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,
2009


 ̈
              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  ̈
Non-accelerated filer x 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,
      2009Common
      stock, $.001 par value
                5,513,482













TABLE
OF CONTENTS





PARTI.
      FINANCIAL INFORMATIONItem
      1.
                    Financial
      Statements
                    3Item
      2.
                    Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
                    20Item
      3.
                    Quantitative
      and Qualitative Disclosure about Market Risk
                    37Item
      4.
                    Controls
      and Procedures
                    38PART II. OTHER INFORMATIONItem
      1
                    Legal
      Proceedings
                    38Item
      1A.
                    Risk
      Factors
                    38Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    39Item
      3.
                    Defaults
      Upon Senior Securities
                    39Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    39Item
      5.
                    Other
      Information
                    39Item
      6.
                    Exhibits
                    39EX-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. FINANCIAL STATEMENTS





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
BALANCE SHEETS


SEPTEMBER
30, 2009 AND DECEMBER 31, 2008


(In
thousands)





September 30,
                  2009
                
                
                December 31,
                  2008(Unaudited)
                
                
                (Audited)ASSETSCash
      and due from banks
                
                $
                20,918
                
                
                $
                22,844Interest-bearing
      balances due from depository institutions
                
                
                165,924
                
                
                
                30,774Federal
      funds sold
                
                
                384
                
                
                
                19,300Cash
      and cash equivalents
                
                $
                187,226
                
                
                
                72,918Securities
      available for sale
                
                
                137,624
                
                
                
                102,339Restricted
      equity securities
                
                
                3,241
                
                
                
                2,659Mortgage
      loans held for sale
                
                
                5,087
                
                
                
                3,320Loans
                
                
                1,154,090
                
                
                
                968,233Less
      allowance for loan losses
                
                
                (14,596
                )
                
                
                (10,602
                )Loans,
      net
                
                
                1,139,494
                
                
                
                957,631Premises
      and equipment, net
                
                
                5,223
                
                
                
                3,884Accrued
      interest and dividends receivable
                
                
                5,163
                
                
                
                4,026Deferred
      tax assets
                
                
                3,256
                
                
                
                3,585Other
      real estate owned
                
                
                13,453
                
                
                
                10,473Other
      assets
                
                
                2,438
                
                
                
                1,437Total
      assets
                
                $
                1,502,205
                
                
                $
                1,162,272LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Deposits:Noninterest-bearing
                
                $
                175,089
                
                
                $
                121,459Interest-bearing
                
                
                1,186,394
                
                
                
                915,860Total
      deposits
                
                
                1,361,483
                
                
                
                1,037,319Other
      borrowings
                
                
                24,918
                
                
                
                20,000Trust
      preferred securities
                
                
                15,194
                
                
                
                15,087Accrued
      interest payable
                
                
                1,103
                
                
                
                1,280Other
      liabilities
                
                
                2,286
                
                
                
                1,803Total
      liabilities
                
                
                1,404,984
                
                
                
                1,075,489Stockholders'
      equity:Common
      stock, par value $.001 per share; 15,000,000 shares
      authorized; 5,513,482 and 5,374,022  shares issued and
      outstanding
                
                
                6
                
                
                
                5Preferred
      stock, par value $.001 per share; 1,000,000 shares authorized; no
      shares outstanding
                
                
                -
                
                
                
                -Additional
      paid-in capital
                
                
                74,877
                
                
                
                70,729Retained
      earnings
                
                
                18,974
                
                
                
                15,087Accumulated
      other comprehensive income
                
                
                3,364
                
                
                
                962Total
      stockholders' equity
                
                
                97,221
                
                
                
                86,783Total
      liabilities and stockholders' equity
                
                $
                1,502,205
                
                
                $
                1,162,272





See
Notes to Consolidated Financial  Statements.


3





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)


(In
thousands, except per share amounts)





Three Months Ended
                  September 30,
                
                
                Nine Months Ended
                  September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Interest
      income:Interest
      and fees on loans
                
                $
                14,598
                
                
                $
                12,657
                
                
                $
                40,690
                
                
                $
                36,969Taxable
      securities
                
                
                1,006
                
                
                
                951
                
                
                
                3,117
                
                
                
                2,832Nontaxable
      securities
                
                
                402
                
                
                
                233
                
                
                
                1,022
                
                
                
                677Federal
      funds sold
                
                
                77
                
                
                
                12
                
                
                
                148
                
                
                
                449Other
      interest and dividends
                
                
                9
                
                
                
                28
                
                
                
                30
                
                
                
                130Total
      interest income
                
                
                16,092
                
                
                
                13,881
                
                
                
                45,007
                
                
                
                41,057Interest
      expense:Deposits
                
                
                4,031
                
                
                
                4,640
                
                
                
                12,391
                
                
                
                14,819Borrowed
      funds
                
                
                617
                
                
                
                364
                
                
                
                1,626
                
                
                
                580Total
      interest expense
                
                
                4,648
                
                
                
                5,004
                
                
                
                14,017
                
                
                
                15,399Net
      interest income
                
                
                11,444
                
                
                
                8,877
                
                
                
                30,990
                
                
                
                25,658Provision
      for loan losses
                
                
                3,209
                
                
                
                1,381
                
                
                
                8,277
                
                
                
                4,900Net
      interest income after provision for loan losses
                
                
                8,235
                
                
                
                7,496
                
                
                
                22,713
                
                
                
                20,758Noninterest
      income:Service
      charges on deposit accounts
                
                
                419
                
                
                
                358
                
                
                
                1,151
                
                
                
                904Other
      operating income
                
                
                548
                
                
                
                314
                
                
                
                2,018
                
                
                
                1,007Total
      noninterest income
                
                
                967
                
                
                
                672
                
                
                
                3,169
                
                
                
                1,911Noninterest
      expenses:Salaries
      and employee benefits
                
                
                3,398
                
                
                
                2,684
                
                
                
                10,354
                
                
                
                7,910Equipment
      and occupancy expense
                
                
                767
                
                
                
                546
                
                
                
                1,977
                
                
                
                1,598Professional
      services
                
                
                228
                
                
                
                254
                
                
                
                657
                
                
                
                829Other
      operating expenses
                
                
                2,579
                
                
                
                1,977
                
                
                
                7,299
                
                
                
                4,484Total
      noninterest expenses
                
                
                6,972
                
                
                
                5,461
                
                
                
                20,287
                
                
                
                14,821Income
      before income taxes
                
                
                2,230
                
                
                
                2,707
                
                
                
                5,595
                
                
                
                7,848Provision
      for income taxes
                
                
                622
                
                
                
                983
                
                
                
                1,708
                
                
                
                2,803Net
      income
                
                $
                1,608
                
                
                $
                1,724
                
                
                $
                3,887
                
                
                $
                5,045Basic
      earnings per share
                
                $
                0.29
                
                
                $
                0.34
                
                
                $
                0.71
                
                
                $
                0.99Diluted
      earnings per share
                
                $
                0.28
                
                
                $
                0.32
                
                
                $
                0.67
                
                
                $
                0.95





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 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      income
                
                $
                1,608
                
                
                $
                1,724
                
                
                $
                3,887
                
                
                $
                5,045Other
      comprehensive income (loss), net of tax:Unrealized
      holding gains (losses) arising during period from securities available for
      sale, net of tax (benefit) of $1,304 and $1,330 for the three and nine
      months ended September 30, 2009, respectively, and $(177) and $(643) for
      the three and nine months ended September 30, 2008,
      respectively
                
                
                2,532
                
                
                
                (344
                )
                
                
                2,582
                
                
                
                (1,248
                )Unrealized
      holding gains arising during period from derivative, net of tax of $35,
      for the nine months ended September 30, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                68Reclassification
      adjustment for net gains realized on derivatives in net income, net of tax
      benefit of $93 for the nine months ended September 30, 2009, and $46 and
      $138 for the three and nine months ended September 30, 2008,
      respectively
                
                
                -
                
                
                
                (90
                )
                
                
                (180
                )
                
                
                (270
                )Other
      comprehensive income (loss)
                
                
                2,532
                
                
                
                (434
                )
                
                
                2,402
                
                
                
                (1,450
                )Comprehensive
      income
                
                $
                4,140
                
                
                $
                1,290
                
                
                $
                6,289
                
                
                $
                3,595





See
Notes to Consolidated Financial Statements


5





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


NINE
MONTHS ENDED SEPTEMBER 30, 2009


(Unaudited)


(In
thousands)





Common
                  Stock
                
                
                Additional
                  Paid-in
                  Capital
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income
                
                
                Total
                  Stockholders'
                  EquityBalance,
      December 31, 2008
                
                $
                5
                
                
                $
                70,729
                
                
                $
                15,087
                
                
                $
                962
                
                
                $
                86,783Sale
      of 139,460 shares
                
                
                1
                
                
                
                3,478
                
                
                
                -
                
                
                
                -
                
                
                
                3,479Issuance
      of warrants related to subordinated notes payable
                
                
                -
                
                
                
                86
                
                
                
                -
                
                
                
                -
                
                
                
                86Other
      comprehensive income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,402
                
                
                
                2,402Stock
      based compensation expense
                
                
                -
                
                
                
                584
                
                
                
                -
                
                
                
                -
                
                
                
                584Net
      income
                
                
                -
                
                
                
                -
                
                
                
                3,887
                
                
                
                -
                
                
                
                3,887Balance,
      September 30, 2009
                
                $
                6
                
                
                $
                74,877
                
                
                $
                18,974
                
                
                $
                3,364
                
                
                $
                97,221





See
Notes to Consolidated Financial Statements


6





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


NINE
MONTHS ENDED SEPTEMBER 30, 2009 AND 2008


(Unaudited)


(In
thousands)





2009
                      
                      
                      2008OPERATING
      ACTIVITIESNet
      income
                      
                      
                      3,887
                      
                      
                      $
                      5,045Adjustments
      to reconcile net income to net cash provided by operating
      activities:Deferred
      tax benefit
                      
                      
                      (909
                      )
                      
                      
                      (818
                      )Provision
      for loan losses
                      
                      
                      8,277
                      
                      
                      
                      4,900Depreciation
      and amortization
                      
                      
                      802
                      
                      
                      
                      683Net
      accretion of investments
                      
                      
                      (326
                      )
                      
