Quarterly report pursuant to Section 13 or 15(d)

EMPLOYEE AND DIRECTOR BENEFITS

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EMPLOYEE AND DIRECTOR BENEFITS
 6 Months Ended
Jun. 30, 2011
EMPLOYEE AND DIRECTOR BENEFITS
NOTE 6 - EMPLOYEE AND DIRECTOR BENEFITS

Stock Options

At June 30, 2011, the Company had stock-based compensation plans, as described below. The compensation cost that has been charged to earnings for the plans was approximately $240,000 and $465,000 for three and six months ended June 30, 2011 and $180,000 and $314,000 for the three and six months ended June 30, 2010, respectively.

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

The Company has granted non-plan options to certain persons representing key business relationships to purchase up to an aggregate amount of 55,000 shares of the Company’s common stock at between $15.00 and $20.00 per share for 10 years. These options are non-qualified and not part of either Plan.

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

   
2011
    
2010
  
Expected volatility
     29.00 %     25.00 %
Expected dividends
     0.50 %     0.50 %
Expected term (in years)
  
7 years
    
7 years
  
Risk-free rate
     2.70 %     2.32 %

The weighted average grant-date fair value of options granted during the six months ended June 30, 2011 and 2010 was $8.54 and $7.43, respectively.

 The following table summarizes stock option activity during the six months ended June 30, 2011 and 2010:

   
Shares
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Remaining
Contractual
Term (years)
    
Aggregate
Intrinsic
Value
  
                     
(In Thousands)
  
Six Months Ended June 30, 2011:
                        
Outstanding at January 1, 2011
     881,000     $ 15.65       6.9     $ 8,238  
Granted
     166,500       26.05       9.6       -  
Exercised
     (5,000 )     10.50       4.4       -  
Forfeited
     -       -       -       -  
Outstanding at June 30, 2011
     1,042,500       17.34       6.2     $ 13,203  
                                 
Exercisable at June 30, 2011
     332,459     $ 12.71       4.8     $ 5,748  
                                 
Six Months Ended June 30, 2010:
                                
Outstanding at January 1, 2010
     833,500     $ 15.00       6.8     $ 8,333  
Granted
     11,000       25.00       9.6       -  
Exercised
     -       -       -       -  
Forfeited
     (10,000 )     15.00       6.7       -  
Outstanding at June 30, 2010
     834,500       15.13       6.4     $ 8,238  
                                 
Exercisable at June 30, 2010
     249,696     $ 11.33       5.5     $ 3,413  

Restricted Stock

The Company has issued restricted stock to a certain executive officer and five other employees, and currently has 26,000 non-vested shares issued.  The value of restricted stock awards is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period, which is five years from the date of grant.  As of June 30, 2011, there was $510,000 of total unrecognized compensation cost related to non-vested restricted stock.  The cost is expected to be recognized evenly over the remaining 3.5 years of the restricted stock’s vesting period.

Stock Warrants

In recognition of the efforts and financial risks undertaken by the organizers of ServisFirst Bank (the “Bank”) in 2005, the Bank granted warrants to organizers to purchase a total 60,000 shares of common stock at a price of $10, which was the fair market value of the Bank’s common stock at the date of the grant. The warrants became warrants to purchase a like number of shares of the Company’s common stock upon the formation of the Company as a holding company for the Bank.  The warrants vest in equal annual increments over a three-year period commencing on the first anniversary date of the Bank’s incorporation and will terminate on the tenth anniversary of the incorporation date. The total number of these warrants outstanding at June 30, 2011 and 2010 was 60,000.

The Company issued warrants for 75,000 shares of common stock at a price of $25 per share in the third quarter of 2008. These warrants were issued in connection with the trust preferred securities that are discussed in detail in Note 10.
The Company issued warrants for 15,000 shares of common stock at a price of $25 per share in the second quarter of 2009.  These warrants were issued in connection with the issuance and sale of the Bank’s 8.25% Subordinated Note discussed in detail in Note 12.