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 JUNE 30,
2009


o   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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





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  July 24, 2009Common
      stock, $.001 par value
                
                5,513,482

















TABLE
OF CONTENTS





PART I. 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
                  40EX-31.01
      SECTION 302, CERTIFICATION OF THE CEOEX-31.02
      SECTION 302, CERTIFICATION OF THE CFOEX-31.01
      SECTION 906, CERTIFICATION OF THE CEOEX-31.01
      SECTION 906, CERTIFICATION OF THE
CFO




2


PART
1. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
BALANCE SHEETS


JUNE
30, 2009 AND DECEMBER 31, 2008


(In
thousands)





June 30, 2009
                      
                      
                      December 31,
                        2008(Unaudited)
                      
                      
                      (Audited)ASSETSCash
      and due from banks
                      
                      $
                      18,474
                      
                      
                      $
                      22,844Interest-bearing
      balances due from depository institutions
                      
                      
                      1,016
                      
                      
                      
                      30,774Federal
      funds sold
                      
                      
                      76,978
                      
                      
                      
                      19,300Cash
      and cash equivalents
                      
                      $
                      96,468
                      
                      
                      
                      72,918Securities
      available for sale
                      
                      
                      111,814
                      
                      
                      
                      102,339Restricted
      equity securities
                      
                      
                      3,241
                      
                      
                      
                      2,659Mortgage
      loans held for sale
                      
                      
                      8,023
                      
                      
                      
                      3,320Loans
                      
                      
                      1,111,744
                      
                      
                      
                      968,233Less
      allowance for loan losses
                      
                      
                      (13,567
                      )
                      
                      
                      (10,602
                      )Loans,
      net
                      
                      
                      1,098,177
                      
                      
                      
                      957,631Premises
      and equipment, net
                      
                      
                      4,353
                      
                      
                      
                      3,884Accrued
      interest and dividends receivable
                      
                      
                      4,363
                      
                      
                      
                      4,026Deferred
      tax assets
                      
                      
                      4,761
                      
                      
                      
                      3,585Other
      real estate owned
                      
                      
                      9,239
                      
                      
                      
                      10,473Other
      assets
                      
                      
                      1,904
                      
                      
                      
                      1,437Total
      assets
                      
                      $
                      1,342,343
                      
                      
                      $
                      1,162,272LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Deposits:Noninterest-bearing
                      
                      $
                      139,169
                      
                      
                      $
                      121,459Interest-bearing
                      
                      
                      1,067,316
                      
                      
                      
                      915,860Total
      deposits
                      
                      
                      1,206,485
                      
                      
                      
                      1,037,319Other
      borrowings
                      
                      
                      24,915
                      
                      
                      
                      20,000Trust
      preferred securities
                      
                      
                      15,158
                      
                      
                      
                      15,087Accrued
      interest payable
                      
                      
                      1,071
                      
                      
                      
                      1,280Other
      liabilities
                      
                      
                      1,822
                      
                      
                      
                      1,803Total
      liabilities
                      
                      
                      1,249,451
                      
                      
                      
                      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
                      
                      
                      74,688
                      
                      
                      
                      70,729Retained
      earnings
                      
                      
                      17,366
                      
                      
                      
                      15,087Accumulated
      other comprehensive income
                      
                      
                      832
                      
                      
                      
                      962Total
      stockholders' equity
                      
                      
                      92,892
                      
                      
                      
                      86,783Total
      liabilities and stockholders' equity
                      
                      $
                      1,342,343
                      
                      
                      $
                      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 June 30,
                                          
                                          
                                          Six Months Ended June 30,2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Interest
      income:Interest
      and fees on loans
                                          
                                          $
                                          13,583
                                          
                                          
                                          $
                                          11,938
                                          
                                          
                                          $
                                          26,092
                                          
                                          
                                          $
                                          24,312Taxable
      securities
                                          
                                          
                                          1,004
                                          
                                          
                                          
                                          975
                                          
                                          
                                          
                                          2,111
                                          
                                          
                                          
                                          1,881Nontaxable
      securities
                                          
                                          
                                          343
                                          
                                          
                                          
                                          229
                                          
                                          
                                          
                                          620
                                          
                                          
                                          
                                          444Federal
      funds sold
                                          
                                          
                                          47
                                          
                                          
                                          
                                          164
                                          
                                          
                                          
                                          71
                                          
                                          
                                          
                                          437Other
      interest and dividends
                                          
                                          
                                          2
                                          
                                          
                                          
                                          35
                                          
                                          
                                          
                                          21
                                          
                                          
                                          
                                          102Total
      interest income
                                          
                                          
                                          14,979
                                          
                                          
                                          
                                          13,341
                                          
                                          
                                          
                                          28,915
                                          
                                          
                                          
                                          27,176Interest
      expense:Deposits
                                          
                                          
                                          3,967
                                          
                                          
                                          
                                          4,457
                                          
                                          
                                          
                                          8,360
                                          
                                          
                                          
                                          10,179Borrowed
      funds
                                          
                                          
                                          511
                                          
                                          
                                          
                                          190
                                          
                                          
                                          
                                          1,009
                                          
                                          
                                          
                                          216Total
      interest expense
                                          
                                          
                                          4,478
                                          
                                          
                                          
                                          4,647
                                          
                                          
                                          
                                          9,369
                                          
                                          
                                          
                                          10,395Net
      interest income
                                          
                                          
                                          10,501
                                          
                                          
                                          
                                          8,694
                                          
                                          
                                          
                                          19,546
                                          
                                          
                                          
                                          16,781Provision
      for loan losses
                                          
                                          
                                          2,608
                                          
                                          
                                          
                                          2,137
                                          
                                          
                                          
                                          5,068
                                          
                                          
                                          
                                          3,519Net
      interest income after provision for loan losses
                                          
                                          
                                          7,893
                                          
                                          
                                          
                                          6,557
                                          
                                          
                                          
                                          14,478
                                          
                                          
                                          
                                          13,262Noninterest
      income:Service
      charges on deposit accounts
                                          
                                          
                                          376
                                          
                                          
                                          
                                          290
                                          
                                          
                                          
                                          732
                                          
                                          
                                          
                                          546Other
      operating income
                                          
                                          
                                          906
                                          
                                          
                                          
                                          405
                                          
                                          
                                          
                                          1,470
                                          
                                          
                                          
                                          692Total
      noninterest income
                                          
                                          
                                          1,282
                                          
                                          
                                          
                                          695
                                          
                                          
                                          
                                          2,202
                                          
                                          
                                          
                                          1,238Noninterest
      expenses:Salaries
      and employee benefits
                                          
                                          
                                          3,590
                                          
                                          
                                          
                                          2,400
                                          
                                          
                                          
                                          6,956
                                          
                                          
                                          
                                          5,227Equipment
      and occupancy expense
                                          
                                          
                                          622
                                          
                                          
                                          
                                          522
                                          
                                          
                                          
                                          1,210
                                          
                                          
                                          
                                          1,053Professional
      services
                                          
                                          
                                          216
                                          
                                          
                                          
                                          259
                                          
                                          
                                          
                                          429
                                          
                                          
                                          
                                          575Other
      operating expenses
                                          
                                          
                                          2,454
                                          
                                          
                                          
                                          1,349
                                          
                                          
                                          
                                          4,720
                                          
                                          
                                          
                                          2,505Total
      noninterest expenses
                                          
                                          
                                          6,882
                                          
                                          
                                          
                                          4,530
                                          
                                          
                                          
                                          13,315
                                          
                                          
                                          
                                          9,360Income
      before income taxes
                                          
                                          
                                          2,293
                                          
                                          
                                          
                                          2,722
                                          
                                          
                                          
                                          3,365
                                          
                                          
                                          
                                          5,140Provision
      for income taxes
                                          
                                          
                                          734
                                          
                                          
                                          
                                          972
                                          
                                          
                                          
                                          1,086
                                          
                                          
                                          
                                          1,820Net
      income
                                          
                                          $
                                          1,559
                                          
                                          
                                          $
                                          1,750
                                          
                                          
                                          $
                                          2,279
                                          
                                          
                                          $
                                          3,320Basic
      earnings per share
                                          
                                          $
                                          0.28
                                          
                                          
                                          $
                                          0.34
                                          
                                          
                                          $
                                          0.42
                                          
                                          
                                          $
                                          0.65Diluted
      earnings per share
                                          
                                          $
                                          0.27
                                          
                                          
                                          $
                                          0.33
                                          
                                          
                                          $
                                          0.40
                                          
                                          
                                          $
                                          0.63





See
Notes to Consolidated Financial  Statements.





