FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED September 30, 2008
OR
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o |
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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 0-25033
Superior Bancorp
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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63-1201350 |
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(State or Other Jurisdiction of Incorporation)
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(IRS Employer Identification No.) |
17 North 20th Street, Birmingham, Alabama 35203
(Address of Principal Executive Offices)
(205) 327-1400
(Registrants 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 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class |
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Outstanding as of September 30, 2008 |
Common stock, $.001 par value
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10,064,941 |
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
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September 30, |
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December 31, |
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2008 |
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2007 |
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(UNAUDITED) |
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ASSETS |
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Cash and due from banks |
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$ |
88,035 |
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$ |
52,983 |
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Interest-bearing deposits in other banks |
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6,564 |
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6,916 |
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Federal funds sold |
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3,038 |
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3,452 |
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Investment securities available for sale |
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334,502 |
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361,171 |
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Tax lien certificates |
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18,877 |
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15,615 |
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Mortgage loans held for sale |
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15,292 |
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33,408 |
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Loans, net of unearned income |
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2,219,041 |
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2,017,011 |
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Less: Allowance for loan losses |
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(27,670 |
) |
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(22,868 |
) |
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Net loans |
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2,191,371 |
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1,994,143 |
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Premises and equipment, net |
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104,003 |
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104,799 |
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Accrued interest receivable |
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15,188 |
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16,512 |
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Stock in FHLB |
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24,965 |
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14,945 |
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Cash surrender value of life insurance |
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47,789 |
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45,277 |
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Goodwill and other intangibles |
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184,442 |
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187,520 |
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Other assets |
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69,611 |
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48,684 |
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TOTAL ASSETS |
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$ |
3,103,677 |
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$ |
2,885,425 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Deposits: |
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Noninterest-bearing |
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$ |
220,553 |
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$ |
207,602 |
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Interest-bearing |
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2,004,976 |
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1,993,009 |
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TOTAL DEPOSITS |
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2,225,529 |
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2,200,611 |
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Advances from FHLB |
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440,327 |
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222,828 |
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Federal funds purchased and security repurchase agreements |
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5,989 |
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17,075 |
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Note payable |
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10,000 |
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9,500 |
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Subordinated debentures |
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60,940 |
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53,744 |
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Accrued expenses and other liabilities |
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19,019 |
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31,625 |
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TOTAL LIABILITIES |
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2,761,804 |
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2,535,383 |
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STOCKHOLDERS EQUITY |
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Common stock, par value $.001 per share; authorized 15,000,000
shares; shares issued 10,391,748 and 10,380,658, respectively;
outstanding 10,064,941 and 10,027,079, respectively |
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10 |
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10 |
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Surplus |
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331,860 |
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329,232 |
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Retained earnings |
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28,586 |
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33,557 |
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Accumulated other comprehensive (loss) income |
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(6,441 |
) |
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174 |
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Treasury
stock, at cost 321,485 and 347,536 shares, respectively |
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(11,370 |
) |
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(12,309 |
) |
Unearned ESOP stock |
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(487 |
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(622 |
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Unearned restricted stock |
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(285 |
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TOTAL STOCKHOLDERS EQUITY |
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341,873 |
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350,042 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
3,103,677 |
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$ |
2,885,425 |
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See Notes to Condensed Consolidated Financial Statements.
2
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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INTEREST INCOME |
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Interest and fees on loans |
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$ |
36,664 |
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$ |
40,486 |
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$ |
110,717 |
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$ |
109,783 |
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Interest on taxable securities |
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4,106 |
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4,271 |
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12,302 |
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12,805 |
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Interest on tax-exempt securities |
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430 |
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276 |
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1,291 |
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543 |
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Interest on federal funds sold |
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17 |
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91 |
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114 |
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373 |
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Interest and dividends on other investments |
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663 |
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875 |
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2,039 |
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2,304 |
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Total interest income |
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41,880 |
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45,999 |
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126,463 |
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125,808 |
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INTEREST EXPENSE |
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Interest on deposits |
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16,010 |
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21,410 |
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52,972 |
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57,659 |
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Interest on other borrowed funds |
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3,290 |
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3,617 |
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9,098 |
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9,636 |
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Interest on subordinated debentures |
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954 |
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1,066 |
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2,887 |
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3,062 |
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Total interest expense |
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20,254 |
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26,093 |
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64,957 |
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70,357 |
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NET INTEREST INCOME |
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21,626 |
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19,906 |
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61,506 |
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55,451 |
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Provision for loan losses |
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2,305 |
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1,179 |
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10,143 |
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2,884 |
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
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19,321 |
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18,727 |
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51,363 |
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52,567 |
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NONINTEREST INCOME |
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Service charges and fees on deposits |
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2,425 |
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2,090 |
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6,721 |
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5,774 |
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Mortgage banking income |
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820 |
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970 |
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3,117 |
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3,052 |
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Investment securities (loss) gain |
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(8,541 |
) |
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(7,072 |
) |
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242 |
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Change in fair value of derivatives |
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141 |
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202 |
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773 |
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169 |
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Increase in cash surrender value of life insurance |
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583 |
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481 |
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1,689 |
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1,381 |
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Gain on extinguishment of liabilities |
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2,918 |
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Other income |
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1,359 |
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1,181 |
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4,247 |
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2,931 |
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TOTAL NONINTEREST INCOME |
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(3,213 |
) |
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4,924 |
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12,393 |
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13,549 |
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NONINTEREST EXPENSES |
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Salaries and employee benefits |
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12,379 |
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10,724 |
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36,577 |
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30,959 |
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Occupancy, furniture and equipment expense |
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4,434 |
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3,506 |
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12,614 |
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9,650 |
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Amortization of core deposit intangibles |
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896 |
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494 |
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2,688 |
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1,102 |
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Loss on extinguishment of debt |
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1,469 |
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1,469 |
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Merger-related costs |
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103 |
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118 |
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|
530 |
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Loss on termination of ESOP |
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158 |
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158 |
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Other expenses |
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6,199 |
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4,836 |
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17,449 |
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13,504 |
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TOTAL NONINTEREST EXPENSES |
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23,908 |
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21,290 |
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69,446 |
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57,372 |
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(Loss) income before income taxes |
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(7,800 |
) |
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2,361 |
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(5,690 |
) |
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8,744 |
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INCOME TAX (BENEFIT) EXPENSE |
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(1,292 |
) |
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911 |
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(719 |
) |
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3,027 |
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NET (LOSS) INCOME |
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$ |
(6,508 |
) |
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$ |
1,450 |
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$ |
(4,971 |
) |
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$ |
5,717 |
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BASIC NET (LOSS) INCOME PER COMMON SHARE |
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$ |
(0.65 |
) |
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$ |
0.15 |
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$ |
(0.50 |
) |
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$ |
0.64 |
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DILUTED NET (LOSS) INCOME PER COMMON SHARE |
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$ |
(0.65 |
) |
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$ |
0.15 |
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$ |
(0.50 |
) |
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$ |
0.63 |
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Weighted average common shares outstanding |
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10,023 |
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9,693 |
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10,017 |
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8,975 |
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Weighted average common shares outstanding, assuming dilution |
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10,023 |
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9,770 |
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10,017 |
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|
9,092 |
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See Notes to Condensed Consolidated Financial Statements.
3
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
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Nine Months Ended |
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September 30, |
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2008 |
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|
2007 |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
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$ |
28,439 |
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$ |
1,515 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Net decrease in interest-bearing deposits in other banks |
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352 |
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|
3,932 |
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Net decrease in federal funds sold |
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414 |
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|
21,849 |
|
Proceeds from sales of securities available for sale |
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37,633 |
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|
18,378 |
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Proceeds from maturities of investment securities available for sale |
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|
100,906 |
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|
63,345 |
|
Purchases of investment securities available for sale |
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(129,229 |
) |
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|
(47,772 |
) |
Purchase (redemption) of tax lien certificates |
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|
(3,262 |
) |
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|
2,378 |
|
Net increase in loans |
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|
(233,613 |
) |
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|
(146,015 |
) |
Net cash received in business combinations |
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|
1,231 |
|
Purchases of premises and equipment |
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|
(10,193 |
) |
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|
(9,839 |
) |
Proceeds from sale of premises and equipment |
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|
7,637 |
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|
5,535 |
|
Proceeds from sale of repossessed assets |
|
|
5,522 |
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|
2,492 |
|
Increase in stock in FHLB |
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|
(10,020 |
) |
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|
(3,206 |
) |
Other investing activities, net |
|
|
(1,090 |
) |
|
|
1,455 |
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|
|
|
|
|
|
Net cash used by investing activities |
|
|
(234,943 |
) |
|
|
(86,237 |
) |
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|
CASH FLOWS FROM FINANCING ACTIVITIES: |
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|
Net increase in deposits |
|
|
24,760 |
|
|
|
33,872 |
|
Net increase in FHLB advances and other borrowed funds |
|
|
206,296 |
|
|
|
53,642 |
|
Payments made on notes payable |
|
|
(9,500 |
) |
|
|
(6,045 |
) |
Proceeds from notes payable |
|
|
10,000 |
|
|
|
9,268 |
|
Proceeds from issuance of subordinated debenture |
|
|
10,000 |
|
|
|
22,680 |
|
Principal payment of subordinated debenture |
|
|
|
|
|
|
(16,495 |
) |
Purchase of treasury stock |
|
|
|
|
|
|
(9,223 |
) |
Proceeds from sale of common stock |
|
|
|
|
|
|
639 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
241,556 |
|
|
|
88,338 |
|
|
|
|
|
|
|
|
Net increase in cash and due from banks |
|
|
35,052 |
|
|
|
3,616 |
|
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD |
|
|
52,983 |
|
|
|
49,783 |
|
|
|
|
|
|
|
|
CASH AND DUE FROM BANKS AT END OF PERIOD |
|
$ |
88,035 |
|
|
$ |
53,399 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q, and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. For a summary of significant
accounting policies that have been consistently followed, see Note 1 to the Consolidated Financial
Statements included in Superior Bancorps (the Corporations) Annual Report on Form 10-K for the
year ended December 31, 2007. It is managements opinion that all adjustments, consisting of only
normal and recurring items necessary for a fair presentation, have been included in these condensed
consolidated financial statements. Operating results for the three- and nine-month periods ended
September 30, 2008, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008.
The Condensed Consolidated Statement of Financial Condition at December 31, 2007, presented herein,
has been derived from the financial statements audited by Grant Thornton LLP, independent
registered public accountants, as indicated in their report, dated March 14, 2008, included in the
Corporations Annual Report on Form 10-K. The Condensed Consolidated Financial Statements do not
include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements.
Restatement to Reflect 1-for-4 Reverse Stock Split
All disclosures, in this quarterly report, regarding common stock and related earnings per share
have been retroactively restated for all periods presented to reflect a 1-for-4 reverse stock split
effective April 28, 2008 (see Note 9).
Note 2 Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The Corporation adopted SFAS 157 on January 1, 2008 and the impact of this
adoption is included in Note 10.
Statement of Financial Accounting Standards No. 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 would allow the Corporation to make an irrevocable
election to measure certain financial assets and liabilities at fair value, with unrealized gains
and losses on the elected items recognized in earnings at each reporting period. The fair value
option may only be elected at the time of initial recognition of a financial asset or financial
liability or upon the occurrence of certain specified events. The election is applied on an
instrument by instrument basis, with a few exceptions, and is applied only to entire instruments
and not to portions of instruments. SFAS 159 also provides expanded disclosure requirements
regarding the effects of electing the fair value option on the financial statements. SFAS 159 is
effective prospectively for fiscal years beginning after November 15, 2007. The Corporation
evaluated SFAS 159 and determined that the fair value option would not be elected for any financial
asset or liability reported on the Corporations consolidated statement of financial condition as
of January 1, 2008 (date of adoption), nor has the Corporation applied the provisions of SFAS 159
to any financial asset or liability recognized during the nine-month period ended September 30,
2008.
Statement of Financial Accounting Standards No. 141(R)
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations a replacement of FASB
No. 141 (SFAS 141R). SFAS 141R replaces SFAS 141, Business Combinations and applies to all
transactions and other events in which one entity obtains control over one or more other
businesses. SFAS 141R requires an acquirer, upon initially obtaining control of another entity, to
recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as
of the acquisition date. Contingent consideration is required to be recognized and measured at fair
value on the date of acquisition rather than at a later date when the amount of that consideration
may be determinable beyond a reasonable doubt. This fair value approach replaces the
cost-allocation process required under SFAS 141 whereby the cost of an
5
Note 2 Recent Accounting Pronouncements (Continued)
acquisition was allocated to
the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS
141R requires acquirers to expense acquisition-related costs as incurred rather than allocating
such costs to the assets acquired and liabilities assumed, as was previously the case under SFAS
141. Under SFAS 141R, the requirements of SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities would have to be met in order to accrue for a restructuring plan in purchase
accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a
non-contractual contingency that is not likely to materialize, in which case, nothing should be
recognized in purchase accounting and, instead, that contingency would be subject to the probable
and estimable recognition criteria of SFAS 5, Accounting for Contingencies. SFAS 141R is expected to
have an impact on the Corporations accounting for business combinations, if any, closing on or
after January 1, 2009.
Staff Accounting Bulletin No. 109
In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 109,
Written Loan Commitments Recorded at Fair Value Through Earnings (SAB 109). SAB 109 supersedes
SAB 105, Application of Accounting Principles to Loan Commitments and indicates that the expected
net future cash flows related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value through earnings.
SAB 109 became effective beginning January 1, 2008 and did not have a material effect on the
Corporations financial position, results of operations or cash flows.
Statement of Financial Accounting Standards No. 161
In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging
Activities, an Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends SFAS 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133) to amend and expand the
disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity
uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted
for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and
related hedged items affect an entitys financial position, results of operations and cash flows.
To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts of gains and losses on
derivative instruments and disclosures about credit-risk-related contingent features in derivative
agreements. SFAS 161 will become effective for the Corporation on January 1, 2009 and is not expected to
have a significant impact on the Corporations financial position, results of operations or cash
flows.
Note 3 Acquisitions
The Corporation completed the acquisition of 100% of the outstanding stock of Peoples Community
Bancshares, Inc. (Peoples), of Sarasota, Florida on July 27, 2007 in exchange for 1,658,781
shares (restated to reflect 1-for-4 reverse stock split) of the Corporations common stock valued
at approximately $73,982,000. The shares were valued by using the average of the closing prices of
the Corporations stock for several days prior to and after the terms of the acquisition were
agreed to and announced. The total purchase price, which includes certain direct acquisition costs,
was $76,429,000. As a result of the acquisition, the Corporation now operates three banking
locations in Sarasota and Manatee Counties, Florida. This area is a significant addition to the
Corporations largest market, which was expanded in 2006 by the acquisition of Kensington
Bankshares, Inc., in Tampa, Florida.
The Peoples transaction resulted in $47,313,000 of goodwill allocated to the Florida reporting
unit and $9,810,000 of core deposit intangibles. The goodwill acquired is not tax-deductible. The
amount allocated to the core deposit intangible was determined by an independent valuation and is
being amortized over an estimated useful life of ten years based on the undiscounted cash flow.
6
Note 3 Acquisitions (Continued)
Pro forma Results of Operations
The results of operations of Peoples subsequent to its acquisition date are included in the
Corporations consolidated statements of operations. The following pro forma information for the
nine months ended September 30, 2007 reflects the Corporations pro forma consolidated results of
operations as if the acquisition of Peoples occurred at January 1, 2007, unadjusted for potential
cost savings.
|
|
|
|
|
|
|
Nine Months |
|
|
Ended |
(Dollars in thousands, except per share data) |
|
September 30, 2007 |
Pro forma net interest income and noninterest income |
|
$ |
72,585 |
|
Pro forma net income |
|
|
6,226 |
|
Pro forma earnings per common share basic |
|
$ |
0.60 |
|
Pro forma earnings per common share diluted |
|
|
0.60 |
|
Note 4 Investment Securities
The following table presents the carrying value of the securities we held at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
September 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
U.S. agencies |
|
$ |
6,743 |
|
|
$ |
94,215 |
|
|
|
(92.84 |
)% |
State and political subdivisions |
|
|
39,301 |
|
|
|
40,587 |
|
|
|
(3.17 |
) |
Mortgage-backed securities (MBS) |
|
|
262,438 |
|
|
|
191,378 |
|
|
|
37.13 |
|
Corporate debt and other securities |
|
|
26,020 |
|
|
|
34,991 |
|
|
|
(25.64 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
334,502 |
|
|
$ |
361,171 |
|
|
|
(7.38 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Gain (Loss) |
|
|
|
September 30, |
|
|
December 31, |
|
|
Dollar |
|
|
|
2008 |
|
|
2007 |
|
|
Change Pre-tax |
|
|
|
(Dollars in thousands) |
|
U.S. agencies |
|
$ |
111 |
|
|
$ |
1,011 |
|
|
$ |
(900 |
) |
State and political subdivisions |
|
|
(2,097 |
) |
|
|
(173 |
) |
|
|
(1,924 |
) |
Mortgage-backed securities (MBS) |
|
|
(4,302 |
) |
|
|
194 |
|
|
|
(4,496 |
) |
Corporate debt and other securities |
|
|
(5,003 |
) |
|
|
(1,892 |
) |
|
|
(3,111 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(11,291 |
) |
|
$ |
(860 |
) |
|
$ |
(10,431 |
) |
|
|
|
|
|
|
|
|
|
|
At September 30, 2008, a net unrealized after-tax loss of $6,441,000 on the investment securities
portfolio was reflected in net accumulated other comprehensive loss, an element of the
Corporations capital. This compares to a net unrealized after-tax loss of $542,000 at December 31,
2007.
