Edgar Filing: ServisFirst Bancshares, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013

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

For the transition period from _______to_______

Commission file number 000-53149

SERVISFIRST BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

850 Shades Creek Parkway, Birmingham, Alabama 35209

(Address of Principal Executive Offices) (Zip Code)

(205) 949-0302

(Registrant's Telephone Number, Including Area Code)

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

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

Yes x No ¨

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

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

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

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

Class		Outstanding as of July 26, 2013
Common stock, $.001 par value		6,974,312

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION		42
Item 1	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	43
Item 6.	Exhibits	43

EX-31.01 SECTION 302 CERTIFICATION OF THE CEO

EX-31.02 SECTION 302 CERTIFICATION OF THE CFO

EX-32.01 SECTION 906 CERTIFICATION OF THE CEO

EX-32.02 SECTION 906 CERTIFICATION OF THE CFO

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS JUNE 30, 2013 AND DECEMBER 31, 2012

(In thousands, except share and per share amounts)

	June 30, 2013			December 31, 2012
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	60,251		$	58,031
Interest-bearing balances due from depository institutions		129,767			119,423
Federal funds sold		2,590			3,291
Cash and cash equivalents		192,608			180,745
Available for sale debt securities, at fair value		227,770			233,877
Held to maturity debt securities (fair value of $33,292 and $27,350 at June 30, 2013 and December 31, 2012, respectively)		33,808			25,967
Restricted equity securities		3,738			3,941
Mortgage loans held for sale		16,374			25,826
Loans		2,590,192			2,363,182
Less allowance for loan losses		(28,757	)		(26,258	)
Loans, net		2,561,435			2,336,924
Premises and equipment, net		8,756			8,847
Accrued interest and dividends receivable		9,101			9,158
Deferred tax assets		10,383			7,386
Other real estate owned		9,071			9,685
Bank owned life insurance contracts		57,969			57,014
Other assets		9,613			6,944
Total assets	$	3,140,626		$	2,906,314
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing	$	562,196		$	545,174
Interest-bearing		2,112,781			1,966,398
Total deposits		2,674,977			2,511,572
Federal funds purchased		175,475			117,065
Other borrowings		19,924			19,917
Subordinated debentures		-			15,050
Accrued interest payable		905			942
Other liabilities		4,156			8,511
Total liabilities		2,875,437			2,673,057
Stockholders' equity:
Preferred stock, Series A Senior Non-Cumulative Perpetual, par value $.001 (liquidation preference $1,000), net of discount; 40,000 shares authorized, 40,000 shares issued and outstanding at June 30, 2013 and at December 31, 2012		39,958			39,958
Preferred stock, par value $.001 per share; 1,000,000 authorized and 960,000 currently undesignated		-			-
Common stock, par value $.001 per share; 50,000,000 shares authorized; 6,974,312 shares issued and outstanding at June 30, 2013 and 6,268,812 shares issued and outstanding at December 31, 2012		7			6
Additional paid-in capital		109,874			93,505
Retained earnings		111,217			92,492
Accumulated other comprehensive income		4,133			7,296
Total stockholders' equity		265,189			233,257
Total liabilities and stockholders' equity	$	3,140,626		$	2,906,314

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Interest income:
Interest and fees on loans	$	28,874	$	24,438	$	56,192	$	47,763
Taxable securities		908		1,302		1,856		2,639
Nontaxable securities		847		814		1,679		1,596
Federal funds sold		17		42		33		95
Other interest and dividends		46		58		97		132
Total interest income		30,692		26,654		59,857		52,225
Interest expense:
Deposits		2,784		3,028		5,497		6,150
Borrowed funds		427		721		978		1,432
Total interest expense		3,211		3,749		6,475		7,582
Net interest income		27,481		22,905		53,382		44,643
Provision for loan losses		3,334		3,083		7,618		5,466
Net interest income after provision for loan losses		24,147		19,822		45,764		39,177
Noninterest income:
Service charges on deposit accounts		806		719		1,568		1,320
Mortgage banking		787		879		1,752		1,836
Securities gains		8		-		131		-
Increase in cash surrender value life insurance		485		385		955		775
Other operating income		487		445		964		766
Total noninterest income		2,573		2,428		5,370		4,697
Noninterest expenses:
Salaries and employee benefits		7,056		5,248		12,735		10,413
Equipment and occupancy expense		1,469		961		2,580		1,896
Professional services		425		306		886		638
FDIC and other regulatory assessments		426		356		858		746
OREO expense		204		536		594		673
Other operating expenses		2,792		2,488		5,471		4,560
Total noninterest expenses		12,372		9,895		23,124		18,926
Income before income taxes		14,348		12,355		28,010		24,948
Provision for income taxes		4,662		4,024		9,073		8,361
Net income		9,686		8,331		18,937		16,587
Preferred stock dividends		100		100		200		200
Net income available to common stockholders	$	9,586	$	8,231	$	18,737	$	16,387

Basic earnings per common share	$	1.38	$	1.38	$	2.83	$	2.74

Diluted earnings per common share	$	1.33	$	1.21	$	2.64	$	2.41

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2013			2012		2013			2012
Net income	$	9,686		$	8,331	$	18,937		$	16,587
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains arising during period from securities available for sale, net of tax of $(1,503) and $(1,657) for the three and six months ended June 30, 2013, respectively, and $245 and $178 for the three and six months ended June 30, 2012, respectively		(2,790	)		454		(3,077	)		670
Reclassification adjustment for net gains on sale of securities in net income, net of tax of $3 and $46 for the three and six months ended June 30, 2013, respectively		(6	)		-		(86	)		-
Other comprehensive (loss) income, net of tax		(2,796	)		454		(3,163	)		670
Comprehensive income	$	6,890		$	8,785	$	15,774		$	17,257

See Notes to Consolidated Financial Statements

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(In thousands, except share amounts)

(Unaudited)

										Accumulated
					Additional					Other			Total
	Preferred		Common		Paid-in		Retained			Comprehensive			Stockholders'
	Stock		Stock		Capital		Earnings			Income			Equity
Balance, December 31, 2012	$	39,958	$	6	$	93,505	$	92,492		$	7,296		$	233,257
Dividends paid		-		-		-		(12	)		-			-
Preferred dividends paid		-		-		-		(200	)		-			(200	)
Exercise 49,500 stock options and warrants, including tax benefit		-		-		789		-			-			789
Issuance of 600,000 shares upon mandatory conversion of subordinated mandatory convertible debentures		-		1		14,999		-			-			15,000
Other comprehensive income		-		-		-		-			(3,163	)		(3,163	)
Stock-based compensation expense		-		-		581		-			-			581
Net income		-		-		-		18,937			-			18,937
Balance, June 30, 2013	$	39,958	$	7	$	109,874	$	111,217		$	4,133		$	265,189

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

See Notes to Consolidated Financial Statements

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(In thousands) (Unaudited)

	2013			2012
OPERATING ACTIVITIES
Net income	$	18,937		$	16,587
Adjustments to reconcile net income to net cash provided by:
Deferred tax benefit		(1,294	)		(703	)
Provision for loan losses		7,618			5,466
Depreciation and amortization		908			604
Net amortization of investments		504			529
Market value adjustment of interest rate cap		-			9
Decrease in accrued interest and dividends receivable		57			136
Stock-based compensation expense		581			522
Decrease in accrued interest payable		(37	)		(10	)
Proceeds from sale of mortgage loans held for sale		110,306			121,731
Originations of mortgage loans held for sale		(99,072	)		(117,006	)
Gain on sale of securities available for sale		(131	)		-
Gain on sale of mortgage loans held for sale		(1,782	)		(1,866	)
Net loss on sale of other real estate owned		87			62
Write down of other real estate owned		402			420
Decrease in special prepaid FDIC insurance assessments		2,498			626
Increase in cash surrender value of life insurance contracts		(955	)		(775	)
Excess tax benefits from exercise of warrants		(5	)		-
Net change in other assets, liabilities, and other operating activities		(3,657	)		(2,109	)
Net cash provided by operating activities		34,965			24,223
INVESTMENT ACTIVITIES
Purchase of securities available for sale		(29,746	)		(31,223	)
Proceeds from maturities, calls and paydowns of securities available for sale		30,614			28,544
Purchase of securities held to maturity		(10,668	)		(6,005	)
Proceeds from maturities, calls and paydowns of securities held to maturity		2,827			203
Increase in loans		(240,406	)		(196,384	)
Purchase of premises and equipment		(817	)		(2,045	)
Purchase of restricted equity securities		-			(787	)
Proceeds from sale of restricted equity securities		203			270
Proceeds from sale of other real estate owned		2,501			2,239
Additions to other real estate owned		(7	)		-
Net cash used in investing activities		(245,499	)		(205,188	)
FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits		17,022			48,534
Net increase in interest-bearing deposits		146,383			48,481
Net increase in federal funds purchased		58,410			940
Proceeds from exercise of stock options and warrants		789			-
Proceeds from sale of common stock, net		-			997
Excess tax benefits from exercise of warrants		5			-
Repayment of other borrowings		-			(4,918	)
Dividends paid on common stock		(12	)		-
Dividends paid on preferred stock		(200	)		(200	)
Net cash provided by financing activities		222,397			93,834
Net increase (decrease) in cash and cash equivalents		11,863			(87,131	)
Cash and cash equivalents at beginning of year		180,745			242,933
Cash and cash equivalents at end of year	$	192,608		$	155,802
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest	$	6,512		$	7,592
Income taxes		9,890			8,691
NONCASH TRANSACTIONS
Conversion of mandatorily convertible subordinated debentures	$	15,000		$	-
Other real estate acquired in settlement of loans		2,369			304
Internally financed sales of other real estate owned		-			24

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

NOTE 1 - GENERAL

The accompanying consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U. S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2012.

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

NOTE 2 - CASH AND CASH EQUIVALENTS

Cash on hand, cash items in process of collection, amounts due from banks, and federal funds sold are included in cash and cash equivalents.