4




SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)


(In
thousands)





Three Months Ended June 30,
                            
                            
                            Six Months Ended June 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Net
      income
                            
                            $
                            1,559
                            
                            
                            $
                            1,750
                            
                            
                            $
                            2,279
                            
                            
                            $
                            3,320Other
      comprehensive loss, net of tax:Unrealized
      holding (losses) gains arising during period from
    securitiesavailable
      for sale, net of (benefit) tax of $(45) and $26 for the
    threeand
      six months ended June 30, 2009, respectively, and $(818)and
      $(466) for the three and six months ended June 30, 2008,respectively
                            
                            
                            (88
                            )
                            
                            
                            (1,592
                            )
                            
                            
                            50
                            
                            
                            
                            (905
                            )Unrealized
      holding gains arising during period from derivative,net
      of tax of $35
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            68Reclassification
      adjustment for net gains realized on derivativesin
      net income, net of tax benefit of $46 and $93 for the
threeand
      six months ended June 30, 2009, respectively, and $46 and$93
      for the three and six months ended June 30, 2008,
    respectively
                            
                            
                            (90
                            )
                            
                            
                            (90
                            )
                            
                            
                            (180
                            )
                            
                            
                            (180
                            )Other
      comprehensive loss
                            
                            
                            (178
                            )
                            
                            
                            (1,682
                            )
                            
                            
                            (130
                            )
                            
                            
                            (1,017
                            )Comprehensive
      income
                            
                            $
                            1,381
                            
                            
                            $
                            68
                            
                            
                            $
                            2,149
                            
                            
                            $
                            2,303





See
Notes to Consolidated Financial Statements




5




SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


SIX
MONTHS ENDED JUNE 30, 2009


(Unaudited)


(In
thousands)





Common
                    Stock
                  
                  
                  Additional
                    Paid-in
                    Capital
                  
                  
                  Retained
                    Earnings
                  
                  
                  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 tosubordinated
      notes payable
                  
                  
                  -
                  
                  
                  
                  86
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  86Accumulated
      other comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (130
                  )
                  
                  
                  (130
                  )Stock-based
      compensation expense
                  
                  
                  -
                  
                  
                  
                  395
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  395Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,279
                  
                  
                  
                  -
                  
                  
                  
                  2,279Balance,
      June 30, 2009
                  
                  $
                  6
                  
                  
                  $
                  74,688
                  
                  
                  $
                  17,366
                  
                  
                  $
                  832
                  
                  
                  $
                  92,892





See
Notes to Consolidated Financial Statements


6




SERVISFIRST
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


SIX
MONTHS ENDED JUNE 30, 2009 AND 2008


(Unaudited)


(In
thousands)





2009
                      
                      
                      2008OPERATING
      ACTIVITIESNet
      income
                      
                      
                      2,279
                      
                      
                      $
                      3,320Adjustments
      to reconcile net income to net cash (used in) provided byoperating
      activities:Deferred
      tax benefit
                      
                      
                      (1,109
                      )
                      
                      
                      (623
                      )Provision
      for loan losses
                      
                      
                      5,068
                      
                      
                      
                      3,519Depreciation
      and amortization
                      
                      
                      552
                      
                      
                      
                      450Net
      accretion of investments
                      
                      
                      (248
                      )
                      
                      
                      (174
                      )Amortized
      gain on derivative
                      
                      
                      (272
                      )
                      
                      
                      (272
                      )Increase
      in accrued interest and dividends receivable
                      
                      
                      (86
                      )
                      
                      
                      (30
                      )Stock
      compensation expense
                      
                      
                      395
                      
                      
                      
                      320(Decrease)
      increase in accrued interest payable
                      
                      
                      (209
                      )
                      
                      
                      554Proceeds
      from mortgage loans held for sale
                      
                      
                      117,090
                      
                      
                      
                      44,263Originations
      of mortgage loans held for sale
                      
                      
                      (123,654
                      )
                      
                      
                      (45,669
                      )Loss
      on sale of other real estate
                      
                      
                      683
                      
                      
                      
                      97Net
      change in other assets, liabilities, and other operating
      activities
                      
                      
                      (730
                      )
                      
                      
                      209Net
      cash (used in) provided by operating activities
                      
                      
                      (241
                      )
                      
                      
                      5,965INVESTMENT
      ACTIVITIESPurchase
      of securities available for sale
                      
                      
                      (18,351
                      )
                      
                      
                      (10,956
                      )Proceeds
      from maturities, calls and paydowns of securities
availablefor
      sale
                      
                      
                      9,199
                      
                      
                      
                      5,220Increase
      in loans
                      
                      
                      (147,290
                      )
                      
                      
                      (170,097
                      )Purchase
      of premises and equipment
                      
                      
                      (1,021
                      )
                      
                      
                      (239
                      )Purchase
      of restricted equity securities
                      
                      
                      (582
                      )
                      
                      
                      (1,457
                      )Proceeds
      from sale of other real estate owned and repossessions
                      
                      
                      4,191
                      
                      
                      
                      972Net
      cash used in investing activities
                      
                      
                      (153,854
                      )
                      
                      
                      (176,557
                      )FINANCING
      ACTIVITIESNet
      increase in noninterest-bearing deposits
                      
                      
                      17,710
                      
                      
                      
                      12,048Net
      increase in interest-bearing deposits
                      
                      
                      151,456
                      
                      
                      
                      72,694Net
      increase in federal funds purchased
                      
                      
                      -
                      
                      
                      
                      26,302Proceeds
      from other borrowings
                      
                      
                      5,000
                      
                      
                      
                      20,247Proceeds
      from sale of stock, net
                      
                      
                      3,479
                      
                      
                      
                      -Net
      cash provided by financing activities
                      
                      
                      177,645
                      
                      
                      
                      131,291Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      23,550
                      
                      
                      
                      (39,301
                      )Cash
      and cash equivalents at beginning of year
                      
                      
                      72,918
                      
                      
                      
                      66,422Cash
      and cash equivalents at end of year
                      
                      
                      96,468
                      
                      
                      $
                      27,121SUPPLEMENTAL
      DISCLOSURECash
      paid for:Interest
                      
                      
                      9,578
                      
                      
                      $
                      9,836Income
      taxes
                      
                      
                      2,310
                      
                      
                      
                      2,560NONCASH
      TRANSACTIONSTransfers
      of loans from held for sale to held for investment
                      
                      
                      1,861
                      
                      
                      $
                      -Other
      real estate acquired in settlement of loans
                      
                      
                      3,811
                      
                      
                      
                      6,857





See
Notes to Consolidated Financial Statements.


7




SERVISFIRST
BANCSHARES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
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.





ThreeMonthsEndedJune30,
                          
                          
                          SixMonthsEndedJune30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(In Thousands, Except Shares
                            and Per Share Data)
                          
                          
                          (In Thousands, Except Shares
                            and Per Share Data)Earnings
      Per ShareWeighted
      average common shares outstanding
                          
                          
                          5,513,482
                          
                          
                          
                          5,113,482
                          
                          
                          
                          5,458,006
                          
                          
                          
                          5,113,482Net
      income
                          
                          $
                          1,559
                          
                          
                          $
                          1,750
                          
                          
                          $
                          2,279
                          
                          
                          $
                          3,320Basic
      earnings per share
                          
                          $
                          0.28
                          
                          
                          $
                          0.34
                          
                          
                          $
                          0.42
                          
                          
                          $
                          0.65Weighted
      average common shares outstanding
                          
                          
                          5,513,482
                          
                          
                          
                          5,113,482
                          
                          
                          
                          5,458,006
                          
                          
                          
                          5,113,482Dilutive
      effects of assumed conversions andexercise
      of stock options and warrants
                          
                          
                          296,173
                          
                          
                          
                          176,611
                          
                          
                          
                          292,521
                          
                          
                          
                          174,435Weighted
      average common and dilutive potentialcommon
      shares outstanding
                          
                          
                          5,809,655
                          
                          
                          
                          5,290,093
                          
                          
                          
                          5,750,527
                          
                          
                          
                          5,287,917Net
      income
                          
                          $
                          1,559
                          
                          
                          $
                          1,750
                          
                          
                          $
                          2,279
                          
                          
                          $
                          3,320Diluted
      earnings per share
                          
                          $
                          0.27
                          
                          
                          $
                          0.33
                          
                          
                          $
                          0.40
                          
                          
                          $
                          0.63




8





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 (loss) in stockholders’
equity, net of taxes.





Net
unrealized gain on the securities portfolio increased from $1.2 million, which
represented 1.14% of the amortized cost at December 31, 2008, to $1.3 million,
which represented 1.14% of the amortized cost at June 30, 2009.  The
investment portfolio at June 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 SaleJune
      30, 2009:U.S.
      Treasury and government agencies
                        
                        $
                        5,008
                        
                        
                        $
                        172
                        
                        
                        $
                        -
                        
                        
                        $
                        5,180Agency
      mortgage-backed securities
                        
                        
                        57,486
                        
                        
                        
                        2,210
                        
                        
                        
                        (50
                        )
                        
                        
                        59,646State
      and municipal securities
                        
                        
                        43,019
                        
                        
                        
                        295
                        
                        
                        
                        (960
                        )
                        
                        
                        42,354Corporate
      debt
                        
                        
                        5,040
                        
                        
                        
                        -
                        
                        
                        
                        (406
                        )
                        
                        
                        4,634Total
                        
                        $
                        110,553
                        
                        
                        $
                        2,677
                        
                        
                        $
                        (1,416
                        )
                        
                        $
                        111,814Securities
      Available for SaleDecember
      31, 2008:U.S.
      Treasury and government agencies
                        
                        $
                        5,093
                        
                        
                        $
                        42
                        
                        
                        $
                        (18
                        )
                        
                        $
                        5,117Agency
      mortgage-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.