Changes in current market conditions, such as interest rates and the economic uncertainties
in the mortgage, housing and banking industries, have severely constricted the structured
securities market. The secondary market for various types of securities has been limited and has
negatively impacted securities values. Quarterly, the Corporation reviews each investment security
segment noted in the table below to determine the nature of the decline in the value of investment
securities and evaluates if any of the underlying securities has experienced other-than-temporary
impairment (OTTI). The following table provides further detail of the investment securities
portfolio at September 30, 2008.
7
Note 4 Investment Securities Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
Unrealized Gain |
|
(Dollars in thousands) |
|
Cost |
|
|
Fair Value |
|
|
(Loss) |
|
September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency and agency MBS AAA rated |
|
$ |
244,144 |
|
|
$ |
244,004 |
|
|
$ |
(140 |
) |
Municipal securities |
|
|
41,398 |
|
|
|
39,301 |
|
|
|
(2,097 |
) |
Non-agency MBS AAA rated |
|
|
27,574 |
|
|
|
23,521 |
|
|
|
(4,053 |
) |
Non-agency MBS A and B2 rated |
|
|
1,656 |
|
|
|
1,656 |
|
|
|
|
|
Bank and pooled trust preferred securities |
|
|
24,399 |
|
|
|
19,650 |
|
|
|
(4,749 |
) |
Corporate securities |
|
|
6,059 |
|
|
|
5,807 |
|
|
|
(252 |
) |
Fannie Mae and Freddie Mac preferred stock |
|
|
563 |
|
|
|
563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
345,793 |
|
|
$ |
334,502 |
|
|
$ |
(11,291 |
) |
|
|
|
|
|
|
|
|
|
|
The unrealized losses associated with the U.S. agency and agency MBS securities are caused by
changes in interest rates and are not considered credit-related since the contractual cash flows of
these investments are backed by the full faith and credit of the U.S. government. Unrealized losses
that are related to the prevailing interest rate environment will decline over time and recover as
these securities approach maturity.
The unrealized losses in the municipal securities portfolio are due to widening credit spreads
caused by concerns about the bond insurers associated with these securities. In addition, municipal
securities were adversely impacted by changes in interest rates. This portfolio segment is not
experiencing any credit problems at September 30, 2008. The Corporation currently believes that all
contractual cash flows will be received on this portfolio.
The non-agency MBS securities portfolio has experienced various levels of price declines during
2008. The AAA rated non-agency MBS securities have experienced price declines due to the current
market environment and the currently limited secondary market for such securities. No losses are
expected in this portfolio at September 30, 2008. The Corporation currently believes all
contractual cash flows on these securities will be received. During the third quarter of 2008, the
Corporation recognized a $314,000, net of tax, non-cash OTTI charge on a non-agency MBS which
experienced a significant rating downgrade.
The bank and pooled trust preferred securities prices continue to decline due to reduced
demand for these securities as their average lives have lengthened and from the increased supply
due to forced liquidations from some market participants. Additionally, there has been little
secondary market trading for these types of securities. At September 30, 2008, the Corporation
believes that the credit quality of these securities remains adequate to absorb further economic
declines, and these securities remain investment grade. As a result, the Corporation currently
believes all contractual cash flows will be received on this portfolio.
The unrealized losses in the corporate securities portfolio are associated with the widening
spreads in the financial sector of the corporate bond market. At September 30, 2008, all of the
securities are current as to principal and interest payments, and the Corporation currently expects
them to remain so in the foreseeable future.
On September 7, 2008, the U.S. Treasury, the Federal Reserve and the Federal Housing Finance Agency
(FHFA) announced that FHFA was placing Fannie Mae and Freddie Mac under conservatorship. At
September 30, 2008, the Corporation held in its available-for-sale investment portfolio preferred
securities issued by Fannie Mae and Freddie Mac with a cost basis of $8,611,000. After the
conservatorship, these securities currently trade at five to seven percent of par value. The
Corporation does not hold any common stock or other equity securities issued by Fannie Mae or
Freddie Mac. In light of the significant decline in the market value of these securities due to the
takeover of Fannie Mae and Freddie Mac, and as it is unclear at this time if the value of the
securities will improve, the Corporation recognized a $7,387,000, net of tax, non-cash OTTI charge
on these investments during the third quarter of 2008. Under federal tax law that was in effect at
September 30, 2008, the losses recognized on the Fannie Mae and Freddie Mac preferred stock were
considered capital losses rather than ordinary losses (See Note 8 below). As such, only the amount
of these losses that could be offset by recognized capital gains was included in the third quarter
of 2008 income tax benefit.
8
Note 4 Investment Securities Continued
For further details regarding investment securities at December 31, 2007, refer to Notes 1 and 3 of
the Consolidated Financial Statements in the Corporations Form 10-K for the year ended
December 31, 2007. The Corporation will continue to evaluate the investment ratings in the
securities portfolio, severity in pricing declines, market price
quotes along with timing and receipt of amounts contractually due. Based upon these and other
factors, the securities portfolio may experience further impairment. At September 30, 2008,
management currently has the intent and ability to retain investment securities with unrealized
losses until the decline in value has been recovered.
Note 5 Segment Reporting
The Corporation has two reportable segments, the Alabama Region and the Florida Region. The Alabama
Region consists of operations located throughout Alabama. The Florida Region consists of operations
located primarily in the Tampa Bay area and the panhandle region of Florida. The Corporations
reportable segments are managed as separate business units because they are located in different
geographic areas. Both segments derive revenues from the delivery of financial services. These
services include commercial loans, mortgage loans, consumer loans, deposit accounts and other
financial services. Administrative and other banking activities include the results of the
Corporations investment portfolio, mortgage banking division, brokered deposits and borrowed funds
positions.
The Corporation evaluates performance and allocates resources based on profit or loss from
operations. There are no material inter-segment sales or transfers. Net interest income is used as
the basis for performance evaluation rather than its components, total interest income and total
interest expense. The accounting policies used by each reportable segment are the same as those
discussed in Note 1 to the Consolidated Financial Statements included in the Corporations Form
10-K for the year ended December 31, 2007. All costs, except corporate administration and income
taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the
consolidated totals (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Superior |
|
|
|
Alabama |
|
|
Florida |
|
|
Alabama and |
|
|
Administrative |
|
|
Bancorp |
|
|
|
Region |
|
|
Region |
|
|
Florida |
|
|
and Other |
|
|
Combined |
|
Three months ended September
30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
8,726 |
|
|
$ |
9,687 |
|
|
$ |
18,413 |
|
|
$ |
3,213 |
|
|
$ |
21,626 |
|
Provision for loan losses |
|
|
1,175 |
|
|
|
1,145 |
|
|
|
2,320 |
|
|
|
(15 |
) |
|
|
2,305 |
|
Noninterest income |
|
|
1,984 |
|
|
|
465 |
|
|
|
2,449 |
|
|
|
(5,662 |
) |
|
|
(3,213 |
) |
Noninterest expense |
|
|
7,834 |
|
|
|
5,238 |
|
|
|
13,072 |
|
|
|
10,836 |
|
|
|
23,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
1,701 |
|
|
$ |
3,769 |
|
|
$ |
5,470 |
|
|
$ |
(13,270 |
) |
|
|
(7,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,292 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(6,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,085,022 |
|
|
$ |
1,168,301 |
|
|
$ |
2,253,323 |
|
|
$ |
850,354 |
|
|
$ |
3,103,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September
30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
9,614 |
|
|
$ |
10,593 |
|
|
$ |
20,207 |
|
|
$ |
(301 |
) |
|
$ |
19,906 |
|
Provision for loan losses |
|
|
1,794 |
|
|
|
837 |
|
|
|
2,631 |
|
|
|
(1,452 |
) |
|
|
1,179 |
|
Noninterest income |
|
|
1,851 |
|
|
|
490 |
|
|
|
2,341 |
|
|
|
2,583 |
|
|
|
4,924 |
|
Noninterest expense |
|
|
6,116 |
|
|
|
3,962 |
|
|
|
10,078 |
|
|
|
11,212 |
|
|
|
21,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
3,555 |
|
|
$ |
6,284 |
|
|
$ |
9,839 |
|
|
$ |
(7,478 |
) |
|
|
2,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,026,579 |
|
|
$ |
1,126,161 |
|
|
$ |
2,152,740 |
|
|
$ |
750,051 |
|
|
$ |
2,902,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Note 5 Segment Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Superior |
|
|
|
Alabama |
|
|
Florida |
|
|
Alabama and |
|
|
Administrative |
|
|
Bancorp |
|
|
|
Region |
|
|
Region |
|
|
Florida |
|
|
and Other |
|
|
Combined |
|
Nine Months ended September
30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
24,353 |
|
|
$ |
28,415 |
|
|
$ |
52,768 |
|
|
$ |
8,738 |
|
|
$ |
61,506 |
|
Provision for loan losses |
|
|
2,977 |
|
|
|
2,663 |
|
|
|
5,640 |
|
|
|
4,503 |
|
|
|
10,143 |
|
Noninterest income |
|
|
5,587 |
|
|
|
1,405 |
|
|
|
6,992 |
|
|
|
5,401 |
|
|
|
12,393 |
|
Noninterest expense |
|
|
22,928 |
|
|
|
16,129 |
|
|
|
39,057 |
|
|
|
30,389 |
|
|
|
69,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
4,035 |
|
|
$ |
11,028 |
|
|
$ |
15,063 |
|
|
$ |
(20,753 |
) |
|
|
(5,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(4,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September
30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
28,010 |
|
|
$ |
27,145 |
|
|
$ |
55,155 |
|
|
$ |
296 |
|
|
$ |
55,451 |
|
Provision for loan losses |
|
|
2,832 |
|
|
|
1,187 |
|
|
|
4,019 |
|
|
|
(1,135 |
) |
|
|
2,884 |
|
Noninterest income |
|
|
5,262 |
|
|
|
1,152 |
|
|
|
6,414 |
|
|
|
7,135 |
|
|
|
13,549 |
|
Noninterest expense |
|
|
18,483 |
|
|
|
10,060 |
|
|
|
28,543 |
|
|
|
28,829 |
|
|
|
57,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
11,957 |
|
|
$ |
17,050 |
|
|
$ |
29,007 |
|
|
$ |
(20,263 |
) |
|
|
8,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Net (Loss) Income per Common Share
The following table shows the computation of basic and diluted net (loss) income per common share
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net (loss) income |
|
$ |
(6,508 |
) |
|
$ |
1,450 |
|
|
$ |
(4,971 |
) |
|
$ |
5,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding |
|
|
10,023 |
|
|
|
9,693 |
|
|
|
10,017 |
|
|
|
8,975 |
|
Effect of dilutive stock options and restricted stock |
|
|
|
|
|
|
77 |
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted common shares outstanding |
|
|
10,023 |
|
|
|
9,770 |
|
|
|
10,017 |
|
|
|
9,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share |
|
$ |
(.65 |
) |
|
$ |
.15 |
|
|
$ |
(.50 |
) |
|
$ |
.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share |
|
$ |
(.65 |
) |
|
$ |
.15 |
|
|
$ |
(.50 |
) |
|
$ |
.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share takes into consideration the pro forma dilution assuming
certain outstanding unvested restricted stock, unexercised stock option awards and warrants
were exercised into common shares. For the three- and nine-month periods ending September 30, 2008,
these common stock equivalents totaling 92,086 and 55,494 shares, respectively, were not included
in computing diluted earnings per share, because their effects were antidilutive.
Note 7 Comprehensive (Loss) Income
Total
comprehensive (loss) income was $(9,811,000) and $(11,586,000) for the three- and nine-month
periods ended September 30, 2008, respectively, and $3,358,000 and $6,201,000 for the three- and
nine-month periods ended September 30, 2007, respectively. Total comprehensive (loss) income
consists of net (loss) income and the unrealized gain or loss on the Corporations
available-for-sale investment securities portfolio arising during the period.
10
Note 8 Income Taxes
The effective tax rate decreased in the three- and nine-month periods ended September 30, 2008
primarily as a result of lower levels of pre-tax income. The difference in the effective tax rate
in the three- and nine-month periods ended September 30, 2008 and 2007, and the blended federal
statutory rate of 34% and state tax rates of 5% and 6% is due primarily to tax-exempt income from
investments and insurance policies. In addition, under federal tax law that was in effect at
September 30, 2008 the losses recognized on the Fannie Mae and Freddie Mac preferred stock
(discussed in Note 4 above) were considered capital losses. As such, only the amount of this loss
that could be offset by recognized capital gains was included in the third quarter 2008 as a
deferred tax benefit, with the remaining deferred tax benefit offset
by a valuation allowance. As enacted on
October 3, 2008, the Emergency Economic Stabilization Act of 2008 (EESA)
included a section which changed these losses from capital to ordinary for federal
income tax purposes. This change will allow Superior Bank to recognize approximately $2,300,000
in deferred tax benefit in the fourth quarter of 2008.
The Corporation adopted the provisions of FIN 48 as of January 1, 2007, the effect of which is
described below.
FASB Interpretation No. 48
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). This interpretation clarifies the accounting for uncertainty in income taxes
recognized in a companys financial statements in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Specifically, the pronouncement prescribes a
recognition threshold and a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The
interpretation also provides guidance on the related recognition, classification, interest and
penalties, accounting for interim periods, disclosure and transition of uncertain tax positions.
The interpretation was effective for fiscal years beginning after December 15, 2006.
The Corporation adopted FIN 48 on January 1, 2007. As a result of the adoption, the Corporation
recognized a charge of approximately $554,000 to the January 1, 2007 retained earnings balance. As
of the adoption date, the Corporation had unrecognized tax benefits of $459,000, all of which, if
recognized, would affect the effective tax rate. Also, as of the adoption date, the Corporation had
accrued interest expense related to the unrecognized tax benefits of approximately $145,000.
Accrued interest related to unrecognized tax benefits is recognized in income tax expense.
Penalties, if incurred, will be recognized in income tax expense as well.
The Corporation and its subsidiaries are subject to U.S. federal income tax as well as to Alabama
and Florida income taxes. The Corporation has concluded all U.S. federal income tax matters for
years through 2004, including acquisitions.
All state income tax matters have been concluded for years through 2001. The Corporation has
received notices of proposed adjustments relating to state taxes due for the years 2002 and 2003,
which include proposed adjustments relating to income apportionment of a subsidiary. Management
anticipates that these examinations may be finalized in the foreseeable future. However, based on
the status of these examinations, and the protocol of finalizing audits by the taxing authority,
which could include formal legal proceedings, it is not possible to estimate the impact of any
changes to the previously recorded uncertain tax positions. There have been no significant changes
to the status of these examinations during the nine-month period ended September 30, 2008.
Note 9 Stockholders Equity
1-for-4 Reverse Stock Split
On April 28, 2008, the Corporation completed a 1-for-4 reverse split of its common stock, reducing
the number of authorized shares of common stock from 60,000,000 to 15,000,000 and the number of
common shares outstanding from 40,211,230 to 10,052,808. This action brings the Corporations
authorized common shares and common shares outstanding more nearly in line with peer community
banks. All disclosures in this quarterly report regarding common stock and related per share
information have been retroactively restated for all periods presented to reflect the reverse stock
split. The 1-for-4 reverse stock split was effective in the market as of the opening of trading on
April 28, 2008.
11
Note 9
Stockholders Equity (Continued)
Issuance of Subordinated Debt and Related Warrant
On September 17, 2008, the Corporations subsidiary, Superior Bank, entered into an Agreement to
Purchase Subordinated Notes (the Agreement) with Durden Enterprises, LLC (the Purchaser).
