Edgar Filing: ServisFirst Bancshares, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

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

For the transition period from _______to_______

Commission file number 000-53149

SERVISFIRST BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

850 Shades Creek Parkway, Birmingham, Alabama	35209
(Address of Principal Executive Offices)	(Zip Code)

(205) 949-0302

(Registrant's Telephone Number, Including Area Code)

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

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

Yes ¨ No ¨

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

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

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

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

Class		Outstanding as of July 30, 2012
Common stock, $.001 par value		6,005,318

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION
Item 1	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50

EX-31.01 SECTION 302 CERTIFICATION OF THE CEO
EX-31.02 SECTION 302 CERTIFICATION OF THE CFO
EX-32.01 SECTION 906 CERTIFICATION OF THE CEO
EX-32.02 SECTION 906 CERTIFICATION OF THE CFO

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS JUNE 30, 2012 AND DECEMBER 31, 2011

(In thousands, except share and per share amounts)

	June 30, 2012			December 31, 2011
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	42,332		$	43,018
Interest-bearing balances due from depository institutions		29,002			99,350
Federal funds sold		84,468			100,565
Cash and cash equivalents		155,802			242,933
Available for sale debt securities, at fair value		296,508			293,809
Held to maturity debt securities (fair value of $22,193 and $15,999 at June 30, 2012 and December 31, 2011, respectively)		21,011			15,209
Restricted equity securities		4,018			3,501
Mortgage loans held for sale		15,000			17,859
Loans		2,022,589			1,830,742
Less allowance for loan losses		(23,239	)		(22,030	)
Loans, net		1,999,350			1,808,712
Premises and equipment, net		6,032			4,591
Accrued interest and dividends receivable		8,057			8,192
Deferred tax assets		5,738			4,914
Other real estate owned		9,834			12,275
Bank owned life insurance contracts		41,165			40,390
Other assets		7,728			8,400
Total assets	$	2,570,243		$	2,460,785
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing	$	467,344		$	418,810
Interest-bearing		1,773,558			1,725,077
Total deposits		2,240,902			2,143,887
Federal funds purchased		80,205			79,265
Other borrowings		-			4,954
Trust preferred securities		30,514			30,514
Accrued interest payable		935			945
Other liabilities		2,819			4,928
Total liabilities		2,355,375			2,264,493
Stockholders' equity:
Preferred stock, Series A Senior Non-Cumulative Perpetual, par value $.001 (liquidation preference $1,000), net of discount; 40,000 shares authorized, 40,000 shares issued and outstanding at June 30, 2012 and at December 31, 2011		39,958			39,958
Preferred stock, par value $.001 per share; 1,000,000 authorized and 960,000 currently undesignated		-			-
Common stock, par value $.001 per share; 15,000,000 shares authorized; 6,004,318 shares issued and outstanding at June 30, 2012 and 5,932,182 shares issued and outstanding at December 31, 2011		6			6
Additional paid-in capital		89,324			87,805
Retained earnings		77,968			61,581
Accumulated other comprehensive income		7,612			6,942
Total stockholders' equity		214,868			196,292
Total liabilities and stockholders' equity	$	2,570,243		$	2,460,785
See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Interest income:
Interest and fees on loans	$	24,438	$	19,845	$	47,763	$	38,466
Taxable securities		1,302		1,444		2,639		2,986
Nontaxable securities		814		719		1,596		1,433
Federal funds sold		42		35		95		71
Other interest and dividends		58		37		132		85
Total interest income		26,654		22,080		52,225		43,041
Interest expense:
Deposits		3,028		3,264		6,150		6,398
Borrowed funds		721		768		1,432		1,619
Total interest expense		3,749		4,032		7,582		8,017
Net interest income		22,905		18,048		44,643		35,024
Provision for loan losses		3,083		1,494		5,466		3,725
Net interest income after provision for loan losses		19,822		16,554		39,177		31,299
Noninterest income:
Service charges on deposit accounts		719		547		1,320		1,114
Mortgage banking		879		476		1,836		827
Securities gains		-		523		-		666
Increase in cash surrender value life insurance		385		-		775		-
Other operating income		445		236		766		446
Total noninterest income		2,428		1,782		4,697		3,053
Noninterest expenses:
Salaries and employee benefits		5,248		5,026		10,413		9,240
Equipment and occupancy expense		961		934		1,896		1,820
Professional services		306		351		638		591
FDIC and other regulatory assessments		356		225		746		975
OREO expense		536		135		673		389
Other operating expenses		2,488		2,698		4,560		4,951
Total noninterest expenses		9,895		9,369		18,926		17,966
Total interest income		12,355		8,967		24,948		16,386
Provision for income taxes		4,024		3,122		8,361		5,670
Net income		8,331		5,845		16,587		10,716
Preferred stock dividends		100		-		200		-
Net income available to common stockholders	$	8,231	$	5,845	$	16,387	$	10,716

Basic earnings per common share	$	1.38	$	1.02	$	2.74	$	1.88

Diluted earnings per common share	$	1.21	$	0.89	$	2.41	$	1.65

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012		2011			2012		2011
Net income	$	8,331	$	5,845		$	16,587	$	10,716
Other comprehensive income, net of tax:
Unrealized holding gains arising during period from securities available for sale, net of tax of $245 and $178 for the three and six months ended June 30, 2012, respectively, and $1,550 and $1,713 for the three and six months ended June 30, 2011, respectively		454		2,877			670		3,182
Reclassification adjustment for net gains on sale of securities in net income, net of tax of $184 and $234 for the three and six months ended June 30, 2011, respectively		-		(339	)		-		(432	)
Other comprehensive income, net of tax		454		2,538			670		2,750
Comprehensive income	$	8,785	$	8,383		$	17,257	$	13,466

See Notes to Consolidated Financial Statements

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 2012

(In thousands, except share amounts)

(Unaudited)

										Accumulated
					Additional					Other		Total
	Preferred		Common		Paid-in		Retained			Comprehensive		Stockholders'
	Stock		Stock		Capital		Earnings			Income		Equity
Balance, December 31, 2011	$	39,958	$	6	$	87,805	$	61,581		$	6,942	$	196,292
Preferred dividends paid		-		-		-		(200	)		-		(200	)
Exercise 72,136 stock options and warrants, including tax benefit		-		-		997		-			-		997
Other comprehensive income		-		-		-		-			670		670
Stock-based compensation expense		-		-		522		-			-		522
Net income		-		-		-		16,587			-		16,587
Balance, June 30, 2012	$	39,958	$	6	$	89,324	$	77,968		$	7,612	$	214,868

See Notes to Consolidated Financial Statements

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In thousands) (Unaudited)

	2012			2011
OPERATING ACTIVITIES
Net income	$	16,587		$	10,716
Adjustments to reconcile net income to net cash provided by
Deferred tax benefit		(703	)		(2,452	)
Provision for loan losses		5,466			3,725
Depreciation and amortization		604			566
Net amortization of investments		529			417
Market value adjustment of interest rate cap		9			99
Decrease in accrued interest and dividends receivable		136			143
Stock-based compensation expense		522			465
(Decrease) increase in accrued interest payable		(10	)		85
Proceeds from sale of mortgage loans held for sale		121,731			67,237
Originations of mortgage loans held for sale		(117,006	)		(63,871	)
Gain on sale of securities available for sale		-			(666	)
Gain on sale of mortgage loans held for sale		(1,866	)		-
Net loss (gain) on sale of other real estate owned		62			(32	)
Write down of other real estate owned		420			156
Decrease in special prepaid FDIC insurance assessments		626			793
Increase in cash surrender value of life insurance contracts		(775	)		-
Loss on prepayment of other borrowings		-			738
Net change in other assets, liabilities, and other operating activities		(2,109	)		(46	)
Net cash provided by operating activities		24,223			18,073
INVESTMENT ACTIVITIES
Purchase of securities available for sale		(31,223	)		(26,007	)
Proceeds from maturities, calls and paydowns of securities available for sale		28,544			13,504
Purchase of securities held to maturity		(6,005	)		(8,704	)
Proceeds from maturities, calls and paydowns of securities held to maturity		203			43
Increase in loans		(196,384	)		(169,996	)
Purchase of premises and equipment		(2,045	)		(789	)
Purchase of restricted equity securities		(787	)		(543	)
Proceeds from sale of securities available for sale		-			63,270
Proceeds from sale of restricted equity securities		270			154
Proceeds from sale of other real estate owned and repossessions		2,239			1,882
Net cash used in investing activities		(205,188	)		(127,186	)
FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits		48,534			33,478
Net increase in interest-bearing deposits		48,481			11,680
Net increase in federal funds purchased		940			-
Proceeds from sale of common stock, net		997			10,212
Proceeds from sale of preferred stock, net		-			39,958
Repayment of other borrowings		(4,918	)		(20,738	)
Dividends on preferred stock		(200	)		-
Net cash provided by financing activities		93,834			74,590
Net decrease in cash and cash equivalents		(87,131	)		(34,523	)
Cash and cash equivalents at beginning of year		242,933			231,978
Cash and cash equivalents at end of year	$	155,802		$	197,455
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest	$	7,592		$	7,932
Income taxes		8,691			8,136
NONCASH TRANSACTIONS
Transfers of loans from held for sale to held for investment	$	-		$	417
Other real estate acquired in settlement of loans		304			2,112
Internally financed sales of other real estate owned		24			141

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

NOTE 1 - GENERAL

The accompanying 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 (“U.S. GAAP”) 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, 2011.

