out of Levels 1 and 2, clarified existing fair value disclosure
requirements about the appropriate level of disaggregation, and clarified that a
description of valuation techniques and inputs used to measure fair value was
required for recurring and nonrecurring Level 2 and 3 fair value
measurements.  The Company adopted these provisions of the ASU in preparing
the Consolidated Financial Statements for the period ended September 30,
2010.  The adoption of these provisions of this ASU, which was subsequently
codified into Accounting Standards Codification Topic 820, “Fair Value Measurements and
Disclosures,” only affected the disclosure requirements for fair value
measurements and as a result had no impact on the Company’s consolidated
financial statements.  See Note 8 to the Consolidated Financial Statements
for the disclosures required by this ASU.




This ASU
also requires that Level 3 activity about purchases, sales, issuances, and
settlements of assets measured at fair value on a recurring basis be presented
on a gross basis rather than as a net number, as currently permitted.  This
provision of the ASU is effective for the Company’s reporting period ending June
30, 2011.  As this provision amends only the disclosure requirements for
fair value measurements, the adoption will have no impact on the Company’s
consolidated financial statements.





During February 2010, the FASB updated
ASU No. 2010-09,Subsequent Events
(Topic 855) – Amendments to Certain Recognition and Disclosure Requirements.This guidance amends FASB
ASC Topic 855,Subsequent
Events, so that issuers
filing periodic reports with the Securities and Exchange Commission (“SEC
filers”) no longer are required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial
statements. SEC filers must evaluate subsequent events through the date the
financial statements are issued.





13





During
July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit
Losses.This guidance requires disclosures regarding loans and
the allowance for loan losses that are disaggregated by portfolio segment and
class of financing receivable.  Required enhancements to current
disclosures include a rollforward of the allowance for loans losses by portfolio
segment, with the ending balance broken out by basis of impairment method, as
well as the recorded investment in the respective loans.  Nonaccrual
and impaired loans by class must also be shown.  Disclosure
requirements also include: 1) credit quality indicators by class, 2) aging of
past due loans by class, 3) troubled debt restructurings (“TDRs”) by class and
their effect on the allowance for loan losses, 4) defaults on TDRs by class and
their effect on the allowance for loan losses, and 5) significant purchases and
sales of loans disaggregated by portfolio segment.  This guidance is
effective for interim and annual reporting periods ending on or after December
15, 2010, for end of period disclosures.  Activity related disclosures
are required for interim and annual reporting periods beginning on or after
December 15, 2010.  While impacting its disclosures, this ASU will not
have an impact on the Company’s consolidated financial statements.





NOTE
8 - FAIR VALUE MEASUREMENT





Measurement
of fair value under United States generally accepted accounting principles
(“U.S. GAAP”) establishes a hierarchy that prioritizes observable and
unobservable inputs used to measure fair value, as of the measurement date, into
three broad levels, which are described below:





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


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


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





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





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





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





Impaired Loans- Impaired
loans are measured and reported at fair valuewhen full payment under
the loan terms is not expected.  Impaired loans are carried at the
present value of estimated future cash flows using the loan’s existing rate or
the fair value of the collateral if the loan is
collateral-dependent.  Impaired loans are subject to nonrecurring fair
value adjustment.  A portion of the allowance for loan losses is
allocated to impaired loans if the value of such loans is deemed to be less than
the unpaid balance.  The amount recognized as an impairment charge
related to impaired loans that are measured at fair value on a nonrecurring
basis was $1,248,000 and $5,100,000 during the three and nine months ended
September 30, 2010, respectively, and $1,586,000 and $4,919,000 for the three
and nine months ended September 30, 2009, respectively.  Impaired
loans are classified within Level 3 of the hierarchy.





14





Other real estate owned –
Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure
are held for sale and are initially recorded at the lower of cost or fair value,
less selling costs.  Any write-downs to fair value at the time of
transfer to OREO are charged to the allowance for loan losses subsequent to
foreclosure.  Values are derived from appraisals of underlying
collateral and discounted cash flow analysis.  The amount charged to
earnings was $372,000 and $1,031,000 during the three and nine months ended
September 30, 2010, respectively, and $359,000 and $1,326,000 during the three
and nine months ended September 30, 2009.  These charges were for
write-downs in the value of OREO and losses on the disposal of
OREO.  OREO is classified within Level 3 of the
hierarchy.





The
following table presents the Company’s financial assets and financial
liabilities carried at fair value on a recurring basis as of September 30, 2010
and December 31, 2009:




Fair Value Measurements at September 30, 2010 UsingQuoted Prices in
                                Active Markets for
                                Identical Assets
                                (Level 1)
                              
                              
                              Significant Other
                                Observable Inputs
                                (Level 2)
                              
                              
                              Significant
                                Unobservable
                                Inputs (Level 3)
                              
                              
                              Total(In
      Thousands)Assets
      Measured on a Recurring Basis:Available-for-sale
      securities
                              
                              $
                              -
                              
                              
                              $
                              249,207
                              
                              
                              $
                              -
                              
                              
                              $
                              249,207Interest
      rate swap agreements
                              
                              
                              -
                              
                              
                              
                              1,032
                              
                              
                              
                              
                              
                              
                              
                              1,032Interest
      rate cap
                              
                              
                              
                              
                              
                              
                              120
                              
                              
                              
                              
                              
                              
                              
                              120Total
      assets at fair value
                              
                              $
                              -
                              
                              
                              $
                              250,359
                              
                              
                              $
                              -
                              
                              
                              $
                              250,359Liabilities
      Measured on a Recurring Basis:Interest
      rate swap agreements
                              
                              $
                              -
                              
                              
                              $
                              1,032
                              
                              
                              $
                              -
                              
                              
                              $
                              1,032




FairValueMeasurementsatDecember31,2009UsingQuotedPricesin
                                ActiveMarketsfor
                                IdenticalAssets
                                (Level1)
                              
                              
                              SignificantOther
                                ObservableInputs
                                (Level2)
                              
                              
                              Significant
                                Unobservable
                                Inputs(Level3)
                              
                              
                              Total(In
      Thousands)Assets
      Measured on a Recurring Basis:Available-for-sale
      securities
                              
                              $
                              -
                              
                              
                              $
                              255,453
                              
                              
                              $
                              -
                              
                              
                              $
                              255,453Interest
      rate swap agreements
                              
                              
                              -
                              
                              
                              
                              413
                              
                              
                              
                              
                              
                              
                              
                              413Total
      assets at fair value
                              
                              $
                              -
                              
                              
                              $
                              255,866
                              
                              
                              $
                              -
                              
                              
                              $
                              255,866Liabilities
      Measured on a Recurring Basis:Interest
      rate swap agreements
                              
                              $
                              -
                              
                              
                              $
                              413
                              
                              
                              $
                              -
                              
                              
                              $
                              413





15





The
following table presents the Company’s financial assets and financial
liabilities carried at fair value on a nonrecurring basis as of September 30,
2010 and December 31, 2009:




Fair Value Measurements at September 30, 2010 UsingQuoted Prices in
                              Active Markets for
                              Identical Assets
                              (Level 1)
                            
                            Significant Other
                              Observable Inputs
                              (Level 2)
                            
                            Significant
                              Unobservable
                              Inputs (Level 3)
                            
                            Total(In
      Thousands)Assets
      Measured on a Nonrecurring Basis:Impaired
      loans
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            13,790
                            
                            
                            $
                            13,790Other
      real estate owned
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            8,170
                            
                            
                            
                            8,170Total
      assets at fair value
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            21,960
                            
                            
                            $
                            21,960




Fair Value Measurements at December 31, 2009 UsingQuoted Prices in
                              Active Markets for
                              Identical Assets
                              (Level 1)
                            
                            Significant Other
                              Observable Inputs
                              (Level 2)
                            
                            Significant
                              Unobservable
                              Inputs (Level 3)
                            
                            Total(In
      Thousands)Assets
      Measured on a Nonrecurring Basis:Impaired
      loans
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            8,003
                            
                            
                            $
                            8,003Other
      real estate owned
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            12,525
                            
                            
                            
                            12,525Total
      assets at fair value
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            20,528
                            
                            
                            $
                            20,528
  The fair
value of a financial instrument is the current amount that would be exchanged in
a sale between willing parties, other than in a forced
liquidation.  Fair value is best determined based upon quoted market
prices.  However, in many instances, there are no quoted market prices
for the Company’s various financial instruments.  In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques.  Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows.  Accordingly, the fair value estimates
may not be realized in an immediate settlement of the instrument. Current U.S.
GAAP excludes certain financial instruments and all nonfinancial instruments
from its fair value disclosure requirements.  Accordingly, the
aggregate fair value amounts presented may not necessarily represent the
underlying fair value of the Company.





The
carrying amount and estimated fair value of the Company’s financial instruments,
including those that are not measured and reported at fair value on a recurring
basis or non-recurring basis, at September 30, 2010 and December 31, 2009 were
as follows:





16




September30,2010
                  
                  
                  December31,2009Carrying
                    Amount
                  
                  
                  FairValue
                  
                  
                  Carrying
                    Amount
                  
                  
                  FairValue(In
      Thousands)Financial
      Assets:Cash
      and cash equivalents
                  
                  $
                  152,054
                  
                  
                  $
                  152,054
                  
                  
                  $
                  76,206
                  
                  
                  $
                  76,206Investment
      securities available for sale
                  
                  
                  249,207
                  
                  
                  
                  249,207
                  
                  
                  
                  255,453
                  
                  
                  
                  255,453Investment
      securities held to maturity
                  
                  
                  2,631
                  
                  
                  
                  2,704
                  
                  
                  
                  645
                  
                  
                  
                  643Restricted
      equity securities
                  
                  
                  3,510
                  
                  
                  
                  3,510
                  
                  
                  
                  3,241
                  
                  
                  
                  3,241Mortgage
      loans held for sale
                  
                  
                  8,708
                  
                  
                  
                  8,708
                  
                  
                  
                  6,202
                  
                  
                  
                  6,202Loans,
      net
                  
                  
                  1,328,599
                  
                  
                  
                  1,328,336
                  
                  
                  
                  1,192,173
                  
                  
                  
                  1,193,202Accrued
      interest and dividends receivable
                  
                  
                  6,834
                  
                  
                  
                  6,834
                  
                  
                  
                  6,200
                  
                  
                  
                  6,200Interest
      rate swaps
                  
                  
                  1,032
                  
                  
                  
                  1,032
                  
                  
                  
                  413
                  
                  
                  
                  413Interest
      rate cap
                  
                  
                  120
                  
                  
                  
                  120
                  
                  
                  
                  -
                  
                  
                  
                  -Financial
      Liabilities:Deposits
                  
                  $
                  1,601,557
                  
                  
                  $
                  1,603,162
                  
                  
                  $
                  1,432,355
                  
                  
                  $
                  1,435,387Borrowings
                  
                  
                  24,933
                  
                  
                  
                  26,343
                  
                  
                  
                  24,922
                  
                  
                  
                  25,981Trust
      preferred securities
                  
                  
                  30,384
                  
                  
                  
                  27,087
                  
                  
                  
                  15,228
                  
                  
                  
                  12,681Accrued
      interest payable
                  
                  
                  914
                  
                  
                  
                  914
                  
                  
                  
                  1,026
                  
                  
                  
                  1,026Interest
      rate swaps
                  
                  
                  1,032
                  
                  
                  
                  1,032
                  
                  
                  
                  413
                  
                  
                  
                  413




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





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





Investment
securities:  Fair values for investment securities are based on
quoted market prices, where available.  If a quoted market price is
not available, fair value is based on quoted market prices of comparable
instruments.