                      
                      (248
                      )Amortized
      gain on derivative
                      
                      
                      (272
                      )
                      
                      
                      408Increase
      in accrued interest and dividends receivable
                      
                      
                      (1,137
                      )
                      
                      
                      (119
                      )Stock
      compensation expense
                      
                      
                      584
                      
                      
                      
                      492(Decrease)
      increase in accrued interest payable
                      
                      
                      (177
                      )
                      
                      
                      408Proceeds
      from sale of mortgage loans held for sale
                      
                      
                      148,071
                      
                      
                      
                      60,553Originations
      of mortgage loans held for sale
                      
                      
                      (151,699
                      )
                      
                      
                      (62,149
                      )Gain
      on sale of securities available for sale
                      
                      
                      (42
                      )
                      
                      
                      -Loss
      on sale of other real estate
                      
                      
                      817
                      
                      
                      
                      172Loss
      on disposal of premises and equipment
                      
                      
                      2
                      
                      
                      
                      -Net
      change in other assets, liabilities, and other operating
      activities
                      
                      
                      (457
                      )
                      
                      
                      (1,774
                      )Net
      cash provided by operating activities
                      
                      
                      7,421
                      
                      
                      
                      7,553INVESTMENT
      ACTIVITIESPurchase
      of securities available for sale
                      
                      
                      (45,913
                      )
                      
                      
                      (11,960
                      )Proceeds
      from maturities, calls and paydowns of securities available for
      sale
                      
                      
                      12,825
                      
                      
                      
                      7,419Increase
      in loans
                      
                      
                      (197,275
                      )
                      
                      
                      (233,285
                      )Purchase
      of premises and equipment
                      
                      
                      (2,144
                      )
                      
                      
                      (391
                      )Purchase
      of restricted equity securities
                      
                      
                      (582
                      )
                      
                      
                      (1,457
                      )Proceeds
      from sale of securities available for sale
                      
                      
                      2,083
                      
                      
                      
                      -Proceeds
      from disposal of premises and equipment
                      
                      
                      1
                      
                      
                      
                      -Proceeds
      from sale of other real estate owned and repossessions
                      
                      
                      5,249
                      
                      
                      
                      1,505Net
      cash used in investing activities
                      
                      
                      (225,756
                      )
                      
                      
                      (238,169
                      )FINANCING
      ACTIVITIESNet
      increase in noninterest-bearing deposits
                      
                      
                      53,630
                      
                      
                      
                      20,866Net
      increase in interest-bearing deposits
                      
                      
                      270,534
                      
                      
                      
                      167,189Repayment
      of other borrowings
                      
                      
                      -
                      
                      
                      
                      (73
                      )Proceeds
      from other borrowings
                      
                      
                      5,000
                      
                      
                      
                      20,000Proceeds
      from issuance of trust preferred securities
                      
                      
                      -
                      
                      
                      
                      15,000Proceeds
      from sale of stock, net
                      
                      
                      3,479
                      
                      
                      
                      -Net
      cash provided by financing activities
                      
                      
                      332,643
                      
                      
                      
                      222,982Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      114,308
                      
                      
                      
                      (7,634
                      )Cash
      and cash equivalents at beginning of year
                      
                      
                      72,918
                      
                      
                      
                      66,422Cash
      and cash equivalents at end of year
                      
                      
                      187,226
                      
                      
                      $
                      58,788SUPPLEMENTAL
      DISCLOSURECash
      paid for:Interest
                      
                      $
                      14,194
                      
                      
                      $
                      15,807Income
      taxes
                      
                      
                      3,117
                      
                      
                      
                      3,561NONCASH
      TRANSACTIONSTransfers
      of loans from held for sale to held for investment
                      
                      $
                      1,861
                      
                      
                      $
                      -Other
      real estate acquired in settlement of loans
                      
                      
                      9,464
                      
                      
                      
                      7,492





See
Notes to Consolidated Financial Statements.


7





SERVISFIRST
BANCSHARES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(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,
2008.





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





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.


8





Three Months Ended
                    September 30,
                  
                  
                  Nine Months Ended
                    September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(In Thousands, Except Shares and Per Share Data)Weighted
      average common shares outstanding
                  
                  
                  5,513,482
                  
                  
                  
                  5,113,482
                  
                  
                  
                  5,476,701
                  
                  
                  
                  5,113,482Net
      income
                  
                  $
                  1,608
                  
                  
                  $
                  1,724
                  
                  
                  $
                  3,887
                  
                  
                  $
                  5,045Basic
      earnings per share
                  
                  $
                  0.29
                  
                  
                  $
                  0.34
                  
                  
                  $
                  0.71
                  
                  
                  $
                  0.99Weighted
      average common shares outstanding
                  
                  
                  5,513,482
                  
                  
                  
                  5,113,482
                  
                  
                  
                  5,476,701
                  
                  
                  
                  5,113,482Dilutive
      effects of assumed conversions and exercise of stock options and
      warrants
                  
                  
                  307,849
                  
                  
                  
                  230,448
                  
                  
                  
                  297,740
                  
                  
                  
                  225,011Weighted
      average common and dilutive potential common shares
      outstanding
                  
                  
                  5,821,331
                  
                  
                  
                  5,343,930
                  
                  
                  
                  5,774,441
                  
                  
                  
                  5,338,493Net
      income
                  
                  $
                  1,608
                  
                  
                  $
                  1,724
                  
                  
                  $
                  3,887
                  
                  
                  $
                  5,045Diluted
      earnings per share
                  
                  $
                  0.28
                  
                  
                  $
                  0.32
                  
                  
                  $
                  0.67
                  
                  
                  $
                  0.95





NOTE
4 - SECURITIES





The
Company currently assigns all of its securities to available-for-sale based on
its asset/liability management, liquidity and profitability
objectives.  The securities are carried at fair
value.  Unrealized gains or losses on available-for-sale securities
are recorded as accumulated other comprehensive income in stockholders’ equity,
net of taxes.





Net
unrealized gain on the securities portfolio increased from $1.2 million, which
represented 1.17% of the amortized cost at December 31, 2008, to $5.1 million,
which represented 3.85% of the amortized cost at September 30,
2009.  The investment portfolio at September 30, 2009, and December
31, 2008 consisted of the following:





Amortized
                    Cost
                  
                  
                  Gross
                    Unrealized
                    Gain
                  
                  
                  Gross
                    Unrealized
                    Loss
                  
                  
                  Market
                    Value(In
      Thousands)Securities
      Available for SaleSeptember
      30, 2009:U.S.
      Treasury and government agencies
                  
                  $
                  24,936
                  
                  
                  $
                  371
                  
                  
                  $
                  -
                  
                  
                  $
                  25,307Mortgage-backed
      securities
                  
                  
                  54,141
                  
                  
                  
                  3,057
                  
                  
                  
                  (6
                  )
                  
                  
                  57,192State
      and municipal securities
                  
                  
                  50,448
                  
                  
                  
                  2,058
                  
                  
                  
                  (397
                  )
                  
                  
                  52,109Corporate
      debt
                  
                  
                  3,002
                  
                  
                  
                  58
                  
                  
                  
                  (44
                  )
                  
                  
                  3,016Total
                  
                  $
                  132,527
                  
                  
                  $
                  5,544
                  
                  
                  $
                  (447
                  )
                  
                  $
                  137,624Securities
      Available for SaleDecember
      31, 2008:U.S.
      Treasury and government agencies
                  
                  $
                  5,093
                  
                  
                  $
                  42
                  
                  
                  $
                  (18
                  )
                  
                  $
                  5,117Mortgage-backed
      securities
                  
                  
                  60,211
                  
                  
                  
                  2,338
                  
                  
                  
                  (5
                  )
                  
                  
                  62,544State
      and municipal securities
                  
                  
                  29,879
                  
                  
                  
                  457
                  
                  
                  
                  (857
                  )
                  
                  
                  29,479Corporate
      debt
                  
                  
                  5,971
                  
                  
                  
                  -
                  
                  
                  
                  (772
                  )
                  
                  
                  5,199Total
                  
                  $
                  101,154
                  
                  
                  $
                  2,837
                  
                  
                  $
                  (1,652
                  )
                  
                  $
                  102,339





The
Company has not invested in private label mortgage-backed securities or
collateralized debt obligations.


9





The
following table identifies, as of September 30, 2009 and December 31, 2008, the
Company’s investment securities that have been in a continuous unrealized loss
position for less than 12 months and those that have been in a continuous
unrealized loss position for 12 or more months:





Less Than Twelve Months
                  
                  
                  Twelve Months or MoreGross
                    Unrealized
                    Losses
                  
                  
                  Fair Value
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair Value(In Thousands)September
      30, 2009:U.S.
      Treasury and government agencies
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Mortgage-backed
      securities
                  
                  
                  (6
                  )
                  
                  
                  2,099
                  
                  
                  
                  -
                  
                  
                  
                  -State
      and municipal securities
                  
                  
                  (397
                  )
                  
                  
                  6,274
                  
                  
                  
                  -
                  
                  
                  
                  -Corporate
      debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (44
                  )
                  
                  
                  1,967$
                  (403
                  )
                  
                  $
                  8,373
                  
                  
                  $
                  (44
                  )
                  
                  $
                  1,967December
      31, 2008.:U.S.
      Treasury and government agencies
                  
                  $
                  (18
                  )
                  
                  $
                  3,089
                  
                  
                  $
                  -
                  
                  
                  $
                  -Mortgage-backed
      securities
                  
                  
                  (5
                  )
                  
                  
                  1,868
                  
                  
                  
                  -
                  
                  
                  
                  -State
      and municipal securities
                  
                  
                  (857
                  )
                  
                  
                  14,814
                  
                  
                  
                  -
                  
                  
                  
                  -Corporate
      debt
                  
                  
                  (772
                  )
                  
                  
                  5,199
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  (1,652
                  )
                  
                  $
                  24,970
                  
                  
                  $
                  -
                  
                  
                  $
                  -





At
September 30, 2009, two of the Company’s 269 debt securities were in an
unrealized loss position for more than 12 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.  We
have 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, 2009, the Company had stock-based compensation plans, as described
below. The compensation cost that has been charged against income for the plans
was approximately $189,000 and $584,000 for the three and nine months ended
September 30, 2009 and $172,000 and $492,000 for three and nine months ended
September 30, 2008, respectively.