Pursuant to the terms of the Agreement, Superior Bank issued to the
Purchaser a $10,000,000 principal amount 9.5% Subordinated Note due September 15, 2018 (the Note), and the
Corporation issued to the Purchaser a warrant (the Warrant) to purchase up to 1,000,000 shares of
the Corporations common stock, $.001 par value per share, at a price of $7.53 per share. The
exercise price for the Warrant was based on the average of the closing prices of the Corporations
common stock for the ten trading days immediately preceding September 17, 2008. Interest on the
Note is payable quarterly. The Purchaser may, subject to regulatory approval, accelerate the
payment of principal and interest if there is an event of default under the terms of the Note.
Events of default are limited to the commencement of voluntary or involuntary bankruptcy or similar
proceedings with respect to Superior Bank. Beginning on September 15, 2013, Superior Bank may
redeem all or a portion of the Note on any interest payment date at a price equal to 100% of the
principal amount of the redeemed portion of the Note plus accrued but unpaid interest.
The fair value of the Warrant of $2,553,000 was determined using the Black-Scholes option-pricing
model. The value of the Warrant is being amortized into interest expense over the term of the
Agreement. The Warrant is exercisable at any time prior to the close of business on September 15,
2013. The Corporation agreed to register with the Securities and Exchange Commission the stock that
would be issued to the Purchaser upon the exercise of the Warrant. Superior Bank also granted to
the Purchaser an option to purchase up to $10,000,000 in additional subordinated notes and receive
additional warrants in the future on similar terms and conditions with such changes as are
necessary to reflect market conditions at that time. K. Earl Durden, the managing member of the
Purchaser, is a retired director of the Corporation and Superior Bank.
Stock Incentive Plan
The Corporation established the Third Amended and Restated 1998 Stock Incentive Plan (the 1998
Plan) for directors and certain key employees that provides for the granting of restricted stock
and incentive and nonqualified options to purchase up to 625,000 (restated for 1-for-4 reverse
stock split) shares of the Corporations common stock of which substantially all available shares
have been granted. The compensation committee of the Board of Directors determines the terms of the
restricted stock and options granted. All options granted have a maximum term of ten years from the
grant date, and the option price per share of options granted cannot be less than the fair market
value of the Corporations common stock on the grant date. Some of the options granted under the
plan in the past vested over a five-year period, while others vested based on certain benchmarks
relating to the trading price of the Corporations common stock, with an outside vesting date of
five years from the date of grant. More recent grants have followed this benchmark-vesting formula.
In April 2008, the Corporations stockholders approved the Superior Bancorp 2008 Incentive
Compensation Plan (the 2008 Plan) which succeeded the 1998 Plan. The purpose of the 2008 Plan is
to provide additional incentive for our directors and key employees to further the growth,
development and financial success of the Corporation and its subsidiaries by personally benefiting
through the ownership of the Corporations common stock, or other rights which recognize such
growth, development and financial success. The Corporations Board also believes the 2008 Plan will
enable it to obtain and retain the services of directors and employees who are considered essential
to its long-range success by offering them an opportunity to own stock and other rights that
reflect the Corporations financial success. The maximum aggregate number of shares of common stock
that may be issued or transferred pursuant to awards under the 2008 Plan is 300,000 (restated for
1-for-4 reverse stock split) shares, of which no more than 90,000 shares may be issued for full
value awards (defined under the 2008 Plan to mean any awards permitted under the 2008 Plan that
are neither stock options nor stock appreciation rights). Only those employees and directors who
are selected to receive grants by the administrator may participate in the 2008 Plan.
During the first quarter of 2005, the Corporation granted 422,734 options to the new management
team. These options have exercise prices ranging from $32.68 to $38.52 per share and were granted
outside of the stock incentive plan as part of the inducement package for new management. These
shares are included in the table below.
12
Note 9
Stockholders Equity (Continued)
The fair value of each option award is estimated on the date of grant based upon the Black-Scholes
pricing model that uses the assumptions noted in the following table. The risk-free interest rate
is based on the implied yield on U.S. Treasury zero-coupon issues with a remaining term equal to
the expected term of the underlying options. Expected volatility has been estimated based on
historical data. The expected term has been estimated based on the five-year vesting date and
change of control provisions. The Corporation used the following weighted-average assumptions for
the nine-month periods ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Risk free interest rate |
|
|
3.62 |
% |
|
|
4.49 |
% |
Volatility factor |
|
|
34.77 |
% |
|
|
29.11 |
% |
Weighted average life of options (in years) |
|
|
5.00 |
|
|
|
5.00 |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
A summary of stock option activity as of September 30, 2008 and changes during the nine months then
ended is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Number |
|
|
Price |
|
|
Term |
|
|
Intrinsic Value |
|
Under option, January 1, 2008 |
|
|
802,048 |
|
|
$ |
32.28 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
84,875 |
|
|
|
10.88 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(15,375 |
) |
|
|
32.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, September 30, 2008 |
|
|
871,548 |
|
|
$ |
30.93 |
|
|
|
6.34 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
678,528 |
|
|
$ |
31.78 |
|
|
|
4.34 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per
option of options granted
during the period |
|
$ |
3.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008, there was $806,000 of total unrecognized compensation expense related to
the unvested awards. This expense will be recognized over the next
two-to 33-month period unless the
options vest earlier based on achievement of benchmark trading price levels. During the three-and
nine-month periods ended September 30, 2008, the Corporation recognized approximately $170,000 and
$491,000, respectively, in compensation expense related to options granted. During the three- and
nine-month periods ended September 30, 2007, the Corporation recognized approximately $164,000 and
$308,000, respectively, in compensation expense related to options granted.
In January 2008, members of the Corporations management received restricted common stock grants
totaling 26,788 shares. These grants exclude certain senior executive management who received cash
under the short-term management incentive plan in lieu of restricted stock. The grant date fair
value of this restricted common stock is equal to $18.56 per share,
or $497,000 in the aggregate,
which will be recognized over a 24-month period, as 50% of the stock vests on January 22, 2009 with
the remaining 50% vesting on January 22, 2010. During the three- and nine-month periods ended
September 30, 2008, the Corporation recognized approximately $87,000 and $212,000, respectively, in
compensation expense related to restricted stock. The outstanding shares of restricted common
stock are included in the diluted earnings per share calculation, using the treasury stock method,
until the shares vest. Once vested, the shares become outstanding for basic earnings per share. If
an executives employment terminates prior to a vesting date for any reason other than death,
disability or a change in control, the unvested stock is forfeited pursuant to the terms of the
restricted common stock agreement. Unvested restricted common stock becomes immediately vested upon
death, disability or a change in control. Under the restricted common stock agreements, the
restricted stock may not be sold or assigned in any manner during the vesting period, but the
executive will have the rights of a shareholder with respect to the stock (i.e. the right to vote,
receive dividends, etc), prior to vesting.
Note 10 Fair Value Measurements
In September 2006, the FASB issued SFAS 157 (see Note 2 above) which replaces multiple existing
definitions of fair value with a single definition, establishes a consistent framework for
measuring fair value and expands financial statement disclosures
regarding fair value
13
Note 10 Fair Value Measurements (Continued)
measurements. SFAS 157 applies only to fair value
measurements that already are required or permitted by other accounting standards and does not
require any new fair value measurements. In February 2008, the FASB issued FASB Staff Position No.
157-2 (FSP No. 157-2), which delayed until January 1, 2009, the effective date of SFAS 157 for
nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the
financial statements on a recurring basis.
The adoption of SFAS 157 in the first quarter of 2008 did not have a material impact on the
Corporations financial position or results of operations. The Corporations nonfinancial assets
and liabilities that meet the deferral criteria set forth in FSP No. 157-2 include goodwill, core
deposit intangibles, net property and equipment and other real estate, which primarily represents
collateral that is received through troubled loans. The Corporation does not expect that the
adoption of SFAS 157 for these nonfinancial assets and liabilities will have a material impact on
its financial position or results of operations.
On October
10, 2008, the FASB issued FSP No. 157-3 with the objective of
clarifying the application of SFAS 157 in a market that is not active
and to provide an example to illustrate key considerations in
determining the fair value of a financial asset when the market for
that financial asset is not active. Effective immediately for the
Corporations interim financial statements as of September 30, 2008,
the implementation of FSP No. 157-3 did not have a material impact on
financial position or results of operations.
In accordance with the provisions of SFAS 157, the Corporation measures fair value at the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. SFAS 157 prioritizes the assumptions that
market participants would use in pricing the asset or liability (the inputs) into a three-tier
fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted
prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to
unobservable inputs in which little or no market data exists, requiring companies to develop their
own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted
prices for similar assets or liabilities in active markets or quoted prices for identical assets
and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are
those that reflect managements estimates about the assumptions market participants would use in
pricing the asset or liability, based on the best information available in the circumstances.
Valuation techniques for assets and liabilities measured using Level 3 inputs may include
methodologies such as the market approach, the income approach or the cost approach, and may use
unobservable inputs such as projections, estimates and managements interpretation of current
market data. These unobservable inputs are only utilized to the extent that observable inputs are
not available or cost-effective to obtain.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the assets and liabilities measured at fair value on a recurring basis
categorized by the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
Fair Value at |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
September 30, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available for sale securities |
|
$ |
334,502 |
|
|
$ |
563 |
|
|
$ |
312,420 |
|
|
$ |
21,519 |
|
Derivative assets |
|
|
199 |
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
334,701 |
|
|
$ |
563 |
|
|
$ |
312,619 |
|
|
$ |
21,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
139 |
|
|
$ |
|
|
|
$ |
139 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured
liabilities |
|
$ |
139 |
|
|
$ |
|
|
|
$ |
139 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques Recurring Basis
Securities Available for Sale. When quoted prices are available in an active market, securities are
classified as Level 1. These securities include investments in Fannie Mae and Freddie Mac
preferred stock. For securities reported at fair value utilizing Level 2 inputs the Corporation
obtains fair value measurements from an independent pricing service. These fair value measurements
consider observable market data that may include benchmark yield curves, reported trades,
broker/dealer quotes, issuer spreads and credit information, among other inputs. In certain cases
where there is limited activity, securities are classified as Level 3 within the valuation
hierarchy. These securities include primarily bank and pooled trust preferred securities.
14
Note 10 Fair Value Measurements (Continued)
Derivative financial instruments. Derivative financial instruments are measured at fair value based
on modeling that utilizes observable market inputs for various interest rates published by
leading third-party financial news and data providers. This is observable data that represents the
rates used by market participants for instruments entered into at that date; however, they are not
based on actual transactions so they are classified as Level 2.
Changes in Level 3 fair value measurements
The tables below include a roll-forward of the Condensed Consolidated Statement of Financial
Condition amounts for the nine months ended September 30, 2008, including changes in fair value for
financial instruments within Level 3 of the valuation hierarchy. Level 3 financial instruments
typically include unobservable components, but may also include some observable components that may
be validated to external sources. The gains or (losses) in the following table may include changes
to fair value due in part to observable factors that may be part of the valuation methodology.
Level 3 assets measured at fair value on a recurring basis
|
|
|
|
|
|
|
Available for |
|
(in thousands) |
|
Sale Securities |
|
Balance at January 1, 2008 (date of adoption) |
|
$ |
|
|
Transfer into Level 3 during third quarter 2008 |
|
|
25,956 |
|
Total net losses for the year-to-date included
in other comprehensive loss |
|
|
(4,437 |
) |
|
|
|
|
Balance at September 30, 2008 |
|
$ |
21,519 |
|
|
|
|
|
Net realized losses included in net loss for the
year-to-date relating to Level 3 assets held at
September 30, 2008 |
|
$ |
|
|
|
|
|
|
|
Assets Recorded at Fair Value on a Nonrecurring Basis
The table below presents the assets measured at fair value on a nonrecurring basis categorized by
the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in |
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
at |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
September 30, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Mortgage loans held for sale |
|
$ |
15,292 |
|
|
$ |
|
|
|
$ |
15,292 |
|
|
$ |
|
|
Impaired loans, net of specific allowance |
|
|
43,071 |
|
|
|
|
|
|
|
|
|
|
|
43,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets |
|
$ |
58,363 |
|
|
$ |
|
|
|
$ |
15,292 |
|
|
$ |
43,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques Nonrecurring Basis
Mortgage Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of aggregate
cost or fair value. Fair value is generally based on quoted market prices of similar loans and is
considered to be Level 2 in the fair value hierarchy.
Impaired Loans. Impaired loans are evaluated and valued at the time the loan is identified as
impaired, at the lower of cost or fair value. Fair value is measured based on the value of the
collateral securing these loans and is classified at a Level 3 in the fair value hierarchy.
Collateral typically includes real estate and/or business assets including
equipment. The value of real estate collateral is determined based on
15
Note 10 Fair Value Measurements (Continued)
appraisals by qualified
licensed appraisers approved and hired by the Corporation. The value
of business equipment is determined based
on appraisals by qualified
licensed appraisers approved and hired by the Corporation, if significant. Appraised and reported
values may be discounted based on managements historical knowledge, changes in market conditions
from the time of valuation,
and/or managements expertise and knowledge of the client and clients business. 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.
Note 11 Gain on Extinguishment of Liabilities
During the second quarter of 2008, the Corporation recognized two separate gains from the
extinguishment of approximately $5,800,000 in liabilities. The first gain related to a settlement
of a retirement agreement with a previous executive officer under which the Corporation had a
remaining unfunded obligation to pay approximately $6,200,000 in benefits over a 17-year period.
This obligation was settled through a cash settlement payment of $3,000,000 with a recognized
pre-tax gain of $574,000. The second gain related to a forfeiture of benefits owed to a former
executive officer under the Community Bancshares, Inc. Benefit Restoration Plan (see Note 20 to the
Consolidated Financial Statements included in the Corporations
2007 Form 10-K) that resulted in a pre-tax gain of $2,344,000.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
The following is a discussion and analysis of our September 30, 2008 condensed consolidated
financial condition and results of operations for the three- and nine-month periods ended September
30, 2008 and 2007. All significant intercompany accounts and transactions have been eliminated. Our
accounting and reporting policies conform to generally accepted accounting principles applicable to
financial institutions.
This information should be read in conjunction with our unaudited condensed consolidated financial
statements and related notes appearing elsewhere in this report and the audited consolidated
financial statements and related notes and Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended
December 31, 2007.
Recent Developments
During October 2008, the U. S. Treasury unveiled its TARP voluntary Capital Purchase Program. We
believe we are eligible for participation in this program, and have filed an application for
approximately $70 million. This program is targeted at healthy banks and is designed to support
economic recovery by encouraging both prudent lending and consolidation within the banking
industry.
On April 28, 2008, we completed a 1-for-4 reverse split of our common stock, reducing the number of
authorized shares of common stock from 60,000,000 to 15,000,000 and the number of common shares
outstanding from 40,211,230 to 10,052,808 (10,064,941 at September
30, 2008). This action brings our authorized common shares and
common shares outstanding more nearly in line with peer community banks. All disclosures in this
quarterly report regarding common stock and related per share information have been retroactively
restated for all periods presented to reflect the reverse stock split. The 1-for-4 reverse stock
split was effective in the market as of the opening of trading on April 28, 2008.
Overview
The banking environment in 2008 is as difficult as any our management has seen in their banking
careers. Our management believes that the likelihood of a protracted recession at the national
level has increased dramatically, particularly due to the frozen credit markets of the past
quarter. Management has been encouraged by the passage of the legislation designed to unfreeze
the credit markets, is pleased at the initial response of the credit markets to these measures and
hopes that the national and international markets will continue to improve on the path toward
greater stability and normality in coming months. In the meantime, we are able to support our
customers in Alabama and Florida, to fund loans and finance growth for financially viable customers
and projects, and to serve the needs of our customers.
Our principal subsidiary is Superior Bank (theBank), a federal savings bank headquartered in
Birmingham, Alabama, which operates 76 banking offices from Huntsville, Alabama to Venice, Florida
and 22 consumer finance company offices in Alabama. Our Florida franchise currently has 32
branches. The Bank has completed its de novo branch strategy with 20 planned branches opened in key
Alabama and Florida markets since September 2006. The Bank invested approximately $25 to $30
million toward its de novo expansion program.
Our third quarter 2008 net loss was $(6.5 million), or $(0.65) per share, compared to net income of
$841,000 for the second quarter of 2008 and $1.45 million for the third quarter of 2007. Third
quarter 2008 net loss includes the effect of $7.7 million, net of tax, or $0.77 per share, in
investment security impairment losses (See Note 4 to the Condensed Consolidated Financial
Statements).
Our third quarter 2008 net interest income increased to $21.6 million, or 1.0%, from $21.4 million
for the second quarter 2008 and increased by 8.7% from $19.9 million for the third quarter of 2007.
Net interest margin declined to 3.33% compared to 3.39% for the second quarter of 2008.