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





Loans:  For
variable-rate loans that re-price frequently and with no significant change in
credit risk, fair value is based on carrying amounts.  The fair value
of other loans (for example, fixed-rate commercial real estate loans, mortgage
loans, and industrial loans) is estimated using discounted cash flow analysis
based on option-adjusted spread rates tied to the LIBOR swap curve, with term
structures matching each loan being valued.  Loan fair value estimates
include judgments regarding future expected loss experience and risk
characteristics.  Fair value for impaired loans is estimated using
underlying collateral values, where applicable, or discounted cash flow
analysis.





Derivatives:The
fair values of the derivative agreements are based on quoted prices from an
outside third party.





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





Deposits:  The fair
values of demand deposits are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying amounts).  The
carrying amounts of variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair values.  Fair values
for fixed-rate certificates of deposit are estimated using a discounted cash
flow analysis based on option-adjusted spread rates tied to the LIBOR swap
curve, with term structures matching each certificate of deposit being
valued.





17





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





Trust preferred
securities:The fair values of trust preferred securities are
estimated using a discounted cash flow analysis, based on interest rates
currently being offered on the best alternative debt available at the
measurement date.





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





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





NOTE
9 - SUBORDINATED DEFERRABLE INTEREST DEBENTURES





On
September 2, 2008, ServisFirst Capital Trust I, a subsidiary of the Company (the
“2008 Trust”), sold 15,000 shares of its 8.5% trust preferred securities to
accredited investors for $15,000,000, or $1,000 per share, and 463,918 shares of
its common securities to the Company for $463,918, or $1.00 per share. The 2008
Trust invested the proceeds from such sale in the Company’s 8.5% junior
subordinated deferrable interest debenture due September 1, 2038 in the
principal amount of $15,463,918 (the “Debenture”). The Debenture bears a fixed
rate of interest at 8.5% per annum and is subordinate and junior in right of
payment to all of the Company’s senior debt; provided, however, the Company will
not incur any additional senior debt in excess of 0.5% of the Company’s average
assets for the fiscal year immediately preceding, unless such incurrence is
approved by a majority of the holders of the outstanding trust preferred
securities.





Holders
of the trust preferred securities are entitled to receive distributions accruing
from the original date of issuance. The distributions are payable quarterly in
arrears on December 1, March 1, June 1 and September 1 of each year, commencing
December 1, 2008. The distributions accrue at an annual fixed rate of 8.5%.
Payments of distributions on the trust preferred securities will be deferred in
the event interest payments on the Debenture is deferred, which may occur at any
time and from time to time, for up to 20 consecutive
quarterly  periods.  During any deferral period, the Company
may not pay dividends or make certain other distributions or payments as
provided for in the Indenture.  If payments are deferred, holders
accumulate additional distributions thereon at 8.5%, compounded quarterly, to
the extent permitted by law.





In
addition, the Company issued a total of 75,000 warrants, each representing the
right to purchase one share of the Company’s common stock for a purchase price
of $25.00. The warrants were issued in increments of 500 for each $100,000 of
trust preferred securities purchased. Each warrant is exercisable for a period
beginning upon its date of issuance and ending upon the later to occur of either
(i) September 1, 2013 or (ii) 60 days following the date upon which the
Company’s common stock becomes listed for trading upon a “national securities
exchange” as defined under the Securities Exchange Act of 1934. The Company
estimated the fair value of each warrant using a Black-Scholes-Merton valuation
model and determined the fair value per warrant to be $5.65. This total value of
$423,000 was recorded as a discount and reduced the net book value of the
debentures to $15,052,000 with an offsetting increase to the Company’s
additional paid-in capital. The discount will be amortized over a three-year
period.





18





The trust
preferred securities are subject to mandatory redemption upon repayment of the
Debenture at its maturity, September 1, 2038, or its earlier redemption. The
Debenture is redeemable by the Company (i) prior to September 1, 2011, in whole
upon the occurrence of a Special Event, as defined in the Indenture, or (ii) in
whole or in part on or after September 1, 2011 for any reason. In the event of
the redemption of the trust preferred securities prior to September 1, 2011, the
holders of the trust preferred securities will be entitled to $1,050 per share,
plus accumulated and unpaid distributions thereon (including accrued interest
thereon), if any, to the date of payment. In the event of the redemption of the
trust preferred securities on or after September 1, 2011, the holders of the
trust preferred securities will be entitled to receive $1,000 per share plus
accumulated and unpaid distributions thereon (including accrued interest
thereon), if any, to the date of payment.





The
Company has the right at any time to terminate the 2008 Trust and cause the
Debenture to be distributed to the holders of the trust preferred securities in
liquidation of the Trust. This right is optional and wholly within the Company’s
discretion as set forth in the Indenture.





Payment
of periodic cash distributions and payment upon liquidation or redemption with
respect to the trust preferred securities are guaranteed by the Company to the
extent of funds held by the Trust (the “Preferred Securities Guarantee”). The
Preferred Securities Guarantee, when taken together with the Company’s other
obligations under the debentures, constitutes a full and unconditional
guarantee, on a subordinated basis, by the Company of payments due on the trust
preferred securities.





The
Company is required by the Federal Reserve Board to maintain certain levels of
capital for bank regulatory purposes. The Federal Reserve Board has determined
that certain cumulative preferred securities having the characteristics of trust
preferred securities qualify as minority interests, which is included in Tier 1
capital for bank and financial holding companies. In calculating the amount of
Tier 1 qualifying capital, the trust preferred securities can only be included
up to the amount constituting 25% of total Tier 1 capital elements (including
trust preferred securities). Such Tier 1 capital treatment provides the Company
with a more cost-effective means of obtaining capital for bank regulatory
purposes than if the Company were to issue preferred stock.





NOTE
10 – JUNIOR SUBORDINATED MANDATORY CONVERTIBLE DEFERRABLE INTEREST DEBENTURES
DUE MARCH 15, 2040





On
February 9, 2010 the Company established a new Delaware statutory trust
subsidiary, ServisFirst Capital Trust II (the “2010 Trust”), which issued 15,000
shares of its 6.0% Mandatory Convertible Trust Preferred Securities (the
“Preferred Securities”) for $15,000,000, or $1,000 per Preferred Security, on
March 15, 2010. The 2010 Trust simultaneously issued 50,000 shares of its common
securities to the Company for a purchase price of $50,000, or $1.00 per share,
which together with the Preferred Securities constitute all of the issued and
outstanding securities of the 2010 Trust (collectively, the “Trust
Securities”).  The 2010 Trust invested all of the proceeds from the
sale of the Trust Securities in the Company’s 6.0% Junior Subordinated Mandatory
Convertible Deferrable Interest Debentures due March 15, 2040 in the principal
amount of $15,050,000 (the “Subordinated Debentures”).  The Preferred
Securities were offered and sold to accredited investors in a private
placement.





19





Holders
of the Preferred Securities will be entitled to receive distributions accruing
from March 15, 2010, and payable quarterly in arrears on March 15, June 15,
September 15 and December 15 of each year, commencing June 15, 2010 unless the
Company defers interest payments on the Subordinated
Debentures.  Distributions accrue at an annual rate equal to 6.0% of
the liquidation amount of $1,000 per Preferred Security.  The rate and
the distribution dates for the Preferred Securities correspond to the interest
rate and payment dates on the Subordinated Debentures, which constitute
substantially all the assets of the 2010 Trust.  As a result, if
principal or interest is not paid on the Subordinated Debentures, no
corresponding amounts will be paid on the Preferred Securities.  The
2010 Trust also pays a distribution on the common securities at an annual rate
of 6.0% of the purchase price of the common securities, but such payments are
financially immaterial since they simply represent a return of funds to the
Company.





The
Subordinated Debentures are subordinate and junior in right of payment to all of
the Company’s senior debt, as defined in the Indenture governing the
Subordinated Debentures; provided, however, that, while any of the Preferred
Securities remain outstanding, the Company shall not incur any additional senior
debt in excess of 0.5% of the Company’s average assets for the fiscal year
immediately preceding, unless approved by the holders of a majority of the
outstanding Preferred Securities.  The Company has the right to defer
payments of interest on the Subordinated Debentures from time to time, for up to
20 consecutive quarterly periods for each deferral period.  During any
deferral period, the Company may not (i) pay dividends on or redeem any of its
capital stock, (ii) pay principal of or interest on any debt securities ranking
pari passuwith or
subordinate to the Subordinated Debentures or (iii) make any guaranty payments
with respect to any guaranty of the debt securities of any of the Company’s
subsidiaries if such guaranty ranks pari passuwith or junior in
right of payment to the Subordinated Debentures.





If not
previously redeemed or converted into common stock of the Company, the Preferred
Securities will automatically and mandatorily convert into common stock of the
Company on March 15, 2013 at a conversion price of $25 per share of common
stock.  In addition to such mandatory conversion, the Preferred
Securities may be converted into common stock of the Company at the option of
the holder at any time prior to the earliest to occur of maturity, redemption or
mandatory conversion at the same conversion price.





The
Preferred Securities are subject to mandatory redemption upon repayment of the
Subordinated Debentures at their stated maturity (as defined in the Indenture),
or upon earlier redemption of the Subordinated Debentures. The Subordinated
Debentures are redeemable by the Company at any time in whole, but not in part,
upon the occurrence of a special event, as defined in the
Indenture.





The
Company has the right at any time to terminate the 2010 Trust and cause the
Subordinated Debentures to be distributed to the holders of the Preferred
Securities in liquidation of the 2010 Trust. This right is optional and wholly
within the Company’s discretion.





The
Company is required by the Federal Reserve Board to maintain certain levels of
capital for bank regulatory purposes. The Federal Reserve Board has determined
that certain cumulative preferred securities having the characteristics of trust
preferred securities qualify as minority interests, which is included in Tier 1
capital for bank and financial holding companies.  In calculating the
amount of Tier 1 qualifying capital, the trust preferred securities can only be
included up to the amount constituting 25% of total Tier 1 capital elements
(including trust preferred securities). Such Tier 1 capital treatment provides
the Company with a more cost-effective means of obtaining capital for bank
regulatory purposes than if the Company were to issue preferred
stock.