Under the
Company’s 2005 Amended and Restated Stock Option Plan (the “2005 Plan”), there
are 1,025,000 shares authorized for issuance. Option 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 plan is ten years.





The
Company adopted the 2009 Stock Incentive Plan (the “2009 Plan”) effective March
26, 2009, subject to approval by the stockholders of the Company, which was
obtained at the Company’s 2009 Annual Meeting of Stockholders.  Up to
425,000 shares are reserved for issuance under the Plan pursuant to the exercise
of options or the award of SARs, restricted shares, or performance shares, all
which are defined in the Plan.  No grants or awards had been made
under the 2009 Plan at September 30, 2009.


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 the assumptions noted in the
following table.





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.





2009
                    
                    
                    2008Expected
      volatility
                    
                    
                    20.00
                    %
                    
                    
                    20.00
                    %Expected
      dividends
                    
                    
                    0.50
                    %
                    
                    
                    0.50
                    %Expected
      term (in years)
                    
                    
                    7
                    
                    
                    
                    7Risk-free
      rate
                    
                    
                    1.70
                    %
                    
                    
                    2.93
                    %





The
following table summarizes stock option activity during the nine months ended
September 30, 2009 and 2008:





Shares
                          
                          
                          Weighted
                            Average
                            Exercise Price
                          
                          
                          Weighted
                            Average
                            Remaining
                            Contractual
                            Term (years)
                          
                          
                          Aggregate
                            Intrinsic
                            Value(In Thousands)Nine
      Months Ended September 30, 2009:Outstanding
      at January 1, 2009
                          
                          
                          796,000
                          
                          
                          $
                          14.50
                          
                          
                          
                          7.7
                          
                          
                          $
                          8,363Granted
                          
                          
                          40,000
                          
                          
                          
                          25.00
                          
                          
                          
                          9.4
                          
                          
                          
                          -Exercised
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Forfeited
                          
                          
                          (2,500
                          )
                          
                          
                          15.00
                          
                          
                          
                          7.2
                          
                          
                          
                          -Outstanding
      at September 30, 2009
                          
                          
                          833,500
                          
                          
                          
                          15.00
                          
                          
                          
                          7.1
                          
                          
                          $
                          8,338Exercisable
      at September 30, 2009
                          
                          
                          136,864
                          
                          
                          $
                          11.84
                          
                          
                          
                          6.4
                          
                          
                          $
                          1,801Nine
      Months Ended September 30, 2008:Outstanding
      at January 1, 2008
                          
                          
                          712,500
                          
                          
                          $
                          13.12
                          
                          
                          
                          8.4
                          
                          
                          $
                          4,905Granted
                          
                          
                          98,500
                          
                          
                          
                          24.31
                          
                          
                          
                          -
                          
                          
                          
                          -Exercised
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Forfeited
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at September 30, 2008
                          
                          
                          811,000
                          
                          
                          
                          14.48
                          
                          
                          
                          8.0
                          
                          
                          $
                          8,536Exercisable
      at September 30, 2008
                          
                          
                          61,932
                          
                          
                          $
                          11.77
                          
                          
                          
                          7.2
                          
                          
                          $
                          819





Options
for 2,500 shares of the Company’s common stock were granted in the third quarter
of 2009.  There were 2,500 options forfeited during the third quarter
of 2009.  There were no options exercised during the third quarter of
2009.


11





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, 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, 2009 and 2008 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
10.





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





Prior to
2008 the Company entered into an interest rate floor with a notional amount of
$50 million in order to fix the minimum interest rate on a corresponding amount
of its floating-rate loans. The interest rate floor was sold in January 2008,
and the related gain of $817,000 was deferred and amortized to income over the
remaining term of the original agreement, which would have terminated on June
22, 2009. The Company recognized gains of $0 and $272,000 in interest income for
the three and nine months ended September 30, 2009, respectively.





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, 2009, the Company was party to two swaps with notional amounts
totaling approximately $12.2 million with customers, and two swaps with notional
amounts totaling approximately $12.2 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 $552,000 in offsetting entries in other assets and other
liabilities.





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, 2009
and December 31, 2008 were not material.


12





NOTE
7 - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS





In March
2008, the Financial Accounting Standards Board (“FASB”) issued an accounting
pronouncement that changed the disclosure requirements for derivative
instruments and hedging activities. Entities are now required to provide
enhanced disclosure about (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedging items are accounted for, and
(c) how derivative instruments and related hedging items affect an entity’s
financial position, financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008.  The Company adopted this
pronouncement effective January 1, 2009.  See Note 6 for the Company’s
disclosures about its derivative instruments and hedging
activities.





In
September 2008, the FASB issued an accounting pronouncement that
defined whether instruments granted in share-based payment transactions are
participating securities for purposes of computing earnings per
share.  Under the pronouncement, unvested share-based payment awards
that contain rights to receive non-forfeitable dividends (whether paid or
unpaid) are participating securities and should be included in the two-class
method of computing earnings per share. The pronouncement is effective for
fiscal years beginning after December 15, 2008, and interim periods within
those years.  The Company’s adoption of the provisions of this
pronouncement effective January 1, 2009 did not have an impact on the
consolidated financial statements.





In April
2009, the FASB issued three related accounting pronouncements to provide further
application guidance and enhanced disclosures of fair value measurements and
impairments of securities.  These pronouncements provide guidance for
making fair value measurements more consistent with existing accounting
principles when the volume and level of activity for the asset or liability have
significantly decreased.  The pronouncements also enhance consistency
in reporting by increasing the frequency of fair value disclosures and modifies
existing general accounting standards for and disclosure of other-than-temporary
(“OTTI”) losses for impaired debt securities.





The fair
value measurement guidance of these pronouncements reaffirms the need for
entities to use judgment in determining if a formerly active market has become
inactive and in determining fair values when markets have become
inactive.  Prior to these pronouncements, fair value disclosures for
instruments covered by the pronouncements were required for annual statements
only.  These disclosures are now required in interim financial
statements.  The general standards of accounting for OTTI losses were
changed to require the recognition of an OTTI loss in earnings only when an
entity (1) intends to sell the debt security; (2) more likely than not will be
required to sell the security before recovery of its amortized cost basis; or
(3) does not expect to recover the entire amortized cost basis of the
security.  When an entity intends to sell or more likely than not will
be required to sell a security, the entire OTTI loss must be recognized in
earnings.  In all other situations, only the portion of the OTTI
losses representing the credit loss must be recognized in earnings, with the
remaining portion being recognized in other comprehensive income, net of
deferred taxes.





All three
pronouncements were effective for interim and annual reports ending after June
15, 2009.  Early adoption was permitted for interim and annual periods
ending after March 15, 2009, but concurrent adoption of all three was
required.  The Company adopted the provisions of these pronouncements
for the quarter ending June 30, 2009.  The adoption of these
provisions did not have an impact on the consolidated financial
statements.





In May
2009, the FASB issued an accounting pronouncement establishing general standards
of accounting for and disclosure of subsequent events.  The
pronouncement defines “recognized subsequent events” as those that give evidence
of conditions that existed at the balance-sheet date and “non-recognized
subsequent events” as those that provide evidence about conditions that arose
after the balance-sheet date but prior to the issuance of the financial
statements.  Entities must recognize in the financial statements the
effect of recognized subsequent events, but cannot recognize the effects in the
financial statements of non-recognized subsequent events.  This
pronouncement also requires entities to disclose the date through which
subsequent events have been evaluated.  This pronouncement was
effective for interim and annual periods ending after June 30,
2009.  The Company adopted this pronouncement for the quarter ended
June 30, 2009, and adoption did not have an impact on the consolidated financial
statements.


13





In June
2009, the FASB issued an accounting pronouncement establishing the FASB
“Accounting Standards CodificationTM”(the “ASC”) as the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities.  This pronouncement was effective for
financial statements issued for interim and annual periods ending after
September 30, 2009.  On the effective date, this pronouncement
superseded all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the Codification became non-authoritative.  The
Company adopted this new accounting pronouncement effective September 30,
2009.  There was no impact on the consolidated financial statements
from the adoption of this pronouncement.





NOTE
8 – RECENT ACCOUNTING PRONOUNCEMENTS





In June
2009, the 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.  These pronouncements must be applied as of the beginning of
each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. Earlier
application is prohibited.  The Company does not anticipate a material
impact to the consolidated financial statements from the adoption of this
standard.





NOTE
9 - FAIR VALUE MEASUREMENT





Measurement
of fair value under United States generally accepted accounting principles (“US
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, as well as considers counterparty credit risk in its assessment
of fair value.


14





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.





Interest Rate Swap Agreements
– 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 $1,586,000 and $4,919,000 during the three and nine months ended
September 30, 2009, respectively, and $688,000 and $2,388,000 during the three
and nine months ended September 30, 2008, respectively.  Impaired
loans are classified within Level 3 of the hierarchy.





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 $359,000 and $1,326,000 during the three and nine months ended
September 30, 2009, respectively, and $509,000 and $828,000 during the three and
nine months ended September 30, 2008, respectively.  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.


15




The
following table presents the fair value hierarchy of the Company’s financial
assets and financial liabilities measured at fair value as of September 30,
2009:





(In
      Thousands)Quoted Prices in
                      Active Markets
                      forIdentical
                      Assets(Level 1)
                    
                    
                    Significant Other
                      ObservableInputs
                      (Level 2)
                    
                    
                    Significant
                      Unobservable
                      Inputs(Level 3)
                    
                    
                    TotalAssets
      Measured on a Recurring Basis:Available
      for sale securities
                    
                    $
                    -
                    
                    
                    $
                    137,624
                    
                    
                    $
                    -
                    
                    
                    $
                    137,624Interest
      rate swap agreements
                    
                    
                    -
                    
                    
                    
                    552
                    
                    
                    
                    
                    
                    
                    
                    552Total
      assets at fair value
                    
                    $
                    -
                    
                    
                    $
                    138,176
                    
                    
                    $
                    -
                    
                    
                    $
                    138,176Liabilities
      Measured on a Recurring Basis:Interest
      rate swap agreements
                    
                    $
                    -
                    
                    
                    $
                    552
                    
                    
                    $
                    -
                    
                    
                    $
                    552Assets
      Measured on a Nonrecurring Basis:Impaired
      loans
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    26,716
                    
                    
                    $
                    26,716Other
      real estate owned
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,453
                    
                    
                    
                    13,453Total
      assets at fair value
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    40,169
                    
                    
                    $
                    40,169





The fair
value of a financial instrument is the current amount that would be exchanged
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 US 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.