The
following table identifies, as of June 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:


9





LessThanTwelveMonths
                  
                  
                  TwelveMonthsorMoreGross
                    Unrealized
                    Losses
                  
                  
                  FairValue
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  FairValue(In Thousands)June
      30, 2009:U.S.
      Treasury and government agencies
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Agency
      mortgage-backed securities
                  
                  
                  (50
                  )
                  
                  
                  3,131
                  
                  
                  
                  -
                  
                  
                  
                  -State
      and municipal securities
                  
                  
                  (960
                  )
                  
                  
                  26,577
                  
                  
                  
                  -
                  
                  
                  
                  -Corporate
      debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (406
                  )
                  
                  
                  4,634$
                  (1,010
                  )
                  
                  $
                  29,708
                  
                  
                  $
                  (406
                  )
                  
                  $
                  4,634December
      31, 2008.:U.S.
      Treasury and government agencies
                  
                  $
                  (18
                  )
                  
                  $
                  3,089
                  
                  
                  $
                  -
                  
                  
                  $
                  -Agency
      mortgage-backed securities
                  
                  
                  (5
                  )
                  
                  
                  1,868
                  
                  
                  
                  -
                  
                  
                  
                  -State
      and municipal securities
                  
                  
                  (857
                  )
                  
                  
                  14,814
                  
                  
                  
                  -
                  
                  
                  
                  -Corporate
      debt
                  
                  
                  (772
                  )
                  
                  
                  5,199
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  (1,652
                  )
                  
                  $
                  24,970
                  
                  
                  $
                  -
                  
                  
                  $
                  -





At June
30, 2009, 106 of the Company’s 235 debt securities were in this unrealized loss
position.  The Company does not believe these unrealized losses are
“other than temporary” since it has the ability and intent to hold the
investments for a period of time sufficient to allow for a recovery in market
value, and it is not probable that the Company will be unable to collect all of
the amounts contractually due. The Company has not identified any issues related
to the ultimate repayment of principal as a result of credit concerns on these
securities.





NOTE
5 - EMPLOYEE AND DIRECTOR BENEFITS





Stock
Options





At June
30, 2009, the Company has stock-based compensation plans, as described below.
The compensation cost that has been charged against income for the plans was
approximately $199,000 and $395,000 for the three and six months ended June 30,
2009 and $159,000 and $320,000 for three and six months ended June 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 June 30, 2009.





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.


10


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
                    
                    
                    1.65
                    %
                    
                    
                    2.93
                    %





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





Shares
                                  
                                  
                                  Weighted
                                    Average
                                    Exercise
                                    Price
                                  
                                  
                                  Weighted
                                    Average
                                    Remaining
                                    Contractual
                                    Term (years)
                                  
                                  
                                  Aggregate
                                    Intrinsic
                                    Value(In
      Thousands)Six
      Months Ended June 30, 2009:Outstanding
      at January 1, 2009
                                  
                                  
                                  796,000
                                  
                                  
                                  $
                                  14.50
                                  
                                  
                                  
                                  7.7
                                  
                                  
                                  $
                                  8,363Granted
                                  
                                  
                                  37,500
                                  
                                  
                                  
                                  25.00
                                  
                                  
                                  
                                  9.8
                                  
                                  
                                  
                                  -Exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Forfeited
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      at June 30, 2009
                                  
                                  
                                  833,500
                                  
                                  
                                  
                                  14.97
                                  
                                  
                                  
                                  7.8
                                  
                                  
                                  $
                                  8,363Exercisable
      at June 30, 2009
                                  
                                  
                                  121,264
                                  
                                  
                                  $
                                  11.73
                                  
                                  
                                  
                                  6.6
                                  
                                  
                                  $
                                  1,609Six
      Months Ended June 30, 2008:Outstanding
      at January 1, 2008
                                  
                                  
                                  712,500
                                  
                                  
                                  $
                                  13.12
                                  
                                  
                                  
                                  8.4
                                  
                                  
                                  $
                                  4,905Granted
                                  
                                  
                                  13,500
                                  
                                  
                                  
                                  20.00
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Forfeited
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      at June 30, 2008
                                  
                                  
                                  726,000
                                  
                                  
                                  
                                  13.24
                                  
                                  
                                  
                                  8.0
                                  
                                  
                                  $
                                  4,905Exercisable
      at June 30, 2008
                                  
                                  
                                  42,000
                                  
                                  
                                  $
                                  10.24
                                  
                                  
                                  
                                  7.0
                                  
                                  
                                  $
                                  410





There
were no stock options granted or exercised during the three months ended June
30, 2009.





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 June 30, 2009 and 2008 was
60,000.


11


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 $136,000 and $272,000 in interest
income for the three and six months ended June 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 June 30, 2009, the Company was party to two swaps with notional amounts
totaling approximately $12.3 million with customers, and two swaps with notional
amounts totaling approximately $12.3 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 $406,000 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 June 30, 2009 and
December 31, 2008 were not material.





NOTE
7 - ADOPTION OF NEW ACCOUNTING INTERPRETATIONS





In March,
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB No. 133”(SFAS No. 161). This
Statement changes the disclosure requirements for derivative instruments and
hedging activities. Entities are 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 under Statement 133 and
its related interpretations, 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 the provisions of SFAS No. 161 effective
January 1, 2009.  See Note 5 for the Company’s disclosures about its
derivative instruments and hedging activities.


12


In
June 2008, the FASB issued FASB Staff Position (FSP) Emerging Issues
Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities.” Under the
FSP, 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 FSP 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 EITF effective January 1, 2009 did not have an impact on the
consolidated financial statements.





In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments.” This FASB Staff Position
(“FSP”) amends SFAS No. 107, “Disclosures About Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. This FSP also amends APB Opinion No. 28, “Interim
Financial Reporting,” to require those disclosures in summarized financial
information at interim reporting periods. This FSP is effective for interim
reporting periods ending after June 15, 2009. The FSP does not require
disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this FSP requires comparative
disclosures only for periods ending after initial adoption.  The
Company adopted this new standard effective April 1, 2009.





In
April 2009, the Company adopted FSP FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2”). This
FSP amended the other-than-temporary impairment guidance for debt
securities.  The adoption of this FSP did not have an impact on the
consolidated financial statements.





In
April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides
additional guidance for estimating fair value in accordance with SFAS
No. 157, “Fair Value Measurements,” when the volume and level of activity
for the asset or liability have significantly decreased. This FSP also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. This FSP is effective for interim and annual reporting periods ending
after June 15, 2009. The FSP does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In periods after
initial adoption, this FSP requires comparative disclosures only for periods
ending after initial adoption. The Company adopted this new standard effective
April 1, 2009. There was no impact to the consolidated financial statements
from the adoption of this standard.





In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. This
Statement incorporates guidance into accounting literature that was previously
addressed only in auditing standards. The statement refers to subsequent events
that provide additional evidence about conditions that existed at the
balance-sheet date as “recognized subsequent events”. Subsequent events which
provide evidence about conditions that arose after the balance-sheet date but
prior to the issuance of the financial statements are referred to as
“non-recognized subsequent events”. It also requires companies to disclose the
date through which subsequent events have been evaluated and whether this date
is the date the financial statements were issued or the date the financial
statements were available to be issued. The Company adopted this new standard
effective April 1, 2009.  See Note 12.


13


NOTE
8 - RECENT ACCOUNTING PRONOUNCEMENTS





In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets — an amendment of FASB Statement No. 140”.  This
Statement removes the concept of a qualifying special-purpose entity from
Statement 140 and removes the exception from applying FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, to qualifying special-purpose entities.  This Statement 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.





In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
interpretation No. 46(R).  This Statement amends Interpretation
46(R) to require companies to perform an analysis of their existing investments
to determine whether their variable interest or interests give them a
controlling financial interest in a variable interest entity.  This
analysis identifies the primary beneficiary of a variable interest entity as the
enterprise that has both the power to direct the activities of significant
impact on a variable interest entity and the obligation to absorb losses or
receive benefits from the variable interest entity that could potentially be
significant to the variable interest entity.  It also amends
Interpretation 46(R) to require ongoing reassessments of whether an enterprise
is the primary beneficiary of a variable interest entity.  This
Statement is effective 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 is currently assessing the impact of
adoption.





In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles-a replacement of FASB Statement No. 162”.  The FASB
Accounting Standards Codification is intended to be the source of authoritative
U.S. generally accepted accounting principles (GAAP) and reporting
standards as issued by the Financial Accounting Standards Board.  Its
primary purpose is to improve clarity and use of existing standards by grouping
authoritative literature under common topics. This Statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.  The Codification does not change or alter
existing GAAP, and there is no expected impact on the consolidated financial
statements.





NOTE
9 - FAIR VALUE MEASUREMENT





The
Company adopted the methods of fair value measurement as described in SFAS No.
157, “Fair Value Measurement,” effective January 1, 2008.  SFAS No.157
establishes a fair value 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.


14


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.





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- Loans are
considered impaired under SFAS No. 114, “Accounting by Creditors for Impairment
of Loans,” as amended by SFAS No. 118, “Accounting by Creditors for Impairment
of a Loan – Income Recognition and Disclosure,”when 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 $1,456,000 and $3,333,000 during the three and six months ended June
30, 2009, respectively, and $1,245,000 and $1,700,000 during the three and six
months ended June 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 $176,000 and $967,000 during the three and six months ended June
30, 2009, respectively, and $262,000 and $319,000 during the three and six
months ended June 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.





