ServisFirst Bancshares, Inc. - Quarter Report: 2014 March (Form 10-Q)

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 MARCH 31, 2014

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 practical date.

Class		Outstanding as of April 23, 2014
Common stock, $.001 par value		7,564,812

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	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION		33
Item 1	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34

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

(In thousands, except share and per share amounts)

	March 31, 2014			December 31, 2013
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	77,542		$	61,370
Interest-bearing balances due from depository institutions		134,415			188,411
Federal funds sold		10,535			8,634
Cash and cash equivalents		222,492			258,415
Available for sale debt securities, at fair value		277,501			266,220
Held to maturity debt securities (fair value of $31,559 and $31,315 at March 31, 2014 and December 31, 2013, respectively)		31,974			32,274
Restricted equity securities		3,738			3,738
Mortgage loans held for sale		6,704			8,134
Loans		2,937,797			2,858,868
Less allowance for loan losses		(31,728	)		(30,663	)
Loans, net		2,906,069			2,828,205
Premises and equipment, net		8,015			8,351
Accrued interest and dividends receivable		10,370			10,262
Deferred tax assets		11,935			11,018
Other real estate owned and repossessed assets		9,752			12,861
Bank owned life insurance contracts		69,544			69,008
Other assets		14,820			12,213
Total assets	$	3,572,914		$	3,520,699
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing	$	662,834		$	650,456
Interest-bearing		2,368,207			2,369,186
Total deposits		3,031,041			3,019,642
Federal funds purchased		195,762			174,380
Other borrowings		19,949			19,940
Accrued interest payable		2,121			769
Other liabilities		11,758			8,776
Total liabilities		3,260,631			3,223,507
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 March 31, 2014 and December 31, 2013		39,958			39,958
Preferred stock, undesignated, par value $.001 per share; 1,000,000 shares authorized and 960,000 currently undesignated		-			-
Common stock, par value $.001 per share; 50,000,000 shares authorized; 7,524,812 shares issued and outstanding at March 31, 2014 and 7,350,012 shares issued and outstanding at December 31, 2013		8			7
Additional paid-in capital		127,218			123,325
Retained earnings		140,538			130,011
Accumulated other comprehensive income		4,309			3,891
Noncontrolling interest		252			-
Total stockholders' equity		312,283			297,192
Total liabilities and stockholders' equity	$	3,572,914		$	3,520,699

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 March 31,
	2014			2013
Interest income:
Interest and fees on loans	$	32,252		$	27,318
Taxable debt securities		1,097			948
Nontaxable debt securities		871			832
Federal funds sold		42			16
Other interest and dividends		19			51
Total interest income		34,281			29,165
Interest expense:
Deposits		3,014			2,713
Borrowed funds		418			551
Total interest expense		3,432			3,264
Net interest income		30,849			25,901
Provision for loan losses		2,314			4,284
Net interest income after provision for loan losses		28,535			21,617
Noninterest income:
Service charges on deposit accounts		868			762
Mortgage banking		284			980
Securities gains		-			123
Increase in cash surrender value of life insurance		536			470
Other operating income		487			462
Total noninterest income		2,175			2,797
Noninterest expense:
Salaries and employee benefits		7,697			5,679
Equipment and occupancy expense		1,366			1,111
Professional services		516			461
FDIC and other regulatory assessments		517			432
OREO expense		487			390
Other operating expense		3,140			2,679
Total noninterest expense		13,723			10,752
Income before income taxes		16,987			13,662
Provision for income taxes		5,229			4,411
Net income		11,758			9,251
Net income attributable to noncontrolling interest		(2	)		-
Net income attributable to Servisfirst Bancshares, Inc.		11,756			9,251
Preferred stock dividends		100			100
Net income available to common stockholders	$	11,656		$	9,151

Basic earnings per common share	$	1.58		$	1.44

Diluted earnings per common share	$	1.52		$	1.31

See Notes to Consolidated Financial Statements

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Net income	$	11,758		$	9,251
Other comprehensive income (loss), net of tax:
Unrealized holding (losses) gains arising during period from securities available for sale, net of tax of $225 and $(154) for 2014 and 2013, respectively		418			(287	)
Reclassification adjustment for net gain on sale of securities in net income, net of tax of $43		-			(80	)
Other comprehensive income (loss), net of tax		418			(367	)
Comprehensive income		12,176			8,884
Comprehensive income attributable to noncontrolling interest		(2	)		-
Comprehensive income attributable to Servisfirst Bancshares, Inc.	$	12,174		$	8,884

See Notes to Consolidated Financial Statements

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENT OF EQUITY

THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(In thousands, except share amounts)

(Unaudited)

	Servisfirst Bancshares, Inc. Stockholders
										Accumulated
					Additional					Other
	Preferred		Common		Paid-in		Retained			Comprehensive			Noncontrolling		Total
	Stock		Stock		Capital		Earnings			Income			Interest		Equity
Balance, December 31, 2013	$	39,958	$	7	$	123,325	$	130,011		$	3,891		$	-	$	297,192
Dividends paid		-		-		-		(1,129	)		-			-		(1,129	)
Preferred dividends paid		-		-		-		(100	)		-			-		(100	)
including tax benefit		-		1		2,873		-			-			-		2,874
Stock-based compensation expense		-		-		1,020		-			-			-		1,020
Issue 250 shares of REIT preferred
stock		-		-		-		-			-			250		250
Other comprehensive income		-		-		-		-			418			-		418
Net income		-		-		-		11,756			-			2		11,758
Balance, March 31, 2014	$	39,958	$	8	$	127,218	$	140,538		$	4,309		$	252	$	312,283

Balance, December 31, 2012	$	39,958	$	6	$	93,505	$	92,492		$	7,296		$	-	$	233,257
Dividends paid		-		-		-		(12	)		-			-		(12	)
Preferred dividends paid		-		-		-		(100	)		-			-		(100	)
Exercise 15,500 stock options and warrants, including tax benefit		-		-		259		-			-			-		259
Issuance of 600,000 shares upon conversion of subordinated mandatorily convertible debentures		-		1		14,999		-			-			-		15,000
Stock-based compensation expense		-		-		259		-			-			-		259
Other comprehensive loss		-		-		-		-			(367	)		-		(367	)
Net income		-		-		-		9,251			-			-		9,251
Balance, March 31, 2013	$	39,958	$	7	$	109,022	$	101,631		$	6,929		$	-	$	257,547

See Notes to Consolidated Financial Statements

SERVISFIRST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(In thousands) (Unaudited)

