Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2009
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
		For the transition period from ____________ to ____________

Commission File Number 0-53149

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, Suite 200		35209
Birmingham, Alabama		(Zip Code)
(Address of Principal Executive Offices)

(205) 949-0302

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001 per share

(Titles of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 definitions of “larger accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer o	Accelerated filer þ

	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company Yes o No þ

As of June 30, 2009, the aggregate market value of the voting common stock held by non-affiliates of the registrant, based on a price of $25.00 per share of Common Stock, was $122,195,000.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: the number of shares outstanding as of February 28, 2010, of the registrant’s only issued and outstanding class of common stock, its $.001 per share par value common stock, was 5,513,482.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2010 Annual Meeting of Stockholders are incorporated by reference in Part III of this annual report on Form 10-K.

SERVISFIRST BANCSHARES, INC.

TABLE OF CONTENTS

FORM 10-K

DECEMBER 31, 2009

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			1

PART I			2

	ITEM 1.	BUSINESS	2
	ITEM 1A.	RISK FACTORS.	21
	ITEM 1B.	UNRESOLVED STAFF COMMENTS.	29
	ITEM 2.	PROPERTIES.	29
	ITEM 3.	LEGAL PROCEEDINGS.	30
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.	30

PART II			30

	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.	30
	ITEM 6.	SELECTED FINANCIAL DATA.	33
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	35
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	56
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	58
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	102
	ITEM 9A.	CONTROLS AND PROCEDURES.	102
	ITEM 9B.	OTHER INFORMATION.	103

PART III			103

	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	103
	ITEM 11.	EXECUTIVE COMPENSATION.	104
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	104
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.	104
	ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES.	104

PART IV			104

	ITEM 15.	FINANCIAL STATEMENTS AND EXHIBITS.	104

SIGNATURES			107

EXHIBIT INDEX			i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of our statements contained in this Form 10-K, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 35, are “forward-looking statements” that are based upon our current expectations and projections about future events. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” “will,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared and may not be realized due to a variety of factors, including, but not limited to, the following:

•

the effects of the current economic recession and the possible continued deterioration of the United States economy, particularly deterioration of the economy in Alabama and the communities in which we operate;

•

the effects of continued deleveraging of United States citizens and businesses;

•

the current financial and banking crisis resulting in the massive devaluation of the assets and shareholders’ equity of many of the United States’ financial and banking institutions;

•

the effects of continued compression of the residential housing industry, the subprime mortgage crisis and rising unemployment;

•

credit risks, including credit risks resulting from the devaluation of collateralized debt obligations (CDOs) and/or structured investment vehicles to which we currently have no direct exposure;

•

the effects of the Emergency Economic Stabilization Act of 2008, including its Troubled Asset Relief Program (TARP), the American Recovery and Reinvestment Act of 2009, and other governmental monetary and fiscal policies and legislative and regulatory changes;

•

the effect of changes in interest rates on the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities;

•

the effects of terrorism and efforts to combat it;

•

the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;

•

the effect of any merger, acquisition or other transaction to which we or our subsidiary may from time to time be a party, including our ability to successfully integrate any business that we acquire; and

•

failure of our assumptions underlying the establishment of our loan loss reserves.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For certain other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, please read the “Risk Factors” in Item 1A beginning on page 21.

PART I

ITEM 1. BUSINESS

Overview

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”), which 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 (i) a wholly-owned subsidiary formed for the purpose of the reorganization was merged with and into the Bank, with the Bank surviving, and (ii) each shareholder of the Bank exchanged 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 current law, and additional financing alternatives such as the issuance of trust preferred securities. We have no current 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.

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) 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.

We are headquartered at 850 Shades Creek Parkway, Suite 200, Birmingham, Alabama 35209 (Jefferson County). In addition to the Jefferson County headquarters, the Bank currently operates through two offices in the Birmingham-Hoover, Alabama MSA (one office in Jefferson County and one office in North Shelby County), two offices in the Huntsville, Alabama MSA (Madison County), two offices in the Montgomery, Alabama MSA (Montgomery County) and one office in the Dothan, Alabama MSA (Houston County). These MSAs constitute our primary service areas, and we also serve certain areas adjacent to our primary service areas.

Markets

Service Areas

Birmingham is located in central Alabama approximately 90 miles northwest of Montgomery, Alabama, 146 miles west of Atlanta, Georgia, and 148 miles southwest of Chattanooga, Tennessee. Birmingham is intersected by U.S. Interstates 20, 59 and 65. Jefferson County includes the major business area of downtown Birmingham. North Shelby County also encompasses a growing business community and affluent residential areas. With two offices in Jefferson County and one in north Shelby County, we believe we are well positioned to access the most affluent areas of the Birmingham-Hoover MSA.

We also operate in the Huntsville, Alabama MSA, the Montgomery, Alabama MSA and the Dothan, Alabama MSA. We believe the Huntsville market offers substantial growth as one of the strongest technology economies in the nation, with over 300 companies performing sophisticated government, commercial and university research. Huntsville has one of the highest concentrations of engineers in the United States, as well as one of the highest concentrations of Ph.D.s. Huntsville is located in North Alabama off U.S. Interstate 65 between Birmingham and Nashville, Tennessee. Montgomery is the capital and one of the largest cities in Alabama and home to the Hyundai Motor Manufacturing plant, which began production in May 2005. Montgomery is located in central Alabama between Birmingham and Mobile, Alabama and is intersected by U.S. Interstates 65 (connecting Birmingham and Mobile, Alabama) and 85 (connecting Montgomery to Atlanta, Georgia). Dothan is located in the southeastern corner of the State of Alabama near the Georgia and Florida state lines and is 35 miles from U.S. Interstate 10 which runs through the panhandle of Florida and connections Mobile, Alabama to Tallahassee, Florida. Dothan is also intersected by U.S. Highways 231, 431 and 84, which are common trucking lanes, and has access to railroad and the Chattahoochee River. With two offices in each of Madison and Montgomery Counties and one in Houston County, we believe that we have a base of banking resources to serve such counties.

We conduct a general consumer and commercial banking business, emphasizing personal banking services to commercial firms, professionals and affluent consumers located in our service areas. We believe the current market, as well as the prospects for the future, presents opportunity for a locally owned and operated financial institution. Specifically, we believe that our primary service areas will be in need of local institutions to respond to customer and deposit attrition resulting from the acquisitions during the last few years of Alabama-headquartered banks, including the acquisitions of SouthTrust Corporation by Wachovia Corporation (which has now been acquired by Wells Fargo & Company), AmSouth Bancorporation by Regions Financial Corporation, Compass Bancshares, Inc. by Banco Bilbao Vizcaya Argentaria and Alabama National Bancorporation (operating as First American Bank) by RBC Centura Banks. We believe that a community-based bank such as the Bank can better identify and serve local relationship banking needs than can an office or subsidiary of such larger banking institutions.

Local Economy of Service Areas

Birmingham. We believe that Jefferson and Shelby Counties offer us a growing and diverse economic base in which to operate. From 2000 to 2009, Jefferson and Shelby Counties’ population increased a combined 7.3%. From 2009 to 2014, the total population of Jefferson and Shelby Counties is projected to grow from 855,000 to 881,000, representing a 3.0% total growth rate, and the number of households in the Birmingham area is expected to expand by approximately 4.9% between 2008 and 2013. As measured by population, Jefferson County is the largest county in Alabama, largely due to the size of the city of Birmingham.

The median household income in Jefferson and Shelby Counties in 2009 was $43,571 and $68,877, respectively. From 2000 to 2009, the average household income rose 19.5% in Jefferson and Shelby Counties.

The economic makeup of the Birmingham area is very diverse. Even though Birmingham once depended on the steel industry to provide most of the employment in the city, it is now home to a diverse array of industries. Birmingham is a center for finance, health care, education, manufacturing, research, engineering, transportation, construction and distribution. Despite the recent acquisitions of SouthTrust Corporation, AmSouth Bancorporation and Compass Bancshares, Inc., Birmingham still serves as the headquarters for four Fortune 1,000 companies, Regions Financial Corporation, Vulcan Materials, HealthSouth Corporation and Protective Life Corp., and continues to foster a well-rounded business community that we believe will continue to attract businesses to the area. Moreover, Birmingham serves as headquarters to six of the country’s top-performing private companies on the elite Forbes 500 list, including O’Neal Steel and Drummond Coal.

In recent years, Birmingham’s technology, health care and manufacturing sectors have grown substantially. Birmingham is home to the largest nonprofit independent research laboratory in the Southeast, Southern Research Institute. Additionally, the University of Alabama at Birmingham ranks among the top medical centers in securing federal research and development funds. Finally, Mercedes-Benz U.S. International and Honda Motor Company have each built automobile assembly plants in the areas that have provided substantial growth in Birmingham’s manufacturing sector. The presence of these firms provides an opportunity for us to market our products and services to businesses and professionals.

Unless otherwise stated, the foregoing and other pertinent data can be found on the websites of the Birmingham Regional Chamber of Commerce and the Federal Deposit Insurance Corporation (the “FDIC”).

Huntsville. Huntsville, Madison County, is the life-center for North Alabama and has seen steady growth since the 1960's. Today there are nearly one million people within a 50-mile radius of Huntsville. The metropolitan population is diverse and rich in culture, with many residents moving into the area as a technology destination from all 50 states and numerous countries, including Japan, Switzerland, Korea, Germany and the UK. In 2009, the Huntsville, Alabama MSA (which includes Madison and Limestone Counties) had a population of 397,000 people, up 16.0% from the 2000 U.S. Census, and Madison County's population was 321,000, up 16.1% from the 2000 Census. The Huntsville metro population grew at over twice the rate of the rest of Alabama and nearly twice the rate of the U.S. as a whole. According to a 2008 estimate, the average household income was $71,267 for the Huntsville, Alabama MSA, $73,430 for Madison County and $65,159 for the City of Huntsville. The City of Madison reported an average household income of $72,432 according to the 2000 U.S. Census.

We believe that Huntsville offers substantial growth as one of the strongest technology economies in the nation and one of the highest concentrations of engineers and Ph.D.s in the United States. Huntsville has a number of major government programs, including NASA programs such as the Space Station and Space Shuttle Propulsion and U.S. Army programs such as the National Space and Missile Defense Command, Army Aviation and Foreign Military Sales. Cummings Research Park in Huntsville is now the second largest research park in the United States and the fourth largest research park in the world. Huntsville was ranked number one in the state for announced new and expanding jobs from 2004 to 2008, according to the Alabama Development Office. Huntsville was named as Forbes magazine’s “Best Place to Live to Weather the Economy” in November 2008. Further, Forbes named Huntsville one of its “Leading Cities for Business” six years in a row, including 2008, as well as one of the “10 Smartest Cities in the World” in 2009. Fortune Small Business Magazine named Huntsville as the country’s “Top Mid – sized City to Launch and Grow a Business” and Kiplinger Magazine named Huntsville as the nation’s “Best City” in 2009. Huntsville is home to the highest concentration of Inc. 500 Companies in the United States and also a number of offices of Fortune 500 companies. Major employers in Huntsville include the U.S. Army/Redstone Arsenal, the Boeing Company, NASA/Marshall Space Flight Center, Intergraph Corporation, Benchmark Electronics, ADTRAN, Inc., Northrop Grumman, Cinram, SAIC, DirecTV, LG Electronics, Inc., Lockheed Martin, and Toyota Motor Manufacturing of Alabama. Job growth in the Huntsville metro has been strong, with over 29,000 new workers added since 2000, which accounts for 46% of the state’s net job growth during that same period of time. The Huntsville metro area’s employment growth rate of 15.8% is almost four times the U.S. average. Professional and business service employment in the Huntsville metro area grew by 41.7% from 2000-2008, adding a total of 13,900 workers primarily in professional, scientific and technical fields.

In September 2005, the Base Realignment and Closure Commission, or BRAC, approved the relocation of the majority of the United States Missile Defense Agency's development and management work, along with the headquarters of the U.S. Army Space & Missile Defense Command, the U.S. Army Materiel Command and the U.S. Army Security Assistance Command, to Huntsville. The relocation of jobs to Huntsville began in 2007 and will bring up to 5,000 jobs. All moves are scheduled to be completed by 2011. In addition to these jobs, the move is expected to bring another 5,000 support jobs.

The Hudson-Alpha Institute for Biotechnology opened its 260,000-square foot facility in November 2007, housing 17 biotechnology companies representing the for-profit side of development focused on using the code generated by the Human Genome Project to produce drugs and treatment. The institute has provided the Huntsville community with over 900 new jobs, and the new 22,000-square foot Jackson Conference Center was constructed there in 2008. Verizon Wireless has built a 152,000-square foot Alabama headquarters and customer service center in Thornton Research Park, in which it has invested $44 million and created nearly 1,300 new jobs. Expanding the plant at Toyota Manufacturing led to the creation of 240 jobs as well as total capital investment of $147 million. Other notable expansions include Raytheon, DHS Systems, Aegis Technologies, System Studies and Simulation and Lockheed Martin. In total, new and expanding industry in Huntsville/Madison County in 2009 amounted to 32 projects, 2,027 jobs, and over $219 million in capital investment. Additionally, plans are underway to construct a $1 billion office park just outside of the gates at Redstone Arsenal, which will ultimately contain hotels, restaurants and 4 million square feet of office space.

The foregoing and other pertinent data is available on the Huntsville/Madison County Chamber of Commerce's and the FDIC's websites.

Montgomery. Montgomery is Alabama’s second largest city and is the capital of Alabama. We have identified Montgomery as a high-growth market for us, as it led Alabama in job growth from 1990 to 2006. Over that 17-year period, the Montgomery County employment base has grown by 22%, the number of unemployed persons has dropped by 31% and the labor force has increased by 19%. The area’s per capita income grew from $18,500 in 1990 to $35,130 in 2005, an increase of 90%. Montgomery County is the fourth most populous county in Alabama.

More than $1 billion has been spent on the revitalization of downtown Montgomery and the Riverfront development, including over $180 million on a downtown four-star hotel complex as well as $29 million on the renovation of the adjacent Convention Center. Downtown Montgomery also opened a new baseball stadium in 2004, and the Montgomery Regional Airport completed a $40 million renovation and expansion project in 2006.

As its capital city, the State of Alabama employs approximately 9,500 persons in Montgomery, as well as numerous service providers. Montgomery is also home to Maxwell Gunter Air Force Base, which employs 12,280 persons, and the Air University, the worldwide center for U.S. Air Force education. In May of 2005, Hyundai Motor Manufacturing Alabama opened its Montgomery manufacturing plant, which was built with a capital investment of over $1.4 billion. That plant now employs over 3,500 people and is now producing two Hyundai models and has been further expanded with the addition of a new engine plant. That engine plant will also serve the new Kia manufacturing facility currently being built in West Point, Georgia. The area has also benefited from the nearly 30 top tier Hyundai suppliers who have invested over $550 million in new plant facilities producing almost 8,000 additional jobs.

The foregoing and other pertinent data can be found on the Montgomery Area Chamber of Commerce’s and the FDIC’s websites and recent publications of the Montgomery Area Chamber of Commerce, including an article written for them by Dr. Keivan Deravi, Ph. D., a professor of economics at Auburn University at Montgomery.

Dothan. Dothan, in Houston County, is located in the southeastern corner of Alabama and is conveniently placed near the Florida panhandle and Georgia state line. We believe that this market has great potential due to its central hub, its accessibility to large distribution centers, its home to several major corporations, and its lack of personalized banking services currently being provided. According to the FDIC, Dothan’s deposit base has grown 36.2% during the past six years. Furthermore, Dothan’s two largest deposit holders are Regions Bank and Wachovia Bank (formerly SouthTrust Bank and now part of Wells Fargo & Company), each of which has undergone substantial changes in recent years, which we believe provides an opportunity for a new bank such as us. We believe the citizens of Dothan demand the personal service provided by the Bank, making it a more viable option for the current residents than local branches of larger regional competitors.

In 2009, the Dothan, Alabama MSA had a population of 142,000 people. Houston County had a population of 99,000, showing a 11.5% increase from 2000.