NOTE 3 - EARNINGS PER COMMON SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In Thousands, Except Shares and Per Share Data)
Earnings per common share
Weighted average common shares outstanding		6,944,900		5,981,218		6,618,129		5,971,630
Net income available to common stockholders	$	9,586	$	8,231	$	18,737	$	16,387
Basic earnings per common share	$	1.38	$	1.38	$	2.83	$	2.74

Weighted average common shares outstanding		6,944,900		5,981,218		6,618,129		5,971,630
Dilutive effects of assumed conversions and exercise of stock options and warrants		273,542		952,346		529,736		952,087
Weighted average common and dilutive potential common shares outstanding		7,218,442		6,933,564		7,147,865		6,923,717
Net income available to common stockholders	$	9,586	$	8,231	$	18,737	$	16,387
Effect of interest expense on convertible debt, net of tax and discretionary expenditures related to conversion		-		142		115		283
Net income available to common stockholders, adjusted for effect of debt conversion	$	9,586	$	8,373	$	18,852	$	16,670
Diluted earnings per common share	$	1.33	$	1.21	$	2.64	$	2.41

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2013 and December 31, 2012 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gain		Loss			Value
	(In Thousands)
June 30, 2013
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	17,447	$	721	$	-		$	18,168
Mortgage-backed securities		65,168		2,612		(110	)		67,670
State and municipal securities		123,099		3,838		(833	)		126,104
Corporate debt		15,697		172		(41	)		15,828
Total		221,411		7,343		(984	)		227,770
Securities Held to Maturity
Mortgage-backed securities		28,267		314		(1,124	)		27,457
State and municipal securities		5,541		294		-			5,835
Total	$	33,808	$	608	$	(1,124	)	$	33,292

December 31, 2012
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	27,360	$	1,026	$	-		$	28,386
Mortgage-backed securities		69,298		4,168		-			73,466
State and municipal securities		112,319		5,941		(83	)		118,177
Corporate debt		13,677		210		(39	)		13,848
Total		222,654		11,345		(122	)		233,877
Securities Held to Maturity
Mortgage-backed securities		20,429		768		(40	)		21,157
State and municipal securities		5,538		655		-			6,193
Total	$	25,967	$	1,423	$	(40	)	$	27,350

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

The following table identifies, as of June 30, 2013 and December 31, 2012, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months. At June 30, 2013, one of the Company’s 623 debt securities had been in an unrealized loss position for 12 or more months. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity; accordingly, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2013. Further, the Company believes any deterioration in value of its current investment securities is attributable to changes in market interest rates and not credit quality of the issuer.

	Less Than Twelve Months					Twelve Months or More					Total
	Gross					Gross					Gross
	Unrealized					Unrealized					Unrealized
	Losses			Fair Value		Losses			Fair Value		Losses			Fair Value
	(In Thousands)
June 30, 2013
U.S. Treasury and government sponsored agencies	$	-		$	1,045	$	-		$	-	$	-		$	1,045
Mortgage-backed securities		(110	)		27,107		-			-		(110	)		27,107
State and municipal securities		(1,954	)		34,232		(3	)		174		(1,957	)		34,406
Corporate debt		(41	)		5,957		-			-		(41	)		5,957
Total	$	(2,105	)	$	68,341	$	(3	)	$	174	$	(2,108	)	$	68,515

December 31, 2012
U.S. Treasury and government sponsored agencies	$	-		$	-	$	-		$	-	$	-		$	-
Mortgage-backed securities		(40	)		4,439		-			-		(40	)		4,439
State and municipal securities		(83	)		8,801		-			166		(83	)		8,967
Corporate debt		(39	)		4,882		-			-		(39	)		4,882
Total	$	(162	)	$	18,122	$	-		$	166	$	(162	)	$	18,288

NOTE 5 – LOANS

The following table details the Company’s loans at June 30, 2013 and December 31, 2012 :

	June 30,			December 31,
	2013			2012
	(Dollars In Thousands)

Commercial, financial and agricultural	$	1,150,977		$	1,030,990
Real estate - construction		162,076			158,361
Real estate - mortgage:
Owner-occupied commercial		623,146			568,041
1-4 family mortgage		252,357			235,909
Other mortgage		359,923			323,599

Subtotal: Real estate - mortgage		1,235,426			1,127,549
Consumer		41,713			46,282

Total Loans		2,590,192			2,363,182
Less: Allowance for loan losses		(28,757	)		(26,258	)

Net Loans	$	2,561,435		$	2,336,924


Commercial, financial and agricultural		44.43	%		43.63	%
Real estate - construction		6.26	%		6.70	%
Real estate - mortgage:
Owner-occupied commercial		24.06	%		24.04	%
1-4 family mortgage		9.74	%		9.98	%
Other mortgage		13.90	%		13.69	%
Subtotal: Real estate - mortgage		47.70	%		47.71	%
Consumer		1.61	%		1.96	%
Total Loans		100.00	%		100.00	%

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

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

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

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

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

Loans by credit quality indicator as of June 30, 2013 and December 31, 2012 were as follows:

			Special
June 30, 2013	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)

Commercial, financial and agricultural	$	1,107,307	$	35,092	$	8,464	$	114	$	1,150,977
Real estate - construction		137,731		6,645		17,700		-		162,076
Real estate - mortgage:
Owner-occupied commercial		605,157		10,581		7,408		-		623,146
1-4 family mortgage		237,094		6,248		9,015		-		252,357
Other mortgage		347,364		7,670		4,889		-		359,923
Total real estate mortgage		1,189,615		24,499		21,312		-		1,235,426
Consumer		41,057		78		578		-		41,713
Total	$	2,475,710	$	66,314	$	48,054	$	114	$	2,590,192

			Special
December 31, 2012	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)

Commercial, financial and agricultural	$	1,004,043	$	19,172	$	7,775	$	-	$	1,030,990
Real estate - construction		121,168		22,771		14,422		-		158,361
Real estate - mortgage:
Owner-occupied commercial		555,536		4,142		8,363		-		568,041
1-4 family mortgage		223,152		6,379		6,378		-		235,909
Other mortgage		312,473		6,674		4,452		-		323,599
Total real estate mortgage		1,091,161		17,195		19,193		-		1,127,549
Consumer		46,076		71		135		-		46,282
Total	$	2,262,448	$	59,209	$	41,525	$	-	$	2,363,182

Loans by performance status as of June 30, 2013 and December 31, 2012 were as follows:

June 30, 2013	Performing		Nonperforming		Total
	(In Thousands)

Commercial, financial and agricultural	$	1,149,580	$	1,397	$	1,150,977
Real estate - construction		149,853		12,223		162,076
Real estate - mortgage:
Owner-occupied commercial		622,391		755		623,146
1-4 family mortgage		252,060		297		252,357
Other mortgage		359,686		237		359,923
Total real estate mortgage		1,234,137		1,289		1,235,426
Consumer		41,598		115		41,713
Total	$	2,575,168	$	15,024	$	2,590,192

December 31, 2012	Performing		Nonperforming		Total
	(In Thousands)

Commercial, financial and agricultural	$	1,030,714	$	276	$	1,030,990
Real estate - construction		151,901		6,460		158,361
Real estate - mortgage:
Owner-occupied commercial		565,255		2,786		568,041
1-4 family mortgage		235,456		453		235,909
Other mortgage		323,359		240		323,599
Total real estate mortgage		1,124,070		3,479		1,127,549
Consumer		46,139		143		46,282
Total	$	2,352,824	$	10,358	$	2,363,182

Loans by past due status as of June 30, 2013 and December 31, 2012 were as follows:

June 30, 2013	Past Due Status (Accruing Loans)
							Total Past
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	1,000	$	675	$	65	$	1,740	$	1,332	$	1,147,905	$	1,150,977
Real estate - construction		-		-		-		-		12,223		149,853		162,076
Real estate - mortgage:
Owner-occupied commercial		904		165		-		1,069		755		621,322		623,146
1-4 family mortgage		651		-		79		730		218		251,409		252,357
Other mortgage		3,609		375		-		3,984		237		355,702		359,923
Total real estate - mortgage		5,164		540		79		5,783		1,210		1,228,433		1,235,426
Consumer		82		47		115		244		-		41,469		41,713
Total	$	6,246	$	1,262	$	259	$	7,767	$	14,765	$	2,567,660	$	2,590,192

December 31, 2012	Past Due Status (Accruing Loans)
							Total Past
	30-59 Days		60-89 Days		90+ Days		Due		Non-Accrual		Current		Total Loans
	(In Thousands)
Commercial, financial and agricultural	$	1,699	$	385	$	-	$	2,084	$	276	$	1,028,630	$	1,030,990
Real estate - construction		-		-		-		-		6,460		151,901		158,361
Real estate - mortgage:
Owner-occupied commercial		1,480		10		-		1,490		2,786		563,765		568,041
1-4 family mortgage		420		16		-		436		453		235,020		235,909
Other mortgage		516		-		-		516		240		322,843		323,599
Total real estate - mortgage		2,416		26		-		2,442		3,479		1,121,628		1,127,549
Consumer		108		-		8		116		135		46,031		46,282
Total	$	4,223	$	411	$	8	$	4,642	$	10,350	$	2,348,190	$	2,363,182

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

The following table presents an analysis of the allowance for loan losses by portfolio segment as of June 30, 2013 and December 31, 2012. The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.