	2014			2013
OPERATING ACTIVITIES
Net income	$	11,756		$	9,251
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax benefit		(1,142	)		(801	)
Provision for loan losses		2,314			4,284
Depreciation and amortization		497			314
Net amortization of investments		546			258
(Increase) decrease in accrued interest and dividends receivable		(108	)		4
Stock-based compensation expense		1,020			259
Increase in accrued interest payable		1,352			212
Proceeds from sale of mortgage loans held for sale		23,794			55,848
Originations of mortgage loans held for sale		(22,080	)		(44,846	)
Gain on sale of mortgage oans held for sale		(284	)		(980	)
Gain on sale of securities available for sale		-			(123	)
Net loss on sale of other real estate owned and repossessed assets		175			21
Write down of other real estate owned		158			286
Decrease in special prepaid FDIC insurance assessments		-			390
Increase in cash surrender value of life insurance contracts		(536	)		(470	)
Excess tax benefits from the exercise of warrants		(143	)		(5	)
Net change in other assets, liabilities, and other operating activities		1,539			(2,723	)
Net cash provided by operating activities		18,858			21,179
INVESTMENT ACTIVITIES
Purchase of debt securities available for sale		(18,160	)		(5,793	)
Proceeds from maturities, calls and paydowns of debt securities available for sale		7,353			8,373
Proceeds from sale of debt securities available for sale		-			1,164
Purchase of debt securities held to maturity		-			(7,357	)
Proceeds from maturities, calls and paydowns of debt securities held to maturity		300			655
Increase in loans		(80,178	)		(102,006	)
Purchase of premises and equipment		(161	)		(312	)
Investment in tax credit partnerships		(1,530	)		-
Proceeds from sale of restricted equity securities		-			203
Proceeds from sale of other real estate owned and repossessed assets		2,776			1,473
Net cash used in investing activities		(89,600	)		(103,600	)
FINANCING ACTIVITIES
Increase (decrease) in noninterest-bearing deposits		12,378			(37,527	)
Decrease in interest-bearing deposits		(979	)		(50,511	)
Increase in federal funds purchased		21,382			36,865
Proceeds from sale of preferred shares		250			-
Proceeds from exercise of stock options and warrants		2,874			259
Excess tax benefits from exercise of stock options and warrants		143			5
Dividends on common stock		(1,129	)		(12	)
Dividends on preferred stock		(100	)		(100	)
Net cash provided by (used in) financing activities		34,819			(51,021	)
Net decrease in cash and cash equivalents		(35,923	)		(133,442	)
Cash and cash equivalents at beginning of period		258,415			180,745
Cash and cash equivalents at end of period	$	222,492		$	47,303

SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest	$	2,080		$	3,052
Income taxes		6,830			4,340
NONCASH TRANSACTIONS
Conversion of mandatorily convertible subordinated debentures		-			15,000
Other real estate acquired in settlement of loans	$	-		$	171

See Notes to Consolidated Financial Statements.

SERVISFIRST BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(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/A for the year ended December 31, 2013.

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 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 March 31,
	2014		2013
	(In Thousands, Except Shares and Per Share Data)
Earnings per common share
Weighted average common shares outstanding		7,399,992		6,341,605
Net income available to common stockholders	$	11,656	$	9,151
Basic earnings per common share	$	1.58	$	1.44

Weighted average common shares outstanding		7,399,992		6,341,605
Dilutive effects of assumed conversions and exercise of stock options and warrants		261,898		734,900
Weighted average common and dilutive potential common shares outstanding		7,661,890		7,076,505
Net income, available to common stockholders	$	11,656	$	9,151
Effect of interest expense on convertible debt, net of tax and discretionary expenditures related to conversion	$	-	$	132
Net income available to common stockholders, adjusted for effect of debt conversion	$	11,656	$	9,283
Diluted earnings per common share	$	1.52	$	1.31

NOTE 4 - SECURITIES

The amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2014 and December 31, 2013 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Market
	Cost		Gain		Loss			Value
	(In Thousands)
March 31, 2014
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	42,846	$	632	$	(51	)	$	43,427
Mortgage-backed securities		83,753		2,785		(62	)		86,476
State and municipal securities		128,507		3,634		(488	)		131,653
Corporate debt		15,758		196		(9	)		15,945
Total	$	270,864	$	7,247	$	(610	)	$	277,501
Securities Held to Maturity
Mortgage-backed securities	$	26,428	$	336	$	(1,083	)	$	25,681
State and municipal securities		5,546		332		-			5,878
Total	$	31,974	$	668	$	(1,083	)	$	31,559

December 31, 2013
Securities Available for Sale
U.S. Treasury and government sponsored agencies	$	31,641	$	674	$	(41	)	$	32,274
Mortgage-backed securities		85,764		2,574		(98	)		88,240
State and municipal securities		127,083		3,430		(682	)		129,831
Corporate debt		15,738		163		(26	)		15,875
Total	$	260,226	$	6,841	$	(847	)	$	266,220
Securities Held to Maturity
Mortgage-backed securities	$	26,730	$	266	$	(1,422	)	$	25,574
State and municipal securities		5,544		197		-			5,741
Total	$	32,274	$	463	$	(1,422	)	$	31,315

The amortized cost and fair value of debt securities as of March 31, 2014 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories along with the other categories of debt securities.

	March 31, 2014
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Less than one year	$	3,891	$	3,871	$	-	$	-
One year to five years		108,817		111,350		-		-
Five years to ten years		73,615		74,969		-		-
More than ten years		788		835		5,546		5,878
Mortgage-backed securities		83,753		86,476		26,428		25,681
	$	270,864	$	277,501	$	31,974	$	31,559

We had no sales of available-for-sale debt securities during the first quarter of 2014. We sold one corporate debt security for total proceeds of $1.2 million and a gain of $123,000 during the first quarter of 2013.

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 March 31, 2014 and December 31, 2013, 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 March 31, 2014, 19 of the Company’s 675 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 March 31, 2014. 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)
March 31, 2014
U.S. Treasury and government sponsored agencies	$	(51	)	$	12,589	$	-		$	-	$	(51	)	$	12,589
Mortgage-backed securities		(621	)		20,014		(524	)		6,659		(1,145	)		26,673
State and municipal securities		(419	)		25,385		(69	)		4,038		(488	)		29,423
Corporate debt		(9	)		2,991		-			-		(9	)		2,991
Total	$	(1,100	)	$	60,979	$	(593	)	$	10,697	$	(1,693	)	$	71,676

December 31, 2013:
U.S. Treasury and government sponsored agencies	$	(41	)	$	5,854	$	-		$	-	$	(41	)	$	5,854
Mortgage-backed securities		(852	)		21,365		(668	)		6,691		(1,520	)		28,056
State and municipal securities		(607	)		30,666		(75	)		3,443		(682	)		34,109
Corporate debt		(26	)		5,958		-			-		(26	)		5,958
Total	$	(1,526	)	$	63,843	$	(743	)	$	10,134	$	(2,269	)	$	73,977

NOTE 5 – LOANS

The following table details the Company’s loans at March 31, 2014 and December 31, 2013:

	March 31,			December 31,
	2014			2013
	(Dollars In Thousands)
Commercial, financial and agricultural	$	1,306,058		$	1,278,649
Real estate - construction		157,127			151,868
Real estate - mortgage:
Owner-occupied commercial		711,067			710,372
1-4 family mortgage		285,368			278,621
Other mortgage		428,391			391,396
Subtotal: Real estate - mortgage		1,424,826			1,380,389
Consumer		49,786			47,962
Total Loans		2,937,797			2,858,868
Less: Allowance for loan losses		(31,728	)		(30,663	)
Net Loans	$	2,906,069		$	2,828,205

Commercial, financial and agricultural		44.46	%		44.73	%
Real estate - construction		5.35	%		5.31	%
Real estate - mortgage:
Owner-occupied commercial		24.20	%		24.85	%
1-4 family mortgage		9.71	%		9.74	%
Other mortgage		14.58	%		13.69	%
Subtotal: Real estate - mortgage		48.49	%		48.28	%
Consumer		1.70	%		1.68	%
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 deficiencies 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 March 31, 2014 and December 31, 2013 were as follows:

			Special
March 31, 2014	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,264,111	$	36,607	$	5,340	$	-	$	1,306,058
Real estate - construction		142,287		5,131		9,709		-		157,127
Real estate - mortgage:
Owner-occupied commercial		693,100		15,657		2,310		-		711,067
1-4 family mortgage		271,603		1,269		12,496		-		285,368
Other mortgage		414,818		8,077		5,496		-		428,391
Total real estate mortgage		1,379,521		25,003		20,302		-		1,424,826
Consumer		48,969		-		817		-		49,786
Total	$	2,834,888	$	66,741	$	36,168	$	-	$	2,937,797