We believe Dothan to be a growing market with greater needs considering the wide array of industries being serviced. The Dothan area, while being known as the peanut capital, is also home to facilities of several major corporations, including Michelin, Pemco World Aviation, International Paper, Globe Motors, AAA Cooper-Headquarters, and many more. Also, the strong presence of trucking and its strategic positioning in the Southeast market attracts distribution-related projects to the Dothan MSA. For example, the development of the Houston County Distribution Park has allowed companies to take advantage of the 352-acre tract to serve consumers in the Southeast region of the United States. Being only minutes from the Florida state line, the large lots can serve distribution-related projects up to 1.2 million square feet in size.

Dothan is a hub of healthcare for southeast Alabama, southwest Georgia and north Florida areas, with two regional hospitals, Southeast Alabama Regional Medical Center employing over 2,000 medical professionals and support staff, and Flowers Hospital employing 1,400 medical professionals and support staff. The area also has a strong history in the expansion of aviation jobs in Alabama through Enterprise-Ozark Community College (avionics and aviation mechanic training) and Fort Rucker-the Army Aviation Center of the United States. The highly specialized Dothan Airport Industrial Park offers the land and infrastructure to house aviation related projects with runway access to facilities. The existence of these industries and the constant growth allows an opportunity for the Bank to increase its presence and penetration in this market. The foregoing and other pertinent data can be found on the Dothan Chamber of Commerce’s and the FDIC’s websites.

Deposit Growth in Our Markets

According to FDIC reports, total deposits in Jefferson and Shelby Counties grew from approximately $14.5 billion in June 2001 to approximately $24.9 billion in June 2009, representing a compound average annual growth rate of approximately 6.99% over the period. Deposits in Madison County grew from approximately $3.2 billion in June 2001 to approximately $6.3 billion in June 2009, representing a compound average annual growth rate of approximately 8.84% over the period. Deposits in Montgomery County grew from approximately $2.9 billion in June 2001 to approximately $6.5 billion in June 2009, representing a compound average annual growth rate of approximately 10.62% over the period. Deposits in Houston County grew from approximately $1.3 billion in June 2001 to approximately $2.1 billion in June 2009, representing a compound average annual growth rate of approximately 6.18% over the period. While our markets have been negatively affected by the current recession and credit crisis, we believe that each of our markets will continue to grow and believe that many local affluent professionals and small business customers will do their banking with local, autonomous institutions that offer a higher level of personalized service.

Competition

We are subject to intense competition from various financial institutions and other companies that offer financial services. The Bank competes for deposits with other commercial banks, savings and loan associations, credit unions and issuers of commercial paper and other securities, such as money-market and mutual funds. In making loans, the Bank competes with other commercial banks, savings and loan associations, consumer finance companies, credit unions, leasing companies and other lenders.

We currently conduct business principally through our eight banking offices. Based upon the latest data available on the FDIC’s website as of June 30, 2009, and our records, our total deposits in the Birmingham-Hoover MSA ranked 10th among 51 financial institutions and represented approximately 2.10% of the total deposits in the Birmingham-Hoover MSA. Our total deposits in the Huntsville MSA ranked us 8th among 25 financial institutions and represented approximately 4.50% of the total deposits in the Huntsville MSA. Our total deposits in the Montgomery MSA ranked us 10th among 22 financial institutions and represented approximately 2.50% of the total deposits in the Montgomery MSA. Our total deposits in the Dothan MSA, our newest service area, ranked us 10th among 21 financial institutions and represented approximately 4.00% of the total deposits in the Dothan MSA. Together, deposits for all institutions in Jefferson, Shelby, Montgomery, Madison, and Houston Counties represented approximately 47.62% of all the deposits in the State of Alabama at June 30, 2009. Since that date, three Alabama-based banks – Colonial Bank, CapitalSouth Bank and New South Federal Savings Bank – have failed, so the relative market shares of the financial institutions operating in Alabama may have changed, perhaps materially, since that date.

The following table illustrates our market share, by insured deposits, in our primary service areas at June 30, 2009, as reported by the FDIC:

	Number				Total				Market
	of		Our Market		Market				Share
Market	Branches		Deposits		Deposits		Ranking		Percentage
			(Dollar amounts in millions)
Alabama:
Birmingham-Hoover MSA		3	$	582.5	$	27,724.1		10		2.10	%
Montgomery MSA		2		194.0		7,753.7		10		2.50	%
Huntsville MSA		2		319.2		7,091.6		8		4.50	%
Dothan MSA		1		111.3		2,779.4		10		4.00	%

Our retail and commercial divisions operate in highly competitive markets. We compete directly in retail and commercial banking markets with other commercial banks, savings and loan associations, credit unions, mortgage brokers and mortgage companies, mutual funds, securities brokers, consumer finance companies, other lenders and insurance companies, locally, regionally and nationally. Many of our competitors compete by using offerings by mail, telephone, computer and/or the Internet. Interest rates, both on loans and deposits, and prices of services are significant competitive factors among financial institutions generally. Office locations, types and quality of services and products, office hours, customer service, a local presence, community reputation and continuity of personnel are also important competitive factors that we emphasize.

Many other commercial or savings institutions currently have offices in our primary service areas. These institutions include many of the largest banks operating in Alabama, including some of the largest banks in the country. Many of our competitors serve the same counties we serve. Virtually every type of competitor for business of the type we serve has offices in each of our primary markets. In our service areas, our five largest competitors are generally Regions Bank, Wachovia Bank (now a subsidiary of Wells Fargo & Company), Compass Bank (now a subsidiary of Banco Bilboa Vizcaya Argentaria), BB&T (which acquired Colonial Bank in 2009) and RBC Bank USA. These institutions, as well as other competitors of ours, have greater resources, serve broader geographic markets, have higher lending limits, offer various services that we do not offer and can better afford and make broader use of media advertising, support services, and electronic technology than we can. To offset these competitive disadvantages, we depend on our reputation for greater personal service, consistency, and flexibility and the ability to make credit and other business decisions quickly.

Business Strategy

Management Philosophy

Our philosophy is to operate as an urban community bank emphasizing prompt, personalized customer service to the individuals and businesses located in our primary service areas. We believe this philosophy has attracted and will continue to attract customers and capture market share historically controlled by other financial institutions operating in our market. Our management and employees focus on recognizing customers’ needs and delivering products and services to meet those targeted needs. We aggressively market to businesses, professionals and affluent consumers that may be underserved by the large regional banks that operate in their service areas. We believe that local ownership and control allows us to serve customers more efficiently and effectively and will aid in our growth and success.

Operating Strategy

In order to achieve the level of prompt, responsive service that we believe is necessary to attract customers and to develop our image as an urban bank with a community focus, we have employed the following operating strategies:

Quality Employees. We strive to hire highly trained and seasoned staff. Staff are trained to answer questions about all of our products and services, so that the first employee the customer encounters can usually resolve most questions the customer may have.

Experienced Senior Management. Our senior management has extensive experience in the banking industry, as well as substantial business and banking contacts in our markets.

Relationship Banking. We focus on cross-selling financial products and services to our customers. Our customer-contact employees are highly trained to recognize customer needs and to meet those needs with a sophisticated array of products and services. We view cross-selling as a means to leverage relationships and help provide useful financial services to retain customers, attract new customers and remain competitive.

Community-Oriented Directors. The boards of directors for the holding company and the Bank currently consist of residents of Birmingham, but we also have a non-voting advisory board of directors in each of the Huntsville, Montgomery and Dothan markets. These advisory directors represent a wide array of business experience and community involvement in the service areas where they live. As residents of our primary service areas, they are sensitive and responsive to the needs of our customers and potential customers. In addition, our directors and advisory directors bring substantial business and banking contacts to us.

Highly Visible Offices. Our local headquarters buildings are highly visible in Birmingham’s south Jefferson County, downtown Huntsville, downtown Montgomery and downtown Dothan. We believe that a highly visible headquarters building gives us a powerful presence in each local market.

Individual Customer Focus. We focus on providing individual service and attention to our target customers, which include privately held businesses with $2 million to $250 million in sales, professionals, and affluent consumers. As our employees, officers and directors become familiar with our customers on an individual basis, they are able to respond to credit requests quickly.

Market Segmentation and Advertising. We utilize traditional advertising media, such as local periodicals and local event sponsorships, to increase our public visibility. The majority of our marketing and advertising efforts, however, are focused on leveraging our management’s, directors’, advisory directors’ and stockholders’ existing relationship networks.

Telephone and Internet Banking Services. We offer various banking services by telephone through a 24-hour voice response unit and through Internet banking arrangements.

Growth Strategy

Because we believe that growth and expansion of our operations are significant factors in our success, we have implemented the following growth strategies:

Capitalize on Community Orientation. We seek to capitalize on the extensive relationships that our management, directors, advisory directors and stockholders have with businesses and professionals in our markets. We believe that these market sectors are not adequately served by the existing banks in such areas.

Emphasize Local Decision-Making. We emphasize local decision-making by experienced bankers. We believe this helps us attract local businesses and service-minded customers.

Offer Fee-Generating Products and Services. Our range of services, pricing strategies, interest rates paid and charged, and hours of operation are structured to attract our target customers and increase our market share. We strive to offer the businessperson, professional, entrepreneur and consumer the best loan services available while pricing these services competitively.

Office Location Strategy. We have opened our offices in each of our local markets in areas that we believe provide visibility, convenience and access to our target customers.

Lending Services

Lending Policy

Our lending policies have been established to support the banking needs of our primary market areas. Consequently, we aggressively seek high-quality loans within a limited geographic area and in competition with other well-established financial institutions in our primary service areas that have greater resources and lending limits than we have.

Loan Approval and Review

Our loan approval policies provide for various levels of officer lending authority. When the total amount of loans to a single borrower exceeds an individual officer’s lending authority, further approval must be obtained from the regional CEO and/or our Chief Executive Officer, Chief Risk Officer or Chief Credit Officer, based on our loan policies.

Commercial Loans

Our commercial lending activity is directed principally toward businesses and professional service firms whose demand for funds falls within our legal lending limits. We also make loans to small- to medium-sized businesses in our primary service areas for purposes such as new or upgraded plant and equipment, inventory acquisition and various working capital purposes. Typically, targeted borrowers have annual sales between $2 and $250 million. This category of loans includes loans made to individual, partnership or corporate borrowers, and such loans are obtained for a variety of business purposes. We offer a variety of commercial lending products to meet the needs of business and professional service firms in our service areas. These commercial lending products include seasonal loans, bridge loans and term loans for working capital, expansion of the business, or acquisition of property, plant and equipment. We also offer business lines of credit. The repayment terms of our commercial loans will vary according to the needs of each customer.

Our commercial loans will usually be collateralized. Generally, collateral consists of business assets, including any or all of general intangibles, accounts receivables, inventory, equipment, or real estate. Collateral is subject to the risk that we may have difficulty converting it to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation. To mitigate this risk, we underwrite collateral to strict standards, including valuations and general acceptability based on our ability to monitor its ongoing health and value.

We underwrite our commercial loans primarily on the basis of the borrower’s cash flow, expected ability to service its debt from income and degree of management expertise. As a general practice, we take as collateral a security interest in any available real estate, equipment or other personal property, although in limited circumstances we may make some commercial loans on an unsecured basis. This type loan may be subject to many different types of risk, which will differ depending on the particular industry a borrower is engaged in, including fraud, bankruptcy, economic downturn, deteriorated or non-existent collateral, and changes in interest rates such as have occurred in the recent economic recession and credit market crisis. General risks to an industry, such as the recent economic recession and credit market crisis, or to a particular segment of an industry are monitored by senior management on an ongoing basis. When warranted, individual borrowers who may be at risk due to an industry condition may be more closely analyzed and reviewed at the credit review committee or board of directors level. On a regular basis, commercial and industrial borrowers are required to submit statements of financial condition relative to their business to us for review. We analyze these statements for trends and assign the loan a risk grade accordingly. Based on this risk grade, the loan may receive an increased degree of scrutiny by management, up to and including additional loss reserves being required.

Real Estate Loans

We make commercial real estate loans, construction and development loans and residential real estate loans.

Commercial Real Estate. Commercial real estate loans are generally limited to terms of five years or less, although payments are usually structured on the basis of a longer amortization. Interest rates may be fixed or adjustable, although rates generally will not be fixed for a period exceeding five years. In addition, we generally will require personal guarantees from the principal owners of the property supported by a review by our management of the principal owners’ personal financial statements.

Commercial real estate offers some risks not found in traditional residential real estate lending. Repayment is dependent upon successful management and marketing of properties and on the level of expense necessary to maintain the property. Repayment of these loans may be adversely affected by conditions in the real estate market or the general economy. Also, commercial real estate loans typically involve relatively large loan balances to a single borrower. To mitigate these risks, we monitor our loan concentration. This type loan generally has a shorter maturity than other loan types, giving us an opportunity to reprice, restructure or decline to renew the credit. As with other loans, all commercial real estate loans are graded depending upon strength of credit and performance. A higher risk grade will bring increased scrutiny by our management and the board of directors.

Construction and Development Loans. We make construction and development loans both on a pre-sold and speculative basis. If the borrower has entered into an agreement to sell the property prior to beginning construction, then the loan is considered to be on a pre-sold basis. If the borrower has not entered into an agreement to sell the property prior to beginning construction, then the loan is considered to be on a speculative basis. Construction and development loans are generally made with a term of 12 to 24 months, and interest is paid monthly. The ratio of the loan principal to the value of the collateral as established by independent appraisal typically will not exceed 80% of residential construction loans. Speculative construction loans will be based on the borrower’s financial strength and cash flow position. Development loans are generally limited to 75% of appraised value. Loan proceeds will be disbursed based on the percentage of completion and only after the project has been inspected by an experienced construction lender or third-party inspector. During times of economic stress, this type loan has typically had a greater degree of risk than other loan types, as has been evident in the current credit crisis. During 2008 and 2009, there were numerous construction loan defaults among many commercial bank loan portfolios, including a number of Alabama-based banks such as Regions Financial Corporation and Colonial Bancgroup, Inc. To mitigate that risk, our board of directors and management reviews the entire portfolio on a periodic basis and we internally track and monitor these loans closely. On a quarterly basis, the portfolio is segmented by market area to allow analysis of exposure and a comparison to current inventory levels in these areas. We have increased our allocation within our loan loss reserve for construction loans from $5.5 million at the end of 2008 to $6.3 million at the end of 2009 as charge-offs for construction loans increased from $2.3 million for 2008 to $3.8 million for 2009.

Residential Real Estate Loans. Our residential real estate loans consist of residential second mortgage loans, residential construction loans and traditional mortgage lending for one-to-four family residences. We will originate and maintain fixed rate mortgages with long-term maturity and balloon payments generally not exceeding five years. The majority of our fixed-rate loans are sold in the secondary mortgage market. All loans are made in accordance with our appraisal policy, with the ratio of the loan principal to the value of collateral as established by independent appraisal generally not exceeding 80%. Risks associated with these loans are generally less significant than those of other loans and involve fluctuations in the value of real estate, bankruptcies, economic downturn and customer financial problems. Real estate has recently experienced a period of declining prices which negatively affects real estate collateralized loans, but this negative effect has to date been more prevalent in regions of the United States other than our primary service areas; however, homes in our primary service areas may experience significant price declines in the future. We have not made and do not expect to make any Alt-A or subprime loans.

Consumer Loans

We offer a variety of loans to retail customers in the communities we serve. Consumer loans in general carry a moderate degree of risk compared to other loans. They are generally more risky than traditional residential real estate loans but less risky than commercial loans. Risk of default is usually determined by the well-being of the local economies. During times of economic stress, there is usually some level of job loss both nationally and locally, which directly affects the ability of the consumer to repay debt. Risk on consumer-type loans is generally managed though policy limitations on debt levels consumer borrowers may carry and limitations on loan terms and amounts depending upon collateral type.

Our consumer loans include home equity loans (open- and closed-end); vehicle financing; loans secured by deposits; and secured and unsecured personal loans. These various types of consumer loans all carry varying degrees of risk:

Loans secured by deposits carry little or no risk.