16





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, 2009 and December 31, 2008 were
as follows:





September 30, 2009
                
                
                December 31, 2008Carrying
                  Amount
                
                
                FairValue
                
                
                Carrying
                  Amount
                
                
                FairValue(In
      Thousands)
                
                
                (In
      Thousands)Financial
      Assets:Cash
      and cash equivalents
                
                $
                187,226
                
                
                $
                187,226
                
                
                $
                72,918
                
                
                $
                72,918Investment
      securities
                
                
                137,624
                
                
                
                137,624
                
                
                
                102,339
                
                
                
                102,339Restricted
      equity securities
                
                
                3,241
                
                
                
                3,241
                
                
                
                2,659
                
                
                
                2,659Mortgage
      loans held for sale
                
                
                5,087
                
                
                
                5,087
                
                
                
                3,320
                
                
                
                3,320Loans,
      net
                
                
                1,139,494
                
                
                
                1,142,522
                
                
                
                957,631
                
                
                
                979,656Accrued
      interest and dividends receivable
                
                
                5,163
                
                
                
                5,163
                
                
                
                4,026
                
                
                
                4,026Derivative
                
                
                552
                
                
                
                552
                
                
                
                823
                
                
                
                823Financial
      Liabilities:Deposits
                
                $
                1,361,483
                
                
                $
                1,361,800
                
                
                $
                1,037,319
                
                
                $
                1,038,502Borrowings
                
                
                24,918
                
                
                
                25,544
                
                
                
                20,000
                
                
                
                20,270Trust
      preferred securities
                
                
                15,194
                
                
                
                14,519
                
                
                
                15,087
                
                
                
                12,544Accrued
      interest payable
                
                
                1,103
                
                
                
                1,103
                
                
                
                1,280
                
                
                
                1,280Derivative
                
                
                552
                
                
                
                552
                
                
                
                823
                
                
                
                823





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 interest rates currently being offered for loans with similar terms to
borrowers of  similar credit quality.  Loan fair value
estimates include judgments regarding future expected loss experience and risk
characteristics.  Fair value for impaired loans is estimated using
discounted cash flow analysis, or underlying collateral values, where
applicable.





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.




17





Deposits:  The fair
values disclosed for demand deposits is, 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 calculation that applies interest rates
currently offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.





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
10 - SUBORDINATED DEFERRABLE INTEREST DEBENTURES





On
September 2, 2008, ServisFirst Capital Trust I, a subsidiary of the Company (the
“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 Trust
invested the $15,463,918 of 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 with 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 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
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.




19





NOTE
12 – SUBSEQUENT EVENTS





The
Company has evaluated all subsequent events through October 29, 2009, the last
business day before the filing date of this Form 10-Q with the Securities and
Exchange Commission, to ensure that this Form 10-Q includes appropriate
disclosure of events both recognized in the financial statements as of
September 30, 2009, and events which occurred subsequent to
September 30, 2009 but were not recognized in the financial statements. As
of October 29, 2009, there were no subsequent events which required recognition
or disclosure.





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 for the three and nine months ended September 30, 2009 and
September 30, 2008.





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.




20





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, Alabama MSA (one office
in Jefferson County and one office in North Shelby County), two offices in the
Huntsville, Alabama MSA (Madison County), two offices in the Montgomery, Alabama
MSA (Montgomery County) and one office in the Dothan, Alabama 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 source 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, 2009, the Company had total consolidated assets of $1,502,205,000,
an increase of $339,933,000, or 29.25%, over $1,162,272,000 at December 31,
2008.  Total loans were $1,154,090,000 at September 30, 2009, up
$185,857,000, or 19.20%, over $968,233,000 at December 31, 2008. Total deposits
were $1,361,483,000 at September 30, 2009, an increase of $324,164,000, or
31.25%, over $1,037,319,000 at December 31, 2008. Loans and deposits increased
as a result of organic growth in existing offices in Birmingham, Huntsville and
Montgomery, Alabama, and our expansion into the Dothan, Alabama market beginning
in September 2008.





Net
income for the quarter ended September 30, 2009 was $1,608,000, a decrease of
$116,000, or 6.73%, from $1,724,000 for the quarter ended September 30,
2008.  Basic and fully diluted earnings per common share were $.29 and
$.28, respectively, for the three months ended September 30, 2009, compared with
$.34 and $.32, respectively, for the same period in 2008.  This
decrease was primarily attributable to increased salary and benefit expenses
primarily due to the expansion into the Dothan market in 2008, increased
provision for loan losses, and higher costs associated with other real estate
owned, as more fully explained under the caption “Noninterest Expense” and
“Provision for Loan Losses”, below.





Net
income for the nine months ended September 30, 2009 was $3,887,000, a decrease
of $1,158,000, or 22.95%, from $5,045,000 for the nine months ended September
30, 2008.  Basic and fully diluted earnings per share were $.71 and
$.67, respectively, for the nine months ended September 30, 2009, compared with
$.99 and $.95, respectively for the same period in 2008. Again, this decrease
was primarily attributable to increased salary and benefit expenses primarily
due to the expansion into the Dothan market in 2008, increased provision for
loan losses, and higher costs associated with other real estate owned, as more
fully explained under the caption “Noninterest Expense” and “Provision for Loan
Losses”, below.




21





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 and fair value of
financial instruments are particularly significant to us and 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, 2008.





Financial
Condition





Investment Securities





Investment
securities available for sale totaled $137,624,000 at September 30, 2009 and
$102,339,000 at December 31, 2008.





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.




22





The
following table shows the amortized cost of the Company’s investment securities
by their stated maturity at September 30, 2009:





Less Than
                  OneYear
                
                
                One Year to
                  Five Years
                
                
                Five Yearsto
                  TenYears
                
                
                More Than
                  TenYears
                
                
                Total(In
      Thousands)U.S.
      Treasury and government agencies
                
                $
                -
                
                
                $
                21,098
                
                
                $
                2,997
                
                
                $
                841
                
                
                $
                24,936Mortgage-backed
      securities
                
                
                -
                
                
                
                52,115
                
                
                
                2,026
                
                
                
                -
                
                
                
                54,141State
      and municipal securities
                
                
                -
                
                
                
                4,383
                
                
                
                28,102
                
                
                
                17,963
                
                
                
                50,448Corporate
      debt
                
                
                -
                
                
                
                -
                
                
                
                1,991
                
                
                
                1,011
                
                
                
                3,002$
                -
                
                
                $
                77,596
                
                
                $
                35,116
                
                
                $
                19,815
                
                
                $
                132,527Tax-equivalent
      Yield
                
                
                0.00
                %
                
                
                4.34
                %
                
                
                5.57
                %
                
                
                5.82
                %
                
                
                4.89
                %





All
securities held are traded in liquid markets. As of September 30, 2009, we owned
certain restricted securities of the Federal Home Loan Bank with an aggregate
book value and market value of $2,991,000 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 tax-exempt securities currently
held are issued by government issuers within the State of Alabama. All corporate
bonds have a Standard and Poor’s or Moody’s rating of A-1 or better when
purchased.  The September 30, 2009 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 $128,207,000 and
$94,022,000 as of September 30, 2009 and December 31, 2008,
respectively.





At
September 30, 2009, we had $384,000 in federal funds sold, compared with
$19,300,000 at December 31, 2008.





Loans





We had
total loans of $1,154,090,000 at September 30, 2009, an increase of
$185,857,000, or 19.20%, compared to $968,233,000 at December 31,
2008.  At September 30, 2009, 52% of our loans were in our Birmingham
offices, 25% in our Huntsville offices, 13% in our Montgomery offices, and 10%
in our Dothan office.




23





The
following table details our loans at September 30, 2009 and December 31,
2008:





September
                        30, 2009
                      
                      
                      December 31,
                        2008(In
      Thousands)Commercial,
      financial and agricultural
                      
                      $
                      440,255
                      
                      
                      $
                      325,968Real
      estate - construction (1)
                      
                      
                      227,867
                      
                      
                      
                      235,162Real
      estate - mortgage:Owner
      occupied
                      
                      
                      187,647
                      
                      
                      
                      147,1971-4
      Family
                      
                      
                      152,963
                      
                      
                      
                      137,019Other
                      
                      
                      115,346
                      
                      
                      
                      93,412Total
      Real Estate Mortgage
                      
                      
                      455,956
                      
                      
                      
                      377,628Consumer
                      
                      
                      30,012
                      
                      
                      
                      29,475Total
      Loans
                      
                      
                      1,154,090
                      
                      
                      
                      968,233Allowance
      for loan losses
                      
                      
                      (14,596
                      )
                      
                      
                      (10,602
                      )Total
      Loans, Net
                      
                      $
                      1,139,494
                      
                      
                      $
                      957,631





(1)
            includes
      Owner Occupied real estate construction loans in the amount of $18,868 and
      $7,247 at September 30, 2009 and December 31, 2008,
      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, 2009.





The
following table presents a summary of changes in the allowances for loan losses
for the three and nine months ended September 30, 2009 and 2008,
respectively.  The largest balance of our charge-offs is on real
estate construction loans. Real estate construction loans represent 19.74% of
our loan portfolio at September 30, 2009.