			Special
December 31, 2013	Pass		Mention		Substandard		Doubtful		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,238,109	$	34,883	$	5,657	$	-	$	1,278,649
Real estate - construction		139,239		3,392		9,237		-		151,868
Real estate - mortgage:
Owner-occupied commercial		696,687		11,545		2,140		-		710,372
1-4 family mortgage		265,019		1,253		12,349		-		278,621
Other mortgage		379,419		8,179		3,798		-		391,396
Total real estate mortgage		1,341,125		20,977		18,287		-		1,380,389
Consumer		47,243		3		716		-		47,962
Total	$	2,765,716	$	59,255	$	33,897	$	-	$	2,858,868

Loans by performance status as of March 31, 2014 and December 31, 2013 were as follows:

March 31, 2014	Performing		Nonperforming		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,305,610	$	448	$	1,306,058
Real estate - construction		152,848		4,279		157,127
Real estate - mortgage:
Owner-occupied commercial		709,670		1,397		711,067
1-4 family mortgage		283,343		2,025		285,368
Other mortgage		428,148		243		428,391
Total real estate mortgage		1,421,161		3,665		1,424,826
Consumer		48,984		802		49,786
Total	$	2,928,603	$	9,194	$	2,937,797

December 31, 2013	Performing		Nonperforming		Total
	(In Thousands)
Commercial, financial and agricultural	$	1,276,935	$	1,714	$	1,278,649
Real estate - construction		148,118		3,750		151,868
Real estate - mortgage:
Owner-occupied commercial		708,937		1,435		710,372
1-4 family mortgage		276,725		1,896		278,621
Other mortgage		391,153		243		391,396
Total real estate mortgage		1,376,815		3,574		1,380,389
Consumer		47,264		698		47,962
Total	$	2,849,132	$	9,736	$	2,858,868

Loans by past due status as of March 31, 2014 and December 31, 2013 were as follows:

March 31, 2014	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	$	1,127	$	98	$	-	$	1,225	$	448	$	1,304,385	$	1,306,058
Real estate - construction		1,755		-		15		1,770		4,264		151,093		157,127
Real estate - mortgage:
Owner-occupied commercial		224		-		-		224		1,397		709,446		711,067
1-4 family mortgage		45		169		-		214		2,025		283,129		285,368
Other mortgage		522		-		-		522		243		427,626		428,391
Total real estate - mortgage		791		169		-		960		3,665		1,420,201		1,424,826
Consumer		16		53		95		164		707		48,915		49,786
Total	$	3,689	$	320	$	110	$	4,119	$	9,084	$	2,924,594	$	2,937,797

December 31, 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	$	73	$	-	$	-	$	73	$	1,714	$	1,276,862	$	1,278,649
Real estate - construction		-		-		-		-		3,750		148,118		151,868
Real estate - mortgage:
Owner-occupied commercial		-		-		-		-		1,435		708,937		710,372
1-4 family mortgage		177		-		19		196		1,877		276,548		278,621
Other mortgage		-		-		-		-		243		391,153		391,396
Total real estate - mortgage		177		-		19		196		3,555		1,376,638		1,380,389
Consumer		89		97		96		282		602		47,078		47,962
Total	$	339	$	97	$	115	$	551	$	9,621	$	2,848,696	$	2,858,868

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions, and other risks inherent in the portfolio. Allowances for impaired loans are generally determined based on collateral values or the present value of the estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for losses on loans. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

The methodology utilized for the calculation of the allowance for loan losses is divided into four distinct categories. Those categories include allowances for non-impaired loans (ASC 450), impaired loans (ASC 310), external qualitative factors, and internal qualitative factors. A description of each category of the allowance for loan loss methodology is listed below.

Non-Impaired Loans. Non-impaired loans are grouped into homogeneous loan pools by loan type and are the following: commercial and industrial, construction and development, commercial real estate, second lien home equity lines of credit, and all other loans. Each loan pool is stratified by internal risk rating and multiplied by a loss allocation percentage derived from the loan pool historical loss rate. The historical loss rate is based on an age weighted 5 year history of net charge-offs experienced by pool, with the most recent net charge-off experience given a greater weighting. This results in the expected loss rate per year, adjusted by a qualitative adjustment factor and a years-to-impairment factor, for each pool of loans to derive the total amount of allowance for non-impaired loans.

Impaired Loans. Loans are considered impaired when based on current information and events it is probable that the Bank will be unable to collect all amounts due according to the original terms of the loan agreement. The collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or the fair value of the underlying collateral. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent. Fair value estimates for specifically impaired collateral-dependent loans are derived from appraised values based on the current market value or as is value of the property, normally from recently received and reviewed appraisals. Appraisals are obtained from certified and licensed appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by our credit administration department, and values are adjusted downward to reflect anticipated disposition costs. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated for each impaired loan. As subsequent events dictate and estimated net realizable values decline, required reserves may be established or further adjustments recorded.

External Qualitative Factors . The determination of the portion of the allowance for loan losses relating to external qualitative factors is based on consideration of the following factors: gross domestic product growth rate, changes in prime rate, delinquency trends, peer delinquency trends, year over year loan growth and state unemployment rate trends. Data for the three most recent periods is utilized in the calculation for each external qualitative component. The factors have a consistent weighted methodology to calculate the amount of allowance due to external qualitative factors.

Internal Qualitative Factors . The determination of the portion of the allowance for loan losses relating to internal qualitative factors is based on the consideration of criteria which includes the following: number of extensions and deferrals, single pay and interest only loans, current financial information, credit concentrations and risk grade accuracy. A self-assessment for each of the criteria is made with a consistent weighted methodology used to calculate the amount of allowance required for internal qualitative factors.

The following table presents an analysis of the allowance for loan losses by portfolio segment as of March 31, 2014 and December 31, 2013, and changes in the allowance for loan losses for the three months ended March 31, 2014 and March 31, 2013. 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 March 31, 2014
Allowance for loan losses:
Balance at December 31, 2013	$	11,170		$	5,809		$	7,495		$	855		$	5,334	$	30,663
Chargeoffs		(1,222	)		(23	)		(4	)		(58	)		-		(1,307	)
Recoveries		45			8			4			1			-		58
Provision		987			264			642			153			268		2,314
Balance at March 31, 2014	$	10,980		$	6,058		$	8,137		$	951		$	5,602	$	31,728

	Three Months Ended March 31, 2013
Allowance for loan losses:
Balance at December 31, 2012	$	8,233		$	6,511		$	4,912	$	199		$	6,403		$	26,258
Chargeoffs		(887	)		(1,990	)		-		(1	)		-			(2,878	)
Recoveries		6			7			-		2			-			15
Provision		1,599			2,114			825		(36	)		(218	)		4,284
Balance at March 31, 2013	$	8,951		$	6,642		$	5,737	$	164		$	6,185		$	27,679

	As of March 31, 2014
Allowance for loan losses:
Individually Evaluated for Impairment	$	1,422	$	2,184	$	2,703	$	802	$	-	$	7,111
Collectively Evaluated for Impairment		9,558		3,874		5,434		149		5,602		24,617

Loans:
Ending Balance	$	1,306,058	$	157,127	$	1,424,826	$	49,786		-	$	2,937,797
Individually Tested for Impairment		3,450		9,709		20,246		802		-		34,207
Collectively Evaluated for Impairment		1,302,608		147,418		1,404,580		48,984		-		2,903,590

	As of December 31, 2013
Allowance for loan losses:
Individually Evaluated for Impairment	$	1,992	$	1,597	$	1,982	$	699	$	-	$	6,270
Collectively Evaluated for Impairment		9,178		4,212		5,513		156		5,334		24,393

Loans:
Ending Balance	$	1,278,649	$	151,868	$	1,380,389	$	47,962		-	$	2,858,868
Individually Evaluated for Impairment		3,827		9,238		18,202		699		-		31,966
Collectively Evaluated for Impairment		1,274,822		142,630		1,362,187		47,263		-		2,826,902

The following table presents details of the Company’s impaired loans as of March 31, 2014 and December 31, 2013, respectively. Loans which have been fully charged off do not appear in the table.