	Commercial,
	financial and			Real estate -			Real estate -						Qualitative
	agricultural			construction			mortgage			Consumer			Factors			Total
	(In Thousands)
	Three Months Ended June 30, 2013
Allowance for loan losses:
Balance at March 31, 2013	$	8,951		$	6,642		$	5,737		$	164		$	6,185		$	27,679
Chargeoffs		(101	)		(1,888	)		(270	)		(129	)		-			(2,388	)
Recoveries		31			95			3			3			-			132
Provision		2,259			604			569			186			(284	)		3,334
Balance at June 30, 2013	$	11,140		$	5,453		$	6,039		$	224		$	5,901		$	28,757

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

	Six Months Ended June 30, 2013
Allowance for loan losses:
Balance at December 31, 2012	$	8,233		$	6,511		$	4,912		$	199		$	6,403		$	26,258
Chargeoffs		(988	)		(3,877	)		(270	)		(131	)		-			(5,266	)
Recoveries		37			102			3			5			-			147
Provision		3,858			2,717			1,394			151			(502	)		7,618
Balance at June 30, 2013	$	11,140		$	5,453		$	6,039		$	224		$	5,901		$	28,757

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

	As of June 30, 2013
Allowance for loan losses:
Individually Evaluated for Impairment		2,286			932			2,744			75			-			6,037
Collectively Evaluated for Impairment		8,854			4,521			3,295			149			5,901			22,720

Loans:
Ending Balance	$	1,150,977		$	162,076		$	1,235,426		$	41,713		$	-		$	2,590,192
Individually Evaluated for Impairment		6,771			17,700			21,256			559			-			46,286
Collectively Evaluated for Impairment		1,144,206			144,376			1,214,170			41,154			-			2,543,906

	As of December 31, 2012
Allowance for loan losses:
Individually Evaluated for Impairment		577			1,013			1,921			-			-			3,511
Collectively Evaluated for Impairment		7,656			5,498			2,991			199			6,403			22,747

Loans:
Ending Balance	$	1,030,990		$	158,361		$	1,127,549		$	46,282		$	-		$	2,363,182
Individually Evaluated for Impairment		3,910			14,422			18,927			135			-			37,394
Collectively Evaluated for Impairment		1,027,080			143,939			1,108,622			46,147			-			2,325,788

The following table presents details of the Company’s impaired loans as of June 30, 2013 and December 31, 2012, respectively. Loans which have been fully charged off do not appear in the tables.

							For the three months				For the six months
							ended June 30,				ended June 30,
	June 30, 2013						2013				2013
									Interest				Interest
			Unpaid				Average		Income		Average		Income
	Recorded		Principal		Related		Recorded		Recognized		Recorded		Recognized
	Investment		Balance		Allowance		Investment		in Period		Investment		in Period
	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	2,805	$	2,805	$	-	$	2,732	$	82	$	2,708	$	172
Real estate - construction		9,933		10,976		-		9,587		39		9,166		90
Real estate - mortgage:
Owner-occupied commercial		2,988		2,988		-		3,000		36		3,013		77
1-4 family mortgage		1,351		1,351		-		1,352		15		1,353		30
Other mortgage		3,010		3,108		-		2,901		43		2,812		82
Total real estate - mortgage		7,349		7,447		-		7,253		94		7,178		189
Consumer		19		19		-		20		-		22		1
Total with no allowance recorded		20,106		21,247		-		19,592		215		19,074		452

With an allowance recorded:
Commercial, financial and agricultural		3,966		3,966		2,286		3,526		41		3,626		81
Real estate - construction		7,767		8,214		932		7,947		40		8,034		91
Real estate - mortgage:
Owner-occupied commercial		4,364		4,614		1,184		4,383		35		4,398		66
1-4 family mortgage		7,664		7,664		1,136		7,825		67		7,675		130
Other mortgage		1,879		1,879		424		1,883		27		1,821		54
Total real estate - mortgage		13,907		14,157		2,744		14,091		129		13,894		250
Consumer		540		540		75		588		9		705		21
Total with allowance recorded		26,180		26,877		6,037		26,152		219		26,259		443

Total Impaired Loans:
Commercial, financial and agricultural		6,771		6,771		2,286		6,258		123		6,334		253
Real estate - construction		17,700		19,190		932		17,534		79		17,200		181
Real estate - mortgage:
Owner-occupied commercial		7,352		7,602		1,184		7,383		71		7,411		143
1-4 family mortgage		9,015		9,015		1,136		9,177		82		9,028		160
Other mortgage		4,889		4,987		424		4,784		70		4,633		136
Total real estate - mortgage		21,256		21,604		2,744		21,344		223		21,072		439
Consumer		559		559		75		608		9		727		22
Total impaired loans	$	46,286	$	48,124	$	6,037	$	45,744	$	434	$	45,333	$	895

December 31, 2012

			Unpaid				Average		Interest Income
	Recorded		Principal		Related		Recorded		Recognized in
	Investment		Balance		Allowance		Investment		Period
	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	2,602	$	2,856	$	-	$	2,313	$	105
Real estate - construction		6,872		7,894		-		7,631		188
Owner-occupied commercial		5,111		5,361		-		5,411		145
1-4 family mortgage		2,166		2,388		-		2,177		108
Other mortgage		4,151		4,249		-		4,206		275
Total real estate - mortgage		11,428		11,998		-		11,794		528
Consumer		135		344		-		296		6
Total with no allowance recorded		21,037		23,092		-		22,034		827

With an allowance recorded:
Commercial, financial and agricultural		1,308		1,308		577		1,325		90
Real estate - construction		7,550		8,137		1,013		6,961		154
Real estate - mortgage:
Owner-occupied commercial		3,195		3,195		779		3,277		77
1-4 family mortgage		4,002		4,002		1,007		4,001		139
Other mortgage		302		302		135		307		20
Total real estate - mortgage		7,499		7,499		1,921		7,585		236
Total with allowance recorded		16,357		16,944		3,511		15,871		480

Total Impaired Loans:
Commercial, financial and agricultural		3,910		4,164		577		3,638		195
Real estate - construction		14,422		16,031		1,013		14,592		342
Real estate - mortgage:
Owner-occupied commercial		8,306		8,556		779		8,688		222
1-4 family mortgage		6,168		6,390		1,007		6,178		247
Other mortgage		4,453		4,551		135		4,513		295
Total real estate - mortgage		18,927		19,497		1,921		19,379		764
Consumer		135		344		-		296		6
Total impaired loans	$	37,394	$	40,036	$	3,511	$	37,905	$	1,307

Troubled Debt Restructurings (“TDR”) at June 30, 2013, December 31, 2012 and June 30, 2012 totaled $9.4 million, $12.3 million and $8.4 million, respectively. At June 30, 2013, the Company had a related allowance for loan losses of $1,387,000 allocated to these TDRs, compared to $1,442,000 at December 31, 2012 and $433,000 at June 30, 2012. Three TDR loans to one borrower in the amount of $2.8 million were paid-in-full and twenty TDR loans to another borrower were consolidated into one loan during the second quarter 2013. All loans classified as TDRs as of June 30, 2013 are performing as agreed under the terms of their restructured plans. The following table presents an analysis of TDRs as of June 30, 2013 and June 30, 2012.

	June 30, 2013						June 30, 2012
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment
	(In Thousands)
Troubled Debt Restructurings
Commercial, financial and agricultural		2	$	1,066	$	1,066		2	$	1,263	$	1,263
Real estate - construction		-		-		-		15		2,377		2,377
Real estate - mortgage:
Owner-occupied commercial		3		3,121		3,121		3		2,786		2,786
1-4 family mortgage		1		4,925		4,925		5		1,709		1,709
Other mortgage		1		294		294		1		304		304
Total real estate mortgage		5		8,340		8,340		9		4,799		4,799
Consumer		-		-		-		-		-		-
		7	$	9,406	$	9,406		26	$	8,439	$	8,439

	Number of		Recorded		Number of		Recorded
	Contracts		Investment		Contracts		Investment

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

NOTE 6 - EMPLOYEE AND DIRECTOR BENEFITS

Stock Options

At June 30, 2013, the Company had stock-based compensation plans, as described below. The compensation cost that has been charged to earnings for the plans was approximately $322,000 and $581,000 for the three and six months ended June 30, 2013 and $262,000 and $522,000 for the three and six months ended June 30, 2012.

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

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

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

	2013			2012
Expected volatility		18.50	%		20.00	%
Expected term (in years)		7.5 years			6.0 years
Risk-free rate		1.39	%		1.02	%

The weighted average grant-date fair value of options granted during the six months ended June 30, 2013 and June 30, 2012 was $8.03 and $6.43, respectively.

The following table summarizes stock option activity during the six months ended June 30, 2013 and June 30, 2012:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (years)		Value
								(In Thousands)
Six Months Ended June 30, 2013:
Outstanding at January 1, 2013		816,500		$	20.87		5.8	$	9,905
Granted		25,000			33.00		9.7		-
Exercised		(43,000	)		14.42		3.1		1,054
Forfeited		-			-		-		-
Outstanding at June 30, 2013		798,500			21.60		5.6	$	15,893

Exercisable at June 30, 2013		447,995		$	14.10		3.2	$	12,277

Six Months Ended June 30, 2012:
Outstanding at January 1, 2011		1,073,800		$	18.33		6.0	$	12,508
Granted		36,500			30.00		9.7		-
Exercised		(52,136	)		11.00		3.6		991
Forfeited		-			-		-		-
Outstanding at June 30, 2012		1,058,164			19.11		5.8	$	11,527

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

As of June 30, 2013, there was $1,620,000 of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next 1.7 years.

Restricted Stock

The Company has awarded 71,000 shares of restricted stock, of which 12,000 shares are vested. 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, 2013, there was $1,424,000 of total unrecognized compensation cost related to non-vested restricted stock. The cost is expected to be recognized evenly over the remaining 3.7 years of the restricted stock’s vesting period.

Stock Warrants

The Company granted warrants to purchase common stock of the Company in connection with the issuance of debt. There were 79,000 warrants unexercised as of June 30, 2013, each with an exercise price of $25.00. 64,000 of the warrants expire in September 2013, and the remaining 15,000 expire in June 2016. There were 6,500 warrants exercised during the first quarter of 2013.

NOTE 7 - DERIVATIVES

During 2008, the Company entered into an interest rate swap (“swap”) to facilitate the financing needs of a single customer. Upon entering into this swap, the Company entered into an offsetting position with a regional correspondent bank in order to minimize the risk to the Company. As of June 30, 2013, the notional amount of the swap agreement with this customer was approximately $4.5 million while the notional amount of the swap contract with the correspondent bank was also approximately $4.5 million. The swap qualifies as a derivative, but is not designated as a hedging instrument. The Company has recorded the value of the swap at $216,000 in offsetting entries in other assets and other liabilities.