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

NOTE 2 - CASH AND CASH EQUIVALENTS

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 available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options and warrants, as well as the potential common shares issuable upon possible conversion of the preferred securities described in Note 11 to the consolidated financial statements.

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(In Thousands, Except Shares and Per Share Data)
Earnings per common share
Weighted average common shares outstanding		5,981,218		5,708,871		5,971,630		5,694,871
Net income available to common stockholders	$	8,231	$	5,845	$	16,387	$	10,716
Basic earnings per common share	$	1.38	$	1.02	$	2.74	$	1.88

Weighted average common shares outstanding		5,981,218		5,708,871		5,971,630		5,694,871
Dilutive effects of assumed conversions and exercise of stock options and warrants		952,346		997,082		952,087		962,488
Weighted average common and dilutive potential common shares outstanding		6,933,564		6,705,953		6,923,717		6,657,359
Net income available to common stockholders	$	8,231	$	5,845	$	16,387	$	10,716
Effect of interest expense on covertible debt, net of tax and discretionary expenditures related to conversion		142		148		283		294
Net income available to common stockholders, adjusted for effect of debt conversion	$	8,373	$	5,993	$	16,670	$	11,010
Diluted earnings per common share	$	1.21	$	0.89	$	2.41	$	1.65

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2012 and December 31, 2011 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gain		Loss			Value
	(In Thousands)
June 30, 2012
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	86,643	$	1,272	$	-		$	87,915
Mortgage-backed securities		84,665		4,672		(7	)		89,330
State and municipal securities		107,733		5,766		(36	)		113,463
Corporate debt		5,756		44		-			5,800
Total		284,797		11,754		(43	)		296,508
Securities Held to Maturity
Mortgage-backed securities		15,476		651		(24	)		16,103
State and municipal securities		5,535		555		-			6,090
Total	$	21,011	$	1,206	$	(24	)	$	22,193

December 31, 2011
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	98,169	$	1,512	$	(59	)	$	99,622
Mortgage-backed securities		88,118		4,462		-			92,580
State and municipal securities		95,331		5,230		(35	)		100,526
Corporate debt		1,029		52		-			1,081
Total		282,647		11,256		(94	)		293,809
Securities Held to Maturity
Mortgage-backed securities		9,676		410		-			10,086
State and municipal securities		5,533		380		-			5,913
Total	$	15,209	$	790	$	-		$	15,999

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

The following table identifies, as of June 30, 2012 and December 31, 2011, 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. At June 30, 2012, none of the Company’s 553 debt securities had been in an unrealized loss position for 12 or more months. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity; accordingly, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2012. Further, the Company believes any deterioration in value of its current investment securities is attributable to changes in market interest rates and not credit quality of the issuer.

	Less Than Twelve Months					Twelve Months or More				Total
	Gross					Gross				Gross
	Unrealized					Unrealized				Unrealized
	Losses			Fair Value		Losses		Fair Value		Losses			Fair Value
	(In Thousands)
June 30, 2012
U.S. Treasury and government sponsored agencies	$	-		$	-	$	-	$	-	$	-		$	-
Mortgage-backed securities		(31	)		5,902		-		-		(31	)		5,902
State and municipal securities		(36	)		7,500		-		-		(36	)		7,500
Corporate debt		-			-		-		-		-			-
Total	$	(67	)	$	13,402	$	-	$	-	$	(67	)	$	13,402

December 31, 2011
U.S. Treasury and government sponsored agencies	$	(59	)	$	15,074	$	-	$	-	$	(59	)	$	15,074
State and municipal securities		(35	)		4,559		-		-		(35	)		4,559
Corporate debt		-			-		-		-		-			-
Total	$	(94	)	$	19,633	$	-	$	-	$	(94	)	$	19,633

NOTE 5 – LOANS

The following table details the Company’s loans at June 30, 2012 and December 31, 2011:

	June 30,			December 31,
	2012			2011
	(Dollars In Thousands)
Commercial, financial and agricultural	$	856,823		$	799,464
Real estate - construction		148,486			151,218
Real estate - mortgage:
Owner-occupied commercial		490,204			398,601
1-4 family mortgage		229,036			205,182
Other mortgage		254,295			235,251
Subtotal: Real estate - mortgage		973,535			839,034
Consumer		43,745			41,026
Total Loans		2,022,589			1,830,742
Less: Allowance for loan losses		(23,239	)		(22,030	)
Net Loans	$	1,999,350		$	1,808,712

Commercial, financial and agricultural		42.36	%		43.67	%
Real estate - construction		7.34	%		8.26	%
Real estate - mortgage:
Owner-occupied commercial		24.24	%		21.77	%
1-4 family mortgage		11.33	%		11.21	%
Other mortgage		12.57	%		12.85	%
Subtotal: Real estate - mortgage		48.14	%		45.83	%
Consumer		2.16	%		2.24	%
Total Loans		100.00	%		100.00	%

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions defined as follows:

Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or obligors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

Substandard – loans that exhibit well-defined weakness or weaknesses that presently jeopardize debt repayment. These loans are characterized by the distinct possibility that the institution will sustain some loss if the weaknesses are not corrected.

Doubtful – loans that have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

Loans by credit quality indicator as of June 30, 2012 and December 31, 2011 were as follows:

			Special
June 30, 2012	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	840,432	$	10,379	$	6,012	$	-	$	856,823
Real estate - construction		117,852		8,295		22,339		-		148,486
Real estate - mortgage:
Owner-occupied commercial		477,066		7,097		6,041		-		490,204
1-4 family mortgage		216,338		6,614		6,084		-		229,036
other mortgage		243,987		6,884		3,424		-		254,295
Total real estate mortgage		937,391		20,595		15,549		-		973,535
Consumer		43,393		86		266		-		43,745
Total	$	1,939,068	$	39,355	$	44,166	$	-	$	2,022,589

			Special
December 31, 2011	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	780,270	$	11,775	$	7,419	$	-	$	799,464
Real estate - construction		117,244		14,472		19,502		-		151,218
Real estate - mortgage:
Owner-occupied commercial		385,084		7,333		6,184		-		398,601
1-4 family mortgage		194,447		4,835		5,900		-		205,182
other mortgage		224,807		7,034		3,410		-		235,251
Total real estate mortgage		804,338		19,202		15,494		-		839,034
Consumer		40,353		96		577		-		41,026
Total	$	1,742,205	$	45,545	$	42,992	$	-	$	1,830,742

Loans by performance status as of June 30, 2012 and December 31, 2011 were as follows:

June 30, 2012	Performing		Nonperforming		Total
	(In Thousands)
Commercial, financial and agricultural	$	856,367	$	456	$	856,823
Real estate - construction		140,971		7,515		148,486
Real estate - mortgage:
Owner-occupied commercial		487,247		2,957		490,204
1-4 family mortgage		228,568		468		229,036
other mortgage		253,602		693		254,295
Total real estate mortgage		969,417		4,118		973,535
Consumer		43,709		36		43,745
Total	$	2,010,464	$	12,125	$	2,022,589

December 31, 2011	Performing		Nonperforming		Total
	(In Thousands)
Commercial, financial and agricultural	$	798,285	$	1,179	$	799,464
Real estate - construction		141,155		10,063		151,218
Real estate - mortgage:
Owner-occupied commercial		397,809		792		398,601
1-4 family mortgage		204,512		670		205,182
other mortgage		234,558		693		235,251
Total real estate mortgage		836,879		2,155		839,034
Consumer		40,651		375		41,026
Total	$	1,816,970	$	13,772	$	1,830,742

Loans by past due status as of June 30, 2012 and December 31, 2011 were as follows:

June 30, 2012	Past Due Status (Accruing Loans)
							Total Past
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	469	$	7	$	-	$	476	$	456	$	855,891	$	856,823
Real estate - construction		1,925		-		-		1,925		7,515		139,046		148,486
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		2,957		487,247		490,204
1-4 family mortgage		16		389		-		405		468		228,163		229,036
Other mortgage		-		-		-		-		693		253,602		254,295
Total real estate - mortgage		16		389		-		405		4,118		969,012		973,535
Consumer		34		2		-		36		36		43,673		43,745
Total	$	2,444	$	398	$	-	$	2,842	$	12,125	$	2,007,622	$	2,022,589

December 31, 2011	Past Due Status (Accruing Loans)
							Total Past
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	-	$	-	$	-	$	-	$	1,179	$	798,285	$	799,464
Real estate - construction		2,234		-		-		2,234		10,063		138,921		151,218
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		792		397,809		398,601
1-4 family mortgage		2,107		-		-		2,107		670		202,405		205,182
Other mortgage		-		-		-		-		693		234,558		235,251
Total real estate - mortgage		2,107		-		-		2,107		2,155		834,772		839,034
Consumer		-		84		-		84		375		40,567		41,026
Total	$	4,341	$	84	$	-	$	4,425	$	13,772	$	1,812,545	$	1,830,742

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based on management’s evaluation of the loan portfolios, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. Allocation of the allowance is made for specific loans, but the entire allowance is available for any loan that in management’s judgment deteriorates and is uncollectible. The unallocated portion of the reserve is management’s evaluation of potential future losses that would arise in the loan portfolio should management’s assumption about qualitative and environmental conditions materialize. The unallocated portion of the allowance for loan losses is based on management’s judgment regarding various external and internal factors including macroeconomic trends, management’s assessment of the Company’s loan growth prospects, and evaluations of internal risk controls.