	March 31, 2014
							For the three months ended March 31, 2014
									Interest
			Unpaid				Average		Income
	Recorded		Principal		Related		Recorded		Recognized
	Investment		Balance		Allowance		Investment		in Period
	(In Thousands)
With no allowance recorded:
Commercial, financial and agricultural	$	1,161	$	1,654	$	-	$	1,414	$	14
Real estate - construction		2,214		2,652		-		1,964		11
Real estate - mortgage:
Owner-occupied commercial		759		759		-		767		2
1-4 family mortgage		1,198		1,198		-		1,198		15
Other mortgage		2,306		2,306		-		2,309		35
Total real estate - mortgage		4,263		4,263		-		4,274		52
Consumer		-		-		-		-		-
Total with no allowance recorded		7,638		8,569		-		7,652		77

With an allowance recorded:
Commercial, financial and agricultural		2,289		2,429		1,422		2,312		31
Real estate - construction		7,495		7,976		2,184		7,337		45
Real estate - mortgage:
Owner-occupied commercial		1,496		1,496		449		1,520		14
1-4 family mortgage		11,297		11,297		1,546		11,297		84
Other mortgage		3,190		3,288		708		3,194		37
Total real estate - mortgage		15,983		16,081		2,703		16,011		135
Consumer		802		802		802		808		-
Total with allowance recorded		26,569		27,288		7,111		26,468		211

Total Impaired Loans:
Commercial, financial and agricultural		3,450		4,083		1,422		3,726		45
Real estate - construction		9,709		10,628		2,184		9,301		56
Real estate - mortgage:
Owner-occupied commercial		2,255		2,255		449		2,287		16
1-4 family mortgage		12,495		12,495		1,546		12,495		99
Other mortgage		5,496		5,594		708		5,503		72
Total real estate - mortgage		20,246		20,344		2,703		20,285		187
Consumer		802		802		802		808		-
Total impaired loans	$	34,207	$	35,857	$	7,111	$	34,120	$	288

	December 31, 2013
									Interest
			Unpaid				Average		Income
	Recorded		Principal		Related		Recorded		Recognized
	Investment		Balance		Allowance		Investment		In Period
	(In Thousands)

With no allowance recorded:
Commercial, financial and agricultural	$	1,210	$	1,210	$	-	$	1,196	$	63
Real estate - construction		1,967		2,405		-		1,363		32
Real estate - mortgage:
Owner-occupied commercial		577		577		-		603		32
1-4 family mortgage		1,198		1,198		-		1,200		55
Other mortgage		2,311		2,311		-		1,901		123
Total real estate - mortgage		4,086		4,086		-		3,704		210
Consumer		-		-		-		-		-
Total with no allowance recorded		7,263		7,701		-		6,263		305

With an allowance recorded:
Commercial, financial and agricultural		2,618		2,958		1,992		2,844		98
Real estate - construction		7,270		7,750		1,597		6,564		200
Real estate – mortgage:
Owner-occupied commercial		1,509		1,509		620		1,573		38
1-4 family mortgage		11,120		11,120		1,210		10,743		342
Other mortgage		1,487		1,586		152		1,873		96
Total real estate - mortgage		14,116		14,215		1,982		14,189		476
Consumer		699		699		699		790		28
Total with allowance recorded		24,703		25,622		6,270		24,387		802

Total Impaired Loans:
Commercial, financial and agricultural		3,828		4,168		1,992		4,040		161
Real estate - construction		9,237		10,155		1,597		7,927		232
Real estate – mortgage:
Owner-occupied commercial		2,086		2,086		620		2,176		70
1-4 family mortgage		12,318		12,318		1,210		11,943		397
Other mortgage		3,798		3,897		152		3,774		219
Total real estate - mortgage		18,202		18,301		1,982		17,893		686
Consumer		699		699		699		790		28
Total impaired loans	$	31,966	$	33,323	$	6,270	$	30,650	$	1,107

Troubled Debt Restructurings (“TDR”) at March 31, 2014, December 31, 2013 and March 31, 2013 totaled $13.5 million, $14.2 million and $12.3 million, respectively. At March 31, 2014, the Company had a related allowance for loan losses of $2.1 million allocated to these TDRs, compared to $2.4 million at December 31, 2013 and $1.4 million at March 31, 2013. The Company’s TDRs have resulted primarily from allowing the borrower to pay interest-only for an extended period of time, or through interest rate reductions rather than from debt forgiveness. There are ten TDR loans to one borrower in the amount of $4.1 million in payment default status at March 31, 2014. All other loans classified as TDRs as of March 31, 2014 are performing as agreed under the terms of their restructured plans. The following table presents an analysis of TDRs as of March 31, 2014 and March 31, 2013.

	March 31, 2014						March 31, 2013
			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		3	$	1,049	$	1,049		2	$	1,121	$	1,121
Real estate - construction		7		2,078		2,078		15		3,213		3,213
Real estate - mortgage:
Owner-occupied commercial		-		-		-		6		5,907		5,907
1-4 family mortgage		4		10,073		10,073		5		1,709		1,709
Other mortgage		1		278		278		1		301		301
Total real estate mortgage		5		10,351		10,351		12		7,917		7,917
Consumer		-		-		-		-		-		-
		15	$	13,478	$	13,478		29	$	12,251	$	12,251

	Number of		Recorded		Number of		Recorded
	Contracts		Investment		Contracts		Investment
Troubled Debt Restructurings That Subsequently Defaulted Commercial, financial and agricultural		1	$	141		-	$	-
Real estate - construction		7		2,078		-		-
Real estate - mortgage:
Owner-occupied commercial		-		-		3		2,786
1-4 family mortgage		2		1,848		-		-
Other mortgage		-		-		-		-
Total real estate - mortgage		2		1,848		3		2,786
Consumer		-		-		-		-
		10	$	4,067		3	$	2,786

NOTE 6 - EMPLOYEE AND DIRECTOR BENEFITS

Stock Options

At March 31, 2014, the Company had stock incentive plans as described below. The compensation cost that has been charged to earnings for the plans was approximately $1,020,000 and $259,000 for the three months ended March 31, 2014 and 2013. The Company recognized a non-routine expense of $703,000 as a result of an immaterial correction of its accounting for vested stock options previously granted to members of its advisory boards in the Dothan, Huntsville and Montgomery, Alabama markets. Such grants were historically accounted for under the provisions of Accounting Standards Codification (“ASC”) 718-10, Compensation – Stock Compensation, and now have been determined to be recognized as an expense of the fair value of such grants in accordance with the provisions of ASC 505-50, Equity-Based Payments to Non-Employees.

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

The Company has granted non-plan options to certain persons representing key business relationships to purchase up to an aggregate amount of 55,000 shares of the Company’s common stock at between $15.00 and $20.00 per share for 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 which incorporates 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.

	2014			2013
Expected volatility		19.25	%		18.50	%
Expected dividends		1.45	%		-	%
Expected term (in years)		8 years			7 years
Risk-free rate		2.33	%		1.39	%

The weighted average grant-date fair value of options granted during the three months ended March 31, 2014 and March 31, 2013 was $8.86 and $8.03, respectively.

