UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

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

For the transition period from                     to                    

SERVISFIRST BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

(205) 949-0302
(Registrant’s Telephone Number, Including Area Code)

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

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 o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

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

Class		Outstanding as of October 31, 2008
Common stock, $.001 par value		5,113,482

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			3
Item 1. Consolidated Financial Statements (unaudited)			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosure about Market Risk			30
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION
Item 1 Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults Upon Senior Securities			34
Item 4. Submission of Matters to a Vote of Security Holders			34
Item 5. Other Information			34
Item 6. Exhibits			34
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)

		September 30,				December 31,
		2008				2007
		(Unaudited)
Assets
Cash and due from banks		$	28,434			$	15,756
Interest bearing balances due from depository institutions			332				34,068
Federal funds sold			30,022				16,598
Cash and cash equivalents			58,788				66,422
Securities available for sale			90,139				87,233
Restricted equity securities			2,659				1,202
Mortgage loans held for sale			4,060				2,463
Loans			898,826				675,281
Less allowance for loan losses			(10,384	)			(7,732	)
Loans, net			888,442				667,549
Premises and equipment, net			3,884				4,176
Accrued interest and dividends receivable			4,068				3,949
Deferred tax assets			4,075				2,432
Other real estate owned			8,211				1,623
Other assets			582				1,201
Total assets		$	1,064,908			$	838,250
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing		$	105,884			$	85,018
Interest-bearing			844,854				677,665
Total deposits			950,738				762,683
Other borrowings			20,000				73
Subordinated debentures			15,052				—
Accrued interest payable			1,190				782
Other liabilities			1,170				2,465
Total liabilities			988,150				766,003
Shareholders’ equity:
Common stock, par value $.001 per share; 15,000,000 shares authorized; 5,113,482 shares issued and outstanding			5				5
Preferred stock, par value $.001 per share; 1,000,000 shares authorized; No shares outstanding			—				—
Additional paid-in capital			64,076				63,159
Retained earnings			13,127				8,082
Accumulated other comprehensive income (loss)			(450	)			1,001
Total shareholders’ equity			76,758				72,247
Total liabilities and shareholders’ equity		$	1,064,908			$	838,250

See Notes to Unaudited Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Interest income:
Interest and fees on loans		$	12,657				11,673				36,969				31,575
Taxable securities			951				667				2,832				1,317
Nontaxable securities			233				180				677				473
Federal funds sold			12				1,206				449				3,299
Other interest and dividends			28				17				130				32
Total interest income			13,881				13,743				41,057				36,696
Interest expense:
Deposits			4,640				7,099				14,819				18,458
Borrowed funds			364				—				580				—
Total interest expense			5,004				7,099				15,399				18,458
Net interest income			8,877				6,644				25,658				18,238
Provision for loan losses			1,381				1,041				4,900				2,500
Net interest income after provision for loan losses			7,496				5,603				20,758				15,738
Noninterest income:
Service charges on deposit accounts			358				165				904				382
Other operating income			314				222				1,007				570
Total noninterest income			672				387				1,911				952
Noninterest expense:
Salaries and employee benefits			2,684				2,515				7,910				6,497
Equipment and occupancy			546				448				1,598				1,161
Professional services			254				161				829				388
Other operating expense			1,977				910				4,484				2,295
Total noninterest expense			5,461				4,034				14,821				10,341
Income before income taxes			2,707				1,956				7,848				6,349
Provision for income taxes			983				712				2,803				2,301
Net income		$	1,724				1,244				5,045				4,048
Basic earnings per share		$	.34				.28				.99				.90
Diluted earnings per share		$	.32				.28				.95				.90

See Notes to Unaudited Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Net income		$	1,724				1,244				5,045				4,048
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period from securities available for sale, net of tax (benefit) of $(177) and $(643) for the three and nine months ended September 30, 2008, respectively, and $277 and $(89) for the three and nine months ended September 30, 2007, respectively			(344	)			537				(1,248	)			(173	)
Unrealized gains(losses) arising during the period from the derivative, net of tax of $35 for the nine months ended September 30, 2008, and $113 and $59 for the three and nine months ended September 30, 2007, respectively			—				199				67				100
Reclassification adjustment for net gains realized on derivatives in net income, net of tax of $46 and $138 for the three and nine months ended September 30, 2008, respectively			(90	)			—				(270	)			—
Other comprehensive income (loss)			(434	)			736				(1,451	)			(73	)
Comprehensive income		$	1,290				1,980				3,594				3,975

See Notes to Unaudited Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In Thousands)

														Accumulated
						Additional								Other				Total
		Common				Paid-in				Retained				Comprehensive				Shareholders’
		Stock				Capital				Earnings				Income (Loss)				Equity
Balance December 31, 2007		$	5			$	63,159			$	8,082			$	1,001			$	72,247
Other comprehensive loss			—				—				—				(1,451	)			(1,451	)
Stock based compensation expense			—				492				—				—				492
Relative fair value of warrants issued in connection with subordinated debentures			—				425				—				—				425
Net income			—				—				5,045				—				5,045
Balance September 30, 2008		$	5				64,076			$	13,127			$	(450	)		$	76,758

SERVISFIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
(In Thousands)