24





Three Months Ended
                  September 30,
                
                
                Nine Months Ended
                  September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(In
      Thousands)
                
                
                (In
      Thousands)Allowance
      for Loan LossesBalance,
      beginning of period
                
                $
                13,567
                
                
                $
                9,438
                
                
                $
                10,602
                
                
                $
                7,732Charge-offs:Commercial,
      financial and agricultural
                
                
                (1,089
                )
                
                
                (94
                )
                
                
                (1,897
                )
                
                
                (95
                )Real
      estate - construction
                
                
                (832
                )
                
                
                (78
                )
                
                
                (2,040
                )
                
                
                (1,826
                )Real
      estate - mortgage:Owner
      Occupied
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -1-4
      family mortgage
                
                
                (172
                )
                
                
                (155
                )
                
                
                (212
                )
                
                
                (232
                )Other
                
                
                (9
                )
                
                
                -
                
                
                
                (9
                )
                
                
                -Total
      real estate mortgage
                
                
                (181
                )
                
                
                (155
                )
                
                
                (221
                )
                
                
                (232
                )Consumer
                
                
                (81
                )
                
                
                (108
                )
                
                
                (167
                )
                
                
                (114
                )Total
      charge-offs
                
                
                (2,183
                )
                
                
                (435
                )
                
                
                (4,325
                )
                
                
                (2,267
                )Recoveries:Commercial,
      financial and agricultural
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                19Real
      estate - construction
                
                
                -
                
                
                
                -
                
                
                
                39
                
                
                
                -Real
      estate - mortgage:Owner
      Occupied
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -1-4
      family mortgage
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Other
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      real estate mortgage
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Consumer
                
                
                3
                
                
                
                -
                
                
                
                3
                
                
                
                -Total
      recoveries
                
                
                3
                
                
                
                -
                
                
                
                42
                
                
                
                19Net
      charge-offs
                
                
                (2,180
                )
                
                
                (435
                )
                
                
                (4,283
                )
                
                
                (2,248
                )Provision
      for loan losses charged to expense
                
                
                3,209
                
                
                
                1,381
                
                
                
                8,277
                
                
                
                4,900Balance,
      end of period
                
                $
                14,596
                
                
                $
                10,384
                
                
                $
                14,596
                
                
                $
                10,384As
      a percent of year to date average loans:Annualized
      net charge-offs
                
                
                0.76
                %
                
                
                0.20
                %
                
                
                0.54
                %
                
                
                0.38
                %Annualized
      provision for loan losses
                
                
                1.12
                %
                
                
                0.64
                %
                
                
                1.04
                %
                
                
                0.83
                %





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
developed by our credit administration group is in compliance with all current
regulatory guidelines.





September 30, 2009
                
                
                December 31, 2008
                
                
                September 30, 2008Amount
                
                
                Percentage of
                  Loans in
                  Each
                  Category of
                  Total Loans
                
                
                Amount
                
                
                Percentage of
                  Loans in
                  Each
                  Category of
                  Total Loans
                
                
                Amount
                
                
                Percentage of
                  Loans in
                  Each
                  Category of
                  Total Loans(In
      Thousands)
                
                
                
                
                
                (In
      Thousands)
                
                
                
                
                
                (In
      Thousands)Commercial,
      financial and agricultural
                
                $
                3,252
                
                
                
                38.15
                %
                
                $
                1,502
                
                
                
                33.67
                %
                
                $
                1,175
                
                
                
                32.63
                %Real
      estate - construction
                
                
                6,290
                
                
                
                19.74
                %
                
                
                5,473
                
                
                
                24.29
                %
                
                
                5,334
                
                
                
                26.05
                %Real
      estate - mortgage
                
                
                895
                
                
                
                39.51
                %
                
                
                428
                
                
                
                39.00
                %
                
                
                987
                
                
                
                38.20
                %Consumer
                
                
                2
                
                
                
                2.60
                %
                
                
                5
                
                
                
                3.04
                %
                
                
                51
                
                
                
                3.12
                %Other
                
                
                4,157
                
                
                
                -
                
                
                
                3,194
                
                
                
                -
                
                
                
                2,837
                
                
                
                -Total
                
                $
                14,596
                
                
                
                100.00
                %
                
                $
                10,602
                
                
                
                100.00
                %
                
                $
                10,384
                
                
                
                100.00
                %
  25





Non-performing
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 in the process of
collection. Generally, payments received on non-accrual loans are applied
directly to principal.





As of
September 30, 2009, our impaired loans, inclusive of non-accrual loans, totaled
$26,716,000 and had associated reserves of approximately
$3,828,000.  This compares to impaired loans and associated reserves
of $15,880,000 and $1,125,000, respectively at December 31, 2008.  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
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
nonaccrual status.





Non-performing
assets, comprising non-accrual loans, loans 90 days or more past due and still
accruing, troubled debt restructurings and other real estate owned (“OREO”),
totaled $29,321,000 at September 30, 2009, compared to $20,125,000 at December
31, 2008 and $15,363,000 at September 30, 2008. Non-accrual loans were
$13,794,000 at September 30, 2009, an increase of $6,081,000 from non-accrual
loans of $7,713,000 at December 31, 2008 and an increase of $7,131,000 from
non-accrual loans of $6,663,000 at September 30, 2008. Loans 90 days past due
and still accruing totaled $1,324,000 at September 30, 2009, compared to
$1,939,000 at December 31, 2008 and $489,000 at September 30,
2008.  Troubled debt restructurings totaled $750,000 at September 30,
2009, compared to $0 at December 31, 2008 and September 30, 2008.





A summary
of nonperforming assets as of September 30, 2009, December 31, 2008 and
September 30, 2008 follows:





September 30,
                    2009
                  
                  
                  December 31,
                    2008
                  
                  
                  September 30,
                    2008(In
      Thousands)Nonaccrual
      loans
                  
                  $
                  13,794
                  (1)
                  
                  $
                  7,713
                  
                  
                  $
                  6,663Past
      due 90 days and still accruing
                  
                  
                  1,324
                  
                  
                  
                  1,939
                  (2)
                  
                  
                  489Troubled
      debt restructures
                  
                  
                  750
                  
                  
                  
                  -
                  
                  
                  
                  -All
      other real estate owned
                  
                  
                  13,453
                  
                  
                  
                  10,473
                  
                  
                  
                  8,211Total
      non-performing assets
                  
                  $
                  29,321
                  
                  
                  $
                  20,125
                  
                  
                  $
                  15,363





(1)
            $1,785
      of this amount represents a loan as to which the full balance of principal
      and interest is guaranteed by the United States Department of
      Agriculture.


(2)
            $1,804
      of this amount represents a loan as to which the full balance of principal
      and interest is guaranteed by the United States Department of
      Agriculture.





The
increase in our non-accrual loans and other real estate owned for the first nine
months of 2009 is directly attributable to the current weak economy and related
slowdown in the residential real estate market. At September 30, 2009, total
nonperforming assets included finished and unfinished homes of $8,061,000,
residential lots of $9,864,000, raw land of $1,505,000 and commercial buildings
of $4,863,000. 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. Any difference between the disposition value and the loan balance
is charged off. Once the property is in OREO, sales efforts begin. Should
economic conditions continue to deteriorate, the continued and growing inability
of distressed customers to service their existing debt could cause higher levels
of non-performing loans.




26





Deposits





Total
deposits increased $324,164,000, or 31.25%, to $1,361,483,000 at September 30,
2009 compared to $1,037,319,000 at December 31, 2008.  We believe our
deposits will continue to increase during 2009 as a result of our expansion into
the Dothan market in 2008 and the Montgomery market in 2007 and expanded
customer relationships in the Birmingham and Huntsville 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 10 to the financial
statements, we borrowed $15.0 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.  As discussed in Note 11 to the 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.





The
retention of existing deposits and attraction of new deposit sources through new
and existing customers is critical to our liquidity position. If our liquidity
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, 2009, our liquid
assets, represented by cash and due from banks, federal funds sold and unpledged
available-for-sale securities, totaled $274 million. Additionally, the Bank had
additional borrowing availability of approximately $111 million in unused
federal funds lines of credit with regional banks, subject to certain
restrictions and collateral requirements, and had additional borrowing
availability of $142 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 also
completed the issuance of $15.0 million of trust preferred securities and a
related junior subordinated deferrable interest debenture, each bearing interest
at the rate of 8.5% per annum, on September 2, 2008, as more fully described in
Note 10 to the financial statements, and more recently, completed the issuance
of $5.0 million aggregate principal amount of 8.25% subordinated notes of the
Bank on June 23, 2009, as more fully described in Note 11 to the financial
statements.




27





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





The
following table reflects the contractual maturities of our term liabilities as
of September 30, 2009. 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
                  
                  $
                  1,127,127
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Certificates
      of deposit (2)
                  
                  
                  234,356
                  
                  
                  
                  176,933
                  
                  
                  
                  45,799
                  
                  
                  
                  11,624
                  
                  
                  
                  -FHLB
      borrowings
                  
                  
                  20,000
                  
                  
                  
                  -
                  
                  
                  
                  10,000
                  
                  
                  
                  10,000
                  
                  
                  
                  -Subordinated
      debentures
                  
                  
                  15,194
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,194Subordinated
      note payable
                  
                  
                  4,918
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,918Operating
      lease commitments
                  
                  
                  17,713
                  
                  
                  
                  1,687
                  
                  
                  
                  3,319
                  
                  
                  
                  3,427
                  
                  
                  
                  9,280Total
                  
                  $
                  1,419,308
                  
                  
                  $
                  178,620
                  
                  
                  $
                  59,118
                  
                  
                  $
                  25,051
                  
                  
                  $
                  29,392





(1)
            Excludes
      interest


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





Capital Adequacy





In
connection with a private placement and pursuant to subscription agreements
effective March 13, 2009, the Company issued and sold to 50 accredited investors
139,460 shares of the Company’s common stock for $25.00 per share, for an
aggregate purchase price of $3,486,500.  This sale completed the
Company’s private placement of 400,000 shares of the Company’s common stock for
$25.00 per share, or an aggregate purchase price of $10,000,000.  All
of these shares were sold to investors in the Dothan, Alabama area, our newest
market.





On June
23, 2009, the Bank issued $5,000,000 aggregate principal amount of its 8.25%
Subordinated Notes 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, and commencing on September 1,
2009.  Interest accrues at an annual rate of 8.25%.  The
proceeds from the issuance and sale of the notes are included in Tier 2 capital
of the Bank and the Company.




28





As of
September 30, 2009, 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. Our management believes that we are well-capitalized under the
prompt corrective action provisions as of September 30, 2009.