The following table summarizes stock option activity during the three months ended March 31, 2014 and March 31, 2013:

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual		Aggregate
	Shares			Price		Term (years)		Intrinsic Value
								(In Thousands)
Three Months Ended March 31, 2014:
Outstanding at January 1, 2014		776,300		$	23.08		5.5	$	14,300
Granted		38,000			41.50		9.9		-
Exercised		(174,800	)		15.62		2.8		4,523
Forfeited		-			-		-		-
Outstanding at March 31, 2014		639,500			26.21		6.1	$	9,777

Exercisable at March 31, 2014		243,744		$	15.99		3.4	$	6,217

Three Months Ended March 31, 2013:
Outstanding at January 1, 2013		816,500		$	20.87		5.8	$	9,905
Granted		25,000			33.00		10.0		-
Exercised		(9,000	)		10.00		2.2		207
Forfeited		-			-		-		-
Outstanding at March 31, 2013		832,500			21.35		5.7	$	9,698

Exercisable at March 31, 2013		458,995		$	14.37		3.5	$	8,550

As of March 31, 2014, outstanding stock options include 55,000 options granted to non-employees of the Company. 20,000 of these stock options were granted to the Company’s advisory board in its Dothan, Alabama market in February 2009 and were fully vested as of March 31, 2014. 35,000 of these options were granted to the Company’s advisory board in its Mobile, Alabama and Pensacola, Florida markets in December 2013 and vest on their fifth anniversary.

As of March 31, 2014, there was $1,711,000 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 2.1 years.

Restricted Stock

The Company has issued 78,500 shares of restricted stock to certain employees. The value of restricted stock awards is determined to be the current value of the Company’s stock at the time of grant, 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 March 31, 2014, there was $1,299,000 of total unrecognized compensation expense. The expense is expected to be recognized evenly over the remaining 1.8 years of the restricted stock’s vesting period.

Stock Warrants

The Company granted warrants for 15,000 shares of common stock of the Company with an exercise price of $25 per share in the second quarter of 2009. These warrants were granted in connection with the issuance of the Company’s 8.25% Subordinated Note. All of these warrants were outstanding and fully vested as of March 31, 2014.

NOTE 7 - DERIVATIVES

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 rate lock commitments to customers as of March 31, 2014 and December 31, 2013 were not material.

NOTE 8 – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In July 2013, the FASB issued ASU No. 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the U.S. Treasury and London Interbank Offered Rate. The ASU also amends previous rules by removing the restriction on using different benchmark rates for similar hedges. This amendment applies to all entities that elect to apply hedge accounting of the benchmark interest rate. The amendments in this ASU were effective for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The Company has adopted this update, but such adoption had no impact on its financial position or results of operations.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. These amendments in this ASU are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption and retrospective application is permitted. The Company has adopted this update, but such adoption had no impact on its financial position or results of operations.

In January 2014, the FASB issued ASU No. 2014-1, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, which provides guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. It permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial investment in proportion to the tax credits and other tax benefits received, and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments are effective for public entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014, and are effective for all entities other than public entities for annual periods beginning after December 15, 2014, and interim reporting periods within annual periods beginning after December 15, 2015. Early adoption is permitted retrospective application is required for all periods presented. The Company made an investment in a limited partnership during the first quarter of 2014 which has invested in a qualified affordable housing project. The Company has made an election to account for this investment as provided for in this update, and will recognize the net investment performance of its share of the partnership as tax credits become available.

NOTE 9 - FAIR VALUE MEASUREMENT

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

Level 1:

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

Level 2:

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

Level 3:

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

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

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 pricing services provided by 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.

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 $2,235,000 during the three months ended March 31, 2014, and $3,925,000 during the three months ended March 31, 2013.

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. Appraisals are performed by certified and licensed appraisers. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the new cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the valuation hierarchy. A loss on the sale and write-downs of OREO of $306,000 was recognized during the three months ended March 31, 2014, and $308,000 during the three months ended March 31, 2013. 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 March 31, 2014 and December 31, 2013:

	Fair Value Measurements at March 31, 2014 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Recurring Basis:
Available for sale debt securities:
U.S. Treasury and government sponsored agencies	$	-	$	43,427	$	-	$	43,427
Mortgage-backed securities		-		86,476		-		86,476
State and municipal securities		-		131,653		-		131,653
Corporate debt		-		15,945		-		15,945
Total assets at fair value	$	-	$	277,501	$	-	$	277,501

	Fair Value Measurements at December 31, 2013 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Assets (Level 1)		(Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Recurring Basis:
Available for sale debt securities:
U.S. Treasury and government sponsored agencies	$	-	$	32,274	$	-	$	32,274
Mortgage-backed securities		-		88,240		-		88,240
State and municipal securities		-		129,831		-		129,831
Corporate debt		-		15,875		-		15,875
Total assets at fair value	$	-	$	266,220	$	-	$	266,220

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of March 31, 2014 and December 31, 2013:

	Fair Value Measurements at March 31, 2014 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Nonrecurring Basis:
Impaired loans	$	-	$	-	$	27,096	$	27,096
Other real estate owned and repossessed assets		-		-		9,752		9,752
Total assets at fair value	$	-	$	-	$	36,848	$	36,848

	Fair Value Measurements at December 31, 2013 Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
	(In Thousands)
Assets Measured on a Nonrecurring Basis:
Impaired loans	$	-	$	-	$	25,696	$	25,696
Other real estate owned		-		-		12,861		12,861
Total assets at fair value	$	-	$	-	$	38,557	$	38,557

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.

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 March 31, 2014 and December 31, 2013 are presented in the following table. This table includes those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis.

	March 31, 2014				December 31, 2013
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In Thousands)
Financial Assets:
Level 2 inputs:
Available for sale debt securities	$	277,501	$	277,501	$	266,220	$	266,220
Held to maturity debt securities		31,974		31,559		32,274		31,315
Restricted equity securities		3,738		3,738		3,738		3,738
Federal funds sold		10,535		10,535		8,634		8,634
Mortgage loans held for sale		6,704		6,704		8,134		8,134
Bank owned life insurance contracts		69,544		69,544		69,008		69,008

Level 3 Inputs:
Loans, net	$	2,906,069	$	2,909,139	$	2,828,205	$	2,825,924

Financial Liabilities:
Level 2 inputs:
Deposits	$	3,031,041	$	3,033,281	$	3,019,642	$	3,021,847
Federal funds purchased		195,765		195,765		174,380		174,380
Other borrowings		19,949		19,949		19,940		19,940

NOTE 10 – 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 March 31, 2014, and events which occurred subsequent to March 31, 2014 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 March 31, 2014 and for the three months ended March 31, 2014 and March 31, 2013.

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 “Cautionary Note Regarding Forward Looking Statements” and “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. ServisFirst Bancshares, Inc. assumes no obligation to update or revise any forward-looking statements that are made from time to time.

Business

We are a bank holding company under the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama. Our wholly-owned subsidiary, ServisFirst Bank, an Alabama banking corporation, provides commercial banking services through twelve full-service banking offices located in Alabama and the panhandle of Florida, as well as a loan production office in Nashville, Tennessee. Through the bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.

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 March 31, 2014, we had consolidated total assets of $3.57 billion, up $0.05 billion, or 1.5%, from total assets at December 31, 2013. Total loans were $2.94 billion at March 31, 2014, up $0.08 billion, or 2.8%, over $2.86 billion at December 31, 2013. Total deposits were $3.03 billion at March 31, 2014, up $0.01 billion, or 0.4%, from $3.02 billion at December 31, 2013.

Net income for the quarter ended March 31, 2014 was $11.7 million, an increase of $2.5 million, or 27.4%, from $9.2 million for the quarter ended March 31, 2013. Basic and diluted earnings per common share were $1.58 and $1.52, respectively, for the three months ended March 31, 2014, compared to $1.44 and $1.31, respectively, for the corresponding period in 2013. This increase was primarily attributable to increased net interest income of $4.9 million resulting from a $627.3 million, or 23.0%, increase in average interest-earning assets from the quarters ended March 31, 2013 to 2014. This increase in net interest income and average interest-earning assets is further explained in “Results of Operations” “Net Interest Income” following.