Home equity lines carry additional risk because of the increased difficulty of converting real estate to cash in the event of a default and have become particularly risky as housing prices decline, thereby reducing and in some cases eliminating a home owner’s equity relative to their primary mortgage. To date, homes in our primary service areas have not experienced the severe price declines of homes in other regions of the United States; however, homes in our service areas have experienced some price declines in the past two years. Our current underwriting policy allows home equity lines in amounts less than 90% of current market value. Although this appears high, our historical losses for home equity lines have been less than losses on the loan portfolio as a whole (52 basis points for the year ended December 31, 2009). We also require the customer to carry adequate insurance coverage to pay all mortgage debt in full if the collateral is destroyed.

Vehicle financing carries additional risks over loans secured by real estate in that the collateral is declining in value over the life of the loan and is mobile. We manage the risks inherent in vehicle financing by matching the loan term with the age and remaining useful life of the collateral to try to ensure the customer always has an equity position and is never “upside down.” To protect the collateral, we require the customer to carry insurance showing us as loss payee. We also have a blanket policy that covers us in the event of a lapse in the borrower’s coverage and also provides assistance in locating collateral when necessary.

Secured personal loans carry additional risks over the other types identified above in that they are generally smaller and made to borrowers with somewhat limited financial resources and credit histories. These loans are secured by a variety of collateral with varying degrees of marketability in the event of default. Risk on these types of loans is managed primarily at the underwriting level with strict adherence to debt to income ratio limitations and conservative collateral valuations. Unsecured personal loans carry the greatest degree of risk in the consumer portfolio. Without collateral, we are completely dependent on the commitment of the borrower to repay and the stability of the borrower’s income stream. Again, primary risk management occurs at the underwriting stage, with strict adherence to debt-to-income ratios, time in present job and in industry and policy guidelines relative to loan size as a percentage of net worth and liquid assets.

Commitments and Contingencies

As of December 31, 2009, we had commitments to extend credit beyond current fundings of approximately $409.8 million, had issued standby letters of credit in the amount of approximately $39.2 million, and had commitments for credit card arrangements of approximately $19.1 million.

Policy for Determining the Loan Loss Allowance

The allowance for loan losses represents our management’s assessment of the risk associated with extending credit and its evaluation of the quality of the loan portfolio. In calculating the adequacy of the loan loss allowance, our management evaluates the following factors:

the asset quality of individual loans;

changes in the national and local economy and business conditions/development, including underwriting standards, collections, and charge-off and recovery practices;

changes in the nature and volume of the loan portfolio;

changes in the experience, ability and depth of our lending staff and management;

changes in the trend of the volume and severity of past-due loans and classified loans, and trends in the volume of non-accrual loans, troubled debt restructurings and other modifications, as has occurred in the residential mortgage markets and particularly for residential construction and development loans;

possible deterioration in collateral segments or other portfolio concentrations;

historical loss experience (when available) used for pools of loans (i.e. collateral types, borrowers, purposes, etc.);

changes in the quality of our loan review system and the degree of oversight by our board of directors; and

the effect of external factors such as competition and the legal and regulatory requirement on the level of estimated credit losses in our current loan portfolio

These factors are evaluated monthly and changes in the asset quality of individual loans are evaluated as needed.

We assign all of our loans individual risk grades when they are underwritten. We have established minimum general reserves based on the asset quality grade of the loan. We also apply general reserve factors based on historical losses, management’s experience and common industry and regulatory guidelines.

After a loan is underwritten and booked, it is monitored or reviewed by the account officer, management, internal loan review, and external loan review personnel during the life of the loan. Payment performance is monitored monthly for the entire loan portfolio; account officers contact customers during the regular course of business and may be able to ascertain if weaknesses are developing with the borrower; independent loan consultants perform an independent review annually; and federal and state banking regulators perform annual reviews of the loan portfolio. If we detect weaknesses that have developed in an individual loan relationship, we downgrade the loan and assign higher reserves based upon management’s assessment of the weaknesses in the loan that may affect full collection of the debt. If a loan does not appear to be fully collectible as to principal and interest, the loan is recorded as a non-accruing loan and further accrual of interest is discontinued while previously accrued but uncollected interest is reversed against income. If a loan will not be collected in full, we increase the allowance for loan losses to reflect our management’s estimate of potential exposure of loss.

Our net loan losses to average total loans increased to 0.60% for the year ended December 31, 2009 from 0.41% for the year ended December 31, 2008 and 0.23% for the year ended December 21, 2007. Historical performance, however, is not an indicator of future performance, and our future results could differ materially, particularly in the current real estate environment, economic recession and credit crisis. As of December 31, 2009, we had $11.9 million of non-accrual loans, all of which are secured real estate loans. We have allocated approximately $6.3 million of our allowance for loan losses to real estate construction, acquisition and development, and lot loans, and have a total loan loss reserve as of December 31, 2009 allocable to specific loan types of $10.8 million. We also currently maintain a general reserve, which is not tied to any particular type of loan, in the amount of approximately $4.1 million as of December 31, 2009, resulting in a total loan loss reserve of $14.9 million. Our management believes that, based upon historical performance, known factors, overall judgment, and regulatory methodologies, the current methodology used to determine the adequacy of the allowance for loan losses is reasonable even in the face of the current residential housing market defaults and business failures (particularly of real estate developers) plaguing financial institutions in general.

Our allowance for loan losses is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses in comparison to a group of peer banks identified by the regulators. During their routine examinations of banks, regulatory agencies may require a bank to make additional provisions to its allowance for loan losses when, in the opinion of the regulators, credit evaluations and allowance for loan loss methodology differ materially from those of management.

While it is our policy to charge off in the current period loans for which a loss is considered probable, there are additional risks of future losses that cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of the economy, our management’s judgment as to the adequacy of the allowance is necessarily approximate and imprecise.

Investments

In addition to loans, we make investments in securities, primarily in mortgage-backed securities and state and municipal securities. No investment in any of those instruments will exceed any applicable limitation imposed by law or regulation. The Company’s board of directors reviews the investment portfolio on an ongoing basis in order to ensure that the investments conform to the policy as set by the board of directors. The Company’s investment policy provides that no more than 50% of its total investment portfolio may be composed of municipal securities.

All securities held are traded in liquid markets, and we have no auction-rate securities. As of December 31, 2009, we owned certain restricted securities of the Federal Home Loan Bank with an aggregate book value of $2.9 million and certain restricted securities of First National Bankers Bank in which we invested $250,000. Neither of these securities had contractual maturities or quoted fair values, and no ready market exists for either of these securities. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity at December 31, 2009.

Deposit Services

We seek to establish solid core deposits, including checking accounts, money market accounts, savings accounts and a variety of certificates of deposit and IRA accounts. We currently have no brokered deposits. To attract deposits, the Company employs an aggressive marketing plan throughout its service areas that features a broad product line and competitive services. The primary sources of core deposits are residents of, and businesses and their employees located in, our market areas. We have obtained deposits primarily through personal solicitation by our officers and directors, through reinvestment in the community, and through our stockholders, who have been a substantial source of deposits and referrals. We make deposit services accessible to customers by offering direct deposit, wire transfer, night depository, banking by mail and remote capture for non-cash items. The Bank is a member of the FDIC, and thus our deposits are FDIC-insured. With regard to noninterest-bearing transaction accounts, the Bank opted into the Temporary Liquidity Guarantee Program by which the FDIC guarantees non-interest bearing deposit transaction accounts and NOW accounts with interest rates less than or equal to 0.50% through June 30, 2010.

The scheduled maturities of time deposits at December 31, 2009 are as follows:

Maturity	$100,000 or more		Less than $100,000		Total
	(Dollars in Thousands)
Three months or less	$	61,124	$	12,264	$	73,388
Over three through six months		39,125		7,672		46,797
Over six months through one year		64,193		15,251		79,444
Over one year		45,979		8,326		54,305
Total	$	210,421	$	43,513	$	253,934

Other Banking Services

Given client demand for increased convenience and account access, we offer a range of products and services, including 24-hour telephone banking, direct deposit, Internet banking, traveler’s checks, safe deposit boxes, attorney trust accounts and automatic account transfers. We also participate in a shared network of automated teller machines and a debit card system that our customers are able to use throughout Alabama and in other states and, in certain accounts subject to certain conditions, we rebate to the customer the ATM fees automatically after each business day. Additionally, we offer Visa® credit card services through a correspondent bank as our agent.

Asset, Liability and Risk Management

We manage our assets and liabilities with the aim of providing an optimum and stable net interest margin, a profitable after-tax return on assets and return on equity, and adequate liquidity. These management functions are conducted within the framework of written loan and investment policies. To monitor and manage the interest rate margin and related interest rate risk, we have established policies and procedures to monitor and report on interest rate risk, devise strategies to manage interest rate risk, monitor loan originations and deposit activity and approve all pricing strategies. We attempt to maintain a balanced position between rate-sensitive assets and rate-sensitive liabilities. Specifically, we chart assets and liabilities on a matrix by maturity, effective duration, and interest adjustment period, and endeavor to manage any gaps in maturity ranges.

Seasonality and Cycles

We do not consider our commercial banking business to be seasonal.

Employees

We had 156 full-time equivalent employees as of December 31, 2009. We consider our employee relations to be good, and we have no collective bargaining agreements with any employees.

Supervision and Regulation

Both we and the Bank are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of our operations. These regulations require compliance with various consumer protection provisions applicable to lending, deposits, brokerage and fiduciary activities. These guidelines also impose capital adequacy requirements and restrict our ability to repurchase stock or receive dividends from the Bank. These laws generally are intended to protect depositors and not stockholders. The following discussion describes the material elements of the regulatory framework that applies to us.

Bank Holding Company Regulation

Since we own all of the capital stock of the Bank, we are a bank holding company under the federal Bank Holding Company Act of 1956 (the “BHC Act”). As a result, we are primarily subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

Acquisition of Banks

The BHC Act requires every bank holding company to obtain the Federal Reserve’s prior approval before:

acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will, directly or indirectly, own or control more than 5% of the bank’s voting shares;

acquiring all or substantially all of the assets of any bank; or

merging or consolidating with any other bank holding company.

Additionally, the BHC Act provides that the Federal Reserve may not approve any of these transactions if such transaction would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed below.

Under the BHC Act, if adequately capitalized and adequately managed, we or any other bank holding company located in Alabama may purchase a bank located outside of Alabama. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Alabama may purchase a bank located inside Alabama. In each case, however, restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits. Currently, Alabama law prohibits acquisitions of banks that have been chartered for less than five years. As a result, no bank holding company may acquire control of the Bank until after the fifth anniversary date of the Bank’s incorporation, which is April 28, 2010.

Change in Bank Control.

Subject to various exceptions, the BHC Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person’s or company’s acquiring “control” of a bank holding company. Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, any person or group of persons must obtain the approval of the Federal Reserve under the BHC Act before acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over the bank holding company.

Permitted Activities

Under the BHC Act, a bank holding company is generally permitted to engage in or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in the following activities:

banking or managing or controlling banks; and

any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.

Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:

factoring accounts receivable;

making, acquiring, brokering or servicing loans and usual related activities;

leasing personal or real property;

operating a non-bank depository institution, such as a savings association;

trust company functions;

financial and investment advisory activities;

discount securities brokerage activities;

underwriting and dealing in government obligations and money market instruments;

providing specified management consulting and counseling activities;

performing selected data processing services and support services;

acting as an agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and

performing selected insurance underwriting activities.

Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

In addition to the permissible bank holding company activities listed above, a bank holding company may qualify and elect to become a financial holding company, permitting the bank holding company to engage in activities that are financial in nature or incidental or complementary to financial activity. The BHC Act expressly lists the following activities as financial in nature:

lending, trust and other banking activities;

insuring, guaranteeing, or indemnifying against loss or harm, or providing and issuing annuities, and acting as principal, agent, or broker for these purposes, in any state;

providing financial, investment, or advisory services;

issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly;

underwriting, dealing in or making a market in securities;

other activities that the Federal Reserve may determine to be so closely related to banking or managing or controlling banks as to be a proper incident to managing or controlling banks;

foreign activities permitted outside of the United States if the Federal Reserve has determined them to be usual in connection with banking operations abroad;

merchant banking through securities or insurance affiliates; and

insurance company portfolio investments.

For us to qualify to become a financial holding company, the Bank and any other depository institution subsidiary of ours must be well-capitalized and well-managed and must have a Community Reinvestment Act rating of at least “satisfactory”. Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days’ written notice prior to engaging in a permitted financial activity. We have not elected to become a financial holding company at this time.

Support of Subsidiary Institutions

Under Federal Reserve policy, we are expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when we might not be inclined to provide it in the absence of this policy. In addition, any capital loans made by us to the Bank will be repaid in full. In the unlikely event of our bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Bank Regulation and Supervision

The Bank is subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of our operations. These laws are generally intended to protect depositors and not stockholders. The following discussion describes the material elements of the regulatory framework that applies to the Bank.

Since the Bank is a commercial bank chartered under the laws of the State of Alabama, it is primarily subject to the supervision, examination and reporting requirements of the FDIC and the Alabama Department of Banking (the “Alabama Banking Department”). The FDIC and the Alabama Banking Department regularly examine the Bank’s operations and have the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions. Both regulatory agencies have the power to prevent the development or continuance of unsafe or unsound banking practices or other violations of law. Additionally, the Bank’s deposits are insured by the FDIC to the maximum extent provided by law. The Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations.

Branching

Under current Alabama law, the Bank may open branch offices throughout Alabama with the prior approval of the Alabama Banking Department. In addition, with prior regulatory approval, the Bank may acquire branches of existing banks located in Alabama. The Bank and any other national or state-chartered bank generally may branch across state lines by merging with banks in other states if allowed by the laws of the applicable states. Alabama law, with limited exceptions, currently permits branching across state lines through interstate mergers.

Under the Federal Deposit Insurance Act, states may “opt-in” and allow out-of-state banks to branch into their state by establishing a de novo branch in the state. Alabama law now provides for such branching by out-of-state banks in the state; conversely, the law provides that an Alabama state bank, such as the Bank, may establish, operate and maintain one or more branches in another state on a de novo basis without having to purchase another bank or its charter in that state. While this relatively new law will increase competition in Alabama by out-of-state banks and financial institutions establishing de novo banks in Alabama, it will also allow us to establish start-up branches in other states without having to incur the expense and costs of a merger or acquisition.

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of “prompt corrective action” to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) into which all institutions are placed. The federal banking agencies have also specified by regulation the relevant capital levels for each of the other categories. At December 31, 2009, the Bank qualified for the well-capitalized category.

Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized.

An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.

FDIC Insurance Assessments

The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital categories: (1) well capitalized; (2) adequately capitalized; and (3) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the “undercapitalized” category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory subgroups based on a supervisory evaluation that the institution’s primary federal regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds. Currently, annual deposit insurance assessments range from $.07 to $.77 per $100 of assessable deposits, depending on the institution’s capital group and supervisory subgroup. This assessment rate is adjusted quarterly, and our rate has been set at $.0395, or $.1581 annually, per $100 of deposits for the fourth quarter of 2009.

As part of the Deposit Insurance Fund Restoration Plan adopted by the FDIC in October 2008, the FDIC adopted the final rule modifying risk-based assessment system in February 2009. The final rule set initial base assessment rates between 12 and 45 basis points beginning April 1, 2009. The FDIC imposed an emergency special assessment on June 30, 2009, which was collected on September 30, 2009. In addition, in September 2009, the FDIC adopted a final rule requiring prepayment of 13 quarters of FDIC premiums on December 30, 2009. Our required prepayment aggregated $8.1 million in December 2009.

The FDIC also imposes Financing Corporation (“FICO”) assessments to help pay the $780 million in annual interest payments on the $8 billion of bonds issued in the late 1980s as part of the government rescue of the thrift industry. For the fourth quarter of 2009, the FICO assessment is equal to $.106 cents per $100 in assessable deposits. These assessments will continue until the bonds mature in 2019.

The FDIC may terminate its insurance of deposits of a bank if it finds that the bank has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Under the Federal Deposit Insurance Act, an FDIC-insured depository institution can be held liable for any loss incurred by, or reasonably expected, to be incurred by, the FDIC in connection with (1) the default of a commonly controlled FDIC-insured depository institution or (2) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution “in danger of default.” “Default” is defined generally as the appointment of a conservator or receiver, and “in danger of default” is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The FDIC’s claim for damage is superior to claims of stockholders of the insured depository institution but is subordinate to claims of depositors, secured creditors, and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution.

