FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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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
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For the transition period from
to
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Commission file number
0-25033
SUPERIOR BANCORP
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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63-1201350
(I.R.S. Employer
Identification No.)
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17 North 20th Street
Birmingham, Alabama
(Address of Principal
Executive Offices)
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35203
(Zip
Code)
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(205) 327-1400
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each Class
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Name of each exchange on which registered
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Common Stock, par value $.001 per share
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NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the
registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See 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 þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act.) Yes o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of June 30, 2008, based
on a closing price of $8.49 per share of common stock, was
$77,056,318.
Indicate the number of shares outstanding of each of the
registrants classes of common stock as of the latest
practicable date: the number of shares outstanding as of
March 12, 2009, of the registrants only issued and
outstanding class of common stock, its $.001 per share par value
common stock, was 10,099,893.
DOCUMENTS INCORPORATED BY REFERENCE
The information set forth under Items 10, 11, 12, 13 and 14
of Part III of this Report is incorporated by reference
from the registrants definitive proxy statement for its
2009 annual meeting of stockholders that will be filed no later
than April 30, 2009.
PART I
General
Superior Bancorp is a Delaware-chartered thrift holding company
headquartered in Birmingham, Alabama. We offer a broad range of
banking and related services in 77 locations in Alabama and
Florida through Superior Bank, our principal subsidiary.
Superior Banks consumer finance subsidiaries operate an
additional 24 consumer finance offices in North Alabama. We had
assets of approximately $3.053 billion, loans of
approximately $2.315 billion, deposits of approximately
$2.343 billion and stockholders equity of
approximately $251 million at December 31, 2008. Our
principal executive offices are located at 17 North
20th Street, Birmingham, Alabama 35203, and our telephone
number is
(205) 327-1400.
We were founded in 1997 and completed our initial public
offering in December 1998. Beginning in the fall of 1998, we
grew through the acquisition of various financial institutions
in Alabama and Florida.
In January 2005, we began the transition from our founding
management team to a new senior management team composed of
veteran bankers with a strong track record and a history of
enhancing stockholder value. During the remainder of 2005, we
completed that management transition.
During 2006 and 2007, we expanded our franchise with three
strategic acquisitions. On August 31, 2006, we entered the
Tampa, Florida market when we acquired Kensington Bankshares,
Inc. (Kensington) and its subsidiary, First
Kensington Bank. On November 7, 2006, we increased our
market presence in North Alabama by acquiring Community
Bancshares, Inc (Community) and its subsidiary,
Community Bank. On July 27, 2007, we acquired Peoples
Community Bancshares, Inc. (Peoples) and its
subsidiary, Peoples Community Bank of the West Coast,
adding three branches in Sarasota and Manatee Counties in
Florida to our franchise.
Strategy
Operations. We focus our services on small- to
medium-sized businesses, as well as professionals and
individuals, emphasizing our local decision-making, effective
response time and personalized service. As a result, we conduct
our business on a decentralized basis with respect to deposit
gathering and most credit decisions, utilizing local knowledge
and authority to make these decisions. We supplement this
decentralized management approach with centralized loan
administration, policy oversight, credit review, audit, legal,
asset/liability management, data processing, human resources and
risk management systems. We implement these standardized
administrative and operational policies at each of our locations
while retaining local management and advisory directors to
capitalize on their knowledge of the local community.
Products and Services. Superior Bank provides
a wide range of retail and small business services, including
noninterest-bearing and interest-bearing checking, savings and
money market accounts, negotiable order of withdrawal
(NOW) accounts, certificates of deposit and
individual retirement accounts. In addition, Superior Bank
offers an extensive array of consumer, small business,
residential real estate and commercial real estate loan
products. Other financial services include annuities, automated
teller machines, debit cards, credit-related life and disability
insurance, safety deposit boxes, Internet banking, bill payment
and telephone banking. Superior Bank attracts primary banking
relationships through the customer-oriented service environment
created by Superior Banks personnel combined with
competitive financial products.
Superior Bank also owns two consumer finance companies, Superior
Financial Services, LLC and 1st Community Credit
Corporation as well as Superior Financial Management, Inc. which
provides investment and insurance products. The finance
companies generally provide smaller loans to a market segment
traditionally not pursued by Superior Bank. These loans
typically involve greater risk and generate higher yields than
standard bank loans. We believe that, by conducting this
business, we reach a customer base not served by our banking
operations.
Market Areas. Superior Bancorp is
headquartered in Birmingham, Alabama. Our primary markets are
located in northern and central Alabama and in the panhandle and
west coast of Florida.
2
Superior Bank has branches in:
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Alabama(45)
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Florida(32)
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Albertville
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Andalusia
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Altha
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Apalachicola
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Arab
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Athens
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Beverly Hills
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Blountstown
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Birmingham
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Blountsville
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Bradenton
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Bristol
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Boaz
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Chelsea
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Brooksville
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Carrabelle
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Childersburg
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Cleveland
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Clearwater
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Dunnellon
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Cullman
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Decatur
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Homosassa
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Inverness
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Elkmont
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Falkville
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Marianna
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Mexico Beach
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Frisco City
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Gadsden
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New Port Richey
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Palm Harbor
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Gardendale
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Guntersville
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Panama City Beach
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Port Richey
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Gurley
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Haleyville
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Port St. Joe
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Sarasota
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Hamilton
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Hartselle
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Siesta Key
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Spring Hill
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Hoover
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Huntsville(3)
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Sun City Center(4)
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Tallahassee (2)
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Madison
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Meridianville
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Tampa(2)
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Venice
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Monroeville
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Montgomery
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Wesley Chapel
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Mountain Brook
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New Hope
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Oneonta(2)
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Opp
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Pelham
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Rainbow City
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Rogersville
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Samson
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Snead
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Sylacauga
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Trussville
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Uniontown
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Warrior(2)
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Our finance company subsidiaries have 24 offices in Albertville,
Anniston, Arab, Attalla, Athens, Boaz, Cullman(2), Decatur,
Florence, Fort Payne, Gadsden, Hartselle, Huntsville(3),
Jasper (2), Moody, Northport, Oneonta, Oxford, Pell City and
Talladega, Alabama.
Growth. Our future growth depends primarily on
the expansion of the business of our primary wholly owned
subsidiary, Superior Bank. That expansion will depend on
internal growth and the opening of new branch offices in new and
existing markets. Superior Bank may also continue to engage in
the strategic acquisition of other financial institutions and
branches that have relatively high earnings and low-cost
deposits or that we believe to have exceptional growth
potential, such as the acquisitions completed in 2006 and 2007.
Our ability to increase profitability and to grow internally
depends primarily on our ability to attract and retain low-cost
core deposits while continuing to generate high-yielding,
quality loans. Our ability to grow profitably through the
opening or acquisition of new branches will depend primarily on,
among other things, our ability to identify growing markets and
branch locations within such markets that will enable us to
attract the necessary deposits to operate such branches
profitably, and identify lending and investment opportunities
within such markets.
We periodically evaluate business combination opportunities and
conduct discussions, due diligence activities and negotiations
in connection with those opportunities. As a result, we may
pursue business combination transactions involving cash, debt or
equity securities from time to time. Any future business
combination or series of business combinations that we might
undertake may be material to our business, financial condition
or results of operations in terms of assets acquired or
liabilities assumed. Any future acquisition is subject to
approval by the appropriate regulatory agencies. See
Supervision and Regulation.
Operating
Segments
Our operations are managed along two reportable operating
segments consisting of the geographical regions of Alabama and
Florida. See the sections captioned Results of Segment
Operations in Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations
and Note 26 Segment Reporting in
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the notes to consolidated financial statements included in
Item 8. Financial Statements and Supplementary Data, which
are located elsewhere in this report.
Lending
Activities
General. We offer various lending services,
including real estate, consumer and commercial loans, primarily
to individuals and businesses and other organizations that are
located in or conduct a substantial portion of their business in
our market areas. Our total loans at December 31, 2008 were
$2.315 billion, or 84.4% of total earning assets. The
interest rates we charge on loans vary with the risk, maturity
and amount of the loan and are subject to competitive pressures,
money market rates, availability of funds and government
regulations. We do not have any foreign loans or loans for
highly leveraged transactions.
The lending activities of Superior Bank are subject to our
written underwriting policy and loan origination procedures
established by Superior Banks Board of Directors and
management. Loan originations are obtained from a variety of
sources, including referrals, existing customers, walk-in
customers and advertising. Loan applications are initially
processed by loan officers who have approval authority up to
designated limits.
We use generally recognized loan underwriting criteria, and
attempt to minimize credit losses through various means. In
particular, on larger credits, we generally rely on the cash
flow of a debtor as the primary source of repayment and
secondarily on the value of the underlying collateral. In
addition, we attempt to utilize shorter loan terms in order to
reduce the risk of a decline in the value of such collateral. As
of December 31, 2008, approximately 77.6% of our loan
portfolio consisted of loans that had variable interest rates or
matured within one year.
We address repayment risks by adhering to internal credit
policies and procedures that include officer and customer
lending limits, a multi-layered loan approval process that
includes senior management of Superior Bank and Superior Bancorp
for larger loans, periodic documentation examination and
follow-up
procedures for any exceptions to credit policies. The level in
our loan approval process at which a loan is approved depends on
the size of the borrowers overall credit relationship with
Superior Bank.
4
Loan
Portfolio
The following is a summary of our total loan portfolio as of
December 31, 2008 (dollars in thousands):
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Amount
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Percent
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Commercial and industrial
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$
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207,372
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8.95
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%
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Real estate:
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Construction and land development
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Residential development Alabama
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173,579
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7.48
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%
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Florida
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141,003
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6.09
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Other
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122
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0.01
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%
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Total residential development
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314,704
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13.58
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%
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Commercial development Alabama
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76,315
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3.29
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%
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Florida
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201,688
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8.71
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%
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Other
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13,477
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0.58
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%
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Total commercial development
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291,480
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12.58
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%
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Other development
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31,403
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1.36
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%
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Total construction and land development
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637,587
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27.52
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%
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Single-family mortgages
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655,216
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28.28
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%
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Nonresidential mortgages
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757,891
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32.71
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%
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Total real estate portfolio
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2,050,694
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88.51
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%
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Consumer
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57,877
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2.50
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%
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Other
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972
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0.04
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%
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Total loans
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$
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2,316,915
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100.00
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%
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Our loan portfolio is our largest earning asset category. Loans
secured by both residential and commercial real estate are a
significant component of our loan portfolio, constituting
$2.051 billion, or 88.5% of total loans, at
December 31, 2008.
Nonresidential Mortgage Loans. Nonresidential
mortgage loans include commercial and industrial loans that are
secured by real estate. At December 31, 2008,
$757.9 million, or 32.7% of our total loan portfolio,
consisted of these loans. Our commercial real estate loans
primarily provide financing for income-producing properties such
as shopping centers, multi-family complexes and office buildings
and for owner-occupied properties (primarily light industrial
facilities and office buildings). These loans are underwritten
with LTV ratios ranging, on average, from 65% to 85% based upon
the type of property being financed and the financial strength
of the borrower. For owner-occupied commercial buildings, we
underwrite the financial capability of the owner, with an 85%
maximum LTV ratio. For income-producing improved real estate, we
underwrite based on the strength of the leases, especially those
of any anchor tenants, with minimum debt service coverage of
1.2:1 and an 85% maximum LTV ratio. While evaluation of
collateral is an essential part of the underwriting process for
these loans, repayment ability is determined from analysis of
the borrowers earnings and cash flow. Terms are typically
3 to 5 years and may have payments through the date of
maturity based on a 15- to
30-year
amortization schedule. As of December 31, 2008,
owner-occupied properties comprised approximately 6%, or
$140 million, of total loans of which $52 million were
located in the Florida Region and the remaining amount located
primarily in the Alabama Region. Non-owner occupied properties
are primarily in the commercial and office sectors and totaled
approximately $133 million, or 18% of nonresidential
mortgage loans, and $100 million, or 14% of nonresidential
mortgage loans, respectively at December 31, 2008.