20





NOTE
11 - SUBORDINATED NOTE DUE SEPTEMBER 1, 2016





On June
23, 2009, the Bank issued $5,000,000 aggregate principal amount of its 8.25%
Subordinated Note due June 1, 2016 to an accredited investor at 100% of
par.  The note is subordinate and junior in right of payment upon any
liquidation of the Bank as to principal, interest and premium to obligations to
the Bank’s depositors and other obligations to its general and secured
creditors.  Interest payments are due and payable on each September 1,
December 1, March 1 and June 1, commencing on September 1,
2009.  Interest accrues at an annual rate of 8.25%.  The
proceeds from the note payable are included in Tier 2 capital of the Bank and
the Company.





In
addition, the Company issued to the investor a total of 15,000 warrants, each
representing the right to purchase one share of the Company’s common stock for a
purchase price of $25.00. Each warrant is exercisable for a period beginning
upon its date of issuance and ending on June 1, 2016.  The Company
estimated the fair value of each warrant using a Black-Scholes-Merton valuation
model and determined the fair value per warrant to be $5.71. This total value of
$86,000 was recorded as a discount and reduced the net book value of the
debentures to $4,914,000 with an offsetting increase to the Company’s additional
paid-in capital. The discount will be amortized over a five-year
period.





ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The
following discussion and analysis is designed to provide a better understanding
of various factors relating to the results of operations and financial condition
of ServisFirst Bancshares, Inc. (the “Company”) and its wholly owned subsidiary,
ServisFirst Bank (the “Bank”). This discussion is intended to supplement and
highlight information contained in the accompanying unaudited consolidated
financial statements as of September 30, 2010 and for the three and nine months
ended September 30, 2010 and 2009.





Forward-Looking
Statements





Statements
in this document that are not historical facts, including, but not limited to,
statements concerning future operations, results or performance, are hereby
identified as “forward-looking statements” for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A
of the Securities Act of 1933. The words “believe,” “expect,” “anticipate,”
“project,” “plan,” “intend,” “will,” “would,” “might” and similar expressions
often signify forward-looking statements. Such statements involve inherent risks
and uncertainties. ServisFirst Bancshares, Inc. cautions that such
forward-looking statements, wherever they occur in this press release or in
other statements attributable to ServisFirst Bancshares, Inc., are necessarily
estimates reflecting the judgment of ServisFirst Bancshares, Inc.’s senior
management and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking
statements.  Such forward-looking statements should, therefore, be
considered in light of various factors that could affect the accuracy of such
forward-looking statements, including: general economic conditions, especially
in the credit markets and in the Southeast; the performance of the capital
markets; changes in interest rates, yield curves and interest rate spread
relationships; changes in accounting and tax principles, policies or guidelines;
changes in legislation or regulatory requirements; changes in our loan portfolio
and the deposit base, possible changes in laws and regulations and governmental
monetary and fiscal policies, including, but not limited to, economic stimulus
initiatives and so-called “bailout” initiatives; the cost and other effects of
legal and administrative cases and similar contingencies; possible changes in
the creditworthiness of customers and the possible impairment of the
collectibility of loans and the value of collateral; the effect of natural
disasters, such as hurricanes, in our geographic markets; and increased
competition from both banks and non-banks.  The foregoing list of
factors is not exhaustive. For discussion of these and other risks that may
cause actual results to differ from expectations, please refer to “Risk Factors”
in our most recent Annual Report on Form 10-K and our other SEC filings. If one
or more of the factors affecting our forward-looking information and statements
proves incorrect, then our actual results, performance or achievements could
differ materially from those expressed in, or implied by, forward-looking
information and statements contained herein. Accordingly, you should not place
undue reliance on any forward-looking statements, which speak only as of the
date made.





21





Business





We are a
bank holding company under the Bank Holding Company Act of 1956 incorporated in
Delaware and headquartered in Birmingham, Alabama. Through the Bank, we operate
eight full-service banking offices located in Jefferson, Shelby, Madison,
Montgomery and Houston counties in the metropolitan statistical areas (“MSAs”)
of Birmingham-Hoover, Huntsville, Montgomery and Dothan, Alabama.





We are
headquartered at 850 Shades Creek Parkway, Birmingham, Alabama 35209 (Jefferson
County). In addition to the Jefferson County headquarters, the Bank currently
operates through two offices in the Birmingham-Hoover MSA (one office in
Jefferson County and one office in North Shelby County), two offices in the
Huntsville MSA (Madison County), two offices in the Montgomery MSA (Montgomery
County) and one office in the Dothan MSA (Houston County), which constitute our
primary service areas. Our principal business is to accept deposits from the
public and to make loans and other investments. Our principal sources of funds
for loans and investments are demand, time, savings, and other deposits
(including negotiable orders of withdrawal, or NOW accounts). Our principal
sources of income are interest and fees collected on loans, interest and
dividends collected on other investments and service charges. Our principal
expenses are interest paid on savings and other deposits (including NOW
accounts), interest paid on our other borrowings, employee compensation, office
expenses and other overhead expenses.





Overview





As of
September 30, 2010, the Company had total consolidated assets of $1,776,524,000,
an increase of $203,027,000, or 12.90%, over $1,573,497,000 at December 31,
2009.  Total loans were $1,345,502,000 at September 30, 2010, an
increase of $138,418,000, or 11.47%, over $1,207,084,000 at December 31, 2009.
Total deposits were $1,601,557,000 at September 30, 2010, an increase of
$169,202,000, or 11.81%, over $1,432,355,000 at December 31, 2009.





Net
income for the quarter ended September 30, 2010 was $4,799,000, an increase of
$3,191,000, or 198.45%, from $1,608,000 for the quarter ended September 30,
2009.  Basic and fully diluted earnings per common share were $.87 and
$.77, respectively, for the three months ended September 30, 2010, compared with
$.29 and $.28, respectively, for the same period in 2009.  This
increase was primarily attributable to a higher net interest margin and an
improved efficiency ratio, both of which are explained in detail under the
captions “Net Interest Income” and “Noninterest Expense”, respectively,
below.





Net
income for the nine months ended September 30, 2010 was $12,833,000, an increase
of $8,946,000, or 230.15%, from $3,887,000 for the nine months ended September
30, 2009.  Basic and fully diluted earnings per share were $2.33 and
$2.11, respectively, for the nine months ended September 30, 2010, compared with
$.71 and $.67, respectively for the same period in 2009. Again, this increase
was primarily attributable to a higher net interest margin and an improved
efficiency ratio, as explained below.


22
  Critical
Accounting Policies
 
 The
accounting and financial policies of the Company conform to accounting
principles generally accepted in the United States and to general practices
within the banking industry. To prepare consolidated financial statements in
conformity with accounting principles generally accepted in the United States,
management makes estimates and assumptions based on available information. These
estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results could differ. The
allowance for loan losses, valuation of foreclosed real estate, deferred taxes,
and fair value of financial instruments are particularly subject to
change.  Information concerning our accounting policies with respect
to these items is available in Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” in our Annual Report on Form
10-K for the fiscal year ended December 31, 2009.
 
 Financial
Condition
 
 Investment Securities
 
 Investment
securities available for sale totaled $249,207,000 at September 30, 2010 and
$255,453,000 at December 31, 2009.  Investment securities held to
maturity totaled $2,631,000 at September 30, 2010 and $645,000 at December 31,
2009.  Approximately $34,597,000 in callable agency securities were
sold or called during the first nine months of 2010, and were replaced by the
purchase of $31,030,000 in mortgage-backed securities and $10,354,000 in
municipal debt securities.  The purchased securities will increase the
portfolio yield and will also provide monthly principal cash flow.
 
 Each
quarter, management assesses whether there have been events or economic
circumstances to indicate that a security on which there is an unrealized loss
is other-than-temporarily impaired.  Management considers several
factors, including the amount and duration of the impairment; the intent and
ability of the Company to hold the security for a period sufficient for a
recovery in value; and known recent events specific to the issuer or its
industry.  In analyzing an issuer’s financial condition, management
considers whether the securities are issued by agencies of the federal
government, whether downgrades by bond rating agencies have occurred, and
industry analysts’ reports, among other things. As the Company currently has the
ability to hold its investment securities for the foreseeable future, no
declines are deemed to be other than temporary. The Company will continue to
evaluate its investment securities for possible other-than-temporary impairment,
which could result in a future non-cash charge to earnings.
  23




The
following table shows the amortized cost of the Company’s investment securities
by their stated maturity at September 30, 2010:





LessThan
                      OneYear
                    
                    
                    One Yearto
                      FiveYears
                    
                    
                    FiveYears to
                      TenYears
                    
                    
                    MoreThan
                      TenYears
                    
                    
                    Total(In
      Thousands)U.S.
      Treasury and government sponsored agencies
                    
                    $
                    -
                    
                    
                    $
                    28,551
                    
                    
                    $
                    21,367
                    
                    
                    $
                    10,730
                    
                    
                    $
                    60,648Mortgage-backed
      securities
                    
                    
                    -
                    
                    
                    
                    1,265
                    
                    
                    
                    18,771
                    
                    
                    
                    90,345
                    
                    
                    
                    110,381State
      and municipal securities
                    
                    
                    165
                    
                    
                    
                    6,539
                    
                    
                    
                    45,907
                    
                    
                    
                    15,824
                    
                    
                    
                    68,435Corporate
      debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,011
                    
                    
                    
                    -
                    
                    
                    
                    2,011$
                    165
                    
                    
                    $
                    36,355
                    
                    
                    $
                    88,056
                    
                    
                    $
                    116,899
                    
                    
                    $
                    241,475Taxable-equivalent
      Yield
                    
                    
                    6.96
                    %
                    
                    
                    2.80
                    %
                    
                    
                    4.85
                    %
                    
                    
                    4.16
                    %
                    
                    
                    4.21
                    %





All
securities held are traded in liquid markets. As of September 30, 2010, we owned
certain restricted securities of the Federal Home Loan Bank with an aggregate
book value and market value of $3,260,000 and certain securities of First
National Bankers Bank in which we invested $250,000.  We had no
investments in any one security, restricted or liquid, in excess of 10% of our
stockholders’ equity.





The
Bank’s investment portfolio consists of mortgage-backed pass-through securities,
tax-exempt securities and corporate bonds. The Bank does not invest in
collateralized debt obligations (“CDOs”).  All corporate bonds have a
Standard and Poor’s or Moody’s rating of A-1 or better when
purchased.  The September 30, 2010 total investment portfolio has a
combined average credit rating of AA.





The
carrying value of investment securities pledged to secure public funds on
deposit and for other purposes as required by law was $108,620,000 and
$117,377,000 as of September 30, 2010 and December 31, 2009,
respectively.





At
September 30, 2010, we had $2,213,000 in federal funds sold, compared with
$680,000 at December 31, 2009.





Loans





We had
total loans of $1,345,502,000 at September 30, 2010, an increase of
$138,418,000, or 11.47%, compared to $1,207,084,000 at December 31,
2009.  At September 30, 2010, 50% of our loans were in our Birmingham
offices, 24% in our Huntsville offices, 15% in our Montgomery offices, and 11%
in our Dothan office.