The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of June 30, 2013 and December 31, 2012 were not material.

NOTE 8 – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, which amended disclosures by requiring improved information about financial instruments and derivative instruments that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. Reporting entities are required to provide both net and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of international financial reporting standards (“IFRS”). Companies were required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those years. The Company has adopted this update, but such adoption had no impact on its financial position or results of operations.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires a reporting entity to provide information about the amounts reclassified out of accumulated comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional details about those amounts. Companies were required to apply these amendments prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company has adopted this update, but such adoption had no impact on its financial position or results of operations.

NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date, which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The amendments in this ASU are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company will evaluate these amendments but does not believe they will have an impact on its financial position or results of operations.

NOTE 10 - FAIR VALUE MEASUREMENT

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

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

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

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

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

Debt Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on prices obtained from independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing source regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, securities are classified in Level 3 of the hierarchy.

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

Impaired Loans. Impaired loans are measured and reported at fair value when full payment under the loan terms is not probable. Impaired loans are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in Accounting Standards Codification (“ASC”) 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates, and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized as an impairment charge related to impaired loans that are measured at fair value on a nonrecurring basis was $1,757,000 and $5,682,000 during the three and six months ended June 30, 2013, respectively, and $809,000 and $3,700,000 during the three and six months ended June 30, 2012, respectively.

Other Real Estate Owned. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for loan losses subsequent to foreclosure. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. A loss on the sale and write-downs of OREO of $203,000 and $511,000 was recognized for the three and six months ended June 30, 2013, respectively, and $366,000 and $483,000 for the three and six months ended June 30, 2012, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO is classified within Level 3 of the hierarchy.

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of June 30, 2013 and December 31, 2012:

	Fair Value Measurements at June 30, 2013 Using
	Quoted Prices in Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:	(In Thousands)
Available-for-sale securities:
U.S. Treasury and government sponsored agencies	$	-	$	18,168	$	-	$	18,168
Mortgage-backed securities		-		67,670		-		67,670
State and municipal securities		-		126,104		-		126,104
Corporate debt		-		15,828		-		15,828
Interest rate swap agreements		-		216		-		216
Total assets at fair value	$	-	$	227,986	$	-	$	227,986

Liabilities Measured on a Recurring Basis:
Interest rate swap agreements	$	-	$	216	$	-	$	216

	Fair Value Measurements at December 31, 2012 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level1)		(Level 2)		Inputs (Level 3)		Total
Assets Measured on a Recurring Basis:	(In Thousands)
Available-for-sale securities
U.S. Treasury and government sponsored agencies	$	-	$	28,386	$	-	$	28,386
Mortgage-backed securities		-		73,466		-		73,466
State and municipal securities		-		118,177		-		118,177
Corporate debt		-		13,848		-		13,848
Interest rate swap agreements		-		389		-		389
		-		234,266		-		234,266

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

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of June 30, 2013 and December 31, 2012:

	Fair Value Measurements at June 30, 2013 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)
Impaired loans	$	-		-	$	40,249	$	40,249
Other real estate owned and repossessed assets		-		-		9,071		9,071
Total assets at fair value		-		-	$	49,320	$	49,320

	Fair Value Measurements at December 31, 2012 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets Measured on a Nonrecurring Basis:	(In Thousands)
Impaired loans	$	-	$	-	$	33,883	$	33,883
Other real estate owned		-		-		9,685		9,685
Total assets at fair value	$	-	$	-	$	43,568	$	43,568

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

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the statements of financial condition approximate those assets’ fair values.

Debt securities: Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on prices obtained from independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing service regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, securities are classified in Level 3 of the fair value hierarchy.

Restricted equity securities: Fair values for other investments are considered to be their cost as they are redeemed at par value.

Loans, net: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair value is based on carrying amounts. The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The method of estimating fair value does not incorporate the exit-price concept of fair value as prescribed by ASC 820 and generally produces a higher value than an exit-price approach. The measurement of the fair value of loans is classified within Level 3 of the fair value hierarchy.

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

Derivatives: The fair value of the derivative agreements are estimated by a third party using inputs that are observable or can be corroborated by observable market data. As part of the Company’s procedures, the price provided from the third party is evaluated for reasonableness given market changes. These measurements are classified within Level 2 of the fair value hierarchy.

Accrued interest and dividends receivable: The carrying amounts in the statements of condition approximate these assets’ fair value.

Bank owned life insurance contracts: The carrying amounts in the statements of condition approximate these assets’ fair value.

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

Other borrowings: The fair values of borrowings are estimated using discounted cash flow analysis, based on interest rates currently being offered by the Federal Home Loan Bank for borrowings of similar terms as those being valued. These measurements are classified as Level 2 in the fair value hierarchy.

Subordinated debentures: The fair values of subordinated debentures are estimated using a discounted cash flow analysis, based on interest rates currently being offered on the best alternative debt available at the measurement date. These measurements are classified as Level 2 in the fair value hierarchy.

Accrued interest payable: The carrying amounts in the statements of condition approximate these assets’ fair value.

Loan commitments: The fair values of the Company’s off-balance-sheet financial instruments are based on fees currently charged to enter into similar agreements. Since the majority of the Company’s other off-balance-sheet financial instruments consists of non-fee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

The carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2013 and December 31, 2012 are presented in the following table.

	June 30, 2013				December 31, 2012
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In Thousands)
Financial Assets:
Level 2 inputs:
Available for sale debt securities	$	227,770	$	227,770	$	233,877	$	233,877
Held to maturity debt securities		33,808		33,292		25,967		27,350
Restricted equity securities		3,738		3,738		3,941		3,941
Mortgage loans held for sale		16,374		16,374		25,826		25,826
Bank owned life insurance contracts		57,969		57,969		57,014		57,014
Derivative		216		216		389		389

Level 3 inputs:
Loans, net		2,561,435		2,527,995		2,336,924		2,327,780

Financial Liabilities:
Level 2 inputs:
Deposits		2,674,977		2,678,041		2,511,572		2,516,320
Federal funds purchased		175,475		175,475		117,065		117,065
Other borrowings		19,924		19,924		19,917		19,917
Subordinated debentures		-		-		15,050		15,050
Derivative		216		216		389		389

NOTE 11 – SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date of this filing to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of June 30, 2013, and events which occurred subsequent to June 30, 2013 but were not recognized in the financial statements. As of the date of this filing, there were no subsequent events that required recognition or disclosure.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is designed to provide a better understanding of various factors relating to the results of operations and financial condition of ServisFirst Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary, ServisFirst Bank (the “Bank”). This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements as of June 30, 2013 and for the three and six months ended June 30, 2013 and June 30, 2012, and should be read in conjunction with our Management Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Forward-Looking Statements

Statements in this document that are not historical facts, including, but not limited to, statements concerning future operations, results or performance, are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words “believe,” “expect,” “anticipate,” “project,” “plan,” “intend,” “will,” “would,” “might” and similar expressions often signify forward-looking statements. Such statements involve inherent risks and uncertainties. The Company cautions that such forward-looking statements, wherever they occur in this quarterly report or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various factors that could affect the accuracy of such forward-looking statements, including:

general economic conditions, especially in the credit markets and in the Southeast;

the performance of the capital markets;

changes in interest rates, yield curves and interest rate spread relationships;

changes in accounting and tax principles, policies or guidelines;

changes in legislation or regulatory requirements;

changes in our loan portfolio and the deposit base;

possible changes in laws and regulations and governmental monetary and fiscal policies, including, but not limited to, economic stimulus initiatives;

the cost and other effects of legal and administrative cases and similar contingencies;

possible changes in the creditworthiness of customers and the possible impairment of the collectability of loans and the value of collateral;

the effect of natural disasters, such as hurricanes and tornados, in our geographic markets; and

increased competition from both banks and non-banks

The foregoing list of factors is not exhaustive. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to “Risk Factors” in our most recent Annual Report on Form 10-K and our other SEC filings. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained herein. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.

Business

We are a bank holding company under the Bank Holding Company Act of 1956 incorporated in Delaware and headquartered at 850 Shades Creek Parkway, Birmingham, Alabama 35209 (Jefferson County). Through the Bank, we operate twelve full-service banking offices, with ten offices located in Jefferson, Shelby, Madison, Montgomery, Houston and Mobile counties in the metropolitan statistical areas (“MSAs”) of Birmingham-Hoover, Huntsville, Montgomery, Dothan and Mobile Alabama, and two offices located in Escambia County in the Pensacola-Ferry Pass-Brent, Florida MSA. We currently have a loan production office in Nashville, Tennessee. The Mobile, Alabama office opened as a full service banking office in April 2013. These MSAs constitute our primary service areas.

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

Overview

As of June 30, 2013, we had consolidated total assets of $3.1 billion, an increase of $0.2 billion, or 8.1%, from $2.9 billion at December 31, 2012. Total loans were $2.6 billion at June 30, 2013, up $0.2 billion, or 9.6%, from $2.4 billion at December 31, 2012. Total deposits were $2.7 billion at June 30, 2013, an increase of $0.2 billion, or 6.5%, from $2.5 billion at December 31, 2012.

Net income available to common stockholders for the quarter ended June 30, 2013 was $9.6 million, an increase of $1.3 million, or 16.5%, from $8.2 million for the quarter ended June 30, 2012. Basic and diluted earnings per common share were $1.38 and $1.33, respectively, for the three months ended June 30, 2013, compared to $1.38 and $1.21, respectively, for the corresponding period in 2012.

Net income available to common stockholders for the six months ended June 30, 2013 was $18.7 million, an increase of $2.4 million, or 14.3%, from $16.4 million for the six months ended June 30, 2012. Basic and diluted earnings per common share were $2.83 and $2.64, respectively, for the six months ended June 30, 2013, compared to $2.74 and $2.41, respectively, for the corresponding period in 2012.