Geographically, 17% of the commercial sector and 78% of the
office sector were located in the Florida Region, with the
remaining portfolio in the Alabama Region.
Single-Family Mortgage Loans. At
December 31, 2008, $655.2 million, or 28.3% of our
total loan portfolio, consisted of single-family mortgage loans.
Single-family mortgage loans are loans that are traditionally
secured by
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first or second liens on the primary residences of individuals.
First liens are centrally underwritten by our mortgage
department with strict adherence to Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (Freddie Mac) secondary market
specifications, where applicable, to ensure marketability. Any
loans we make outside these guidelines are held in-portfolio but
are still originated under conservative underwriting standards.
At December 31, 2008, single-family mortgage loans secured
by first liens accounted for $536 million, or 23% of total
loans. Home equity products totaled $119 million, or 5% of
total loans. Home equity products are also centrally
underwritten with strict adherence to internal loan policy
guidelines to ensure that borrowers have appropriate credit
ratings and capacity to repay and that adequate collateral or
loan-to-value (LTV) is obtained.
Construction and Land Development Loans. We
make loans to finance the construction of and improvements to
single-family and multi-family housing and commercial structures
as well as loans for land development. At December 31,
2008, $637.6 million, or 27.5% of our total loan portfolio,
consisted of such loans. Approximately $606 million, or
95%, of construction and land development loans can be
categorized as commercial. Within this portfolio, approximately
$315 million, or 49%, was related to residential
development and construction. Of the residential construction
loans, 45% were located in the Florida Region with the remainder
located in the Alabama Region. The largest category in the
residential development and construction portfolio is related to
development of single-family lots and single-family lots held by
experienced, licensed builders for the future construction of
single-family homes. This category represents approximately
$111 million, or 35%, of this portfolio. Geographically,
approximately 56% of this portfolio was located in the Florida
Region with the remainder located in the Alabama Region.
Single-family spec home construction loans
represented approximately $60 million, or 19% of the total
residential development and construction loan portfolio, with
over 67% of these loans located in Alabama, primarily in the
Huntsville and Birmingham markets, which have proven to be
relatively stable. For single-family spec home construction
loans, management closely monitors the aging of the
builders spec home inventories to ensure turnover and to
enable management to look for early signs of weakness within our
markets. Spec homes that are 100% complete and remain in
inventory for over nine months are considered aged spec homes.
As of December 31, 2008, approximately $14.9 million
(47 homes with a $317,000 average loan balance), or 8.5%, fell
into this aged category.
For construction loans related to income-producing properties,
the underwriting criteria are the same as outlined above under
the heading, Nonresidential Mortgage Loans. Loans
for this category accounted for $175 million, or 60% of the
total commercial construction and land development loans.
Geographically, approximately 69% of this total category was
located in the Florida Region, with the remaining loans located
primarily in the Alabama Region. The three largest sectors
within this category were retail, hotel/motel and office
buildings which collectively accounted for approximately
$125 million, or 43% of the total commercial construction
loans. Individually, the retail construction loans accounted for
the largest sector, with approximately $64 million, or 22%;
office building loans accounted for approximately
$34 million, or 12%, and hotel/motel construction loans
accounted for approximately $26 million, or 9% of the total
commercial construction. Approximately 77% of these three
sectors were located in the Florida Region, with the remainder
primarily located in the Alabama Region.
For construction and land development loans, we underwrite based
on the financial strength and reputation of the builder,
factoring in the general state of the economy and interest rates
and the location of the home, with an 85% maximum loan-to-value
ratio. This conservative approach to underwriting is further
demonstrated by the overall performance of this category. For
construction loans related to income-producing properties, the
underwriting criteria are the same as outlined in the preceding
paragraph.
Commercial and Industrial Loans. We make loans
for commercial purposes in various lines of business. These
loans are typically made on terms up to five years at fixed or
variable rates and are secured by eligible accounts receivable,
inventory or equipment. We attempt to reduce our credit risk on
commercial loans by limiting the loan to value ratio to 80% on
loans secured by eligible accounts receivable, 50% on loans
secured by inventory and 75% on loans secured by equipment.
Commercial and industrial loans comprised approximately
$207.4 million, or 9.0% of our loan portfolio, at
December 31, 2008. We also, from time to time, make
unsecured commercial loans based on the cash flow of the
business.
6
Consumer Loans. Our consumer portfolio
includes installment loans to individuals in our market areas
and consists primarily of loans to purchase automobiles,
recreational vehicles, mobile homes and consumer goods. Consumer
loans comprised approximately $57.9 million, or 2.5% of our
loan portfolio, at December 31, 2008. Consumer loans are
underwritten based on the borrowers income, current debt,
credit history and collateral. Terms generally range from one to
six years on automobile loans and one to three years on other
consumer loans.
Credit
Review and Procedures
There are credit risks associated with making any loan. These
include repayment risks, risks resulting from uncertainties in
the future value of collateral, risks resulting from changes in
economic and industry conditions and risks inherent in dealing
with individual borrowers. In particular, longer maturities
increase the risk that economic conditions will change and
adversely affect collectibility.
We have a loan review process designed to promote early
identification of credit quality problems. We employ a risk
rating system that assigns to each loan a rating that
corresponds to the perceived credit risk. Risk ratings are the
primary responsibility of the loan officer, and are subject to
independent review by a centralized loan review department,
which also performs ongoing, independent review and evaluation
of the risk management process, including underwriting,
documentation and collateral control. Regular reports are made
to senior management and the Board of Directors regarding credit
quality as measured by assigned risk ratings and other measures,
including, but not limited to, the level of past due percentages
and nonperforming assets. The loan review function is
centralized and independent of the lending function.
Deposits
and Other Funding
At December 31, 2008, our deposits totaled
$2.343 billion which consisted of approximately 83.2% in
direct customer deposits and 6.5% of wholesale money market
deposits and 10.3% of brokered certificates of deposits. Core
deposits are our principal source of funds, constituting
approximately 70.1% of our total deposits as of
December 31, 2008. Core deposits consist of demand
deposits, interest-bearing transaction accounts, savings
deposits and certificates of deposit (excluding certificates of
deposits over $100,000). Transaction accounts include checking,
money market and NOW accounts that provide Superior Bank with a
source of fee income and cross-marketing opportunities, as well
as a low-cost source of funds. Time and savings accounts also
provide a relatively stable and low-cost source of funding. The
largest source of funds for Superior Bank is certificates of
deposit. Certificates of deposit in excess of $100,000 are
approximately $662.1 million, or 28.3% of our deposits, of
which, approximately $240 million consist of wholesale, or
brokered, certificates of deposits, at
December 31, 2008.
Our other primary source of funds is advances from the Federal
Home Loan Bank (FHLB). These advances are secured by
FHLB stock, agency securities and a blanket lien on certain
residential and commercial real estate loans. We also have
available unused federal funds lines of credit with regional
banks, subject to certain restrictions and collateral
requirements and may borrow from the discount window at the
Federal Reserve Bank.
Deposit rates are set periodically by our internal
Asset/Liability Management Committee, which includes certain
members of senior management. We believe our rates are
competitive with those offered by competing institutions in our
market areas.
Competition
The banking industry is highly competitive, and our
profitability depends principally upon our ability to compete in
our market areas. In our market areas, we face competition from
both super-regional banks and smaller community banks, as well
as non-bank financial services companies. We encounter strong
competition both in making loans and attracting deposits.
However, over the past two years, either through foreign
investment in local banks, mergers of equals or sales of
competitors to large regional banks, the competitive landscape
has changed in our markets. Superior Bank is now the third
largest bank headquartered in Alabama and the largest community
bank in Alabama. We fully anticipate being the beneficiary of
the chaos these changes have brought and will bring to the
affected organizations in our markets. Competition among
financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other
credit and service charges. Customers also consider the quality
and scope of the services rendered, the convenience of banking
facilities and, in the case of loans to
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commercial borrowers, relative lending limits. Customers may
also take into account the fact that other banks offer different
services. Many of the large super-regional banks against which
we compete have significantly greater lending limits and may
offer additional products; however, we believe we have been able
to compete effectively with other financial institutions,
regardless of their size, by emphasizing customer service and by
providing a wide array of services. In addition, most of our
non-bank competitors are not subject to the same extensive
federal regulations that govern bank holding companies and
federally insured banks. See Supervision and
Regulation. Competition may further intensify if
additional financial services companies enter markets in which
we conduct business.
Employees
As of December 31, 2008, we employed approximately
826 full-time equivalent employees, primarily at Superior
Bank. We believe that our employee relations have been and
continue to be good.
Supervision
and Regulation
General. Superior Bancorp, as a unitary
savings and loan holding company, and Superior Bank, as a
federal savings bank, are required by federal law to report to,
and otherwise comply with the rules and regulations of, the
Office of Thrift Supervision (OTS). We are subject
to extensive regulation, examination and supervision by the OTS,
as our primary federal regulator, and the Federal Deposit
Insurance Corporation (the FDIC), as the deposit
insurer. We are a member of the Federal Home Loan Bank System
and, with respect to deposit insurance, of the Deposit Insurance
Fund managed by the FDIC. We must file periodic reports with the
OTS and the FDIC concerning our activities and financial
condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. The OTS conducts
periodic examinations to test our safety and soundness and
compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive framework of
activities in which a thrift can engage and is intended
primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets
and the establishment of adequate loan loss reserves for
regulatory purposes. Any change in such regulatory requirements
and policies, whether by the OTS, the FDIC or Congress, could
have a material adverse impact on us and our operations. Certain
regulatory requirements applicable to us are referred to below
or elsewhere herein. The description of statutory provisions and
regulations applicable to thrifts and their holding companies
set forth below does not purport to be a complete description of
such statutes and regulations and their effects on us and is
qualified in its entirety by reference to the actual laws and
regulations.
Holding Company Regulation. We are a
nondiversified unitary savings and loan holding company within
the meaning of such terms under federal law. The
Gramm-Leach-Bliley Act of 1999 provides that no company may
acquire control of a savings institution after May 4, 1999,
unless it engages only in the financial activities permitted for
financial holding companies under the law or for multiple
savings and loan holding companies as described below. Further,
the Gramm-Leach-Bliley Act specifies that certain savings and
loan holding companies may only engage in such activities. Since
we became a savings and loan holding company in 2005, we are
limited to such activities. Upon any non-supervisory acquisition
by us of another savings institution or savings bank that meets
the qualified thrift lender test and is deemed to be a savings
institution by the OTS, we would become a multiple savings and
loan holding company (if the acquired institution is held as a
separate subsidiary) and would generally be limited to
activities permissible for bank holding companies under
Section 4(c)(8) of the Bank Holding Company Act, subject to
the prior approval of the OTS, and certain activities authorized
by the OTS regulation. However, the OTS has issued an
interpretation concluding that multiple savings and loan holding
companies may also engage in activities permitted for financial
holding companies.