		2008				2007
OPERATING ACTIVITIES
Net income		$	5,045				4,048
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax benefit			(818	)			(1,125	)
Provision for loan losses			4,900				2,500
Depreciation and amortization			683				441
Net accretion of investments			(248	)			(258	)
Amortized gain on derivative			408				—
Increase in accrued interest and dividends receivable			(119	)			(809	)
Stock compensation expense			492				396
Increase in accrued interest payable			408				245
Proceeds from sale of mortgages held for sale			60,553				39,040
Originations of mortgages held for sale			(62,149	)			(37,716	)
(Gain) loss on sale of other real estate			172				(15	)
Net change in other operating activities			(1,774	)			(229	)
Net cash provided by operating activities			7,553				6,518
INVESTING ACTIVITIES
Purchases of securities available for sale			(11,960	)			(65,776	)
Proceeds from maturities/calls, pay downs of securities available for sale			7,419				5,190
Increase in loans			(233,285	)			(139,776	)
Purchase of premises and equipment			(391	)			(1,589	)
Purchase of restricted equity securities			(1,457	)			(397	)
Proceeds from sale of other real estate			1,505				276
Net cash used in investing activities			(238,169	)			(202,072	)
FINANCING ACTIVITIES
Net increase in non-interest bearing deposits			20,866				35,029
Net increase in interest bearing deposits			167,189				239,448
Repayment of other borrowings			(73	)			—
Proceeds from other borrowings			20,000				—
Net proceeds from issuance of trust preferred securities			15,000				—
Proceeds from issuance of common shares, net			—				10,964
Net cash provided by financing activities			222,982				285,441
Net increase (decrease) in cash and cash equivalents			(7,634	)			89,887
Cash and cash equivalents at beginning of period			66,422				53,335
Cash and cash equivalents at end of period		$	58,788				143,222

See Notes to Unaudited Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)

NOTE 1 GENERAL

The accompanying condensed consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U. S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s registration statement on Form 10, as amended, for the year ended December 31, 2007.

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

NOTE 2 CASH AND CASH FLOWS

Cash on hand, cash items in process of collection, amounts due from banks, and Federal funds sold are included in cash and cash equivalents. The following supplemental cash flow information addresses certain cash payments and noncash transactions for the nine months ended September 30, 2008 and 2007, respectively.

		Nine Months Ended
		September 30,
		2008				2007
		(In Thousands)
Interest paid		$	15,807				18,703
Income taxes paid		$	3,561				2,585
Transfers of loans to other real estate		$	7,492				967

NOTE 3 EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options and warrants.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(In Thousands, Except Share and Per Share Amounts)
Weighted average common shares outstanding		$	5,113,482			$	4,482,782			$	5,113,482			$	4,477,930
Net income		$	1,724			$	1,244			$	5,045			$	4,048
Basic earnings per common share		$	.34			$	.28			$	.99			$	.90
Weighted average common shares outstanding			5,113,482				4,482,782				5,113,482				4,477,930
Dilutive effects of assumed conversions and exercises of stock options and warrants			230,448				11,371				225,011				30,224
Weighted average common and dilutive potential common shares outstanding			5,343,930				4,494,153				5,338,493				4,508,154
Net income		$	1,724			$	1,244			$	5,045			$	4,048
Diluted earnings per common share		$	.32			$	.28			$	.95			$	.90

NOTE 4 EMPLOYEE AND DIRECTOR BENEFITS

Stock Options

At September 30, 2008, the Company has stock-based compensation plans, which are described below. The compensation cost that has been charged against income for the plan was approximately $172,000 and $492,000 for the three and nine months ended September 30, 2008, and $140,000 and $396,000 for the three and nine months ended September 30, 2007, respectively. Included in stock-based compensation for 2008 and 2007 is expense recognized related to option and warrants granted in 2005, the fair value of which were determined using a Black-Scholes-Merton valuation model.

Under the Company’s 2005 Amended and Restated Stock Option Plan (the “Plan”), there are 1,025,000 shares authorized for issuance. Option awards are generally granted with an exercise price equal to the estimated fair market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plan is ten years.

The Company has granted non-plan options to certain key relationships to purchase up to an aggregate amount of 55,000 shares of the Company’s common stock at between $15.00 and $20.00 per share for 10 years. These options are non-qualified and not part of the 2005 Amended and Restated Stock Option 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 Alabama traded community 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		September 30,
		2008				2007
Expected volatility			21.53	%			20.00	%
Expected dividends			.50	%			.50	%
Expected term in years		7 years				7 years
Risk-free rate			2.87	%			4.56	%

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

						Weighted				Weighted Average
						Average				Remaining				Aggregate
						Exercise				Contractual Term				Intrinsic Value
		Shares				Price				(years)				(In Thousands)
Outstanding January 1, 2008			712,500			$	13.12				8.43			$	4,905
Granted			98,500				24.31				—				—
Exercised			—				—				—				—
Forfeited			—				—				—				—
Outstanding at September 30, 2008			811,000			$	14.48				7.97			$	8,536
Exercisable at September 30, 2008			61,932			$	11.77				7.18			$	819

Options for 13,500 shares of the Company’s common stock were granted in the first quarter of 2008 at an exercise price of $20 per share and options for 85,000 shares of the Company’s common stock were granted in the third quarter of 2008 at an exercise price of $25 per share. No options granted during 2008 were exercised as of September 30, 2008.

Stock Warrants

In recognition of the efforts and financial risks undertaken by the Bank’s organizers 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 vest in equal annual increments over a three-year period commencing on the first anniversary date of the Bank’s incorporation and will terminate on the tenth anniversary of the incorporation date. The total number of warrants outstanding at September 30, 2008 and 2007 was 60,000.

The fair value of each stock warrants granted in 2005 was estimated on the date of grant using a Black-Scholes-Merton valuation model using the assumptions noted in the following table.