17
Our total assets were $3.1 billion at September 30, 2008, an increase of $218 million, or 7.6%,
from $2.9 billion as of December 31, 2007. Our total deposits at September 30, 2008 remained level
at $2.2 billion from June 30, 2008 and December 31,
2007, which reflects managements decision to reduce our levels of customer time
deposits as a result of significant market pressure on rates (See
Financial Condition Deposits for additional information
on deposits). Total deposits increased 3.5% from
September 30, 2007.
Loans increased to $2.2 billion at September 30, 2008, an increase of 10.0% from December 31, 2007
and 8.8% from September 30, 2007. Loan growth occurred across all of our Alabama and Florida
markets, with the primary expansion occurring in the commercial, mortgage and commercial real estate
sectors of our loan portfolio. In addition, we purchased a pool of seasoned residential mortgage
loans with a balance of approximately $52 million during the second quarter of 2008.
At September 30, 2008, non-performing loans (NPLs) were 2.77% of total loans compared to 1.83% at
June 30, 2008 and 1.26% at December 31, 2007, which is in line with managements expectations. The
$22.2 million NPL increase during the third quarter of 2008 from the second quarter of 2008 was
predominantly located in Florida and includes real estate relationships primarily secured by
residential properties in various stages of development. Of total NPLs, $15.8 million is in Alabama
and $45.2 million is in Florida.
Loans in the 30-89 days past due (DPD) category decreased to 0.89% of total loans at September 30,
2008 from 2.05% of total loans at June 30, 2008. Past-due loans that were 90 DPD and still accruing
increased during the third quarter, moving to 0.37% at September 30, 2008 from 0.09% as of June 30,
2008 (loans in this category are included in NPLs).
Net loan charge-offs decreased to 0.34% as a percentage of average loans during the third quarter
of 2008, compared to 0.38% during the second quarter of 2008. Of the $1.9 million net charge-offs
in the third quarter of 2008, the Banks charge-offs were $1.5 million, or 0.26% of consolidated
average loans, and the consumer finance company charge-offs were $425,000, or 0.08% of consolidated
average loans. Of the Banks charge-offs, 37.4% related to 1-4 family mortgages and 46.3% related
to real estate construction.
The provision for loan losses was $2.3 million in the third quarter of 2008, maintaining the
allowance for loan losses at 1.25% of net loans, or $27.7 million, at September 30, 2008, compared
to 1.27% of net loans, or $27.2 million, at June 30, 2008. Most of the increases in NPL and other
real estate that occurred in the third quarter came from previously identified problem loans,
which is potentially indicative of a slowing of deterioration of credit quality among our customer
base. Management has taken a proactive approach to monitor these loans and will continue to
maintain an active role in the management of these credits to minimize loss.
During the third quarter of 2008, the Bank raised $10 million in additional capital through a
private placement of a subordinated note with detached warrant to purchase our common stock. This
financing has allowed us to continue growth in our markets, including that attributable to
dislocations associated with merger activities among major competitors.
The Bank
continues to be well-capitalized under regulatory guidelines, with a total risk-based
capital ratio of 10.10%, a Tier I core
capital ratio of 7.20% and a Tier I risk based capital ratio of 8.70% as of September 30, 2008.
Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and
federal funds sold) increased $34.3 million, or 54.1%, to $97.6 million at September 30, 2008 from
$63.3 million at December 31, 2007. At September 30, 2008, short-term liquid assets comprised 3.2%
of total assets, compared to 2.2% at December 31, 2007. Management continually monitors our
liquidity position and will increase or decrease short-term liquid assets as necessary. Our
principal sources of funds are deposits, principal and interest payments on loans, federal funds
sold and maturities and sales of investment securities. In addition to these sources of liquidity,
we have access to a minimum of $250 million in additional funding from traditional sources.
Management believes it has established sufficient sources of funds to meet its anticipated
liquidity needs.
Fair Value Measurements
In September 2006, the FASB issued SFAS 157 (see Note 2 to the Condensed Consolidated Financial
Statements), which replaces multiple existing definitions of fair value with a single definition,
establishes a consistent framework for measuring fair value and expands financial statement
disclosures regarding fair value measurements. SFAS 157 applies only to fair value measurements
that already are required or permitted by other accounting standards and does not require any new
fair value measurements. In February 2008, the FASB issued FASB Staff Position No.
157-2 (FSP No. 157-2), which delayed until January 1, 2009, the effective date of SFAS 157 for
nonfinancial assets
18
and liabilities that are not recognized or disclosed at fair value in the
financial statements on a recurring basis.
Our nonfinancial assets and liabilities that meet the deferral criteria set forth in FSP No. 157-2
include goodwill, core deposit intangibles, net property and equipment and other real estate, which
primarily represents collateral that is received in satisfaction of troubled loans. We do not
expect that the adoption of SFAS 157 for these nonfinancial assets and liabilities will have a
material impact on its financial position or results of operations.
On
October 10, 2008, the FASB issued FSP No. 157-3 with the objective of clarifying the application of
SFAS 157 in a market that is not active and to provide an example to illustrate key considerations
in determining the fair value of a financial asset when the market for that financial asset is not
active. Effective immediately for our interim financial statements as of September 30, 2008, the
implementation of FSP No. 157-3 did not have a material impact on our financial position or results
of operations.
In accordance with the provisions of SFAS 157, we measure fair value at the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 prioritizes the assumptions that market participants
would use in pricing the asset or liability (the inputs) into a three-tier fair value hierarchy.
This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets
for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in
which little or no market data exists, requiring companies to develop their own assumptions.
Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar
assets or liabilities in active markets or quoted prices for identical assets and liabilities in
markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect
managements estimates about the assumptions market participants would use in pricing the asset or
liability, based on the best information available in the circumstances. Valuation techniques for
assets and liabilities measured using Level 3 inputs may include methodologies such as the market
approach, the income approach or the cost approach, and may use unobservable inputs such as
projections, estimates and managements interpretation of current market data. These unobservable
inputs are only utilized to the extent that observable inputs are not available or cost-effective
to obtain.
At September 30, 2008 we had $64.6 million, or 16.4% of total assets valued at fair value that are
considered Level 3 valuations using unobservable inputs. As shown below, available-for-sale
securities with a carrying value of $26 million at January 1, 2008 were transferred during the
third quarter of 2008 from the Level 2 classification into the Level 3 assets category measured at
fair value on a recurring basis. These securities consist primarily of bank and pooled trust
preferred securities and have a fair value of $21.5 million at September 30, 2008. As the market
for these securities became less active and pricing less reliable, management determined that these
securities should be transferred to the Level 3 category. The remaining Level 3 assets totaling
$43.1 are loans which have been impaired under SFAS 114 and are valued on a nonrecurring basis
based on the underlying collateral.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the assets and liabilities measured at fair value on a recurring basis
categorized by the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
Fair Value at |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
September 30, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available for sale securities |
|
$ |
334,502 |
|
|
$ |
563 |
|
|
$ |
312,420 |
|
|
$ |
21,519 |
|
Derivative assets |
|
|
199 |
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
334,701 |
|
|
$ |
563 |
|
|
$ |
312,619 |
|
|
$ |
21,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
139 |
|
|
$ |
|
|
|
$ |
139 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured
liabilities |
|
$ |
139 |
|
|
$ |
|
|
|
$ |
139 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale. When quoted prices are available in an active market, securities are
classified as Level 1. These securities include investments in Fannie Mae and Freddie Mac
preferred stock. For securities reported at fair value utilizing Level 2 inputs we obtained fair
value measurements from an independent pricing service. These fair value measurements consider
observable market data that may include benchmark yield curves, reported trades, broker/dealer
quotes, issuer spreads and credit information, among other inputs. In certain cases where there is
limited activity, securities are classified as Level 3 within the valuation hierarchy. These
securities include primarily bank and pooled trust preferred securities.
Derivative financial instruments. Derivative financial instruments are measured at fair value based
on modeling that utilizes observable market inputs for various interest rates published by
leading third-party financial news and data
providers. This is observable data that represents
19
the rates used by market participants for
instruments entered into at that date; however, they are not based on actual transactions so they
are classified as Level 2.
Changes in Level 3 fair value measurements
The tables below include a roll forward of the Condensed Consolidated Statement of Financial
Condition amounts for the nine months ended September 30, 2008, including changes in fair value for
financial instruments within Level 3 of the valuation hierarchy. Level 3 financial instruments
typically include unobservable components, but may also include some observable components that may
be validated to external sources. The gains or (losses) in the following table may include changes
to fair value due in part to observable factors that may be part of the valuation methodology.
Level 3 assets measured at fair value on a recurring basis
|
|
|
|
|
|
|
Available for |
|
(in thousands) |
|
Sale Securities |
|
Balance at January 1, 2008 (date of adoption) |
|
$ |
|
|
Transfer into Level 3 during third quarter 2008 |
|
|
25,956 |
|
Total net losses for the year-to-date included
in other comprehensive loss |
|
|
(4,437 |
) |
|
|
|
|
Balance at September 30, 2008 |
|
$ |
21,519 |
|
|
|
|
|
Net realized losses included in net loss for the
year-to-date relating to level 3 assets held at
September 30, 2008 |
|
$ |
|
|
|
|
|
|
Assets Recorded at Fair Value on a Nonrecurring Basis
The table below presents the assets measured at fair value on a nonrecurring basis categorized by
the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
Assets |
|
|
Prices in |
|
|
|
|
|
|
|
|
|
Measured at |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
Fair Value at |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
September 30, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Mortgage loans held for sale |
|
$ |
15,292 |
|
|
$ |
|
|
|
$ |
15,292 |
|
|
$ |
|
|
Impaired loans, net of specific allowance |
|
|
43,071 |
|
|
|
|
|
|
|
|
|
|
|
43,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets |
|
$ |
58,363 |
|
|
$ |
|
|
|
$ |
15,292 |
|
|
$ |
43,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques Nonrecurring Basis
Mortgage Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of aggregate
cost or fair value. Fair value is generally based on quoted market prices of similar loans and is
considered to be Level 2 in the fair value hierarchy.
Impaired Loans. Impaired loans are evaluated and valued at the time the loan is identified as
impaired, at the lower of cost or fair value. Fair value is measured based on the value of the
collateral securing these loans and is classified at a Level 3 in the fair value hierarchy.
Collateral typically includes real estate and/or business assets, including equipment. The value of
real estate collateral is determined based on appraisals by qualified licensed appraisers hired by
our management. The value of business equipment is based on an appraisal by qualified licensed
appraisers hired by our management, if significant. Appraised and reported values may be discounted
based on our managements historical knowledge, changes in market conditions from the time of
valuation, and/or our managements expertise and knowledge of the client and clients business.
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.
20
Results of Operations
The following table sets forth key earnings data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended September 30, |
|
Ended September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
(Dollars in thousands, except per share data) |
Net (loss) income |
|
$ |
(6,508 |
) |
|
$ |
1,450 |
|
|
$ |
(4,971 |
) |
|
$ |
5,717 |
|
Net (loss) income per common share (diluted) |
|
|
(0.65 |
) |
|
|
0.15 |
|
|
|
(0.50 |
) |
|
|
0.63 |
|
Net interest margin |
|
|
3.33 |
% |
|
|
3.38 |
% |
|
|
3.26 |
% |
|
|
3.43 |
% |
Net interest spread |
|
|
3.16 |
% |
|
|
3.03 |
% |
|
|
3.03 |
% |
|
|
3.10 |
% |
Return on average assets |
|
|
(0.85 |
)% |
|
|
0.21 |
% |
|
|
(0.22 |
)% |
|
|
0.30 |
% |
Return on average tangible assets |
|
|
(0.90 |
)% |
|
|
0.22 |
% |
|
|
(0.24 |
)% |
|
|
0.32 |
% |
Return on average stockholders equity |
|
|
(7.44 |
)% |
|
|
1.75 |
% |
|
|
(1.90 |
)% |
|
|
2.60 |
% |
Return on average tangible equity |
|
|
(15.88 |
)% |
|
|
3.58 |
% |
|
|
(4.04 |
)% |
|
|
5.00 |
% |
Book value per share |
|
$ |
33.97 |
|
|
$ |
34.49 |
|
|
$ |
33.97 |
|
|
$ |
34.49 |
|
Tangible book value per share |
|
|
15.64 |
|
|
|
15.89 |
|
|
|
15.64 |
|
|
|
15.89 |
|
The decrease in our net income during the third quarter and first nine months of 2008 compared to
the third quarter and first nine months of 2007 is primarily the result of investment security
impairment losses and increases in the provision for loan losses. See Financial Condition
Investment Securities for more information on security impairment losses. The increase in
provision for loan losses reflects the effect of the current credit cycle and the overall economic
environment. See Financial Condition Allowance for Loan Losses for additional discussion.