A savings and loan holding company is prohibited from directly
or indirectly acquiring more than 5% of the voting stock of
another financial institution or savings and loan holding
company without prior written approval of the OTS and from
acquiring or retaining control of a depository institution that
is not insured by the FDIC. In evaluating applications by
holding companies to acquire other institutions, the OTS
considers, among other things,
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the financial and managerial resources and future prospects of
the institutions involved, the effect of the acquisition on the
risk to the deposit insurance funds, the convenience and needs
of the community and competitive factors.
Subject to certain exceptions, the OTS may not approve any
acquisition that would result in a multiple savings and loan
holding companys controlling savings institutions in more
than one state.
Although savings and loan holding companies are not currently
subject to specific capital requirements or specific
restrictions on the payment of dividends or other capital
distributions, federal regulations prescribe such restrictions
on subsidiary savings institutions, as described below. Superior
Bank must notify the OTS before declaring any dividend to
Superior Bancorp. In addition, the financial impact of a holding
company on its subsidiary institution is a matter that is
evaluated by the OTS, and the OTS has authority to order
cessation of activities or divestiture of subsidiaries deemed to
pose a threat to the safety and soundness of the institution.
Change in Bank Control Act. Under the Federal
Change in Bank Control Act, a notice must be submitted to the
OTS if any person, or group acting in concert, seeks to acquire
control of a savings and loan holding company or a
savings association. A change of control may occur, and prior
notice may be required, upon the acquisition of more than 10% of
our outstanding voting stock, unless the OTS has found that the
acquisition will not result in a change of control of Superior
Bancorp. Under the Change in Bank Control Act, the OTS generally
has 60 days from the filing of a complete notice to act,
taking into consideration certain factors, including the
financial and managerial resources of the acquirer and the
anti-trust effects of the acquisition.
Regulation of Business Activities. The
activities of thrifts are governed by federal laws and
regulations. These laws and regulations delineate the nature and
extent of the activities in which thrifts may engage. In
particular, certain lending authority for thrifts, that is,
commercial loans, non-residential real property loans and
consumer loans, is limited to a specified percentage of the
institutions capital or assets.
Capital Requirements. The OTS capital
regulations require savings institutions to meet three minimum
capital standards: a 1.5% tangible capital to total assets
ratio, a 4% leverage ratio (3% for institutions receiving the
highest rating on the regulatory examination rating system) and
an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in
effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest examination
rating), and, together with the risk-based capital standard
itself, a 4% Tier 1 risk-based capital standard.
The risk-based capital standard for savings institutions
requires the maintenance of ratios of Tier 1 (core) and
total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4%
and 8%, respectively. In determining the amount of risk-weighted
assets, all assets, including certain off-balance sheet assets,
recourse obligations, residual interests and direct credit
substitutes, are multiplied by a risk-weight factor of 0% to
100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core
(Tier 1) capital includes, among other things, common
stockholders equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and
minority interests in equity accounts of consolidated
subsidiaries. The components of supplementary capital currently
include, among other things, cumulative perpetual preferred
stock, mandatory convertible securities, the allowance for loan
and lease losses limited to a maximum of 1.25% of risk-weighted
assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values.
Overall, the amount of supplementary capital included as part of
total capital cannot exceed 100% of core capital.
The OTS also has authority to establish minimum capital
requirements in appropriate cases upon a determination that an
institutions capital level is or may become inadequate in
light of the particular circumstances. At December 31,
2008, Superior Bank met each of its capital requirements.
Prompt Corrective Regulatory Action. The OTS
is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends
upon the institutions degree of undercapitalization.
Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of
Tier 1 (core) capital to risk-weighted assets of less than
4% or a ratio of core capital to total assets of less than 4%
(less than 3% for institutions with the highest examination
rating) is considered to be undercapitalized. A
savings institution that has a total risk-based capital ratio of
less than 6%, a Tier 1 capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be
significantly undercapitalized, and a savings
institution that has a tangible capital
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to assets ratio equal to or less than 2% is deemed to be
critically undercapitalized. Subject to a narrow
exception, the OTS is required to appoint a receiver or
conservator within specified time frames for an institution that
is critically undercapitalized. The regulation also
provides that a capital restoration plan must be filed with the
OTS within 45 days of the date a savings institution
receives notice that it is undercapitalized,
significantly undercapitalized or critically
undercapitalized. Compliance with the plan must be
guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to
an undercapitalized institution, including, but not limited to,
increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The OTS could also take any
one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of
senior executive officers and directors.
Insurance of Deposit Accounts. Superior Bank
is a member of the Deposit Insurance Fund of the FDIC. The FDIC
maintains a risk-based assessment system by which institutions
are assigned to one of four categories based upon a combination
of their capitalization and examination ratings. An
institutions assessment depends upon the category to which
it is assigned. An institution assigned to the category with the
lowest risk also has certain financial ratios taken into account
in determining assessment rates, unless it is a large
institution with at least one long-term debt issuer rating, in
which case the rating will be taken into account in determining
its assessment rate. Assessment rates for Deposit Insurance Fund
members were increased effective January 1, 2009 and
currently range from 12 basis points for the healthiest
institutions to 50 basis points of assessable deposits for
the riskiest. The FDIC has proposed a new assessment rate
schedule beginning April 1, 2009 which provides for an
initial base assessment rate ranging from 10 basis points
for the healthiest institutions to 45 basis points for the
riskiest. The initial base assessment rate will be subject to
potential decrease for long-term unsecured debt and, for smaller
institutions, a portion of Tier 1 capital, and potential
increases for secured liabilities above a certain amount and,
for institutions not in the lowest risk category, brokered
deposits above a certain amount.. The adjusted assessment rates
can range from eight basis points for institutions in the lowest
risk category to 77.5 basis points for institutions in the
highest risk category. The FDIC has also proposed an emergency
special assessment of up to 20 basis points on all insured
depository institutions as of June 30, 2009, and may impose
additional emergency special assessments of up to 10 basis
points at the end of any calendar quarter. A significant
increase in Deposit Insurance Fund insurance premiums would
likely have an adverse effect on the operating expenses and
results of operations of Superior Bank. Management cannot
predict what insurance assessment rates will be in the future.
In addition to the assessment for deposit insurance,
institutions are required to make payments on bonds issued in
the late 1980s by the Financing Corporation to recapitalize the
predecessor to the Savings Association Insurance Fund. During
fiscal year 2008, Financing Corporation payments for Savings
Association Insurance Fund members approximated 1.12 basis
points of assessable deposits.
Deposit insurance may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or
has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the OTS. We do not know of any
practice, condition or violation that might lead to termination
of deposit insurance.
Loans to One Borrower. Federal law provides
that savings institutions are generally subject to the limits on
loans to one borrower applicable to national banks. Generally,
subject to certain exceptions, a savings institution may not
make a loan or extend credit to a single or related group of
borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if secured by specified
readily-marketable collateral.
QTL Test. Federal law requires savings
institutions to meet a qualified thrift lender test. Under the
test, a savings association is required to either qualify as a
domestic building and loan association under the
Internal Revenue Code or maintain at least 65% of its
portfolio assets (total assets less:
(i) specified liquid assets up to 20% of total assets;
(ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain
qualified thrift investments (primarily residential
mortgages and related investments, including certain
mortgage-backed securities) in at least nine months out of each
12-month
period.
A savings institution that fails the qualified thrift lender
test is subject to certain operating restrictions and may be
required to convert to a bank charter. As of December 31,
2008, Superior Bank met the qualified thrift lender test.
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Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be
considered qualified thrift investments.
Limitations on Capital Distributions. The OTS
regulations impose limitations upon all capital distributions by
a savings institution, including cash dividends, payments to
repurchase its shares and payments to shareholders of another
institution in a cash-out merger. Under the regulations, an
application to and prior approval of the OTS is required prior
to any capital distribution if the institution does not meet the
criteria for expedited treatment of applications
under the OTS regulations, the total capital distributions
(including the proposed capital distribution) for the calendar
year exceed net income for that year plus the amount of retained
net income for the preceding two years, the institution would be
undercapitalized following the distribution or the distribution
would otherwise be contrary to a statute, regulation or
agreement with the OTS. If an application is not required, the
institution must still provide prior notice to the OTS of the
capital distribution if, like Superior Bank, it is a subsidiary
of a holding company. In the event Superior Banks capital
fell below its regulatory requirements or the OTS notified it
that it was in need of increased supervision, Superior
Banks ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed
capital distribution by any institution, which would otherwise
be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Transactions with Related Parties. Superior
Banks authority to engage in transactions with
affiliates (i.e., any company that controls
or is under common control with Superior Bank, including
Superior Bancorp and its non-savings institution subsidiaries)
is limited by federal law. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of
the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is
limited to 20% of a savings institutions capital and
surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates
is generally prohibited. The transactions with affiliates must
be on terms and under circumstances that are at least as
favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In
addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not
permissible for bank holding companies, and no savings
institution may purchase the securities of any affiliate other
than a subsidiary.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by
public companies to their executive officers and directors.
However, that act contains a specific exception for loans by a
financial institution, such as Superior Bank, to its executive
officers and directors that are made in compliance with federal
banking laws. Under such laws, Superior Banks authority to
extend credit to executive officers, directors and 10%
shareholders (insiders), as well as entities such
persons control, is limited. The law limits both the individual
and aggregate amount of loans Superior Bank may make to insiders
based, in part, on Superior Banks capital position and
requires certain board approval procedures to be followed. Such
loans are required to be made on terms substantially the same as
those offered to unaffiliated individuals and not involve more
than the normal risk of repayment. There is an exception for
loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does
not give preference to insiders over other employees.
Standards for Safety and Soundness. The
federal banking agencies have adopted Interagency Guidelines
prescribing Standards for Safety and Soundness. These guidelines
set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the
OTS determines that a savings institution fails to meet any
standard prescribed by the guidelines, the OTS may require the
institution to submit an acceptable plan to achieve compliance
with the standard.
Enforcement. The OTS has primary enforcement
responsibility over savings institutions and has the authority
to bring actions against the institution and all
institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. Formal enforcement
action may range from the issuance of a capital directive or
cease and desist order to removal of officers
and/or
directors to institution of receivership, conservatorship or
termination of deposit insurance. Civil money penalties cover a
wide range of violations and can amount to up to
$1.25 million per day in especially egregious cases. In
addition, the FDIC has the authority to
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recommend to the Director of the OTS that enforcement action be
taken with respect to a particular savings institution. If
action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.
Federal Home Loan Bank System. Superior Bank
is a member of the Federal Home Loan Bank System, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan
Bank System provides a central credit facility primarily for
member institutions. Superior Bank, as a member of the Federal
Home Loan Bank System, is required to acquire and hold shares of
capital stock in the applicable FHLB (Atlanta) in an amount at
least equal to 0.18% of our total assets not to exceed
$25 million plus 4.5% of our outstanding advances. Superior
Bank was in compliance with this requirement at
December 31, 2008, with an investment in FHLB stock of
$21.4 million.
Federal Reserve System. The Federal Reserve
Board regulations require savings institutions to maintain
non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations
generally provide that reserves be maintained against aggregate
transaction accounts as follows: a 3% reserve ratio is assessed
on net transaction accounts up to and including
$44.4 million; a 10% reserve ratio is applied above
$44.4 million. The first $10.3 million of otherwise
reservable balances (subject to adjustments by the Federal
Reserve Board) are exempted from the reserve requirements. These
amounts are adjusted annually. Superior Bank complies with the
foregoing requirements.