In October 2008, the FDIC inaugurated the Temporary Liquidity Guarantee Program (“TLG Program”). The TLG Program consists of two basic components: (1) a guarantee of newly issued senior unsecured debt of banks, thrifts, and certain holding companies; and (2) a full guarantee of non-interest bearing deposit transaction accounts. We opted into the transaction account guarantee portion of the TLG Program, which will insure all balances in non-interest bearing transaction accounts and NOW accounts with interest rates less than or equal to 0.50% through June 30, 2010. The FDIC premiums paid by the Bank increased by the amount of assessment charged on the balances in such accounts that are in excess of the maximum insured balances under normal FDIC coverage. We opted out of the senior unsecured debt guarantee portion of the TLG Program.

Community Reinvestment Act

The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve or the FDIC will evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These factors are also considered in evaluating mergers, acquisitions, and applications to open an office or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, we must publicly disclose the terms of various CRA-related agreements.

Other Regulations

Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates.

Federal Laws Applicable to Credit Transactions

The Bank’s loan operations are subject to federal laws applicable to credit transactions, including:

the Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

the Fair Credit Reporting Act of 1978, governing the use and provisions of information to credit reporting agencies;

the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

the Service Members’ Civil Relief Act, which amended the Soldiers’ and Sailors’ Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; and

Rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

Federal Laws Applicable to Deposit Transactions

The deposit operations of the Bank are subject to:

the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and

the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Capital Adequacy

We and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve (in the case of the holding company) and the FDIC (in the case of the Bank). The Federal Reserve has established a risk-based and a leverage measure of capital adequacy for bank holding companies. The Bank is also subject to risk-based and leverage capital requirements adopted by the FDIC, which are substantially similar to those adopted by the Federal Reserve for bank holding companies.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally consists of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1 Capital must equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1 Capital. At December 31, 2009, our consolidated ratio of total capital to risk-weighted assets was 10.48%, and our ratio of Tier 1 Capital to risk-weighted assets was 8.89%.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve’s risk-based capital measure for market risk. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At December 31, 2009, our leverage ratio was 6.97%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible assets. The Federal Reserve considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.

Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. As described above, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements.

As of December 31, 2009, the Bank’s most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, the Bank 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 it is well-capitalized under the prompt corrective action provisions as of December 31, 2009.

	Actual					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in Thousands)
As of December 31, 2009:
Total Capital to Risk-Weighted Assets:
Consolidated	$	130,882		10.48	%	$	99,903		8.00	%	$	124,879		10.00	%
ServisFirst Bank		130,426		10.45	%		99,851		8.00	%		124,814		10.00	%
Tier 1 Capital to Risk Weighted Assets:
Consolidated		111,049		8.89	%		49,952		4.00	%		74,927		6.00	%
ServisFirst Bank		110,593		8.86	%		49,926		4.00	%		74,888		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		111,049		6.97	%		63,737		4.00	%		79,672		5.00	%
ServisFirst Bank		110,593		6.94	%		63,737		4.00	%		79,672		5.00	%

Payment of Dividends

We are a legal entity separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole stockholder. Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders. The policy of the Federal Reserve that a bank holding company should serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength. Our ability to pay dividends is also subject to the provisions of Delaware corporate law.

The Alabama Banking Department also regulates the Bank’s dividend payments and must approve any dividends that would exceed 50% of the Bank’s net income for the prior year. Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the bank’s surplus is equal to at least 20% of its capital. As of December 31, 2009, the Bank’s surplus was equal to 56.7% of the Bank’s capital. The Bank is also required by Alabama law to obtain the prior approval of the Superintendent of Banks (the “Superintendent”) for its payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (1) the Bank’s net earnings (as defined by statute) for that year, plus (2) its retained net earnings for the preceding two years, less any required transfers to surplus. Based on this, the Bank would be limited to paying $21.4 million in dividends as of December 31, 2009. In addition, no dividends, withdrawals or transfers may be made from the Bank’s surplus without the prior written approval of the Superintendent.

The Bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the FDIC Improvement Act of 1991, a depository institution may not pay any dividends if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. If, in the opinion of the federal banking regulators, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulators could require, after notice and a hearing, that the Bank stop or refrain from engaging in the questioned practice.

We have never paid any dividends and we do not plan to pay dividends in the near future. We anticipate that our earnings, if any, will be held for purposes of enhancing our capital.

Restrictions on Transactions with Affiliates

We are subject to Section 23A of the Federal Reserve Act, which places limits on the amount of:

a bank’s loans or extensions of credit to affiliates;

a bank’s investment in affiliates;

assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve;

loans or extensions of credit made by a bank to third parties collateralized by the securities or obligations of affiliates; and

a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. The Bank must also comply with other provisions designed to avoid the taking of low-quality assets.

We are also subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

The Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (2) must not involve more than the normal risk of repayment or present other unfavorable features. There is also an aggregate limitation on all loans to insiders and their related interests. These loans cannot exceed the institution’s total unimpaired capital and surplus, and the FDIC may determine that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions. Alabama state banking laws also have similar provisions.

Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.

Consumer Credit Reporting

On December 4, 2003, President Bush signed the Fair and Accurate Credit Transactions Act amending the federal Fair Credit Reporting Act (the “FCRA”). These amendments to the FCRA (the “FCRA Amendments”) became effective in 2004.

The FCRA Amendments include, among other things:

requirements for financial institutions to develop policies and procedures to identify potential identity theft and, upon the request of a consumer, place a fraud alert in the consumer’s credit file stating that the consumer may be the victim of identity theft or other fraud;

for entities that furnish information to consumer reporting agencies (which would include the Bank), requirements to implement procedures and policies regarding the accuracy and integrity of the furnished information and regarding the correction of previously furnished information that is later determined to be inaccurate; and

a requirement for mortgage lenders to disclose credit scores to consumers.

The FCRA Amendments also prohibit a business that receives consumer information from an affiliate from using that information for marketing purposes unless the consumer is first provided a notice and an opportunity to direct the business not to use the information for such marketing purposes (the “opt-out”), subject to certain exceptions. We do not share consumer information between us and the Bank for marketing purposes, except as allowed under exceptions to the notice and opt-out requirements. Because we do not share consumer information between us and the Bank, the limitations on sharing of information for marketing purposes do not have a significant impact on us.

Anti-Terrorism and Money Laundering Legislation

The Bank is subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the “USA PATRIOT Act”), the Bank Secrecy Act, and rules and regulations of the Office of Foreign Assets Control (the “OFAC”). These statutes and related rules and regulations impose requirements and limitations on specified financial transactions and account relationships, intended to guard against money laundering and terrorism financing. The Bank has established a customer identification program pursuant to Section 326 of the USA PATRIOT Act and the Bank Secrecy Act, and otherwise has implemented policies and procedures to comply with the foregoing rules.

Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions operating or doing business in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies

The Bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict, and have no control over, the nature or impact of future changes in monetary and fiscal policies.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered, or that file reports, under the Securities Exchange Act of 1934. In particular, the act established (i) requirements for audit committees, including independence, expertise and responsibilities; (ii) responsibilities regarding financial statements for the chief executive officer and chief financial officer of the reporting company and new requirements for them to certify the accuracy of periodic reports; (iii) standards for auditors and regulation of audits; (iv) disclosure and reporting obligations for the reporting company and its directors and executive officers; and (v) civil and criminal penalties for violations of the federal securities laws. The legislation also established a new accounting oversight board to enforce auditing standards and restrict the scope of services that accounting firms may provide to their public company audit clients.

Emergency Economic Stabilization Act of 2008 and Temporary Liquidity Guarantee Program

In response to the financial crisis affecting the banking and financial markets, in October 2008 the Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law. Pursuant to EESA, the U.S. Treasury has the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U. S. financial markets.

In addition, the Treasury was authorized to purchase equity stakes in U. S. financial institutions. Under the program, known as the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (the “CPP”), capital was made available to U.S. financial institutions through the purchase of preferred stock and warrants from those institutions, in exchange for which participating financial institutions were required to adopt the Treasury’s standards for executive compensation and corporate governance and to agree to certain restrictions on dividends and common stock repurchases. We made a decision to not participate in the CPP due to our financial position and our capital and liquidity positions and are therefore not subject to such regulation; provided, however, that we are expecting that additional material regulation will result from the EESA and subsequent acts which will affect all financial institutions whether or not they obtained funds from the CPP.

In addition, the Temporary Liquidity Guarantee Program was adopted pursuant to EESA. See “FDIC Insurance Assessments”, above. In February 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“ARRA”). ARRA amends the TARP program legislation by directing the Treasury to issue regulations implementing strict limitations on compensation paid or accrued by financial institutions participating in the TARP, which regulations do not apply to the Company.

Available Information

Our corporate website is www.servisfirstbank.com. We have direct links on this website to our Code of Ethics and the charters for our Audit, Compensation and Corporate Governance and Nominations Committees by clicking on the “Investor Relations” tab. We also have direct links to our filings with the Securities and Exchange Commission (SEC), including, but not limited to, our first annual report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and any amendments to these reports. You may also obtain a copy of any such report free of charge from us by requesting such copy in writing to 850 Shades Creek Parkway, Suite 200, Birmingham, Alabama 35209, Attention: Chief Financial Officer. This annual report and accompanying exhibits and all other reports and filings that we file with the SEC will be available for the public to view and copy (at prescribed rates) at the SEC’s Public Reference Room at 100 F Street, Washington, D.C. 20549. You may also obtain copies of such information at the prescribed rates from the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains such reports, proxy and information statements, and other information as we file electronically with the SEC by clicking on http://www.sec.gov.

ITEM 1A. RISK FACTORS.

An investment in our common stock involves risks. Before deciding to invest in our common stock, you should carefully consider the risks described below, together with our consolidated financial statements and the related notes and the other information included in this annual report. The discussion below presents material risks associated with an investment in our common stock. Our business, financial condition and results of operation could be harmed by any of the following risks or by other risks identified in this annual report, as well as by other risks we may not have anticipated or viewed as material. In such a case, the value of our common stock could decline, and you may lose all or part of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” on page 1.

Risks Related to Our Industry

There can be no assurance that the Emergency Economic Stabilization Act of 2008 and other recently enacted government programs will help stabilize the U.S. financial system.

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008, as amended (the "EESA"). The legislation was the result of a proposal by Treasury Secretary Henry Paulson to the U.S. Congress on September 20, 2008 in response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions. The U.S. Treasury and federal banking regulators are implementing a number of programs under this legislation and otherwise to address capital and liquidity issues in the banking system, including the Capital Purchase Program (CPP). The Company on November 17, 2008 publicly announced that it was not participating in the program. In addition, other regulators have taken steps to attempt to stabilize and add liquidity to the financial markets, such as the FDIC's Temporary Liquidity Guarantee Program.

On February 10, 2009, Treasury Secretary Timothy Geithner announced the Financial Stability Plan, which earmarks the second $350 billion originally authorized under the EESA. The Financial Stability Plan is intended to, among other things, make capital available to financial institutions, purchase certain legacy loans and assets from financial institutions, restart securitization markets for loans to consumers and businesses and relieve certain pressures on the housing market, including the reduction of mortgage payments and interest rates.

In addition, the American Recovery and Reinvestment Act of 2009 (the "ARRA"), which was signed into law on February 17, 2009, includes, among other things, extensive new restrictions on the compensation arrangements of financial institutions participating in TARP.

There can be no assurance, however, as to the actual impact that the EESA, as supplemented by the Financial Stability Plan, the ARRA and other programs will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA, the ARRA, the Financial Stability Plan and other programs to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our businesses, financial condition, results of operations, access to credit, or our common stock.

The EESA, the ARRA and the Financial Stability Plan are relatively new initiatives and, as such, are subject to change and evolving interpretation. There can be no assurances as to the effects that any further changes will have on the effectiveness of the government's efforts to stabilize the credit markets or on our businesses, financial condition or results of operations.

Current market conditions have, and may continue to, adversely affect us, our customers and our industry.

Given the significance of our business in the United States, we are particularly exposed to downturns in the U.S. economy. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities as well as major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative and cash securities, in turn, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit has led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and businesses and lack of confidence in the financial markets may adversely affect our customers and thus our business, financial condition, and results of operations. We do not expect that the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate any adverse effects of these difficult market conditions on us and others in the financial institutions industry.

Current market volatility and industry developments may adversely affect our business and financial results.

The volatility in the capital and credit markets, along with the housing declines during the last year, has resulted in significant pressure on the financial services industry. We have experienced a higher level of foreclosures and higher losses upon foreclosure than we have historically. If current volatility and market conditions continue or worsen, there can be no assurance that our industry, results of operations or our business will not be significantly adversely impacted. We may have further increases in loan losses, deterioration of capital or limitations on our access to funding or capital, if needed.

Further, if other, particularly larger, financial institutions continue to fail to be adequately capitalized or funded, it may negatively impact our business and financial results. We routinely interact with numerous financial institutions in the ordinary course of business and are therefore exposed to operational and credit risk to those institutions. Failures of such institutions may significantly adversely impact our operations.

Recent unfavorable developments in the residential mortgage and related markets and the economy may adversely affect our business.

Recently, the residential mortgage market in the United States has experienced an economic downturn that may adversely affect the performance and market value of our residential construction and mortgage loans. Across the United States, delinquencies, foreclosures and losses with respect to residential construction and mortgage loans generally have increased in recent months and may continue to increase. In addition, in recent months, housing prices and appraisal values in many states have declined or at least stopped appreciating after an extended period of significant appreciation resulting in stagnant or declining housing values in the near term. An extended period of flat or declining housing values may result in increased delinquencies and losses on residential construction and mortgage loans. For more detail, see “Risks Related to Our Business” below.

Our profitability is vulnerable to interest rate fluctuations.

As a financial institution, our earnings can be significantly affected by changes in interest rates, particularly our net interest income, the rate of loan prepayments, the volume and type of loans originated or produced, the sales of loans on the secondary market and the value of our mortgage servicing rights. Our profitability is dependent to a large extent on our net interest income, which is the difference between our income on interest-earning assets and our expense on interest-bearing liabilities. We are affected by changes in general interest rate levels and by other economic factors beyond our control.

Changes in interest rates also affect the average life of loans and mortgage-backed securities. The relatively lower interest rates in recent periods have resulted in increased prepayments of loans and mortgage-backed securities as borrowers have refinanced their mortgages to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are not able to reinvest such prepayments at rates which are comparable to the rates on the prepaid loans or securities.

We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could have a material adverse effect on our profitability.

We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies including the Federal Reserve, the FDIC and the Alabama Banking Department. Regulatory compliance is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, and interest rates paid on deposits. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth. Violations of various laws, even if unintentional, may result in significant fines or other penalties, including restrictions on branching or bank acquisitions. Recently, banks generally have faced increased regulatory sanctions and scrutiny particularly with respect to the USA Patriot Act and other statutes relating to anti-money laundering compliance and customer privacy. The current recession and credit crisis has had major adverse effects on the banking and financial industry, many of which have lost well over 50% of their market capitalization during the past two years due to material and substantial losses in their loan portfolios and substantial write downs of their asset values. President Bush signed into law the EESA, which includes the TARP, through which the United States Treasury has been authorized to invest up to $700 billion in United States banking and financial institutions. Such amounts have been substantially increased by ARRA. Banks that accept TARP money and other stimulus money will be subjected to greater regulations related thereto. While we did not take any TARP money and are thus not subject to any such related regulation, we may still be affected as Congress and regulators may still adopt material regulation which is generally applicable to all banks and financial institutions regardless of whether they accepted money from the TARP.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably. As a relatively new public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 (“SOX”), and the related rules and regulations promulgated by the Securities and Exchange Commission. These laws and regulations increase the scope, complexity and cost of corporate governance, reporting and disclosure practices. Despite our conducting business in a highly regulated environment, these laws and regulations have different requirements for compliance than we have previously experienced. Our expenses related to services rendered by our accountants, legal counsel and consultants will increase in order to ensure compliance with these laws and regulations that we will be subject to as a public company. In addition, it is possible that the sudden application of these requirements to our business will result in some cultural adjustments and strain our management resources.