The following table presents an analysis of the allowance for loan losses by portfolio segment as of June 30, 2012 and December 31, 2011. The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.

	Commercial,
	financial and			Real estate -			Real estate -
	agricultural			construction			mortgage			Consumer			Unallocated		Total
	(In Thousands)
	Three Months Ended June 30, 2012
Allowance for loan losses:
Balance at March 31, 2012	$	6,625		$	7,607		$	3,893		$	510		$	5,027	$	23,662
Chargeoffs		(261	)		(2,502	)		(221	)		(537	)		-		(3,521	)
Recoveries		-			8			4			3			-		15
Provision		147			2,469			(36	)		309			194		3,083
Balance at June 30, 2012	$	6,511		$	7,582		$	3,640		$	285		$	5,221	$	23,239

	Three Months Ended June 30, 2011
Allowance for loan losses:
Balance at March 31, 2011	$	6,241		$	6,285		$	2,669		$	441		$	3,590		$	19,226
Chargeoffs		(310	)		(1,021	)		(15	)		(5	)		-			(1,351	)
Recoveries		-			74			1			72			-			147
Provision		(109	)		1,130			532			43			(102	)		1,494
Balance at June 30, 2011	$	5,822		$	6,468		$	3,187		$	551		$	3,488		$	19,516

	Six Months Ended June 30, 2012
Allowance for loan losses:
Balance at December 31, 2011	$	6,627		$	6,542		$	3,295		$	531		$	5,035	$	22,030
Chargeoffs		(548	)		(2,919	)		(281	)		(629	)		-		(4,377	)
Recoveries		100			8			6			6			-		120
Provision		332			3,951			620			377			186		5,466
Balance at June 30, 2012	$	6,511		$	7,582		$	3,640		$	285		$	5,221	$	23,239

	Six Months Ended June 30, 2011
Allowance for loan losses:
Balance at December 31, 2010	$	5,348		$	6,373		$	2,443		$	749		$	3,164	$	18,077
Chargeoffs		(860	)		(1,321	)		(15	)		(329	)		-		(2,525	)
Recoveries		-			165			1			73			-		239
Provision		1,334			1,251			758			58			324		3,725
Balance at June 30, 2011	$	5,822		$	6,468		$	3,187		$	551		$	3,488	$	19,516

	As of June 30, 2012
Individually Evaluated for Impairment	$	372	$	1,748	$	946	$	63	$	-	$	3,129
Collectively Evaluated for Impairment		6,139		5,834		2,694		222		5,221		20,110

Loans:
Ending Balance	$	856,823	$	148,486	$	973,535	$	43,745	$	-	$	2,022,589
Individually Tested for Impairment		3,960		19,529		14,827		238		-		38,554
Collectively Evaluated for Impairment	$	852,863	$	128,957	$	958,708	$	43,507	$	-	$	1,984,035

	As of December 31, 2011

Allowance for loan losses:	$	6,627	$	6,542	$	3,295	$	531	$	5,035	$	22,030

Individually Evaluated for Impairment	$	1,382	$	1,533	$	941	$	325	$	-	$	4,181
Collectively Evaluated for Impairment		5,245		5,009		2,354		206		5,035		17,849

Loans:
Ending Balance	$	799,464	$	151,218	$	839,034	$	41,026		-	$	1,830,742
Individually Evaluated for Impairment		5,578		16,262		14,866		547		-		37,253
Collectively Evaluated for Impairment		793,886		134,956		824,168		40,479		-		1,793,489

The following table presents details of the Company’s impaired loans as of June 30, 2012 and December 31, 2011, respectively. Loans which have been fully charged off do not appear in the tables.

							For the three months				For the six months
							ended June 30,				ended June 30,
	June 30, 2012						2012				2012
									Interest				Interest
			Unpaid				Average		Income		Average		Income
	Recorded		Principal		Related		Recorded		Recognized		Recorded		Recognized
	Investment		Balance		Allowance		Investment		in Period		Investment		in Period
	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	2,555	$	2,873	$	-	$	1,902	$	25	$	1,818	$	39
Real estate - construction		8,772		10,234		-		8,832		97		8,916		130
Real estate - mortgage:
Owner-occupied commercial		5,735		5,735		-		5,752		42		5,769		60
1-4 family mortgage		1,635		1,636		-		1,632		17		1,631		34
Other mortgage		1,456		1,456		-		1,419		10		1,413		25
Total real estate - mortgage		8,826		8,827		-		8,803		69		8,813		119
Consumer		36		610		-		138		-		256		-
Total with no allowance recorded		20,189		22,544		-		19,675		191		19,803		288

With an allowance recorded:
Commercial, financial and agricultural		1,405		1,405		372		1,418		25		1,433		47
Real estate - construction		10,757		11,898		1,748		11,109		78		11,163		159
Real estate - mortgage:
Owner-occupied commercial		74		74		43		80		1		82		2
1-4 family mortgage		4,197		4,418		811		4,413		37		4,414		72
Other mortgage		1,730		1,730		92		1,734		25		1,739		50
Total real estate - mortgage		6,001		6,222		946		6,227		63		6,235		124
Consumer		202		202		63		173		1		173		3
Total with allowance recorded		18,365		19,727		3,129		18,927		167		19,004		333

Total Impaired Loans:
Commercial, financial and agricultural		3,960		4,278		372		3,320		50		3,251		86
Real estate - construction		19,529		22,132		1,748		19,941		175		20,079		289
Real estate - mortgage:
Owner-occupied commercial		5,809		5,809		43		5,832		43		5,851		62
1-4 family mortgage		5,832		6,054		811		6,045		54		6,045		106
Other mortgage		3,186		3,186		92		3,153		35		3,152		75
Total real estate - mortgage		14,827		15,049		946		15,030		132		15,048		243
Consumer		238		812		63		311		1		429		3
Total impaired loans	$	38,554	$	42,271	$	3,129	$	38,602	$	358	$	38,807	$	621

December 31, 2011

			Unpaid				Average		Interest Income
	Recorded		Principal		Related		Recorded		Recognized in
	Investment		Balance		Allowance		Investment		Period
	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	1,264	$	1,264	$	-	$	1,501	$	74
Real estate - construction		11,583		12,573		-		10,406		226
Owner-occupied commercial		2,493		2,493		-		2,523		153
1-4 family mortgage		1,293		1,293		-		1,241		44
Other mortgage		2,837		2,837		-		2,746		162
Total real estate - mortgage		6,623		6,623		-		6,510		359
Consumer		173		173		-		173		6
Total with no allowance recorded		19,643		20,633		-		18,590		665

With an allowance recorded:
Commercial, financial and agricultural		4,314		4,314		1,382		4,156		226
Real estate - construction		4,679		4,679		1,482		3,987		94
Real estate - mortgage:
Owner-occupied commercial		3,515		3,515		88		3,504		365
1-4 family mortgage		4,397		4,397		904		4,484		198
Other mortgage		331		331		-		337		22
Total real estate - mortgage		8,243		8,243		992		8,325		585
Consumer		374		624		325		425		-
Total with allowance recorded		17,610		17,860		4,181		16,893		905

Total Impaired Loans:
Commercial, financial and agricultural		5,578		5,578		1,382		5,657		300
Real estate - construction		16,262		17,252		1,482		14,393		320
Real estate - mortgage:
Owner-occupied commercial		6,008		6,008		88		6,027		518
1-4 family mortgage		5,690		5,690		904		5,725		242
Other mortgage		3,168		3,168		-		3,083		184
Total real estate - mortgage		14,866		14,866		992		14,835		944
Consumer		547		797		325		598		6
Total impaired loans	$	37,253	$	38,493	$	4,181	$	35,483	$	1,570

Troubled Debt Restructurings (“TDR”) at June 30, 2012, December 31, 2011 and June 30, 2011 totaled $8.4 million, $4.5 million and $5.8 million, respectively. At June 30, 2012, the Company had a related allowance for loan losses of $433,000 allocated to these TDRs, compared to $439,000 at December 31, 2011 and $465,000 at June 30, 2011. The Company had three TDR loans to one borrower in the amount of $2.8 million enter into payment default status during the first quarter of 2012. All other loans classified as TDRs as of June 30, 2012 are performing as agreed under the terms of their restructured plans. The following table presents an analysis of TDRs as of June 30, 2012 and June 30, 2011.

	June 30, 2012						June 30, 2011
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment
	(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural		2	$	1,263	$	1,263		10	$	2,440	$	2,440
Real estate - construction		15		2,377		2,377		-		-		-
Real estate - mortgage:
Owner-occupied commercial		3		2,786		2,786		2		3,017		3,017
1-4 family mortgage		5		1,709		1,709		-		-		-
Other mortgage		1		304		304		1		340		340
Total real estate mortgage		9		4,799		4,799		3		3,357		3,357
Consumer		-		-		-		-		-		-
		26	$	8,439	$	8,439		13	$	5,797	$	5,797

		Number of		Recorded				Number of		Recorded
		Contracts		Investment				Contracts		Investment

Troubled Debt Restructurings
That Subsequently Defaulted
Commercial, financial and agricultural		-	$	-				-	$	-
Real estate - construction		-		-				-		-
Real estate - mortgage:
Owner-occupied commercial		3		2,786				-		-
1-4 family mortgage		-		-				-		-
Other mortgage		-		-				-		-
Total real estate - mortgage		3		2,786				-		-
Consumer		-		-				-		-
		3	$	2,786				-	$	-

NOTE 6 - EMPLOYEE AND DIRECTOR BENEFITS

Stock Options

At June 30, 2012, the Company had stock-based compensation plans, as described below. The compensation cost that has been charged to earnings for the plans was approximately $262,000 and $522,000 for the three and six months ended June 30, 2012 and $240,000 and $465,000 for the three and six months ended June 30, 2011.