Community Reinvestment Act. Superior Bank is
subject to the CRA. The CRA and the regulations issued
thereunder are intended to encourage financial institutions to
help meet the credit needs of their service areas, including low
and moderate income neighborhoods, consistent with the safe and
sound operations of the financial institutions. These
regulations also provide for regulatory assessment of an
institutions record in meeting the needs of its service
area when considering applications to establish branches, merger
applications, applications to engage in new activities and
applications to acquire the assets and assume the liabilities of
another institution. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA) requires
federal banking agencies to make public a rating of an
institutions performance under the CRA. In the case of a
holding company involved in a proposed transaction, the CRA
performance records of the banks involved are reviewed by
federal banking agencies in connection with the filing of an
application to acquire ownership or control of shares or assets
of a bank or thrift or to merge with any other bank holding
company. An unsatisfactory record can substantially delay or
block the transaction. Superior Bank maintains a satisfactory
CRA rating.
Confidentiality of Customer
Information. Federal laws and regulations,
including the Gramm-Leach-Bliley Act, require that financial
institutions take certain steps to protect the security and
confidentiality of customers non-public personal
information. Among other things, these regulations restrict the
ability of financial institutions to share non-public customer
information with non-affiliated third parties and require
financial institutions to provide customers with information
about their privacy policies. Superior Bank has procedures in
place that are intended to comply with these requirements.
Bank Secrecy Act. Superior Bancorp and
Superior Bank are subject to the federal Bank Secrecy Act of
1970, as amended, which establishes requirements for
recordkeeping and reporting by banks and other financial
institutions designed to help identify the source, volume and
movement of currency and monetary instruments into and out of
the United States in order to help detect and prevent money
laundering and other illegal activities. The Bank Secrecy Act
requires financial institutions to develop and maintain a
program reasonably designed to ensure and monitor compliance
with its requirements, to train employees in such program, and
to test the effectiveness of such program. Any failure to meet
the requirements of the Bank Secrecy Act can involve substantial
penalties and adverse regulatory action. We have adopted
policies and procedures intended to comply with the requirements
of the Bank Secrecy Act.
USA Patriot Act. The USA Patriot Act, passed
in 2001, strengthened the ability of the U.S. government to
detect and prosecute international money laundering and the
financing of terrorism. Among its provisions, the USA Patriot
Act requires that regulated financial institutions:
(i) establish an anti-money laundering program that
includes training and audit components; (ii) comply with
regulations regarding the verification of the identity of any
person seeking to open an account; (iii) take additional
required precautions with
non-U.S. owned
accounts; and (iv) perform certain verification and
certification of money laundering risk for any foreign
correspondent banking relationships. We have adopted policies,
procedures and controls to address compliance with the
requirements of
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the USA Patriot Act under the existing regulations and will
continue to revise and update our policies, procedures and
controls to reflect changes required by the USA Patriot Act and
implementing regulations.
Consumer Laws and Regulations. In addition to
the laws and regulations discussed herein, Superior Bank is also
subject to certain consumer laws and regulations that are
designed to protect consumers in transactions with banks. While
the list set forth herein is not exhaustive, these laws and
regulations include the Truth in Lending Act, the Truth in
Savings Act, the Electronic Funds Transfer Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act, the
Fair Housing Act, the Fair Credit Reporting Act and the Real
Estate Settlement Procedures Act, among others. These laws and
regulations mandate certain disclosure requirements and regulate
the manner in which financial institutions must deal with
customers when taking deposits from, making loans to, or
engaging in other types of transactions with, such customers.
Emergency Economic Stabilization Act. In
response to the financial crises affecting the banking system
and financial markets and going concern threats to investment
banks and other financial institutions, on October 3, 2008,
the Emergency Economic Stabilization Act of 2008 (the
EESA) was signed into law. Pursuant to the EESA, the
United States Treasury Department (Treasury
Department) has been given the authority to, among other
things, purchase up to $700 billion of mortgages,
mortgage-backed securities and certain other financial
instruments from financial institutions for the purpose of
stabilizing and providing liquidity to the U.S. financial
markets.
On October 14, 2008, the Secretary of the
U.S. Department of the Treasury announced that the Treasury
Department will purchase equity stakes in a wide variety of
banks and thrifts. Under the program, known as the Troubled
Asset Relief Program Capital Purchase Program (the
CPP), from the $700 billion authorized by the
EESA, the Treasury Department made $250 billion of capital
available to U.S. financial institutions, usually through
the purchase of preferred stock. The Treasury Department was to
receive from participating financial institutions, warrants to
purchase common stock with an aggregate market price equal to
15% of the preferred stock investment. Participating financial
institutions were required to adopt the Treasury
Departments standards for executive compensation and
corporate governance for the period during which the Treasury
Department holds equity issued under the CPP.
On December 5, 2008, Superior Bancorp issued and sold, and
the Treasury Department purchased, (i) 69,000 shares
(the Preferred Shares) of Fixed Rate Cumulative
Perpetual Preferred Stock, Series A, having a liquidation
preference of $1,000 per share, and (ii) a ten-year warrant
to purchase up to 1,923,792 shares of our voting common
stock, par value $0.001 per share, at an exercise price of $5.38
per share, for an aggregate purchase price of $69 million
in cash. The issuance and sale of these securities was a private
placement exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933. Participants in the CPP were
required to accept several compensation-related limitations
associated with this Program. Each of Superior Bancorps
senior executive officers on December 5, 2008 agreed in
writing to accept the compensation standards in existence at
that time under the program and thereby cap or eliminate some of
their contractual or legal rights. The provisions agreed to were
as follows (but see below under the heading American
Recovery and Reinvestment Act of 2009 for more recently
enacted compensation standards):
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No golden parachute payments. Golden
parachute payment under the CPP means a severance payment
resulting from involuntary termination of employment, or from
bankruptcy of the employer, that exceeds three times the
terminated employees average annual base salary over the
five years prior to termination. Superior Bancorps senior
executive officers have agreed to forego all golden parachute
payments for as long as: (i) They remain senior
executive officers (CEO, CFO and the next three
highest-paid executive officers); (ii) and the Treasury
Department continues to hold our equity or debt securities we
issued to it under the CPP (the Covered Period).
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Recovery of Bonuses and Incentive Compensation if Based on
Certain Material Inaccuracies. Superior
Bancorps officers have also agreed to a clawback
provision, which means that we can recover incentive
compensation paid during our participation in the CPP that is
later found to have been based on materially inaccurate
financial statements or other materially inaccurate measurements
of performance.
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No Compensation Arrangements That Encourage Excessive
Risks. During the Covered Period, we are not
allowed to enter into compensation arrangements that encourage
senior executive officers to take
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unnecessary and excessive risks that threaten the
value of our company. To make sure this does not happen,
Superior Bancorps Compensation Committee is required to
meet at least once a year with our senior risk officers to
review our executive compensation arrangements in the light of
our risk management policies and practices. Our senior executive
officers written agreements include their obligation to
execute whatever documents we may require in order to make any
changes in compensation arrangements resulting from the
Compensation Committees review.
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Limit on Federal Income Tax Deductions. During
the Covered Period, we are not allowed to take federal income
tax deductions for compensation paid to senior executive
officers in excess of $500,000 per year, with certain exceptions
that do not apply to our senior executive officers.
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American Recovery and Reinvestment Act of
2009. On February 17, 2009, President Obama
signed the American Recovery and Reinvestment Act of 2009 (the
ARRA) into law. The ARRA modified the
compensation-related limitations contained in the CPP, created
additional compensation-related limitations and directed the
Secretary of the Treasury Department to establish standards for
executive compensation applicable to participants in the CPP,
regardless of when participation commenced. Thus, the newly
enacted compensation-related limitations are applicable to
Superior Bancorp, and, to the extent the Treasury Department may
implement these restrictions unilaterally, Superior Bancorp will
apply these provisions.
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No severance payments. Under the ARRA
golden parachutes were redefined as any payment for
departure from the Company for any reason, except for payments
for services performed or benefits accrued. Consequently under
the ARRA Superior Bancorp is prohibited from making any
severance payment to our senior executive officers
(defined in the ARRA as the five highest paid senior executive
officers) and our next five most highly compensated employees
during the Covered Period).
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Recovery of Incentive Compensation if Based on Certain
Material Inaccuracies. The ARRA also contains the
clawback provision discussed above but extends its
application to any bonus awards and other incentive compensation
paid to any senior executive officers or the next 20 most highly
compensated employees during the Covered Period that is later
found to have been based on materially inaccurate financial
statements or other materially inaccurate measurements of
performance.
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No Compensation Arrangements That Encourage Earnings
Manipulation. During the Covered Period, the ARRA prohibits
compensation arrangements that encourage manipulation of
reported earnings to enhance the compensation of any employees.
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Limit on Incentive Compensation. The ARRA
contains a provision that prohibits the payment or accrual of
any bonus, retention award or incentive compensation to any
senior executive officers the Covered Period other than awards
of long-term restricted stock that (i) do not fully vest
during the Covered Period, (ii) have a value not greater
than one-third of the total annual compensation of the officer
and (iii) are subject to such other restrictions as
determined by the Secretary of the Treasury Department. The
prohibition on bonus, incentive compensation and retention
awards does not preclude payments required under written
employment contracts entered into on or prior to
February 11, 2009.
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Compensation and Human Resources Committee
Functions. The ARRA requires that our
Compensation Committee comprise solely independent directors and
that it meet at least semiannually to discuss and evaluate our
employee compensation plans in light of an assessment of any
risk posed to us from such compensation plans.
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Compliance Certifications. The ARRA also
requires a written certification by CEOs and CFOs of compliance
with the provisions of the ARRA.
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Treasury Department Review Excessive Bonuses Previously
Paid. The ARRA directs the Secretary of the
Treasury Department to review all compensation paid to our
senior executive officers and our next 20 most highly
compensated employees to determine whether any such payments
were inconsistent with the purposes of the ARRA or were
otherwise contrary to the public interest. If the Secretary of
the Treasury Department makes such a finding, the Secretary of
the Treasury Department is directed to negotiate with the
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CPP recipient and the subject employee for appropriate
reimbursements to the federal government with respect to the
compensation and bonuses.
|
|
|
|
|
|
Say on Pay Vote. Under the ARRA the Securities
and Exchange Commission is required to promulgate rules
requiring a non-binding say on pay vote by the
shareholders on executive compensation at the annual meeting
during the Covered Period. Superior Bancorp has included such a
proposal in its Proxy Statement for its upcoming 2009 annual
stockholders meeting.
|
Temporary Liquidity Guarantee Program. On
November 21, 2008, the Board of Directors of the FDIC
adopted a final rule relating to the Temporary Liquidity
Guarantee Program (the TLG Program). The TLG Program
was announced by the FDIC on October 14, 2008, preceded by
the determination of systemic risk by the Secretary of the
Treasury Department, as an initiative to counter the system-wide
crisis in the nations financial sector. Under the TLG
Program the FDIC will (i) guarantee, through the earlier of
maturity or June 30, 2012, certain newly issued senior
unsecured debt issued by participating institutions on or after
October 14, 2008, and before June 30, 2009 and
(ii) provide full FDIC deposit insurance coverage for
non-interest bearing transaction deposit accounts and NOW
accounts paying less than 0.5% interest per annum through
December 31, 2009. Coverage under the TLG Program was
available for the first 30 days without charge. The fee
assessment for coverage of senior unsecured debt ranges from
50 basis points to 100 basis points per annum,
depending on the initial maturity of the debt. The fee
assessment for deposit insurance coverage is 10 basis
points per quarter on amounts in covered accounts exceeding
$250,000. During the first week of December 2008, Superior
Bancorp elected to participate in both guarantee programs.