Like all regulated financial institutions, we are affected by monetary policies implemented by the Federal Reserve and other federal instrumentalities. A primary instrument of monetary policy employed by the Federal Reserve is the restriction or expansion of the money supply through open market operations. This instrument of monetary policy frequently causes volatile fluctuations in interest rates, and it can have a direct, material adverse effect on the operating results of financial institutions including our business. Borrowings by the United States government to finance government debt may also cause fluctuations in interest rates and have similar effects on the operating results of such institutions.

Risks Related To Our Business

Our construction and land development loan portfolio is subject to unique risks that could adversely affect earnings.

Recently, the residential mortgage market in the United States has experienced an economic downturn that may adversely affect the performance and market value of our residential loans, particularly construction and land development loans. Our construction and land development loan portfolio was $224.2 million at December 31, 2009, comprising 18.57% of our total loans. Construction loans are often riskier than home equity loans or residential mortgage loans to individuals. In the event of a general economic slowdown like the one we are currently experiencing, these loans sometimes represent higher risk due to slower sales and reduced cash flow that could negatively affect the borrowers’ ability to repay on a timely basis. We, as well as our competition, have experienced a significant increase in impaired and non-accrual construction and land development loans for which we believe we have adequately reserved. Primarily as a result of the continued weakness in residential construction in our market areas, our total impaired loans increased to $21.5 million at December 31, 2009, compared to $15.9 million at December 31, 2008. Of this $21.5 million of impaired loans, $11.0 million were real estate construction loans.

In addition, although regulations and regulatory policies affecting banks and financial services companies undergo continuous change and we cannot predict when changes will occur or the ultimate effect of any changes, there has been recent regulatory focus on construction, development and other commercial real estate lending. Recent changes in the federal policies applicable to construction, development or other commercial real estate loans subject us to substantial limitations with respect to making such loans, increase the costs of making such loans, and require us to have a greater amount of capital to support this kind of lending, all of which could have a material adverse effect on our profitability or financial condition.

If we fail to maintain effective internal controls over financial reporting or remediate any future material weakness in our internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, which could have a material adverse effect on our financial condition and results of operations.

Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Effective internal controls over financial reporting are necessary for us to provide reliable reports and prevent fraud.

We believe that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. We cannot guarantee that we will identify significant deficiencies and/or material weaknesses in our internal controls in the future, and our failure to maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our financial condition and results of operations.

Our decisions regarding credit risk could be inaccurate and our allowance for loan losses may be inadequate, which could materially and adversely affect our business, financial condition, results of operations and future prospects.

Our earnings are affected by our ability to make loans, and thus we could sustain significant loan losses and consequently significant net losses if we incorrectly assess either the creditworthiness of our borrowers resulting in loans to borrowers who fail to repay their loans in accordance with the loan terms or the value of the collateral securing the repayment of their loans, or we fail to detect or respond to a deterioration in our loan quality in a timely manner. Management makes various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. We maintain an allowance for loan losses that we consider adequate to absorb losses inherent in the loan portfolio based on our assessment of the information available. In determining the size of our allowance for loan losses, we rely on an analysis of our loan portfolio based on historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, national and local economic conditions and other pertinent information. We target small and medium-sized businesses as loan customers. Because of their size, these borrowers may be less able to withstand competitive or economic pressures than larger borrowers in periods of economic weakness. Also, as we expand into new markets, our determination of the size of the allowance could be understated due to our lack of familiarity with market-specific factors. Despite the recent credit crisis, we believe our allowance for loan losses is adequate. Our allowance for loan losses as of December 31, 2009 was $14.9 million.

If our assumptions are inaccurate, we may incur loan losses in excess of our current allowance for loan losses and be required to make material additions to our allowance for loan losses which could consequently materially and adversely affect our business, financial condition, results of operations and future prospects.

However, even if our assumptions are accurate, federal and state regulators periodically review our allowance for loan losses and could require us to materially increase our allowance for loan losses or recognize further loan charge-offs based on judgments different than those of our management. Any material increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies could consequently materially and adversely affect our business, financial condition, results of operations and future prospects.

Our business strategy includes the continuation of our growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing our growth strategy for our business through organic growth of our loan portfolio. Our prospects must be considered in light of the risks, expenses and difficulties that can be encountered by financial service companies in rapid growth stages, which include the risks associated with the following:

maintaining loan quality;

maintaining adequate management personnel and information systems to oversee such growth;

maintaining adequate control and compliance functions; and

securing capital and liquidity needed to support anticipated growth.

We may not be able to expand our presence in our existing markets or successfully enter new markets, and any expansion could adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations, and could adversely affect our ability to successfully implement our business strategy. Our ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to manage our growth.

Our continued pace of growth will require us to raise additional capital in the future to fund such growth, and the unavailability of additional capital or on terms acceptable to us could adversely affect our growth and/or our financial condition and results of operations.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. To support our recent and ongoing growth, we have completed a series of capital transactions during the past two years, including:

the sale of $15,000,000 of trust preferred securities by our initial statutory trust, ServisFirst Capital Trust I, on September 2, 2008;

the sale of an aggregate of 400,000 shares of our common stock at $25 per share, or $10,000,000, in a private placement completed in part on December 31, 2008 and in part on March 13, 2009; and

the sale of $5,000,000 aggregate principal amount of the Bank’s 8.25% Subordinated Notes due June 1, 2016 in a private placement to an institutional investor in June 2009.

In addition, we are in the process of completing a private offering of up to $15 million in 6.0% Mandatory Convertible Trust Preferred Securities, which we currently expect to close on or about March 15, 2010.

After giving effect to these transactions, we believe that we will have sufficient capital to meet our capital needs for our immediate growth plans. However, we will continue to need capital as we grow in the future. If capital is not available on favorable terms when we need it, we will have to either issue additional trust preferred securities, common stock or other securities on less than desirable terms or reduce our rate of growth until market conditions become more favorable. In either of such events, our financial condition and results of operations may be negatively affected due to more expensive capital or our inability to maintain our growth.

Competition from financial institutions and other financial service providers may adversely affect our profitability.

The banking business is highly competitive, and we experience competition in our markets from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other community banks and super-regional and national financial institutions that operate offices in our service areas.

Additionally, we face competition in our service areas from de novo community banks, including those with senior management who were previously affiliated with other local or regional banks or those controlled by investor groups with strong local business and community ties. These new, smaller competitors are likely to cater to the same small and medium-size business clientele and with similar relationship-based approaches as we do. Moreover, with their initial capital base to deploy, they could seek to rapidly gain market share by under-pricing the current market rates for loans and paying higher rates for deposits. These de novo community banks may offer higher deposit rates or lower cost loans in an effort to attract our customers, and may attempt to hire our management and employees.

We compete with these other financial institutions both in attracting deposits and in making loans. In addition, we must attract our customer base from other existing financial institutions and from new residents. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to successfully compete with an array of financial institutions in our service areas.

Unpredictable economic conditions or a natural disaster in the State of Alabama, particularly the Birmingham-Hoover, Huntsville, Montgomery and Dothan, Alabama MSAs, may have a material adverse effect on our financial performance.

The majority of our borrowers and depositors are individuals and businesses located and doing business in Jefferson and Shelby Counties of the Birmingham-Hoover, Alabama MSA. We also have added borrowers and depositors in Madison County in the Huntsville, Alabama MSA since opening offices in Huntsville in 2006; in Montgomery County in the Montgomery, Alabama MSA since opening offices in Montgomery in 2007, and in Houston County in the Dothan, Alabama MSA since opening our office in Dothan in 2008. Therefore, our success will depend on the general economic conditions in the State of Alabama, and more particularly in Jefferson, Shelby, Madison, Houston and Montgomery Counties in Alabama, which we cannot predict with certainty. Unlike many of our larger competitors, the majority of our borrowers are commercial firms, professionals and affluent consumers located and doing business in such local markets. As a result, our operations and profitability may be more adversely affected by a local economic downturn or natural disaster in Alabama, particularly in such markets, than those of larger, more geographically diverse competitors. For example, a downturn in the economy of any of our MSAs could make it more difficult for our borrowers in those markets to repay their loans and may lead to loan losses that we cannot offset through operations in other markets until we can expand our markets further.

We encounter technological change continually and have fewer resources than many of our competitors to invest in technological improvements.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. In addition to serving customers better, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our success will depend in part on our ability to address our customers’ needs by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we have. We may not be able to implement new technology-driven products and services effectively or be successful in marketing these products and services to our customers. As these technologies are improved in the future, we may, in order to remain competitive, be required to make significant capital expenditures, which may increase our overall expenses and have a material adverse effect on our net income.

Lower lending limits than many of our competitors may limit our ability to attract borrowers.

During our early years of operation, and likely for many years thereafter, our legally mandated lending limits will be lower than those of many of our competitors because we will have less capital than such competitors. Our lower lending limits may discourage borrowers with lending needs that exceed those limits from doing business with us. While we may try to serve these borrowers by selling loan participations to other financial institutions, this strategy may not succeed.

We may not be able to successfully expand into new markets.

We have opened new offices and operations in three primary markets in the past three years: Huntsville, Montgomery and Dothan, Alabama. We may not be able to successfully manage this growth with sufficient human resources, training and operational, financial and technological resources. Any such failure could have a material adverse effect on our operating results and financial condition and our ability to expand into new markets.

Our recent results may not be indicative of our future results, and may not provide guidance to assess the risk of an investment in our common stock.

We may not be able to sustain our historical rate of growth and may not even be able to expand our business at all. In addition, our recent growth may distort some of our historical financial ratios and statistics. In the future, we may not have the benefit of several factors that were favorable until late 2008, such as a rising interest rate environment, a strong residential housing market or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence. As a small commercial bank, we have different lending risks than larger banks. We provide services to our local communities; thus, our ability to diversify our economic risks is limited by our own local markets and economies. We lend primarily to small to medium-sized businesses, which may expose us to greater lending risks than those faced by banks lending to larger, better-capitalized businesses with longer operating histories. We manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries, and through our loan approval and review procedures. Our use of historical and objective information in determining and managing credit exposure may not be accurate in assessing our risk.

We are dependent on the services of our management team and board of directors, and the unexpected loss of key officers or directors may adversely affect our operations.

If any of our or the Bank’s executive officers, other key personnel, or directors leaves us or the Bank, our operations may be adversely affected. In particular, we believe that Thomas A. Broughton III is extremely important to our success and the Bank. Mr. Broughton has extensive executive-level banking experience and is the President and Chief Executive Officer of us and the Bank. If he leaves his position for any reason, our financial condition and results of operations may suffer. The Bank is the beneficiary of a key man life insurance policy on the life of Mr. Broughton in the amount of $5 million. Also, we have hired key officers to run our banking offices in each of the Huntsville, Montgomery and Dothan, Alabama markets who are extremely important to our success in such markets. If any of them leaves for any reason, our results of operations could suffer in such markets. With the exception of the key officers in charge of our Huntsville, Montgomery and Dothan banking offices, we do not have employment agreements or non-compete agreements with any of our executive officers, including Mr. Broughton. In the absence of these types of agreements, our executive officers are free to resign their employment at any time and accept an offer of employment from another company, including a competitor. Additionally, our directors’ and advisory board members’ community involvement and diverse and extensive local business relationships are important to our success. If the composition of our board of directors changes materially, our business may also suffer. Similarly, if the composition of the respective advisory boards of the Bank change materially, our business may suffer in such markets.

Our directors and executive officers own a significant portion of our common stock and can exert influence over our business and corporate affairs.

Our directors and executive officers, as a group, beneficially owned approximately 16.32% of our outstanding common stock as of December 31, 2009. As a result of their ownership, the directors and executive officers will have the ability, by voting their shares in concert, to influence the outcome of all matters submitted to our stockholders for approval, including the election of directors.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although management has policies and procedures to perform an environmental review before the loan is recorded and before initiating any foreclosure action on real property, these reviews may not be sufficient to detect environmental hazards.

Risks Related to Our Common Stock

We have no current plans to pay dividends on our common stock.

We have never declared or paid cash dividends on our common stock. We have no current intentions to pay dividends. In addition, our ability to pay dividends is subject to regulatory limitations.

Under Alabama law, a state bank may not pay a dividend in excess of 90% of its net earnings until the bank’s surplus is equal to at least 20% of its capital. As of December 31, 2009, the Bank’s surplus was equal to 56.7% of the Bank’s capital. The Bank is also required by Alabama law to obtain the prior approval of the Alabama Superintendent of Banks (the “Superintendent”) for its payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (1) the Bank’s net earnings (as defined by statute) for that year, plus (2) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends, withdrawals or transfers may be made from the Bank’s surplus without the prior written approval of the Superintendent.

There are limitations on your ability to transfer your common stock.

There is no public trading market for the shares of our common stock, and we have no current plans to list our common stock on any exchange. However, a brokerage firm may create a market for our common stock on the OTC/Bulletin Board or Pink Sheets without our participation or approval upon the filing and approval by the FINRA OTC Compliance Unit of a Form 211. As a result, unless a Form 211 is filed and approved, stockholders who may wish or need to dispose of all or part of their investment in our common stock may not be able to do so effectively except by private direct negotiations with third parties, assuming that third parties are willing to purchase our common stock.

Alabama and Delaware law limits the ability of others to acquire the Bank, which may restrict your ability to fully realize the value of your common stock.

In many cases, stockholders receive a premium for their shares when one company purchases another. However, under Alabama Banking Code Section 5-13B-23(c), no bank or bank holding company may acquire control of the Bank until it has been incorporated for at least five years (which is April 28, 2010 for the Bank). In addition, Alabama and Delaware law makes it difficult for anyone to purchase the Bank or us without approval of our board of directors. Thus, your ability to realize the potential benefits of any sale by us may be limited, even if such sale would represent a greater value for stockholders than our continued independent operation.

Our Certificate of Incorporation authorizes the issuance of preferred stock which could adversely affect holders of our common stock and discourage a takeover of us by a third party.

Our Certificate of Incorporation authorizes the board of directors to issue up to 1,000,000 shares of preferred stock without any further action on the part of our shareholders. Our board of directors also has the power, without shareholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms. In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected. In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of the shareholders may impede a takeover of us and prevent a transaction favorable to our shareholders.

An investment in our common stock is not an insured deposit.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K (including the documents incorporated herein by reference) and is subject to the same market forces that affect the price of common stock in any company. As a result, an investor may lose some or all of such investor’s investment in our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2009 relating to stock options granted under our 2005 Amended and Restated Stock Incentive Plan and our 2009 Stock Incentive Plan and other options or warrants issued outside of such plans.

Plan Category	Number of securities issued/to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation awards plans approved by security holders		853,500	$	15.23		651,500
Equity compensation awards plans not approved by security holders		55,000		17.27		—
Total		908,500	$	15.35		651,500

We grant stock options as incentive to employees, officers, directors, and consultants to attract or retain these individuals, to maintain and enhance our long-term performance and profitability, and to allow these individuals to acquire an ownership interest in our company. Our compensation committee administers this program, making all decisions regarding grants and amendments to these awards. All shares to be issued upon the exercise of these options must be authorized and unissued shares. If an option holder terminates employment, we may provide for varying time periods for exercise of options after such termination provided, that an incentive stock option may not be exercised later than 90 days after an option holder terminates his or her employment with us unless such termination is a consequence of such option holder’s death or disability, in which case the option period may be extended for up to one year after termination of employment. All of our issued options will vest immediately upon a transaction in which we merge or consolidate with or into any other corporation (unless we are the surviving corporation), or sell or otherwise transfer our property, assets or business substantially in its entirety to a successor corporation. At that time, upon the exercise of an option, the option holder will receive the number of shares of stock or other securities or property, including cash, to which the holder of a like number of shares of common stock would have been entitled upon the merger, consolidation, sale or transfer if such option had been exercised in full immediately prior thereto. All of our issued options have a term of 10 years. This means the options must be exercised within 10 years from the date of the grant. At December 31, 2009, we have issued and outstanding options to purchase 833,500 shares of our common stock.