Critical Accounting Policies

The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, valuation of foreclosed real estate, deferred taxes, and fair value of financial instruments are particularly subject to change. Information concerning our accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Financial Condition

Cash and Cash Equivalents

At June 30, 2013, we had $2.6 million in federal funds sold, compared to $3.3 million at December 31, 2012. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At June 30, 2013, we had $126.3 million in balances at the Federal Reserve, compared to $115.7 million at December 31, 2012.

Debt Securities

Debt securities available for sale totaled $227.8 million at June 30, 2013 and $233.9 million at December 31, 2012. Debt securities held to maturity totaled $33.8 million at June 30, 2013 and $26.0 million at December 31, 2012. Paydowns of $14.4 million in mortgage-backed securities, and $11.5 million in maturities and calls of government agency securities were replaced with purchases of $18.0 million of mortgage-backed securities and $10.7 million of tax-exempt municipal securities during the first six months of 2013. Also during the first half of 2013, we sold $4.1 million in corporate securities, recognizing a gain of $131,000, and replaced them with the purchase of $6.0 million in corporate securities.

The objective of our investment policy is to invest funds not otherwise needed to meet our loan demand to earn the maximum return, yet still maintain sufficient liquidity to meet fluctuations in our loan demand and deposit structure. In doing so, we balance the market and credit risks against the potential investment return, make investments compatible with the pledge requirements of any deposits of public funds, maintain compliance with regulatory investment requirements, and assist certain public entities with their financial needs. The investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. The entire portfolio, along with all investment transactions occurring since the previous board of directors meeting, is reviewed by the board at each monthly meeting. The investment policy allows portfolio holdings to include short-term securities purchased to provide us with needed liquidity and longer term securities purchased to generate level income for us over periods of interest rate fluctuations.

Each quarter, management assesses whether there have been events or economic circumstances indicating that a security on which there is an unrealized loss is other-than-temporarily impaired. Management considers several factors, including the amount and duration of the impairment; the intent and ability of the Company to hold the security for a period sufficient for a recovery in value; and known recent events specific to the issuer or its industry. In analyzing an issuer’s financial condition, management considers whether the securities are issued by agencies of the federal government, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports, among other things. As we currently do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, no declines are deemed to be other than temporary. We will continue to evaluate our investment securities for possible other-than-temporary impairment, which could result in non-cash charges to earnings in one or more future periods.

The following table shows the amortized cost of our investment securities by their stated maturity at June 30, 2013:

	Less Than			One Year to			Five Years to			More Than
	One Year			Five Years			Ten Years			Ten Years			Total
	(In Thousands)
U.S. Treasury and government sponsored agencies	$	-		$	13,732		$	3,715		$	-		$	17,447
Mortgage-backed securities		70			69,419			22,948			998			93,435
State and municipal securities		5,027			61,832			54,061			7,720			128,640
Corporate debt		-			9,713			5,984			-			15,697
Total	$	5,097		$	154,696		$	86,708		$	8,718		$	255,219

Taxable-equivalent Yield		4.70	%		3.30	%		3.72	%		5.73	%		3.56	%

All securities held are traded in liquid markets. As of June 30, 2013, we owned certain restricted securities of the Federal Home Loan Bank with an aggregate book value and market value of $3.7 million and certain securities of First National Bankers Bank in which we invested $0.3 million. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity.

The Bank does not invest in collateralized debt obligations (“CDOs”). All tax-exempt securities currently held are issued by government issuers within the State of Alabama. All corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at June 30, 2013 has a combined average credit rating of AA.

The carrying value of investment securities pledged to secure public funds on deposit and for other purposes as required by law was $187.6 million and $200.7 million as of June 30, 2013 and December 31, 2012, respectively.

Loans

We had total loans of $2.6 billion at June 30, 2013, an increase of $0.2 billion, or 9.6%, compared to $2.4 billion at December 31, 2012. At June 30, 2013, 52% of our loans were in our Birmingham offices, 16% of our loans were in our Huntsville offices, 13% of our loans were in our Dothan offices, 10% of our loans were in our Montgomery offices, 1% of our loans were in our Mobile office, and 7% of our loans were in our Pensacola, Florida offices. All of our markets’ loan portfolios grew from December 31, 2012 to June 30, 2013. The highest percentage growth among our markets open more than one year was 16.3% and the lowest percentage growth was 4.4%.

Asset Quality

The allowance for loan losses is established and maintained at levels management deems adequate to absorb anticipated credit losses from identified and otherwise inherent risks in the loan portfolio as of the balance sheet date. In assessing the adequacy of the allowance for loan losses management considers its evaluation of the loan portfolio, past due loan experience, collateral values, current economic conditions and other factors considered necessary to maintain the allowance at an adequate level. Our management believes that the allowance was adequate at June 30, 2013.

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

			Percentage of loans
			in each category
June 30, 2013	Amount		to total loans
	(In Thousands)
Commercial, financial and agricultural	$	11,140		44.43	%
Real estate - construction		5,453		6.26	%
Real estate - mortgage		6,039		47.70	%
Consumer		224		1.61	%
Qualitative factors		5,901		-	%
Total	$	28,757		100.00	%

			Percentage of loans
			in each category
December 31, 2012	Amount		to total loans
	(In Thousands)
Commercial, financial and agricultural	$	8,233		43.63	%
Real estate - construction		6,511		6.70	%
Real estate - mortgage		4,912		47.71	%
Consumer		199		1.96	%
Qualitative factors		6,403		-	%
Total	$	26,258		100.00	%

Nonperforming Assets

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, totaled $15.0 million at June 30, 2013, compared to $10.4 million at December 31, 2012. Of this total, nonaccrual loans of $14.8 million at June 30, 2013, represented a net increase of $4.4 million from nonaccrual loans at December 31, 2012. Loans to a large residential builder totaling $13.5 million were placed on nonaccrual status during the first quarter 2013. There were six loans 90 or more days past due and still accruing in the amount of $259,000, at June 30, 2013, compared to four loans 90 or more days past due and still accruing in the amount of $8,000, at December 31, 2012. Troubled Debt Restructurings (“TDR”) at June 30, 2013 were $9.4 million compared to $12.3 million at December 31, 2012 with the majority of this decrease due to the pay-off of three TDR loans to one borrower in the amount of $2.8 million during the second quarter 2013. All TDR loans at June 30, 2013 were performing as agreed under the terms of their restructuring plans.

Other real estate owned (OREO) decreased to $9.1 million at June 30, 2013, from $9.7 million at December 31, 2012. The total number of OREO accounts decreased from 38 to 35.

The following table summarizes our nonperforming assets and TDRs at June 30, 2013 and December 31, 2012:

	June 30, 2013					December 31, 2012
				Number of					Number of
	Balance			Loans		Balance			Loans
	(Dollar Amounts In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	1,332			7	$	276			2
Real estate - construction		12,223			49		6,460			19
Real estate - mortgage:
Owner-occupied commercial		755			5		2,786			3
1-4 family mortgage		218			1		453			2
Other mortgage		237			1		240			1
Total real estate - mortgage		1,210			7		3,479			6
Consumer		-			-		135			2
Total Nonaccrual loans:	$	14,765			63	$	10,350			29

90+ days past due and accruing:
Commercial, financial and agricultural	$	65			1	$	-			-
Real estate - construction		-			-		-			-
Real estate - mortgage:
Owner-occupied commercial		-			-		-			-
1-4 family mortgage		79			1		-			-
Other mortgage		-			-		-			-
Total real estate - mortgage		79			1		-			-
Consumer		115			4		8			4
Total 90+ days past due and accruing:	$	259			6	$	8			4

Total Nonperforming Loans:	$	15,024			69	$	10,358			33

Plus: Other real estate owned and repossessions		9,232			37		9,721			38
Total Nonperforming Assets	$	24,256			106	$	20,079			71

Restructured accruing loans:
Commercial, financial and agricultural	$	1,066			2	$	1,168			2
Real estate - construction		-			-		3,213			15
Real estate - mortgage:
Owner-occupied commercial		3,121			3		3,121			3
1-4 family mortgage		4,925			1		1,709			5
Other mortgage		294			1		302			1
Total real estate - mortgage		8,340			5		5,132			9
Consumer		-			-		-			-
Total restructured accruing loans:	$	9,406			7	$	9,513			26

Total Nonperforming assets and restructured accruing loans	$	33,662			113	$	29,592			97

Ratios:
Nonperforming loans to total loans		0.58	%				0.44	%
Nonperforming assets to total loans plus other real estate owned		0.93	%				0.85	%
Nonperforming loans plus restructured accruing loans to total loans plus other real estate owned		0.93	%				0.84	%

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

Impaired Loans and Allowance for Loan Losses

We have allocated approximately $5.5 million of our allowance for loan losses to real estate construction, including acquisition and development and lot loans, $11.1 million to commercial, financial and agricultural loans, and $6.3 million to other loan types. We have a total loan loss reserve as of June 30, 2013 allocable to specific loan types of $22.9 million. Another $5.9 million of our allowance for loan losses is based on our judgments regarding various external and internal factors, including macroeconomic trends, our assessment of the Bank’s loan growth prospects, and evaluations of internal risk controls. The total resulting loan loss reserve is $28.8 million. Based upon historical performance, known factors, overall judgment, and regulatory methodologies, including consideration of the possible effect of current residential housing market defaults and business failures plaguing financial institutions in general, management believes that the current methodology used to determine the adequacy of the allowance for loan losses is reasonable.

As of June 30, 2013, we had impaired loans of $46.3 million inclusive of nonaccrual loans, an increase of $8.9 million from $37.4 million as of December 31, 2012. Loans to one large residential builder totaling $13.5 million were placed on nonaccrual status during the first quarter 2013. We allocated $6.0 million of our allowance for loan losses at June 30, 2013 to these impaired loans. A loan is considered impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the original loan agreement. Impairment does not always indicate credit loss, but provides an indication of collateral exposure based on prevailing market conditions and third-party valuations. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent. The amount of impairment, if any, and subsequent changes are included in the allowance for loan losses. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Our credit risk management team performs verification and testing to ensure appropriate identification of impaired loans and that proper reserves are held on these loans.