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


15





(In Thousands)Quoted Prices in
                      Active Markets
                      for Identical
                      Assets (Level 1)
                    
                    
                    Significant Other
                      Observable Inputs
                      (Level 2)
                    
                    
                    Significant
                      Unobservable
                      Inputs (Level 3)
                    
                    
                    TotalAssets
      Measured on a Recurring Basis:Available
      for sale securities
                    
                    $
                    -
                    
                    
                    $
                    111,814
                    
                    
                    $
                    -
                    
                    
                    $
                    111,814Interest
      rate swap agreements
                    
                    
                    -
                    
                    
                    
                    406
                    
                    
                    
                    
                    
                    
                    
                    406Total
      assets at fair value
                    
                    $
                    -
                    
                    
                    $
                    112,220
                    
                    
                    $
                    -
                    
                    
                    $
                    112,220Liabilities
      Measured on a Recurring Basis:Interest
      rate swap agreements
                    
                    $
                    -
                    
                    
                    $
                    406
                    
                    
                    $
                    -
                    
                    
                    $
                    406Assets
      Measured on a Nonrecurring Basis:Impaired
      loans
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    25,386
                    
                    
                    $
                    25,386Other
      real estate owned
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    9,239
                    
                    
                    
                    9,239Total
      assets at fair value
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    34,625
                    
                    
                    $
                    34,625


(1)  The
Company chose not to elect the fair value option as prescribed by SFAS No. 159
for its financial assets and financial liabilities that had not been previously
carried at fair value.





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. SFAS No. 107, “Disclosures about Fair
Values of Financial Instruments”, excludes certain financial instruments and all
nonfinancial instruments from its 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
at June 30, 2009 and December 31, 2008 were as follows:





June 30, 2009
                      
                      
                      December 31, 2008Carrying
                        Amount
                      
                      
                      Fair Value
                      
                      
                      Carrying
                        Amount
                      
                      
                      Fair Value(In Thousands)
                      
                      
                      (In Thousands)Financial
      Assets:Cash
      and short-term investments
                      
                      $
                      96,468
                      
                      
                      $
                      96,468
                      
                      
                      $
                      72,918
                      
                      
                      $
                      72,918Investment
      securities
                      
                      
                      111,814
                      
                      
                      
                      111,814
                      
                      
                      
                      102,339
                      
                      
                      
                      102,339Restricted
      equity securities
                      
                      
                      3,241
                      
                      
                      
                      3,241
                      
                      
                      
                      2,659
                      
                      
                      
                      2,659Mortgage
      loans held for sale
                      
                      
                      8,023
                      
                      
                      
                      8,023
                      
                      
                      
                      3,320
                      
                      
                      
                      3,320Loans,
      net
                      
                      
                      1,098,177
                      
                      
                      
                      1,099,554
                      
                      
                      
                      957,631
                      
                      
                      
                      979,656Accrued
      interest and dividends receivable
                      
                      
                      4,363
                      
                      
                      
                      4,363
                      
                      
                      
                      4,026
                      
                      
                      
                      4,026Derivative
                      
                      
                      406
                      
                      
                      
                      406
                      
                      
                      
                      823
                      
                      
                      
                      823$
                      1,322,492
                      
                      
                      $
                      1,323,869
                      
                      
                      $
                      1,143,716
                      
                      
                      $
                      1,165,741Financial
      Liabilities:Deposits
                      
                      $
                      1,206,485
                      
                      
                      $
                      1,206,638
                      
                      
                      $
                      1,037,319
                      
                      
                      $
                      1,038,502Borrowings
                      
                      
                      24,915
                      
                      
                      
                      25,346
                      
                      
                      
                      20,000
                      
                      
                      
                      20,270Trust
      preferred securities
                      
                      
                      15,158
                      
                      
                      
                      13,115
                      
                      
                      
                      15,087
                      
                      
                      
                      12,544Accrued
      interest payable
                      
                      
                      1,071
                      
                      
                      
                      1,071
                      
                      
                      
                      1,280
                      
                      
                      
                      1,280Derivative
                      
                      
                      406
                      
                      
                      
                      406
                      
                      
                      
                      823
                      
                      
                      
                      823$
                      1,248,035
                      
                      
                      $
                      1,246,576
                      
                      
                      $
                      1,074,509
                      
                      
                      $
                      1,073,419





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 shall 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 shall 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 JUNE 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.





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 July 30, 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
June 30, 2009, and events which occurred subsequent to June 30, 2009
but were not recognized in the financial statements. As of July 30, 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 six months ended June 30, 2009 and June
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)
and the amortization and prepayment of loans and borrowings. Our principal
sources of income are interest and fees collected on loans, interest and
dividends collected on other investments and service charges. Our principal
expenses are interest paid on savings and other deposits (including NOW
accounts), interest paid on our other borrowings, employee compensation, office
expenses and other overhead expenses.





Overview





As of
June 30, 2009, the Company had total consolidated assets of $1,342,343,000, an
increase of $180,071,000, or 15.49%, over $1,162,272,000 at December 31,
2008.  Total loans were $1,111,744,000 at June 30, 2009, a
$143,511,000, or 14.82%, increase over $968,233,000 at December 31, 2008. Total
deposits were $1,206,485,000 at June 30, 2009, an increase of $169,166,000, or
16.31%, 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 June 30, 2009 was $1,559,000, a decrease of
$191,000, or 10.91%, from $1,750,000 for the quarter ended June 30,
2008.  Basic and fully diluted earnings per common share were $.28 and
$.27, respectively, for the three months ended June 30, 2009, compared with $.34
and $.33, 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, an increase in FDIC
insurance assessment rates along with a $600,000 special FDIC assessment
expensed in the second quarter of 2009, and higher costs associated with other
real estate owned, as more fully explained under the caption “Noninterest
Expense”, below.





Net
income for the six months ended June 30, 2009 was $2,279,000, a decrease of
$1,041,000, or 31.36%, from $3,320,000 for the six months ended June 30,
2008.  Basic and fully diluted earnings per share were $.42 and $.40,
respectively, for the six months ended June 30, 2009, compared with $.65 and
$.63, 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, an increase in FDIC insurance
assessment rates along with a $600,000 special FDIC assessment expensed in the
second quarter of 2009, and higher costs associated with other real estate
owned, as more fully explained under the caption “Noninterest Expense”,
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 $111,814,000 at June 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.





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





Less Than
                    One Year
                  
                  
                  One Year to
                    Five Years
                  
                  
                  Five Years to
                    Ten Years
                  
                  
                  More Than
                    Ten Years
                  
                  
                  Total(In
      Thousands)U.S.
      Treasury and government agencies
                  
                  $
                  -
                  
                  
                  $
                  1,034
                  
                  
                  $
                  3,096
                  
                  
                  $
                  878
                  
                  
                  $
                  5,008Mortgage-backed
      securities
                  
                  
                  -
                  
                  
                  
                  55,471
                  
                  
                  
                  -
                  
                  
                  
                  2,015
                  
                  
                  
                  57,486State
      and municipal securities
                  
                  
                  -
                  
                  
                  
                  3,887
                  
                  
                  
                  21,647
                  
                  
                  
                  17,485
                  
                  
                  
                  43,019Corporate
      debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,031
                  
                  
                  
                  1,009
                  
                  
                  
                  5,040$
                  -
                  
                  
                  $
                  60,392
                  
                  
                  $
                  28,774
                  
                  
                  $
                  21,387
                  
                  
                  $
                  110,553Tax-equivalent
      Yield
                  
                  
                  0.00
                  %
                  
                  
                  5.17
                  %
                  
                  
                  5.63
                  %
                  
                  
                  5.74
                  %
                  
                  
                  5.40
                  %


22


All
securities held are traded in liquid markets. As of June 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 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 June 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 $101,243,000 and
$94,022,000 as of June 30, 2009 and December 31, 2008,
respectively.





At June
30, 2009, we had $76,978,000 in federal funds sold, compared with $19,300,000 at
December 31, 2008.





Loans





We had
total loans of $1,111,744,000 at June 30, 2009, an increase of $143,511,000, or
14.8%, compared to $968,233,000 at December 31, 2008. At June 30, 2009, 54% of
our loans were in our Birmingham offices, 25% in our Huntsville offices, 13% in
our Montgomery offices, and 8% in our Dothan office.





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





June 30, 2009
                      
                      
                      December 31,
                        2008(In Thousands)Commercial,
      financial and agricultural
                      
                      $
                      417,713
                      
                      
                      $
                      325,968Real
      estate - construction (1)
                      
                      
                      253,788
                      
                      
                      
                      235,162Real
      estate - mortgage:Owner
      Occupied
                      
                      
                      158,853
                      
                      
                      
                      147,1971-4
      Family
                      
                      
                      141,461
                      
                      
                      
                      137,019Other
                      
                      
                      110,541
                      
                      
                      
                      93,412Total
      Real Estate Mortgage
                      
                      
                      410,855
                      
                      
                      
                      377,628Consumer
                      
                      
                      29,388
                      
                      
                      
                      29,475Total
      Loans
                      
                      
                      1,111,744
                      
                      
                      
                      968,233Allowance
      for loan losses
                      
                      
                      (13,567
                      )
                      
                      
                      (10,602
                      )Total
      Loans, Net
                      
                      $
                      1,098,177
                      
                      
                      $
                      957,631





(1)
            includes
      Owner Occupied real estate construction loans in the amount of $17,993 and
      $7,247 at June 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 feels that the allowance is
adequate at June 30, 2009.


23





The
following table presents a summary of changes in the allowances for loan losses
for the three and six months ended June 30, 2009 and 2008,
respectively.  The largest balance of our charge-offs is on real
estate construction loans. Real estate construction loans represent 22.83% of
our loan portfolio at June 30, 2009.