		Year Ended
		December 31,
		2005
Expected volatility			20.00	%
Expected dividends			0.00	%
Expected term (in years)		3 years
Risk-free rate			3.69	%

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 8 to the financial statements and “Recent Events” above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 ADOPTION OF NEW ACCOUNTING INTERPRETATIONS

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 159 The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS No. 159, entities that elect the fair value option (by instrument) will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option election is irrevocable unless a new election date occurs. SFAS No. 159 establishes presentation and disclosure requirements to help financial statement users understand the effect of the entity’s election on its earnings, but does not eliminate disclosure requirements of other financial accounting standards. Assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. The Company chose not to elect the fair value option for its financial assets and financial liabilities existing at January 1, 2008 and did not elect the fair value option on financial assets and financial liabilities transacted in the nine months ended September 30, 2008. Therefore, the adoption of SFAS No. 159 had no impact on the Company’s consolidated financial statements.

Effective January 1, 2008, the Company adopted SFAS No. 157 Fair Value Measurements, for financial assets and financial liabilities and any other assets and liabilities carried at fair value. This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. On November 14, 2007, FASB issued SFAS 157-2, Effective Date FASB Statement No. 157. FASB No. 157-2 delays the effective date of Statement No. 157 for other non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. The company’s adoption of SFAS No. 157 did not have a material effect on the Company’s consolidated financial statements for financial assets and financial liabilities and any other assets or liabilities carried at fair value.

NOTE 6 RECENT ACCOUNTING PRONOUNCEMENTS

In September 2008, The Financial Accounting Standards Board (FASB) issued FASB Staff Position FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161. This FSP amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” to require disclosure by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. This FSP also amends FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” to require an additional disclosure about the current status of the payment/performance risk of a guarantee. Further, this FSP clarifies the Board’s intent about the effective date of FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities”.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on the Company’s results of operations, financial condition or liquidity.

In May 2008, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (FAS 162). Under FAS 162, the GAAP hierarchy will now reside in the accounting literature established by the FASB. FAS162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements in conformity with GAAP. FAS 162 is effective 60 days following the Sec’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411 “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Priciples.” FAS 162 will not impact our financial statements.

In March, 2008, the FASB issued FAS 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB No. 133. This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosure about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedging items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedging items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt this Statement at the beginning of the Company’s fiscal year ending December 31, 2009. The Company has not determined the effect that the adoption of FAS 161 will have on its financial statement disclosures.

NOTE 7 FAIR VALUE MEASUREMENT

Effective January 1, 2008, the Company adopted the methods of fair value as described in SFAS No. 157, Fair value Measurements, to value its financial assets and financial liabilities measured at fair value. As defined in SFAS No. 157, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, SFAS No.157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The following table presents the fair value hierarchy of financial assets and financial liabilities measured at fair value as of September 30, 2008:

Fair Value Measurement at September 30, 2008

(Dollar amounts in thousands)

Quoted Prices in

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Inputs

(Level 1)

(Level 2)

(Level 3)

Total

Assets Measured on a Recurring Basis:

Available-for-sale securities (1)

$

—

$

90,139

—

$

90,139

Assets measured on a Nonrecurring Basis:

Impaired loans

—

—

14,293

$

14,293

During the first nine months of 2008, the Company recognized losses related to certain assets that are measured at fair value on a nonrecurring basis (i.e. loans). For the nine months ended September 30, 2008, $2,325,000 was recognized as specific allocation to the allowance for loan losses, including $770,000 for the three months ended September 30, 2008.

NOTE 8 SUBORDINATED DEFERRABLE INTEREST DEBENTURES

In August 2008, the Company formed a Delaware statutory trust subsidiary, ServisFirst Capital Trust I (the “Trust”), which, on September 2, 2008, issued 15,000 shares of its 8.5% trust preferred securities to “accredited” investors for $15,000,000 or $1,000 per share. The Trust simultaneously issued 463,918 shares of its common securities to the Company for $463,918 or $1.00 per share, which together with the trust preferred securities, constitutes all of the issued and outstanding securities of the Trust. The Trust invested the $15,463,918 of the proceeds from the issuance of the Trust’s trust preferred and common securities in the Company’s 8.5% junior subordinated deferrable interest debenture due September 1, 2038 in the principal amount of $15,463,918 (the “Debenture”) resulting in a net capital injection into the Company of $15,000,000 (the common securities are financially immaterial as their issuance merely represents an investment by the Company into itself in order to establish voting control of the Trust by the Company and to comply with certain tax regulations). The Debenture bears a fixed rate of interest at 8.5% per annum and will be subordinate and junior in right of payment to all of the Company’s senior debt; provided, however, the Company will not incur any additional senior debt in excess of 0.5% of the Company’s average assets for the fiscal year

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

immediately preceding, unless approved by a majority of the holders of the outstanding trust preferred securities. Interest is payable quarterly in arrears on December 1, March 1, June 1 and September 1 of each year, commencing December 1, 2008.

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

The Company guarantees the payment of the distributions on the trust preferred securities under a Guarantee Agreement (the “Guarantee”), but only to the extent the Trust has funds legally and immediately available to make such distributions. The obligations under the Guarantee will be subordinate and junior in right of payment to all other of the Company’s liabilities and will rank pari passu with the most senior preferred stock issued by the Company, if any.