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, 2009, December 31, 2008, and September 30, 2008:





Actual
                
                
                For Capital Adequacy
                  Purposes
                
                
                To Be Well Capitalized
                  Under Prompt Corrective
                  Action ProvisionsAmount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                RatioAs
      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
      I 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
      I 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
                %As
      of December 31, 2008:Total
      Capital to Risk Weighted Assets:Consolidated
                
                $
                111,424
                
                
                
                11.25
                %
                
                $
                79,247
                
                
                
                8.00
                %
                
                $
                99,058
                
                
                
                10.00
                %ServisFirst
      Bank
                
                
                110,242
                
                
                
                11.14
                %
                
                
                79,182
                
                
                
                8.00
                %
                
                
                98,977
                
                
                
                10.00
                %Tier
      I Capital to Risk Weighted Assets:Consolidated
                
                
                100,822
                
                
                
                10.18
                %
                
                
                39,623
                
                
                
                4.00
                %
                
                
                59,435
                
                
                
                6.00
                %ServisFirst
      Bank
                
                
                99,640
                
                
                
                10.07
                %
                
                
                39,591
                
                
                
                4.00
                %
                
                
                59,386
                
                
                
                6.00
                %Tier
      I Capital to Average Assets:Consolidated
                
                
                100,822
                
                
                
                9.01
                %
                
                
                44,746
                
                
                
                4.00
                %
                
                
                55,933
                
                
                
                5.00
                %ServisFirst
      Bank
                
                
                99,640
                
                
                
                8.91
                %
                
                
                44,746
                
                
                
                4.00
                %
                
                
                55,933
                
                
                
                5.00
                %As
      of September 30, 2008:Total
      Capital to Risk Weighted Assets:Consolidated
                
                $
                102,592
                
                
                
                11.26
                %
                
                $
                72,917
                
                
                
                8.00
                %
                
                $
                91,146
                
                
                
                10.00
                %ServisFirst
      Bank
                
                
                101,499
                
                
                
                11.14
                %
                
                
                72,874
                
                
                
                8.00
                %
                
                
                91,092
                
                
                
                10.00
                %Tier
      I Capital to Risk Weighted Assets:Consolidated
                
                
                92,208
                
                
                
                10.12
                %
                
                
                36,458
                
                
                
                4.00
                %
                
                
                54,687
                
                
                
                6.00
                %ServisFirst
      Bank
                
                
                91,115
                
                
                
                10.00
                %
                
                
                36,437
                
                
                
                4.00
                %
                
                
                54,655
                
                
                
                6.00
                %Tier
      I Capital to Average Assets:Consolidated
                
                
                92,208
                
                
                
                9.27
                %
                
                
                39,778
                
                
                
                4.00
                %
                
                
                49,723
                
                
                
                5.00
                %ServisFirst
      Bank
                
                
                91,115
                
                
                
                9.16
                %
                
                
                39,778
                
                
                
                4.00
                %
                
                
                49,723
                
                
                
                5.00
                %





29


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, 2009
are as follows:





(In Thousands)Commitments
      to extend credit
                  
                  $
                  382,021Credit
      card arrangements
                  
                  
                  18,416Standby
      letters of credit
                  
                  
                  36,243$
                  436,680




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.





Net
Income





Net
income for the three months ended September 30, 2009 was $1,608,000, compared to
net income of $1,724,000 for the three months ended September 30,
2008.  Net income for the nine months ended September 30, 2009 was
$3,887,000, compared to net income of $5,045,000 for the nine months ended
September 30, 2008.  The decrease in net income was primarily
attributable to increased salary and benefit expenses primarily due to the
expansion into the Dothan market in 2008, an increase in FDIC insurance
assessment rates, increased provision for loan losses, and higher costs
associated with other real estate owned. The provision for loan losses increased
$1,828,000, to $3,209,000, for the three months ended September 30, 2009
compared to the same period in 2008, and increased $3,377,000, to $8,277,000,
for the nine months ended September 30, 2009 compared to the same period in
2008.  Noninterest expenses increased $1,511,000, to $6,972,000, for
the three months ended September 30, 2009 compared to the same period in 2008,
and increased $5,466,000, to $20,287,000, for the nine months ended September
30, 2009 compared to the same period in 2008.  The increase in
provision for loan losses was the result of funding the loan loss reserve to
match the growth in the loan portfolio and an increase in impaired
loans.  The increase in operating expenses was the result of our
expansion into the Dothan market, the addition of staff in other areas of the
Bank to match capacity needs, higher OREO expenses, and the accrual of a
$600,000 special FDIC insurance assessment in the second quarter of
2009.  Increases in net interest income and noninterest income
partially offset the negative impact of the increase in loan loss provision and
higher expenses.  Net interest income increased $2,567,000, to
$11,444,000, for the three months ended September 30, 2009 compared to the same
period in 2008, and increased $5,332,000, to $30,990,000, for the nine months
ended September 30, 2009 compared to the same period in
2008.  Noninterest income increased $295,000, to $967,000, for the
three months ended September 30, 2009 compared to the same period in 2008, and
increased $1,258,000, to $3,169,000, for the nine months ended September 30,
2009 compared to the same period in 2008.  Basic and diluted net
income per common share were $.29 and $.28, respectively, for the three months
ended September 30, 2009, compared to $.34 and $.32, respectively, for the same
period in 2008.  Basic and diluted net income per common share were
$.71 and $.67, respectively, for the nine months ended September 30, 2009,
compared to $.99 and $.95, respectively, for the same period in
2008.  Return on average assets for the three and nine months ended
September 30, 2009 was 0.45% and 0.40%, respectively, compared to 0.71% and
0.85% in 2008, and return on average stockholders’ equity for the three and nine
months ended September 30, 2009 was 6.75% and 5.70%, respectively, compared to
8.99% and 8.97% in 2008.


30




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 $2,792,000, or 31.10%, to $11,769,000 for the
three months ended September 30, 2009 compared to $8,977,000 in 2008, and
increased $518,000, or 1.68%, to $31,435,000 for the nine months ended September
30, 2009 compared to $30,917,000 in 2008.  These increases were
primarily attributable to balance sheet growth.  The
taxable-equivalent yield on interest-earning assets decreased to 4.68% for the
three months ended September 30, 2009 from 5.76% for the same period in 2008,
and decreased to 4.78% for the nine months ended September 30, 2009 from 6.06%
for the same period in 2008.  The yield on loans for the three months
ended September 30, 2009 was 5.10% compared to 5.79% for the same period in
2008, and was 5.09% compared to 6.23% for the nine months ended September 30,
2009 and 2008, respectively.  Lower construction lending activity
caused a decrease in loan fee income, a component of the average
yield.  Loan fees included in the yield calculation were flat at
$145,000 for the three months ended September 30, 2009 compared to the same
period in 2008, and decreased to $454,000 for the nine months ended September
30, 2009 from $761,000 for the same period in 2008.  The cost of total
interest-bearing liabilities decreased to 1.56% for the three months ended
September 30, 2009 from 2.42% for the same period in 2008, and to 1.73% for the
nine months ended September 30, 2009 from 1.80% for the same period in
2008.  The higher interest rate on the trust preferred securities,
8.50%, issued in September 2008 limited the decrease in the average rate paid on
interest-bearing liabilities.





The
following tables show, for the three months and nine months ended September 30,
2009 and 2008, 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:




31




Average
Balance Sheets and Net Interest Analysis


On
a Fully Taxable-Equivalent Basis


For
the Three Months Ended September 30,





2009
                                                      
                                                      
                                                      2008AverageBalance
                                                      
                                                      
                                                      InterestEarned /Paid
                                                      
                                                      
                                                      AverageYield / Rate
                                                      
                                                      
                                                      AverageBalance
                                                      
                                                      
                                                      InterestEarned /Paid
                                                      
                                                      
                                                      AverageYield / RateAssets:Interest-earning
      assets:Loans,
      net of unearned income (1)
                                                      
                                                      $
                                                      1,133,506
                                                      
                                                      
                                                      $
                                                      14,560
                                                      
                                                      
                                                      
                                                      5.10
                                                      %
                                                      
                                                      $
                                                      864,523
                                                      
                                                      
                                                      $
                                                      12,620
                                                      
                                                      
                                                      
                                                      5.79
                                                      %Mortgage
      loans held for sale
                                                      
                                                      
                                                      3,329
                                                      
                                                      
                                                      
                                                      38
                                                      
                                                      
                                                      
                                                      4.53
                                                      
                                                      
                                                      
                                                      2,416
                                                      
                                                      
                                                      
                                                      37
                                                      
                                                      
                                                      
                                                      6.08Investment
      securities:Taxable
                                                      
                                                      
                                                      77,267
                                                      
                                                      
                                                      
                                                      1,154
                                                      
                                                      
                                                      
                                                      5.93
                                                      
                                                      
                                                      
                                                      67,759
                                                      
                                                      
                                                      
                                                      951
                                                      
                                                      
                                                      
                                                      5.57Tax-exempt
      (2)
                                                      
                                                      
                                                      41,835
                                                      
                                                      
                                                      
                                                      579
                                                      
                                                      
                                                      
                                                      5.49
                                                      
                                                      
                                                      
                                                      23,661
                                                      
                                                      
                                                      
                                                      335
                                                      
                                                      
                                                      
                                                      5.62Total
      investment securities (3)
                                                      
                                                      
                                                      119,102
                                                      
                                                      
                                                      
                                                      1,733
                                                      
                                                      
                                                      
                                                      5.77
                                                      
                                                      
                                                      
                                                      91,420
                                                      
                                                      
                                                      
                                                      1,286
                                                      
                                                      
                                                      
                                                      5.58Federal
      funds sold
                                                      
                                                      
                                                      126,321
                                                      
                                                      
                                                      
                                                      77
                                                      
                                                      
                                                      
                                                      0.24
                                                      
                                                      
                                                      
                                                      2,190
                                                      
                                                      
                                                      
                                                      12
                                                      
                                                      
                                                      
                                                      2.17Restricted
      equity securities
                                                      
                                                      
                                                      3,241
                                                      
                                                      
                                                      
                                                      9
                                                      
                                                      
                                                      
                                                      1.10
                                                      
                                                      
                                                      
                                                      2,659
                                                      
                                                      
                                                      
                                                      26
                                                      
                                                      
                                                      
                                                      3.88Interest-bearing
      balances with banks
                                                      
                                                      
                                                      5,397
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      0.00
                                                      
                                                      
                                                      