24





The
following table details our loans at September 30, 2010 and December 31,
2009:





September30,
                    2010
                  
                  
                  December 31,
                    2009(In
      Thousands)Commercial,
      financial and agricultural
                  
                  $
                  510,176
                  
                  
                  $
                  461,088Real
      estate - construction (1)
                  
                  
                  217,666
                  
                  
                  
                  224,178Real
      estate - mortgage:Owner
      occupied
                  
                  
                  259,224
                  
                  
                  
                  203,9831-4
      Family
                  
                  
                  192,145
                  
                  
                  
                  165,512Other
                  
                  
                  132,819
                  
                  
                  
                  119,749Total
      Real Estate Mortgage
                  
                  
                  584,188
                  
                  
                  
                  489,244Consumer
                  
                  
                  33,472
                  
                  
                  
                  32,574Total
      Loans
                  
                  
                  1,345,502
                  
                  
                  
                  1,207,084Allowance
      for loan losses
                  
                  
                  (16,903
                  )
                  
                  
                  (14,737
                  )Total
      Loans, Net
                  
                  $
                  1,328,599
                  
                  
                  $
                  1,192,347





(1)
            includes
      Owner Occupied real estate construction loans in the amount of $4,911 and
      $10,045 at September 30, 2010 and December 31, 2009,
      respectively





Asset Quality





We
establish and maintain the allowance for loan losses at levels management deems
adequate to absorb anticipated credit losses from identified and otherwise
inherent risks in the loan portfolio as of the balance sheet date. In assessing
the adequacy of the allowance for loan losses, management considers its
evaluation of the loan portfolio, past due loan experience, collateral values,
current economic conditions and other factors considered necessary to maintain
the allowance at an adequate level.  Management believes that the
allowance is adequate at September 30, 2010.





A loan is
considered impaired when it is probable, based on current information and
events, that the Company will be unable to collect all principal and interest
payments due in accordance with the contractual terms of the loan agreement.
Impaired loans are measured by the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market
price, or the fair value of the collateral if the loan is collateral-dependent.
The amount of impairment, if any, and subsequent changes in impairments are
included in the allowance for loan losses. Interest on accruing impaired loans
is recognized as long as such loans do not meet the criteria for non-accrual
status.  At September 30, 2010, we evaluated $53,841,000 in loans for
impairment, including all non-accrual loans. As a result of such evaluation,
$3,671,000 of the Company’s allowance for loan losses was specifically allocated
to $17,461,000 of these loans as impairment.  During the third quarter
of 2010, $3,004,000 in loans received specific allocations of the allowance for
loan losses for the first time.  At December 31, 2009, we evaluated
$21,524,000 of the Company’s loans for impairment, including all nonaccrual
loans.  As a result of such evaluation, $3,082,000 of the Company’s
allowance for loan losses was specifically allocated to $11,085,000 of these
loans as impairment.  The increase in impaired loans from December 31,
2009 to September 30, 2010 relates to management’s determination to increase the
number of loans evaluated on a loan-by-loan basis to encompass all loans
classified as substandard or below (see “Provision for Loan Losses” below),
coupled with prevailing economic conditions.





The
following table presents a summary of changes in the allowances for loan losses
for the three and nine months ended September 30, 2010 and 2009,
respectively.  The largest balance of our charge-offs during the three
and nine months ended September 30, 2010, $1,586,000 and $1,924,000,
respectively, were in real estate construction loans.  $1,515,000 of
the charge-offs in real estate construction loans during the three months ended
September 30, 2010 were of residential lot development loans.  Real
estate construction loans represent 16.17% of our loan portfolio at September
30, 2010.


25





Three Months Ended
                              September 30,
                            
                            
                            Nine Months Ended
                              September 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009(In Thousands)
                            
                            
                            (In Thousands)Allowance for Loan LossesBalance,
      beginning of period
                            
                            $
                            15,713
                            
                            
                            $
                            13,567
                            
                            
                            $
                            14,737
                            
                            
                            $
                            10,602Charge-offs:Commercial,
      financial and agricultural
                            
                            
                            -
                            
                            
                            
                            (1,089
                            )
                            
                            
                            (1,013
                            )
                            
                            
                            (1,897
                            )Real
      estate - construction
                            
                            
                            (820
                            )
                            
                            
                            (832
                            )
                            
                            
                            (2,744
                            )
                            
                            
                            (2,040
                            )Real
      estate - mortgage:Owner
      Occupied
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (548
                            )
                            
                            
                            -1-4
      family mortgage
                            
                            
                            (535
                            )
                            
                            
                            (172
                            )
                            
                            
                            (1,229
                            )
                            
                            
                            (212
                            )Other
                            
                            
                            -
                            
                            
                            
                            (9
                            )
                            
                            
                            -
                            
                            
                            
                            (9
                            )Total
      real estate mortgage
                            
                            
                            (535
                            )
                            
                            
                            (181
                            )
                            
                            
                            (1,777
                            )
                            
                            
                            (221
                            )Consumer
                            
                            
                            (5
                            )
                            
                            
                            (81
                            )
                            
                            
                            (79
                            )
                            
                            
                            (167
                            )Total
      charge-offs
                            
                            
                            (1,360
                            )
                            
                            
                            (2,183
                            )
                            
                            
                            (5,613
                            )
                            
                            
                            (4,325
                            )Recoveries:Commercial,
      financial and agricultural
                            
                            
                            3
                            
                            
                            
                            -
                            
                            
                            
                            97
                            
                            
                            
                            -Real
      estate - construction
                            
                            
                            6
                            
                            
                            
                            -
                            
                            
                            
                            50
                            
                            
                            
                            39Real
      estate - mortgage:Owner
      Occupied
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            12
                            
                            
                            
                            -1-4
      family mortgage
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3
                            
                            
                            
                            -Other
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      real estate mortgage
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            15
                            
                            
                            
                            -Consumer
                            
                            
                            4
                            
                            
                            
                            3
                            
                            
                            
                            5
                            
                            
                            
                            3Total
      recoveries
                            
                            
                            13
                            
                            
                            
                            3
                            
                            
                            
                            167
                            
                            
                            
                            42Net
      charge-offs
                            
                            
                            (1,347
                            )
                            
                            
                            (2,180
                            )
                            
                            
                            (5,446
                            )
                            
                            
                            (4,283
                            )Provision
      for loan losses charged to expense
                            
                            
                            2,537
                            
                            
                            
                            3,209
                            
                            
                            
                            7,612
                            
                            
                            
                            8,277Balance,
      end of period
                            
                            $
                            16,903
                            
                            
                            $
                            14,596
                            
                            
                            $
                            16,903
                            
                            
                            $
                            14,596As
      a percent of year to date average loans:Annualized
      net charge-offs
                            
                            
                            0.41
                            %
                            
                            
                            0.76
                            %
                            
                            
                            0.58
                            %
                            
                            
                            0.54
                            %Annualized
      provision for loan losses
                            
                            
                            0.77
                            %
                            
                            
                            1.12
                            %
                            
                            
                            0.81
                            %
                            
                            
                            1.04
                            %





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


26




September 30, 2010
                    
                    
                    December 31, 2009
                    
                    
                    September 30, 2009Amount
                    
                    
                    Percentageof
                      Loansin
                      Each
                      Categoryof
                      TotalLoans
                    
                    
                    Amount
                    
                    
                    Percentageof
                      Loansin
                      Each
                      Categoryof
                      TotalLoans
                    
                    
                    Amount
                    
                    
                    Percentageof
                      Loansin
                      Each
                      Categoryof
                      TotalLoans(InThousands)
                    
                    
                    
                    
                    
                    (InThousands)
                    
                    
                    
                    
                    
                    (InThousands)Commercial,
      financial and agricultural
                    
                    $
                    4,709
                    
                    
                    
                    37.92
                    %
                    
                    $
                    3,058
                    
                    
                    
                    38.20
                    %
                    
                    $
                    3,252
                    
                    
                    
                    38.15
                    %Real
      estate - construction
                    
                    
                    6,274
                    
                    
                    
                    16.18
                    %
                    
                    
                    6,295
                    
                    
                    
                    18.57
                    %
                    
                    
                    6,290
                    
                    
                    
                    19.74
                    %Real
      estate - mortgage
                    
                    
                    804
                    
                    
                    
                    43.42
                    %
                    
                    
                    1,242
                    
                    
                    
                    40.53
                    %
                    
                    
                    895
                    
                    
                    
                    39.51
                    %Consumer
                    
                    
                    79
                    
                    
                    
                    2.48
                    %
                    
                    
                    1
                    
                    
                    
                    2.70
                    %
                    
                    
                    2
                    
                    
                    
                    2.60
                    %Other
                    
                    
                    5,037
                    
                    
                    
                    -
                    
                    
                    
                    4,141
                    
                    
                    
                    -
                    
                    
                    
                    4,157
                    
                    
                    
                    -Total
                    
                    $
                    16,903
                    
                    
                    
                    100.00
                    %
                    
                    $
                    14,737
                    
                    
                    
                    100.00
                    %
                    
                    $
                    14,596
                    
                    
                    
                    100.00
                    %





Nonperforming Assets





It is our
policy to classify loans as non-accrual when they are past due in principal or
interest payments for more than 90 days or if we believe it is otherwise not
reasonable to expect collection of principal and interest due under the original
terms. Exceptions are allowed for 90-day past due loans when such loans are
secured by real estate or negotiable collateral and are in the process of
collection. Generally, payments received on non-accrual loans are applied
directly to principal.





Nonperforming
assets, comprising non-accrual loans, loans 90 days or more past due and still
accruing, other real estate owned (“OREO”), and troubled debt restructurings in
which the loan was not current when the terms were restructured, totaled
$22,585,000 at September 30, 2010, compared to $24,713,000 at December 31, 2009
and $29,321,000 at September 30, 2009. Non-accrual loans were $14,306,000 at
September 30, 2010, an increase of $2,385,000 from non-accrual loans of
$11,921,000 at December 31, 2009 and an increase of $512,000 from non-accrual
loans of $13,794,000 at September 30, 2009.  Loans 90 days past due
and still accruing totaled $109,000 at September 30, 2010, compared to $267,000
at December 31, 2009 and $1,324,000 at September 30, 2009.





A summary
of nonperforming assets as of September 30, 2010, December 31, 2009 and
September 30, 2009 follows:





September30,
                          2010
                        
                        
                        December31,
                          2009
                        
                        
                        September30,
                          2009(In
      Thousands)Nonaccrual
      loans
                        
                        $
                        14,306
                        
                        
                        $
                        11,921
                        
                        
                        $
                        13,794Past
      due 90 days and still accruing
                        
                        
                        109
                        
                        
                        
                        267
                        
                        
                        
                        1,324All
      other real estate owned
                        
                        
                        8,170
                        
                        
                        
                        12,525
                        
                        
                        
                        13,453Troubled
      debt restructures
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        750Total
      non-performing assets
                        
                        $
                        22,585
                        
                        
                        $
                        24,713
                        
                        
                        $
                        29,321





At
September 30, 2010, we had one troubled debt restructure that was current at the
time it was restructured, and is performing under the terms of the restructured
agreement at this time.  This loan has a carrying value of
$660,000.