Instability
of Regulatory Structure
Various bills are routinely introduced in the United States
Congress and state legislatures with respect to the regulation
of financial institutions. Some of these proposals, if adopted,
could significantly change the regulation of banks and the
financial services industry. We cannot predict whether any of
these proposals will be adopted or, if adopted, how these
proposals would affect us. As evidenced by the recent
legislative enactments discussed above, legislative activity
tends to increase during times of economic instability such as
we face today.
Effect on
Economic Environment
The policies of regulatory authorities, especially the monetary
policy of the Federal Reserve Board, have a significant effect
on the operating results of savings and loan holding companies
and their subsidiaries. Among the means available to the Federal
Reserve Board to affect the money supply are open market
operations in U.S. Government securities, changes in the
discount rate on member bank borrowings and changes in reserve
requirements against member bank deposits. These means are used
in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their
use may affect interest rates charged on loans or paid for
deposits.
Federal Reserve Board monetary policies have materially affected
the operating results of commercial banks and thrifts in the
past and are expected to continue to do so in the future. The
nature of future monetary policies and the effect of such
policies on our business and earnings cannot be predicted.
Available
Information
We maintain an Internet website at www.superiorbank.com.
We make available free of charge through our website various
reports that we file with the Securities and Exchange
Commission, including our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to these reports. These reports are made
available as soon as reasonably practicable after these reports
are filed with, or furnished to, the Securities and Exchange
Commission. From our home page at www.superiorbank.com,
go to and click on Investor Relations and click on
SEC Filings to access these reports. You may read
and copy any document Superior Bancorp files with the Securities
and Exchange Commission at the Securities and Exchange
Commissions Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the Securities and Exchange Commission at
1-800-SEC-0330
for further information about the public reference room.
15
Code of
Ethics
We have adopted a code of ethics that applies to all of our
employees, including our principal executive, financial and
accounting officers. A copy of our code of ethics is available
on our website. We intend to disclose information about any
amendments to, or waivers from, our code of ethics that are
required to be disclosed under applicable Securities and
Exchange Commission regulations by providing appropriate
information on our website. If at any time our code of ethics is
not available on our website, we will provide a copy of it free
of charge upon written request.
Our business, and an investment in our securities, involves
risks. The following summary describes factors we believe are
material risks relating to our business and to the ownership of
our securities. Our discussion of these risks contains
forward-looking statements, and our actual results may differ
materially from those anticipated by such forward-looking
statements. In addition, financial condition and results of
operations, and the market price of our common stock, may be
substantially affected by other risks, including risks we have
not identified or that we may believe are immaterial or
unlikely. This summary does not purport to describe all risks
that might possibly affect our business, financial condition or
results of operations or the market price of our common stock.
Risks
Relating To Our Business
Recent Negative Developments in the Financial Services
Industry and U.S. and Global Credit Markets May Adversely
Impact Our Operations and Results. Negative
developments in the latter half of 2007, throughout 2008 and
into 2009 to date in the capital markets have resulted in
uncertainty in the financial markets in general with the
expectation of the general economic downturn for the remainder
of 2009 and possibly beyond. Loan portfolio performances have
deteriorated at many institutions resulting from, among other
factors, a weak economy and a decline in the value of the
collateral supporting their loans. The competition for our
deposits has increased significantly due to liquidity concerns
at many of those same institutions. Stock prices of thrift
holding companies, such as ours, have been negatively affected
by the current condition of the financial markets, as has our
ability, if needed, to raise capital or borrow in the debt
markets compared to recent years. Further negative developments
in the financial services industry could negatively impact our
operations by restricting our business operations, including our
ability to originate or sell loans, and adversely impact our
financial performance.
If the interest payments we make on our deposits increase
relative to our interest income, we may be less
profitable. Our profitability depends to a large
extent on Superior Banks net interest income, which is the
difference between income from interest-earning assets, such as
loans we make and investment securities we hold, and interest we
pay on deposits and our own borrowings. Our net interest income
is affected not only by actions we take, but by changes in
general interest rate levels and by other economic factors
beyond our control. Our net interest income may be reduced if
(i) more interest-earning assets than interest-bearing
liabilities reprice or mature at a time when interest rates are
declining, or (ii) more interest-bearing liabilities than
interest-earning assets reprice or mature at a time when
interest rates are rising.
In addition, we may be affected by changes in the difference
between short- and long-term interest rates. For example,
short-term deposits may be used to support longer-term loans. If
the difference between short-and long-term interest rates
becomes smaller, the spread between the rates we pay on deposits
and borrowings and the rates we receive on loans we make could
narrow significantly, decreasing our net interest income.
Further, if market interest rates rise rapidly, interest rate
adjustment caps may limit our ability to increase interest rates
on adjustable-rate mortgage loans, but we may have to pay higher
interest rates on deposits and borrowings. This could cause our
net interest income to decrease.
An increase in loan prepayments may adversely affect our
profitability. The rate at which borrowers prepay
loans is dependent on a number of factors outside our control,
including changes in market interest rates, conditions in the
housing and financial markets and general economic conditions.
We cannot always accurately predict prepayment rates. If the
prepayment rates with respect to our loans are greater than we
anticipate, there may be a
16
negative impact on our profitability because we may not be able
to reinvest prepayment proceeds at rates comparable to those we
received on the prepaid loans, particularly in a time of falling
interest rates.
If our allowance for loan losses is inadequate, our
profitability will be reduced. We are exposed to
the risk that our customers will be unable to repay their loans
in accordance with their terms and that any collateral securing
such loans will be insufficient to ensure full repayment. Such
credit risk is inherent in the lending business, and our failure
to adequately assess such credit risk could have material
adverse effect on our financial condition and results of
operations. We evaluate the collectibility of our loan portfolio
and review our evaluation on a regular basis, and we provide an
allowance for loan losses that we believe is adequate based on
various factors that we believe may affect the credit quality of
our loans. However, there can be no assurance that actual loan
losses will not exceed the allowance that we have established,
as such allowance is adjusted from time to time.
If our allowance for loan losses is inadequate for the actual
losses we experience, there could be a material adverse effect
on our results of operations. In addition, if as a result of our
perception of adverse trends, we materially increase our
allowance for loan losses in the future, such increase would
also reduce our earnings.
Events in our geographic markets could adversely affect
us. Our business is concentrated in six
geographic regions in Alabama and Florida. Any adverse changes
in market or economic conditions in Florida and Alabama may
increase the risk that our customers will be unable to make
their loan payments. In addition, the market value of the real
estate securing loans as collateral could be adversely affected
by unfavorable changes in local market conditions and general
economic conditions. Any period of increased payment
delinquencies, foreclosures or losses caused by adverse market
or economic conditions in general or in our markets in Florida
and Alabama could adversely affect our results of operations and
financial condition.
With most of our loans concentrated in a small number of
markets, a decline in local economic conditions could adversely
affect the values of our real estate collateral. Thus, a decline
in local economic conditions may have a greater effect on our
earnings and capital than on the earnings and capital of larger
financial institutions whose real estate loan portfolios are
more geographically diverse.
In addition, natural disasters, such as hurricanes and tornados,
in our markets could adversely affect our business. The
occurrence of such natural disasters in our markets could result
in a decline in the value or destruction of mortgaged properties
and in an increase in the risk of delinquencies, foreclosures or
losses on these loans and may impact our customers ability
to repay loans.
We face substantial competition. There are
numerous competitors in our geographic markets, including
national, regional and local banks and thrifts and other
financial services businesses, some of which have substantially
greater resources, higher brand visibility and a wider
geographic presence than we have. Some of these competitors may
offer a greater range of services, more favorable pricing and
greater customer convenience than we are able to. In addition,
in some of our markets, there are a significant number of new
banks and other financial institutions that have opened in the
recent past or are expected to open in the near future, and such
new competitors may also seek to exploit our markets and
customer base. If we are unable to maintain and grow our market
share in the face of such competition, our results of operations
will be adversely affected.
We are subject to extensive regulation. Our
operations are subject to regulation by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. We
are also subject to applicable regulations of the Federal Home
Loan Bank. Regulation by these entities is intended primarily
for the protection of our depositors and the deposit insurance
fund and not for the benefit of our stockholders. We may incur
substantial costs in complying with such regulations, and our
failure to comply with them may expose us to substantial
penalties.
In addition, we are subject to numerous consumer protection laws
and other laws relating to the operation of financial
institutions. Our failure to comply with such laws could expose
us to liability, which could have a material adverse effect on
our results of operations.
Federal regulation of banking industry may change
significantly due to the unprecedented economic decline and
conditions in the banking industry. Banking
regulations are being reexamined, and the framework of bank
regulatory organizations reconsidered, in the aftermath of the
recent economic decline. In addition, for those financial
institutions which were eligible for participation in the
Treasury Departments CPP (as Superior Bank
17
was) new regulations have been promulgated addressing lending
activity and compensation. The effect of these developments,
including future regulatory changes, is impossible to predict.
Due to the current economic environment the United States
Congress and the federal banking regulators may consider any
number of proposals for increased regulation of financial
institutions. We cannot predict at this time what the effect of
this increased regulation would be.
We may require additional capital to fund our growth
plans. Our business strategy includes the
expansion of our business through the development of new
locations and through the acquisition of other financial
institutions and, to the extent permitted by applicable law,
complementary businesses as appropriate opportunities arise. In
order to finance such growth and to maintain required regulatory
capital levels, we may require additional capital in the future.
There can be no assurance that such capital will be available
upon favorable terms, or at all.
We are dependent upon the services of our management
team. Our operations and strategy are directed by
our senior management team, most of whom have joined Superior
Bancorp since January 2005. Any loss of the services of members
of our management team could have a material adverse effect on
our results of operations and our ability to implement our
business strategy.
Risks
Related To an Investment in Our Common Stock
Superior Bancorps stock price may be volatile due to
limited trading volume and general market
conditions. Our common stock is traded on the
NASDAQ Global Market. However, the average daily trading volume
in our common stock is relatively small, typically under
50,000 shares per day and sometimes less. Trades involving
a relatively small number of shares may have a significant
effect on the market price of our common stock, and it may be
difficult for investors to acquire or dispose of large blocks of
stock without significantly affecting the market price.
In addition, market fluctuations, industry factors, general
economic conditions and political events, including economic
slowdowns or recessions, interest rate changes or market trends,
also could cause our stock price to decrease regardless of our
operating results of operations. Stock prices of thrift holding
companies, such as ours, have been negatively affected by the
current condition of the financial markets.
Our ability to pay dividends is limited. Our
ability to pay dividends is limited by regulatory requirements
and the need to maintain sufficient consolidated capital to meet
the capital needs of our business, including capital needs
related to future growth. Our primary source of income is the
payment of dividends from Superior Bank to us. Superior Bank, in
turn, is likewise subject to regulatory requirements potentially
limiting its ability to pay such dividends to us and by the need
to maintain sufficient capital for its operations and
obligations. Further, we are obligated, subject to regulatory
limitations, to make periodic distributions on our trust
preferred securities, subordinated debentures and preferred
stock, which reduces the income that might otherwise be
available to pay dividends on our common stock. Thus, there can
be no assurance that we will pay dividends to our common
stockholders, no assurance as to the amount or timing of any
such dividends, and no assurance that such dividends, if and
when paid, will be maintained, at the same level or at all, in
future periods.