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

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 prices between $15.00 and $20.00 per share with a term of ten years. These options are non-qualified and not part of either plan.

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

	2012			2011
Expected volatility		20.00	%		29.00	%
Expected dividends		-	%		0.50	%
Expected term (in years)		6 years			7 years
Risk-free rate		1.02	%		2.70	%

The weighted average grant-date fair value of options granted during the six months ended June 30, 2012 and June 30, 2011 was $6.43 and $8.54, respectively.

The following table summarizes stock option activity during the six months ended June 30, 2012 and June 30, 2011:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (years)		Value
								(In Thousands)
Six Months Ended June 30, 2012:
Outstanding at January 1, 2012		1,073,800		$	18.33		6.0	$	12,508
Granted		36,500			30.00		9.7		-
Exercised		(52,136	)		11.00		3.6		991
Outstanding at June 30, 2012		1,058,164			19.11		5.8	$	11,527

Exercisable at June 30, 2012		434,706		$	13.31		3.9	$	7,257

Six Months Ended June 30, 2011:
Outstanding at January 1, 2011		881,000		$	15.65		6.9	$	8,238
Granted		166,500			26.05		9.6		-
Exercised		(5,000	)		10.50		4.4		98
Outstanding at June 30, 2011		1,042,500			17.34		6.2	$	13,203

Exercisable at June 30, 2011		332,459		$	12.71		4.8	$	5,748

As of June 30, 2012, there was $1,940,000 of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next 5.8 years.

Restricted Stock

The Company has issued restricted stock to a certain executive officer and five other employees, and currently has 26,000 non-vested shares issued. The value of restricted stock awards is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period, which is five years from the date of grant. As of June 30, 2012, there was $362,000 of total unrecognized compensation cost related to non-vested restricted stock. The cost is expected to be recognized evenly over the remaining 2.5 years of the restricted stock’s vesting period.

Stock Warrants

In recognition of the efforts and financial risks undertaken by the organizers of ServisFirst Bank (the “Bank”) in 2005, the Bank granted warrants to organizers to purchase a total 60,000 shares of common stock at a price of $10, 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 these warrants outstanding at June 30, 2012 and June 30, 2011 was 20,000 and 60,000, respectively.

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.

NOTE 7 - DERIVATIVES

During 2008, the Company entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet customer 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, 2012, the Company was party to two swaps with notional amounts totaling approximately $11.3 million with customers and two swaps with notional amounts totaling approximately $11.3 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 $563,000 in offsetting entries in other assets and other liabilities.

During 2010, the Company entered into an interest rate cap with a notional value of $100 million. The cap has a strike rate of 2.00% and is indexed to the three month London Interbank Offered Rate (“LIBOR”). The cap does not qualify for hedge accounting treatment, and is marked to market, with changes in market value reflected in interest expense.

The 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, 2012 and December 31, 2011 were not material.

NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, which amends disclosures by requiring improved information about financial instruments and derivative instruments that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. Reporting entities are required to provide both net and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of international financial reporting standards (“IFRS”). Companies are required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective disclosures are required. The Company does not believe this update will have a material impact on its financial position or results of operations.

In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05, which defers the effective date pertaining to reclassification adjustments out of other accumulated comprehensive income in ASU 2011-05, until the FASB is able to reconsider those requirements. All other requirements of ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011, which coincide with the effective dates of the requirements in ASU 2011-05 amended by this update. Adoption of this update by the Company had no impact on its financial statements.

NOTE 9 - FAIR VALUE MEASUREMENT

Measurement of fair value under U.S. GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below:

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

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

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

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

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

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

Impaired Loans. Impaired loans are measured and reported at fair value when full payment under the loan terms is not probable. Impaired loans are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in Accounting Standards Codification (“ASC”) 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates, and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. 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. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized as an impairment charge related to impaired loans that are measured at fair value on a nonrecurring basis was $809,000 and $3,700,000 during the three and six months ended June 30, 2012, respectively, and $1,508,000 and $3,135,000 during the three and six months ended June 30, 2011, respectively.

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. A loss on the sale and write-downs of OREO of $366,000 and $483,000 was recognized for the three and six months ended June 30, 2012, respectively, and $144,000 and $91,000 for the three and six months ended June 30, 2011, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO is classified within Level 3 of the hierarchy.

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of June 30, 2012 and December 31, 2011:

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Recurring Basis:
Available-for-sale securities:
U.S. Treasury and government sponsored agencies	$	-	$	87,915	$	-	$	87,915
Mortgage-backed securities		-		89,330		-		89,330
State and municipal securities		-		113,463		-		113,463
Corporate debt		-		5,800		-		5,800
Interest rate swap agreements		-		563		-		563
Total assets at fair value	$	-	$	297,071	$	-	$	297,071

Liabilities Measured on a Recurring Basis:
Interest rate swap agreements	$	-	$	563	$	-	$	563

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Recurring Basis:
Available-for-sale securities
U.S. Treasury and government sponsored agencies	$	-	$	99,622	$	-	$	99,622
Mortgage-backed securities		-		92,580		-		92,580
State and municipal securities		-		100,526		-		100,526
Corporate debt		-		1,081		-		1,081
Interest rate swap agreements		-		617		-		617
Interest rate cap		-		9		-		9
Total assets at fair value	$	-	$	294,435	$	-	$	294,435

Liabilities Measured on a Recurring Basis:
Interest rate swap agreements	$	-	$	617	$	-	$	617

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of June 30, 2012 and December 31, 2011:

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Nonrecurring Basis:
Impaired loans	$	-		-	$	35,425	$	35,425
Other real estate owned and repossessed assets		-		-		9,834		9,834
Total assets at fair value		-		-	$	45,259	$	45,259

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Nonrecurring Basis:
Impaired loans	$	-	$	-	$	33,072	$	33,072
Other real estate owned		-		-		12,275		12,275
Total assets at fair value	$	-	$	-	$	45,347	$	45,347

The fair value of a financial instrument is the current amount that would be exchanged in a sale between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Current U.S. GAAP excludes certain financial instruments and all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2012 and December 31, 2011 are presented in the following table. This table includes those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis.

	June 30, 2012				December 31, 2011
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In Thousands)
Financial Assets:
Level 2 inputs:
Cash and cash equivalents	$	155,802	$	155,802	$	242,933	$	242,933
Investment securities available for sale		284,797		296,508		282,647		293,809
Investment securities held to maturity		21,011		22,193		15,209		15,999
Restricted equity securities		4,018		4,018		3,501		3,501
Mortgage loans held for sale		15,000		15,000		17,859		17,859
Accrued interest and dividends receivable		8,057		8,057		8,192		8,192
Bank owned life insurance contracts		41,165		41,165		40,390		40,390
Derivatives		563		563		626		626

Level 3 inputs:
Loans, net		1,999,350		1,997,175		1,808,712		1,811,612

Financial Liabilities:
Level 2 inputs:
Deposits		2,240,902		2,246,238		2,143,887		2,150,308
Federal funds purchased		80,205		80,205		79,265		79,265
Borrowings		-		-		4,954		5,377
Trust preferred securities		30,514		27,385		30,514		27,402
Accrued interest payable		935		935		945		945
Derivatives		563		563		617		617

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 held to maturity are generally based on prices provided by independent pricing services. Management evaluates the reasonableness of prices provided by such services, as well as their underlying pricing methodologies. These measurements are classified within level 2 of the fair value 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.

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. The method of estimating fair value does not incorporate the exit-price concept of fair value as prescribed by ASC 820 and generally produces a higher value than an exit-price approach. The measurement of the fair value of loans is classified within Level 3 of the fair value hierarchy.

Mortgage loans held for sale: Loans are committed to be delivered to investors on a “best efforts delivery” basis within 30 days of origination. Due to this short turn-around time, the carrying amounts of the Company’s agreements approximate their fair values.

Derivatives: The fair values of the derivative agreements are estimated by a third party using inputs that are observable or can be corroborated by observable market data, and are therefore classified within Level 2 of the fair value hierarchy.

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

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation using interest rates currently offered for deposits with similar remaining maturities. The fair value of the Company’s time deposits do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value. Measurements of the fair value of certificates of deposit are classified within Level 2 of the fair value hierarchy.

Federal funds purchased: The carrying amounts of federal funds purchased approximate their market value.

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. These measurements are classified as Level 2 in the fair value hierarchy.

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. These measurements are classified as Level 2 in the fair value hierarchy.

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 financial instruments consist of non-fee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

NOTE 10 – SF HOLDING 1, INC. AND SF REATLY 1, INC.

In January 2012, the Company formed SF Holding 1, Inc., an Alabama corporation, and its subsidiary, SF Realty 1, Inc., an Alabama corporation. SF Realty 1 elected to be treated as a real estate investment trust (“REIT”) for U.S. income tax purposes. SF Realty 1 holds and manages participations in residential mortgages and commercial real estate loans originated by ServisFirst Bank.

NOTE 11 – SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date of this filing to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of June 30, 2012, and events which occurred subsequent to June 30, 2012 but were not recognized in the financial statements. As of the date of this filing, there were no subsequent events that 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 as of June 30, 2012 and for the three and six months ended June 30, 2012 and June 30, 2011.