27





The
increase in nonaccrual loans from December 31, 2009 to September 30, 2010 was
primarily the result of additions to nonaccrual status in commercial loans and
acquisition, development and construction loans.  The decrease in OREO
from December 31, 2009 to September 30, 2010 was the result of sales exceeding
amounts transferred in, and, to a lesser extent, write-downs in the value of
OREO.





At
September 30, 2010, total nonperforming assets included finished and unfinished
homes of $4,421,000, residential lots of $9,389,000, raw land of $4,189,000 and
commercial buildings of $1,386,000. Our OREO procedures currently determine
disposition value, the value used to place the property into OREO, based on the
most recent fair value appraisal of the property that we have at the time, less
estimated costs to sell the property.





Deposits





Total
deposits increased $169,202,000, or 11.81%, to $1,601,557,000 at September 30,
2010 compared to $1,432,355,000 at December 31, 2009.  This increase
in deposits is a result of organic growth within our Montgomery and Dothan,
Alabama markets.  We anticipate long-term sustainable growth in
deposits through continued development of market share in our less mature
markets and through organic growth in all of our markets.





For
amounts and rates of our deposits by category, see the table “Average
Consolidated Balance Sheets and Net Interest Analysis on a Fully Taxable
Equivalent Basis” under the subheading “Net Interest Income”





Other Borrowings





On March
19, 2008, we borrowed $20.0 million from the Federal Home Loan Bank of Atlanta,
of which $10.0 million bears interest at 2.995% per annum and is payable on
March 19, 2012, and $10.0 million bears interest at 3.275% per annum and is
payable on March 19, 2013.  As discussed in Note 9 to the Consolidated
Financial Statements, we borrowed $15.5 million through the issuance of trust
preferred securities and the related debenture on September 2,
2008.  Both financial instruments bear an identical annual rate of
interest of 8.50% and pay interest on March 1, June 1, September 1 and December
1 of each year.  The current book value of this borrowing is $15.3
million as a result of amortization of the discount associated with 75,000
warrants issued to the holders of the Preferred Securities.  As
discussed in Note 10 to the Consolidated Financial Statements, we borrowed $15.0
million through the issuance of trust preferred securities and the related
debenture on March 15, 2010.  Both financial instruments bear an
identical rate of interest of 6.00% and pay interest on March 15, June 15,
September 15 and December 15 of each year.  As discussed in Note 11 to
the Consolidated Financial Statements, on June 23, 2009, the Bank issued a $5.0
million subordinated note due June 1, 2016 in a private
placement.  The note bears interest at an annual rate of 8.25%,
payable on March 1, June 1, September 1 and December 1 of each
year.





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.


28





The
retention of existing deposits and attraction of new deposit sources through new
and existing customers are critical to our liquidity position. If our liquidity
were to decline due to a run-off in deposits, we have procedures that provide
for certain actions under varying liquidity conditions. These actions include
borrowing from existing correspondent banks, selling or participating loans, and
curtailing loan commitments and funding.  At September 30, 2010,
liquid assets, which are represented by cash and due from banks, federal funds
sold and unpledged available-for-sale securities, totaled $351
million.  Additionally, the Bank had additional borrowing availability
of approximately $328 million in unused federal funds lines of credit with
regional banks, subject to certain restrictions and collateral requirements, and
had additional borrowing availability of $3 million at the Federal Home Loan
Bank of Atlanta to meet short-term funding needs. We believe these sources of
funding are adequate to meet immediate anticipated funding needs, but we will
need additional capital to maintain our current growth. Our management meets on
a quarterly basis to review sources and uses of funding to determine the
appropriate strategy to ensure an appropriate level of liquidity. At the current
time, our long-term liquidity needs primarily relate to funds required to
support loan originations and commitments and deposit withdrawals. Our regular
sources of funding are from the growth of our deposit base, repayment of
principal and interest on loans, the sale of loans and the renewal of time
deposits.  In addition, we have issued debt as described above under
“Other Borrowings”.





We are
subject to general FDIC guidelines that require a minimum level of liquidity. We
believe our liquidity ratios meet or exceed these guidelines. We are not
currently aware of any trends or demands that are reasonably likely to result in
liquidity materially increasing or decreasing.





The
following table reflects the contractual maturities of our term liabilities as
of September 30, 2010. The amounts shown do not reflect any early withdrawal or
prepayment assumptions.





Payments due by PeriodTotal
                    
                    
                    1 year or less
                    
                    
                    Over 1 - 3
                      years
                    
                    
                    Over 3 - 5
                      years
                    
                    
                    Over 5 years(In
      Thousands)Contractual
      Obligations (1)Deposits
      without a stated maturity
                    
                    $
                    1,336,670
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Certificates
      of deposit (2)
                    
                    
                    264,887
                    
                    
                    
                    190,621
                    
                    
                    
                    58,067
                    
                    
                    
                    16,199
                    
                    
                    
                    -FHLB
      borrowings
                    
                    
                    20,000
                    
                    
                    
                    -
                    
                    
                    
                    20,000
                    
                    
                    
                    -
                    
                    
                    
                    -Subordinated
      debentures
                    
                    
                    30,384
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    30,384Subordinated
      note payable
                    
                    
                    4,933
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,933Operating
      lease commitments
                    
                    
                    17,118
                    
                    
                    
                    1,804
                    
                    
                    
                    3,660
                    
                    
                    
                    3,781
                    
                    
                    
                    7,873Total
                    
                    $
                    1,673,992
                    
                    
                    $
                    192,425
                    
                    
                    $
                    81,727
                    
                    
                    $
                    19,980
                    
                    
                    $
                    43,190





(1)  Excludes
interest


(2)  Certificates
of deposit give customers the right to early withdrawal.  Early
withdrawals may be subject to penalties.


The
penalty amount depends on the remaining time to maturity at the time of early
withdrawal.





Capital Adequacy





In the
first quarter of 2010, we formed ServisFirst Capital Trust II, which issued
15,000 shares of its 6.0% Mandatory Convertible Trust Preferred Securities (the
“Preferred Securities”) for $15,000,000 on March 15, 2010.  The Trust
invested all of the proceeds from the sale of the Trust Securities in the
Company’s 6.0% Junior Subordinated Mandatory Convertible Deferrable Interest
Debentures due March 15, 2040 in the principal amount of $15,050,000 (the
“Subordinated Debentures”).  The Preferred Securities were offered and
sold to accredited investors in a private placement.  The Federal
Reserve Board has deemed these securities to qualify as Tier 1 capital of the
Company up to 25% of Tier 1 capital elements.  See Note 10 to the
consolidated financial statements for further discussion of the issuance and
sale of the Preferred Securities.


29





As of
September 30, 2010, our most recent notification from the FDIC categorized us as
well-capitalized under the regulatory framework for prompt corrective action. To
remain categorized as well-capitalized, we must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the
table below. We believe that we are well-capitalized under the prompt corrective
action provisions as of September 30, 2010.





The
following table sets forth (i) the capital ratios required by the FDIC and the
Alabama Banking Department’s leverage ratio requirement and (ii) our actual
ratios of capital to total regulatory or risk-weighted assets, as of September
30, 2010, December 31, 2009, and September 30, 2009:





Actual
                    
                    
                    For Capital Adequacy
                      Purposes
                    
                    
                    To Be Well Capitalized
                      Under PromptCorrective
                      ActionProvisionsAmount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio(InThousands)
                    
                    
                    
                    
                    
                    (InThousands)
                    
                    
                    
                    
                    
                    (InThousands)As
      of September 30, 2010:Total
      Capital to Risk-Weighted Assets:Consolidated
                    
                    $
                    161,277
                    
                    
                    
                    11.75
                    %
                    
                    $
                    109,791
                    
                    
                    
                    8.00
                    %
                    
                    $
                    137,239
                    
                    
                    
                    10.00
                    %ServisFirst
      Bank
                    
                    
                    161,082
                    
                    
                    
                    11.74
                    %
                    
                    
                    109,736
                    
                    
                    
                    8.00
                    %
                    
                    
                    137,170
                    
                    
                    
                    10.00
                    %Tier
      1 Capital to Risk-Weighted Assets:Consolidated
                    
                    
                    139,441
                    
                    
                    
                    10.16
                    %
                    
                    
                    54,895
                    
                    
                    
                    4.00
                    %
                    
                    
                    82,343
                    
                    
                    
                    6.00
                    %ServisFirst
      Bank
                    
                    
                    139,246
                    
                    
                    
                    10.15
                    %
                    
                    
                    54,868
                    
                    
                    
                    4.00
                    %
                    
                    
                    82,302
                    
                    
                    
                    6.00
                    %Tier
      1 Capital to Average Assets:Consolidated
                    
                    
                    139,441
                    
                    
                    
                    8.06
                    %
                    
                    
                    54,895
                    
                    
                    
                    4.00
                    %
                    
                    
                    68,619
                    
                    
                    
                    5.00
                    %ServisFirst
      Bank
                    
                    
                    139,246
                    
                    
                    
                    8.05
                    %
                    
                    
                    54,868
                    
                    
                    
                    4.00
                    %
                    
                    
                    68,585
                    
                    
                    
                    5.00
                    %As
      of December 31, 2009:Total
      Capital to Risk-Weighted Assets:Consolidated
                    
                    $
                    130,708
                    
                    
                    
                    10.47
                    %
                    
                    $
                    99,903
                    
                    
                    
                    8.00
                    %
                    
                    $
                    124,879
                    
                    
                    
                    10.00
                    %ServisFirst
      Bank
                    
                    
                    130,252
                    
                    
                    
                    10.44
                    %
                    
                    
                    99,851
                    
                    
                    
                    8.00
                    %
                    
                    
                    124,814
                    
                    
                    
                    10.00
                    %Tier
      1 Capital to Risk-Weighted Assets:Consolidated
                    
                    
                    111,049
                    
                    
                    
                    8.89
                    %
                    
                    
                    49,952
                    
                    
                    
                    4.00
                    %
                    
                    
                    74,927
                    
                    
                    
                    6.00
                    %ServisFirst
      Bank
                    
                    
                    110,593
                    
                    
                    
                    8.86
                    %
                    
                    
                    49,926
                    
                    
                    
                    4.00
                    %
                    
                    
                    74,888
                    
                    
                    
                    6.00
                    %Tier
      1 Capital to Average Assets:Consolidated
                    
                    
                    111,049
                    
                    
                    
                    6.97
                    %
                    
                    
                    63,767
                    
                    
                    
                    4.00
                    %
                    
                    
                    79,709
                    
                    
                    
                    5.00
                    %ServisFirst
      Bank
                    
                    
                    110,593
                    
                    
                    
                    6.94
                    %
                    
                    
                    63,737
                    
                    
                    
                    4.00
                    %
                    
                    
                    79,672
                    
                    
                    
                    5.00
                    %As
      of September 30, 2009:Total
      Capital to Risk-Weighted Assets:Consolidated
                    
                    $
                    128,371
                    
                    
                    