Three Months EndedJune
                          30,
                        
                        
                        Six Months Ended
                          June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Allowance
      for Loan Losses
                        
                        (In
      Thousands)Balance,
      beginning of period
                        
                        $
                        12,412
                        
                        
                        $
                        8,852
                        
                        
                        $
                        10,602
                        
                        
                        $
                        7,732Charge-offs:Commercial,
      financial and agricultural
                        
                        
                        (808
                        )
                        
                        
                        -
                        
                        
                        
                        (808
                        )
                        
                        
                        (1
                        )Real
      estate - construction
                        
                        
                        (574
                        )
                        
                        
                        (1,469
                        )
                        
                        
                        (1,208
                        )
                        
                        
                        (1,748
                        )Real
      estate - mortgage:Owner
      Occupied
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -1-4
      family mortgage
                        
                        
                        -
                        
                        
                        
                        (77
                        )
                        
                        
                        (40
                        )
                        
                        
                        (77
                        )Other
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      real estate mortgage
                        
                        
                        -
                        
                        
                        
                        (77
                        )
                        
                        
                        (40
                        )
                        
                        
                        (77
                        )Consumer
                        
                        
                        (71
                        )
                        
                        
                        (5
                        )
                        
                        
                        (86
                        )
                        
                        
                        (6
                        )Total
      charge-offs
                        
                        
                        (1,453
                        )
                        
                        
                        (1,551
                        )
                        
                        
                        (2,142
                        )
                        
                        
                        (1,832
                        )Recoveries:Commercial,
      financial and agricultural
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        19Real
      estate - construction
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        39
                        
                        
                        
                        -Real
      estate - mortgage:Owner
      Occupied
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -1-4
      family mortgage
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Other
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      real estate mortgage
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Consumer
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      recoveries
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        39
                        
                        
                        
                        19Net
      charge-offs
                        
                        
                        (1,453
                        )
                        
                        
                        (1,551
                        )
                        
                        
                        (2,103
                        )
                        
                        
                        (1,813
                        )Provision
      for loan losses charged to expense
                        
                        
                        2,608
                        
                        
                        
                        2,137
                        
                        
                        
                        5,068
                        
                        
                        
                        3,519Balance,
      end of period
                        
                        $
                        13,567
                        
                        
                        $
                        9,438
                        
                        
                        $
                        13,567
                        
                        
                        $
                        9,438As
      a percent of year to date average loans:Annualized
      net charge-offs
                        
                        
                        0.55
                        %
                        
                        
                        0.79
                        %
                        
                        
                        0.41
                        %
                        
                        
                        0.48
                        %Annualized
      provision for loan losses
                        
                        
                        0.98
                        %
                        
                        
                        1.08
                        %
                        
                        
                        0.99
                        %
                        
                        
                        0.94
                        %





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.


24





June 30, 2009
                  
                  
                  December 31, 2008
                  
                  
                  June 30, 2008Amount
                  
                  
                  Percentage
                  
                  
                  Amount
                  
                  
                  Percentage
                  
                  
                  Amount
                  
                  
                  Percentage(In Thousands)
                  
                  
                  
                  
                  
                  (In Thousands)
                  
                  
                  
                  
                  
                  (In Thousands)Commercial,
      financial and agricultural
                  
                  $
                  3,537
                  
                  
                  
                  37.57
                  %
                  
                  $
                  1,502
                  
                  
                  
                  33.67
                  %
                  
                  $
                  970
                  
                  
                  
                  31.17
                  %Real
      estate - construction
                  
                  
                  5,708
                  
                  
                  
                  22.83
                  %
                  
                  
                  5,473
                  
                  
                  
                  24.29
                  %
                  
                  
                  4,428
                  
                  
                  
                  26.70
                  %Real
      estate - mortgage
                  
                  
                  514
                  
                  
                  
                  36.96
                  %
                  
                  
                  428
                  
                  
                  
                  39.00
                  %
                  
                  
                  1,139
                  
                  
                  
                  38.49
                  %Consumer
                  
                  
                  35
                  
                  
                  
                  2.64
                  %
                  
                  
                  5
                  
                  
                  
                  3.04
                  %
                  
                  
                  33
                  
                  
                  
                  3.64
                  %Other
                  
                  
                  3,773
                  
                  
                  
                  -
                  
                  
                  
                  3,194
                  
                  
                  
                  -
                  
                  
                  
                  2,868
                  
                  
                  
                  -Total
                  
                  $
                  13,567
                  
                  
                  
                  100.00
                  %
                  
                  $
                  10,602
                  
                  
                  
                  100.00
                  %
                  
                  $
                  9,438
                  
                  
                  
                  100.00
                  %





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.





We have
adopted the principles of SFAS No. 114 and SFAS No. 118 relating to accounting
for impaired loans.  As of June 30, 2009, our impaired loans,
inclusive of non-accrual loans, totaled $25,386,000 and had associated reserves
of approximately $3,539,000.  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 $24,482,000 at June 30, 2009, compared to $20,125,000 at December 31,
2008 and $13,195,000 at June 30, 2008. Non-accrual loans were $14,614,000 at
June 30, 2009, an increase of $6,901,000 from non-accrual loans of $7,713,000 at
December 31, 2008 and an increase of $11,396,000 from non-accrual loans of
$3,218,000 at June 30, 2008. Loans 90 days past due and still accruing totaled
$111,000 at June 30, 2009, compared to $1,939,000 at December 31, 2008 and
$1,775,000 at June 30, 2008.  Troubled debt restructurings totaled
$518,000 at June 30, 2009, compared to $0 at December 31, 2008 and June 30,
2008.


25


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





June 30, 2009
                    
                    
                    December 31,
                      2008
                    
                    
                    June 30, 2008(In Thousands)Nonaccrual
      loans
                    
                    $
                    14,614
                    (1)
                    
                    $
                    7,713
                    
                    
                    $
                    3,218Past
      due 90 days and still accruing
                    
                    
                    111
                    
                    
                    
                    1,939
                    (2)
                    
                    
                    1,775Troubled
      debt restructures
                    
                    
                    518
                    
                    
                    
                    -
                    
                    
                    
                    -All
      other real estate owned
                    
                    
                    9,239
                    
                    
                    
                    10,473
                    
                    
                    
                    8,202Total
      non-performing assets
                    
                    $
                    24,482
                    
                    
                    $
                    20,125
                    
                    
                    $
                    13,195





(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 six
months of 2009 is directly attributable to the current weak economy and related
slowdown in the residential real estate market. At June 30, 2009, total
nonperforming assets included finished and unfinished homes of $9,275,000,
residential lots of $7,883,000, raw land of $1,766,000 and acquisition and
development loans of $1,869,000. 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.





Deposits





Total
deposits increased $169,166,000, or 16.31%, to $1,206,485,000 at June 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 9 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 10 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.


26





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. In the event of
declines in liquidity 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 June 30, 2009, our liquid
assets, represented by cash and due from banks, federal funds sold and unpledged
available-for-sale securities, totaled $152.9 million. Additionally, the Bank
had additional borrowing availability of approximately $102.5 million in
unused federal funds lines of credit with regional banks, subject to certain
restrictions and collateral requirements, and had additional borrowing
availability of $141.9 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 9 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 10 to the financial
statements.





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


27





The
following table reflects the contractual maturities of our term liabilities as
of June 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
                        
                        $
                        992,133
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -Certificates
      of deposit (2)
                        
                        
                        214,352
                        
                        
                        
                        159,330
                        
                        
                        
                        42,205
                        
                        
                        
                        12,817
                        
                        
                        
                        -FHLB
      borrowings
                        
                        
                        20,000
                        
                        
                        
                        -
                        
                        
                        
                        10,000
                        
                        
                        
                        10,000
                        
                        
                        
                        -Subordinated
      debentures
                        
                        
                        15,158
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        15,158Subordinated
      note payable
                        
                        
                        4,915
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,915Operating
      lease commitments
                        
                        
                        17,866
                        
                        
                        
                        1,809
                        
                        
                        
                        3,301
                        
                        
                        
                        3,403
                        
                        
                        
                        9,353Total
                        
                        $
                        1,264,424
                        
                        
                        $
                        161,139
                        
                        
                        $
                        55,506
                        
                        
                        $
                        26,220
                        
                        
                        $
                        29,426





(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.





As of
June 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 June 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 June 30,
2009, December 31, 2008, and June 30, 2008:


28





Actual
                  
                  
                  For Capital Adequacy
                    Purposes
                  
                  
                  To Be Well Capitalized
                    Under Prompt Corrective
                    Action ProvisionsAmount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  RatioAs of June 30, 2009:Total
      Capital to Risk-Weighted Assets:Consolidated
                  
                  $
                  120,627
                  
                  
                  
                  10.74
                  %
                  
                  $
                  89,836
                  
                  
                  
                  8.00
                  %
                  
                  $
                  112,295
                  
                  
                  
                  10.00
                  %ServisFirst
      Bank
                  
                  
                  124,566
                  
                  
                  
                  11.10
                  %
                  
                  
                  89,781
                  
                  
                  
                  8.00
                  %
                  
                  
                  112,226
                  
                  
                  
                  10.00
                  %Tier
      I Capital to Risk-Weighted Assets:Consolidated
                  
                  
                  107,060
                  
                  
                  
                  9.53
                  %
                  
                  
                  44,918
                  
                  
                  
                  4.00
                  %
                  
                  
                  67,377
                  
                  
                  
                  6.00
                  %ServisFirst
      Bank
                  
                  
                  106,084
                  
                  
                  
                  9.45
                  %
                  
                  
                  44,890
                  
                  
                  
                  4.00
                  %
                  
                  
                  67,335
                  
                  
                  
                  6.00
                  %Tier
      I Capital to Average Assets:Consolidated
                  
                  
                  107,060
                  
                  
                  
                  8.29
                  %
                  
                  
                  51,635
                  
                  
                  