Recent Developments – Second Quarter 2014 Noninterest Expense

The Company previously granted in December 2013 to our Pensacola, Florida and Mobile, Alabama advisory board members a total of 35,000 stock options, which vest on the fifth anniversary of the date of grant. Consistent with the correction of the accounting treatment for the options granted to our Dothan, Huntsville and Montgomery, Alabama advisory board members, the Company accounts for these options in accordance with FASB ASC Topic 505-50. FASB ASC Topic 505-50 requires the Company to recognize as an expense during each reporting period changes in the fair value of the unvested portion of such options, determined using a Black-Scholes option pricing model. In order to reduce the future uncertainty and variability of expense associated with these unvested options under FASB ASC Topic 505-50, on April 21, 2014, the Company’s compensation committee approved a modification to the 35,000 stock options to accelerate the vesting of these options. This modification will accelerate the five year vesting period of these stock options to the date on which the Company enters into an underwriting agreement with the underwriters in the Registration Statement on Form S-1 which the Company has filed with the SEC, or, alternatively, if we determine not to proceed with the offering contemplated therein, the date we make such a determination. The compensation committee determined that the appropriate calculation of the fair value of the accelerated options should be based on the initial public offering price of our common stock, assuming consummation of the public offering. This correction of the accounting treatment will be a non-cash item and will not impact the Company’s operating activities or cash from operations.

Critical Accounting Policies

The accounting and financial policies of the Company conform to U.S. generally accepted accounting principles and to general practices within the banking industry. To prepare consolidated financial statements in conformity with U.S. generally accepted accounting principles, 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/A for the fiscal year ended December 31, 2013.

Financial Condition

Cash and Cash Equivalents

At March 31, 2014, we had $10.5 million in federal funds sold and other investments, compared to $8.6 million at December 31, 2013. We also maintain balances at the Federal Reserve Bank of Atlanta, which earn interest. At March 31, 2014, we had $132.0 million in balances at the Federal Reserve, compared to $186.0 million at December 31, 2013.

Investment Securities

Debt securities available for sale totaled $277.5 million at March 31, 2014 and $266.2 million at December 31, 2013. Investment securities held to maturity totaled $32.0 million at March 31, 2014 and $32.3 million at December 31, 2013. We had pay downs of $4.6 million on mortgage-backed securities and calls and maturities of $2.3 million on municipal securities during the first three months of 2014. We bought $12.7 million in U.S. Treasury and government agency securities and $4.1 million in municipal securities during the first three months of 2014. All securities bought during the first three months of 2014 are classified at available for sale.

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 at 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.

All securities held are traded in liquid markets. As of March 31, 2014, we owned certain restricted securities of the Federal Home Loan Bank with an aggregate book value and market value of $3.5 million and certain securities of First National Bankers Bank in which we invested $0.2 million. We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity.

The Company 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 as of March 31, 2014 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 $219.9 million and $202.3 million as of March 31, 2014 and December 31, 2013, respectively.

Loans

We had total loans of $2.94 billion at March 31, 2014, up $0.08 billion, or 2.8%, compared to $2.86 billion at December 31, 2013. At March 31, 2014, the percentage of our total loans in each of our markets were as follows:

	Percentage of Total Loans in MSA
Birmingham-Hoover, AL MSA		50.38	%
Huntsville, AL MSA		14.72	%
Montgomery, AL MSA		9.86	%
Dothan, AL MSA		12.42	%
Mobile, AL MSA		3.20	%
Total Alabama MSAs		90.58	%
Pensacola, FL MSA		7.44	%
Nashville, TN MSA		1.98	%

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 March 31, 2014.

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 to
March 31, 2014	Amount		total loans
	(In Thousands)
Commercial, financial and agricultural	$	10,980		44.46	%
Real estate - construction		6,058		5.35	%
Real estate - mortgage		8,137		48.49	%
Consumer		951		1.70	%
Qualitative Factors		5,602		-	%
Total	$	31,728		100.00	%

			Percentage
			of loans in
			each
			category to
December 31, 2013	Amount		total loans
	(In Thousands)
Commercial, financial and agricultural	$	11,170		44.73	%
Real estate - construction		5,809		5.31	%
Real estate - mortgage		7,495		48.28	%
Consumer		855		1.68	%
Qualitative Factors		5,334		-	%
Total	$	30,663		100.00	%

Nonperforming Assets

Total nonperforming loans, which include nonaccrual loans and loans 90 or more days past due and still accruing, decreased to $9.2 million at March 31, 2014, compared to $9.7 million at December 31, 2013. Of this total, nonaccrual loans of $9.1 million at March 31, 2014, represented a net decrease of $0.5 million from nonaccrual loans at December 31, 2013. There were two loans 90 or more days past due and still accruing in the amount of $110,000, at March 31, 2014, compared to two loans 90 or more days past due and still accruing in the amount of $115,000, at December 31, 2013. Troubled Debt Restructurings (“TDR”) at March 31, 2014 and December 31, 2013 were $13.5 million and $14.2 million, respectively. There were ten TDR loans in the amount of $4.1 million in payment default status at March 31, 2014.

Other real estate owned (OREO) and repossessions decreased to $9.8 million at March 31, 2014, from $12.9 million at December 31, 2013. The total number of OREO and repossessed asset accounts decreased to 34 at March 31, 2014, from 51 at December 31, 2013.

The following table summarizes our nonperforming assets and TDRs at March 31, 2014 and December 31, 2013:

	March 31, 2014					December 31, 2013
				Number of					Number of
	Balance			Loans		Balance			Loans
	(Dollar Amounts In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	448			6	$	1,714			9
Real estate - construction		4,264			16		3,749			14
Real estate - mortgage:
Owner-occupied commercial		1,397			3		1,435			3
1-4 family mortgage		2,025			3		1,878			3
Other mortgage		243			1		243			1
Total real estate - mortgage		3,665			7		3,556			7
Consumer		707			5		602			4
Total Nonaccrual loans:	$	9,084			34	$	9,621			34

90+ days past due and accruing:
Commercial, financial and agricultural	$	-			-	$	-			-
Real estate - construction		15			1		-			-
Real estate - mortgage:
Owner-occupied commercial		-			-		-			-
1-4 family mortgage		-			-		19			1
Other mortgage		-			-		-			-
Total real estate - mortgage		-			-		19			1
Consumer		95			1		96			1
Total 90+ days past due and accruing:	$	110			2	$	115			2

Total Nonperforming Loans:	$	9,194			36	$	9,736			36

Plus: Other real estate owned and repossessions		9,752			34		12,861			51
Total Nonperforming Assets	$	18,946			70	$	22,597			87

Restructured accruing loans:
Commercial, financial and agricultural	$	908			2	$	962			2
Real estate - construction		-			-		217			1
Real estate - mortgage:
1-4 family mortgage		8,225			2		8,225			2
Other mortgage		278			1		285			1
Total real estate - mortgage		8,503			3		8,510			3
Total restructured accruing loans:	$	9,411			5	$	9,689			6
Total Nonperforming assets and restructured accruing loans	$	28,357			75	$	32,286			93

Ratios:
Nonperforming loans to total loans		0.31	%				0.34	%
Nonperforming assets to total loans plus other real estate owned and repossessions		0.64	%				0.79	%
Nonperforming loans plus restructured accruing loans to total loans plus other real estate owned and repossessions		0.63	%				0.68	%

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 $6.1 million of our allowance for loan losses to real estate construction, including acquisition and development and lot loans, $11.0 million to commercial, financial and agricultural loans, and $9.0 million to other loan types. We have a total loan loss reserve as of March 31, 2014 allocable to specific loan types of $26.1 million. Another $5.6 million of our allowance for loan losses is based on our judgment regarding various external and internal factors, including macroeconomic trends, our assessment of the Company’s loan growth prospects, and evaluations of internal risk controls. The total resulting loan loss reserve is $31.7 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 March 31, 2014, we had impaired loans of $34.2 million inclusive of nonaccrual loans, an increase of $2.2 million from $32.0 million as of December 31, 2013. We allocated $7.1 million of our allowance for loan losses at March 31, 2014 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 each 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 $34.2 million of impaired loans reported as of March 31, 2014, $9.7 million were real estate – construction loans, $7.4 million (a total of 21 loans with 6 builders) were residential construction loans, and $135,000 consisted of various residential lot loans to 2 builders.