                    10.99
                    %
                    
                    $
                    93,477
                    
                    
                    
                    8.00
                    %
                    
                    $
                    116,846
                    
                    
                    
                    10.00
                    %ServisFirst
      Bank
                    
                    
                    127,649
                    
                    
                    
                    10.93
                    %
                    
                    
                    93,421
                    
                    
                    
                    8.00
                    %
                    
                    
                    116,777
                    
                    
                    
                    10.00
                    %Tier
      1 Capital to Risk-Weighted Assets:Consolidated
                    
                    
                    108,857
                    
                    
                    
                    9.32
                    %
                    
                    
                    46,738
                    
                    
                    
                    4.00
                    %
                    
                    
                    70,108
                    
                    
                    
                    6.00
                    %ServisFirst
      Bank
                    
                    
                    108,135
                    
                    
                    
                    9.26
                    %
                    
                    
                    46,711
                    
                    
                    
                    4.00
                    %
                    
                    
                    70,066
                    
                    
                    
                    6.00
                    %Tier
      1 Capital to Average Assets:Consolidated
                    
                    
                    108,857
                    
                    
                    
                    7.64
                    %
                    
                    
                    57,017
                    
                    
                    
                    4.00
                    %
                    
                    
                    71,272
                    
                    
                    
                    5.00
                    %ServisFirst
      Bank
                    
                    
                    108,135
                    
                    
                    
                    7.59
                    %
                    
                    
                    56,987
                    
                    
                    
                    4.00
                    %
                    
                    
                    71,234
                    
                    
                    
                    5.00
                    %


30





Off-Balance
Sheet Arrangements





In the
normal course of business we are a party to financial instruments with
off-balance sheet risk to meet the financing needs of our customers. These
financial instruments include commitments to extend credit beyond current
fundings, credit card arrangements, standby letters of credit, and financial
guarantees. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in our balance sheet. The
contract or notional amounts of those instruments reflect the extent of
involvement we have in those particular financial instruments.





Our
exposure to credit loss in the event of non-performance by the other party to
such financial instruments is represented by the contractual or notional amount
of those instruments. We use the same credit policies in making commitments and
conditional obligations as we do for on-balance sheet instruments.





Financial
instruments whose contract amounts represent credit risk at September 30, 2010
are as follows:





(In Thousands)Commitments
      to extend credit
                  
                  $
                  513,817Credit
      card arrangements
                  
                  
                  23,621Standby
      letters of credit
                  
                  
                  39,858$
                  577,296





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 applicable
loan agreement. Such commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. We
evaluate each customer’s creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by us upon extension of credit is based
on our management’s credit evaluation. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.





Standby
letters of credit are conditional commitments issued by us to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. All letters of
credit are due within one year or less of the original commitment date. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.


31





Results
of Operations





Summary of Net Income





Net
income for the three months ended September 30, 2010 was $4,799,000, compared to
net income of $1,608,000 for the three months ended September 30,
2009.  Net income for the nine months ended September 30, 2010 was
$12,833,000, compared to net income of $3,887,000 for the nine months ended
September 30, 2009.  The increase in net income was primarily
attributable to a higher net interest margin and an improved efficiency
ratio.  Net interest income for the three months ended September 30,
2010 increased by 39.70% to $15,987,000, compared to $11,444,000 for the same
period in 2009.  Net interest income for the nine months ended
September 30, 2010 increased by 49.08% to $46,201,000, compared to $30,990,000
for the same period in 2009.  Operating expenses for the three months
ended September 30, 2010 increased by 7.10% to $7,467,000, compared to
$6,972,000 in 2009, and for the nine months ended September 30, 2010 increased
by 10.71% to $22,460,000, compared to $20,287,000 in 2009.  The
provision for loan losses decreased by $672,000, to $2,537,000, for the three
months ended September 30, 2010 compared to the same period in 2009, and
decreased by $665,000, to $7,612,000, for the nine months ended September 30,
2010 compared to the same period in 2009.  Noninterest income
increased by $381,000, to $1,348,000, for the three months ended September 30,
2010 compared to the same period in 2009, and increased by $315,000, to
$3,484,000, for the nine months ended September 30, 2010 compared to the same
period in 2009.  Basic and diluted net income per common share were
$.87 and $.77, respectively, for the three months ended September 30, 2010,
compared to $.29 and $.28, respectively, for the same period in
2009.  Basic and diluted net income per common share were $2.33 and
$2.11, respectively, for the nine months ended September 30, 2010, compared to
$.71 and $.67, respectively, for the same period in 2009.  Return on
average assets for the three and nine months ended September 30, 2010 was 1.10%
and 1.06%, respectively, compared to 0.45% and 0.60% in 2009, and return on
average stockholders’ equity for the three and nine months ended September 30,
2010 was 16.86% and 16.12%, respectively, compared to 6.75% and 8.60% in
2009.





Net Interest Income





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





Taxable-equivalent
net interest income increased $4,458,000, or 37.88%, to $16,227,000 for the
three months ended September 30, 2010 compared to $11,769,000 in 2009, and
increased $15,522,000, or 49.38%, to $46,958,000 for the nine months ended
September 30, 2010 compared to $31,436,000 in 2009.  These increases
were attributable to growth in interest-earning assets, higher yields on loans,
and lower rates paid on interest-bearing deposits.  The
taxable-equivalent yield on interest-earning assets increased to 4.77% for the
three months ended September 30, 2010 from 4.68% for the same period in 2009,
and increased to 4.97% for the nine months ended September 30, 2010 from 4.78%
for the same period in 2009.  The yield on loans for the three months
ended September 30, 2010 was 5.35% compared to 5.10% for the same period in
2009, and was 5.35% compared to 5.09% for the nine months ended September 30,
2010 and 2009, respectively.  Loan fees included in the yield
calculation increased to $189,000 for the three months ended September 30, 2010
from $145,000 for the same period in 2009, and increased to $587,000 for the
nine months ended September 30, 2010 from $454,000 for the same period in
2009.  The cost of total interest-bearing liabilities decreased to
1.13% for the three months ended September 30, 2010 from 1.56% for the same
period in 2009, and to 1.15% for the nine months ended September 30, 2010 from
1.73% for the same period in 2009.  The higher interest rates paid on
the subordinated debentures sold in June 2009, 8.25%, and on the junior
subordinated mandatory convertible debentures sold in March 2010, 6.00%, limited
the decrease in the average rate paid on interest-bearing
liabilities.


32





The
following tables show, for the three and nine months ended September 30, 2010 and 2009, the
average balances of each principal category of our assets, liabilities and
stockholders’ equity, and an analysis of net interest revenue.  The
accompanying tables reflect
changes in our net interest margin as a result of changes in the volume and rate
of our interest-earning assets and interest-bearing liabilities for the same
periods.  Changes as a result of mix or the number of days in the
periods have been allocated to the volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in
each.The tables are presented on a taxable-equivalent basis
if applicable:





Average
Balance Sheets and Net Interest Analysis


On
a Fully Taxable-Equivalent Basis


For
the Three Months Ended September 30,


(dollars
in thousands)





2010
                            
                            
                            2009Average
                              Balance
                            
                            
                            Interest
                              Earned /
                              Paid
                            
                            
                            Average
                              Yield /
                              Rate
                            
                            
                            Average
                              Balance
                            
                            
                            Interest
                              Earned /
                              Paid
                            
                            
                            Average
                              Yield /
                              RateAssets:Interest-earning
      assets:Loans,
      net of unearned income (1)
                            
                            $
                            1,309,007
                            
                            
                            $
                            17,644
                            
                            
                            
                            5.35
                            %
                            
                            $
                            1,133,506
                            
                            
                            $
                            14,560
                            
                            
                            
                            5.10
                            %Mortgage
      loans held for sale
                            
                            
                            8,485
                            
                            
                            
                            72
                            
                            
                            
                            3.37
                            
                            
                            
                            3,329
                            
                            
                            
                            38
                            
                            
                            
                            4.53Investment
      securities:Taxable
                            
                            
                            175,493
                            
                            
                            
                            1,575
                            
                            
                            
                            3.56
                            
                            
                            
                            77,267
                            
                            
                            
                            1,154
                            
                            
                            
                            5.93Tax-exempt
      (2)
                            
                            
                            59,144
                            
                            
                            
                            821
                            
                            
                            
                            5.51
                            
                            
                            
                            41,835
                            
                            
                            
                            579
                            
                            
                            
                            5.49Total
      investment securities (3)
                            
                            
                            234,637
                            
                            
                            
                            2,396
                            
                            
                            
                            4.05
                            
                            
                            
                            119,102
                            
                            
                            
                            1,733
                            
                            
                            
                            5.77Federal
      funds sold
                            
                            
                            60,380
                            
                            
                            
                            31
                            
                            
                            
                            0.20
                            
                            
                            
                            126,321
                            
                            
                            
                            77
                            
                            
                            
                            0.24Restricted
      equity securities
                            
                            
                            4,024
                            
                            
                            
                            18
                            
                            
                            
                            1.77
                            
                            
                            
                            3,241
                            
                            
                            
                            9
                            
                            
                            
                            1.10Interest-bearing
      balances with banks
                            
                            
                            64,409
                            
                            
                            
                            38
                            
                            
                            
                            0.23
                            
                            
                            
                            5,397
                            
                            
                            
                            -
                            
                            
                            
                            0.00Total
      interest-earning assets
                            
                            $
                            1,680,942
                            
                            
                            $
                            20,199
                            
                            
                            
                            4.77
                            %
                            
                            $
                            1,390,896
                            
                            
                            $
                            16,417
                            
                            
                            
                            4.68
                            %Noninterest-earning
      assets:Cash
      and due from banks
                            
                            
                            24,652
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            19,357Net
      fixed assets and equipment
                            
                            
                            4,782
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            4,701Allowance
      for loan losses, accruedinterest
      and other assets
                            
                            
                            20,278
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            10,478Total
      assets
                            
                            $
                            1,730,654
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            1,425,432Liabilities
      and stockholders' equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                            
                            $
                            266,553
                            
                            
                            $
                            296
                            
                            
                            
                            0.44
                            %
                            
                            $
                            165,781
                            
                            
                            $
                            369
                            
                            
                            
                            0.88
                            %Savings
      deposits
                            
                            
                            3,251
                            
                            
                            
                            4
                            
                            
                            
                            0.49
                            
                            
                            
                            991
                            
                            
                            
                            1
                            
                            
                            
                            0.40Money
      market accounts
                            
                            
                            814,769
                            
                            
                            
                            1,658
                            
                            
                            
                            0.81
                            
                            
                            
                            741,626
                            
                            
                            
                            2,202
                            
                            
                            
                            1.18Time
      deposits
                            
                            
                            257,293
                            
                            
                            
                            1,155
                            
                            
                            
                            1.78
                            
                            
                            
                            232,474
                            
                            
                            
                            1,459
                            
                            
                            
                            2.49Fed
      funds purchased
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            0.00
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            0.00Other
      borrowings
                            
                            
                            55,298
                            
                            
                            
                            859
                            
                            
                            
                            6.16
                            
                            
                            
                            40,093
                            
                            
                            
                            617
                            
                            
                            
                            6.11Total
      interest-bearing liabilities
                            
                            $
                            1,397,164
                            
                            
                            $
                            3,972
                            
                            
                            
                            1.13
                            
                            
                            $
                            1,180,965
                            
                            
                            $
                            4,648
                            
                            
                            
                            1.56Noninterest-bearing
      liabilities:Noninterest-bearing
      demand deposits
                            
                            
                            217,086
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            146,164Other
      liabilities
                            
                            
                            3,502
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3,725Stockholders'
      equity
                            
                            
                            106,919
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            92,959Unrealized
      gains onsecurities
      and derivatives
                            
                            
                            5,983
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,619Total
      liabilities andstockholders'
      equity
                            
                            $
                            1,730,654
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            1,425,432Net
      interest spread
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3.64
                            %
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3.12
                            %Net
      interest margin
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3.83
                            %
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3.36
                            %





(1)
            Non-accrual
      loans are included in average loan balances in all
      periods.  Loan fees of $189,000 and $145,000 are included in
      interest income in 2010 and 2009,
respectively.