Use of our common stock for future acquisitions or to raise
capital may be dilutive to existing
stockholders. When we determine that appropriate
strategic opportunities exist, we may acquire other financial
institutions and related businesses, subject to applicable
regulatory requirements. We may use our common stock for such
acquisitions. From time to time, we may also seek to raise
capital through selling additional common stock. It is possible
that the issuance of additional common stock in such acquisition
or capital transactions may be dilutive to the ownership
interests of our existing stockholders.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
Not applicable.
18
Our headquarters are located at 17 North 20th Street,
Birmingham, Alabama. As of December 21, 1999, Superior
Bancorp and Superior Bank, who jointly owned the building,
converted the building into condominiums known as The Bank
Condominiums. Superior Bank owns 13 condominium units. This
space includes a branch of Superior Bank, various administrative
offices, operations facilities and our headquarters. Thirteen
units are owned by third parties. We have leased or are pursuing
the lease or sale of certain units (or parts thereof) not
currently needed for our operations.
We operate through facilities at 101 locations. We own 51 of
these facilities and lease 50 of these facilities. Rental
expense on the leased properties totaled approximately $3.7
million in 2008.
|
|
Item 3.
|
Legal
Proceedings.
|
While we are a party to various legal proceedings arising in the
ordinary course of our business, we believe that there are no
proceedings threatened or pending against us at this time that
will individually, or in the aggregate, materially and 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 business, our financial condition or our
results of operations.
|
|
Item 4.
|
Submission
Of Matters To A Vote Of Security Holders.
|
None
PART II
|
|
Item 5.
|
Market
For The Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
|
Market
for Common Stock
Our common stock trades on NASDAQ Global Market under the ticker
symbol SUPR. As of December 31, 2008, there
were approximately 3,169 record holders of our common stock. The
following table sets forth, for the calendar periods indicated,
the range of high and low reported sales prices:
|
|
|
|
|
|
|
|
|
|
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High
|
|
|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
47.48
|
|
|
$
|
42.28
|
|
Second Quarter
|
|
|
43.96
|
|
|
|
38.56
|
|
Third Quarter
|
|
|
41.72
|
|
|
|
32.40
|
|
Fourth Quarter
|
|
|
37.40
|
|
|
|
20.00
|
|
2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.24
|
|
|
$
|
17.00
|
|
Second Quarter
|
|
|
22.64
|
|
|
|
8.30
|
|
Third Quarter
|
|
|
12.50
|
|
|
|
5.41
|
|
Fourth Quarter
|
|
|
9.00
|
|
|
|
2.53
|
|
2009
|
|
|
|
|
|
|
|
|
First Quarter (through March 12, 2009)
|
|
$
|
4.00
|
|
|
$
|
1.69
|
|
On March 12, 2009, the last reported sale price for the
common stock was $2.04 per share.
19
Issuer
Purchases of Equity Securities
As discussed in the Supervision and Regulation
section of Item 1. Business of this Annual
Report on
Form 10-K,
Superior Bancorps ability to repurchase its common stock
is limited by the terms of the Purchase Agreement between
Superior Bancorp and the Treasury Department. Under the CPP,
prior to the earlier of (i) December 5, 2011, or
(ii) the date on which our Fixed Rate Cumulative Perpetual
Preferred Stock, Series A is redeemed in whole or the
Treasury Department has transferred all of the Series A
Fixed Rate Cumulative Perpetual Preferred Stock to unaffiliated
third parties, the consent of the Treasury Department is
required to repurchase any shares of common stock except in
connection with benefit plans in the ordinary course of business
and certain other limited exceptions.
Dividends
We paid dividends on our preferred stock aggregating $4.92 per
preferred share in 2005. Effective June, 20, 2005, all of our
preferred stock outstanding at that time was converted into
common stock .
On December 5, 2008, we issued 69,000 shares of
preferred stock to the United States Department of the Treasury
in connection with our receipt of $69 million pursuant to
the Troubled Assets Relief Program Capital Purchase Program.
Dividends on this preferred stock are payable quarterly at an
annual rate of five percent for the first five years and
thereafter at an annual rate of nine percent.
Holders of our common stock are entitled to receive dividends
when and if declared by our board of directors. We derive cash
available to pay dividends primarily, if not entirely, from
dividends paid to us by our subsidiaries. There are certain
restrictions that limit Superior Banks ability to pay
dividends to us and, in turn, our ability to pay dividends. The
restrictions that may limit our ability to pay dividends are
discussed in this Report in Item 1 under the heading
Supervision and Regulation Limitations on
Capital Distributions. Our ability to pay dividends to our
stockholders will depend on our earnings and financial
condition, liquidity and capital requirements, the general
economic and regulatory climate, our ability to service any
equity or debt obligations senior to our common stock and other
factors deemed relevant by our board of directors. We do not
currently pay dividends on our common stock, but expect to
evaluate our common stock dividend policy from time to time as
circumstances indicate, subject to applicable regulatory
restrictions.
Equity
Compensation Plan Information
The following table summarizes information as of
December 31, 2008, relating to our equity compensation
plans pursuant to which grants of options, restricted stock
units or other rights to acquire shares may be granted in the
future.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of Shares
|
|
|
|
Securities
|
|
|
Weighted-
|
|
|
Remaining Available for
|
|
|
|
to be Issued Upon
|
|
|
Average Exercise
|
|
|
Future Issuance Under
|
|
|
|
Exercise of
|
|
|
Price of
|
|
|
Equity Compensation
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Plans (Excluding
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Securities Reflected
|
|
Plan Category
|
|
and Rights
|
|
|
and Rights
|
|
|
in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity Compensation Plans Approved by Security Holders (1)
|
|
|
457,897
|
|
|
$
|
27.00
|
|
|
|
217,302
|
|
Equity Compensation Plans not Approved by Security Holders (2)
|
|
|
391,025
|
|
|
|
33.39
|
|
|
|
53,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
848,922
|
|
|
|
29.94
|
|
|
|
270,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes 78,507 shares of restricted stock granted under
the Third Amended and Restated 1998 Stock Incentive Plan of The
Banc Corporation. |
|
(2) |
|
Includes options covering (a) 390,735 shares issued to
Messrs. Bailey, Scott and Gardner and three other
management employees in connection with their employment
agreements, (b) 53,011 shares reserved for issuance to
other new management hires, and (c) 290 shares
authorized and issued under the Commerce Bank of |
20
|
|
|
|
|
Alabama Stock Option Plan, which we assumed in the merger with
Commerce Bank of Alabama in November 1998. We do not intend to
grant any additional options under this plan. |
2008 Incentive Compensation Plan. The purpose
of the Superior Bancorp 2008 Incentive Compensation Plan is to
promote the success and enhance the value of Superior Bancorp by
linking the personal interests of its directors, officers and
employees to those of the companys stockholders and by
providing such individuals with an incentive for outstanding
performance to generate superior returns to the companys
stockholders. The plan is further intended to provide
flexibility to the company in its ability to motivate, attract,
and retain the services of directors, officers and employees
upon whose judgment, interest, and special effort the successful
conduct of the companys operation is largely dependent.
The plan authorizes the grant of incentive stock options,
nonqualified stock options and other awards, including stock
appreciation rights, restricted stock and performance shares.
The plan covers 300,000 shares of our common stock. As of
December 31, 2008, the Compensation Committee has granted
options to purchase 108,250 shares of our common stock
which remain outstanding. Those shares may be, in whole or in
part, authorized but unissued shares or issued shares that we
have reacquired.
Our Compensation Committee, which administers the Superior
Bancorp 2008 Incentive Compensation Plan, may grant options or
other awards to employees, officers and directors of Superior
Bancorp and its affiliates. The Compensation Committee, subject
to the approval of the board of directors and the provisions of
the plan, has full power to determine the types of awards to be
granted, to select the individuals to whom awards will be
granted, to fix the number of shares that each grantee may
purchase, to set the terms and conditions of each award, and to
determine all other matters relating to the plan.
Third Amended and Restated 1998 Stock Incentive
Plan. Superior Bancorp maintains the Third
Amended and Restated 1998 Stock Incentive Plan of The Banc
Corporation, but does not intend to make any additional awards
under this plan. The plan authorizes the grant of incentive
stock options, nonqualified stock options and other awards,
including stock appreciation rights, restricted stock and
performance shares. As of December 31, 2008, the
Compensation Committee has granted options to purchase
349,647 shares of our common stock which remain outstanding
and restricted stock awards covering 66,183 shares of our
common stock which remain outstanding.
The Commerce Bank of Alabama Stock Incentive Compensation
Plan. We assumed the Commerce Bank of Alabama
Incentive Compensation Plan in our acquisition of Commerce Bank
of Alabama on November 6, 1998. This plan authorized the
grant of incentive and nonqualified options to purchase common
stock of Superior Bancorp. As of December 31, 2008, there
were options outstanding under this plan to purchase
290 shares of common stock. We have not granted and do not
intend to grant any additional options under this plan.
21
Performance
Graph
The performance graph below compares our cumulative shareholder
return on our common stock over the last five fiscal years to
the cumulative total return of the NASDAQ Composite Index and
the NASDAQ Financial Index. Our cumulative shareholder return
over a five-year period is based on an initial investment of
$100 on December 31, 2003.
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/03
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
Superior Bancorp
|
|
|
100.00
|
|
|
|
96.82
|
|
|
|
134.24
|
|
|
|
133.41
|
|
|
|
63.18
|
|
|
|
9.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
108.59
|
|
|
|
110.08
|
|
|
|
120.56
|
|
|
|
132.39
|
|
|
|
78.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Southeast Thrift Index
|
|
|
100.00
|
|
|
|
118.21
|
|
|
|
107.57
|
|
|
|
126.43
|
|
|
|
54.44
|
|
|
|
31.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Southeast Thrift : Includes all Major Exchange
(NYSE, AMEX, NASDAQ) Thrifts in SNLs coverage universe
headquartered in AL, AR, FL, GA, MS, NC, SC, TN, VA, WV.
22
|
|
Item 6.
|
Selected
Financial Data.
|
The following table sets forth selected financial data from our
consolidated financial statements and should be read in
conjunction with our consolidated financial statements,
including the related notes, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations. The selected historical financial data as of
December 31, 2008 and 2007 and for each of the three years
in the period ended December 31, 2008 is derived from our
audited consolidated financial statements and related notes
included in this
Form 10-K.