                  4.00
                  %
                  
                  
                  64,544
                  
                  
                  
                  5.00
                  %ServisFirst
      Bank
                  
                  
                  106,084
                  
                  
                  
                  8.22
                  %
                  
                  
                  51,605
                  
                  
                  
                  4.00
                  %
                  
                  
                  64,506
                  
                  
                  
                  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 June 30, 2008:Total
      Capital to Risk-Weighted Assets:Consolidated
                  
                  $
                  84,336
                  
                  
                  
                  10.00
                  %
                  
                  $
                  67,469
                  
                  
                  
                  8.00
                  %
                  
                  $
                  84,336
                  
                  
                  
                  10.00
                  %ServisFirst
      Bank
                  
                  
                  84,535
                  
                  
                  
                  10.03
                  %
                  
                  
                  67,459
                  
                  
                  
                  8.00
                  %
                  
                  
                  84,323
                  
                  
                  
                  10.00
                  %Tier
      I Capital to Risk-Weighted Assets:Consolidated
                  
                  
                  74,890
                  
                  
                  
                  8.88
                  %
                  
                  
                  33,734
                  
                  
                  
                  4.00
                  %
                  
                  
                  50,601
                  
                  
                  
                  6.00
                  %ServisFirst
      Bank
                  
                  
                  75,097
                  
                  
                  
                  8.91
                  %
                  
                  
                  33,729
                  
                  
                  
                  4.00
                  %
                  
                  
                  50,594
                  
                  
                  
                  6.00
                  %Tier
      I Capital to Average Assets:Consolidated
                  
                  
                  74,940
                  
                  
                  
                  7.92
                  %
                  
                  
                  37,849
                  
                  
                  
                  4.00
                  %
                  
                  
                  47,311
                  
                  
                  
                  5.00
                  %ServisFirst
      Bank
                  
                  
                  75,097
                  
                  
                  
                  7.94
                  %
                  
                  
                  37,849
                  
                  
                  
                  4.00
                  %
                  
                  
                  47,311
                  
                  
                  
                  5.00
                  %





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.


29


Financial
instruments whose contract amounts represent credit risk at June 30, 2009 are as
follows:





(In Thousands)Commitments
      to extend credit
                        
                        $
                        358,573Credit
      card arrangements
                        
                        
                        17,267Standby
      letters of credit
                        
                        
                        33,998$
                        409,838





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 June 30, 2009 was $1,559,000, compared to net
income of $1,750,000 for the three months ended June 30, 2008.  Net
income for the six months ended June 30, 2009 was $2,279,000, compared to net
income of $3,320,000 for the six months ended June 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 along with a $600,000 special
FDIC assessment expensed in the second quarter of 2009, and higher costs
associated with other real estate owned. The provision for loan losses increased
$471,000 to $2,608,000 for the three months ended June 30, 2009 compared to the
same period in 2008, and increased $1,549,000 to $5,068,000 for the six months
ended June 30, 2009 compared to the same period in 2008.  Noninterest
expenses increased $2,352,000 to $6,882,000 for the three months ended June 30,
2009 compared to the same period in 2008, and increased $3,955,000 to
$13,315,000 for the six months ended June 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 payable on September 30,
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 $1,807,000 to
$10,501,000 for the three months ended June 30, 2009 compared to the same period
in 2008, and increased $2,765,000 to $19,546,000 for the six months ended June
30, 2009 compared to the same period in 2008.  Noninterest income
increased $587,000 to $1,282,000 for the three months ended June 30, 2009
compared to the same period in 2008, and increased $964,000 to $2,202,000 for
the six months ended June 30, 2009 compared to the same period in
2008.  Basic and diluted net income per common share were $.28 and
$.27, respectively, for the three months ended June 30, 2009, compared to $.34
and $.33, respectively, for the same period in 2008.  Basic and
diluted net income per common share were $.42 and $.40, respectively, for the
six months ended June 30, 2009, compared to $.65 and $.63, respectively, for the
same period in 2008.  Return on average assets for the three and six
months ended June 30, 2009 was 0.48% and 0.37%, respectively, compared to 0.74%
and 0.73% in 2008, and return on average stockholders’ equity for the three and
six months ended June 30, 2009 was 6.77% and 5.10%, respectively, compared to
9.31% and 8.95% 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 $1,857,000, or 21.12%, to $10,651,000 for the
three months ended June 30, 2009 compared to $8,794,000 in 2008, and increased
$2,841,000, or 16.74%, to $19,817,000 for the six months ended June 30, 2009
compared to $16,976,000 in 2008.  These increases were primarily
attributable to balance sheet growth.  The taxable-equivalent yield on
interest-earning assets decreased to 4.81% for the three months ended June 30,
2009 from 5.86% for the same period in 2008, and decreased to 4.86% for the six
months ended June 30, 2009 from 6.24% for the same period in
2008.  The yield on loans for the three months ended June 30, 2009 was
5.08% compared to 6.03% for the same period in 2008, and was 5.08% compared to
6.48% for the six months ended June 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 decreased to $172,000 for the three months
ended June 30, 2009 from $319,000 for the same period in 2008, and decreased to
$308,000 for the six months ended June 30, 2009 from $617,000 for the same
period in 2008.  The cost of total interest-bearing liabilities
decreased to 1.68% for the three months ended June 30, 2009 from 2.38% for the
same period in 2008, and to 1.84% for the six months ended June 30, 2009 from
2.80% for the same period in 2008.  The higher interest rate on the
trust preferred securities, 8.50%, sold in September 2008 limited the decrease
in the average rate paid on interest-bearing liabilities.





The
following tables show, for the three months and six months ended June 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 June 30,





2009
                                                          
                                                          
                                                          2008Average
                                                            Balance
                                                          
                                                          
                                                          Interest
                                                            Earned /
                                                            Paid
                                                          
                                                          
                                                          Average Yield /
                                                            Rate
                                                          
                                                          
                                                          Average
                                                            Balance
                                                          
                                                          
                                                          Interest
                                                            Earned /
                                                            Paid
                                                          
                                                          
                                                          Average
                                                            Yield / RateAssets:Interest-earning
      assets:Loans,
      net of unearned income (1)
                                                          
                                                          $
                                                          1,064,554
                                                          
                                                          
                                                          $
                                                          13,485
                                                          
                                                          
                                                          
                                                          5.08
                                                          %
                                                          
                                                          $
                                                          791,383
                                                          
                                                          
                                                          $
                                                          11,896
                                                          
                                                          
                                                          
                                                          6.03
                                                          %Mortgage
      loans held for sale
                                                          
                                                          
                                                          8,839
                                                          
                                                          
                                                          
                                                          98
                                                          
                                                          
                                                          
                                                          4.45
                                                          
                                                          
                                                          
                                                          2,871
                                                          
                                                          
                                                          
                                                          42
                                                          
                                                          
                                                          
                                                          5.87Investment
      securities:Taxable
                                                          
                                                          
                                                          71,081
                                                          
                                                          
                                                          
                                                          1,004
                                                          
                                                          
                                                          
                                                          5.67
                                                          
                                                          
                                                          
                                                          68,930
                                                          
                                                          
                                                          
                                                          975
                                                          
                                                          
                                                          
                                                          5.67Tax-exempt
      (2)
                                                          
                                                          
                                                          35,596
                                                          
                                                          
                                                          
                                                          493
                                                          
                                                          
                                                          
                                                          5.55
                                                          
                                                          
                                                          
                                                          23,342
                                                          
                                                          
                                                          
                                                          329
                                                          
                                                          
                                                          
                                                          5.65Total
      investment securities (3)
                                                          
                                                          
                                                          106,677
                                                          
                                                          
                                                          
                                                          1,497
                                                          
                                                          
                                                          
                                                          5.63
                                                          
                                                          
                                                          
                                                          92,272
                                                          
                                                          
                                                          
                                                          1,304
                                                          
                                                          
                                                          
                                                          5.67Federal
      funds sold
                                                          
                                                          
                                                          75,649
                                                          
                                                          
                                                          
                                                          47
                                                          
                                                          
                                                          
                                                          0.25
                                                          
                                                          
                                                          
                                                          30,353
                                                          
                                                          
                                                          
                                                          164
                                                          
                                                          
                                                          
                                                          2.17Restricted
      equity securities
                                                          
                                                          
                                                          3,241
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          0.00
                                                          
                                                          
                                                          
                                                          2,659
                                                          
                                                          
                                                          
                                                          34
                                                          
                                                          
                                                          
                                                          5.13Interest-bearing
      balances with banks
                                                          
                                                          
                                                          2,607
                                                          
                                                          
                                                          
                                                          2
                                                          
                                                          
                                                          
                                                          0.31
                                                          
                                                          
                                                          
                                                          37
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          10.84Total
      interest-earning assets
                                                          
                                                          $
                                                          1,261,567
                                                          
                                                          
                                                          $
                                                          15,129
                                                          
                                                          
                                                          
                                                          4.81
                                                          %
                                                          
                                                          $
                                                          919,575
                                                          
                                                          
                                                          $
                                                          13,441
                                                          
                                                          
                                                          
                                                          5.86
                                                          %Noninterest-earning
      assets:Cash
      and due from banks
                                                          
                                                          
                                                          17,044
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          17,167Net
      fixed assets and equipment
                                                          
                                                          
                                                          4,098
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3,972Allowance
      for loan losses, accruedinterest
      and other assets
                                                          
                                                          
                                                          8,165
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,105Total
      assets
                                                          
                                                          $
                                                          1,290,874
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          945,819Liabilities
      and stockholders' equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                                                          
                                                          $
                                                          151,414
                                                          