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


(3)
            Unrealized
      gains of $9,204,000 and $2,453,000 are excluded from the yield calculation
      in 2010 and 2009, respectively.


33





Three Months Ended September 30,2010 Compared to 2009 Increase
                      (Decrease) in Interest Income and Expense
                      Due to Changes in:Volume
                    
                    
                    Rate
                    
                    
                    Total(In
      Thousands)Interest-earning
      assets:Loans,
      net of unearned income
                    
                    $
                    2,339
                    
                    
                    $
                    745
                    
                    
                    $
                    3,084Mortgages
      held for sale
                    
                    
                    46
                    
                    
                    
                    (12
                    )
                    
                    
                    34Investment
      securities:Securities
      - taxable
                    
                    
                    1,022
                    
                    
                    
                    (601
                    )
                    
                    
                    421Securities
      - tax-exempt
                    
                    
                    240
                    
                    
                    
                    2
                    
                    
                    
                    242Federal
      funds sold
                    
                    
                    (35
                    )
                    
                    
                    (11
                    )
                    
                    
                    (46
                    )Restricted
      equity securities
                    
                    
                    3
                    
                    
                    
                    6
                    
                    
                    
                    9Interest-bearing
      balances with banks
                    
                    
                    -
                    
                    
                    
                    38
                    
                    
                    
                    38Total
      interest-earning assets
                    
                    $
                    3,615
                    
                    
                    $
                    167
                    
                    
                    $
                    3,782Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                    
                    $
                    163
                    
                    
                    $
                    (236
                    )
                    
                    $
                    (73
                    )Savings
                    
                    
                    3
                    
                    
                    
                    -
                    
                    
                    
                    3Money
      market accounts
                    
                    
                    201
                    
                    
                    
                    (745
                    )
                    
                    
                    (544
                    )Time
      deposits
                    
                    
                    143
                    
                    
                    
                    (447
                    )
                    
                    
                    (304
                    )Fed
      funds purchased
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      borrowed funds
                    
                    
                    236
                    
                    
                    
                    6
                    
                    
                    
                    242Total
      interest-bearing liabilities
                    
                    $
                    746
                    
                    
                    $
                    (1,422
                    )
                    
                    $
                    (676
                    )Increases
      in net interest income
                    
                    $
                    2,869
                    
                    
                    $
                    1,589
                    
                    
                    $
                    4,458




34


Average
Balance Sheets and Net Interest Analysis


On
a Fully Taxable-Equivalent Basis


For
the Nine Months Ended September 30,


(dollars
in thousands)





2010
                                        
                                        
                                        2009Average
                                          Balance
                                        
                                        
                                        Interest
                                          Earned /
                                          Paid
                                        
                                        
                                        Average
                                          Yield /
                                          Rate
                                        
                                        
                                        Average
                                          Balance
                                        
                                        
                                        Interest
                                          Earned /
                                          Paid
                                        
                                        
                                        Average
                                          Yield /
                                          RateAssets:Interest-earning
      assets:Loans,
      net of unearned income (1)
                                        
                                        $
                                        1,261,839
                                        
                                        
                                        $
                                        50,521
                                        
                                        
                                        
                                        5.35
                                        %
                                        
                                        $
                                        1,064,027
                                        
                                        
                                        $
                                        40,477
                                        
                                        
                                        
                                        5.09
                                        %Mortgage
      loans held for sale
                                        
                                        
                                        5,386
                                        
                                        
                                        
                                        148
                                        
                                        
                                        
                                        3.67
                                        
                                        
                                        
                                        6,459
                                        
                                        
                                        
                                        213
                                        
                                        
                                        
                                        4.41Investment
      securities:Taxable
                                        
                                        
                                        178,975
                                        
                                        
                                        
                                        4,997
                                        
                                        
                                        
                                        3.73
                                        
                                        
                                        
                                        74,058
                                        
                                        
                                        
                                        3,117
                                        
                                        
                                        
                                        5.63Tax-exempt
      (2)
                                        
                                        
                                        57,129
                                        
                                        
                                        
                                        2,407
                                        
                                        
                                        
                                        5.63
                                        
                                        
                                        
                                        35,307
                                        
                                        
                                        
                                        1,468
                                        
                                        
                                        
                                        5.56Total
      investment securities (3)
                                        
                                        
                                        236,104
                                        
                                        
                                        
                                        7,404
                                        
                                        
                                        
                                        4.19
                                        
                                        
                                        
                                        109,365
                                        
                                        
                                        
                                        4,585
                                        
                                        
                                        
                                        5.61Federal
      funds sold
                                        
                                        
                                        30,891
                                        
                                        
                                        
                                        49
                                        
                                        
                                        
                                        0.21
                                        
                                        
                                        
                                        79,145
                                        
                                        
                                        
                                        148
                                        
                                        
                                        
                                        0.25Restricted
      equity securities
                                        
                                        
                                        3,933
                                        
                                        
                                        
                                        43
                                        
                                        
                                        
                                        1.46
                                        
                                        
                                        
                                        3,053
                                        
                                        
                                        
                                        10
                                        
                                        
                                        
                                        0.44Interest-bearing
      balances with banks
                                        
                                        
                                        26,900
                                        
                                        
                                        
                                        49
                                        
                                        
                                        
                                        0.24
                                        
                                        
                                        
                                        9,109
                                        
                                        
                                        
                                        20
                                        
                                        
                                        
                                        0.29Total
      interest-earning assets
                                        
                                        $
                                        1,565,053
                                        
                                        
                                        $
                                        58,214
                                        
                                        
                                        
                                        4.97
                                        %
                                        
                                        $
                                        1,271,158
                                        
                                        
                                        $
                                        45,453
                                        
                                        
                                        
                                        4.78
                                        %Noninterest-earning
      assets:Cash
      and due from banks
                                        
                                        
                                        24,080
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        18,359Net
      fixed assets and equipment
                                        
                                        
                                        5,013
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        4,224Allowance
      for loan losses, accruedinterest
      and other assets
                                        
                                        
                                        21,889
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        9,381Total
      assets
                                        
                                        $
                                        1,616,035
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        1,303,122Liabilities
      and stockholders' equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                                        
                                        $
                                        244,244
                                        
                                        
                                        $
                                        917
                                        
                                        
                                        
                                        0.50
                                        %
                                        
                                        $
                                        153,727
                                        
                                        
                                        $
                                        1,248
                                        
                                        
                                        
                                        1.09
                                        %Savings
      deposits
                                        
                                        
                                        2,514
                                        
                                        
                                        
                                        10
                                        
                                        
                                        
                                        0.53
                                        
                                        
                                        
                                        909
                                        
                                        
                                        
                                        4
                                        
                                        
                                        
                                        0.59Money
      market accounts
                                        
                                        
                                        753,443
                                        
                                        
                                        
                                        4,337
                                        
                                        
                                        
                                        0.77
                                        
                                        
                                        
                                        682,205
                                        
                                        
                                        
                                        6,943
                                        
                                        
                                        
                                        1.36Time
      deposits
                                        
                                        
                                        249,757
                                        
                                        
                                        
                                        3,531
                                        
                                        
                                        
                                        1.89
                                        
                                        
                                        
                                        206,830
                                        
                                        
                                        
                                        4,196
                                        
                                        
                                        
                                        2.71Fed
      funds purchased
                                        
                                        
                                        6,552
                                        
                                        
                                        
                                        31
                                        
                                        
                                        
                                        0.63
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        0.00Other
      borrowings
                                        
                                        
                                        51,125
                                        
                                        
                                        
                                        2,430
                                        
                                        
                                        
                                        6.35
                                        
                                        
                                        
                                        36,887
                                        
                                        
                                        
                                        1,626
                                        
                                        
                                        
                                        5.89Total
      interest-bearing liabilities
                                        
                                        $
                                        1,307,635
                                        
                                        
                                        $
                                        11,256
                                        
                                        
                                        
                                        1.15
                                        
                                        
                                        $
                                        1,080,558
                                        
                                        
                                        $
                                        14,017
                                        
                                        
                                        
                                        1.73Noninterest-bearing
      liabilities:Noninterest-bearing
      demanddeposits
                                        
                                        
                                        198,028
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        127,564Other
      liabilites
                                        
                                        
                                        3,957
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3,782Stockholders'
      equity
                                        
                                        
                                        102,745
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        89,839Unrealized
      gains onsecurities
      and derivatives
                                        
                                        
                                        3,670
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        1,379Total
      liabilities andstockholders'
      equity
                                        
                                        $
                                        1,616,035
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        1,303,122Net
      interest spread
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3.82
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3.05
                                        %Net
      interest margin
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        4.01
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        3.31
                                        %





(1)
            Non-accrual
      loans are included in average loan balances in all
      periods.  Loan fees of $587,000 and $454,000 are included in
      interest income in 2010 and 2009,
respectively.


(2)
            Interest
      income and yields are presented on a fully taxable equivalent basis using
      a tax rate of 34%.


(3)
            Unrealized
      gains of $5,609,000 and $1,992,000 are excluded from the yield calculation
      in 2010 and 2009, respectively.