Of the $46.3 million of impaired loans reported as of June 30, 2013, $17.7 million were real estate – construction loans, $6.8 million were commercial, financial, and agricultural loans, $7.4 million were commercial real estate loans, and $9.1 million were residential real estate loans. The remaining $5.4 million of impaired loans consisted of other mortgages and consumer loans. Of the $17.7 million of impaired real estate – construction loans, $13.7 million (a total of 48 loans with 8 builders) were residential construction loans, and $1.8 million consisted of various residential lot loans to 6 builders.

Deposits

Total deposits increased $0.2 billion, or 6.5%, to $2.7 billion at June 30, 2013 compared to $2.5 billion at December 31, 2012. We anticipate long-term sustainable growth in deposits through continued development of market share in our markets.

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

Borrowings

Our borrowings consist of federal funds purchased and subordinated notes payable. We had $175.5 million and $117.1 million at June 30, 2013 and December 31, 2012, respectively, in federal funds purchased from correspondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was 0.25% for the quarter ended June 30, 2013. $19.9 million in other borrowings consist of 5.50% Subordinated Notes due November 9, 2022, which were issued in a private placement in November 2012. The notes pay interest semi-annually.

In June 2012, we paid off our 8.25% Subordinated Note due June 1, 2016 in the aggregate principle amount of $5.0 million. In November 2012, we redeemed our outstanding 8.50% Junior Subordinated Deferrable Interest Debentures due 2038 in the aggregate principle amount of $15.0 million, which were held by ServisFirst Capital Trust I. All of the related 8.50% Trust Preferred Securities and 8.50% Common Securities of the Trust were redeemed. In March 2013, our 6.00% Junior Subordinated Mandatory Convertible Deferrable Interest Debentures due 2040 were automatically and mandatorily converted into our common stock at a conversion price of $25 per share. At total of 600,000 shares of our common stock were issued pursuant to this conversion.

Liquidity

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

The retention of existing deposits and attraction of new deposit sources through new and existing customers is critical to our liquidity position. If our liquidity were to decline due to a run-off in deposits, we have procedures that provide for certain actions under varying liquidity conditions. These actions include borrowing from existing correspondent banks, selling or participating loans, and curtailing loan commitments and funding. At June 30, 2013, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $296.3 million. Additionally, the Bank had additional borrowing availability of approximately $125.0 million in unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements. We believe these sources of funding are adequate to meet immediate anticipated funding needs, but we will need additional capital to maintain our current growth. Our management meets on a quarterly basis to review sources and uses of funding to determine the appropriate strategy to ensure an appropriate level of liquidity. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. Our regular sources of funding are from the growth of our deposit base, repayment of principal and interest on loans, the sale of loans and the renewal of time deposits. In addition, we have issued debt as described above under “Other Borrowings”.

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

The following table reflects the contractual maturities of our term liabilities as of June 30, 2013. The amounts shown do not reflect any early withdrawal or prepayment assumptions.

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

Deposits without a stated maturity	$	2,265,840	$	-	$	-	$	-	$	-
Certificates of deposit (2)		409,137		272,198		100,695		36,244		-
Federal funds purchased		175,475		175,475		-		-		-
Subordinated debentures		19,924		-		-		-		19,924
Operating lease commitments		17,278		2,450		4,925		4,326		5,577
Total	$	2,887,654	$	450,123	$	105,620	$	40,570	$	25,501

(1) Excludes interest

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

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

Capital Adequacy

As of June 30, 2013, our most recent notification from the FDIC categorized us as well-capitalized under the regulatory framework for prompt corrective action. To remain categorized as well-capitalized, we must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. Our management believes that we are well-capitalized under the prompt corrective action provisions as of June 30, 2013.

The following table sets forth (i) the capital ratios required by the FDIC and the Alabama Banking Department’s leverage ratio requirement and (ii) our actual ratios of capital to total regulatory or risk-weighted assets, as of June 30, 2013, December 31, 2012 and June 30, 2012:

											To Be Well Capitalized
						For Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2013:
Total Capital to Risk-Weighted Assets:
Consolidated	$	309,699		11.65	%	$	212,673		8.00	%	$	N/A		N/A	%
ServisFirst Bank		307,399		11.56	%		212,670		8.00	%		265,837		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		261,018		9.82	%		106,337		4.00	%		N/A		N/A	%
ServisFirst Bank		278,642		10.48	%		106,335		4.00	%		159,502		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		261,018		8.80	%		118,920		4.00	%		N/A		N/A	%
ServisFirst Bank		278,642		9.37	%		118,993		4.00	%		148,741		5.00	%

As of December 31, 2012:
Total Capital to Risk-Weighted Assets:
Consolidated	$	287,136		11.78	%	$	194,943		8.00	%	$	N/A		N/A	%
ServisFirst Bank		284,141		11.60	%		194,942		8.00	%		243,678		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		240,961		9.89	%		97,472		4.00	%		N/A		N/A	%
ServisFirst Bank		257,883		10.58	%		97,471		4.00	%		146,207		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		240,961		8.43	%		114,323		4.00	%		N/A		N/A	%
ServisFirst Bank		257,883		9.03	%		114,227		4.00	%		142,784		5.00	%

As of June 30, 2012:
Total Capital to Risk-Weighted Assets:
Consolidated	$	260,495		12.37	%	$	168,475		8.00	%	$	N/A		N/A	%
ServisFirst Bank		258,421		12.27	%		168,429		8.00	%		210,536		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		237,256		11.27	%		84,238		4.00	%		N/A		N/A	%
ServisFirst Bank		235,182		11.17	%		84,214		4.00	%		126,322		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		237,256		9.36	%		101,393		4.00	%		N/A		N/A	%
ServisFirst Bank		235,182		9.29	%		101,293		4.00	%		126,616		5.00	%

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit beyond current fundings, credit card arrangements, standby letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in our balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement we have in those particular financial instruments.

Our exposure to credit loss in the event of non-performance by the other party to such financial instruments is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

As part of our mortgage operations, we originate and sell certain loans to investors in the secondary market. We continue to experience a manageable level of investor repurchase demands. For loans sold, we have an obligation to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations and warranties made by the Bank at the time of the sale. Representations and warranties typically include those made regarding loans that had missing or insufficient file documentation or loans obtained through fraud by borrowers or other third parties such as appraisers. We had a reserve of $106,000 as of June 30, 2013 and $209,000 as of December 31, 2012 for the settlement of any repurchase demands by investors. One loan was repurchased in June 2013, but is anticipated to be re-closed and added to our loan portfolio, at which time this reserve will be replenished with the proceeds of the new loan.

Financial instruments whose contract amounts represent credit risk at June 30, 2013 are as follows:

	June 30, 2013
	(In Thousands)
Commitments to extend credit	$	947,018
Credit card arrangements		28,212
Standby letters of credit		38,577
	$	1,013,807

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

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

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

Results of Operations

Summary of Net Income

Net income for the three months ended June 30, 2013 was $9.7 million compared to net income of $8.3 million for the three months ended June 30, 2012. Net income for the six months ended June 30, 2013 was $18.9 million compared to net income of $16.6 million for the six months ended June 30, 2012. Increases in net income were primarily attributable to increased net interest income, partially offset by increased operating expenses. Net interest income for the three months ended June 30, 2013 increased to $27.5 million, or 20.1%, compared to $22.9 million for the corresponding period in 2012. Net interest income for the six months ended June 30, 2013 increased to $53.4 million, or 19.7%, compared to $44.6 million for the corresponding period in 2012. The provision for loan losses increased $0.3 million to $3.3 million for the three months ended June 30, 2013 compared to the corresponding period in 2012, and increased $2.2 million to $7.6 million for the six months ended June 30, 2013 compared to the corresponding period in 2012. The increase in provision for loan losses is more fully explained in “Provision for Loan Losses” below. Noninterest income increased $0.1 million to $2.6 million for the three months ended June 30, 2013 compared to the corresponding period in 2012, and increased $0.7 million to $5.4 million for the six months ended June 30, 2013 compared to the corresponding period in 2012. Decreases in mortgage banking income were offset by increases in deposit service charges and increases in cash surrender value of life insurance contracts, as more fully explained in “Noninterest Income” below. Operating expenses for the three months ended June 30, 2013 increased to $12.4 million, or 25.3%, compared to $9.9 million for the corresponding period in 2012, and for the six months ended June 30, 2013 increased to $23.1 million, or 22.2%, compared to $18.9 million for the corresponding period in 2012. The increase in operating expenses was primarily attributable to an increase in personnel and occupancy expenses related to our expansion into the Mobile, Alabama, and Nashville, Tennessee markets, as well as continued expansion in our support areas as a result of these market expansions.

Basic and diluted net income per common share were $1.38 and $1.33, respectively, for the three months ended June 30, 2013, compared to $1.38 and $1.21, respectively, for the corresponding period in 2012. Basic and diluted net income per common share were $2.83 and $2.64, respectively, for the six months ended June 30, 2013, compared to $2.74 and $2.41, respectively, for the corresponding period in 2012. Return on average assets for the three and six months ended June 30, 2013 was 1.29% and 1.30%, respectively, compared to 1.31% and 1.32% for the corresponding period in 2012, and return on average common equity for the three and six months ended June 30, 2013 was 14.65% and 15.09%, respectively, compared to 15.74% and 16.02% for the corresponding period in 2012.