The trust preferred securities are subject to mandatory redemption upon repayment of the Debenture at its maturity, September 1, 2038, or its earlier redemption. The Debenture is redeemable by the Company (i) prior to September 11, 2011, but only in whole, upon the occurrence of a Special Event, as defined in the Indenture or (ii) in whole or in part on or after September 1, 2011 for any reason. In the event of the redemption of the trust preferred securities prior to September 1, 2011, the holder of each trust preferred security shall be entitled to $1,050, plus accumulated and unpaid distributions thereon (including accrued interest thereon), if any, to the date of payment. In the event of the redemption of the trust preferred securities on or after September 1, 2011, the holder of each trust preferred security shall be entitled to receive $1,000 plus accumulated and unpaid distributions thereon (including accrued interest thereon), if any, to the date of payment.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, the Company issued a total of 75,000 warrants, each with the right to purchase one share of the Company’s common stock for a purchase price of $25.00. The warrants were issued in increments of 500 for each $100,000 of trust preferred securities purchased. Each warrant is exercisable for a period beginning upon its date of issuance and ending upon the later to occur of either (i) September 1, 2013 or (ii) such date which is sixty (60) days following the date upon which the Company’s common stock becomes listed for trading upon a “national securities exchange” as defined under the Securities Exchange Act of 1934, as amended. The Company estimates the fair value of each warrant using a Black-Scholes-Merton valuation model and determined the fair value per warrant to be $5.65. This total value of $423,000 was recorded as a discount and reduced the net book value of the Debenture to $15,052,000 with an offsetting increase to the Company’s additional paid-in capital. The discount will be amortized over a 3 year period.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED 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. (hereinafter referred to as “we”, “our” or “us”) and its wholly-owned subsidiary, ServisFirst Bank. This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements for the three months and nine months ended September 30, 2008 and September 30, 2007.

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. We caution that such “forward looking statements,” wherever they occur in this document or in other statements attributable to us are necessary estimates reflecting the judgment of our 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 important factors set forth from time to time in our reports and registration statements filed with the SEC. While it is impossible to list all such factors that could affect the accuracy of such “forward looking statements,” some of those factors include: 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 the competitive environment in the markets served by us and changes in our loan portfolio and our deposit base.

Business

We are a bank holding company within the meaning of the Bank Holding Company Act of 1956 headquartered in Birmingham, Alabama. Through our wholly-owned bank subsidiary, we operate eight full service banking offices located in Jefferson, Shelby, Madison, Montgomery and Houston counties in the metropolitan statistical areas (hereinafter, and more commonly, referred to as MSAs) of Birmingham-Hoover, Huntsville, Montgomery and Dothan, Alabama.

We were originally incorporated as a Delaware corporation in August 2007 for the purpose of acquiring all of the common stock of ServisFirst Bank, an Alabama banking corporation (separately referred to herein as the “Bank”), that was formed on April 28, 2005 and commenced operations on May 2, 2005. On November 29, 2007, we became the sole shareholder of the Bank by virtue of a plan of reorganization and agreement of merger pursuant to which a wholly-owned subsidiary formed for the purpose of the reorganization was merged with and into the Bank with the Bank surviving and each shareholder of the Bank exchanging their shares of the Bank’s common stock for an equal number of shares of our common stock.

We were organized to facilitate the Bank’s ability to serve its customers’ requirements for financial services. The holding company structure provides flexibility for expansion of our banking business through the possible acquisition of other financial institutions, the provision of additional banking-related services which the traditional commercial bank may not provide under present laws and additional financing alternatives such as the issuance of trust preferred securities. We have no present plans to acquire any operating subsidiaries in addition to the Bank, but we may make acquisitions in the future if we deem them to be in the best interest of our stockholders. Any such acquisitions would be subject to applicable regulatory approvals and requirements. However, we do plan to issue trust preferred securities for the purpose of increasing our capital base if and when we deem market conditions to be acceptable.

We are headquartered at 3300 Cahaba Road, Suite 300, Birmingham, Alabama 35223 (Jefferson County). In addition to the Jefferson County headquarters, the Bank currently operates through two offices in the Birmingham-Hoover, Alabama MSA (one office in Jefferson County and one office in North Shelby County), two offices in the Huntsville, Alabama MSA (Madison County), two offices in the Montgomery, Alabama MSA (Montgomery County) and one office in the Dothan, Alabama MSA (Houston County) which constitute our primary service areas. We also serve certain adjacent areas to our primary service areas. Our principal business is to accept deposits from the public and to make loans and other investments. Our principal source of funds for loans and investments are demand, time, savings, and other deposits (including negotiable orders of withdrawal, or NOW accounts) and the amortization and prepayment of loans and borrowings. Our principal sources of income are interest and fees collected on loans, interest and dividends collected on other investments and service charges. Our principal expenses are interest paid on savings and other deposits (including NOW accounts), interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.

Recent Events

In August 2008, we formed a Delaware statutory trust subsidiary, ServisFirst Capital Trust I (the “Trust”), which, on September 2, 2008, issued 15,000 shares of its 8.5% trust preferred securities to “accredited” investors for $15,000,000 or $1,000 per share. The Trust simultaneously issued 463,918 shares of its common securities to us for $463,918 or $1.00 per share, which together with the trust preferred securities, constitutes all of the issued and outstanding securities of the Trust. The Trust invested the $15,463,918 of the proceeds from the issuance of the Trust’s trust preferred and common securities in our 8.5% junior subordinated deferrable interest debenture due September 1, 2038 in the principal amount of $15,463,918 (the “Debenture”) resulting in a net capital injection into our company of $15,000,000 (the common securities are financially immaterial as their issuance merely represents an investment by us into ourselves in order to establish voting control of the Trust by us and to comply with certain tax regulations). The Debenture bears a fixed rate of interest at 8.5% per annum and will be subordinate and junior in right of payment to all of our senior debt; provided, however, we will not incur any additional senior debt in excess of 0.5% of our average assets for the fiscal year immediately preceding, unless approved by a majority of the holders of the outstanding trust preferred securities. Interest is payable quarterly in arrears on December 1, March 1, June 1 and September 1 of each year, commencing December 1, 2008.