                                                      13
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      0.00Total
      interest-earning assets
                                                      
                                                      $
                                                      1,390,896
                                                      
                                                      
                                                      $
                                                      16,417
                                                      
                                                      
                                                      
                                                      4.68
                                                      %
                                                      
                                                      $
                                                      963,221
                                                      
                                                      
                                                      $
                                                      13,981
                                                      
                                                      
                                                      
                                                      5.76
                                                      %Non-interest-earning
      assets:Cash
      and due from banks
                                                      
                                                      
                                                      19,357
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      21,524Net
      fixed assets and equipment
                                                      
                                                      
                                                      4,701
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3,928Allowance
      for loan losses, accruedinterest
      and other assets
                                                      
                                                      
                                                      10,478
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      5,782Total
      assets
                                                      
                                                      $
                                                      1,425,432
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      994,455Liabilities
      and stockholders' equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                                                      
                                                      $
                                                      165,781
                                                      
                                                      
                                                      $
                                                      369
                                                      
                                                      
                                                      
                                                      0.88
                                                      %
                                                      
                                                      $
                                                      92,480
                                                      
                                                      
                                                      $
                                                      387
                                                      
                                                      
                                                      
                                                      1.66
                                                      %Savings
      deposits
                                                      
                                                      
                                                      991
                                                      
                                                      
                                                      
                                                      1
                                                      
                                                      
                                                      
                                                      0.40
                                                      
                                                      
                                                      
                                                      443
                                                      
                                                      
                                                      
                                                      1
                                                      
                                                      
                                                      
                                                      0.90Money
      market accounts
                                                      
                                                      
                                                      741,626
                                                      
                                                      
                                                      
                                                      2,202
                                                      
                                                      
                                                      
                                                      1.18
                                                      
                                                      
                                                      
                                                      540,314
                                                      
                                                      
                                                      
                                                      2,810
                                                      
                                                      
                                                      
                                                      2.06Time
      deposits
                                                      
                                                      
                                                      232,474
                                                      
                                                      
                                                      
                                                      1,459
                                                      
                                                      
                                                      
                                                      2.49
                                                      
                                                      
                                                      
                                                      147,918
                                                      
                                                      
                                                      
                                                      1,443
                                                      
                                                      
                                                      
                                                      3.87Fed
      funds purchased
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      0.00
                                                      
                                                      
                                                      
                                                      13,695
                                                      
                                                      
                                                      
                                                      88
                                                      
                                                      
                                                      
                                                      2.55Other
      borrowings
                                                      
                                                      
                                                      40,093
                                                      
                                                      
                                                      
                                                      617
                                                      
                                                      
                                                      
                                                      6.11
                                                      
                                                      
                                                      
                                                      24,945
                                                      
                                                      
                                                      
                                                      275
                                                      
                                                      
                                                      
                                                      4.37Total
      interest-bearing liabilities
                                                      
                                                      $
                                                      1,180,965
                                                      
                                                      
                                                      $
                                                      4,648
                                                      
                                                      
                                                      
                                                      1.56
                                                      
                                                      
                                                      $
                                                      819,795
                                                      
                                                      
                                                      $
                                                      5,004
                                                      
                                                      
                                                      
                                                      2.42Non-interest-bearing
      liabilities:Non-interest-bearing
      demanddeposits
                                                      
                                                      
                                                      146,164
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      95,634Other
      liabilities
                                                      
                                                      
                                                      3,725
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      2,736Stockholders'
      equity
                                                      
                                                      
                                                      92,959
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      76,109Unrealized
      gains onsecurities
      and derivatives
                                                      
                                                      
                                                      1,619
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      181Total
      liabilities andstockholders'
      equity
                                                      
                                                      $
                                                      1,425,432
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      994,455Net
      interest spread
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3.12
                                                      %
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3.34
                                                      %Net
      interest margin
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3.36
                                                      %
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      3.70
                                                      %





(1)
            Non-accrual
      loans are included in average loan balances in all
      periods.  Loan fees of $145,000 are included in interestincome
      in 2009 and 2008.


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


(3)
            Unrealized
      gains (losses) of $2,453,000 and ($216,000) are excluded from the yield
      calculation in 2009 and 2008,
respectively.




32




Three Months Ended September 30,2009 Compared to 2008 Increase (Decrease)in Interest Income and Expense Due toChanges in:Volume
                      
                      
                      Rate
                      
                      
                      TotalInterest-earning
      assets:Loans,
      net of unearned income
                      
                      
                      3,927
                      
                      
                      
                      (1,987
                      )
                      
                      
                      1,940Mortgages
      held for sale
                      
                      
                      14
                      
                      
                      
                      (13
                      )
                      
                      
                      1Investment
      securities:Securities
      - taxable
                      
                      
                      133
                      
                      
                      
                      70
                      
                      
                      
                      203Securities
      - non taxable
                      
                      
                      258
                      
                      
                      
                      (14
                      )
                      
                      
                      244Federal
      funds sold
                      
                      
                      680
                      
                      
                      
                      (615
                      )
                      
                      
                      65Restricted
      equity securities
                      
                      
                      6
                      
                      
                      
                      (23
                      )
                      
                      
                      (17
                      )Interest-bearing
      balances with banks
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      interest-earning assets
                      
                      
                      5,018
                      
                      
                      
                      (2,582
                      )
                      
                      
                      2,436Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                      
                      
                      307
                      
                      
                      
                      (325
                      )
                      
                      
                      (18
                      )Savings
                      
                      
                      1
                      
                      
                      
                      (1
                      )
                      
                      
                      -Money
      market accounts
                      
                      
                      1,047
                      
                      
                      
                      (1,655
                      )
                      
                      
                      (608
                      )Time
      deposits
                      
                      
                      825
                      
                      
                      
                      (809
                      )
                      
                      
                      16Fed
      funds purchased
                      
                      
                      (88
                      )
                      
                      
                      -
                      
                      
                      
                      (88
                      )Other
      borrowed funds
                      
                      
                      167
                      
                      
                      
                      175
                      
                      
                      
                      342Total
      interest-bearing liabilities
                      
                      
                      2,259
                      
                      
                      
                      (2,615
                      )
                      
                      
                      (356
                      )Increase
      in net interest income
                      
                      
                      2,759
                      
                      
                      
                      33
                      
                      
                      
                      2,792




33




Average
Balance Sheets and Net Interest Analysis


On
a Fully Taxable-Equivalent Basis


For
the Nine Months Ended September 30,





2009
                                                
                                                
                                                2008AverageBalance
                                                
                                                
                                                InterestEarned /Paid
                                                
                                                
                                                AverageYield / Rate
                                                
                                                
                                                AverageBalance
                                                
                                                
                                                InterestEarned /Paid
                                                
                                                
                                                AverageYield / RateAssets:Interest-earning
      assets:Loans,
      net of unearned income (1)
                                                
                                                $
                                                1,064,027
                                                
                                                
                                                $
                                                40,477
                                                
                                                
                                                
                                                5.09
                                                %
                                                
                                                $
                                                790,918
                                                
                                                
                                                $
                                                36,858
                                                
                                                
                                                
                                                6.23
                                                %Mortgage
      loans held for sale
                                                
                                                
                                                6,459
                                                
                                                
                                                
                                                213
                                                
                                                
                                                
                                                4.41
                                                
                                                
                                                
                                                2,562
                                                
                                                
                                                
                                                111
                                                
                                                
                                                
                                                5.79Investment
      securities:Taxable
                                                
                                                
                                                74,058
                                                
                                                
                                                
                                                3,116
                                                
                                                
                                                
                                                5.62
                                                
                                                
                                                
                                                67,268
                                                
                                                
                                                
                                                2,831
                                                
                                                
                                                
                                                5.63Tax-exempt
      (2)
                                                
                                                
                                                35,307
                                                
                                                
                                                
                                                1,468
                                                
                                                
                                                
                                                5.56
                                                
                                                
                                                
                                                22,961
                                                
                                                
                                                
                                                973
                                                
                                                
                                                
                                                5.67Total
      investment securities (3)
                                                
                                                
                                                109,365
                                                
                                                
                                                
                                                4,584
                                                
                                                
                                                
                                                5.60
                                                
                                                
                                                
                                                90,229
                                                
                                                
                                                
                                                3,804
                                                
                                                
                                                
                                                5.64Federal
      funds sold
                                                
                                                
                                                79,145
                                                
                                                
                                                
                                                148
                                                
                                                
                                                
                                                0.25
                                                
                                                
                                                
                                                23,502
                                                
                                                
                                                
                                                449
                                                
                                                
                                                
                                                2.55Restricted
      equity securities
                                                
                                                
                                                3,053
                                                
                                                
                                                
                                                10
                                                
                                                
                                                
                                                0.44
                                                
                                                
                                                
                                                2,230
                                                
                                                
                                                
                                                79
                                                
                                                
                                                
                                                4.74Interest-bearing
      balances with banks
                                                
                                                
                                                9,109
                                                
                                                
                                                
                                                21
                                                
                                                
                                                
                                                0.31
                                                
                                                
                                                
                                                1,742
                                                
                                                
                                                
                                                53
                                                
                                                
                                                
                                                4.07Total
      interest-earning assets
                                                
                                                $
                                                1,271,158
                                                
                                                
                                                $
                                                45,453
                                                
                                                
                                                
                                                4.78
                                                %
                                                
                                                $
                                                911,183
                                                
                                                
                                                $
                                                41,354
                                                
                                                
                                                
                                                6.07
                                                %Non-interest-earning
      assets:Cash
      and due from banks
                                                
                                                
                                                18,359
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                19,743Net
      fixed assets and equipment
                                                
                                                
                                                4,224
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                4,027Allowance
      for loan losses, accruedinterest
      and other assets
                                                
                                                
                                                9,381
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                4,354Total
      assets
                                                
                                                $
                                                1,303,122
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                939,307Liabilities
      and stockholders' equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                                                
                                                $
                                                153,727
                                                
                                                
                                                $
                                                1,248
                                                
                                                
                                                
                                                1.09
                                                %
                                                
                                                $
                                                85,275
                                                
                                                
                                                $
                                                1,101
                                                
                                                
                                                