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 following table summarizes the changes in the components of net interest income for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in |
|
|
|
Third Quarter 2008 vs 2007 |
|
|
First Nine Months of 2008 vs 2007 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income |
|
$ |
257,467 |
|
|
$ |
(3,822 |
) |
|
|
(1.64 |
)% |
|
$ |
372,911 |
|
|
$ |
934 |
|
|
|
(1.40 |
)% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(17,384 |
) |
|
|
(165 |
) |
|
|
0.09 |
|
|
|
(18,043 |
) |
|
|
(503 |
) |
|
|
0.08 |
|
Tax-exempt |
|
|
13,944 |
|
|
|
233 |
|
|
|
0.15 |
|
|
|
22,915 |
|
|
|
1,134 |
|
|
|
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
(3,440 |
) |
|
|
68 |
|
|
|
0.14 |
|
|
|
4,872 |
|
|
|
631 |
|
|
|
0.16 |
|
Federal funds sold |
|
|
(3,784 |
) |
|
|
(74 |
) |
|
|
(3.04 |
) |
|
|
(3,836 |
) |
|
|
(259 |
) |
|
|
(2.60 |
) |
Other investments |
|
|
7,681 |
|
|
|
(212 |
) |
|
|
(2.50 |
) |
|
|
3,241 |
|
|
|
(266 |
) |
|
|
(1.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
257,924 |
|
|
|
(4,040 |
) |
|
|
(1.36 |
) |
|
$ |
377,161 |
|
|
|
1,040 |
|
|
|
(1.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
11,764 |
|
|
|
(2,511 |
) |
|
|
(1.70 |
) |
|
$ |
104,617 |
|
|
|
(2.988 |
) |
|
|
(1.21 |
) |
Savings deposits |
|
|
106,968 |
|
|
|
735 |
|
|
|
0.54 |
|
|
|
54,703 |
|
|
|
1,114 |
|
|
|
0.69 |
|
Time deposits |
|
|
45,941 |
|
|
|
(3,624 |
) |
|
|
(1.33 |
) |
|
|
106,818 |
|
|
|
(2,813 |
) |
|
|
(0.74 |
) |
Other borrowings |
|
|
122,916 |
|
|
|
(327 |
) |
|
|
(1.95 |
) |
|
|
100,088 |
|
|
|
(538 |
) |
|
|
(1.77 |
) |
Subordinated debentures |
|
|
2,145 |
|
|
|
(112 |
) |
|
|
(1.11 |
) |
|
|
7,206 |
|
|
|
(175 |
) |
|
|
(1.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
289,735 |
|
|
|
(5,839 |
) |
|
|
(1.49 |
) |
|
$ |
373,432 |
|
|
|
(5,400 |
) |
|
|
(1.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
1,799 |
|
|
|
0.13 |
% |
|
|
|
|
|
|
6,440 |
|
|
|
(0.07 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
(0.05 |
)% |
|
|
|
|
|
|
|
|
|
|
(0.17 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
1,720 |
|
|
|
|
|
|
|
|
|
|
$ |
6,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table depicts, on a taxable equivalent basis for the periods indicated, certain
information related to our average balance sheet and our average yields on assets and average costs
of liabilities. Average yields are calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income (1) |
|
$ |
2,201,719 |
|
|
$ |
36,664 |
|
|
|
6.62 |
% |
|
$ |
1,944,252 |
|
|
$ |
40,486 |
|
|
|
8.26 |
% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
309,201 |
|
|
|
4,106 |
|
|
|
5.28 |
|
|
|
326,585 |
|
|
|
4,271 |
|
|
|
5.19 |
|
Tax-exempt (2) |
|
|
40,582 |
|
|
|
651 |
|
|
|
6.38 |
|
|
|
26,638 |
|
|
|
418 |
|
|
|
6.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
349,783 |
|
|
|
4,757 |
|
|
|
5.41 |
|
|
|
353,223 |
|
|
|
4,689 |
|
|
|
5.27 |
|
Federal funds sold |
|
|
3,008 |
|
|
|
17 |
|
|
|
2.25 |
|
|
|
6,792 |
|
|
|
91 |
|
|
|
5.29 |
|
Other investments |
|
|
55,617 |
|
|
|
663 |
|
|
|
4.74 |
|
|
|
47,936 |
|
|
|
875 |
|
|
|
7.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,610,127 |
|
|
|
42,101 |
|
|
|
6.42 |
|
|
|
2,352,203 |
|
|
|
46,141 |
|
|
|
7.78 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
64,435 |
|
|
|
|
|
|
|
|
|
|
|
44,921 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
104,032 |
|
|
|
|
|
|
|
|
|
|
|
91,727 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
301,776 |
|
|
|
|
|
|
|
|
|
|
|
272,138 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(27,302 |
) |
|
|
|
|
|
|
|
|
|
|
(21,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,053,068 |
|
|
|
|
|
|
|
|
|
|
$ |
2,739,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
611,420 |
|
|
$ |
3,290 |
|
|
|
2.14 |
% |
|
$ |
599,656 |
|
|
$ |
5,801 |
|
|
|
3.84 |
% |
Savings deposits |
|
|
161,780 |
|
|
|
1,000 |
|
|
|
2.46 |
|
|
|
54,812 |
|
|
|
265 |
|
|
|
1.92 |
|
Time deposits |
|
|
1,245,947 |
|
|
|
11,720 |
|
|
|
3.74 |
|
|
|
1,200,005 |
|
|
|
15,344 |
|
|
|
5.07 |
|
Other borrowings |
|
|
396,495 |
|
|
|
3,290 |
|
|
|
3.30 |
|
|
|
273,579 |
|
|
|
3,617 |
|
|
|
5.25 |
|
Subordinated debentures |
|
|
54,660 |
|
|
|
954 |
|
|
|
6.94 |
|
|
|
52,515 |
|
|
|
1,066 |
|
|
|
8.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,470,302 |
|
|
|
20,254 |
|
|
|
3.26 |
|
|
|
2,180,567 |
|
|
|
26,093 |
|
|
|
4.75 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
218,861 |
|
|
|
|
|
|
|
|
|
|
|
197,977 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
15,945 |
|
|
|
|
|
|
|
|
|
|
|
32,723 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
347,960 |
|
|
|
|
|
|
|
|
|
|
|
327,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
3,053,068 |
|
|
|
|
|
|
|
|
|
|
$ |
2,739,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
21,847 |
|
|
|
3.16 |
% |
|
|
|
|
|
|
20,048 |
|
|
|
3.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.33 |
% |
|
|
|
|
|
|
|
|
|
|
3.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (2) |
|
|
|
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
21,626 |
|
|
|
|
|
|
|
|
|
|
$ |
19,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made
for these loans in the calculation of yields. |
|
(2) |
|
Interest income and yields are presented on a fully taxable equivalent basis using a tax rate
of 34%. |
22
The following table sets forth, on a taxable equivalent basis, the effect that the varying levels
of interest-earning assets and interest-bearing liabilities and the applicable rates have had on
changes in net interest income for the three-month periods ended September 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2008 vs. 2007 (1) |
|
|
|
Increase |
|
|
Changes Due To |
|
|
|
(Decrease) |
|
|
Rate |
|
|
Volume |
|
|
|
(Dollars in thousands) |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
(3,822 |
) |
|
$ |
(8,724 |
) |
|
$ |
4,902 |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(165 |
) |
|
|
71 |
|
|
|
(236 |
) |
Tax-exempt |
|
|
233 |
|
|
|
10 |
|
|
|
223 |
|
Interest on federal funds |
|
|
(74 |
) |
|
|
(38 |
) |
|
|
(36 |
) |
Interest on other investments |
|
|
(212 |
) |
|
|
(336 |
) |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(4,040 |
) |
|
|
(9,017 |
) |
|
|
4,977 |
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(2,511 |
) |
|
|
(2,623 |
) |
|
|
112 |
|
Interest on savings deposits |
|
|
735 |
|
|
|
93 |
|
|
|
642 |
|
Interest on time deposits |
|
|
(3,624 |
) |
|
|
(4,187 |
) |
|
|
563 |
|
Interest on other borrowings |
|
|
(327 |
) |
|
|
(1,620 |
) |
|
|
1,293 |
|
Interest on subordinated debentures |
|
|
(112 |
) |
|
|
(154 |
) |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(5,839 |
) |
|
|
(8,491 |
) |
|
|
2,652 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,799 |
|
|
$ |
(526 |
) |
|
$ |
2,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been allocated to rate and
volume changes in proportion to the relationship of the absolute
dollar amounts of the changes in each. |
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income (1) |
|
$ |
2,142,254 |
|
|
$ |
110,717 |
|
|
|
6.90 |
% |
|
$ |
1,769,343 |
|
|
$ |
109,783 |
|
|
|
8.30 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
309,938 |
|
|
|
12,302 |
|
|
|
5.30 |
|
|
|
327,981 |
|
|
|
12,805 |
|
|
|
5.22 |
|
Tax-exempt (2) |
|
|
40,613 |
|
|
|
1,956 |
|
|
|
6.43 |
|
|
|
17,698 |
|
|
|
823 |
|
|
|
6.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
350,551 |
|
|
|
14,258 |
|
|
|
5.43 |
|
|
|
345,679 |
|
|
|
13,628 |
|
|
|
5.27 |
|
Federal funds sold |
|
|
5,300 |
|
|
|
114 |
|
|
|
2.87 |
|
|
|
9,135 |
|
|
|
373 |
|
|
|
5.47 |
|
Other investments |
|
|
50,428 |
|
|
|
2,039 |
|
|
|
5.40 |
|
|
|
47,214 |
|
|
|
2,304 |
|
|
|
6.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,548,533 |
|
|
|
127,128 |
|
|
|
6.66 |
|
|
|
2,171,371 |
|
|
|
126,088 |
|
|
|
7.76 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
60,953 |
|
|
|
|
|
|
|
|
|
|
|
43,965 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
103,370 |
|
|
|
|
|
|
|
|
|
|
|
93,975 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
292,824 |
|
|
|
|
|
|
|
|
|
|
|
242,629 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(24,749 |
) |
|
|
|
|
|
|
|
|
|
|
(19,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,980,931 |
|
|
|
|
|
|
|
|
|
|
$ |
2,532,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
650,082 |
|
|
$ |
12,146 |
|
|
|
2.50 |
% |
|
$ |
545,465 |
|
|
$ |
15,134 |
|
|
|
3.71 |
% |
Savings deposits |
|
|
102,222 |
|
|
|
1,618 |
|
|
|
2.11 |
|
|
|
47,519 |
|
|
|
504 |
|
|
|
1.42 |
|
Time deposits |
|
|
1,242,690 |
|
|
|
39,208 |
|
|
|
4.21 |
|
|
|
1,135,872 |
|
|
|
42,021 |
|
|
|
4.95 |
|
Other borrowings |
|
|
342,331 |
|
|
|
9,098 |
|
|
|
3.55 |
|
|
|
242,243 |
|
|
|
9,636 |
|
|
|
5.32 |
|
Subordinated debentures |
|
|
53,996 |
|
|
|
2,887 |
|
|
|
7.14 |
|
|
|
46,790 |
|
|
|
3,062 |
|
|
|
8.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,391,321 |
|
|
|
64,957 |
|
|
|
3.63 |
|
|
|
2,017,889 |
|
|
|
70,357 |
|
|
|
4.66 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
218,419 |
|
|
|
|
|
|
|
|
|
|
|
185,704 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
20,845 |
|
|
|
|
|
|
|
|
|
|
|
33,946 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
350,346 |
|
|
|
|
|
|
|
|
|
|
|
294,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
2,980,931 |
|
|
|
|
|
|
|
|
|
|
$ |
2,532,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
62,171 |
|
|
|
3.03 |
% |
|
|
|
|
|
|
55,731 |
|
|
|
3.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.26 |
% |
|
|
|
|
|
|
|
|
|
|
3.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (2) |
|
|
|
|
|
|
665 |
|
|
|
|
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
61,506 |
|
|
|
|
|
|
|
|
|
|
$ |
55,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made
for these loans in the calculation of yields. |
|
(2) |
|
Interest income and yields are presented on a fully taxable equivalent basis using a tax rate
of 34%. |
24
The following table sets forth, on a taxable equivalent basis, the effect that the varying levels
of interest-earning assets and interest-bearing liabilities and the applicable rates have had on
changes in net interest income for the nine-month periods ended September 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2008 vs. 2007 (1) |
|
|
|
Increase |
|
|
Changes Due To |
|
|
|
(Decrease) |
|
|
Rate |
|
|
Volume |
|
|
|
(Dollars in thousands) |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
934 |
|
|
$ |
(20,243 |
) |
|
$ |
21,177 |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(503 |
) |
|
|
199 |
|
|
|
(702 |
) |
Tax-exempt |
|
|
1,134 |
|
|
|
30 |
|
|
|
1,104 |
|
Interest on federal funds |
|
|
(259 |
) |
|
|
(138 |
) |
|
|
(121 |
) |
Interest on other investments |
|
|
(266 |
) |
|
|
(417 |
) |
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,040 |
|
|
|
(20,569 |
) |
|
|
21,609 |
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(2,988 |
) |
|
|
(5,551 |
) |
|
|
2,563 |
|
Interest on savings deposits |
|
|
1,114 |
|
|
|
331 |
|
|
|
783 |
|
Interest on time deposits |
|
|
(2,813 |
) |
|
|
(6,601 |
) |
|
|
3,788 |
|
Interest on other borrowings |
|
|
(538 |
) |
|
|
(3,806 |
) |
|
|
3,268 |
|
Interest on subordinated debentures |
|
|
(175 |
) |
|
|
(611 |
) |
|
|
436 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
5,400 |
|
|
|
(16,238 |
) |
|
|
10,838 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
6,440 |
|
|
$ |
(4,331 |
) |
|
$ |
10,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been allocated to rate and
volumes changes in proportion to the relationship of the absolute dollar amounts of changes in each. |
25
Noninterest income. The components of noninterest income for the third quarter and first
nine-months of 2008 and 2007 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
2,425 |
|
|
$ |
2,090 |
|
|
|
16.0 |
% |
Mortgage banking income |
|
|
820 |
|
|
|
970 |
|
|
|
(15.5 |
) |
Investment securities loss |
|
|
(8,541 |
) |
|
|
|
|
|
|
|
|
Change in fair value of derivatives |
|
|
141 |
|
|
|
202 |
|
|
|
(30.2 |
) |
Increase in cash surrender value of life insurance |
|
|
583 |
|
|
|
481 |
|
|
|
21.2 |
|
Other noninterest income |
|
|
1,359 |
|
|
|
1,181 |
|
|
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(3,213 |
) |
|
$ |
4,924 |
|
|
|
(165.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
6,721 |
|
|
$ |
5,774 |
|
|
|
16.4 |
% |
Mortgage banking income |
|
|
3,117 |
|
|
|
3,052 |
|
|
|
2.1 |
|
Investment securities (loss) gain |
|
|
(7,072 |
) |
|
|
242 |
|
|
|
|
|
Change in fair value of derivatives |
|
|
773 |
|
|
|
169 |
|
|
|
357.4 |
|
Increase in cash surrender value of life insurance |
|
|
1,689 |
|
|
|
1,381 |
|
|
|
22.3 |
|
Gain on extinguishment of liabilities |
|
|
2,918 |
|
|
|
|
|
|
|
|
|
Other noninterest income |
|
|
4,247 |
|
|
|
2,931 |
|
|
|
44.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,393 |
|
|
$ |
13,549 |
|
|
|
(8.5 |
)% |
|
|
|
|
|
|
|
|
|
|
The increase in service charges and fees on deposits is primarily attributable to an increased
customer base resulting from our acquisitions and new branch locations The increase in mortgage
banking income during the first nine months of 2008 is the result of an increase in the volume of
originations; however, the slight decline during the third quarter of
2008 from the third quarter
of 2007 is primarily the result of a decrease in production due to market
fluctuations. The increase in other noninterest income is primarily due to increases in brokerage
commissions and ATM network fees. The increase in brokerage commissions is the result of increased
volume in our investment subsidiary, and the increase in ATM network fees is the result of
increased volume related to new customers and additional ATM locations, acquired through
acquisitions or new branch locations. The investment securities loss is the result of an impairment
charge related to preferred stock in Freddie Mac and Fannie Mae. See Financial Condition
Investment Securities for additional discussion.
26
Noninterest expenses. Noninterest expenses increased $2.6 million, or 12.3%, to $23.9 million for
the third quarter of 2008 from $21.3 million for the third quarter of 2007. This increase is
primarily due to the Peoples acquisition, and the opening of new branch locations. Our new branch
locations added approximately $2.1 million to noninterest expenses during the third quarter of 2008
compared to $771,000 in the third quarter of 2007. However, increases in the volume of net interest
income and noninterest income are expected to begin offsetting these costs. Noninterest expenses
included the following for the third quarters of 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
12,379 |
|
|
$ |
10,724 |
|
|
|
15.4 |
% |
Occupancy, furniture and equipment expense |
|
|
4,434 |
|
|
|
3,506 |
|
|
|
26.5 |
|
Amortization of core deposit intangibles |
|
|
896 |
|
|
|
494 |
|
|
|
81.4 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
1,469 |
|
|
|
(100.0 |
) |
Merger-related costs |
|
|
|
|
|
|
103 |
|
|
|
(100.0 |
) |
Loss on termination of ESOP |
|
|
|
|
|
|
158 |
|
|
|
(100.0 |
) |
Professional fees |
|
|
756 |
|
|
|
529 |
|
|
|
42.8 |
|
Insurance expense |
|
|
1,038 |
|
|
|
646 |
|
|
|
60.7 |
|
Postage, stationery and supplies |
|
|
447 |
|
|
|
508 |
|
|
|
(12.0 |
) |
Communications expense |
|
|
604 |
|
|
|
489 |
|
|
|
23.5 |
|
Advertising expense |
|
|
843 |
|
|
|
536 |
|
|
|
57.2 |
|
Other operating expense |
|
|
2,511 |
|
|
|
2,128 |
|
|
|
18.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,908 |
|
|
$ |
21,290 |
|
|
|
12.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Key Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense to average assets (1) |
|
|
2.98 |
% |
|
|
2.76 |
% |
|
|
|
|
Efficiency ratio (1) |
|
|
84.66 |
|
|
|
77.77 |
|
|
|
|
|
27
Noninterest expenses increased $12.1 million, or 21.1%, to $69.5 million for the first nine months
of 2008 from $57.4 million for the first nine months of 2007. This increase is primarily due to the
Peoples acquisition, and the opening of new branch locations. Our new branch locations added
approximately $6.3 million to noninterest expenses during the first nine months of 2008 compared to
$3.0 during the first nine months of 2007. However, increases in the volume of net interest income
and noninterest income are expected to begin offsetting these costs. Noninterest expenses included
the following for the first nine months of 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
36,577 |
|
|
$ |
30,959 |
|
|
|
18.2 |
% |
Occupancy, furniture and equipment expense |
|
|
12,614 |
|
|
|
9,650 |
|
|
|
30.7 |
|
Amortization of core deposit intangibles |
|
|
2,688 |
|
|
|
1,102 |
|
|
|
143.9 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
1,469 |
|
|
|
(100.0 |
) |
Merger-related costs |
|
|
118 |
|
|
|
530 |
|
|
|
(77.7 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
158 |
|
|
|
(100.0 |
) |
Professional fees |
|
|
1,893 |
|
|
|
1,549 |
|
|
|
22.2 |
|
Insurance expense |
|
|
2,438 |
|
|
|
1,551 |
|
|
|
57.2 |
|
Postage, stationery and supplies |
|
|
1,555 |
|
|
|
1,682 |
|
|
|
(7.6 |
) |
Communications expense |
|
|
1,654 |
|
|
|
1,469 |
|
|
|
12.6 |
|
Advertising expense |
|
|
2,311 |
|
|
|
1,760 |
|
|
|
31.3 |
|
Other operating expense |
|
|
7,598 |
|
|
|
5,493 |
|
|
|
38.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
69,446 |
|
|
$ |
57,372 |
|
|
|
21.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Key Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense to average assets (1) |
|
|
2.97 |
% |
|
|
2.85 |
% |
|
|
|
|
Efficiency ratio (1) |
|
|
85.09 |
|
|
|
78.65 |
|
|
|
|
|
|
|
|
(1) |
|
In calculating the selected key ratios, noninterest expense has been adjusted for
amortization of intangibles, merger-related costs and other losses on the sale of assets. |
Income
tax (benefit) expense. We recognized income tax benefit of
$(1.3 million) and $(719,000) for
the third quarter of 2008 and first nine months of 2008, respectively, compared to income tax
expense of $911,000 and $3.0 million for the third quarter of 2007 and first nine months of 2007,
respectively. Our effective tax rate decreased in 2008 compared to 2007 due to lower levels of
pre-tax income. The difference in the effective tax rates in the third quarters and first nine
months of 2008 and 2007, and the blended federal statutory rate of 34% and state tax rates between
5% and 6%, is primarily due to certain tax-exempt income from investments and insurance policies.