Holders of the trust preferred securities are entitled to receive distributions accruing from the original date of issuance. The distributions are payable quarterly in arrears on December 1, March 1, June 1 and September 1 of each year, commencing December 1, 2008. The distributions accrue at an annual fixed rate of 8.5%. Payments of distributions on the trust preferred securities will be deferred in the event interest payments on the Debenture are

deferred, which may occur at any time and from time to time, for up to 20 consecutive quarterly periods. During any deferral period, we may not pay dividends or make certain other distributions or payments as provided for in the Indenture. If payments are deferred, holders accumulate additional distributions thereon at 8.5%, compounded quarterly, to the extent permitted by law.

The Company guarantees the payment of the distributions on the trust preferred securities under a Guarantee Agreement (the “Guarantee”), but only to the extent the Trust has funds legally and immediately available to make such distributions. The obligations under the Guarantee will be subordinate and junior in right of payment to all other of the Company’s liabilities and will rank pari passu with the most senior preferred stock issued by the Company, if any.

The trust preferred securities are subject to mandatory redemption upon repayment of the Debenture at its maturity, September 1, 2038, or its earlier redemption. The Debenture is redeemable by the Company (i) prior to September 11, 2011, but only in whole, upon the occurrence of a Special Event, as defined in the Indenture or (ii) in whole or in part on or after September 1, 2011 for any reason. In the event of the redemption of the trust preferred securities prior to September 1, 2011, the holder of each trust preferred security shall be entitled to $1,050, plus accumulated and unpaid distributions thereon (including accrued interest thereon), if any, to the date of payment. In the event of the redemption of the trust preferred securities on or after September 1, 2011, the holder of each trust preferred security shall be entitled to receive $1,000 plus accumulated and unpaid distributions thereon (including accrued interest thereon), if any, to the date of payment.

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

In addition, we issued a total of 75,000 warrants, each with the right to purchase one share of our common stock for a purchase price of $25.00. The warrants were issued in increments of 500 for each $100,000 of trust preferred securities purchased. Each warrant is exercisable for a period beginning upon its date of issuance and ending upon the later to occur of either (i) September 1, 2013 or (ii) such date which is sixty (60) days following the date upon which our common stock becomes listed for trading upon a “national securities exchange” as defined under the Securities Exchange Act of 1934, as amended. We estimated the fair value of each warrant using a Black-Scholes-Merton valuation model and determined the fair value per warrant to be $5.65. This total value of $423,000 was recorded as a discount and reduced the net book value of the debentures to $15,052,000 with an offsetting increase to our additional paid-in capital. The discount will be amortized over a 3 year period.

Overview

As of September 30, 2008, we had total consolidated assets of $1,064,908,000 an increase of $226,658,000 or 27.04% over the $838,250,000 reported at December 31, 2007. Total loans were $898,826,000 at September 30, 2008, a $223,545,000 or 33.10% increase over the $675,281,000 at December 31, 2007. Total deposits were $950,738,000 at September 30, 2008, an increase of $188,055,000 or 24.66% over the $762,683,000 at December 31, 2007. The increase in loans and deposits was from organic growth in existing offices in Birmingham and Huntsville, Alabama, our expansion into the Montgomery, Alabama market beginning in 2007 and our expansion into the Dothan, Alabama market in the third quarter of 2008.

Net income for the quarter ended September 30, 2008 was $1,724,000 an increase of $480,000 or 38.59% compared to the $1,244,000 for the quarter ended September 30, 2007. Basic earnings per common share were $.34 for the three months ended September 30, 2008 compared with $.28 for the same period in 2007.

Significant Accounting Policies

Our accounting and financial policies conform to accounting principles generally accepted in the United States and to general practices within the banking industry. To prepare consolidated financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, valuation of foreclosed real estate and fair value of financial instruments are particularly subject to change.

Financial Condition

Investment Securities

Investment securities available for sale totaled $90,139,000 at September 30, 2008, and $87,233,000 at December 31, 2007. The investment portfolio at September 30, 2008, and December 31, 2007 consisted of the following:

						Gross				Gross
		Amortized				Unrealized				Unrealized
		Cost				Gain				Loss				Market Value
		(In Thousands)
As of September 30, 2008:
Securities available for sale:
Mortgage backed securities		$	58,533			$	781			$	(50	)		$	59,264
State and municipal securities			26,729				79				(811	)			25,997
Corporate bonds			5,968				—				(1,090	)			4,878
Total		$	91,230			$	860			$	(1,951	)		$	90,139
As of December 31, 2007:
Securities available for sale:
Mortgage backed securities		$	62,162			$	471			$	(30	)		$	62,603
State and municipal securities			24,271				374				(15	)			24,630
Total		$	86,433			$	845			$	(45	)		$	87,233

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 has occurred, and industry analysts’ reports. As management has the ability to hold debt securities for the foreseeable future, no declines are deemed to be other than temporary.

The following table shows the amortized cost of our investment securities by their stated maturity at September 30, 2008.

		Less than				One year to				Five years				More than
		one year				five years				to ten years				ten years				Total
		(In Thousands)
As of September 30, 2008
Mortgage backed securities		$	—			$	27,417				26,533				4,583				58,533
State and municipal securities			—				2,020				13,161				11,548				26,729
Corporate bonds			—				—				4,033				1,935				5,968
Total		$	—			$	29,437				43,727				18,066				91,230

All securities held are traded in liquid markets. As of September 30, 2008, we owned certain restricted securities from the Federal Home Loan Bank with an aggregate book value and market value of $2,409,000 and First National Bankers Bank in which we invested $250,000. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity.