Net Interest Income

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

Taxable-equivalent net interest income increased $4.6 million, or 19.7%, to $27.9 million for the three months ended June 30, 2013 compared to $23.3 million for the corresponding period in 2012, and increased $8.8 million, or 19.4%, to $54.2 million for the six months ended June 30, 2013 compared to $45.4 million for the corresponding period in 2012. This increase was primarily attributable to growth in average earning assets. The taxable-equivalent yield on interest-earning assets decreased to 4.38% for the three months ended June 30, 2013 from 4.47% for the corresponding period in 2012, and decreased to 4.39% for the six months ended June 30, 2013 from 4.45% for the corresponding period in 2012. The yield on loans for the three months ended June 30, 2013 was 4.58% compared to 4.99% for the corresponding period in 2012, and 4.61% compared to 5.01% for the six months ended June 30, 2013 and June 30, 2012, respectively. Loan fees included in the yield calculation decreased to $60,000 for the three months ended June 30, 2013 from $72,000 for the corresponding period in 2012, and decreased to $65,000 for the six months ended June 30, 2013 from $184,000 for the corresponding period in 2012. Net loan fees decreased due to the origination of fewer real estate construction loans. The cost of total interest-bearing liabilities decreased to 0.59% for the three months ended June 30, 2013 from 0.80% for the corresponding period in 2012, and to 0.62% for the six months ended June 30, 2013 from 0.82% for the corresponding period in 2012. Net interest margin for the three months ended June 30, 2013 was 3.93% compared to 3.85% for the corresponding period in 2012, and 3.92% for the six months ended June 30, 2013 compared to 3.81% for the corresponding period in 2012.

The following tables show, for the three and six months ended June 30, 2013 and June 30, 2012, the average balances of each principal category of our assets, liabilities and stockholders’ equity, and an analysis of net interest revenue. The accompanying tables reflect changes in our net interest margin as a result of changes in the volume and rate of our interest-earning assets and interest-bearing liabilities for the same periods. Changes as a result of mix or the number of days in the periods have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. The tables are presented on a taxable-equivalent basis where applicable:

Average Consolidated Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Three Months Ended June 30, 2013 and 2012

(Dollar Amounts In Thousands)

	2013							2012
			Interest		Average					Interest		Average
	Average		Earned /		Yield /			Average		Earned /		Yield /
	Balance		Paid		Rate			Balance		Paid		Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)
Taxable	$	2,519,869	$	28,787		4.58	%	$	1,962,367	$	24,335		4.99	%
Tax-exempt (2)		2,453		35		5.72			1,537		22		-
Mortgage loans held for sale		14,157		74		2.10			11,390		88		3.11
Investment securities:
Taxable		139,189		918		2.65			205,390		1,302		2.55
Tax-exempt (2)		115,428		1,215		4.22			99,705		1,176		4.74
Total investment securities (3)		254,617		2,133		3.36			305,095		2,478		3.27
Federal funds sold		21,303		14		0.26			89,511		42		0.19
Restricted equity securities		3,738		21		2.25			4,678		24		2.06
Interest-bearing balances with banks		30,083		18		0.24			55,208		34		0.25
Total interest-earning assets	$	2,846,220	$	31,082		4.38	%	$	2,429,786	$	27,023		4.47	%
Non-interest-earning assets:
Cash and due from banks		42,175							35,507
Net fixed assets and equipment		9,359							5,863
Allowance for loan losses, accrued interest and other assets		75,239							63,675
Total assets	$	2,972,993							2,534,831

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	415,955	$	291		0.28	%	$	342,814	$	265		0.31	%
Savings deposits		21,733		15		0.28			16,182		11		0.27
Money market accounts		1,123,605		1,285		0.46			994,751		1,408		0.57
Time deposits		402,733		1,193		1.19			400,100		1,343		1.35
Federal funds purchased		185,533		136		0.29			86,690		54		0.25
Other borrowings		19,920		294		5.92			33,838		668		7.94
Total interest-bearing liabilities	$	2,169,479	$	3,214		0.59	%	$	1,874,375	$	3,749		0.80	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		539,228							442,590
Other liabilities		1,799							7,529
Stockholders' equity		255,837							202,741
Unrealized gains on securities and derivatives		6,650							7,596
Total liabilities and stockholders' equity	$	2,972,993						$	2,534,831
Net interest spread						3.79	%						3.67	%
Net interest margin						3.93	%						3.85	%

(1)

Non-accrual loans are included in average loan balances in all periods. Loan fees of $60,000 and $72,000 are included in interest income in 2013 and 2012, respectively.

(2)

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

(3)

Unrealized gains of $10,230,000 and $11,687,000 are excluded from the yield calculation in 2013 and 2012, respectively.

	For the Three Months Ended June 30,
	2013 Compared to 2012
	Increase (Decrease) in Interest Income and Expense Due to Changes in:
	Volume			Rate			Total
	(In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable	$	6,546		$	(2,094	)	$	4,452
Tax-exempt		13			-			13
Mortgages held for sale		18			(32	)		(14	)
Debt securities:
Taxable		(432	)		48			(384	)
Tax-exempt		176			(137	)		39
Total debt securities		(256	)		(89	)		(345	)
Federal funds sold		(40	)		12			(28	)
Restricted equity securities		(5	)		2			(3	)
Interest-bearing balances with banks		(15	)		(1	)		(16	)
Total interest-earning assets		6,261			(2,202	)		4,059

Interest-bearing liabilities:
Interest-bearing demand deposits		54			(28	)		26
Savings		4			-			4
Money market accounts		170			(293	)		(123	)
Time deposits		9			(159	)		(150	)
Federal funds purchased		72			10			82
Other borrowed funds		(231	)		(143	)		(374	)
Total interest-bearing liabilities		78			(613	)		(535	)
Increase in net interest income	$	6,183		$	(1,589	)	$	4,594

Average Consolidated Balance Sheets and Net Interest Analysis

On a Fully Taxable-Equivalent Basis

For the Six Months Ended June 30, 2013 and 2012

(Dollar Amounts In Thousands)

	2013							2012
			Interest							Interest
	Average		Earned /		Average			Average		Earned /		Average
	Balance		Paid		Yield / Rate			Balance		Paid		Yield / Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (1)
Taxable	$	2,453,697	$	56,047		4.61	%	$	1,910,060	$	47,612		5.01	%
Tax-exempt (2)		2,458		72		5.91			769		22		-
Mortgage loans held for sale		16,725		168		2.03			11,622		158		2.73
Investment securities:
Taxable		141,281		1,879		2.68			206,782		2,639		2.57
Tax-exempt (2)		112,524		2,411		4.32			96,538		2,308		4.81
Total investment securities (3)		253,805		4,290		3.41			303,320		4,947		3.28
Federal funds sold		22,406		26		0.23			94,606		95		0.20
Restricted equity securities		4,347		43		1.99			4,384		45		2.06
Interest-bearing balances with banks		32,381		38		0.24			70,328		87		0.25
Total interest-earning assets	$	2,785,819	$	60,684		4.39	%	$	2,395,089	$	52,966		4.45	%
Non-interest-earning assets:
Cash and due from banks		41,808							35,602
Net fixed assets and equipment		9,301							5,331
Allowance for loan losses, accrued interest and other assets		74,734							63,611
Total assets	$	2,911,662						$	2,499,633

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	414,951	$	572		0.28	%	$	342,672	$	534		0.31	%
Savings deposits		21,910		30		0.28			15,974		22		0.28
Money market accounts		1,099,052		2,510		0.46			981,998		2,855		0.58
Time deposits		399,336		2,385		1.20			398,586		2,738		1.38
Federal funds purchased		161,491		221		0.28			79,636		99		-
Other borrowings		23,660		760		6.48			34,655		1,334		7.74
Total interest-bearing liabilities	$	2,120,400	$	6,478		0.62	%	$	1,853,521	$	7,582		0.82	%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		531,491							433,769
Other liabilites		9,395							6,590
Stockholders' equity		243,509							198,303
Unrealized gains on securities and derivatives		6,868							7,450
Total liabilities and stockholders' equity	$	2,911,662						$	2,499,633
Net interest spread						3.78	%						3.62	%
Net interest margin						3.92	%						3.81	%

(1)

Non-accrual loans are included in average loan balances in all periods. Loan fees of $65,000 and $184,000 are included in interest income in 2013 and 2012, respectively.

(2)

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

(3)

Unrealized gains of $10,566,000 and $11,710,000 are excluded from the yield calculation in 2013 and 2012, respectively.

	For the Six Months Ended June 30,
	2013 Compared to 2012
	Increase (Decrease) in Interest Income and Expense Due to Changes in:
	Volume			Rate			Total
	(In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable	$	12,558		$	(4,123	)	$	8,435
Tax-exempt		49			1			50
Mortgages held for sale		58			(48	)		10
Taxable		(873	)		113			(760	)
Tax-exempt		353			(250	)		103
Total Debt securities		(520	)		(137	)		(657	)
Federal funds sold		(82	)		13			(69	)
Restricted equity securities		-			(2	)		(2	)
Interest-bearing balances with banks		(45	)		(4	)		(49	)
Total interest-earning assets		12,018			(4,300	)		7,718

Interest-bearing liabilities:
Interest-bearing demand deposits		103			(65	)		38
Savings		8			-			8
Money market accounts		310			(655	)		(345	)
Time deposits		5			(358	)		(353	)
Federal funds purchased		111			11			122
Other borrowed funds		(379	)		(195	)		(574	)
Total interest-bearing liabilities		158			(1,262	)		(1,104	)
Increase in net interest income	$	11,860		$	(3,038	)	$	8,822

Provision for Loan Losses

The provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan losses at a level capable of absorbing inherent losses in the loan portfolio. Our management reviews the adequacy of the allowance for loan losses on a quarterly basis. The allowance for loan losses calculation is segregated into various segments that include classified loans, loans with specific allocations and pass rated loans. A pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss. Loans are rated using a nine-point risk grade scale with loan officers having the primary responsibility for assigning risk grades and for the timely reporting of changes in the risk grades. Based on these processes, and the assigned risk grades, the criticized and classified loans in the portfolio are segregated into the following regulatory classifications: Special Mention, Substandard, Doubtful or Loss, with some general allocation of reserve based on these grades. At June 30, 2013, total loans rated Special Mention, Substandard, and Doubtful were $114.5 million, or 4.4% of total loans, compared to $100.7 million, or 4.3% of total loans, at December 31, 2012. Impaired loans are reviewed specifically and separately under FASB ASC 310-30-35, Subsequent Measurement of Impaired Loans, to determine the appropriate reserve allocation. Our management compares the investment in an impaired loan with the present value of expected future cash flow discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral, if the loan is collateral-dependent, to determine the specific reserve allowance. Reserve percentages assigned to non-impaired loans are based on historical charge-off experience adjusted for other risk factors. To evaluate the overall adequacy of the allowance to absorb losses inherent in our loan portfolio, our management considers historical loss experience based on volume and types of loans, trends in classifications, volume and trends in delinquencies and nonaccruals, economic conditions and other pertinent information. Based on future evaluations, additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level.