35





Nine Months Ended September 30,2010 Compared to 2009 Increase
                    (Decrease) in Interest Income and Expense
                    Due to Changes in:Volume
                  
                  
                  Rate
                  
                  
                  Total(In
      Thousands)Interest-earning
      assets:Loans,
      net of unearned income
                  
                  $
                  7,833
                  
                  
                  $
                  2,211
                  
                  
                  $
                  10,044Mortgages
      held for sale
                  
                  
                  (32
                  )
                  
                  
                  (33
                  )
                  
                  
                  (65
                  )Investment
      securities:Securities
      - taxable
                  
                  
                  3,214
                  
                  
                  
                  (1,334
                  )
                  
                  
                  1,880Securities
      - tax-exempt
                  
                  
                  919
                  
                  
                  
                  20
                  
                  
                  
                  939Federal
      funds sold
                  
                  
                  (79
                  )
                  
                  
                  (19
                  )
                  
                  
                  (98
                  )Restricted
      equity securities
                  
                  
                  4
                  
                  
                  
                  29
                  
                  
                  
                  33Interest-bearing
      balances with banks
                  
                  
                  32
                  
                  
                  
                  (4
                  )
                  
                  
                  28Total
      interest-earning assets
                  
                  $
                  11,891
                  
                  
                  $
                  870
                  
                  
                  $
                  12,761Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                  
                  
                  529
                  
                  
                  
                  (860
                  )
                  
                  
                  (331
                  )Savings
                  
                  
                  6
                  
                  
                  
                  -
                  
                  
                  
                  6Money
      market accounts
                  
                  
                  664
                  
                  
                  
                  (3,270
                  )
                  
                  
                  (2,606
                  )Time
      deposits
                  
                  
                  764
                  
                  
                  
                  (1,429
                  )
                  
                  
                  (665
                  )Fed
      funds purchased
                  
                  
                  15
                  
                  
                  
                  16
                  
                  
                  
                  31Other
      borrowed funds
                  
                  
                  669
                  
                  
                  
                  135
                  
                  
                  
                  804Total
      interest-bearing liabilities
                  
                  $
                  2,647
                  
                  
                  $
                  (5,408
                  )
                  
                  $
                  (2,761
                  )Increases
      in net interest income
                  
                  $
                  9,244
                  
                  
                  $
                  6,278
                  
                  
                  $
                  15,522





Provision for Loan Losses





The
provision expense for loan losses represents the amount determined by management
to be necessary to maintain the allowance for loan losses at a level capable of
absorbing inherent losses in the loan portfolio. Our management reviews the
adequacy of the allowance for loan losses on a quarterly basis. The allowance
for loan losses calculation is segregated into various segments that include
classified loans, loans with specific allocations and pass rated loans. A pass
rated loan is generally characterized by a very low to average risk of default
and is a loan in which management perceives there is a minimal risk of loss.
Loans are rated using a nine-point risk grade scale, with loan officers having
the primary responsibility for assigning risk grades and for the timely
reporting of changes in the risk grades. These processes, the assigned risk
grades, and the criticized and classified loans in the portfolio are segregated
into the following regulatory classifications: Special Mention, Substandard,
Doubtful or Loss. Impaired loans are reviewed specifically and separately to
determine the appropriate reserve allocation. Our management compares the
investment in an impaired loan with the present value of expected future cash
flow discounted at the loan’s effective interest rate, the loan’s observable
market price or the fair value of the collateral, if the loan is
collateral-dependent, to determine the specific reserve allowance. Reserve
percentages assigned to non-rated loans are based on historical charge-off
experience adjusted for other risk factors. To evaluate the overall adequacy of
the allowance to absorb losses inherent in our loan portfolio, our management
considers historical loss experience based on volume and types of loans, trends
in classifications, volume and trends in delinquencies and non-accruals,
economic conditions and other pertinent information. Based on future
evaluations, additional provisions for loan losses may be necessary to maintain
the allowance for loan losses at an appropriate level.


36





The
provision for loan losses was $2,537,000 for the three months ended September
30, 2010, a decrease of $672,000 from $3,209,000 for the three months ended
September 30, 2009. The provision for loan losses was $7,612,000 for the
nine months ended September 30, 2010, a decrease of $665,000 from $8,277,000 for
the nine months ended September 30, 2009.  We continue to maintain a
proactive approach to credit risk management. Nonperforming loans increased to
$14,415,000, or 1.07% of total loans, at September 30, 2010 from $12,188,000, or
1.01% of total loans, at December 31, 2009, and decreased from $15,868,000, or
1.37% of total loans, at September 30, 2009.  Impaired loans increased
to $53,841,000, or 4.00% of total loans, at September 30, 2010.  The
increase in impaired loans at September 30, 2010 relates to management’s
determination to increase the number of loans evaluated on a loan-by-loan basis
to encompass all loans classified as substandard or below, coupled with
prevailing economic conditions.  The allowance for loan losses totaled
$16,903,000, or 1.26% of loans, net of unearned income, at September 30, 2010,
compared to $14,737,000, or 1.22% of loans, net of unearned income, at December
31, 2009 and $14,596,000, or 1.26% of loans, net of unearned income, at
September 30, 2009.





Noninterest Income





Noninterest
income totaled $1,348,000 for the three months ended September 30, 2010, an
increase of $381,000, or 39.40%, compared to the same period in 2009, and
totaled $3,484,000 for the nine months ended September 30, 2010, an increase of
$315,000, or 9.94%, compared to the same period in 2009.  Income from
mortgage banking operations for the three months ended September 30, 2010 was
$589,000, up $170,000, or 40.57%, from $419,000 for the same period in 2009, and
for the nine months ended September 30, 2009 was $1,336,000, down $366,000, or
21.50%, from $1,702,000 for the same period in 2009.  Recent increases
in mortgage income are reflective of the high refinancing volume due to
historically low interest rates.  Income from customer service charges
and fees for the three months ended September 30, 2010 increased $145,000, or
34.61%, to $564,000 from $419,000 for the same period in 2009, and for the nine
months ended September 30, 2009 increased $567,000, or 49.26%, to $1,718,000
from $1,151,000 for the same period in 2009.  The increase is
primarily due to an increase in transaction accounts from 2009 to
2010.  Merchant service fees were $88,000 for the three months ended
September 30, 2010, a decrease of $88,000, or 50.10%, compared to $176,000 for
the same period in 2009, and were $287,000 for the nine months ended September
30, 2010, a decrease of $213,000, or 42.62%, compared to $501,000 for the same
period in 2009.





Noninterest
Expense





Noninterest
expense totaled $7,467,000 for the three months ended September 30, 2010, an
increase of $495,000, or 7.10%, compared to $6,972,000 in 2009, and totaled
$22,460,000 for the nine months ended September 30, 2010, an increase of
$2,173,000, or 10.71%, compared to $20,287,000 in 2009.  The increases
for the three and nine month periods in 2010 over the same periods in 2009 were
primarily due to higher FDIC insurance assessments on our deposits, higher
salary expense and mortgage commissions, higher rent and insurance expense
related to our move into our new headquarters building in Birmingham in July
2009, and higher data processing charges due to increases in the number of
accounts and transaction volume. These increases were partially offset by lower
merchant processing expenses.





Income Tax Expense





Income
tax expense was $2,532,000 for the three months ended September 30, 2010
compared to $622,000 for the same period in 2009, and was $6,780,000 for the
nine months ended September 30, 2010 compared to $1,708,000 for the same period
in 2009. Our effective tax rates for the three and nine months ended September
30, 2010 were 34.54% and 34.57%, respectively, compared to 27.89% and 30.53% for
the same periods in 2009.  Our primary permanent differences are
related to SFAS 123(R) option expenses and tax-free income.  We
increased our marginal accrual rate from 34% to 35% based on anticipated net
income for the full year 2010.


37




ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





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




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




The
asset-liability committee thoroughly analyzes the maturities of rate-sensitive
assets and liabilities. This analysis measures the “gap”, which is defined as
the difference between the dollar amount of rate-sensitive assets repricing
during a period and the volume of rate-sensitive liabilities repricing during
the same period. The gap is also expressed as the ratio of rate-sensitive assets
divided by rate-sensitive liabilities. If the ratio is greater than one, the
dollar value of assets exceeds the dollar value of liabilities; the balance
sheet is “asset-sensitive.” Conversely, if the value of liabilities exceeds the
value of assets, the ratio is less than one and the balance sheet is
“liability-sensitive.” Our internal policy requires management to maintain the
gap such that net interest margins will not change more than 10% if interest
rates change 100 basis points or more than 15% if interest rates change 200
basis points.




ITEM
4. CONTROLS AND PROCEDURES





CEO and CFO
Certification.





Appearing
as exhibits to this report are Certifications of our Chief Executive Officer
(“CEO”) and our Chief Financial Officer (“CFO”). The Certifications are required
to be made by Rule 13a-14 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). This item contains the information about the evaluation
that is referred to in the Certifications, and the information set forth below
in this Item 4 should be read in conjunction with the Certifications for a more
complete understanding of the Certifications.


38


Evaluation of Disclosure Controls and
Procedures.





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


We
conducted an evaluation (the “Evaluation”) of the effectiveness of the design
and operation of our disclosure controls and procedures under the supervision
and with the participation of our management, including our CEO and CFO, as of
September 30, 2010. Based upon the Evaluation, our CEO and CFO have concluded
that, as of September 30, 2010, our disclosure controls and procedures are
effective to ensure that material information relating to ServisFirst
Bancshares, Inc. and its subsidiaries is made known to management, including the
CEO and CFO, particularly during the period when our periodic reports are being
prepared.





There
have not been any changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to
which this report relates that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting,
except as previously disclosed in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2009.  As disclosed in that report, during the
first quarter of 2010, we discovered a material weakness in our internal control
over financial reporting relating to the treatment in our financial statements
of the Federal Deposit Insurance Corporation’s special three-year prepaid
premium assessment for the year ended December 31, 2009.  We corrected
this material weakness prior to the filing of our Annual Report on Form 10-K,
and we have made changes to our internal control over financial reporting that
we believe appropriate to ensure that similar changes in FDIC assessments and
prepayments are accurately reported.





PART
II. OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





From time
to time we may be a party to various legal proceedings arising in the ordinary
course of business. We are not currently a party to any material legal
proceedings except as disclosed in Item 3, “Legal Proceedings”, in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, and there has
been no material change in any matter described therein.





ITEM
1A. RISK FACTORS





Our
business is influenced by many factors that are difficult to predict, involve
uncertainties that may materially affect actual results and are often beyond our
control. We have identified a number of these risk factors in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2009, which should be taken
into consideration when reviewing the information contained in this report.
There have been no material changes with regard to the risk factors previously
disclosed in the Form 10-K. For other factors that may cause actual results to
differ materially from those indicated in any forward-looking statement or
projection contained in this report, see “Forward-Looking Statements” under Part
1, Item 2 above.





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





All
information required by this Item has previously been reported on Form
8-K.


39


ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
5. OTHER INFORMATION





None.





ITEM
6. EXHIBITS





(a)
Exhibit:


31.01
Certification of principal executive officer pursuant to Rule
13a-14(a).


31.02
Certification of principal financial officer pursuant to Rule
13a-14(a).


32.01
Certification of principal executive officer pursuant to 18 U.S.C. Section
1350.


32.02
Certification of principal financial officer pursuant to 18 U.S.C. Section
1350.





SIGNATURES





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





SERVISFIRST
      BANCSHARES, INC.Date:
      November 1, 2010
                
                By
                /s/
      Thomas A. Broughton,
    IIIThomas
      A. Broughton, IIIPresident
      and Chief Executive OfficerDate:
      November 1, 2010
                
                By
                /s/
      William M. FosheeWilliam
      M. FosheeChief Financial
      Officer
  40