Deposits

Total deposits increased by $0.01 billion to $3.03 billion at March 31, 2014 compared to $3.02 billion at December 31, 2013. We anticipate long-term sustainable growth in deposits through continued development of market share in our less mature markets and through organic growth in our mature 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 $195.7 million and $174.4 million at March 31, 2014 and December 31, 2013, respectively, in federal funds purchased from respondent banks that are clients of our correspondent banking unit. The average rate paid on these borrowings was 0.28% for the quarter ended March 31, 2014. $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.

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 March 31, 2014, liquid assets, which are represented by cash and due from banks, federal funds sold and unpledged available-for-sale securities, totaled $358.6 million. Additionally, the Bank had borrowing availability of approximately $130.0 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 “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 March 31, 2014. 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	$	2,624,189	$	-	$	-	$	-	$	-
Certificates of deposit (2)		406,852		250,697		115,150		41,005		-
Federal funds purchased		195,762		195,762		-		-		-
Subordinated note payable		19,949		-		-		-		19,949
Operating lease commitments		16,165		2,530		4,909		4,108		4,618
Total	$	3,262,917	$	448,989	$	120,059	$	45,113	$	24,567

(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 March 31, 2014, 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 March 31, 2014.

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 March 31, 2014, December 31, 2013 and March 31, 2013:

											To Be Well Capitalized
						For Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2014:
Total Capital to Risk-Weighted Assets:
Consolidated	$	359,651		11.94	%	$	240,885		8.00	%	$	N/A		N/A	%
ServisFirst Bank		356,178		11.83	%		240,831		8.00	%		301,038		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		307,722		10.22	%		120,443		4.00	%		N/A		N/A	%
ServisFirst Bank		324,450		10.78	%		120,415		4.00	%		180,623		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		307,722		8.81	%		139,725		4.00	%		N/A		N/A	%
ServisFirst Bank		324,450		9.28	%		139,778		4.00	%		174,722		5.00	%

As of December 31, 2013:
Total Capital to Risk-Weighted Assets:
Consolidated	$	343,904		11.73	%	$	234,617		8.00	%	$	N/A		N/A	%
ServisFirst Bank		341,256		11.64	%		234,601		8.00	%		293,252		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		293,301		10.00	%		117,308		4.00	%		N/A		N/A	%
ServisFirst Bank		310,593		10.59	%		117,301		4.00	%		175,951		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		293,301		8.48	%		138,373		4.00	%		N/A		N/A	%
ServisFirst Bank		310,593		8.98	%		138,331		4.00	%		172,913		5.00	%

As of March 31, 2013:
Total Capital to Risk-Weighted Assets:
Consolidated	$	298,297		11.82	%	$	201,860		8.00	%	$	N/A		N/A	%
ServisFirst Bank		295,545		11.71	%		201,857		8.00	%		252,321		10.00	%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated		250,618		9.93	%		100,930		4.00	%		N/A		N/A	%
ServisFirst Bank		267,866		10.62	%		100,928		4.00	%		151,393		6.00	%
Tier 1 Capital to Average Assets:
Consolidated		250,618		8.80	%		113,901		4.00	%		N/A		N/A	%
ServisFirst Bank		267,866		9.42	%		113,797		4.00	%		142,246		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 $278,000 as of March 31, 2014 and $264,000 as of December 31, 2013 for the settlement of any repurchase demands by investors. We did not have any requests by investors to repurchase loans during the first quarter of 2014.

Financial instruments whose contract amounts represent credit risk at March 31, 2014 are as follows:

	March 31, 2014
	(In Thousands)
Commitments to extend credit	$	1,107,982
Credit card arrangements		34,413
Standby letters of credit		40,272
	$	1,182,667

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 March 31, 2014 was $11.8 million and net income available to common stockholders was $11.7 million compared to net income of $9.3 million and net income available to common stockholders of $9.2 million for the three months ended March 31, 2013. The increase in net income was primarily attributable to a $4.9 million increase in net interest income as a result of growth in average earning assets and a decrease in provision for loan losses of $2.0 million resulting from lower charge-offs and decreases in nonperforming loans. Noninterest income decreased $0.6 million and noninterest expense increased $2.9 million, both of which are more fully explained below.

Basic and diluted net income per common share were $1.58 and $1.52, respectively, for the three months ended March 31, 2014, compared to $1.44 and $1.31, respectively, for the corresponding period in 2013. Return on average assets for the three months ended March 31, 2014 was 1.36% compared to 1.31% for the corresponding period in 2013, and return on average stockholders’ equity for the three months ended March 31, 2014 was 15.63%, compared to 15.20% for the corresponding period in 2013.

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 $5.0 million, or 19.0%, to $31.4 million for the three months ended March 31, 2014 compared to $26.3 million for the corresponding period in 2013. This increase was primarily attributable to a $627.3 million increase in average earning assets, or 23.0%, year over year. The taxable-equivalent yield on interest-earning assets decreased 20 basis points to 4.21% for the three months ended March 31, 2014 from 4.41% for the corresponding period in 2013. The yield on loans for the three months ended March 31, 2014 was 4.52% compared to 4.64% for the corresponding period in 2013. Loan fees included in the yield calculation increased to $240,000 for the three months ended March 31, 2014 from $6,000 for the corresponding period in 2013 as a result of the collection of late charges on a few large loans during the first quarter of 2014. The cost of total interest-bearing liabilities decreased to 0.55% for the three months ended March 31, 2014 from 0.64% for the corresponding period in 2013. Net interest margin for the three months ended March 31, 2014 decreased to 3.80% from 3.92% for the corresponding period in 2013.

The following table shows, for the three months ended March 31, 2014 and March 31, 2013, 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 March 31,

(Dollar Amounts In Thousands)

	2014							2013
			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	$	2,892,433	$	32,257		4.52	%	$	2,384,670	$	27,255		4.64	%
Tax-exempt (2)		14,550		120		3.34			2,464		35		5.76	%
Mortgage loans held for sale		4,496		31		2.80			19,322		93		1.95
Investment securities:
Taxable		174,842		1,096		2.54			144,407		948		2.66
Tax-exempt (2)		122,686		1,248		4.13			109,587		1,197		4.43
Total investment securities (3)		297,528		2,344		3.20			253,994		2,145		3.42
Federal funds sold		54,895		42		0.31			23,522		16		0.28
Restricted equity securities		3,738		-		-			3,954		23		2.36
Interest-bearing balances with banks		82,279		19		0.09			34,704		28		0.33
Total interest-earning assets	$	3,349,919	$	34,813		4.21	%	$	2,722,630	$	29,595		4.41	%
Non-interest-earning assets:
Cash and due from banks		56,082							41,437
Net premises and equipment		8,724							9,241
Allowance for loan losses, accrued interest and other assets		85,532							74,223
Total assets	$	3,500,257						$	2,847,531

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	478,678	$	318		0.27	%	$	413,935	$	281		0.28	%
Savings deposits		25,081		17		0.27			22,089		15		0.28
Money market accounts		1,416,645		1,557		0.45			1,074,226		1,225		0.46
Time deposits		412,622		1,122		1.10			395,902		1,192		1.22
Federal funds purchased		195,967		135		0.28			137,183		85		0.25
Other borrowings		19,945		283		5.75			27,441		466		6.89
Total interest-bearing liabilities	$	2,548,938	$	3,432		0.55		$	2,070,776	$	3,264		0.64
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		641,450							523,669
Other liabilities		4,724							7,708
Stockholders' equity		300,512							238,290
Unrealized gains on securities and derivatives		4,634							7,088
Total liabilities and stockholders' equity	$	3,500,257						$	2,847,531
Net interest spread						3.67	%						3.77	%
Net interest margin						3.80	%						3.92	%

(1)

Non-accrual loans are included in average loan balances in all periods. Loan fees of $240,000 and $6,000 are included in interest income in 2014 and 2013, respectively.