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. The Company cautions that such forward-looking statements, wherever they occur in this quarterly report or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’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 collectability of loans and the value of collateral; the effect of natural disasters, such as hurricanes and tornados, 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.

Business

We are a bank holding company under the Bank Holding Company Act of 1956 incorporated in Delaware and headquartered at 850 Shades Creek Parkway, Birmingham, Alabama 35209 (Jefferson County). Through the Bank, we operate ten full-service banking offices, with nine offices located in Jefferson, Shelby, Madison, Montgomery and Houston counties in the metropolitan statistical areas (“MSAs”) of Birmingham-Hoover, Huntsville, Montgomery and Dothan, Alabama, and one office located in Escambia County in the Pensacola-Ferry Pass-Brent, Florida MSA, which opened April 1, 2011. These MSAs constitute our primary service areas.

Our principal business is to accept deposits from the public and to make loans and other investments. Our principal sources of funds for loans and investments are demand, time, savings, and other deposits (including negotiable orders of withdrawal, or NOW accounts). Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits (including NOW accounts), interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.

Overview

As of June 30, 2012, we had consolidated total assets of $2,570,243,000, an increase of $109,458,000, or 4.4%, from $2,460,785,000 at December 31, 2011. Total loans were $2,022,589,000 at June 30, 2012, up $191,847,000, or 10.5%, from $1,830,742,000 at December 31, 2011. Total deposits were $2,240,902,000 at June 30, 2012, an increase of $97,015,000, or 4.5%, from $2,143,887,000 at December 31, 2011.

Net income available to common stockholders for the quarter ended June 30, 2012 was $8,231,000, an increase of $2,386,000, or 40.8%, from $5,845,000 for the quarter ended June 30, 2011. Basic and diluted earnings per common share were $1.38 and $1.21, respectively, for the three months ended June 30, 2012, compared to $1.02 and $0.89, respectively, for the corresponding period in 2011.

Net income available to common stockholders for the six months ended June 30, 2012 was $16,387,000, an increase of $5,671,000, or 52.9%, from $10,716,000 for the six months ended June 30, 2011. Basic and diluted earnings per common share were $2.74 and $2.41, respectively, for the six months ended June 30, 2012, compared to $1.88 and $1.65, respectively, for the corresponding period in 2011.

Critical Accounting Policies

The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, valuation of foreclosed real estate, deferred taxes, and fair value of financial instruments are particularly subject to change. Information concerning our accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Financial Condition

Cash and Cash Equivalents

At June 30, 2012, we had $84,468,000 in federal funds sold and other investments, compared to $100,565,000 at December 31, 2011.

Investment Securities

Investment securities available for sale totaled $296,508,000 at June 30, 2012 and $293,809,000 at December 31, 2011. Investment securities held to maturity totaled $21,011,000 at June 30, 2012 and $15,209,000 at December 31, 2011. Purchases of $17,931,000 in mortgage-backed securities, $1,500,000 in government-sponsored agencies, $13,097,000 in municipal bonds and $4,700,000 in corporate bonds replaced $28,620,000 in total security redemptions during the first six months of 2012.

Each quarter, management assesses whether there have been events or economic circumstances indicating 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 we currently do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, no declines are deemed to be other than temporary. We will continue to evaluate our investment securities for possible other-than-temporary impairment, which could result in non-cash charges to earnings in one or more future periods.

The following table shows the amortized cost of our investment securities by their stated maturity at June 30, 2012:

	Less Than			One Year to			Five Years to			More Than
	One Year			Five Years			Ten Years			Ten Years			Total
	(In Thousands)
U.S. Treasury and government sponsored Agencies	$	20,011		$	64,186		$	1,853		$	593		$	86,643
Mortgage-backed securities		287			1,032			36,958			61,864			100,141
State and municipal securities		905			39,363			63,476			9,524			113,268
Corporate debt		-			4,721			1,035			-			5,756
Total	$	21,203		$	109,302		$	103,322		$	71,981		$	305,808

Taxable-equivalent Yield		1.90	%		2.40	%		4.40	%		4.20	%		3.46	%

All securities held are traded in liquid markets. As of June 30, 2012, we owned certain restricted securities of the Federal Home Loan Bank with an aggregate book value and market value of $3,767,000 and certain securities of First National Bankers Bank in which we invested $250,000. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity.

The Bank 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 had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at June 30, 2012 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 $200,660,000 and $111,347,000 as of June 30, 2012 and December 31, 2011, respectively.

Loans

We had total loans of $2,022,589,000 at June 30, 2012, an increase of $191,847,000, or 10.5% year to date, compared to $1,830,742,000 at December 31, 2011. At June 30, 2012, 51% of our loans were in our Birmingham offices, 19% of our loans were in our Huntsville offices, 13% of our loans were in our Dothan offices, 11% of our loans were in our Montgomery offices, and 6% of our loans were in our Pensacola, Florida office.

Asset Quality

The allowance for loan losses is established and maintained 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. Our management believes that the allowance was adequate at June 30, 2012.

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. Management believes that the comprehensive allowance analysis developed by our credit administration group is in compliance with all current regulatory guidelines.

			Percentage of loans
			in each category
June 30, 2012	Amount		to total loans
	(In Thousands)
Commercial, financial and agricultural	$	6,511		42.36	%
Real estate - construction		7,582		7.34	%
Real estate - mortgage		3,640		48.14	%
Consumer		285		2.16	%
Other		5,221		-	%
Total	$	23,239		100.00	%

			Percentage of loans
			in each category
December 31, 2011	Amount		to total loans
	(In Thousands)
Commercial, financial and agricultural	$	6,627		43.67	%
Real estate - construction		6,542		8.26	%
Real estate - mortgage		3,295		45.83	%
Consumer		531		2.24	%
Other		5,035		-	%
Total	$	22,030		100.00	%

Nonperforming Assets

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to $12.1 million at June 30, 2012, compared to $13.8 million at December 31, 2011. The nonperforming loan totals consist entirely of nonaccrual loans as there were no loans 90 or more days past due and still accruing for either period. Troubled Debt Restructurings (“TDR”) at June 30, 2012 were $8.4 million compared to $4.5 million at December 31, 2011 with the majority of this increase attributable to a single residential builder relationship in the aggregate amount of $4.1 million. The Company had three TDR loans to one borrower in the amount of $2.8 million enter into payment default status during the first quarter of 2012. All TDR loans at December 31, 2011 were performing as agreed under the terms of their restructuring plans.

Other real estate owned (OREO) decreased to $9.8 million at June 30, 2012, from $12.3 million at December 31, 2011. The total number of OREO accounts decreased from 39 to 30.

The following table summarizes our nonperforming assets and TDRs at June 30, 2012 and December 31, 2011:

	June 30, 2012					December 31, 2011
				Number of					Number of
	Balance			Loans		Balance			Loans
	(Dollar Amounts In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	456			4	$	1,179			7
Real estate - construction		7,515			17		10,063			21
Real estate - mortgage:
Owner-occupied commercial		2,957			4		792			2
1-4 family mortgage		468			3		670			4
Other mortgage		693			1		693			1
Total real estate - mortgage		4,118			8		2,155			7
Consumer		36			1		375			1
Total Nonaccrual loans:	$	12,125			30	$	13,772			36

90+ days past due and accruing:
Commercial, financial and agricultural	$	-			-	$	-			-
Real estate - construction		-			-		-			-
Real estate - mortgage:
Owner-occupied commercial		-			-		-			-
1-4 family mortgage		-			-		-			-
Other mortgage		-			-		-			-
Total real estate - mortgage		-			-		-			-
Consumer		-			-		-			-
Total 90+ days past due and accruing:	$	-			-	$	-			-

Total Nonperforming Loans:	$	12,125			30	$	13,772			36

Plus: Other real estate owned		9,839			30		12,305			39
Total Nonperforming Assets	$	21,964			60	$	26,077			75

Restructured accruing loans:
Commercial, financial and agricultural	$	1,263			2	$	1,369			2
Real estate - construction		2,377			15		-			-
Real estate - mortgage:
Owner-occupied commercial		-			-		2,785			3
1-4 family mortgage		1,709			5		-			-
Other mortgage		304			1		331			1
Total real estate - mortgage		2,013			6		3,116			4
Consumer		-			-		-			-
Total restructured accruing loans:	$	5,653			23	$	4,485			6

Total Nonperforming assets and restructured accruing loans	$	27,617			83	$	30,562			81

Ratios:
Nonperforming loans to total loans		0.60	%				0.75	%
Nonperforming assets to total loans plus other real estate owned		1.08	%				1.41	%
Nonperforming loans plus restructured accruing loans to total loans plus other real estate owned		0.87	%				0.99	%

The balance of nonperforming assets can fluctuate due to changes in economic conditions. We have established a policy to discontinue accruing interest on a loan (i.e., place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. Interest income on nonaccrual loans is recognized only as received. If we believe that a loan will not be collected in full, we will increase the allowance for loan losses to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal.

Impaired Loans and Allowance for Loan Losses

We have allocated approximately $7.6 million of our allowance for loan losses to real estate construction, including acquisition and development and lot loans, $6.5 million to commercial, financial and agricultural loans, and $3.9 million to other loan types. We have a total loan loss reserve as of June 30, 2012 allocable to specific loan types of $18.0 million. Another $5.2 million of our allowance for loan losses is based on our judgments regarding various external and internal factors, including macroeconomic trends, our assessment of the Bank’s loan growth prospects, and evaluations of internal risk controls. The total resulting loan loss reserve is $23.2 million. Based upon historical performance, known factors, overall judgment, and regulatory methodologies, including consideration of the possible effect of current residential housing market defaults and business failures plaguing financial institutions in general, management believes that the current methodology used to determine the adequacy of the allowance for loan losses is reasonable.