                                                          
                                                          $
                                                          380
                                                          
                                                          
                                                          
                                                          1.01
                                                          %
                                                          
                                                          $
                                                          95,781
                                                          
                                                          
                                                          $
                                                          367
                                                          
                                                          
                                                          
                                                          1.54
                                                          %Savings
      deposits
                                                          
                                                          
                                                          882
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          0.45
                                                          
                                                          
                                                          
                                                          431
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          0.93Money
      market accounts
                                                          
                                                          
                                                          674,303
                                                          
                                                          
                                                          
                                                          2,198
                                                          
                                                          
                                                          
                                                          1.31
                                                          
                                                          
                                                          
                                                          524,806
                                                          
                                                          
                                                          
                                                          2,655
                                                          
                                                          
                                                          
                                                          2.03Time
      deposits
                                                          
                                                          
                                                          209,215
                                                          
                                                          
                                                          
                                                          1,388
                                                          
                                                          
                                                          
                                                          2.66
                                                          
                                                          
                                                          
                                                          135,300
                                                          
                                                          
                                                          
                                                          1,434
                                                          
                                                          
                                                          
                                                          4.25Fed
      funds purchased
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          0.00
                                                          
                                                          
                                                          
                                                          5,041
                                                          
                                                          
                                                          
                                                          30
                                                          
                                                          
                                                          
                                                          2.39Other
      borrowings
                                                          
                                                          
                                                          35,463
                                                          
                                                          
                                                          
                                                          511
                                                          
                                                          
                                                          
                                                          5.78
                                                          
                                                          
                                                          
                                                          20,250
                                                          
                                                          
                                                          
                                                          160
                                                          
                                                          
                                                          
                                                          3.17Total
      interest-bearing liabilities
                                                          
                                                          $
                                                          1,071,277
                                                          
                                                          
                                                          $
                                                          4,478
                                                          
                                                          
                                                          
                                                          1.68
                                                          
                                                          
                                                          $
                                                          781,609
                                                          
                                                          
                                                          $
                                                          4,647
                                                          
                                                          
                                                          
                                                          2.38Noninterest-bearing
      liabilities:Noninterest-bearing
      demanddeposits
                                                          
                                                          
                                                          124,343
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          86,019Other
      liabilites
                                                          
                                                          
                                                          2,905
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2,611Stockholders'
      equity
                                                          
                                                          
                                                          91,138
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          74,279Unrealized
      gains onsecurities
      and derivatives
                                                          
                                                          
                                                          1,211
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,301Total
      liabilities andstockholders'
      equity
                                                          
                                                          $
                                                          1,290,874
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          945,819Net
      interest spread
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3.13
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3.48
                                                          %Net
      interest margin
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3.39
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3.84
                                                          %





(1)
            Non-accrual
      loans are included in average loan balances in all
      periods.  Loan fees of $172,000 and $319,000 are included in
      interest income 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 $1,756,000 and $1,753,000 are excluded from the yield calculation
      in 2009 and 2008, respectively.




32





Three Months Ended June 30,2009 Compared to 2008 Increase (Decrease) in
                            Interest Income and Expense Due to Changes
                            in:Volume
                          
                          
                          Rate
                          
                          
                          TotalInterest-earning
      assets:Loans,
      net of unearned income
                          
                          
                          4,106
                          
                          
                          
                          (2,517
                          )
                          
                          
                          1,589Mortgages
      held for sale
                          
                          
                          87
                          
                          
                          
                          (31
                          )
                          
                          
                          56Investment
      securities:Securities
      - taxable
                          
                          
                          30
                          
                          
                          
                          (1
                          )
                          
                          
                          29Securities
      - non taxable
                          
                          
                          173
                          
                          
                          
                          (9
                          )
                          
                          
                          164Federal
      funds sold
                          
                          
                          245
                          
                          
                          
                          (362
                          )
                          
                          
                          (117
                          )Restricted
      equity securities
                          
                          
                          7
                          
                          
                          
                          (41
                          )
                          
                          
                          (34
                          )Interest-bearing
      balances with banks
                          
                          
                          69
                          
                          
                          
                          (68
                          )
                          
                          
                          1Total
      interest-earning assets
                          
                          
                          4,717
                          
                          
                          
                          (3,029
                          )
                          
                          
                          1,688Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                          
                          
                          213
                          
                          
                          
                          (200
                          )
                          
                          
                          13Savings
                          
                          
                          1
                          
                          
                          
                          (1
                          )
                          
                          
                          -Money
      market accounts
                          
                          
                          756
                          
                          
                          
                          (1,213
                          )
                          
                          
                          (457
                          )Time
      deposits
                          
                          
                          783
                          
                          
                          
                          (829
                          )
                          
                          
                          (46
                          )Fed
      Funds Purchased
                          
                          
                          (30
                          )
                          
                          
                          -
                          
                          
                          
                          (30
                          )Other
      borrowed funds
                          
                          
                          120
                          
                          
                          
                          231
                          
                          
                          
                          351Total
      interest-bearing liabilities
                          
                          
                          1,843
                          
                          
                          
                          (2,012
                          )
                          
                          
                          (169
                          )Increase
      in net interest income
                          
                          
                          2,874
                          
                          
                          
                          (1,017
                          )
                          
                          
                          1,857




33




Average
Balance Sheets and Net Interest Analysis


On
a Fully Taxable-Equivalent Basis


For
the Six Months Ended June 30,





2009
                                
                                2008Average
                                  Balance
                                
                                Interest
                                  Earned /
                                  Paid
                                
                                Average
                                  Yield /Rate
                                
                                Average
                                  Balance
                                
                                Interest
                                  Earned /
                                  Paid
                                
                                
                                Average
                                  Yield/ RateAssets:Interest-earning
      assets:Loans,
      net of unearned income (1)
                                
                                $
                                1,028,711
                                
                                $
                                25,916
                                
                                
                                5.08
                                %
                                $
                                753,739
                                
                                $
                                24,238
                                
                                
                                
                                6.48
                                %Mortgage
      loans held for sale
                                
                                
                                8,050
                                
                                
                                176
                                
                                
                                4.41
                                
                                
                                2,636
                                
                                
                                74
                                
                                
                                
                                5.66Investment
      securities:Taxable
                                
                                
                                72,426
                                
                                
                                2,111
                                
                                
                                5.88
                                
                                
                                67,021
                                
                                
                                1,881
                                
                                
                                
                                5.66Tax-exempt
      (2)
                                
                                
                                31,988
                                
                                
                                891
                                
                                
                                5.62
                                
                                
                                22,607
                                
                                
                                639
                                
                                
                                
                                5.70Total
      investment securities (3)
                                
                                
                                104,414
                                
                                
                                3,002
                                
                                
                                5.80
                                
                                
                                89,628
                                
                                
                                2,520
                                
                                
                                
                                5.67Federal
      funds sold
                                
                                
                                55,166
                                
                                
                                71
                                
                                
                                0.26
                                
                                
                                34,274
                                
                                
                                437
                                
                                
                                
                                2.57Restricted
      equity securities
                                
                                
                                2,958
                                
                                
                                -
                                
                                
                                0.00
                                
                                
                                2,013
                                
                                
                                49
                                
                                
                                
                                4.91Interest-bearing
      balances with banks
                                
                                
                                10,996
                                
                                
                                21
                                
                                
                                0.39
                                
                                
                                2,395
                                
                                
                                53
                                
                                
                                
                                4.46Total
      interest-earning assets
                                
                                $
                                1,210,295
                                
                                $
                                29,186
                                
                                
                                4.86
                                %
                                $
                                884,685
                                
                                $
                                27,371
                                
                                
                                
                                6.24
                                %Noninterest-earning
      assets:Cash
      and due from banks
                                
                                
                                17,852
                                
                                
                                
                                
                                
                                
                                
                                
                                16,448Net
      fixed assets and equipment
                                
                                
                                3,982
                                
                                
                                
                                
                                
                                
                                
                                
                                4,076Allowance
      for loan losses, accrued interest and other assets
                                
                                
                                8,362
                                
                                
                                
                                
                                
                                
                                
                                
                                3,555Total
      assets
                                
                                $
                                1,240,491
                                
                                
                                
                                
                                
                                
                                
                                $
                                908,764Liabilities
      and stockholders' equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                                
                                $
                                147,600
                                
                                $
                                880
                                
                                
                                1.20
                                %
                                $
                                81,633
                                
                                $
                                714
                                
                                
                                
                                1.76
                                %Savings
      deposits
                                
                                
                                867
                                
                                
                                2
                                
                                
                                0.47
                                
                                
                                404
                                
                                
                                1
                                
                                
                                
                                0.50Money
      market accounts
                                
                                
                                652,002
                                
                                
                                4,741
                                
                                
                                1.47
                                
                                
                                535,651
                                
                                
                                6,872
                                
                                
                                
                                2.59Time
      deposits
                                
                                
                                193,795
                                
                                
                                2,737
                                
                                
                                2.85
                                
                                
                                117,565
                                
                                
                                2,592
                                
                                
                                
                                4.45Fed
      funds purchased
                                
                                
                                -
                                
                                
                                -
                                
                                
                                0.00
                                
                                
                                2,521
                                
                                
                                30
                                
                                
                                
                                0.00Other
      borrowings
                                
                                
                                35,285
                                
                                
                                1,009
                                
                                
                                5.77
                                
                                
                                11,319
                                
                                
                                186
                                
                                
                                