Upon the formation of the Bank in May 2005, we issued to each of our directors warrants to purchase up to 10,000 shares of our common stock, or 60,000 in the aggregate, for a purchase price of $10.00 per share, expiring in ten years. These warrants became fully vested in May 2008.

On September 2, 2008, we granted warrants to purchase up to 75,000 shares of our common stock for a purchase price of $25.00 per share in relation to the issuance of our Subordinated Deferrable Interest Debentures as more fully described in Note 10 to the Consolidated Financial Statements.

On June 23, 2009, we granted warrants to purchase up to 15,000 shares of our common stock for a purchase price of $25.00 per share in relation to the issuance of our Subordinated Note due June 1, 2016 as more fully described in Note 11 to the Consolidated Financial Statements.

We granted non-plan stock options to persons representing certain key business relationships to purchase up to an aggregate of 55,000 shares of our common stock at between $15.00 and $20.00 per share for 10 years. These stock options are non-qualified and are not part of our stock incentive plan. They vest 100% in a lump sum five years after their date of grant.

On October 26, 2009, we made a restricted stock award under the 2009 Stock Incentive Plan of 20,000 shares of common stock to Thomas A. Broughton III, President and Chief Executive Officer. These shares vest in five equal installments commencing on the first anniversary of the grant date, subject to earlier vesting in the event of a merger, consolidation, sale or transfer as described in the first paragraph under the table above.

The information included under the caption “Performance Graph” in this Item 5 of this Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filings we make under the Securities Act of 1933 or the Securities Act of 1934, except to the extent we specifically incorporate it by reference into such a filing.

The following graph compares the change in cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Banks Index and the S&P Stock Index from 2005 through 2009. This comparison assumes $100 invested on May 2, 2005 in (a) our common stock, (b) the NASDAQ Banks Index, and (c) the NASDAQ Composite Stock Index.

	Date
Index:	5/2/2005		12/31/2005		12/31/2006		12/31/2007		12/31/2008		12/31/2009
ServisFirst Bancshares, Inc.		100.00		100.00		150.00		200.00		250.00		250.00
NASDAQ Composite		100.00		114.35		125.23		137.52		81.77		117.65
NASDAQ Bank		100.00		105.91		117.57		91.62		69.70		56.81

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth selected historical consolidated financial data from our consolidated financial statements and should be read in conjunction with our consolidated financial statements including the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which are included below. Except for the data under “Selected Performance Ratios”, “Asset Quality Ratios”, “Liquidity Ratios”, “Capital Adequacy Ratios” and “Growth Ratios”, the selected historical consolidated financial data as of December 31, 2009, 2008, 2007, 2006 and 2005 and for the years ended December 31, 2009, 2008, 2007 and 2006 and the period from May 2, 2005 (date of inception) to December 31, 2005 are derived from our audited consolidated financial statements and related notes.

	As of and for the years ended December 31,								As of and for the period from May 2, 2005 (date of inception) to December 31,
	2009		2008		2007		2006		2005
	(Dollars in thousands except for share data)
Selected Balance Sheet Data:
Total assets	$	1,573,497	$	1,162,272	$	838,250	$	528,545	$	277,963
Total loans		1,207,084		968,233		675,281		440,489		249,250
Loans, net		1,192,173		957,631		667,549		435,071		246,140
Securities available for sale		255,453		102,339		87,233		28,119		924
Securities held to maturity		645		0		0		0		0
Cash and due from banks		26,982		22,844		15,756		15,706		4,188
Interest-bearing balances with banks		48,544		30,774		34,068		22		—
Fed funds sold		680		19,300		16,598		37,607		20,725
Mortgage loans held for sale		6,202		3,320		2,463		2,902		1,778
Restricted equity securities		3,241		2,659		1,202		805		230
Premises and equipment, net		5,088		3,884		4,176		2,605		1,400
Deposits		1,432,355		1,037,319		762,683		473,348		244,048
Other borrowings		24,922		20,000		73		—		—
Trust preferred securities		15,228		15,087		—		—		—
Other liabilities		3,370		3,082		2,465		2,353		273
Stockholders’ equity		97,622		86,784		72,247		52,288		33,469
Selected Income Statement Data:
Interest income	$	62,197	$	55,450	$	51,417	$	30,610	$	6,580
Interest expense		18,337		20,474		25,872		13,335		2,325
Net interest income		43,860		34,976		25,545		17,275		4,255
Provision for loan losses		10,860		6,274		3,541		3,252		3,521
Net interest income after provision for loan losses		33,000		28,702		22,004		14,023		734
Noninterest income		4,413		2,704		1,441		911		101
Noninterest expense		28,755		20,576		14,796		8,674		3,161
Income (loss) before income taxes		8,658		10,830		8,649		6,260		(2,326	)
Income taxes expenses (benefit)		2,780		3,825		3,152		2,189		(840	)
Net income (loss)		5,878		7,005		5,497		4,071		(1,486	)
Per Common Share Data:
Net income (loss), basic	$	1.07	$	1.37	$	1.19	$	1.06	$	(0.42	)
Net income (loss), diluted		1.02		1.31		1.16		1.06		(0.42	)
Book value		17.71		16.15		14.13		11.71		9.56
Weighted average shares outstanding:
Basic		5,485,972		5,114,194		4,631,047		3,831,881		3,500,000
Diluted		5,787,643		5,338,883		4,721,864		3,846,111		3,500,000
Actual shares outstanding		5,513,482		5,374,022		5,113,482		4,463,607		3,500,000

	As of and for the years ended December 31,												As of and for the period from May 2, 2005 (date of inception) to December 31,
	2009			2008			2007			2006			2005

Selected Performance Ratios:
Return on average assets		0.43	%		0.71	%		0.78	%		1.02	%		(1.40	)%
Return on average stockholders’ equity		6.33	%		9.28	%		9.40	%		9.96	%		(6.65	)%
Net interest margin(1)		3.31	%		3.70	%		3.78	%		4.60	%		4.21	%
Efficiency ratio(2)		59.57	%		54.61	%		54.83	%		50.67	%		72.56	%
Asset Quality Ratios:
Net charge-offs to average loans outstanding		0.60	%		0.41	%		0.23	%		0.28	%		0.53	%
Non-performing loans to total loans		1.01	%		1.02	%		0.66	%		0.00	%		0.28	%
Non-performing assets to total assets		1.57	%		1.74	%		0.73	%		0.11	%		0.25	%
Allowance for loan losses to total gross loans		1.24	%		1.09	%		1.15	%		1.23	%		1.25	%
Allowance for loan losses to total non-performing loans		122.34	%		108.17	%		173.94	%		5,418.00	%		446.20	%
Liquidity Ratios:
Net loans to total deposits		83.23	%		92.32	%		87.53	%		91.91	%		100.86	%
Net average loans to average earning assets		80.06	%		85.84	%		77.19	%		89.34	%		76.35	%
Noninterest-bearing deposits to total deposits		14.75	%		11.71	%		11.15	%		15.05	%		20.40	%
Capital Adequacy Ratios:
Stockholders’ equity to total assets(3)		6.10	%		7.38	%		8.50	%		9.89	%		12.04	%
Total risked-based capital(4)		10.48	%		11.25	%		11.22	%		11.58	%		13.42	%
Tier I capital(5)		8.89	%		10.18	%		10.12	%		10.49	%		12.28	%
Leverage ratio(6)		6.97	%		9.01	%		8.40	%		10.32	%		14.32	%
Growth Ratios:
Percentage change in net income		-16.1	%		27.43	%		35.00	%		373.93	%		n/a
Percentage change in diluted net income per share		-22.5	%		12.93	%		13.21	%		352.38	%		n/a
Percentage change in assets		35.38	%		38.65	%		58.59	%		90.15	%		n/a
Percentage change in net loans		24.49	%		45.45	%		53.43	%		76.76	%		n/a
Percentage change in deposits		38.08	%		36.00	%		61.13	%		93.96	%		n/a
Percentage change in equity		12.49	%		20.12	%		38.18	%		56.23	%		n/a

(1)	Net interest margin is the net yield on interest earning assets and is the difference between the interest yield earned on interest-earning assets and interest rate paid on interest-bearing liabilities, divided by average earning assets.

(2)	Efficiency ratio is the result of non-interest expense divided by the sum of net interest income and non-interest income.

(3)	Total stockholders’ equity excluding unrealized losses on securities available for sale, net of taxes, divided by total assets.

(4)	Total stockholders’ equity excluding unrealized losses on securities available for sale, net of taxes, and intangible assets plus allowance for loan losses (limited to 1.25% of risk-weighted assets) divided by total risk-weighted assets. The FDIC required minimum to be well-capitalized is 10%.

(5)	Total stockholders’ equity excluding unrealized losses on securities available for sale, net of taxes, and intangible assets divided by total risk-weighted assets. The FDIC required minimum to be well-capitalized is 6%.

(6)

Total stockholders’ equity excluding unrealized losses on securities available for sale, net of taxes, and intangible assets divided by average assets less intangible assets. The FDIC required minimum to be well-capitalized is 5%; however, the Alabama Banking Department has required that the Bank maintain a Tier 1 capital leverage ratio of 7%.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is a narrative discussion and analysis of significant changes in our results of operations and financial condition. The purpose of this discussion is to focus on information about our financial condition and results of operations that is not otherwise apparent from the audited financial statements. Analysis of the results presented should be made with an understanding of our relatively short history. This discussion should be read in conjunction with the financial statements and selected financial data included elsewhere in this document.

Forward-Looking Statements

We may from time to time make written or oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and reports to stockholders. Statements made in this annual report, other than those concerning historical information, should be considered forward-looking and subject to various risks and uncertainties. Such forward-looking statements are made based upon our management’s belief as well as assumptions made by, and information currently available to, our management. Our actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels, loan demand, loan collateral values, securities portfolio values, interest rate risk management, the effects of competition in the banking business from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market funds and other financial institutions operating in our market area and elsewhere, including institutions operating through the Internet, changes in governmental regulation relating to the banking industry, including regulations relating to branching and acquisitions, failure of assumptions underlying the establishment of reserves for loan losses, including the value of collateral underlying delinquent loans, and other factors. We caution that such factors are not exclusive. We do not undertake to update any forward-looking statement that may be made from time to time by, or on behalf of, us. See also “Cautionary Note Regarding Forward Looking Statements” on page 1.

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 subsidiary bank, we operate eight full service banking offices located in Jefferson, Shelby, Madison, Montgomery and Houston counties in the Birmingham-Hoover, Huntsville, Montgomery and Dothan, Alabama MSAs, respectively. 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 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, interest paid on our other borrowings, employee compensation, office expenses and other overhead expenses.

Critical Accounting Policies

Our consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in the Notes to the Consolidated Financial Statements. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the period or in future periods. The use of estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect, fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations.

Allowance for Loan Losses

The allowance for loan losses, sometimes referred to as the “ALLL”, is established through periodic charges to income. Loan losses are charged against the ALLL when management believes that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL. If the ALLL is considered inadequate to absorb future loan losses on existing loans for any reason, including but not limited to, increases in the size of the loan portfolio, increases in charge-offs or changes in the risk characteristics of the loan portfolio, then the provision for loan losses is increased.

Impairment of Assets

Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to contractual terms of the loan agreement. The collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or, as a practical expedient, at the loan’s observable market price, or the fair value of the underlying collateral. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent. Conforming one-to-four family residential mortgage loans, home equity and second mortgages, and consumer loans are pooled together as homogeneous loans and, accordingly, are not covered by the FASB ASC 310-10-35, Subsequent Measurement of Impaired Loans.

Investment Securities Impairment

Periodically, we may need to assess whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on other-than-temporary basis. In any such instance, we would consider many factors, including the severity and duration of the impairment, our intent and ability to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value, with the write-down recorded as a realized loss in securities gains (losses).

Net income for the year ended December 31, 2009 was $5.9 million, compared to net income of $7.0 million for the year ended December 31, 2008. This decrease in net income is primarily attributable to a significant increase in deposit insurance assessments by the FDIC, and an increase in provision for loan losses. The expense of FDIC insurance assessments increased $2.2 million, or 266.7%, to $2.7 million in 2009 from $568,000 in 2008. This increase was attributable to increases in both the assessment rates determined by the FDIC and our assessable deposits, as a result of the Company’s growth in deposits. Also, during the fourth quarter of 2009, the Company expensed the first installment of the 13-quarter prepaid assessment adopted by the FDIC in November 2009. The provision for loan losses increased $4.6 million, or 73.1%, from $6.3 million in 2008 to $10.9 million in 2009. The increase in provision for loan losses was the result of funding the loan loss reserve to match growth in the loan portfolio and loan charge-offs. These negative effects were partially offset by higher net interest income, which was due to significant growth of our deposits and loan portfolio resulting from continued core growth in Birmingham, Huntsville and Montgomery and our expansion into Dothan in late 2008. Also positively impacting net income in 2009 was an increase of $1.7 million in noninterest income, up 63.2%, from $2.7 million in 2008 to $4.4 million in 2009. Basic and diluted net income per common share were $1.07 and $1.02, respectively, for the year ended December 31, 2009, compared to $1.37 and $1.31, respectively, for the year ended December 31, 2008. Return on average assets was 0.43% in 2009, compared to 0.71% in 2008, and return on average stockholders’ equity was 6.33% in 2009, compared to 9.28% in 2008.

Net income for the year ended December 31, 2008 was $7.0 million, compared to net income of $5.5 million for the year ended December 31, 2007. This increase in net income was primarily attributable to a significant increase in net interest income due to the growth of our deposits and loan portfolio resulting from continued core growth in Birmingham, Huntsville and Montgomery and our expansion into Dothan. Basic and diluted net income per common share were $1.37 and $1.31, respectively, for the year ended December 31, 2008, compared to $1.19 and $1.16, respectively, for the year ended December 31, 2007. Return on average assets was 0.71% in 2008, compared to 0.78% in 2007, and return on average stockholders’ equity was 9.28% in 2008, compared to 9.40% in 2007.

	Year Ended December 31,				Change from the
	2009		2008		Prior Year
	(Dollars in Thousands)
Interest income	$	62,197	$	55,450		12.17	%
Interest expense		18,337		20,474		(10.44	) %
Net interest income		43,860		34,976		25.40	%
Provision for loan losses		10,860		6,274		73.10	%
Net interest income after provision for loan losses		33,000		28,702		14.97	%
Noninterest income		4,413		2,704		63.20	%
Noninterest expense		28,755		20,576		39.75	%
Net income before taxes		8,658		10,830		(20.06	) %
Provision for income taxes		2,780		3,825		(27.32	) %
Net income	$	5,878	$	7.005		(16.09	) %

	Year Ended December 31,				Change from the
	2008		2007		Prior Year
	(Dollars in Thousands)
Interest income	$	55,450	$	51,417		7.84	%
Interest expense		20,474		25,872		(20.86	) %
Net interest income		34,976		25,545		36.92	%
Provision for loan losses		6,274		3,541		77.18	%
Net interest income after provision for loan losses		28,702		22,004		30.44	%
Noninterest income		2,704		1,441		87.65	%
Noninterest expense		20,576		14,796		39.06	%
Net income before taxes		10,830		8,649		25.22	%
Provision for income taxes		3,825		3,152		21.35	%
Net income	$	7,005	$	5,497		27.43	%

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. In September 2007, the FOMC started dropping market rates in an effort to stabilize a declining real estate market and to ease recessionary pressures. Over the next five quarters, the FOMC would drop rates a total of 500 basis points. Rates have remained extremely low since bottoming out in December 2008. During this time of falling market rates, our management maintained a moderately liability-sensitive balance sheet position, meaning that more liabilities are scheduled to reprice within the next year than assets, thereby taking advantage of the decreasing rates.

Net interest income increased $8.9 million, or 25.4%, to $43.9 million for the year ended December 31, 2009 from $35.0 million for the year ended December 31, 2008. This was due to an increase in total interest income of $6.7 million, or 12.2%, and a decrease in total interest expense of $2.1 million, or 10.4%. The increase in total interest income was primarily attributable to loan growth as a result of significant continued core growth in Birmingham, Huntsville and Montgomery and the relocation of our Dothan office following our expansion into that market in 2008.