The provision for loan losses was $3.3 million for the three months ended June 30, 2013, an increase of $251,000 from $3.1 million for the three months ended June 30, 2012. The provision for loan losses was $7.6 million for the six months ended June 30, 2013, a $2.2 million increase, compared to $5.5 million for the six months ended June 30, 2012. The increase in provision for loan loss for the three and six-month periods ended June 30, 2013 was primarily due to an increase in net charge-offs compared to recent historical levels plus the year-to-date growth in the loan portfolio of 9.6% (19.2% annualized). Our management continues to maintain a proactive approach to credit risk management. Nonperforming loans increased to $15.0 million, or 0.58% of total loans, at June 30, 2013 from $10.4 million, or 0.44% of total loans, at December 31, 2012, and were also higher than $12.1 million, or 0.60% of total loans, at June 30, 2012. Impaired loans increased to $46.3 million, or 1.8% of total loans, at June 30, 2013, compared to $37.4 million, or 1.6% of total loans, at December 31, 2012. Loans to one large residential builder totaling $13.5 million were placed on nonaccrual status during the first quarter 2013. The allowance for loan losses totaled $28.8 million, or 1.11% of total loans, net of unearned income, at June 30, 2013, compared to $26.3 million, or 1.11% of loans, net of unearned income, at December 31, 2012 and $23.2 million, or 1.15% of loans, net of unearned income, at June 30, 2012.

Noninterest Income

Noninterest income totaled $2.6 million for the three months ended June 30, 2013, an increase of $145,000, or 6.0%, compared to the corresponding period in 2012, and totaled $5.4 million for the six months ended June 30, 2013, an increase of $673,000, or 14.3%, compared to the corresponding period in 2012. Service charges on deposit accounts increased to $806,000 for the three months ended June 30, 2013 compared to $719,000 for the same period in 2012, and increased to $1.6 million for the six months ended June 30, 2013 compared to $1.3 million for the same period in 2012. Income from credit cards increased to $347,000 for the three months ended June 30, 2013 from $259,000 for the same period in 2012, and increased to $636,000 for the six months ended June 30, 2013 compared to $481,000 for the same period in 2012. We continue to aggressively expand our credit card products, and have begun to sell credit card services through our respondent banks. We purchased additional life insurance contracts in September 2012, which lead to the increase in the cash surrender value of life insurance from $385,000 for the three months ended June 30, 2012 to $485,000 for the three months ended June 30, 2013, and from $775,000 for the six months ended June 30, 2012 to $955,000 for the six months ended June 30, 2013. Income from mortgage banking for the three months ended June 30, 2013 was $787,000, down from $879,000 for the same period in 2012, and for the six months ended June 30, 2013 was $1.8 million, compared to approximately the same amount for the same period in 2012. Recent fluctuations in market rates for mortgages have resulted in a lower number of refinancings of existing mortgages.

Noninterest Expense

Noninterest expense totaled $12.4 million for the three months ended June 30, 2013, an increase of $2.5 million, or 25.3%, compared to $9.9 million in 2012, and totaled $23.1 million for the six months ended June 30, 2013, an increase of $4.2 million, or 22.2%, compared to $18.9 million for the corresponding period in 2012.

Details of expenses are as follows:

Salary and benefit expense increased $1.8 million, or 34.6%, to $7.1 million for the three months ended June 30, 2013 from $5.2 million for the corresponding period in 2012, and increased $2.3 million, or 22.1%, to $12.7 million for the six months ended June 30, 2013 from $10.4 million for the corresponding period in 2012. We had 265 full-time equivalent employees at June 30, 2013 compared to 220 at June 30, 2012, a 20.5% increase. Most of this increase in number of employees was due to our continued expansion in Pensacola, Florida, and our recent entry into the Mobile, Alabama and Nashville, Tennessee markets. We also have hired support staff as a result of continued expansion and growth in our core business lines.

Equipment and occupancy expense increased $508,000, or 50.0%, to $1.5 million for the three months ended June 30, 2013 from $1.0 million for the corresponding period in 2012 and increased $684,000, or 36.8%, to $2.6 million for the six months ended June 30, 2013 from $1.9 million for the corresponding period in 2012. This increase in occupancy expense is largely the result of our expansion into the Mobile, Alabama and Nashville, Tennessee markets. We also leased additional office space adjacent to our Birmingham, Alabama headquarters building in which to house operations staff.

Professional service expense increased $119,000, or 38.9%, to $425,000 for the three months ended June 30, 2013 from $306,000 for the corresponding period in 2012 and increased $248,000, or 38.9%, to $886,000 for the six months ended June 30, 2013 from $638,000 for the corresponding period in 2012. These increases are the result of legal expenses, consulting fees and temporary employee costs related to corporate transactions and projects to improve our operating efficiencies in support areas of the Bank.

Expenses related to OREO decreased $332,000 to $204,000 for the three months ended June 30, 2013, from $536,000 for the corresponding period in 2012, and decreased $79,000 to $594,000 for the six months ended June 30, 2013 from $673,000 for the corresponding period in 2012. OREO expenses were lower as a result of fewer write-downs in value, which declined from $370,000 for the three months ended June 30, 2012 to $116,000 for the three months ended June 30, 2013, and from $420,000 for the six months ended June 30, 2012 to $402,000 for the six months ended June 30, 2013.

Other operating expenses increased $304,000 to $2.8 million for the three months ended June 30, 2013 compared to the same period in 2012, and increased $911,000 to $5.5 million for the six months ended June 30, 2013 compared to the same period in 2012. These increases are the result of increases in loan expenses, consumer use taxes, postage and supplies, and communications expenses. All of these increases generally relate to our expansion and growth. We settled a lawsuit with a client during the second quarter 2013 for $100,000.

Income Tax Expense

Income tax expense was $4.7 million for the three months ended June 30, 2013 versus $4.0 million for the same period in 2012, and was $9.1 million for the six months ended June 30, 2013 versus $8.4 million for the corresponding period in 2012. Our effective tax rate for the three and six months ended June 30, 2013 was 32.49% and 32.39%, respectively, compared to 32.57% and 33.51%, respectively, for the corresponding periods in 2012. Our primary permanent differences are related to tax exempt income on securities and incentive stock option expenses.

We have invested $55.0 million in bank-owned life insurance for named officers of the Bank. The periodic increase in cash surrender value of those policies are tax exempt and therefore contribute to a larger permanent difference between book income and taxable income.

We created a real estate investment trust in the first quarter of 2012 for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank. The trust is a wholly-owned subsidiary of a trust holding company, which in turn is a wholly-owned subsidiary of the Bank. The trust earns interest income on the loans it holds and incurs operating expenses. It pays its net earnings, in the form of dividends, to the Bank, which receives a deduction for Alabama income taxes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Like all financial institutions, we are subject to market risk from changes in interest rates. Interest rate risk is inherent in the balance sheet due to the mismatch between the maturities of rate-sensitive assets and rate-sensitive liabilities. If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities is greater than the level of rate-sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short-term rates may be rising while longer-term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.

To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall or remain the same. Our asset-liability committee develops its view of future rate trends and strives to manage rate risk within a targeted range by monitoring economic indicators, examining the views of economists and other experts, and understanding the current status of our balance sheet. Our annual budget reflects the anticipated rate environment for the next 12 months. The asset-liability committee conducts a quarterly analysis of the rate sensitivity position and reports its results to our board of directors.

The asset-liability committee thoroughly analyzes the maturities of rate-sensitive assets and liabilities. This analysis measures the “gap”, which is defined as the difference between the dollar amount of rate-sensitive assets repricing during a period and the volume of rate-sensitive liabilities repricing during the same period. The gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities. If the ratio is greater than one, the dollar value of assets exceeds the dollar value of liabilities; the balance sheet is “asset-sensitive.” Conversely, if the value of liabilities exceeds the value of assets, the ratio is less than one and the balance sheet is “liability-sensitive.” Our internal policy requires management to maintain the gap such that net interest margins will not change more than 10% if interest rates change 100 basis points or more than 15% if interest rates change 200 basis points. There have been no changes to our policies or procedures for analyzing our interest rate risk since December 31, 2012, and there are no significant changes to our sensitivity to changes in interest rates since December 31, 2012 as disclosed in our Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

CEO and CFO Certification.

Appearing as exhibits to this report are Certifications of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”). The Certifications are required to be made by Rule 13a-14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This item contains the information about the evaluation that is referred to in the Certifications, and the information set forth below in this Item 4 should be read in conjunction with the Certifications for a more complete understanding of the Certifications.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

We conducted an evaluation (the "Evaluation") of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and CFO, as of June 30, 2013. Based upon the Evaluation, our CEO and CFO have concluded that, as of June 30, 2013, our disclosure controls and procedures are effective to ensure that material information relating to ServisFirst Bancshares, Inc. and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we may be a party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any material legal proceedings except as disclosed in Item 3, “Legal Proceedings”, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and there has been no material change in any matter described therein.

ITEM 1A. RISK FACTORS

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in the Form 10-K. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see “Forward-Looking Statements” under Part 1, Item 2 above.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit:		Description
31.01		Certification of principal executive officer pursuant to Rule 13a-14(a).
31.02		Certification of principal financial officer pursuant to Rule 13a-14(a).
32.01		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.
32.02		Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

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

	SERVISFIRST BANCSHARES, INC.

Date: July 31, 2013	By	/s/ Thomas A. Broughton III

		Thomas A. Broughton III

		President and Chief Executive Officer

Date: July 31, 2013	By	/s/ William M. Foshee

		William M. Foshee

		Chief Financial Officer