The bank’s investment portfolio consists of mortgage-backed pass-thru securities, tax exempt securities and corporate bonds. The bank does not invest in collateral debt obligations (CDO’s). All tax exempt securities are issued by municipalities within the State of Alabama. All corporate bonds have a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The September 30, 2008 total investment portfolio has a combined average credit rating of AA-.

At September 30, 2008, we had $30,022,000 in federal funds sold, compared with $16,598,000 at December 31, 2007.

Loans

We had total loans of $898,826,000 at September 30, 2008 compared to $675,281,000 at December 31, 2007, an increase of $220,895,000 or 33.09%. At September 30, 2008, 61.1% of our loans were in our Birmingham offices, 27.4% in our Huntsville offices, and 11.5% in our Montgomery offices. The following table details our loans at September 30, 2008 and December 31, 2007:

		September 30, 2008				December 31, 2007
		(In Thousands)
Commercial, financial and agricultural		$	293,381			$	219,684
Real estate — construction			233,992				195,238
Real estate — mortgage:
Owner occupied			134,810				89,014
1-4 family			106,309				64,325
Other			102,265				83,663
Total real estate mortgage			343,384				237,002
Consumer			28,069				23,357
Total loans			898,826				675,281
Less allowance for loan losses			(10,384	)			(7,732	)
Net loans		$	888,442			$	667,549

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. Management feels that the allowance is adequate at September 30, 2008.

The following table presents a summary of changes in the allowances for loan losses for the three and nine months ended September 30, 2008 and 2007, respectively. The largest balance of our charge-offs are on real estate construction loans. Real estate construction loans represent 26.03% of our loan portfolio.

		Three Months Ended								Nine Months Ended
		September 30								September 30
		2008				2007				2008				2007
						(In Thousands)
Allowance for loan losses at beginning of period		$	9,438				6,825				7,732				5,418
Charge-offs
Commercial, financial and agricultural			(94	)			(17	)			(95	)			(60	)
Real estate – construction			(78	)			(81	)			(1,826	)			(81	)
Real estate – mortgage
Owner occupied			—				—				—				—
1-4 family			(155	)			—				(232	)			—
Other			—				—				—				—
Total real estate mortgage			(155	)			—				(232	)			—
Consumer			(108	)			—				(114	)			(10	)
Total charge-offs			(435	)			(98	)			(2,267	)			(151	)
Recoveries
Commercial, financial and industrial			—				12				19				12
Real estate – construction			—				—				—				—
Real estate – mortgage			—				—				—				—
Owner occupied			—				—				—				—
1-4 family			—				—				—				—
Other			—				—				—				—
Total real estate mortgage			—				—				—				—
Consumer			—				—				—				—
Total recoveries			0				12				19				12
Net charge-offs			(435	)			(86	)			(2,248	)			(139	)
Provision for loan losses charged to expense			1,381				1,041				4,900				2,500
Allowance for loan losses at end of period		$	10,384				7,780				10,384				7,780
As a percentage of year to date average loans:
Annualized charge-offs			0.20	%			0.06	%			0.38	%			0.04	%
Annualized provision for loan losses			0.64	%			0.76	%			0.83	%			0.67	%

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

		September 30,																December 31,
		2008								2007								2007
						Percentage of								Percentage of								Percentage of
						loans in each								loans in each								loans in each
						category of								category of								category of
		Amount				total loans				Amount				total loans				Amount				total loans
										(Dollars in Thousands)
Commercial, financial and agricultural		$	1,175				32.63	%		$	1,386				35.39	%		$	1,714				32.53	%
Real estate – construction			5,334				26.05	%			5,245				32.68	%			3,487				28.91	%
Real estate – mortgage			987				38.20	%			375				28.76	%			340				35.10	%
Consumer			51				3.12	%			108				3.17	%			12				3.46	%
Other			2,837				—				666				—				2,179				—
Total		$	10,384				100.00	%		$	7,780				100.00	%		$	7,732				100.00	%
																		x

Non-performing Assets

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

As of September 30, 2008, our impaired loans, inclusive of non-accrual loans, totaled $14,293,000 and had associated reserves of approximately $2,192,000. This compares to impaired loans and associated reserves of $11,612,000 and $1,370,000, respectively at December 31, 2007. A loan is considered impaired when it is probable, based on current information and events; we will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured by either the present value of expected future cash flows discounted at the loans effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependant. 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.

A summary of nonperforming assets as of September 30, 2008, September 30, 2007 and December 31, 2007 follows:

		September 30, 2008				December 31, 2007				September 30, 2007
		(Dollars in Thousands)
Non-accrual loans		$	6,663				4,284				1,449
Loans 90 days or more past due and still accruing			489				187				5
All other real estate owned			8,211				1,623				1,261
Total non-performing assets		$	15,363				6,094				2,715

The increase in our non-accrual and other real estate owned for the first nine months of 2008 is directly attributable to the slowdown in the residential real estate market. At September 30, 2008, total nonperforming assets included finished homes of $8,620,000, residential lots of $3,055,000, unfinished lots of $1,399,000 and acquisition and development loans of $1,860,000. Our OREO procedures currently determine disposition value, the value used to place the property into OREO, based on the most recent fair value appraisal of the property that we have at the time, less estimated costs to sell the property. Any difference between the disposition value and the loan balance is charged off. Once the property is in OREO sales efforts begin. Should economic conditions continue to deteriorate, the continued and growing inability of distressed customers to service their existing debt could cause higher levels of non-performing loans.