(2)

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

(3)

Unrealized gains of $7,137,000 and $10,905,000 are excluded from the yield calculation in 2014 and 2013, respectively.

	For the Three Months Ended March 31,
	2014 Compared to 2013 Increase (Decrease) in Interest Income and Expense Due to Changes in:
	Volume			Rate			Total
	(In Thousands)
Interest-earning assets:
Loans, net of unearned income
Taxable	$	5,678		$	(676	)	$	5,002
Tax-exempt		106			(21	)		85
Mortgages held for sale		(91	)		29			(62	)
Debt securities:
Taxable		193			(45	)		148
Tax-exempt		137			(86	)		51
Federal funds sold		24			2			26
Restricted equity securities		(1	)		(22	)		(23	)
Interest-bearing balances with banks		20			(29	)		(9	)
Total interest-earning assets		6,066			(848	)		5,218

Interest-bearing liabilities:
Interest-bearing demand deposits		43			(6	)		37
Savings		2			-			2
Money market accounts		377			(45	)		332
Time deposits		48			(118	)		(70	)
Federal funds purchased		39			11			50
Other borrowed funds		(114	)		(69	)		(183	)
Total interest-bearing liabilities		395			(227	)		168
Increase in net interest income	$	5,671		$	(621	)	$	5,050

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 various internal and external factors. At March 31, 2014, total loans rated Special Mention, Substandard, and Doubtful were $102.9 million, or 3.5% of total loans, compared to $93.2 million, or 4.8% of total loans, at December 31, 2013. 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 $2.3 million for the three months ended March 31, 2014, a decrease of $2.0 million from $4.3 million for the three months ended March 31, 2013. The decrease in provision for loan losses for the three months ended March 31, 2014 compared to the same period in 2013 is primarily attributable to improving credit quality resulting from fewer loan charge-offs. Loan charge-offs during the first quarter of 2014 totaled $1.3 million, of which $1.2 million were impaired at December 31, 2013, compared to $2.9 million during the first quarter of 2013, with none of the loans being impaired at December 31, 2012. Nonperforming loans decreased to $9.2 million, or 0.31% of total loans, at March 31, 2014 from $9.7 million, or 0.34% of total loans, at December 31, 2013, and were also lower than $24.3 million, or 0.99% of total loans, at March 31, 2013. Impaired loans increased to $34.2 million, or 1.2% of total loans, at March 31, 2014, compared to $32.0 million, or 1.1% of total loans, at December 31, 2013. The allowance for loan losses totaled $31.7 million, or 1.08% of total loans, net of unearned income, at March 31, 2014, compared to $30.7 million, or 1.07% of loans, net of unearned income, at December 31, 2013.

Noninterest Income

Noninterest income totaled $2.2 million for the three months ended March 31, 2014, a decrease of $0.6 million, or 21.4%, compared to the corresponding period in 2013. The decrease was primarily attributable to a $0.7 decrease in mortgage banking revenue. Deposit service charges increased by $0.1 million, or 12.5%, resulting from higher balances and an increase in the number of accounts and transactions. Increases in cash surrender value of life insurance contracts resulted from added investments in contracts during the third quarter of 2013. We had no securities sales in the first quarter of 2014 compared to $0.1 million in gains on sales during the first quarter of 2013.

Noninterest Expense

Noninterest expense totaled $13.7 million for the three months ended March 31, 2014, an increase of $2.9 million, or 26.9%, compared to $10.8 million for the corresponding period in 2013. Increases in expenses primarily relate to our continued expansion, both within existing markets and into our newer markets of Mobile, Alabama and Nashville, Tennessee.

Further details of expenses are as follows:

Salary and benefit expense increased $2.0 million, or 35.1%, to $7.7 million for the three months ended March 31, 2014 from $5.7 million for the corresponding period in 2013. This increase consists primarily of a $1.3 million, or 22.8%, increase in salaries and benefits related to new hires to fill positions in our newer markets of Mobile, Alabama and Nashville, Tennessee and a non-routine expense of $703,000 resulting from an immaterial correction of our accounting for vested stock options previously granted to members of our advisory boards in our Dothan, Huntsville and Montgomery, Alabama markets. We historically accounted for these options under the provisions of FASB ASC 718-10, Compensation – Stock Compensation, and now have determined to recognize as an expense during each reporting period changes in the fair value of the unvested portion of such options in accordance with the provisions of FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees. We had 268 full-time equivalent employees at March 31, 2014 compared to 241 at March 31, 2013, an 11.2% increase. Most of this increase in number of employees was due to our continued expansion into the Mobile, Alabama and Nashville, Tennessee markets.

Occupancy expense increased $0.3 million, or 27.3%, to $1.4 million for the three months ended March 31, 2014 from $1.1 million for the corresponding period in 2013. This increase is primarily the result of our expansion into new markets.

Other operating expenses increased $0.4 million, primarily a result of increases of $0.2 million in other loan expenses and $0.2 million in data processing expenses. Other loan expenses are largely comprised of recording fees and other non-origination loan expenses. Higher data processing expenses primarily relate to increases in transaction volumes and added record retention needs.

Income Tax Expense

Income tax expense was $5.2 million for the three months ended March 31, 2014 versus $4.4 million for the same period in 2013. Our effective tax rate for the three months ended March 31, 2014 was 30.59%, compared to 32.29% for the corresponding period in 2013. Our primary permanent differences are related to tax exempt income on securities, state income tax benefit on real estate investment trust dividends, change in cash surrender value of bank-owned life insurance and incentive stock option expenses.

We own real estate investment trusts for the purpose of holding and managing participations in residential mortgages and commercial real estate loans originated by the Bank. The trusts are wholly-owned subsidiaries of a trust holding company, which in turn is a wholly-owned subsidiary of the Bank. The trusts earn interest income on the loans they hold and incur operating expenses related to their activities. They pay their net earnings, in the form of dividends, to the Bank, which receives a deduction for state 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, 2013, and there are no significant changes to our sensitivity to changes in interest rates since December 31, 2013 as disclosed in our Form 10-K/A.

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 March 31, 2014. Based upon the Evaluation, our CEO and CFO have concluded that, as of March 31, 2014, 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.

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/A for the fiscal year ended December 31, 2013, 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/A for the fiscal year ended December 31, 2013, 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/A. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see “Forward-Looking Statements” under Part 1, Item 2 above.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibit:

31.01 Certification of principal executive officer pursuant to Rule 13a-14(a).

31.02 Certification of principal financial officer pursuant to Rule 13a-14(a).

32.01 Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.

32.02 Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.

SIGNATURES

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

		SERVISFIRST BANCSHARES, INC.

Date: April 25, 2014	By	/s/ Thomas A. Broughton III
		Thomas A. Broughton III
		President and Chief Executive Officer

Date: April 25, 2014	By	/s/ William M. Foshee
		William M. Foshee
		Chief Financial Officer