In addition, under federal tax law that was in effect at September 30, 2008 the losses recognized
on the Fannie Mae and Freddie Mac preferred stock ( See Financial Condition Investment
Securities for additional discussion) were considered capital losses. As such, only the amount of
this loss that could be offset by recognized capital gains was included in the third quarter 2008
as a deferred tax benefit, with the remaining deferred tax benefit, offset by a valuation allowance.
As enacted on October 3, 2008, the EESA included a section which changed the
character of these losses from capital to ordinary for federal income tax purposes. This change
will allow us to recognize approximately $2.3 million in deferred tax benefit in the fourth quarter
of 2008.
28
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. Management reviews the adequacy of the allowance
for loan losses on a quarterly basis. The allowance for loan loss 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 an eight-point
scale, with loan officers having the primary responsibility for assigning risk ratings and for the
timely reporting of changes in the risk ratings. These processes, and the assigned risk ratings,
are subject to review by our internal loan review function and senior
management. Impaired loans
are reviewed specifically and separately under Statement of Financial Accounting Standards No. 114
(SFAS 114) to determine the appropriate reserve allocation. Management compares the investment in
an impaired loan with the present value of expected future cash flows discounted at the loans
effective interest rate, the loans observable market price, or the fair value of the collateral,
if the loan is collateral-dependent, to determine the specific reserve allowance. To evaluate the
overall adequacy of the allowance to absorb losses inherent in our loan portfolio, management
considers historical loss experience based on volume and types of loans, trends in classifications,
volume and trends in delinquencies and non-accruals, 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. See Financial Condition
Allowance for Loan Losses for additional discussion.
The provision for loan losses was $2.3 million for the third quarter of 2008, an increase of $1.1
million from $1.2 million in the third quarter of 2007. The provision for loan losses was $10.1
million for the first nine months of 2008, an increase of $7.2 million from $2.9 million in the
first nine months of 2007. During the third quarter and first nine months of 2008, we had net
charged-off loans totaling $1.9 million and $5.3 million, respectively, compared to net charged-off
loans of $1.2 million and $2.6 million in the third quarter and first nine months of 2007. The
annualized ratio of net charged-off loans to average loans was 0.34% for the three- and nine-month
periods ended September 30, 2008, compared to 0.24% and 0.20% for the three- and nine-month periods
ended September 30, 2007, and .24% for the year ended December 31, 2007. The allowance for loan
losses totaled $27.7 million, or 1.25% of loans, net of unearned income, at September 30, 2008,
compared to $22.9 million, or 1.13% of loans, net of unearned income, at December 31, 2007. See
Financial Condition Allowance for Loan Losses for additional discussion.
Financial Condition
Total assets were $3.103 billion at September 30, 2008, an increase of $218 million, or 7.6%, from
$2.885 billion as of December 31, 2007. Average total assets for the first nine months of 2008 were
$2.981 billion, which were funded by average total liabilities of $2.631 billion and average total
stockholders equity of $350 million.
Short-term liquid assets. Short-term liquid assets (cash and due from banks, interest-bearing
deposits in other banks and federal funds sold) increased $34.3 million, or 54.1%, to $97.6 million
at September 30, 2008 from $63.3 million at December 31, 2007. At September 30, 2008, short-term
liquid assets were 3.2% of total assets, compared to 2.2% at December 31, 2007. We continually
monitor our liquidity position and will increase or decrease our short-term liquid assets as we
deem necessary. See Liquidity section for additional discussion.
Investment Securities. Total investment securities decreased $26.7 million, or 7.4%, to $334.5
million at September 30, 2008, from $361.2 million at December 31, 2007. Average investment
securities totaled $350.6 million for the first nine months of 2008, compared to $345.7 million for
the first nine months of 2007. Investment securities were 12.8% of interest-earning assets at
September 30, 2008, compared to 14.7% at December 31, 2007. The investment portfolio produced an
average taxable equivalent yield of 5.43% for the first nine months of 2008, compared to 5.27% for
the first nine months of 2007.
29
The following table presents the carrying value of the securities we held at the dates indicated.
Investment Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
September 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
U.S. agencies |
|
$ |
6,743 |
|
|
$ |
94,215 |
|
|
|
(92.8 |
)% |
State and political subdivisions |
|
|
39,301 |
|
|
|
40,587 |
|
|
|
(3.2 |
) |
Mortgage-backed securities (MBS) |
|
|
262,438 |
|
|
|
191,378 |
|
|
|
37.3 |
|
Corporate
debt and other securities |
|
|
26,020 |
|
|
|
34,991 |
|
|
|
(25.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
334,502 |
|
|
$ |
361,171 |
|
|
|
(7.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Gain (Loss) |
|
|
|
September 30, |
|
|
December 31, |
|
|
Dollar |
|
|
|
2008 |
|
|
2007 |
|
|
Change Pre-tax |
|
|
|
(Dollars in thousands) |
|
U.S. agencies |
|
$ |
111 |
|
|
$ |
1,011 |
|
|
$ |
(900 |
) |
State and political subdivisions |
|
|
(2,097 |
) |
|
|
(173 |
) |
|
|
(1,924 |
) |
Mortgage-backed securities (MBS) |
|
|
(4,302 |
) |
|
|
194 |
|
|
|
(4,496 |
) |
Corporate
debt and other securities |
|
|
(5,003 |
) |
|
|
(1,892 |
) |
|
|
(3,111 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(11,291 |
) |
|
$ |
(860 |
) |
|
$ |
(10,431 |
) |
|
|
|
|
|
|
|
|
|
|
At
September 30, 2008, a net unrealized after-tax loss of $6.4
million on the investment securities
portfolio was reflected in net accumulated other comprehensive loss, an element of our capital.
This compares to a net unrealized after-tax loss of $542,000 at December 31, 2007.
Changes in current market conditions, such as interest rates and the economic uncertainties
in the mortgage, housing and banking industries, have severely constricted the structured
securities market. The secondary market for various types of securities has been limited and has
negatively impacted securities values. Quarterly, we review each investment security segment noted
in the table below to determine the nature of the decline in the value of investment securities and
evaluate if any of the underlying securities has experienced other-than-temporary impairment
(OTTI). The following table provides further detail of the investment securities portfolio at
September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
Unrealized Gain |
|
(Dollars in thousands) |
|
Cost |
|
|
Fair Value |
|
|
(Loss) |
|
September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency and agency MBS AAA rated |
|
$ |
244,144 |
|
|
$ |
244,004 |
|
|
$ |
(140 |
) |
Municipal securities |
|
|
41,398 |
|
|
|
39,301 |
|
|
|
(2,097 |
) |
Non-agency MBS AAA rated |
|
|
27,574 |
|
|
|
23,521 |
|
|
|
(4,053 |
) |
Non-agency MBS A and B2 rated |
|
|
1,656 |
|
|
|
1,656 |
|
|
|
|
|
Bank and pooled trust preferred securities |
|
|
24,399 |
|
|
|
19,650 |
|
|
|
(4,749 |
) |
Corporate securities |
|
|
6,059 |
|
|
|
5,807 |
|
|
|
(252 |
) |
Fannie Mae and Freddie Mac preferred stock |
|
|
563 |
|
|
|
563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
345,793 |
|
|
$ |
334,502 |
|
|
$ |
(11,291 |
) |
|
|
|
|
|
|
|
|
|
|
The unrealized losses associated with the U.S. agency and agency MBS securities are caused by
changes in interest rates and are not considered credit-related since the contractual cash flows of
these investments are backed by the full faith and credit of the U.S. government. Unrealized losses
that are related to the prevailing interest rate environment will decline over time and recover as
these securities approach maturity.
The unrealized losses in the municipal securities portfolio are due to widening credit spreads
caused by concerns about the bond insurers associated with these securities. In addition, municipal
securities were adversely impacted by changes in interest rates. This portfolio segment is not
experiencing any credit problems at September 30, 2008. We currently believe that all contractual
cash flows will be received on this portfolio.
30
The non-agency MBS securities portfolio has experienced various levels of price declines during
2008. The AAA rated non-agency MBS securities have experienced price declines due to the current
market environment and the currently limited secondary market for such securities. No losses are
expected in this portfolio at September 30, 2008. We currently believe all contractual cash flows
on these securities will be received. During the third quarter of 2008, we recognized a $314,000,
net of tax, non-cash OTTI charge on a non-agency MBS which experienced a significant rating
downgrade.
The bank and pooled trust preferred securities prices continue to decline due to reduced
demand for these securities as their average lives have lengthened and from the increased supply
due to forced liquidations from some market participants. Additionally, there has been little
secondary market trading for these types of securities. At September 30, 2008, we believe that the
credit quality of these securities remains adequate to absorb further economic declines, and these
securities remain investment grade. As a result, we currently believe all contractual cash flows
will be received on this portfolio.
The unrealized losses in the corporate securities portfolio are associated with the widening
spreads in the financial sector of the corporate bond market. At September 30, 2008, all of the
securities are current as to principal and interest payments, and we currently expect them to
remain so in the future.
On September 7, 2008, the U.S. Treasury, the Federal Reserve and the Federal Housing Finance Agency
(FHFA) announced that FHFA was placing Fannie Mae and Freddie Mac under conservatorship. At
September 30, 2008, we held in our available-for-sale investment portfolio preferred securities
issued by Fannie Mae and Freddie Mac with a cost basis of $8.6 million. After the conservatorship,
these securities currently trade at five to seven percent of par value. We do not hold any common
stock or other equity securities issued by Fannie Mae or Freddie Mac. In light of the significant
decline in the market value of these securities due to the takeover of Fannie Mae and Freddie Mac,
and as it is unclear at this time if the value of the securities will improve, we recognized a $7.4
million, net of tax, non-cash OTTI charge on these investments during the third quarter of 2008.
Under federal tax law that was in effect at September 30, 2008, the losses recognized on the Fannie
Mae and Freddie Mac preferred stock were considered capital losses rather than ordinary losses (See
Note 8 to the Condensed Consolidated Financial Statements). As such, only the amount of these
losses that could be offset by recognized capital gains was included in the third quarter of 2008
income tax benefit.
For further details regarding investment securities at December 31, 2007, refer to Notes 1 and 3 of
the Consolidated Financial Statements in our Form 10-K for the year ended December 31, 2007. We
will continue to evaluate the investment ratings in the securities portfolio, severity in pricing
declines, market price quotes along with timing and receipt of amounts contractually due. Based
upon these and other factors, the securities portfolio may experience further impairment. At
September 30, 2008, management currently has the intent and ability to retain investment securities
with unrealized losses until the decline in value has been recovered.
Loans. Loans, net of unearned income, totaled $2.219 billion at September 30, 2008, an increase of
10.0%, or $202.0 million, from $2.017 billion at December 31, 2007. The increase in loans includes
the purchase of a pool of residential mortgage loans with a balance of approximately $52 million
during the second quarter of 2008. Mortgage loans held for sale totaled $15.3 million at September
30, 2008, a decrease of $18.1 million from $33.4 million at December 31, 2007. Average loans,
including mortgage loans held for sale, totaled $2.142 billion for the first nine months of 2008
compared to $1.769 billion for the first nine months of 2007. Loans, net of unearned income, were
84.6% of interest-earning assets at September 30, 2008, compared to 82.2% at December 31, 2007. The
loan portfolio produced an average yield of 6.90% for the first nine months of 2008, compared to
8.30% for the first nine months of 2007.
31
The following table details the distribution of the loan portfolio by category as of September 30,
2008 and December 31, 2007:
DISTRIBUTION OF LOANS BY CATEGORY
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Commercial and industrial |
|
$ |
213,887 |
|
|
|
9.6 |
% |
|
$ |
183,013 |
|
|
|
9.1 |
% |
Real estate construction and land
development (1) |
|
|
610,364 |
|
|
|
27.5 |
|
|
|
665,303 |
|
|
|
33.0 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
639,405 |
|
|
|
28.8 |
|
|
|
540,277 |
|
|
|
26.8 |
|
Commercial |
|
|
639,991 |
|
|
|
28.8 |
|
|
|
533,611 |
|
|
|
26.4 |
|
Other |
|
|
63,447 |
|
|
|
2.9 |
|
|
|
41,535 |
|
|
|
2.1 |
|
Consumer |
|
|
52,820 |
|
|
|
2.3 |
|
|
|
53,570 |
|
|
|
2.5 |
|
Other |
|
|
1,280 |
|
|
|
.1 |
|
|
|
1,235 |
|
|
|
.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
2,221,194 |
|
|
|
100.0 |
% |
|
|
2,018,544 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income |
|
|
(2,153 |
) |
|
|
|
|
|
|
(1,533 |
) |
|
|
|
|
Allowance for loan losses |
|
|
(27,670 |
) |
|
|
|
|
|
|
(22,868 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
2,191,371 |
|
|
|
|
|
|
$ |
1,994,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A further analysis of the components of our real estate construction and land development
loans as of September 30, 2008 and December 31, 2007 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Commercial |
|
|
|
|
|
|
|
|
|
Development |
|
|
Development |
|
|
Other |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
As of September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
157,610 |
|
|
$ |
69,071 |
|
|
$ |
17,128 |
|
|
$ |
243,809 |
|
Florida segment |
|
|
152,021 |
|
|
|
178,442 |
|
|
|
14,955 |
|
|
|
345,418 |
|
Other |
|
|
7,838 |
|
|
|
13,299 |
|
|
|
|
|
|
|
21,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
317,469 |
|
|
$ |
260,812 |
|
|
$ |
32,083 |
|
|
$ |
610,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
192,133 |
|
|
$ |
60,407 |
|
|
$ |
16,003 |
|
|
$ |
268,543 |
|
Florida segment |
|
|
195,460 |
|
|
|
162,286 |
|
|
|
18,564 |
|
|
|
376,310 |
|
Other |
|
|
7,929 |
|
|
|
12,521 |
|
|
|
|
|
|
|
20,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
395,522 |
|
|
$ |
235,214 |
|
|
$ |
34,567 |
|
|
$ |
665,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the amount of total loans, net of unearned income, by segment and the
percent change for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
|
(Dollars in thousands) |
Total loans, net of unearned income |
|
$ |
2,219,041 |
|
|
$ |
2,017,011 |
|
|
|
10.0 |
% |
Alabama segment |
|
|
939,407 |
|
|
|
888,007 |
|
|
|
5.8 |
|
Florida segment |
|
|
1,024,086 |
|
|
|
932,478 |
|
|
|
9.8 |
|
Other (2) |
|
|
255,548 |
|
|
|
196,526 |
|
|
|
30.0 |
|
|
|
|
(2) |
|
Increase is due to the purchase of a pool of residential mortgage loans with a balance of
approximately $52 million during the second quarter of 2008. |
32
Premises & Equipment. On June 27, 2008, the Bank entered into a lease with a limited liability
company of which one of our directors is a member. The initial term
of the lease is ten years
commencing after a certificate of occupancy is received for the building. The lease may be renewed,
at the Banks option, for two additional terms of five years each. The amount of the monthly lease
payments to be made by the Bank is $21,221 for the first year of the lease and increases annually
until it reaches $27,688 per month in year ten.
Deposits. Noninterest-bearing deposits totaled $220.5 million at September 30, 2008, an increase of
6.2%, or $13.0 million, from $207.6 million at December 31, 2007. Noninterest-bearing deposits were
9.91% of total deposits at September 30, 2008 compared to 9.4% at December 31, 2007.
Interest-bearing deposits totaled $2.005 billion at September 30, 2008, an increase of 0.6%, or
$12.0 million, from $1.993 billion at December 31, 2007. Interest-bearing deposits averaged $1.995
billion for the first nine months of 2008 compared to $1.728 billion for the first nine months of
2007. The average rate paid on all interest-bearing deposits during the first nine months of 2008
was 3.63%, compared to 4.66% for the first nine months of 2007.