Deposits

Total deposits increased $188,055,000 or 24.66% to $950,738,000 at September 30, 2008 compared to $762,683,000 reported at December 31, 2007. We believe our deposits will continue to increase in 2008 as a result of our expansion into the Dothan market in 2008, the Montgomery market in 2007 and expanded customer relationships in the Birmingham and Huntsville markets.

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

Other Borrowings

On March 19, 2008, we borrowed $20,000,000 from the Federal Home Loan Bank of Atlanta, of which $10,000,000 bears interest at 2.995%, and is payable on March 19, 2012, and $10,000,000 bears interest at 3.275%, and is payable on March 19, 2013. As discussed in Note 8 to the financial statements and “Recent Events” above, we borrowed $15.0 million through the issuance of trust preferred securities and the related debentures on September 2, 2008. Both financial instruments bear an identical annual rate of interest of 8.50% and pay on March 1, June 1, September 1 and December 1 of each year commencing on December 1, 2008.

Liquidity

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

 The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. In the event of declines in liquidity due to a run-off in deposits, we have a liquidity policy and procedure that provides for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and the curtailment of loan commitments and funding. At September 30, 2008, our liquid assets, represented by cash and due from banks, federal funds sold and available-for-sale securities, totaled $105 million. Additionally, our subsidiary bank had additional borrowing availability of approximately $78 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements, and had additional borrowing availability of $117 million at the Federal Home Loan Bank of Atlanta to meet short term funding needs. We believe these sources of funding are adequate to meet immediate anticipated funding needs, but we will need additional capital to maintain our current growth. Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. In addition, we also completed the issuance of $15.0 million of trust preferred securities and related junior subordinated deferrable interest debenture, each bearing 8.5% per annum on September 2, 2008 as more fully described in Note 8 to the financial statements and “Recent Events” above. 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.

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

The following table reflects the contractual maturities of our term liabilities as of September 30, 2008. The amounts shown do not reflect any early withdrawal or prepayment assumptions.

		Payments due by Period
		(In Thousands)
						Less than				1-3				4-5				More than
Contractual Obligations (1)		Total				1 Year				Years				Years				5 Years
Deposits without a stated maturity		$	808,902				808,902												—
Certificates of deposit (2)		$	141,836				115,072				22,788				3,876				100
FHLB borrowings		$	20,000								10,000				10,000				—
Subordinated debentures		$	15,052				—				—				—				15,052
Operating lease commitments		$	5,971				915				1,509				1,085				2,462
Total		$	991,761				924,889				34,297				14,961				17,614

Capital Adequacy

As of September 30, 2008, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, we must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of September 30, 2008. Furthermore, the Alabama Banking Department has required that we maintain a leverage ratio of 8% for the first three years of our operations until May 2, 2008 and 7% thereafter.

The following table sets forth (i) the capital ratios required by the FDIC and the Alabama Banking Department’s leverage ratio requirement to be maintained by us for the first three years of our operations and (ii) our actual ratios of capital to total regulatory or risk-weighted assets, as of September 30, 2008, December 31, 2007, and September 30, 2007.

										For				To Be Well
		Actual								Capital				Capitalized Under
		ServisFirst				ServisFirst				Adequacy				Prompt Corrective
		Bancshares				Bank				Purposes				Action Provisions
September 30, 2008
Total Capital to Risk Weighted Assets			11.26	%			11.14	%			8.00	%			10.00	%
Tier 1 Capital to Risk Weighted Assets			10.12	%			10.00	%			4.00	%			6.00	%
Tier 1 Capital to Average Assets			9.27	%			9.16	%			4.00	%			5.00	%
December 31, 2007
Total Capital to Risk Weighted Assets			11.22	%			11.22	%			8.00	%			10.00	%
Tier 1 Capital to Risk Weighted Assets			10.12	%			10.12	%			4.00	%			6.00	%
Tier 1 Capital to Average Assets			8.40	%			8.40	%			4.00	%			5.00	%
September 30, 2007
Total Capital to Risk Weighted Assets			N/A				11.91	%			8.00	%			10.00	%
Tier 1 Capital to Risk Weighted Assets			N/A				10.68	%			4.00	%			6.00	%
Tier 1 Capital to Average Assets			N/A				9.21	%			4.00	%			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 the 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 financial instruments for commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit and financial guarantees is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

Financial instruments whose contract amounts represent credit risk at September 30, 2008:

		(In Thousands)
Commitments to extend credit beyond current fundings		$	304,514
Credit card arrangements			10,278
Standby letters of credit and financial guarantees			18,785
Total		$	333,577

Commitments to extend credit beyond current fundings are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by us upon extension of credit is based on our management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

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

Derivatives

Prior to 2008 we entered into an interest rate floor with a notional amount of $50 million in order to fix the minimum interest rate on a corresponding amount of our floating-rate loans. In our management’s opinion, market conditions were appropriate and the interest rate floor was sold in January 2008 and the related gain of $817,000 has been deferred and will be amortized to income over the remaining term of the original agreement which would have terminated on June 22, 2009. A gain of $136,000 and $408,000 was recognized in interest income for the three and nine months ended September 30, 2008.