See Item 8. Superior Bancorp and Subsidiaries
Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For The Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Selected Statement of Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,052,701
|
|
|
$
|
2,885,425
|
|
|
$
|
2,440,990
|
|
|
$
|
1,415,469
|
|
|
$
|
1,423,128
|
|
Loans, net of unearned income
|
|
|
2,314,921
|
|
|
|
2,017,011
|
|
|
|
1,639,528
|
|
|
|
963,253
|
|
|
|
934,868
|
|
Allowance for loan losses
|
|
|
28,850
|
|
|
|
22,868
|
|
|
|
18,892
|
|
|
|
12,011
|
|
|
|
12,543
|
|
Investment securities
|
|
|
347,142
|
|
|
|
361,171
|
|
|
|
354,716
|
|
|
|
242,595
|
|
|
|
288,308
|
|
Deposits
|
|
|
2,342,988
|
|
|
|
2,200,611
|
|
|
|
1,870,841
|
|
|
|
1,043,695
|
|
|
|
1,067,206
|
|
Advances from FHLB and other borrowings
|
|
|
361,324
|
|
|
|
222,828
|
|
|
|
211,255
|
|
|
|
214,496
|
|
|
|
205,546
|
|
Notes payable
|
|
|
7,000
|
|
|
|
9,500
|
|
|
|
5,545
|
|
|
|
3,755
|
|
|
|
3,965
|
|
Subordinated debentures
|
|
|
60,884
|
|
|
|
53,744
|
|
|
|
44,006
|
|
|
|
31,959
|
|
|
|
31,959
|
|
Stockholders equity
|
|
|
251,239
|
|
|
|
350,042
|
|
|
|
276,087
|
|
|
|
105,065
|
|
|
|
100,539
|
|
Selected Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
167,888
|
|
|
$
|
171,929
|
|
|
$
|
108,777
|
|
|
$
|
77,280
|
|
|
$
|
66,160
|
|
Interest expense
|
|
|
84,603
|
|
|
|
96,767
|
|
|
|
61,383
|
|
|
|
38,255
|
|
|
|
28,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
83,285
|
|
|
|
75,162
|
|
|
|
47,394
|
|
|
|
39,025
|
|
|
|
38,037
|
|
Provision for loan losses
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
Noninterest income
|
|
|
16,767
|
|
|
|
19,357
|
|
|
|
11,811
|
|
|
|
9,583
|
|
|
|
10,527
|
|
Insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,114
|
|
|
|
|
|
Management separation costs
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
15,467
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
160,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
94,372
|
|
|
|
78,223
|
|
|
|
49,520
|
|
|
|
45,153
|
|
|
|
47,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes (benefit)
|
|
|
(167,738
|
)
|
|
|
11,755
|
|
|
|
6,920
|
|
|
|
(10,398
|
)
|
|
|
391
|
|
Income tax (benefit) expense
|
|
|
(4,588
|
)
|
|
|
4,134
|
|
|
|
1,923
|
|
|
|
(4,612
|
)
|
|
|
(796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(163,150
|
)
|
|
|
7,621
|
|
|
|
4,997
|
|
|
|
(5,786
|
)
|
|
|
1,187
|
|
Preferred stock dividends
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
|
446
|
|
Effect of early conversion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders
|
|
$
|
(163,461
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
$
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income basic
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
$
|
(1.69
|
)
|
|
$
|
0.17
|
|
diluted(1)
|
|
|
(16.31
|
)
|
|
|
0.82
|
|
|
|
0.83
|
|
|
|
(1.69
|
)
|
|
|
0.17
|
|
Weighted average shares outstanding basic
|
|
|
10,021
|
|
|
|
9,244
|
|
|
|
5,852
|
|
|
|
4,789
|
|
|
|
4,396
|
|
Weighted average shares outstanding diluted(1)
|
|
|
10,021
|
|
|
|
9,333
|
|
|
|
6,008
|
|
|
|
4,789
|
|
|
|
4,396
|
|
Common book value at period end
|
|
$
|
17.83
|
|
|
$
|
34.91
|
|
|
$
|
31.87
|
|
|
$
|
20.83
|
|
|
$
|
21.24
|
|
Tangible book value per share
|
|
|
15.74
|
|
|
|
16.21
|
|
|
|
16.92
|
|
|
|
18.44
|
|
|
|
18.48
|
|
Preferred shares outstanding at period end
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
Common shares outstanding at period end
|
|
|
10,075
|
|
|
|
10,027
|
|
|
|
8,663
|
|
|
|
5,043
|
|
|
|
4,438
|
|
Performance Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
(5.42
|
)%
|
|
|
0.29
|
%
|
|
|
0.30
|
%
|
|
|
(0.41
|
)%
|
|
|
0.09
|
%
|
Return on average tangible assets
|
|
|
(5.78
|
)
|
|
|
0.31
|
|
|
|
0.30
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Return on average stockholders equity
|
|
|
(46.58
|
)
|
|
|
2.47
|
|
|
|
3.55
|
|
|
|
(5.68
|
)
|
|
|
1.18
|
|
Return on average tangible equity
|
|
|
(99.05
|
)
|
|
|
4.91
|
|
|
|
4.89
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net interest margin(2)(3)
|
|
|
3.27
|
|
|
|
3.37
|
|
|
|
3.17
|
|
|
|
3.14
|
|
|
|
3.31
|
|
Net interest spread(3)(4)
|
|
|
3.06
|
|
|
|
3.04
|
|
|
|
2.93
|
|
|
|
3.00
|
|
|
|
3.20
|
|
Noninterest income to average assets(5)
|
|
|
0.70
|
|
|
|
0.67
|
|
|
|
0.66
|
|
|
|
0.77
|
|
|
|
0.82
|
|
Noninterest expense to average assets(6)
|
|
|
2.99
|
|
|
|
2.83
|
|
|
|
2.84
|
|
|
|
3.14
|
|
|
|
3.52
|
|
Efficiency ratio(7)
|
|
|
85.67
|
|
|
|
79.48
|
|
|
|
81.46
|
|
|
|
87.99
|
|
|
|
91.72
|
|
Average loan to average deposit ratio
|
|
|
97.50
|
|
|
|
92.80
|
|
|
|
93.12
|
|
|
|
88.82
|
|
|
|
92.16
|
|
Average interest-earning assets to average interest bearing
liabilities
|
|
|
106.38
|
|
|
|
107.54
|
|
|
|
106.01
|
|
|
|
104.58
|
|
|
|
104.88
|
|
Assets Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to nonperforming loans
|
|
|
44.12
|
%
|
|
|
90.31
|
%
|
|
|
219.88
|
%
|
|
|
252.76
|
%
|
|
|
169.36
|
%
|
Allowance for loan losses to loans, net of unearned income
|
|
|
1.25
|
|
|
|
1.13
|
|
|
|
1.15
|
|
|
|
1.25
|
|
|
|
1.34
|
|
Nonperforming assets (NPAs) to loans plus NPAs, net
of unearned income
|
|
|
3.67
|
|
|
|
1.47
|
|
|
|
0.63
|
|
|
|
0.68
|
|
|
|
1.32
|
|
NPAs to total assets
|
|
|
2.81
|
|
|
|
1.03
|
|
|
|
0.43
|
|
|
|
0.47
|
|
|
|
0.87
|
|
Net loan charge-offs to average loans
|
|
|
0.33
|
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
0.43
|
|
|
|
1.52
|
|
Net loan charge-offs as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
54.38
|
|
|
|
94.30
|
|
|
|
92.64
|
|
|
|
115.20
|
|
|
|
1,395.49
|
|
Allowance for loan losses
|
|
|
24.71
|
|
|
|
18.72
|
|
|
|
12.26
|
|
|
|
33.57
|
|
|
|
108.47
|
|
23
|
|
|
(1)-
|
|
Common stock equivalents of 65,226,
250,500 and 193,750 shares were not included in computing
diluted earnings per share for the twelve-month periods ended
December 31, 2008, 2005 and 2004, respectively, because
their effects were antidilutive.
|
|
(2)-
|
|
Net interest income divided by
average earning assets.
|
|
(3)-
|
|
Calculated on a taxable equivalent
basis.
|
|
(4)-
|
|
Yield on average interest-earning
assets less rate on average interest-bearing liabilities.
|
|
(5)-
|
|
Noninterest income has been
adjusted for changes in fair value of derivatives, investment
security gains(losses), and gain on extinguishment of
liabilities.
|
|
(6)-
|
|
Noninterest expense has been
adjusted for core deposit intangible (CDI) amortization,
extinguishment of debt, termination of ESOP, merger-related
costs, management separation costs, goodwill impairment charge,
losses on other real estate and the loss on sale of assets.
|
|
(7)-
|
|
Efficiency ratio is calculated by
dividing noninterest expense (adjusted for CDI amortization,
merger-related costs, extinguishment of debt, termination of
ESOP, goodwill impairment charge, losses on other real estate
and the loss on sale of assets) by noninterest income (adjusted
for changes in fair values of derivatives, investment security
gains (losses), plus net interest income on a fully tax
equivalent basis, and gain on extinguishment of liabilities).
|
|
(8)-
|
|
Per-share data for all previous
periods presented have been retroactively restated to reflect a
1-for-4
reverse stock split effective April 28, 2008.
|
24
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation.
|
General
The following is a narrative discussion and analysis of
significant changes in our results of operations and financial
condition. This discussion should be read in conjunction with
the consolidated financial statements and selected financial
data included elsewhere in this document.
Overview
Our principal subsidiary is Superior Bank (the
Bank), which has since November 1, 2005, been
chartered as a federal savings bank. Prior to that date,
Superior Bank operated as an Alabama state bank. The Bank is
headquartered in Birmingham, Alabama and operates 77 banking
offices in Florida and Alabama. The Banks consumer finance
subsidiaries operate an additional 24 consumer finance offices
in North Alabama. We had assets of approximately
$3.053 billion, loans of approximately $2.315 billion,
deposits of approximately $2.343 billion and
stockholders equity of approximately $251 million at
December 31, 2008. Our primary source of revenue is net
interest income, which is the difference between income earned
on interest-earning assets, such as loans and investments, and
interest paid on interest-bearing liabilities, such as deposits
and borrowings. Our results of operations are also affected by
the provision for loan losses and other noninterest expenses,
such as salaries and benefits, occupancy expenses and provision
for income taxes. The effects of these noninterest expenses are
partially offset by noninterest sources of revenue, such as
service charges and fees on deposit accounts and mortgage
banking income. Our volume of business is influenced by
competition in our markets and overall economic conditions
including such factors as market interest rates, business
spending and consumer confidence.
The U.S. economy is in a severe recession. Our focus has
been on maintenance of credit quality under challenging
conditions, positioning our company to take advantage of the
disruption in the banking industry, and serving our customer
base well so that we can deliver long-term shareholder value as
the national economy recovers. However, the effects of this
recession have produced declining valuations within our
investment securities and loan portfolios. In addition, our
goodwill impairment testing resulted in a $160 million
non-cash charge during the fourth quarter of 2008.
As a result of the above, we reported a net loss of
$163.2 million, or $16.31 per common share in 2008.
Included in this net loss is the $160 million goodwill
impairment charge and a $6.3 million non-cash after-tax
other-than-temporary impairment charge on Fannie Mae and Freddie
Mac preferred stock and certain mortgage-backed securities. Our
earnings were also negatively impacted by a significantly higher
provision for loan losses and lower net interest margin, offset
somewhat by an increase in other noninterest income, such as
service charges on customer deposits and mortgage banking income.
Our operating earnings, excluding goodwill charges and
other-than-temporary impairment (OTTI) charges, were
$2.2 million, or $0.22 per share. We believe that this data
represents our current earning capacity without giving effect to
non-cash charges, and we are providing this data because we
believe that it may be helpful to shareholders in analyzing our
performance. In deriving this estimate of current earnings
capacity, we have excluded goodwill charges of
$160 million, or $15.90 per share, and OTTI charges of
$6.3 million, or $0.63 per share. All amounts are presented
on an after-tax basis. Goodwill impairment charges and OTTI are
included in financial results presented in accordance with
generally accepted accounting principles (GAAP). We
believe the exclusion of goodwill impairment charges and OTTI in
expressing operating earnings and operating earnings per
common share provides a meaningful basis for
period-to-period and company-to-company comparisons, which
management believes will assist investors in analyzing our
operating results and predicting future performance. These
non-GAAP financial measures are also used by management to
assess the performance of our business, because management does
not consider goodwill impairment charges and OTTI to be relevant
to ongoing operating results. Management and the Board of
Directors utilize these non-GAAP financial measure to analyze
our performance and compare our operating results with other
institutions.