The following table sets forth the composition of our total deposit accounts at the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Noninterest-bearing demand |
|
$ |
220,553 |
|
|
$ |
207,602 |
|
|
|
6.2 |
% |
Alabama segment |
|
|
128,589 |
|
|
|
128,009 |
|
|
|
0.5 |
|
Florida segment |
|
|
82,721 |
|
|
|
73,061 |
|
|
|
13.2 |
|
Other |
|
|
9,243 |
|
|
|
6,532 |
|
|
|
41.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
|
583,734 |
|
|
|
657,809 |
|
|
|
(11.3 |
) |
Alabama segment |
|
|
275,759 |
|
|
|
295,794 |
|
|
|
(6.8 |
) |
Florida segment |
|
|
184,495 |
|
|
|
253,017 |
|
|
|
(27.1 |
) |
Other |
|
|
123,480 |
|
|
|
108,998 |
|
|
|
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings (1) |
|
|
174,987 |
|
|
|
59,507 |
|
|
|
194.1 |
|
Alabama segment |
|
|
99,120 |
|
|
|
33,919 |
|
|
|
192.2 |
|
Florida segment |
|
|
74,865 |
|
|
|
25,056 |
|
|
|
198.8 |
|
Other |
|
|
1,002 |
|
|
|
532 |
|
|
|
88.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
1,246,255 |
|
|
|
1,275,693 |
|
|
|
(2.3 |
) |
Alabama segment |
|
|
595,104 |
|
|
|
694,380 |
|
|
|
(14.3 |
) |
Florida segment |
|
|
470,428 |
|
|
|
462,071 |
|
|
|
1.8 |
|
Other |
|
|
180,723 |
|
|
|
119,242 |
|
|
|
51.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
2,225,529 |
|
|
$ |
2,200,611 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
1,098,572 |
|
|
$ |
1,152,102 |
|
|
|
(4.7 |
)% |
|
|
|
|
|
|
|
|
|
|
Florida segment |
|
$ |
812,509 |
|
|
$ |
813,205 |
|
|
|
(0.1 |
)% |
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
314,448 |
|
|
$ |
235,304 |
|
|
|
33.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Increase resulted from the introduction of a new savings deposit product carrying a yield of
3.25%. |
Borrowings. Advances from the Federal Home Loan Bank (FHLB) totaled $440 million at September 30,
2008, an increase of 97.6%, or $217 million, from $223 million at December 31, 2007. Borrowings
from the FHLB were used primarily to fund growth in the loan portfolio. FHLB advances had a
weighted average interest rate of approximately 3.32% at September 30, 2008. The advances are
secured by FHLB stock, agency securities and a blanket lien on certain residential real estate
loans and commercial loans.
On September 4, 2008, we established a $10 million revolving line of credit with a regional
bank (the Lender). The line of credit, which is secured by all of the issued and outstanding
stock of our subsidiary bank, will mature on September 3, 2009. We may borrow, repay and re-borrow
amounts advanced under the revolving line of credit from time to time until the maturity date.
Interest on each advance under the line of credit accrues at the
Lenders base rate (5.75% at September 30, 2008). The Lender may
accelerate the payment of principal and interest if there is an event of default under the terms of
the line of credit. Events of default include, among other things, our failure to make any payment
when due, material breaches of our representations, warranties or covenants in the loan agreement,
the commencement of voluntary or involuntary bankruptcy or similar proceedings with respect to us,
a default by us with respect to other indebtedness and the occurrence of certain other events which
have a material adverse effect on us.
On September 4, 2008, the Lender advanced the full $10 million under the line of credit which
we used to pay our obligations under a matured $9.5 million line of credit with a separate regional
bank.
33
On September 17, 2008, our banking subsidiary entered into an Agreement to Purchase Subordinated
Notes (the Agreement) with Durden Enterprises, LLC (the Purchaser). Pursuant to the terms of
the Agreement, the Bank issued to the Purchaser a $10 million principal amount 9.5%
Subordinated Note due September 15, 2018 (the Note), and we issued to the Purchaser a warrant
(the Warrant) to purchase up to one million shares of our common stock, $.001 par value per
share, at a price of $7.53 per share. The exercise price for the Warrant was based on the average
of the closing prices of our common stock for the 10 trading days immediately preceding September
17, 2008. Interest on the Note is payable quarterly. The Purchaser may, subject to regulatory
approval, accelerate the payment of principal and interest if there is an event of default under
the terms of the Note. Events of default are limited to the commencement of voluntary or
involuntary bankruptcy or similar proceedings with respect to the Bank. Beginning on September 15,
2013, the Bank may redeem all or a portion of the Note on any interest payment date at a price
equal to 100% of the principal amount of the redeemed portion of the Note plus accrued but unpaid interest.
The fair value of the Warrant of $2.6 million was determined using the Black-Scholes option-pricing
model. The value of the Warrant is being amortized into interest expense over the term of the
Agreement. The Warrant is exercisable at any time prior to the close of business on September 15,
2013. We agreed to register with the Securities and Exchange Commission the stock that would be
issued to the Purchaser upon the exercise of the Warrant. We also granted to the Purchaser an
option to purchase up to $10 million in additional subordinated notes and receive additional
warrants in the future on similar terms and conditions with such changes as are necessary to
reflect market conditions at that time. K. Earl Durden, the managing member of the Purchaser, is a
retired director of the Corporation and Superior Bank.
Accrued Expenses and Other Liabilities. During the second quarter of 2008, we recognized two
separate gains from the extinguishment of liabilities totaling approximately $5.8 million. The
first gain related to the settlement of a retirement agreement with a previous executive officer
under which we had a remaining unfunded obligation to pay approximately $6.2 million in benefits
over a 17-year period. This obligation was settled through a cash settlement payment of $3.0
million with a recognized pre-tax gain of $574,000. The second gain related to the forfeiture of
benefits owed to a former executive officer under the Community Bancshares, Inc. Benefit
Restoration Plan (see Note 20 to the Consolidated Financial Statements included in the
Corporations 2007 Form 10-K) that resulted in a pre-tax gain of $2.3 million.
34
Allowance for Loan Losses. We maintain an allowance for loan losses within a range we believe is
adequate to absorb estimated losses inherent in the loan portfolio. We prepare a quarterly analysis
to assess the risk in the loan portfolio and to determine the adequacy of the allowance for loan
losses. Generally, we estimate the allowance using specific reserves for impaired loans, and other
factors, such as historical loss experience based on volume and types of loans, trends in
classifications, volume and trends in delinquencies and non-accruals, national and local economic
trends and conditions and other pertinent information. The level of allowance for loan losses to
net loans will vary depending on the quarterly analysis.
We manage and control risk in the loan portfolio through adherence to credit standards established
by the Board of Directors and implemented by senior management. These standards are set forth in a
formal loan policy which establishes loan underwriting and approval procedures, set limits on
credit concentration and enforces regulatory requirements.
Loan portfolio concentration risk is reduced through concentration limits for borrowers, varying
collateral types and geographic diversification. Concentration risk is measured and reported to
senior management and the board of directors on a regular basis.
The allowance for loan loss 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 an eight-point scale, with the loan officer having the
primary responsibility for assigning risk ratings and for the timely reporting of changes in the
risk ratings. These processes, and the assigned risk ratings, are subject to review by our internal
loan review function and senior management. Based on the assigned risk ratings, the criticized and
classified loans in the portfolio are segregated according to the following regulatory
classifications: Special Mention, Substandard, Doubtful or Loss.
Pursuant to SFAS No. 114, impaired loans are specifically reviewed loans for which it is probable
that we will be unable to collect all amounts due according to the terms of the loan agreement.
Impairment is measured by comparing the recorded investment in the loan with the present value of
expected future cash flows discounted at the loans effective interest rate, at the loans
observable market price or the fair value of the collateral if the loan is collateral dependent. A
valuation allowance is provided to the extent that the measure of the impaired loans is less than
the recorded investment. A loan is not considered impaired during a period of delay in payment if
we continue to expect that all amounts due will ultimately be collected according to the terms of
the loan agreement. Larger groups of homogenous loans such as consumer installment and residential
real estate mortgage loans are collectively evaluated for impairment.
Reserve percentages assigned to homogeneous loans are based on historical charge-off experience
adjusted for current trends in the portfolio and other risk factors.
As stated above, risk ratings are subject to independent review by internal loan review, which also
performs ongoing, independent review of the risk management process. The risk management process
includes underwriting, documentation and collateral control. Loan review is centralized and
independent of the lending function. The loan review results are reported to senior management and
the Audit Committee of the Board of Directors. We have a centralized loan administration department
to serve our entire bank. This department provides standardized oversight for compliance with loan
approval authorities and bank lending policies and procedures, as well as centralized supervision,
monitoring and accessibility.
35
The following table summarizes certain information with respect to our allowance for loan losses
and the composition of charge-offs and recoveries for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
|
(Dollars in Thousands) |
|
Allowance for loan losses at
beginning of period |
|
$ |
27,243 |
|
|
$ |
19,147 |
|
|
$ |
22,868 |
|
|
$ |
18,892 |
|
|
$ |
18,892 |
|
Allowance of acquired bank |
|
|
|
|
|
|
3.717 |
|
|
|
|
|
|
|
3,717 |
|
|
|
3,717 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
88 |
|
|
|
247 |
|
|
|
400 |
|
|
|
684 |
|
|
|
1,162 |
|
Real estate construction and
land development |
|
|
877 |
|
|
|
120 |
|
|
|
1,542 |
|
|
|
121 |
|
|
|
301 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
606 |
|
|
|
350 |
|
|
|
2,089 |
|
|
|
799 |
|
|
|
1,149 |
|
Commercial |
|
|
|
|
|
|
570 |
|
|
|
411 |
|
|
|
589 |
|
|
|
724 |
|
Other |
|
|
3 |
|
|
|
|
|
|
|
109 |
|
|
|
206 |
|
|
|
206 |
|
Consumer |
|
|
627 |
|
|
|
472 |
|
|
|
1,777 |
|
|
|
1,409 |
|
|
|
2,117 |
|
Other |
|
|
46 |
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
2,247 |
|
|
|
1,759 |
|
|
|
6,473 |
|
|
|
3,808 |
|
|
|
5,722 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
117 |
|
|
|
78 |
|
|
|
595 |
|
|
|
334 |
|
|
|
398 |
|
Real estate construction and
land development |
|
|
8 |
|
|
|
275 |
|
|
|
41 |
|
|
|
283 |
|
|
|
286 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
33 |
|
|
|
87 |
|
|
|
76 |
|
|
|
144 |
|
|
|
174 |
|
Commercial |
|
|
99 |
|
|
|
3 |
|
|
|
124 |
|
|
|
23 |
|
|
|
70 |
|
Other |
|
|
16 |
|
|
|
10 |
|
|
|
39 |
|
|
|
68 |
|
|
|
82 |
|
Consumer |
|
|
62 |
|
|
|
106 |
|
|
|
147 |
|
|
|
304 |
|
|
|
382 |
|
Other |
|
|
34 |
|
|
|
24 |
|
|
|
110 |
|
|
|
26 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
369 |
|
|
|
583 |
|
|
|
1,132 |
|
|
|
1,182 |
|
|
|
1,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
1,878 |
|
|
|
1,176 |
|
|
|
5,341 |
|
|
|
2,626 |
|
|
|
4,282 |
|
Provision for loan losses |
|
|
2,305 |
|
|
|
1,179 |
|
|
|
10,143 |
|
|
|
2,884 |
|
|
|
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end
of period |
|
$ |
27,670 |
|
|
$ |
22,867 |
|
|
$ |
27,670 |
|
|
$ |
22,867 |
|
|
$ |
22,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of
unearned income |
|
$ |
2,219,041 |
|
|
$ |
2,039,530 |
|
|
$ |
2,219,041 |
|
|
$ |
2,039,530 |
|
|
$ |
2,017,011 |
|
Average loans, net of unearned
income |
|
|
2,181,873 |
|
|
|
1,921,404 |
|
|
|
2,112,800 |
|
|
|
1,745,261 |
|
|
|
1,814,032 |
|
Ratio of ending allowance to
ending loans |
|
|
1.25 |
% |
|
|
1.12 |
% |
|
|
1.25 |
% |
|
|
1.12 |
% |
|
|
1.13 |
% |
Ratio of net charge-offs to
average loans (1) |
|
|
0.34 |
|
|
|
0.24 |
|
|
|
0.34 |
|
|
|
0.20 |
|
|
|
0.24 |
|
Net charge-offs as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
81.48 |
|
|
|
99.83 |
|
|
|
52.66 |
|
|
|
91.09 |
|
|
|
94.30 |
|
Allowance for loan losses (1) |
|
|
27.00 |
|
|
|
20.42 |
|
|
|
25.78 |
|
|
|
15.36 |
|
|
|
18.72 |
|
Allowance for loan losses as a
percentage of nonperforming loans |
|
|
44.96 |
|
|
|
97.35 |
|
|
|
44.96 |
|
|
|
97.35 |
|
|
|
90.31 |
|
36
The provision for loan losses was $2.3 million in the third quarter of 2008, maintaining the
allowance for loan losses at 1.25% of net loans, or $27.7 million, at September 30, 2008, compared
to 1.27% of net loans, or $27.2 million at June 30, 2008. Most of the increases in non-performing
loans (NPLs) and Other Real Estate Owned (OREO) that occurred in the third quarter came from
previously identified problem loans, and are potentially indicative of a slowing of deterioration
of credit quality among our customer base (See Nonperforming Assets below). Management has taken
a proactive approach to monitoring these loans and will continue to actively manage these credits
to minimize loss.
At September 30, 2008, NPLs were 2.77% of total loans, compared to 1.83% at June 30, 2008 and 1.26%
at December 31, 2007, which is in line with managements expectations. The $22.2 million NPL
increase during the third quarter of 2008 was predominantly located in Florida and includes real
estate relationships primarily secured by residential properties in various stages of development.
Of total NPLs, $15.8 million is in Alabama and $45.2 million is in Florida. The ratio of allowance
for loan losses to NPLs decreased to 44.96% at September 30, 2008 from 90.31% at December 31, 2007
and 97.35% at September 30, 2007. Approximately $4.0 million of loans past due 90 days and still
accruing consist of relationships which have underlying cash flows for debt service but which
are temporarily past due for reasons unrelated to the creditworthiness of the borrowing activity.
OREO increased $12.2 million during the third quarter of 2008, to $24.5 million. The increase in
OREO consists primarily of properties in Alabama consisting of single-family homes and residential
lots. Of total OREO, $21.2 million is in Alabama and $3.3 million is in Florida.
Net loan charge-offs as a percentage of average loans were 0.34% for the three- and nine-month
periods ended September 30, 2008, compared to 0.24% and 0.20% for the three- and nine-month periods
ended September 30, 2007, respectively, and 0.24% for the year ended December 31, 2007. Of the $1.9
million net charge-offs in the third quarter of 2008, the Banks charge-offs were $1.5
million, or 0.26% of consolidated average loans, and the consumer finance company charge-offs were
$425,000, or 0.08% of consolidated average loans. Of the Banks charge-offs, 37.4% related to
1-4 family mortgages and 46.3% related to real estate construction.
Nonperforming Assets. Nonperforming assets increased $56.6 million, to $86.3 million as of
September 30, 2008 from $29.7 million at December 31, 2007. The following table represents our
nonperforming assets for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Nonaccrual |
|
$ |
51,451 |
|
|
$ |
22,533 |
|
Accruing loans 90 days or more delinquent |
|
|
8,268 |
|
|
|
2,117 |
|
Restructured |
|
|
1,818 |
|
|
|
671 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
61,537 |
|
|
|
25,321 |
|
Other real estate owned and repossessed assets |
|
|
24,787 |
|
|
|
4,415 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
86,324 |
|
|
$ |
29,736 |
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans |
|
|
2.77 |
% |
|
|
1.26 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming assets |
|
|
3.85 |
% |
|
|
1.47 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets |
|
|
2.78 |
% |
|
|
1.03 |
% |
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
231 |
|
|
$ |
1,058 |
|
Real estate construction and land development |
|
|
27,648 |
|
|
|
10,569 |
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
Single-family |
|
|
17,704 |
|
|
|
8,069 |
|
Commercial |
|
|
13,849 |
|
|
|
4,045 |
|
Other |
|
|
1,243 |
|
|
|
805 |
|
Consumer |
|
|
862 |
|
|
|
775 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
$ |
61,537 |
|
|
$ |
25,321 |
|
|
|
|
|
|
|
|
37
The following is a summary of other real estate owned and repossessed assets by category for the
dates shown:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Land |
|
$ |
13,780 |
|
|
$ |
1,100 |
|
Single-family residential properties |
|
|
10,114 |
|
|
|
2,874 |
|
Construction |
|
|
632 |
|
|
|
153 |
|
Other repossessed assets |
|
|
261 |
|
|
|
288 |
|
|
|
|
|
|
|
|
Other real estate owned and repossessed assets |
|
$ |
24,787 |
|
|
$ |
4,415 |
|
|
|
|
|
|
|
|
A delinquent loan is placed on nonaccrual status when it becomes 90 days or more past due and
management believes, after considering economic and business conditions and collection efforts,
that the borrowers financial condition is such that the collection of interest is doubtful. When a
loan is placed on nonaccrual status, all interest that has been accrued on the loan during the
current period but remains unpaid, is reversed and deducted from earnings as a reduction of
reported interest income; any prior period accrued and unpaid interest is reversed and charged
against the allowance for loan losses. No additional interest income is accrued on the loan balance
until the collection of both principal and interest becomes reasonably certain. When a problem loan
is finally resolved, there may ultimately be an actual write-down, charge-off or recovery of
previous charged-off amounts of the principal balance to the allowance for loan losses, which may
affect earnings.