As of June 30, 2012, we had impaired loans of $38.6 million inclusive of nonaccrual loans, an increase of $1.3 million from $37.3 million as of December 31, 2011. We allocated $3.1 million of our allowance for loan losses at June 30, 2012 to these impaired loans. A loan is considered impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the original loan agreement. Impairment does not always indicate credit loss, but provides an indication of collateral exposure based on prevailing market conditions and third-party valuations. Impaired loans are measured by either 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. Our credit risk management team performs verification and testing to ensure appropriate identification of impaired loans and that proper reserves are held on these loans.

Of the $38.6 million of impaired loans reported as of June 30, 2012, $19.5 million were real estate – construction loans, $4.0 million were commercial, financial, and agricultural loans, $5.8 million were commercial real estate loans, and $5.9 million were residential real estate loans. The remaining $3.4 million of impaired loans consisted of other mortgages and consumer loans. Of the $19.5 million of impaired real estate – construction loans, $9.9 million (a total of 28 loans with 9 builders) were residential construction loans, and $3.6 million consisted of various residential lot loans to 8 builders.

Deposits

Total deposits increased $97,015,000, or 4.5%, to $2,240,902,000 at June 30, 2012 compared to $2,143,887,000 at December 31, 2011. We anticipate long-term sustainable growth in deposits through continued development of market share in our markets.

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

Other Borrowings

We have paid off our two advances from the Federal Home Loan Bank of Atlanta. The payoffs occurred in March and June 2011. As discussed more fully under “Noninterest Expense” below, we incurred prepayment penalties totaling $738,000 by repaying these advances early. On June 1, 2012, we paid off our subordinated note payable due June 1, 2016, including all related accrued interest payable. As discussed in Note 10 to the Consolidated Financial Statements, we borrowed $15.5 million through the issuance of trust preferred securities and the related debenture on September 2, 2008. Both financial instruments bear an identical annual rate of interest of 8.50% and pay interest on March 1, June 1, September 1 and December 1 of each year. The current book value of this borrowing is $15.4 million as a result of amortization of the discount associated with 75,000 warrants issued to the holders of the trust preferred securities. As discussed in Note 11 to the Consolidated Financial Statements, we borrowed $15.0 million through the issuance of trust preferred securities and the related debenture on March 15, 2010. Both financial instruments bear an identical rate of interest of 6.00% and pay interest on March 15, June 15, September 15 and December 15 of each year.

Liquidity

Liquidity is defined as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, and other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.

The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity were to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding. At June 30, 2012, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $296.3 million. Additionally, the Bank had additional borrowing availability of approximately $125.0 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements. We believe these sources of funding are adequate to meet immediate anticipated funding needs, but we will need additional capital to maintain our current growth. Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. In addition, we have issued debt as described above under “Other Borrowings”.

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

The following table reflects the contractual maturities of our term liabilities as of June 30, 2012. The amounts shown do not reflect any early withdrawal or prepayment assumptions.

	Payments due by Period
					Over 1 - 3		Over 3 - 5
	Total		1 year or less		years		years		Over 5 years
	(In Thousands)
Contractual Obligations (1)

Deposits without a stated maturity	$	1,842,717	$	-	$	-	$	-	$	-
Certificates of deposit (2)		398,185		241,065		117,666		39,454		-
Federal funds purchased		80,205		80,205		-		-		-
Subordinated debentures		30,000		-		-		-		30,000
Operating lease commitments		14,623		2,027		3,891		3,782		4,923
Total	$	2,365,730	$	323,297	$	121,557	$	43,236	$	34,923

(1) Excludes interest

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

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

Capital Adequacy

In the first quarter of 2010, we formed ServisFirst Capital Trust II, which issued 15,000 shares of its 6.0% Mandatory Convertible Trust Preferred Securities (the “Preferred Securities”) for $15,000,000 and 50,000 shares of its common securities for $50,000 (collectively the “Trust Securities”) on March 15, 2010. The Trust invested all of the proceeds from the sale of the Trust Securities in the Company’s 6.0% Junior Subordinated Mandatory Convertible Deferrable Interest Debentures due March 15, 2040 in the principal amount of $15,050,000 (the “Subordinated Debentures”). The Preferred Securities were offered and sold to accredited investors in a private placement. The Federal Reserve Board has deemed these securities to qualify as Tier 1 capital of the Company up to 25% of Tier 1 capital elements. See Note 11 to the consolidated financial statements for further discussion of the issuance and sale of the Preferred Securities.

On June 21, 2011, we entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which we issued and sold to the Treasury 40,000 shares of our Senior Non-Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share (the “Series A Preferred Stock”), for aggregate proceeds of $40,000,000. The issuance was pursuant to the Treasury’s Small Business Lending Fund program, a $30 billion fund established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. The Series A Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1, commencing October 1, 2011. The dividend rate, which is calculated on the aggregate Liquidation Amount, has been initially set at 1% per annum based upon the current level of “Qualified Small Business Lending” (“QSBL”) by the Bank. The dividend rate for future dividend periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods and from 1% per annum to 7% per annum for the eleventh through the first half of the nineteenth dividend periods. If the Series A Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%. Prior to that time, in general, the dividend rate decreases as the level of the Bank’s QSBL increases. Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series A Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series A Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities. In addition, if (i) we have not timely declared and paid dividends on the Series A Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of Series A Preferred Stock with an aggregate liquidation preference of at least $25,000,000 are still outstanding, the Treasury (or any successor holder of Series A Preferred Stock) may designate two additional directors to be elected to our Board of Directors.

As is more completely described in the Certificate of Designation, holders of the Series A Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series A Preferred Stock and on certain corporate transactions. Except with respect to such matters and, if applicable, the election of the additional directors described above, the Series A Preferred Stock does not have voting rights.

We may redeem the shares of Series A Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by our primary federal banking regulator.

As of June 30, 2012, 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, 2012.

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, 2012, December 31, 2011 and June 30, 2011:

											To Be Well Capitalized
						For Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2012:
Total Capital to Risk-Weighted Assets:
Consolidated	$	260,495		12.37	%	$	168,475		8.00	%	$	N/A		N/A	%
ServisFirst Bank		258,421		12.27	%		168,429		8.00	%		210,536		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		237,256		11.27	%		84,238		4.00	%		N/A		N/A	%
ServisFirst Bank		235,182		11.17	%		84,214		4.00	%		126,322		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		237,256		9.36	%		101,393		4.00	%		N/A		N/A	%
ServisFirst Bank		235,182		9.29	%		101,293		4.00	%		126,616		5.00	%

As of December 31, 2011:
Total Capital to Risk-Weighted Assets:
Consolidated	$	246,334		12.79	%	$	154,094		8.00	%	$	N/A		N/A	%
ServisFirst Bank		243,279		12.63	%		154,070		8.00	%		192,588		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		219,350		11.39	%		77,047		4.00	%		N/A		N/A	%
ServisFirst Bank		216,295		11.23	%		77,035		4.00	%		115,533		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		219,350		9.17	%		95,642		4.00	%		N/A		N/A	%
ServisFirst Bank		216,295		9.06	%		95,481		4.00	%		119,352		5.00	%

As of June 30, 2011:
Total Capital to Risk-Weighted Assets:
Consolidated	$	230,075		14.50	%	$	126,967		8.00	%	$	N/A		N/A	%
ServisFirst Bank		226,026		14.24	%		126,956		8.00	%		158,695		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		205,614		12.96	%		63,484		4.00	%		N/A		N/A	%
ServisFirst Bank		201,565		12.70	%		63,478		4.00	%		95,217		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		205,614		10.67	%		77,113		4.00	%		N/A		N/A	%
ServisFirst Bank		201,565		10.47	%		77,006		4.00	%		96,257		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.

As part of our mortgage operations, we originate and sell certain loans to investors in the secondary market. We continue to experience a manageable level of investor repurchase demands. For loans sold, we have an obligation to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations and warranties made by the Bank at the time of the sale. Representations and warranties typically include those made regarding loans that had missing or insufficient file documentation or loans obtained through fraud by borrowers or other third parties such as appraisers. We had a reserve of $179,000 as of June 30, 2012 for the settlement of any repurchase demands by investors.

Financial instruments whose contract amounts represent credit risk at June 30, 2012 are as follows:

	June 30, 2012
	(In Thousands)
Commitments to extend credit	$	805,055
Credit card arrangements		23,145
Standby letters of credit		34,702
	$	862,902

Commitments to extend credit beyond current funded amounts 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.

Federal funds lines of credit are uncommitted lines issued to downstream correspondent banks for the purpose of providing liquidity to them. The lines are unsecured, and we have no obligation to sell federal funds to the correspondent, nor does the correspondent have any obligation to request or accept purchases of federal funds from us.