Net interest income increased $9.5 million, or 36.9%, to $35.0 million for the year ended December 31, 2008 from $25.5 million for the year ended December 31, 2007. This was due to an increase in total interest income of $4.0 million, or 7.8%, and a decrease in total interest expense of $5.4 million, or 20.9%. The increase in total interest income was primarily attributable to loan growth as a consequence of significant continued core growth in Birmingham, Huntsville and Montgomery and our expansion into Dothan in 2008.

We view the investment portfolio as a source of income and liquidity. Our investment strategy is to accept a lower immediate yield in the investment portfolio by targeting shorter term investments. Our investment policy provides that no more than 40% of our total investment portfolio should be composed of municipal securities.

The investment portfolio at December 31, 2009 was $255.5 million, compared to $102.3 million at December 31, 2008. The interest earned on investments rose to $6.0 million in 2009 from $4.8 million in 2008. That was a result of higher average portfolio balances due to our growth. The average taxable-equivalent yield on the investment portfolio decreased from 5.60% in 2008 to 5.06% in 2009, or 54 basis points.

The investment portfolio at December 31, 2008 was $102.3 million, compared to $87.2 million at December 31, 2007. The interest earned on investments rose to $4.8 million in 2008 from $2.9 million in 2007. That was a result of higher average portfolio balances due to our growth. The average taxable-equivalent yield on the investment portfolio increased from 5.55% in 2007 to 5.60% in 2008, or 5 basis points.

Net Interest Margin Analysis

The net interest margin is impacted by the average volumes of interest-sensitive assets and interest-sensitive liabilities and by the difference between the yield on interest-sensitive assets and the cost of interest-sensitive liabilities (spread). Loan fees collected at origination represent an additional adjustment to the yield on loans. Our spread can be affected by economic conditions, the competitive environment, loan demand, and deposit flows. The net yield on earning assets is an indicator of effectiveness of our ability to manage the net interest margin by managing the overall yield on assets and cost of funding those assets.

The following table shows, for the twelve months ended December 31, 2009, 2008 and 2007, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue, and the change in interest income and interest expense segregated into amounts attributable to changes in volume and changes in rates. This table is presented on a taxable equivalent basis, if applicable.

Average Consolidated Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Years Ended December 31

(Dollars in Thousands)

	2009							2008							2007
	Average Balance		Interest Earned/ Paid		Average Yield/ Rate			Average Balance		Interest Earned/ Paid		Average Yield/ Rate			Average Balance			Interest Earned /Paid		Average Yield/ Rate
Assets
Interest-earning assets:
Loans, net of unearned income(1)	$	1,088,437	$	55,625		5.11	%	$	826,957	$	49,852		6.03	%	$	530,478		$	43,694		8.24	%
Mortgage loans held for sale		6,195		265		4.28	%		2,469		145		5.87	%		1,802			145		8.05	%
Investment securities:
Taxable		92,903		4,517		4.86	%		68,683		3,840		5.59	%		40,665			2,235		5.50	%
Tax-exempt(2)		38,834		2,151		5.54	%		23,384		1,318		5.64	%		16,972			962		5.67	%
Total investment securities(3)		131,737		6,668		5.06	%		92,067		5,158		5.60	%		57,637			3,197		5.55	%
Federal funds sold		88,651		257		0.29	%		29,474		548		1.86	%		87,592			4,379		5.00	%
Restricted equity securities		3,101		10		0.32	%		2,454		90		3.67	%		1,110			45		4.05	%
Interest-bearing balances with banks		24,987		24		0.10	%		3,141		58		1.85	%		5,286			250		4.73	%
Total interest- earnings assets	$	1,343,108	$	62,849		4.68	%	$	956,562	$	55,851		5.84	%	$	683,997		$	51,710		7.56	%
Noninterest-earning assets:
Cash and due from banks		18,337							18,247							14,558
Net fixed assets and equipment		4,503							3,998							3,312
Allowance for loan losses, accrued interest and other assets		10,534							4,514							(177	)
Total assets	$	1,376,482						$	983,321						$	701,690
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	178,232	$	1,599		0.90	%	$	92,717	$	1,522		1.64	%	$	41,824		$	1,157		2.77	%
Savings deposits		972		5		0.51	%		455		3		0.66	%		205			3		1.46	%
Money market accounts		704,112		8,859		1.26	%		558,313		12,411		2.22	%		458,925			21,918		4.78	%
Time deposits		218,087		5,624		2.58	%		135,128		5,439		4.03	%		55,002			2,793		5.08	%
Fed funds purchased		—		—		—			4,729		119		2.52	%		—			—		—
Other borrowings		37,705		2,250		5.96	%		20,838		980		4.70	%		—			1		7.50	%
Total interest-bearing liabilities	$	1,139,108	$	18,337		1.61	%	$	812,180	$	20,474		2.52	%	$	555,956		$	25,872		4.65	%
Noninterest- bearing liabilities:
Noninterest-bearing demand deposits		140,660							92,451							84,051
Other liabilities		3,785							3,203							3,224
Stockholders’ equity		91,188							75,034							58,553
Unrealized gain (loss) on securities and derivatives		1,741							453							(94	)
Total liabilities and stockholders’ equity	$	1,376,482						$	983,321						$	701,690
Net interest spread						3.07	%						3.32	%							2.91	%
Net interest margin						3.31	%						3.70	%							3.78	%

(1)	Non-accrual loans are included in average loan balances in all periods. Loan fees of $730,000, $920,000 and $1,423,000 are included in interest income in 2009, 2008 and 2007, respectively.

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

(3)	Unrealized gains (losses) of $1,197,000, $376,000 and $233,000 are excluded from the yield calculation in 2009, 2008 and 2007, respectively.

The following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-bearing assets and liabilities. Changes as a result of mix or the number of days in the period have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

State
MSA		Zip	Owned or	Date
Office Address	City	Code	Leased	Opened
Alabama:
Birmingham-Hoover MSA:
850 Shades Creek Parkway, Suite 200 (1)	Birmingham	35209	Leased	03/02/2005
324 Richard Arrington Jr. Boulevard North	Birmingham	35203	Leased	12/19/2005
5403 Highway 280, Suite 401	Birmingham	35242	Leased	08/15/2006
Total:		3 Office(s)

Huntsville MSA:
401 Meridian Street, Suite 100	Huntsville	35801	Leased	11/21/2006
1267 Enterprise Way, Suite A (1)	Huntsville	35806	Leased	08/21/2006
Total:		2 Office(s)

Montgomery MSA:
1 Commerce Street, Suite 200	Montgomery	36104	Leased	06/04/2007
8117 Vaughn Road, Unit 20	Montgomery	36116	Leased	09/26/2007
Total:		2 Office(s)

Dothan MSA:
4801 West Main Street (1)	Dothan	36305	Leased	10/17/2008
Total:		1 Office

Total Offices in Alabama:		8 Office(s)

	Change in Interest Income and Expenses on a
	Taxable-Equivalent Basis
	2009 Compared to 2008									2008 Compared to 2007
	Increase (Decrease) in									Increase (Decrease) in
	Interest Income and Expense									Interest Income and Expense
	Due to Changes in:									Due to Changes in:
	Volume			Rate			Total			Volume			Rate			Total
	(Dollar amounts in Thousands)
Interest-earning assets:
Loans, net of unearned income	$	15,763		$	(9,990	)	$	5,773		$	24,423		$	(18,265	)	$	6,158
Mortgages held for sale		219			(99	)		120			54			(54	)		—
Investment securities:
Taxable		1,354			(677	)		677			1,541			64			1,605
Tax-exempt		870			(37	)		833			363			(7	)		356

Restricted equity securities		24			(104	)		(80	)		(101	)		(91	)		(192	)
Interest bearing balances with banks		403			(437	)		(34	)		(2,906	)		(925	)		(3,831	)
Federal funds sold		1,100			(1,391	)		(291	)		53			(8	)		45
Total earning assets		19,733			(12,735	)		6,998			23,427			(19,286	)		4,141
Interest-bearing liabilities:
Interest-bearing demand deposits		1,404			(1,327	)		77			1,408			(1,043	)		365
Savings deposits		3			(1	)		2			4			(4	)		—
Money market accounts		3,241			(6,793	)		(3,552	)		4,747			(14,254	)		(9,507	)
Time deposits		3,339			(3,154	)		185			4,069			(1,423	)		2,646
Federal funds purchased		(119	)		—			(119	)		119			—			119
Other borrowings		794			476			1,270			979			—			979
Total interest-bearing liabilities		8,662			(10,799	)		(2,137	)		11,326			(16,724	)		(5,398	)
Increase in net interest income	$	11,071		$	(1,936	)	$	9,135		$	12,101		$	(2,562	)	$	9,539

			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gain		Loss			Value
	(Dollars in Thousands)
As of December 31, 2009
Securities available for sale:
U.S. Treasury and government sponsored agencies	$	92,368	$	412	$	(453	)	$	92,327
Mortgage-backed securities		99,608		2,717		(625	)		101,700
State and municipal securities		58,090		876		(567	)		58,399
Corporate debt		3,004		36		(13	)		3,027
Total	$	253,070	$	4,041	$	(1,658	)	$	255,453
Securities held to maturity:
State and municipal securities	$	645	$	1	$	(3	)	$	643
Total	$	645	$	1	$	(3	)	$	643
As of December 31, 2008
Securities available for sale:
U.S. Treasury and government sponsored agencies	$	5,093	$	42	$	(18	)	$	5,117
Mortgage-backed securities		60,211		2,338		(5	)		62,544
State and municipal securities		29,879		457		(857	)		29,479
Corporate debt		5,971		—		(772	)		5,199
Total	$	101,154	$	2,837	$	(1,652	)	$	102,339
As of December 31, 2007
Securities available for sale:
U.S. Treasury and government sponsored agencies	$	—	$	—	$	—		$	—
Mortgage-backed securities		62,162		471		(30	)		62,603
State and municipal securities		24,271		374		(15	)		24,630
Corporate debt		—		—		—			—
Total	$	86,433	$	845	$	(45	)	$	87,233

	Less than one year		More than One year to five years			More than five years to ten years			More than ten years			Total
	(Dollars in Thousands)
Securities Available for Sale:
U.S. Treasury and government agencies	$	—	$	54,011		$	28,032		$	10,325		$	92,368
Mortgage-backed securities		—		1,846			19,341			78,421			99,608
State and municipal securities				5,359			35,740			16,991			58,090
Corporate debt		—		—			1,991			1,013			3,004
Total	$	—	$	61,216		$	85,104		$	106,750		$	253,070

Taxable-equivalent yield
U.S. Treasury and government agencies		—		1.98	%		3.77	%		4.29	%		2.78	%
Mortgage-backed securities		—		4.97	%		4.44	%		4.35	%		4.38	%
State and municipal securities		—		5.13	%		5.56	%		5.76	%		5.58	%
Corporate debt		—		—			5.90	%		7.06	%		6.29	%
Total		—		2.35	%		4.72	%		4.59	%		4.09	%

Securities Held to Maturity:
State and municipal securities	$	—	$	—		$	—		$	645		$	645
Total	$	—	$	—		$	—		$	645		$	645
Taxable-equivalent yield
State and municipal securities		—		—			—			6.73	%		6.73	%
Total		—		—			—			6.73	%		6.73	%

	2009			2008			2007
	(Dollars in Thousands)
Commercial, financial and agricultural	$	461,088		$	325,968		$	219,684
Real estate — construction		224,178			235,162			195,238
Real estate — mortgage:
Owner occupied commercial		203,983			147,197			89,014
1-4 family mortgage		165,512			137,019			64,325
Other mortgage		119,749			93,412			83,663
Total real estate — mortgage		489,244			377,628			237,002
Consumer		32,574			29,475			23,357
Total loans		1,207,084			968,233			675,281
Less: allowance for loan losses		(14,911	)		(10,602	)		(7,732	)
Net loans	$	1,192,173		$	957,631		$	667,549

	December 31,
	2009			2008			2007
	(Dollars in Thousands
Commercial, financial and agricultural		38.20	%		33.67	%		32.53	%
Real estate - construction		18.57	%		24.29	%		28.91	%
Real estate – mortgage:
Owner occupied commercial		16.90	%		15.20	%		13.18	%
1-4 family mortgage		13.71	%		14.15	%		9.53	%
Other mortgage		9.92	%		9.65	%		12.39	%
Total real estate — mortgage		40.53	%		39.00	%		35.10	%
Consumer		2.70	%		3.04	%		3.46	%
Total loans		100.00	%		100.00	%		100.00	%

	Due in 1		Due in 1		Due after
Type of Loan(1)	year or less		to 5 years		5 Years		Total
	(Dollars in Thousands)
Commercial, financial and agricultural	$	275,603	$	165,173	$	20,312	$	461,088
Real estate – construction		146,540		75,833		1,805		224,178
Real estate – mortgage		101,725		248,581		138,938		489,244
Consumer		19,992		11,949		633		32,574
Total	$	543,860	$	501,536	$	161,688	$	1,207,084
Less: allowance for loan losses							$	(14,911	)
Net loans							$	1,192,173
Interest rate sensitivity:
Fixed interest rates	$	100,285	$	316,811	$	58,729	$	475,825
Floating or adjustable rates		443,575		184,725		102,959		731,259
Total	$	543,860	$	501,536	$	161,688	$	1,207,084

	For the Years Ended December 31,
	2009			2008			2007
	(Dollars in Thousands)
Allowance for loan losses:
Beginning of year	$	10,602		$	7,732		$	5,418
Charge-offs:
Commercial, financial and agricultural		(2,616	)		(545	)		(279	)
Real estate – construction		(3,322	)		(2,264	)		(953	)
Real estate – mortgage:
Owner occupied commercial		—			—			—
1-4 family mortgage		(522	)		(480	)		—
Other mortgages		(9	)		(459	)		—
Total real estate – mortgages		(531	)		(939	)		—
Consumer		(43	)		(44	)		(8	)
Other		(164	)		(74	)		—
Total charge-offs		(6,676	)		(3,866	)		(1,240	)
Recoveries:
Commercial, financial and agricultural		—			264			13
Real estate – construction		107			—			—
Real estate – mortgage:
Owner Occupied		—			—			—
1-4 family mortgage		3			—			—
Other		—			—			—
Total real estate – mortgages		3			—			—
Consumer		15			198			—
Total recoveries		125			462			13

Net charge-offs		(6,551	)		(3,404	)		(1,227	)

Provision for loan losses charged to expense		10,860			6,274			3,541

Allowance for loan losses at end of period	$	14,911		$	10,602		$	7,732

	Nonperforming assets
	For the Years Ended December 31,
	2009		2008		2007
	(Dollars in Thousands)
Non-accrual loans:
Number		20		27		20
Amount	$	11,921	$	7,713	$	4,284

Accruing loans which are contractually past due 90 days or more as to principal and interest payments:
Number		2		1		2
Amount	$	267	$	1,939	$	187

Loans defined as “troubled debt restructurings”:
Number		—		—		—
Amount	$	—	$	—	$	—
Total nonperforming loans	$	12,188	$	9,652	$	4,471

Other real estate owned	$	12,525	$	10,473	$	1,623
Total nonperforming assets	$	24,713	$	20,125	$	6,094
Gross interest income lost on the above loans	$	610	$	450	$	177
Interest income included in net income on the above loans	$	138	$	232	$	—

	Average Deposits
	Average for Years Ended December 31,
	2009					2008					2007
			Average					Average					Average
Types of Deposits:	Average Balance		Rate Paid			Average Balance		Rate Paid			Average Balance		Rate Paid
	(Dollars in Thousands)
Non-interest-bearing demand deposits	$	140,660		—		$	92,451		—		$	84,051		—
Interest-bearing demand deposits		178,232		0.90	%		92,717		1.64	%		41,824		2.77	%
Money market accounts		704,112		1.26	%		558,313		2.22	%		458,925		4.76	%
Savings accounts		972		0.51	%		455		0.64	%		205		1.54	%
Time deposits		35,804		2.63	%		19,144		3.99	%		9,058		4.92	%
Time deposits, $100,000 and over		182,283		2.57	%		115,984		4.04	%		45,944		5.11	%
Purchased time deposits		—		—			—		—			—		—
Total deposits	$	1,242,063				$	879,064				$	640,007