Past Due Loans. Loans past due 30 to 89 days for the Bank decreased to .86% at September 30, 2008,
compared to 1.08% at December 31, 2007 (see Potential Problem Loans section below). Consolidated
loans past due 30 to 89 days, including the finance company subsidiaries, decreased to 0.89% for
September 30, 2008 compared to 2.05% at June 30, 2008 and 1.13% at December 31, 2007. The majority
of our Banks past due loans consisted of approximately $17.6 million, or 97% of total past due
loans, within the single family residential mortgage, commercial real estate mortgage, or the real
estate construction categories, with the majority of the past dues (57%) in single family
mortgages. Within these three categories, the average loan balance was approximately $137,000 with
the balances proportionately split between the Alabama (55%) and Florida (44%) markets. The
improvement in overall past dues is indicative of managements commitment to actively work with
each of our borrowers to restore them to a consistent performance level while minimizing
our loss exposure. As the national and global financial markets work through the current credit
cycle, we expect to manage through the challenge while minimizing the level of associated credit
losses.
Impaired Loans. At September 30, 2008, the recorded investment in impaired loans under SFAS 114
totaled $46.9 million, with approximately $3.9 million in allowance for loan losses specifically
allocated to impaired loans. This represents an increase of $24.6 million from $22.3 million at
December 31, 2007. The following is a summary of impaired loans and the specifically allocated
allowance for loan losses by category as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Specific |
|
|
|
Balance |
|
|
Allowance |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
350 |
|
|
$ |
2 |
|
Real estate construction and land development |
|
|
23,567 |
|
|
|
1,912 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
Commercial |
|
|
11,559 |
|
|
|
540 |
|
1-4 family |
|
|
10,275 |
|
|
|
1,269 |
|
Other |
|
|
1,192 |
|
|
|
149 |
|
|
|
|
|
|
|
|
Total |
|
$ |
46,943 |
|
|
$ |
3,872 |
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to nonperforming loans, management has identified $20.3
million in potential problem loans as of September 30, 2008, compared to $19.1 million as of June
30, 2008. Potential problem loans are loans where known information about possible credit problems
of the borrowers causes management to have doubts as to the ability of such borrowers to comply
with the present repayment terms and may result in recognition of such loans as nonperforming. Approximately 50% of our
potential problem loans are currently included in our 30-89 days past due category and
include borrowers that are experiencing cash-flow shortages due to general
38
economic conditions and
the slowdown in the real estate market. Approximately $13.3 million
of our potential problem loans are related to real estate construction and land development loans with $13.0 million
located in Florida and the remaining $294 thousand located in Alabama. In addition, approximately
$5.9 million of our potential problem loans are related to 1-4 single family properties with $4.2 million
of these properties located in Alabama and $1.7 million located in
Florida. The remaining $1.1 million consist primarily of commercial and retail related properties with $878 thousand
in Florida and $214 thousand in Alabama. We are working closely with the borrowers and will continue to monitor their
respective cash flow positions.
Stockholders Equity
Subordinated Debentures and Warrants. During the third quarter of 2008, the Bank raised $10 million
through the private placement of a subordinated note with detached warrants to purchase our common
stock. See Financial Condition Borrowings for additional information. The principal amount of
the subordinated note is considered Tier II capital and is included in our total regulatory capital
ratios.
Stock Incentive Plan . In April 2008, our stockholders approved the Superior Bancorp 2008 Incentive
Compensation Plan (the 2008 Plan) which succeeded the 1998 Plan. The purpose of the 2008 Plan is
to provide additional incentive for our directors and key employees to further our growth,
development and financial success by personally benefiting through the ownership of the common
stock, or other rights which recognize such growth, development and financial success. Our Board
also believes the 2008 Plan will enable us to obtain and retain the services of directors and
employees who are considered essential to our long-range success by offering them an opportunity to
own stock and other rights that reflect our financial success. The maximum aggregate number of
shares of common stock that may be issued or transferred pursuant to awards under the 2008 Plan is
300,000 (restated for 1-for-4 reverse stock split) shares, of which no more than 90,000 shares may
be issued for full value awards (defined under the 2008 Plan to mean any awards permitted under
the 2008 Plan that are neither stock options nor stock appreciation rights). Only those employees
and directors who are selected to receive grants by the administrator may participate in the 2008
Plan.
Regulatory Capital. The table below represents our Banks regulatory and minimum regulatory capital
requirements at September 30, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
Adequacy |
|
Prompt Corrective |
|
|
Actual |
|
Purposes |
|
Action |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
As of September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to
Adjusted Total Assets) |
|
$ |
209,351 |
|
|
|
7.20 |
% |
|
$ |
116,332 |
|
|
|
4.00 |
% |
|
$ |
145,414 |
|
|
|
5.00 |
% |
Total Capital (to Risk
Weighted Assets) |
|
|
243,142 |
|
|
|
10.10 |
|
|
|
192,566 |
|
|
|
8.00 |
|
|
|
240,708 |
|
|
|
10.00 |
|
Tier 1 Capital (to Risk
Weighted Assets) |
|
|
209,351 |
|
|
|
8.70 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
144,425 |
|
|
|
6.00 |
|
Tangible Capital (to
Adjusted Total Assets) |
|
|
209,351 |
|
|
|
7.20 |
|
|
|
43,624 |
|
|
|
1.50 |
|
|
|
N/A |
|
|
|
N/A |
|
Liquidity
Our principal sources of funds are deposits, principal and interest payments on loans, federal
funds sold and maturities and sales of investment securities. In addition to these sources of
liquidity, we have access to purchased funds from several regional financial institutions, the
Federal Reserve Discount Window and brokered deposits, and may borrow from the FHLB under a blanket
floating lien on certain commercial loans and residential real estate loans.
Also, we have established certain repurchase agreements with a large financial institution. While
scheduled loan repayments and maturing investments are relatively predictable, interest rates,
general economic conditions and competition primarily influence deposit flows and early loan
payments. Management places constant emphasis on the maintenance of adequate liquidity to meet
conditions that might reasonably be expected to occur. Management believes it has established
sufficient sources of funds to meet its anticipated liquidity needs.
As shown in the Condensed Consolidated Statement of Cash Flows, operating activities provided $28.4
million in funds in the first nine months of 2008, primarily due to a net decrease of $18.1
million in mortgage loans held for sale plus $7.8 million in depreciation and
amortization
39
expense and $10.1 million in the provision
for loan losses offset by a net loss of $4.9 million. This compares to a net funds provided of $1.5
million in the first nine months of 2007, primarily due to net income of $5.7 million plus $3.4
million in depreciation and $1.7 million provision for loan losses, which were offset by an
increase in mortgage loans held for sale of $2.5 million and decreases in accrued interest payable
of $2.0 million and other liabilities of $6.0 million primarily as a result of the payment of
interest and merger related costs.
Investing activities resulted in a $234 million net use of funds in the first nine months of 2008,
primarily due to an increase in loans and the purchase of investment securities offset by the
maturity and sales of investment securities. Investing activities were a $86 million net use of
funds in the first nine months of 2007 primarily due to an increase in loans offset by investment
security sales and maturities.
Financing activities provided $241 million in funds during the first nine months of 2008, primarily
as a result of an increase in FHLB advances. Financing activities provided $88 million in funds in
the first nine months of 2007, primarily as a result of an increase in deposits and advances from
the FHLB.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements made by us or on our behalf. Some of the disclosures in this Quarterly Report on Form
10-Q, including any statements preceded by, followed by, or which include, the words may,
could, should, will, would, hope, might, believe, expect, anticipate, estimate,
intend, plan, assume or similar expressions constitute forward-looking statements.
These forward-looking statements, implicitly and explicitly, include the assumptions underlying the
statements and other information with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, estimates, intentions, financial condition, results of operations,
future performance and business, including our expectations and estimates with respect to our
revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality,
the adequacy of our allowance for loan losses and other financial data and capital and performance
ratios.
Although we believe that the expectations reflected in our forward-looking statements are
reasonable, these statements involve risks and uncertainties which are subject to change based on
various important factors (some of which are beyond our control). The following factors, among
others, could cause our financial performance to differ materially from our goals, plans,
objectives, intentions, expectations and other forward-looking statements: (1) the strength of the
United States economy in general and the strength of the regional and local economies in which we
conduct operations; (2) the effects of, and changes in, trade, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (3)
inflation, interest rate, market and monetary fluctuations; (4) our ability to successfully
integrate the assets, liabilities, customers, systems and management we acquire or merge into our
operations; (5) our timely development of new products and services in a changing environment,
including the features, pricing and quality compared to the products and services of our
competitors; (6) the willingness of users to substitute competitors products and services for our
products and services; (7) the impact of changes in financial services policies, laws and
regulations, including laws, regulations and policies concerning taxes, banking, securities and
insurance, and the application thereof by regulatory bodies; (8) our ability to resolve any legal
proceeding on acceptable terms and its effect on our financial condition or results of operations;
(9) technological changes; (10) changes in consumer spending and savings habits; (11) the effect of
natural disasters, such as hurricanes, in our geographic markets, (12) regulatory, legal or
judicial proceedings; (13) the continuing instability in the domestic and international capital
markets; (14) the effects of new and proposed laws relating to financial institutions and credit
transactions; and (15) the effects of policy initiatives that may be introduced by a new
Presidential administration..
If one or more of the factors affecting our forward-looking statements proves incorrect, then our
actual results, performance or achievements could differ materially from those expressed in, or
implied by, forward-looking statements contained in this report. Therefore, we caution you not to
place undue reliance on our forward-looking information and statements.
We do not intend to update our forward-looking statements, whether written or oral, to reflect
changes. All forward-looking statements attributable to us are expressly qualified by these
cautionary statements.
40
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information shown under the caption Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations-Market Risk-Interest Rate Sensitivity included in our Annual
Report on Form 10-K for the year ended December 31, 2007, is hereby incorporated herein by
reference.
We measure our interest rate risk by analyzing the correlation of interest-bearing assets to
interest-bearing liabilities (gap analysis), net interest income simulation, and economic value
of equity (EVE) modeling. The following is a comparison of these measurements as of September 30,
2008 to December 31, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
12-Month Gap |
|
2008 |
|
2007 |
Interest-bearing liabilities in excess of interest-earning assets |
|
$ |
(384,000 |
) |
|
$ |
(455,000 |
) |
Cumulative 12-month Gap Ratio |
|
|
.81 |
|
|
|
.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest Income |
|
|
September 30, 2008 |
|
December 31, 2007 |
Change (in Basis Points) in Interest Rates (12-Month Projection) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
+200 BP (1) |
|
$ |
3,072 |
|
|
|
3.8 |
% |
|
$ |
2,700 |
|
|
|
3.5 |
% |
- 200 BP (1) |
|
|
(887 |
) |
|
|
(1.1 |
) |
|
|
(7,100 |
) |
|
|
(9.1 |
) |
|
|
|
(1) |
|
Results are within our asset and liability management policy. |
Our net interest income simulation model assumes an instantaneous and parallel increase or decrease
in interest rates of 200 basis points. EVE is a concept related to our longer-term interest rate
risk. EVE is defined as the net present value of the balance sheets cash flows or the residual
value of future cash flows. While EVE does not represent actual market liquidation or replacement
value, it is a useful tool for estimating our balance sheet earnings capacity. The greater the EVE,
the greater our earnings capacity. Our EVE model assumes an instantaneous and parallel increase or
decrease of 200 basis points. The EVE produced by these scenarios is within our asset and liability
management policy. The following table shows the Banks EVE as of September 30, 2008 and December
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
|
|
|
Change |
Change (in Basis Points) in Interest Rates |
|
EVE |
|
Amount |
|
Percent |
|
|
(Dollars in thousands) |
+ 200 BP |
|
$ |
523,994 |
|
|
$ |
15,129 |
|
|
|
3.0 |
% |
0 BP |
|
|
508,865 |
|
|
|
|
|
|
|
|
|
- 200 BP |
|
|
474,398 |
|
|
|
(34,467 |
) |
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Change (in Basis Points) in Interest Rates |
|
|
|
|
|
|
|
|
|
|
|
|
+ 200 BP |
|
$ |
470,866 |
|
|
$ |
19,274 |
|
|
|
4.4 |
% |
0 BP |
|
|
451,142 |
|
|
|
|
|
|
|
|
|
- 200 BP |
|
|
407,146 |
|
|
|
(43,996 |
) |
|
|
(9.8 |
) |
The Banks EVE has increased approximately $58 million since December 31, 2007. This increase is
attributable to several factors including the purchase of a $52 million 1-4 family mortgage pool
during the second quarter of 2008 which is earning a yield in excess of 8%. In addition, the
current level of interest rates as well as the steepening yield curve provided increased EVE
related to our non-maturity deposits and certain FHLB advances.
Both the net interest income and EVE simulations include balances, asset prepayment speeds, and
interest rate relationships among balances that management believes to be reasonable for the
various interest rate environments. Differences in actual occurrences from these assumptions, as
well as non-parallel changes in the yield curve, may change our market risk exposure.
41
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. 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 SECs 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 September 30, 2008. Based upon the Evaluation, our CEO
and CFO have concluded that, as of September 30, 2008, our disclosure controls and procedures are
effective to ensure that material information relating to Superior Bancorp 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 Securities and Exchange Act of 1934, as amended) 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
While we are a party to various legal proceedings arising in the ordinary course of business, we
believe that there are no proceedings threatened or pending against us at this time that will
individually, or in the aggregate, materially adversely affect our business, financial condition or
results of operations. We believe that we have strong claims and defenses in each lawsuit in which
we are involved. While we believe that we will prevail in each lawsuit, there can be no assurance
that the outcome of the pending, or any future, litigation, either individually or in the
aggregate, will not have a material adverse effect on our financial condition or our results of
operations.
ITEM 1A. RISK FACTORS
Our business is influenced by many factors that are difficult to predict, involve uncertainties
that may materially affect actual results and are often beyond our control. We have identified a
number of these risk factors in our Annual Report on Form 10-K for the year ended December 31,
2007, 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
our most recent Form 10-K. For other factors that may cause actual results to differ materially
from those indicated in any forward-looking statement or projection contained in this report, see
Forward-Looking Statements under Part I, Item 2 above.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities by Superior Bancorp during the third quarter
of 2008 except those previously disclosed in a Current Report on Form 8-K dated as of September 17,
2008.
42
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the third quarter of 2008.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibit:
10.1 |
|
Loan Agreement, dated as of September 4, 2008, between Superior Bancorp and Colonial Bank |
|
10.2 |
|
Revolving Credit Note, dated September 4, 2008, between Superior Bancorp and Colonial Bank |
|
10.3 |
|
Stock Pledge Agreement, dated as of September 4, 2008, given by Superior Bancorp
|
|
10.4 |
|
Agreement to Purchase Subordinated Notes, dated as of
September 17, 2008, by and among Superior Bank, Superior Bancorp and Durden Enterprises, LLC |
|
10.5 |
|
Letter to Durden Enterprises, LLC, dated as of September 17, 2008 |
|
10.6 |
|
9.5% Subordinated Note Due September 15, 2018 given by Superior Bank |
|
10.7 |
|
Warrant to Purchase Common Stock of Superior Bancorp dated as of September 17, 2008. |
|
10.8 |
|
Agreement, dated as of September 8, 2008, between Superior Bancorp and James A. White |
|
10.9 |
|
Change in Control Agreement, dated as of September 8, 2008, by and among Superior Bancorp,
Superior Bank and James A. White |
|
31.1 |
|
Certification of principal executive officer pursuant to Rule 13a-14(a). |
|
31.2 |
|
Certification of principal financial officer pursuant to 13a-14(a). |
|
32.1 |
|
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350. |
|
32.2 |
|
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350. |
43
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.
|
|
|
|
|
|
SUPERIOR BANCORP
(Registrant)
|
|
Date: November 7, 2008 |
By: |
/s/ C. Stanley Bailey
|
|
|
|
C. Stanley Bailey |
|
|
|
Chief Executive Officer |
|
|
|
|
|
Date: November 7, 2008 |
By: |
/s/ James C. Gossett
|
|
|
|
James C. Gossett |
|
|
|
Chief Accounting Officer
(Principal Accounting Officer) |
|
44