Results of Operations

Summary of Net Income

Net income for the three months ended June 30, 2012 was $8,331,000 compared to net income of $5,845,000 for the three months ended June 30, 2011. Net income for the six months ended June 30, 2012 was $16,587,000 compared to net income of $10,716,000 for the six months ended June 30, 2011. The increase in net income was primarily attributable to increased net interest income as a result of growth in average earning assets. Net interest income for the three months ended June 30, 2012 increased to $22,905,000, or $4,857,000, compared to $18,048,000 for the corresponding period in 2011. Net interest income for the six months ended June 30, 2012 increased to $44,643,000, or 27.5%, compared to $35,024,000 for the corresponding period in 2011. The provision for loan losses increased $1,589,000 to $3,083,000 for the three months ended June 30, 2012 compared to the corresponding period in 2011, and increased $1,741,000 to $5,466,000 for the six months ended June 30, 2012 compared to the corresponding period in 2011. The increase in provision for loan loss for the three and six-month periods ended June 30, 2012 was primarily due to an increase in net charge-offs during the second quarter compared to recent historical levels plus the year-to-date growth in the loan portfolio of 10.5% (21% annualized). This was partially offset by a combination of pay-downs and additional collateral being pledged to secure loans that are specifically impaired. Noninterest income increased $646,000 to $2,428,000 for the three months ended June 30, 2012 compared to the corresponding period in 2011, and increased $1,644,000 to $4,697,000 for the six months ended June 30, 2012 compared to the corresponding period in 2011. This increase in noninterest income was primarily attributable to increased mortgage banking income, as more fully explained in “Noninterest Income” below. Operating expenses for the three months ended June 30, 2012 increased to $9,895,000, or 5.6%, compared to $9,369,000 for the corresponding period in 2011, and for the six months ended June 30, 2012 increased to $18,926,000, or 5.3%, compared to $17,966,000 for the corresponding period in 2011. The increase in operating expenses was primarily attributable to an increase in OREO expense in 2012, as more fully explained in “Noninterest Expense” below.

Basic and diluted net income per common share were $1.38 and $1.21, respectively, for the three months ended June 30, 2012, compared to $1.02 and $0.89, respectively, for the corresponding period in 2011. Basic and diluted net income per common share were $2.74 and $2.41, respectively, for the six months ended June 30, 2012, compared to $1.88 and $1.65, respectively, for the corresponding period in 2011. Return on average assets for the three and six months ended June 30, 2012 was 1.31% and 1.32%, respectively, compared to 1.22% and 1.14% for the corresponding period in 2011, and return on average common equity for the three and six months ended June 30, 2012 was 15.74% and 16.02%, respectively, compared to 17.30% and 16.56% for the corresponding period in 2011.

Net Interest Income

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

Taxable-equivalent net interest income increased $4,883,000, or 26.6%, to $23,274,000 for the three months ended June 30, 2012 compared to $18,391,000 for the corresponding period in 2011, and increased $9,091,000, or 25.0%, to $45,384,000 for the six months ended June 30, 2012 compared to $36,293,000 for the corresponding period in 2011. This increase was primarily attributable to growth in average earning assets. The taxable-equivalent yield on interest-earning assets decreased to 4.47% for the three months ended June 30, 2012 from 4.79% for the corresponding period in 2011, and decreased to 4.45% for the six months ended June 30, 2012 from 4.77% for the corresponding period in 2011. The yield on loans for the three months ended June 30, 2012 was 4.99% compared to 5.25% for the corresponding period in 2011, and 5.01% compared to 5.27% for the six months ended June 30, 2012 and June 30, 2011, respectively. Loan fees included in the yield calculation decreased to $74,000 for the three months ended June 30, 2012 from $153,000 for the corresponding period in 2011, and decreased to $184,000 for the six months ended June 30, 2012 from $304,000 for the corresponding period in 2011. Net loan fees decreased due to the origination of fewer real estate construction loans. The cost of total interest-bearing liabilities decreased to 0.80% for the three months ended June 30, 2012 from 1.07% for the corresponding period in 2011, and to 0.82% for the six months ended June 30, 2012 from 1.00% for the corresponding period in 2011. Net interest margin for the three months ended June 30, 2012 was 3.85% compared to 3.93% for the corresponding period in 2011, and 3.81% for the six months ended June 30, 2012 compared to 3.96% for the corresponding period in 2011.

The following tables show, for the three and six months ended June 30, 2012 and June 30, 2011, 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 where applicable:

Average Consolidated Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Three Months Ended June 30, 2012 and 2011

(Dollar Amounts In Thousands)

	2012							2011
			Interest		Average					Interest		Average
	Average		Earned /		Yield /			Average		Earned /		Yield /
	Balance		Paid		Rate			Balance		Paid		Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)
Taxable	$	1,962,367	$	24,335		4.99	%	$	1,512,972	$	19,813		5.25	%
Tax-exempt(2)		1,537		22		5.76			-		-		-
Mortgage loans held for sale		11,390		88		3.11			3,385		31		3.67
Investment securities:
Taxable		205,390		1,302		2.55			165,402		1,441		3.49
Tax-exempt(2)		99,705		1,176		4.74			78,509		1,047		5.35
Total investment securities (3)		305,095		2,478		3.27			243,911		2,488		4.09
Federal funds sold		89,511		42		0.19			78,504		36		0.18
Restricted equity securities		4,678		24		2.06			4,499		18		1.60
Interest-bearing balances with banks		55,208		34		0.25			31,491		19		0.24
Total interest-earning assets	$	2,429,786	$	27,023		4.47	%	$	1,874,762	$	22,405		4.79	%
Non-interest-earning assets:
Cash and due from banks		35,507							29,208
Net fixed assets and equipment		5,863							4,900
interest and other assets		63,675							17,294
Total assets	$	2,534,831							1,926,164

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	342,814	$	265		0.31	%	$	289,996	$	299		0.41	%
Savings deposits		16,182		11		0.27			8,162		10		0.49
Money market accounts		994,751		1,408		0.57			861,238		1,730		0.81
Time deposits		400,100		1,343		1.35			308,016		1,224		1.59
Federal funds purchased		86,690		54		0.25			-		-		-
Other borrowings		33,838		668		7.94			42,229		751		7.13
Total interest-bearing liabilities	$	1,874,375	$	3,749		0.80	%	$	1,509,641	$	4,014		1.07	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		442,590							274,906
Other liabilities		7,529							6,062
Stockholders' equity		202,741							131,463
Unrealized gains on securities and derivatives		7,596							4,092
Total liabilities and stockholders' equity	$	2,534,831						$	1,926,164
Net interest spread						3.67	%						3.73	%
Net interest margin						3.85	%						3.93	%

(1) Non-accrual loans are included in average loan balances in all periods. Loan fees of $72,000 and $153,000 are included in interest income in 2012 and 2011, respectively.

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

(3) Unrealized gains of $11,687,000 and $6,295,000 are excluded from the yield calculation in 2012 and 2011, respectively.

	For the Three Months Ended June 30,
	2012 Compared to 2011
	Increase (Decrease) in Interest Income and Expense Due to Changes in:
	Volume			Rate			Total
	(In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable	$	5,771		$	(1,249	)	$	4,522
Tax-exempt		22			-			22
Mortgages held for sale		63			(6	)		57
Securities - taxable		312			(451	)		(139	)
Securities - non taxable		267			(138	)		129
Federal funds sold		5			1			6
Restricted equity securities		1			5			6
Interest-bearing balances with banks		15			-			15
Total interest-earning assets		6,456			(1,838	)		4,618

Interest-bearing liabilities:
Interest-bearing demand deposits		50			(84	)		(34	)
Savings		7			(6	)		1
Money market accounts		247			(569	)		(322	)
Time deposits		337			(218	)		119
Federal funds purchased		54			-			54
Other borrowed funds		(156	)		73			(83	)
Total interest-bearing liabilities		539			(804	)		(265	)
Increase in net interest income	$	5,917		$	(1,034	)	$	4,883

Average Consolidated Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Six Months Ended June 30, 2012 and 2011

(Dollar Amounts In Thousands)

	2012							2011
			Interest							Interest
	Average		Earned /		Average			Average		Earned /		Average
	Balance		Paid		Yield / Rate			Balance		Paid		Yield / Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)
Taxable	$	1,910,060	$	47,612		5.01	%	$	1,468,728	$	38,406		5.27	%
Tax-exempt(2)		769		22		5.75			-		-		-
Mortgage loans held for sale		11,622		158		2.73			3,769		69		3.69
Investment securities:
Taxable		206,782		2,639		2.57			175,407		2,986		3.43
Tax-exempt(2)		96,538		2,308		4.81			77,775		2,086		5.41
Total investment securities (3)		303,320		4,947		3.28			253,182		5,072		4.04
Federal funds sold		94,606		95		0.20			75,676		72		0.19
Restricted equity securities		4,384		45		2.06			4,283		35		1.65
Interest-bearing balances with banks		70,328		87		0.25			40,940		49		0.24
Total interest-earning assets	$	2,395,089	$	52,966		4.45	%	$	1,846,578	$	43,703		4.77	%
Non-interest-earning assets:
Cash and due from banks		35,602							27,518
Net fixed assets and equipment		5,331							4,873
Allowance for loan losses, accrued interest and other assets		63,611							15,523
Total assets	$	2,499,633						$	1,894,492

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	342,672	$	534		0.31	%	$	301,111	$	625		0.42	%
Savings deposits		15,974		22		0.28			7,423		19		0.52
Money market accounts		981,998		2,855		0.58			849,291		3,404		0.81
Time deposits		398,586		2,738		1.38			295,190		2,350		1.61
Federal funds purchased		79,636		99		0.25			-		-		-
Other borrowings		34,655		1,334		7.74			48,379		1,012		4.22
Total interest-bearing liabilities	$	1,853,521	$	7,582		0.82	%	$	1,501,394	$	7,410		1.00	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		433,769							260,137
Other liabilites		6,590							2,503
Stockholders' equity		198,303							126,950
Unrealized gains on securities and derivatives		7,450							3,508
Total liabilities and stockholders' equity	$	2,499,633						$	1,894,492
Net interest spread						3.62	%						3.78	%
Net interest margin						3.81	%						3.96	%

(1) Non-accrual loans are included in average loan balances in all periods. Loan fees of $184,000 and $304,000 are included in interest income in 2012 and 2010, respectively.