                                                1.73
                                                %Savings
      deposits
                                                
                                                
                                                909
                                                
                                                
                                                
                                                4
                                                
                                                
                                                
                                                0.59
                                                
                                                
                                                
                                                417
                                                
                                                
                                                
                                                2
                                                
                                                
                                                
                                                0.64Money
      market accounts
                                                
                                                
                                                682,205
                                                
                                                
                                                
                                                6,943
                                                
                                                
                                                
                                                1.36
                                                
                                                
                                                
                                                537,217
                                                
                                                
                                                
                                                9,682
                                                
                                                
                                                
                                                2.41Time
      deposits
                                                
                                                
                                                206,830
                                                
                                                
                                                
                                                4,196
                                                
                                                
                                                
                                                2.71
                                                
                                                
                                                
                                                127,757
                                                
                                                
                                                
                                                4,034
                                                
                                                
                                                
                                                4.22Fed
      funds purchased
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                0.00
                                                
                                                
                                                
                                                6,272
                                                
                                                
                                                
                                                118
                                                
                                                
                                                
                                                0.00Other
      borrowings
                                                
                                                
                                                36,887
                                                
                                                
                                                
                                                1,626
                                                
                                                
                                                
                                                5.89
                                                
                                                
                                                
                                                16,127
                                                
                                                
                                                
                                                462
                                                
                                                
                                                
                                                3.83Total
      interest-bearing liabilities
                                                
                                                $
                                                1,080,558
                                                
                                                
                                                $
                                                14,017
                                                
                                                
                                                
                                                1.73
                                                
                                                
                                                $
                                                773,065
                                                
                                                
                                                $
                                                15,399
                                                
                                                
                                                
                                                2.66Non-interest-bearing
      liabilities:Non-interest-bearing
      demanddeposits
                                                
                                                
                                                127,564
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                86,537Other
      liabilities
                                                
                                                
                                                3,782
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                4,535Stockholders'
      equity
                                                
                                                
                                                89,839
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                74,323Unrealized
      gains onsecurities
      and derivatives
                                                
                                                
                                                1,379
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                847Total
      liabilities andstockholders'
      equity
                                                
                                                $
                                                1,303,122
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                939,307Net
      interest spread
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3.05
                                                %
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3.40
                                                %Net
      interest margin
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3.31
                                                %
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3.81
                                                %





(1)
            Non-accrual
      loans are included in average loan balances in all
      periods.  Loan fees of $454,000 and $761,000 are included in
      interestincome
      in 2009 and 2008, respectively.


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


(3)
            Unrealized
      gains of $1,992,000 and $986,000 are excluded from the yield calculation
      in 2009 and 2008, respectively.




34




Nine Months Ended September 30,2009 Compared to 2008 Increase (Decrease)in Interest Income and Expense Due toChanges in:Volume
                      
                      
                      Rate
                      
                      
                      TotalInterest-earning
      assets:Loans,
      net of unearned income
                      
                      
                      12,727
                      
                      
                      
                      (9,108
                      )
                      
                      
                      3,619Mortgages
      held for sale
                      
                      
                      169
                      
                      
                      
                      (67
                      )
                      
                      
                      102Investment
      securities:Securities
      - taxable
                      
                      
                      286
                      
                      
                      
                      (1
                      )
                      
                      
                      285Securities
      - non taxable
                      
                      
                      523
                      
                      
                      
                      (28
                      )
                      
                      
                      495Federal
      funds sold
                      
                      
                      1,063
                      
                      
                      
                      (1,364
                      )
                      
                      
                      (301
                      )Restricted
      equity securities
                      
                      
                      29
                      
                      
                      
                      (98
                      )
                      
                      
                      (69
                      )Interest-bearing
      balances with banks
                      
                      
                      224
                      
                      
                      
                      (256
                      )
                      
                      
                      (32
                      )Total
      interest-earning assets
                      
                      
                      15,021
                      
                      
                      
                      (10,922
                      )
                      
                      
                      4,099Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                      
                      
                      884
                      
                      
                      
                      (737
                      )
                      
                      
                      147Savings
                      
                      
                      2
                      
                      
                      
                      -
                      
                      
                      
                      2Money
      market accounts
                      
                      
                      2,613
                      
                      
                      
                      (5,352
                      )
                      
                      
                      (2,739
                      )Time
      deposits
                      
                      
                      2,497
                      
                      
                      
                      (2,335
                      )
                      
                      
                      162Fed
      funds purchased
                      
                      
                      (118
                      )
                      
                      
                      -
                      
                      
                      
                      (118
                      )Other
      borrowed funds
                      
                      
                      595
                      
                      
                      
                      569
                      
                      
                      
                      1,164Total
      interest-bearing liabilities
                      
                      
                      6,473
                      
                      
                      
                      (7,855
                      )
                      
                      
                      (1,382
                      )Increase
      in net interest income
                      
                      
                      8,548
                      
                      
                      
                      (3,067
                      )
                      
                      
                      5,481





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.




35




The
provision for loan losses was $3,209,000 for the three months ended September
30, 2009, an increase of $1,828,000 over $1,381,000 for the three months ended
September 30, 2008.  The provision for loan losses was $8,277,000 for
the nine months ended September 30, 2009, an increase of $3,377,000 over
$4,900,000 for the nine months ended September 30, 2008.  Our
management continues to maintain a proactive approach to credit risk management.
Nonperforming loans increased to $15,868,000, or 1.37% of total loans, at
September 30, 2009 from $9,652,000, or 1.00% of total loans, at December 31,
2008, and from $7,152,000 or 0.80% of total loans, at September 30,
2008.  Impaired loans increased to $26,716,000, or 2.31% of total
loans at September 30, 2009 compared to $15,880,000, or 1.64% of total loans at
December 31, 2008 and $14,293,000, or 1.59% of total loans at September 30,
2008.  The allowance for loan losses totaled $14,596,000, or 1.26% of
loans, net of unearned income, at September 30, 2009, compared to $10,602,000,
or 1.09% of loans, net of unearned income, at December 31, 2008.





Noninterest Income





Noninterest
income totaled $967,000 for the three months ended September 30, 2009, an
increase of $295,000, or 43.90%, compared to the same period in 2008, and
totaled $3,169,000 for the nine months ended September 30, 2009, an increase of
$1,258,000, or 65.83%, compared to the same period in 2008.  Income
from mortgage banking operations for the three months ended September 30, 2009
was $419,000, an increase of $202,000, or 93.09%, from $217,000 for the same
period in 2008, and for the nine months ended September 30, 2009 was $1,702,000,
an increase of $969,000, or 132.08%, from $733,000 for the same period in
2008.  These increases are due to increased refinancing activity in
2009 as a result of lower mortgage rates.  Income from customer
service charges and fees for the three months ended September 30, 2009 increased
$61,000, or 17.04%, to $419,000 from $358,000 for the same period in 2008, and
for the nine months ended September 30, 2009 increased $247,000, or 27.32%, to
$1,151,000 from $904,000 for the same period in 2008.  The increase is
primarily due to an increase in transaction accounts from 2008 to
2009.  Merchant service fees were $176,000 for the three months ended
September 30, 2009, an increase of $46,000, or 35.38%, compared to $130,000 for
the same period in 2008, and were $501,000 for the nine months ended September
30, 2009, an increase of $161,000, or 47.35%, compared to $340,000 for the same
period in 2008.





Noninterest
Expense





Noninterest
expense totaled $6,972,000 for the three months ended September 30, 2009, an
increase of $1,511,000, or 27.67%, compared to $5,461,000 in 2008, and totaled
$20,287,000 for the nine months ended September 30, 2009, an increase of
$5,466,000, or 36.88%, compared to $14,821,000 in 2008.  The increases
for the three- and nine-month periods in 2009 over the same periods in 2008 were
primarily due to our continued growth and expansion, which has resulted in the
addition of personnel and the opening of a new office in
Dothan.  Salaries and employee benefits increased $714,000, or 26.60%,
to $3,398,000 for the three months ended September 30, 2009 compared to
$2,684,000 for the same period in 2008, and increased $2,444,000, or 30.90%, to
$10,354,000 for the nine months ended September 30, 2009 compared to $7,910,000
for the same period in 2008.  These increases are primarily the result
of our increased employee base, to 155 employees at September 30, 2009 from 139
at September 30, 2008.  Other operating expenses increased $602,000,
or 30.45%, to $2,579,000 for the three months ended September 30, 2009 compared
to $1,977,000 for the same period in 2008, and increased $2,815,000, or 62.78%,
to $7,299,000 for the nine months ended September 30, 2009 compared to
$4,484,000 for the same period in 2008.  This increase was the result
of higher FDIC insurance assessments and an increase in OREO
expenses.  FDIC assessments increased to $434,000 and $1,425,000 for
the three and nine months ended September 30, 2009, respectively, compared to
$153,000 and $406,000 for the three and nine months ended September 30,
2008.  The Company accrued a $600,000 one-time special assessment in
the second quarter of 2009.  This special assessment decreased diluted
earnings per share by approximately $.07 for the nine months ended September 30,
2009.   OREO expenses decreased to $436,000 and $1,607,000 for
the three and nine months ended September 30, 2009, respectively, compared to
$579,000 and $732,000 for the three and nine months ended September 30, 2008,
respectively.




36




Income
Tax Expense





Income
tax expense was $622,000 for the three months ended September 30, 2009 versus
$983,000 for the same period in 2008, and was $1,708,000 for the nine months
ended September 30, 2009 versus $2,803,000 for the same period in 2008. Our
effective tax rates for the three and nine months ended September 30, 2009 were
27.89% and 30.53%, respectively, compared to 36.31% and 35.72% for the same
periods in 2008.  Our primary permanent differences are related to
SFAS 123(R) option expenses and tax-free income.





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.




37





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.





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, 2009. Based upon the Evaluation, our CEO and CFO have concluded
that, as of September 30, 2009, 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.





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, 2008, 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, 2008, 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.




38




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.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





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:
      October 30, 2009
                    By
      /s/ Thomas A.
      Broughton, IIIThomas
      A. Broughton, IIIPresident
      and Chief Executive OfficerDate:
      October 30, 2009
                    By
      /s/ William M.
      FosheeWilliam
      M. FosheeChief Financial
      Officer.01,
      Doc:





39