                                3.31Total
      interest-bearing liabilities
                                
                                $
                                1,029,549
                                
                                $
                                9,369
                                
                                
                                1.84
                                
                                $
                                749,093
                                
                                $
                                10,395
                                
                                
                                
                                2.80Noninterest-bearing
      liabilities:Noninterest-bearing
      demand deposits
                                
                                
                                118,109
                                
                                
                                
                                
                                
                                
                                
                                
                                81,939Other
      liabilites
                                
                                
                                2,635
                                
                                
                                
                                
                                
                                
                                
                                
                                3,129Stockholders'
      equity
                                
                                
                                88,940
                                
                                
                                
                                
                                
                                
                                
                                
                                73,419Unrealized
      gains on securities and derivatives
                                
                                
                                1,258
                                
                                
                                
                                
                                
                                
                                
                                
                                1,184Total
      liabilities and stockholders' equity
                                
                                $
                                1,240,491
                                
                                
                                
                                
                                
                                
                                
                                $
                                908,764Net
      interest spread
                                
                                
                                
                                
                                
                                
                                
                                
                                3.03
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                3.44
                                %Net
      interest margin
                                
                                
                                
                                
                                
                                
                                
                                
                                3.30
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                3.87
                                %





(1)
            Non-accrual
      loans are included in average loan balances in all
      periods.  Loan fees of $308,000 and $617,000 are included in
      interest income 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 $1,758,000 and $1,594,000 are excluded from the yield calculation
      in 2009 and 2008, respectively.


34





Six Months Ended June 30,2009 Compared to 2008 Increase (Decrease) in
                                    Interest Income and Expense Due to Changes
                                    in:Volume
                                  
                                  
                                  Rate
                                  
                                  
                                  TotalInterest-earning
      assets:Loans,
      net of unearned income
                                  
                                  
                                  8,842
                                  
                                  
                                  
                                  (7,164
                                  )
                                  
                                  
                                  1,678Mortgages
      held for sale
                                  
                                  
                                  152
                                  
                                  
                                  
                                  (50
                                  )
                                  
                                  
                                  102Investment
      securities:Securities
      - taxable
                                  
                                  
                                  152
                                  
                                  
                                  
                                  78
                                  
                                  
                                  
                                  230Securities
      - non taxable
                                  
                                  
                                  265
                                  
                                  
                                  
                                  (13
                                  )
                                  
                                  
                                  252Federal
      funds sold
                                  
                                  
                                  266
                                  
                                  
                                  
                                  (632
                                  )
                                  
                                  
                                  (366
                                  )Restricted
      equity securities
                                  
                                  
                                  23
                                  
                                  
                                  
                                  (72
                                  )
                                  
                                  
                                  (49
                                  )Interest-bearing
      balances with banks
                                  
                                  
                                  190
                                  
                                  
                                  
                                  (222
                                  )
                                  
                                  
                                  (32
                                  )Total
      interest-earning assets
                                  
                                  
                                  9,890
                                  
                                  
                                  
                                  (8,075
                                  )
                                  
                                  
                                  1,815Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                                  
                                  
                                  577
                                  
                                  
                                  
                                  (411
                                  )
                                  
                                  
                                  166Savings
                                  
                                  
                                  1
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1Money
      market accounts
                                  
                                  
                                  1,493
                                  
                                  
                                  
                                  (3,624
                                  )
                                  
                                  
                                  (2,131
                                  )Time
      deposits
                                  
                                  
                                  1,681
                                  
                                  
                                  
                                  (1,536
                                  )
                                  
                                  
                                  145Fed
      Funds Purchased
                                  
                                  
                                  (30
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (30
                                  )Other
      borrowed funds
                                  
                                  
                                  394
                                  
                                  
                                  
                                  429
                                  
                                  
                                  
                                  823Total
      interest-bearing liabilities
                                  
                                  
                                  4,116
                                  
                                  
                                  
                                  (5,142
                                  )
                                  
                                  
                                  (1,026
                                  )Increase
      in net interest income
                                  
                                  
                                  5,774
                                  
                                  
                                  
                                  (2,933
                                  )
                                  
                                  
                                  2,841





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 under
SFAS No. 114 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 $2,608,000 for the three months ended June 30,
2009, an increase of $471,000 over $2,137,000 for the three months ended June
30, 2008.  The provision for loan losses was $5,068,000 for the six
months ended June 30, 2009, an increase of $1,549,000 over $3,519,000 for the
six months ended June 30, 2008.  Our management continues to maintain
a proactive approach to credit risk management. Nonperforming loans increased to
$15,243,000, or 1.37% of total loans, at June 30, 2009 from $9,652,000, or 1.00%
of total loans, at December 31, 2008, and from $4,993,000 or 0.66% of total
loans, at June 30, 2008.  Impaired loans increased to $25,386,000, or
2.28% of total loans at June 30, 2009 compared to $15,880,000, or 1.64% of total
loans at December 31, 2008 and $10,125,000, or 1.21% of total loans at June 30,
2008.  The allowance for loan losses totaled $13,567,000, or 1.22% of
loans, net of unearned income, at June 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 $1,282,000 for the three months ended June 30, 2009, an increase
of $587,000, or 84.46%, compared to the same period in 2008, and totaled
$2,202,000 for the six months ended June 30, 2009, an increase of $964,000, or
77.87%, compared to the same period in 2008.  Income from mortgage
banking operations for the three months ended June 30, 2009 was $764,000, an
increase of $458,000, or 149.67%, from $306,000 for the same period in 2008, and
for the six months ended June 30, 2009 was $1,283,000, an increase of $767,000,
or 148.64%, from $516,000 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 June 30, 2009 increased $86,000, or 29.66%, to $376,000 from
$290,000 for the same period in 2008, and for the six months ended June 30, 2009
increased $186,000, or 34.07%, to $732,000 from $546,000 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 June 30, 2009, an increase of $60,000, or 51.72%,
compared to $116,000 for the same period in 2008, and were $325,000 for the six
months ended June 30, 2009, an increase of $115,000, or 54.76%, compared to
$210,000 for the same period in 2008.





Noninterest
Expense





Noninterest
expense totaled $6,882,000 for the three months ended June 30, 2009, an increase
of $2,352,000, or 51.92%, compared to $4,530,000 in 2008, and totaled
$13,315,000 for the six months ended June 30, 2009, an increase of $3,955,000,
or 42.25%, compared to $9,360,000 in 2008.  The increases for the
three and six month periods in 2009 over the same periods in 2008 was 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 $1,190,000, or 49.58%, to $3,590,000 for the three
months ended June 30, 2009 compared to $2,400,000 for the same period in 2008,
and increased $1,729,000, or 33.08%, to $6,956,000 for the six months ended June
30, 2009 compared to $5,227,000 for the same period in 2008.  These
increases are primarily the result of our increased employee base, to 158
employees at June 30, 2009 from 131 at June 30, 2008.  Other operating
expenses increased $1,162,000, or 54.55%, to $3,292,000 for the three months
ended June 30, 2009 compared to $2,130,000 for the same period in 2008, and
increased $2,226,000, or 53.86%, to $6,359,000 for the six months ended June 30,
2009 compared to $4,133,000 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 $810,000 and $991,000
for the three and six months ended June 30, 2009, respectively, compared to
$132,000 and $253,000 for the three and six months ended June 30,
2008.  The Company accrued a $600,000 one-time special assessment,
payable on September 30, 2009, in the second quarter of 2009.  This
special assessment decreased diluted earnings per share by approximately $.07
for the three and six months ended June 30, 2009.   OREO expenses
increased to $274,000 and $1,171,000 for the three and six months ended June 30,
2009, respectively, compared to $128,000 and $153,000 for the three and six
months ended June 30, 2008, respectively.


36


Income
Tax Expense





Income
tax expense was $734,000 for the three months ended June 30, 2009 versus
$972,000 for the same period in 2008, and was $1,086,000 for the six months
ended June 30, 2009 versus $1,820,000 for the same period in 2008. Our effective
tax rates for the three and six months ended June 30, 2009 were 32.01% and
32.27%, respectively, compared to 35.71% and 35.41% 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
June 30, 2009. Based upon the Evaluation, our CEO and CFO have concluded that,
as of June 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





On May
28, 2009, we held our 2009 Annual Meeting of Stockholders.  The
following numbered matters were submitted to a vote of the stockholders, and the
following tables list the results of the stockholders’ vote.





1.
            Election
      of directors to serve until the next annual meeting of stockholders and
      until their successors are duly elected and
  qualified:





Name
                  
                  For
                  
                  AbstainThomas
      A. Broughton, III
                  
                  3,476,366
                  
                  44,420James
      J. Filler
                  
                  3,476,366
                  
                  44,420Stanley
      M. Brock
                  
                  3,476,366
                  
                  44,420Michael
      D. Fuller
                  
                  3,476,366
                  
                  44,420Joseph
      R. Cashio
                  
                  3,476,366
                  
                  44,420Hatton
      C. V. Smith
                  
                  3,476,366
                  
                  44,420





2.
            Ratification
      of the appointment of Mauldin & Jenkins, LLC as independent auditors
      of the Company for the year ended December 31,
  2009:





For
                
                Against
                
                Abstain3,503,786
                
                1,000
                
                16,000





3.
            Approval
      of the ServisFirst Bancshares, Inc. 2009 Stock Incentive
    Plan:





For
                  
                  Against
                  
                  Abstain3,402,663
                  
                  70,955
                  
                  47,168





ITEM
5. OTHER INFORMATION





None.


39


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




40