	Payments due by Period
Contractual Obligations (1):	Total		Less Than 1 Year		1-3 Years		More than 3 to 5 Years		More than 5 Years
	(Dollars in Millions)
Deposits without a stated maturity	$	1,178,421	$	—	$	—	$	—	$	—
Certificates of deposit(2)		253,934		199,629		43,338		10,967		—
FHLB borrowings		20,000		—		10,000		10,000		—
Subordinated debentures		15,228		—		—		—		15,228
Subordinated note payable		4,922		—		—		—		4,922
Operating lease commitments		17,256		1,640		3,329		3,441		8,846
Total		1,489,761	$	201,269	$	56,667	$	24,408	$	28,996

	“Well-Capitalized”			Actual at December 31, 2009

Total risk-based capital		10.00	%		10.48	%
Tier 1 capital		6.00	%		8.89	%
Leverage ratio		5.00	%		6.97	%

	Rate Sensitivity Gap Analysis
	0-3 Months			4-12 Months			1-5 Years			Over 5 years			Total
	(Dollars in Thousands)
Interest earning assets:
Loans	$	798,274		$	72,821		$	295,286		$	40,703		$	1,207,084
Securities		7,915			29,692			93,884			124,607			256,098
Federal funds sold		680			—			—			—			680
Interest bearing balances with banks		48,544			—			—			—			48,544
Total interest-earning assets	$	855,413		$	102,513		$	389,170		$	165,310		$	1,512,406
Interest bearing liabilities:
Deposits:
Interest checking	$	242,319		$	—		$	—		$	—		$	242,319
Money market and savings		724,795			—			—			—			724,795
Time deposits		73,388			126,241			54,305			—			253,934
Other borrowings		—			—			20,000			4,922			24,922
Trust preferred securities		—			—			15,228			—			15,228
Total interest-bearing liabilities	$	1,040,502		$	126,241		$	89,533		$	4,922		$	1,261,198
Interest sensitivity gap	$	(185,089	)	$	(23,728	)	$	299,637		$	160,388		$	251,208
Cumulative sensitivity gap	$	(185,089	)	$	(208,817	)	$	90,820		$	251,208
Percent of cumulative sensitivity gap to total interest-earning assets		(21.6	)%		(21.8	)%		6.7	%		16.6	%

	Economic Value of Equity Under Rate Shock
	at December 31, 2009

Rate Change	-200bps			-100bps			0bps		+100bps			+200bps
	(Dollars in Thousands)
Economic value of equity	$	73,217		$	78,195		$	97,622	$	90,203		$	87,274

Actual dollar change	$	(24,406	)	$	(19,427	)			$	(7,419	)	$	(10,348	)

Percent change		-25.0	%		-19.9	%				-7.6	%		-10.6	%

		Page
Report of Independent Registered Public Accounting Firm on
Consolidated Financial Statements		59
Report of Management on Internal Control over Financial Reporting		60
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting		61
Consolidated Balance Sheets at December 31, 2009 and 2008		63
Consolidated Statements of Income for the Years Ended December 31,
2009, 2008 and 2007		64
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2009, 2008 and 2007		65
Consolidated Statements of Stockholders’ Equity for Years Ended
December 31, 2009, 2008 and 2007		66
Consolidated Statements of Cash Flows for the Years December 31, 2009,
2008 and 2007		67
Notes to Consolidated Financial Statements		68

		SERVISFIRST BANCSHARES, INC.

	by	/s/ THOMAS A. BROUGHTON, III
		THOMAS A. BROUGHTON, III
		President and Chief Executive Officer

	by	/s/ WILLIAM M. FOSHEE
		WILLIAM M. FOSHEE
		Chief Financial Officer

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income			Total Stockholders' Equity
Balance, December 31, 2006	$	22,318		$	27,360	$	2,585	$	25		$	52,288
Change in par value		(22,314	)		22,314		-		-			-
Sale of 649,875 shares		1			12,945		-		-			12,946
Other comprehensive income		-			-		-		976			976
Stock based compensation expense		-			540		-		-			540
Net income		-			-		5,497		-			5,497
Balance, December 31, 2007		5			63,159		8,082		1,001			72,247
Sale of 260,540 shares		-			6,474		-		-			6,474
Other comprehensive loss		-			-		-		(39	)		(39	)
Stock based compensation expense		-			671		-		-			671
Issuance of warrants related to subordinated notes payable		-			425		-		-			425
Net income		-			-		7,005		-			7,005
Balance, December 31, 2008		5			70,729		15,087		962			86,783
Sale of 139,460 shares		1			3,478		-		-			3,479
Other comprehensive income		-			-		-		611			611
Stock based compensation expense		-			785		-		-			785
Issuance of warrants related to subordinated notes payable		-			86		-		-			86
Net income		-			-		5,878		-			5,878
Balance, December 31, 2009	$	6		$	75,078	$	20,965	$	1,573		$	97,622

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
	(In Thousands)
December 31, 2009:
Securities Available for Sale
U.S. Treasury and government agencies	$	92,368	$	412	$	(453	)	$	92,327
Mortgage-backed securities		99,608		2,717		(625	)		101,700
State and municipal securities		58,090		876		(567	)		58,399
Corporate debt		3,004		36		(13	)		3,027
Total	$	253,070	$	4,041	$	(1,658	)	$	255,453
Securities Held to Maturity
State and municipal securities	$	645	$	1	$	(3	)	$	643
Total	$	645	$	1	$	(3	)	$	643

December 31, 2008:
Securities Available for Sale
U.S. Treasury and government agencies	$	5,093	$	42	$	(18	)	$	5,117
Mortgage-backed securities		60,211		2,338		(5	)		62,544
State and municipal securities		29,879		457		(857	)		29,479
Corporate debt		5,971		-		(772	)		5,199
Total	$	101,154	$	2,837	$	(1,652	)	$	102,339

	Amortized Cost		Market Value
	(In Thousands)
Securities available for sale
Due within one year	$	-	$	-
Due from one to five years		59,370		59,633
Due from five to ten years		65,763		65,887
Due after ten years		28,329		28,233
Mortgage-backed securities		99,608		101,700
	$	253,070	$	255,453

Securities held to maturity
Due after ten years		645		643
	$	645	$	643

	Less Than Twelve Months					Twelve Months or More
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In Thousands)
December 31, 2009:
U.S. Treasury and government agencies	$	(437	)	$	42,836	$	-		$	-
Mortgage-backed securities		(625	)		44,993		-			-
State and municipal securities		(569	)		20,479		-			-
Corporate debt		(17	)		2,074		(13	)		986
	$	(1,648	)	$	110,382	$	(13	)	$	986

December 31, 2008.:
U.S. Treasury and government agencies	$	(18	)	$	3,089	$	-		$	-
Mortgage-backed securities		(5	)		1,868		-			-
State and municipal securities		(857	)		14,814		-			-
Corporate debt		(772	)		5,199		-			-
	$	(1,652	)	$	24,970	$	-		$	-

	Years Ended December 31,
	2009			2008			2007
	(In Thousands)
Balance, beginning of year	$	10,602		$	7,732		$	5,418
Loans charged off		(6,676	)		(3,866	)		(1,240	)
Recoveries		125			462			13
Provision for loan losses		10,860			6,274			3,541
Balance, end of year	$	14,911		$	10,602		$	7,732

	(In Thousands)
2010	$	1,640
2011		1,650
2012		1,679
2013		1,705
2014		1,736
Thereafter		8,846
	$	17,256

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
								(In Thousands)
Year Ended December 31, 2009:
Outstanding at beginning of year		796,000		$	14.50		7.7	$	8,363
Granted		40,000			25.00		9.2		-
Exercised		-			-		-		-
Forfeited		(2,500	)		15.00		-		-
Outstanding at end of year		833,500			15.00		6.8	$	8,333

Exercisable at December 31, 2009		143,530		$	11.99		6.1	$	1,867

Year Ended December 31, 2008:
Outstanding at beginning of year		712,500		$	13.12		8.4	$	4,905
Granted		98,500			24.31		-		-
Exercised		-			-		-		-
Forfeited		(15,000	)		13.50		-		-
Outstanding at end of year		796,000			14.50		7.7	$	8,363

Exercisable at December 31, 2008		68,598		$	12.08		7.0	$	886

Year Ended December 31, 2007:
Outstanding at beginning of year		517,000		$	11.35		9.0	$	1,894
Granted		201,500			17.56		-		-
Exercised		-			-		-		-
Forfeited		(6,000	)		10.00		-		-
Outstanding at end of year		712,500			13.12		8.4	$	4,905

Exercisable at December 31, 2007		20,000		$	10.00		7.3	$	200

	Range of Exercise Price	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
								(In Thousands)
$	10.00		60,000	$	10.00		5.4	$	900
	11.00		33,000		11.00		6.3		462
	15.00		50,530		15.00		6.9		505
			143,530	$	11.99		6.1	$	1,867

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
							(In Thousands)
Year Ended December 31, 2009:
Outstanding at beginning of year		60,000	$	10.00		6.3	$	900
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding at end of year		60,000		10.00		5.3	$	900

Exercisable at December 31, 2009		60,000	$	10.00		5.3	$	900

Year Ended December 31, 2008:
Outstanding at beginning of year		60,000	$	10.00		7.3	$	600
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding at end of year		60,000		10.00		6.3	$	900

Exercisable at December 31, 2008		60,000	$	10.00		6.3	$	900

Year Ended December 31, 2007:
Outstanding at beginning of year		60,000	$	10.00		8.3	$	-
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding at end of year		60,000		10.00		7.3	$	600

Exercisable at December 31, 2007		60,000	$	10.00		7.3	$	600

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2009:
Total Capital to Risk Weighted Assets:
Consolidated	$	130,882		10.48	%	$	99,903		8.00	%	$	124,879		10.00	%
ServisFirst Bank		130,426		10.45	%		99,851		8.00	%		124,814		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		111,049		8.89	%		49,952		4.00	%		74,927		6.00	%
ServisFirst Bank		110,593		8.86	%		49,926		4.00	%		74,888		6.00	%
Tier I Capital to Average Assets:
Consolidated		111,049		6.97	%		63,737		4.00	%		79,672		5.00	%
ServisFirst Bank		110,593		6.94	%		63,737		4.00	%		79,672		5.00	%

As of December 31, 2008:
Total Capital to Risk Weighted Assets:
Consolidated	$	111,424		11.25	%	$	79,247		8.00	%	$	99,058		10.00	%
ServisFirst Bank		110,242		11.14	%		79,182		8.00	%		98,977		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		100,822		10.18	%		39,623		4.00	%		59,435		6.00	%
ServisFirst Bank		99,640		10.07	%		39,591		4.00	%		59,386		6.00	%
Tier I Capital to Average Assets:
Consolidated		100,822		9.01	%		44,746		4.00	%		55,933		5.00	%
ServisFirst Bank		99,640		8.91	%		44,746		4.00	%		55,933		5.00	%

	Year Ended December 31, 2009
	Amount			% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	2,944			34.00	%
Effect on rate of:
State income tax, net of federal tax effect		214			2.47	%
Tax-exempt income, net of expenses		(477	)		-5.51	%
Incentive stock option expense		224			2.59	%
Other		(125	)		-1.44	%
Effective income tax and rate	$	2,780			32.11	%

	Year Ended December 31, 2008
	Amount			% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	3,683			34.00	%
Effect on rate of:
State income tax, net of federal tax effect		191			1.76	%
Tax-exempt income, net of expenses		(278	)		-2.57	%
Incentive stock option expense		177			1.64	%
Other		52			0.48	%
Effective income tax and rate	$	3,825			35.31	%

	Year Ended December 31, 2007
	Amount			% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	2,941			34.00	%
Effect on rate of:
State income tax, net of federal tax effect		165			1.91	%
Tax-exempt income, net of expenses		(102	)		-1.18	%
Incentive stock option expense		163			1.88	%
Other		(15	)		-0.18	%
Effective income tax and rate	$	3,152			36.43	%

	(In Thousands)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:
Available for sale securities	$	-	$	255,453	$	-	$	255,453
Interest rate swap agreements		-		413				413
Total assets at fair value	$	-	$	255,866	$	-	$	255,866

Liabilities Measured on a Recurring Basis:
Interest rate swap agreements	$	-	$	413	$	-	$	413

Assets Measured on a Nonrecurring Basis:
Impaired loans	$	-	$	-	$	8,003	$	8,003
Other real estate owned		-		-		12,525		12,525
Total assets at fair value	$	-	$	-	$	20,528	$	20,528

	December 31
	2009		2008
Assets
Cash & due from banks	$	95	$	561
Investment in subsidiary		112,166		100,602
Other assets		649		812
Total assets		112,910		101,975

Liabilities
Other borrowings		15,228		15,087
Other liabilities		60		105
		15,288		15,192

Stockholders' equity
Common stock		6		5
Paid in capital		75,078		70,729
Retained earnings		20,965		15,087
Accumulated other comprehensive income		1,573		962
Total stockholders' equity		97,622		86,783
Total liabilites and stockholders' equity	$	112,910	$	101,975

	2009 Quarter Ended
	(Dollars in Thousands, except per share data)
	March 31		June 30		September 30		December 31
Interest Income	$	13,937	$	14,979	$	16,092	$	17,189
Interest Expense		4,891		4,478		4,648		4,320
Net Interest Income		9,046		10,501		11,444		12,869
Provision for Loan Loss		2,460		2,608		3,209		2,583
Net Income		721		1,559		1,608		1,990
Income Per Share, basic		0.13		0.28		0.29		0.37
Income Per Share, diluted		0.13		0.27		0.28		0.34

	2008 Quarter Ended
	(Dollars in Thousands, except per share data)
	March 31		June 30		September 30		December 31
Interest Income	$	13,835	$	13,341	$	13,881	$	14,393
Interest Expense		5,748		4,647		5,004		5,075
Net Interest Income		8,087		8,694		8,877		9,318
Provision for Loan Loss		1,383		2,137		1,381		1,373
Net Income		1,570		1,750		1,724		1,961
Income Per Share, basic		0.31		0.34		0.34		0.38
Income Per Share, diluted		0.30		0.33		0.32		0.36

EXHIBIT NO.		NAME OF EXHIBIT

2.1		Plan of Reorganization and Agreement of Merger dated August 29, 2007 (1)

3.1		Certificate of Incorporation (1)

3.2		Certificate of Amendment to Certificate of Incorporation (1)

3.3		Bylaws (1)

4.1		Form of Common Stock Certificate (1)

4.2		Certain provisions from the Certificate of Incorporation (1)

4.3		Revised Form of Common Stock Certificate (2)

4.4		Amended and Restated Trust Agreement of ServisFirst Capital Trust I dated September 2, 2008 (3)

4.5		Indenture dated September 2, 2008 (3)

4.6		Guarantee Agreement dated September 2, 2008 (3)

4.7		Form of Common Stock Purchase Warrant dated September 2, 2008 (3)

4.8		ServisFirst Bank 8.5% Subordinated Note due June 1, 2016

4.9		Warrant to Purchase Shares of Common Stock dated June 23, 2009

10.1		2005 Amended and Restated Stock Incentive Plan (1)*

10.2		Change in Control Agreement with William M. Foshee dated May 20, 2005 (1)*

10.3		Change in Control Agreement with Clarence C. Pouncey III dated June 6, 2006 (1)*

10.4		Employment Agreement of Andrew N. Kattos dated April 27, 2006 (1)*

10.5		Employment Agreement of G. Carlton Barker dated February 1, 2007 (1)*

10.6		2009 Stock Incentive Plan (4)*

11		Statement Regarding Computation of Earnings Per Share is included herein at Note 16 to the Financial Statements in Item 8.

14		Code of Ethics for Principal Financial Officers (5)

21		List of Subsidiaries

24		Power of Attorney

31.1		Section 302 Certification of Chief Executive Officer

31.2		Section 302 Certification of Chief Financial Officer

32.1		Section 906 Certification of Chief Executive Officer

32.2		Section 906 Certification of Chief Financial Officer