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

(3) Unrealized gains of $11,710,000 and $5,396,000 are excluded from the yield calculation in 2012 and 2011, respectively.

	For the Six Months Ended June 30,
	2012 Compared to 2011
	Increase (Decrease) in Interest Income and Expense Due to Changes in:
	Volume			Rate			Total
	(In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable	$	11,074		$	(1,868	)	$	9,206
Tax-exempt		22			-			22
Mortgages held for sale		111			(22	)		89
Taxable		478			(825	)		(347	)
Tax-exempt		466			(244	)		222
Federal funds sold		19			4			23
Restricted equity securities		1			9			10
Interest-bearing balances with banks		36			2			38
Total interest-earning assets		12,207			(2,944	)		9,263

Interest-bearing liabilities:
Interest-bearing demand deposits		79			(170	)		(91	)
Savings		15			(12	)		3
Money market accounts		479			(1,028	)		(549	)
Time deposits		742			(354	)		388
Federal funds purchased		99			-			99
Other borrowed funds		(348	)		670			322
Total interest-bearing liabilities		1,066			(894	)		172
Increase in net interest income	$	11,141		$	(2,050	)	$	9,091

Provision for Loan Losses

The provision 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 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. Based on these processes, and the assigned risk grades, the criticized and classified loans in the portfolio are segregated into the following regulatory classifications: Special Mention, Substandard, Doubtful or Loss, with some general allocation of reserve based on these grades. At June 30, 2012, total loans rated Special Mention, Substandard, and Doubtful were $83.5 million, or 4.1% of total loans, compared to $88.5 million, or 4.8% of total loans, at December 31, 2011. Impaired loans are reviewed specifically and separately under FASB ASC 310-30-35, Subsequent Measurement of Impaired Loans, 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-impaired 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 nonaccruals, 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.

The provision for loan losses was $3,083,000 for the three months ended June 30, 2012, an increase of $1,589,000 from $1,494,000 for the three months ended June 30, 2011. The provision for loan losses was $5,466,000 for the six months ended June 30, 2012, a $1,741,000 increase, compared to $3,725,000 for the six months ended June 30, 2011. The increase in provision for loan loss for the three and six-month periods ended June 30, 2012 was primarily due to an increase in net charge-offs during the second quarter compared to recent historical levels plus the year-to-date growth in the loan portfolio of 10.5% (21% annualized). This was partially offset by a combination of pay-downs and additional collateral being pledged to secure loans that are specifically impaired. Our management continues to maintain a proactive approach to credit risk management. Nonperforming loans decreased to $12.1 million, or 0.60% of total loans, at June 30, 2012 from $13.8 million, or 0.75% of total loans, at December 31, 2011, and were also lower than $20.6 million, or 1.35% of total loans, at June 30, 2011. Impaired loans increased to $38.6 million, or 1.9% of total loans, at June 30, 2012, compared to $37.3 million, or 2.0% of total loans, at December 31, 2011. The allowance for loan losses totaled $23.2 million, or 1.15% of total loans, net of unearned income, at June 30, 2012, compared to $22.0 million, or 1.20% of loans, net of unearned income, at December 31, 2011 and $19.5 million, or 1.25% of loans, net of unearned income, at June 30, 2011.

Noninterest Income

Noninterest income totaled $2,428,000 for the three months ended June 30, 2012, an increase of $646,000, or 36.3%, compared to the corresponding period in 2011, and totaled $4,697,000 for the six months ended June 30, 2012, an increase of $1,644,000, or 53.8%, compared to the corresponding period in 2011. Income from mortgage banking operations for the three months ended June 30, 2012 was $879,000, up $403,000, or 84.7%, from $476,000 for the corresponding period in 2011, and for the six months ended June 30, 2012 was $1,836,000, up $1,009,000, or 122.0%, from $827,000 for the corresponding period in 2011. The addition of new mortgage lenders and our continued expansion in Pensacola, Florida, coupled with continued mortgage refinancings, lead to the increase in mortgage banking income. Service charges on deposit accounts increased $172,000, or 31.4%, to $719,000 for the three months ended June 30, 2012, from $547,000 for the corresponding period in 2011, and increased $206,000, or 18.5%, to $1,320,000 for the six months ended June 30, 2012, from $1,114,000 for the corresponding period in 2011. Much of this increase in deposit charges was attributable to overdraft charges, net of waived charges, which increased 41.8% and 14.8% for the three and six month periods ended June 30, 2012 and 2011, respectively. Interchange income on credit cards was $467,000 for the three months ended June 30, 2012 compared to only $59,000 for the corresponding period in 2011, and was $250,000 for the six months ended June 30, 2012 compared to $59,000 for the corresponding period in 2011. This large increase in credit card interchange income was the result of our change to a new credit card program provider during the second quarter in 2011.

Noninterest Expense

Noninterest expense totaled $9,895,000 for the three months ended June 30, 2012, an increase of $526,000, or 5.6%, compared to $9,369,000 in 2011, and totaled $18,926,000 for the six months ended June 30, 2012, an increase of $960,000, or 5.3%, compared to $17,966,000 for the corresponding period in 2011.

Details of expenses are as follows:

Salary and benefit expense increased $222,000, or 4.4%, to $5,248,000 for the three months ended June 30, 2012 from $5,026,000 for the corresponding period in 2011, and increased $1,173,000, or 12.7%, to $10,413,000 for the six months ended June 30, 2012 from $9,240,000 for the corresponding period in 2011. We had 220 full-time equivalent employees at June 30, 2012 compared to 195 at June 30, 2011, a 12.8% increase. Most of this increase in number of employees was due to our expansion into the Pensacola, Florida market and addition of new support staff necessitated by our continued growth.

Occupancy expense increased $27,000, or 2.9%, to $961,000 for the three months ended June 30, 2012 from $934,000 for the corresponding period in 2011 and increased $76,000, or 4.2%, to $1,896,000 for the six months ended June 30, 2012 from $1,820,000 for the corresponding period in 2011.

FDIC and other regulatory assessments for the three months ended June 30, 2012 were $356,000, an increase of $131,000, or 58.2%, from $225,000 during the corresponding period in 2011. Assessments for the six months ended June 30, 2012 were $746,000, a decrease of $229,000, or 23.5%, from $975,000 during the corresponding period in 2011. Changes by the FDIC during the past year in the rates charged for deposit insurance and in the methodology used to calculate the assessment base have resulted in wide variances from period to period.

Expenses related to OREO increased $401,000 to $536,000 for the three months ended June 30, 2012, from $135,000 for the corresponding period in 2011, and increased $284,000 to $673,000 for the six months ended June 30, 2012 from $389,000 for the corresponding period in 2011. OREO expenses increased due to more write-downs in value, which increased to $370,000 for the three months ended June 30, 2012 from $71,000 for the corresponding period in 2011, and increased to $420,000 for the six months ended June 30, 2012 from $156,000 for the corresponding period in 2011.

Decreases in other operating expenses for the three and six months ended June 30, 2012 compared to the corresponding periods in 2011 were the result of prepayment penalties in connection with the prepayment of our two fixed-rate advances from the Federal Home Loan Bank of Atlanta. The penalty for the first advance paid off during the first quarter of 2011 was $256,000, and the penalty for the second advance paid off in the second quarter of 2011 was $482,000, for a total cost of $738,000 for the six months ended June 30, 2012.

Income Tax Expense

Income tax expense was $4,024,000 for the three months ended June 30, 2012 versus $3,122,000 for the same period in 2011, and was $8,361,000 for the six months ended June 30, 2012 versus $5,670,000 for the corresponding period in 2011. Our effective tax rate for the three and six months ended June 30, 2012 was 32.57% and 33.51%, respectively, compared to 34.82% and 34.60%, respectively, for the corresponding periods in 2011. Our primary permanent differences are related to tax exempt income on securities and incentive stock option expenses.

We invested in bank-owned life insurance for certain named officers of the Bank on September 30, 2011. The periodic increase in cash surrender value of those policies are tax exempt and therefore contribute to a larger permanent difference between book income and taxable income.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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. There have been no changes to our policies or procedures for analyzing our interest rate risk since December 31, 2011, and there are no significant changes to our sensitivity to changes in interest rates since December 31, 2011 as disclosed in our Form 10-K.

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, 2012. Based upon the Evaluation, our CEO and CFO have concluded that, as of June 30, 2012, our disclosure controls and procedures are effective to ensure that material information relating to ServisFirst Bancshares, Inc. and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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, 2011, 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, 2011, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in the Form 10-K. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see “Forward-Looking Statements” under Part 1, Item 2 above.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibit:

	31.01 Certification of principal executive officer pursuant to Rule 13a-14(a).
	31.02 Certification of principal financial officer pursuant to Rule 13a-14(a).
	32.01 Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.
	32.02 Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.

SIGNATURES

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

	SERVISFIRST BANCSHARES, INC.

Date: July 31, 2012	By	/s/ Thomas A. Broughton III

		Thomas A. Broughton III

		President and Chief Executive Officer

Date: July 31, 2012	By	/s/ William M. Foshee

		William M. Foshee

		Chief Financial Officer