Net Income

Net income for the three months ended September 30, 2008 was $1,724,000, compared to net income of $1,244,000 for the three months ended September 30, 2007. Net income for the nine months ended September 30, 2008 was $5,045,000, compared to net income of $4,048,000 for the nine months ended September 30, 2007. The increases in net income are primarily attributable to a significant increase in net interest income due to significant growth of our deposits and loan portfolio resulting from significant continued core growth in Birmingham and Huntsville and our expansion into Montgomery in 2007. These positive effects were partially offset by increases in the provision for loan losses, to $1,381,000 from $1,040,000 for the three months ended September 30, 2008, and 2007 respectively, and to $4,900,000 from $2,500,000 for the nine months ended September 30, 2008 and 2007, respectively, and

increases in non-interest expense, to $5,461,000 from $4,034,000 for the three months ended September 30, 2008 and 2007, respectively, and to $14,821,000 from $10,341,000 for the nine months ended September 30, 2008 and 2007 respectively. The increase in provision for loan losses was the result of funding the loan loss reserve to match the growth in the loan portfolio and loan charge-offs. The increase in non-interest expense was due to an increase in personnel and write downs related to foreclosed real estate. These write downs totaled $579,000 for the three months ended September 30, 2008 versus $7,000 for the same period in 2007 and totaled $732,000 for the nine months ended September 30, 2008 versus $10,000 for the same period in 2007. Basic and diluted net income per common share were $.34 and $.32, respectively, for the three months ended September 30, 2008, compared to $.28 per common share for both basic and diluted for the three months ended September 30, 2007. Basic and diluted net income per common share were $.99 and $.95, respectively, for the nine months ended September 30, 2008, compared to $.90 per common share for both basic and diluted for the nine months ended September 30, 2007. Return on average assets for the three months ended September 30, 2008 was .71%, compared to .67% in 2007, and return on average stockholders’ equity was 8.99% for the three months ended September 30, 2008, compared to 8.88% in 2007.

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.
Beginning in mid-2004, the Federal Reserve Open Market Committee, or FOMC, increased interest rates 400 basis points through mid-2006 where interest rates remained constant until September 2007 when the FOMC began lowering interest rates in reaction to the affects of the sub-prime credit crisis. Since September 2007, the FOMC has lowered interest rates 275 basis points including an emergency 75 basis point decrease in January 2008, 75 basis points at its March 18, 2008 meeting, and 25 basis points at its April 30, 2008 meeting.

Net interest income increased $2,233,000, or 33.61%, to $8,877,000 for the three months ended September 30, 2008 from $6,644,000 for the three months ended September 30, 2007. This was due to an increase in total interest income of $138,000, or 1.00%, plus a decrease in total interest expense of $2,095,000 or 29.51%.Net interest income increased $7,420,000, or 40.68%, to $25,658,000 for the nine months ended September 30, 2008 from $18,238,000 for the nine months ended September 30, 2007. This was due to an increase in total interest income of $4,361,000, or 11.88%, plus a decrease in total interest expense of $3,059,000, or 16.57%. The increase in total interest income was primarily attributable to loan growth as a consequence of significant continued core growth in Birmingham and Huntsville and our expansion into Montgomery in 2007.

The following table shows for the three and nine months ended September 30, 2008 and 2007, the average balances of each principal category of our assets, liabilities and shareholders’ equity, and an analysis of net interest revenue. The table is presented on a tax equivalent basis if applicable.

Average Consolidated Balance Sheet and Net Interest Analysis on a Fully Tax Equivalent Basis

		Three Months Ended September 30,
		2008												2007
		Average				Income/				Yield/				Average				Income/				Yield/
		Balance				Expense				Rate				Balance				Expense				Rate
										(Dollar Amounts In Thousands)
Assets:
Interest-earning assets:
Loans, net of unearned income (1)		$	864,523				12,620				5.79	%			552,696				11,644				8.36	%
Mortgage loans held for sale			2,416				37				6.07	%			2,310				29				5.06	%
Investment securities:
Taxable			67,759				951				5.61	%			48,148				667				5.54	%
Tax-exempt (2) (3)			23,661				335				5.67	%			18,329				259				5.66	%
Total investment securities (3)			91,420				1,286				5.62	%			66,477				926				5.57	%
Federal funds sold			2,190				12				2.18	%			93,983				1,206				5.13	%
Restricted equity securities			2,659				26				3.83	%			1,201				17				5.35	%
Interest bearing balances with banks			13				0				3.88	%			53				0				5.98	%
Total interest-earning assets			963,221				13,981				5.72	%			716,720				13,822				7.73	%
Non-interest earning assets
Cash and due from banks			21,524												15,305
Net fixed assets			3,928												3,505
Allowance for loan losses, accrued interest and other assets			5,782												(778	)
Total assets		$	994,455												734,752
Liabilities and stockholders equity:
Interest-bearing liabilities:
Interest bearing demand deposits		$	92,480				387				1.66	%			38,686				302				3.10	%
Savings deposits			443				1				0.57	%			176				—				1.72	%
Money market accounts			540,314				2,810				2.06	%			490,379				6,095				4.93	%
Time deposits			147,918				1,443				3.87	%			54,974				702				5.06	%
Federal funds purchased			13,695				88				2.55	%			—				—				—
Other borrowed funds			24,945				275				4.38	%			—				—				—
Total interest- bearing Liabilities			819,795				5,004				2.46	%			584,215				7,099				4.82	%
Non-interest liabilities
Non-interest bearing demand deposits			95,634												91,551
Other liabilities			2,736												3,384
Stockholders equity			76,290												55,602
Total liabilities and Stockholders equity		$	994,455												734,752
Net interest spread											3.26	%											2.91	%
Net interest margin											3.66	%											3.76	%