Subsequent to the year ended December 31, 2008, and as part
of the Presidential administrations response to the
economic recession and conditions in the banking industry,
several initiatives have been announced that will affect our
operations. They include a special assessment to restore the
FDIC insurance fund (which may be part of a
25
series of special assessments, or alternatively, of higher
premiums) and a federal program to subsidize mortgage
restructurings that involve concessions from lenders. Both
initiatives will negatively affect our results, but due to the
preliminary nature of both, it is not possible to quantify the
impact of either. Furthermore, it is probable that similar
initiatives may be announced in the future.
During 2008, our net interest income increased by 10.8%,
primarily due to an increase in the volume of average
interest-earning assets. The increase in our interest-earning
assets resulted primarily from an overall increase in the
average volume of our loan portfolio. Our average loans during
2008 increased $334 million, or 18%, over 2007. Loan growth
occurred across all of our Alabama and Florida markets, with
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.
Service charges and fees were up 16.8% in 2008 from 2007 due to
an increase in our customer base and adjustments to our fee
structures consistent with market rates. Mortgage banking income
increased 2.9% in 2008 due to an increase in the volume of
mortgage loan originations throughout the year.
Total noninterest expenses, excluding goodwill impairment,
increased from 2007 to 2008 primarily due to our branch
expansion, which resulted in higher personnel costs and
occupancy expenses. All other noninterest expenses remained
relatively stable in 2008 compared to 2007.
Our nonperforming assets increased during 2008 as a result of
weaknesses in the residential construction and mortgage loan
portfolios. We have increased our allocation of allowance for
loan losses related to these sectors of our loan portfolio and
have taken a proactive approach to monitor these loans. We will
continue to maintain an active role in the management of these
credits to minimize loss. As with the first year of any credit
cycle, nonperforming loans, past due loans and charged-off loans
will increase. The level of deterioration is dependent on the
quality of loan underwriting and risk pricing used during the
loans origination several years ago. If underwriting and
pricing are done properly, the effect of any deterioration in
credit will be reduced. The Bank is fortunate to have senior
bankers who have experienced several previous challenging credit
cycles.
Non-performing assets, including non-accrual loans, loans past
due 90 days and accruing, and foreclosed assets
(collectively NPAs), were relatively stable for the
fourth quarter, declining to $85.7 million, or 3.67% of
loans and other real estate owned at December 31, 2008,
from $86.3 million, or 3.85%, at September 30, 2008
and increasing from $29.7 million, or 1.47%, at
December 31, 2007, which is in line with managements
expectations. Of these NPAs, $40.6 million are in the
Alabama Region and $45.1 million are in the Florida Region.
Loans in the
30-89 days
past due (DPD) category increased modestly to 1.05% of total
loans at December 31, 2008 from 0.86% of total loans at
September 30, 2008. Past-due loans that were 90 DPD and
still accruing decreased during the fourth quarter, moving to
0.35% at December 31, 2008 from 0.37% as of
September 30, 2008. Loans in this category are included in
NPAs.
As 2008 progressed, we increased our provision for loan losses
and our allowance for loan losses as it became clear that the
economy was showing signs of deterioration. The provision for
loan losses was $13.1 million for the year ended
December 31, 2008, an increase of $8.6 million, or
188.7%, from $4.5 million the year ended December 31,
2007. In 2008, we had net charged-off loans totaling
$7.1 million, compared to net charged-off loans of
$4.3 million in the year ended December 31, 2007. The
annualized ratio of net charged-off loans to average loans was
0.33% for the year ended December 31, 2008, compared to
0.24% for the year ended December 31, 2007. The allowance
for loan losses totaled $28.9 million, or 1.25% of loans,
net of unearned income, at December 31, 2008, compared to
$22.9 million, or 1.13% of loans, net of unearned income,
at December 31, 2007. Management reviews the adequacy of
the allowance for loan losses on a quarterly basis. 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. (See Critical Accounting Estimates
below.)
As of December 31, 2008 the Bank was considered well
capitalized with a 12.15% total risk-based capital ratio.
We took the opportunity to raise additional capital through a
$10 million privately-placed debt offering in late
September, 2008. In addition, we received $69 million of
additional capital from the U.S. Treasury Troubled Asset
Relief Program (TARP) through the sale of preferred
stock and warrants in December, 2008. We believe that the
26
additional capital thus raised will allow us to continue
substantial customer and balance sheet growth for the
foreseeable future.
Critical
Accounting Estimates
In preparing financial information, management is required to
make significant estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
for the periods shown. The accounting principles we follow and
the methods of applying these principles conform to accounting
principles generally accepted in the United States and to
general banking practices. Our most significant estimates and
assumptions are related primarily to our allowance for loan
losses, income taxes, fair value measurements and goodwill
impairment and are summarized in the following discussion and in
the notes to the consolidated financial statements.
Allowance
for Loan Losses
Managements determination of the adequacy of the allowance
for loan losses, which is based on the factors and risk
identification procedures discussed in the section
Financial Condition Allowance for Loan
Losses, requires the use of judgments and estimates that
may change in the future. Changes in the factors used by
management to determine the adequacy of the allowance or the
availability of new information could cause the allowance for
loan losses to be increased or decreased in future periods. In
addition, our regulators, as part of their examination process,
may require that additions or reductions be made to the
allowance for loan losses based on their judgments and estimates.
Income
Taxes
Deferred tax assets and liabilities are determined based on
temporary differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. These
calculations are based on many complex factors, including
estimates of the timing of reversals of temporary differences,
the interpretation of federal and state income tax laws, and a
determination of the differences between the tax and the
financial reporting basis of assets and liabilities. Actual
results could differ significantly from the estimates and
interpretations used in determining the current and deferred
income tax assets and liabilities.
Our determination of the realization of deferred tax assets (net
of valuation allowances) is based upon managements
judgment of various future events and uncertainties, including
future reversals of existing taxable temporary differences, the
timing and amount of future income earned by our subsidiaries
and the implementation of various tax planning strategies to
maximize realization of the deferred tax assets. A portion of
the amount of the deferred tax asset that can be realized in any
year is subject to certain statutory federal income tax
limitations. We believe that our subsidiaries will be able to
generate sufficient operating earnings to realize the deferred
tax benefits. We evaluate quarterly the realizability of the
deferred tax assets and, if necessary, adjust any valuation
allowance accordingly.
In July 2006, the Financial Accounting Standards Board
(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 (SFAS)
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. We adopted
FIN 48 on January 1, 2007 (see Note 14 to the
Consolidated Financial Statements).
Intangible
and Long-lived Assets
Intangible assets include primarily goodwill, which is the
excess of cost over the fair value of net assets of acquired
businesses (see Note 2 to the Consolidated Financial
Statements), and core deposit intangible assets, which
27
are amounts recorded related to the value of acquired
non-maturity deposits. Core deposit intangibles are amortized
over their expected useful lives.
Long-lived assets, including purchased intangible assets subject
to amortization, such as our core deposit intangible asset, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at
the lower of the carrying amount or fair value less costs to
sell, and are no longer depreciated.
For purposes of testing goodwill for impairment, management uses
both the income and market approaches to value its reporting
units. The income approach quantifies the present value of
future economic benefits by the capitalizing of
benefits method or the discounted cash flow
(DCF) method. In estimating the fair value of our
reporting units under the income approach model, management used
the DCF method, which relies on a forecast of growth and
earnings over a period of time and includes a measure of cash
flow based on projected earnings and projected dividends, or
dividend-paying capacity, in addition to an estimate of a
residual value. The projected future cash flows are discounted
using a discount rate determined under a
build-up
approach using the risk-free rate of return, adjusted equity
beta, equity risk premium, and a company-specific risk factor.
The company-specific risk factor is used to address the
uncertainty of growth estimates and earnings projections of
management.
Management uses the guideline company transaction
method to apply the market approach. Management selected a group
of comparable transactions that it believes would likely
reference comparable transactions pricing when making a decision
to purchase the applicable reporting unit. An estimate of value
can be determined by comparing the financial condition of the
subject reporting unit against the financial characteristics and
pricing information of the comparable companies.
A critical assumption used in estimating the fair value of our
reporting units is the discount rate which can change as the
business environment changes. A decrease in the discount rate by
one percentage point results in a $32 million increase in
the estimated fair value of our reporting units. An increase of
one percentage point results in a decrease of $24 million
in the fair value of all our reporting units. See
Note 1 Summary of Significant Accounting
Policies Intangible Assets to our consolidated
financial statements for additional information.
Management tested goodwill for impairment during the fourth
quarter of 2008 and recorded a $160 million impairment
charge for that quarter representing all of the goodwill
intangible asset. The primary cause of the goodwill impairment
within our reporting units was the significant decline in the
estimated fair value of the units as a result of increases in
nonperforming loans, overall decline in our market
capitalization and compression of the net interest margin, all
resulting from the economic crisis and its effect on financial
institutions which occured during the fourth quarter.
Fair
Value Measurements
In September 2006, the FASB issued SFAS 157, 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 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 our financial position or results
of operations. 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 through troubled loans. We do not
expect that the adoption of SFAS 157 for these nonfinancial
assets and liabilities will have a material impact on our
financial position or results of operations.
28
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 exist, 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 December 31, 2008 we had $66.3 million, or 15.8% 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
$18.5 million at December 31, 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 as managements
estimates and projections had to rely more on its
interpretations of available market data. The remaining
Level 3 assets totaling $47.8 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 our 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
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Available for sale securities
|
|
$
|
347,142
|
|
|
$
|
164
|
|
|
$
|
328,481
|
|
|
$
|
18,497
|
|
Derivative assets
|
|
|
1,427
|
|
|
|
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets
|
|
$
|
348,569
|
|
|
$
|
164
|
|
|
$
|
329,908
|
|
|
$
|
18,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,534
|
|
|
$
|
|
|
|
$
|
1,534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured liabilities
|
|
$
|
1,534
|
|
|
$
|
|
|
|
$
|
1,534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, we obtain
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 third-party leading 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.
29
Changes in Level 3 fair value
measurements. The table below includes a
roll-forward of the consolidated statement of financial
condition amounts for the year ended December 31, 2008, for
changes in fair value of 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
|
|
|
|
Sale Securities
|
|
|
|
(In thousands)
|
|
|
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
|
|
|
(7,459
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
18,497
|
|
|
|
|
|
|
Net realized losses included in net loss for the year-to-date
relating to Level 3 assets held at December 31, 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
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Mortgage loans held for sale
|
|
$
|
22,040
|
|
|
$
|
|
|
|
$
|
22,040
|
|
|
$
|
|
|
Impaired loans, net of specific allowance
|
|
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets
|
|
$
|
69,814
|
|
|
$
|
|
|
|
$
|
22,040
|
|
|
$
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 approved and hired by our management. The
value of business equipment is based on an appraisal by
qualified licensed appraisers approved and hired by our
management, 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.
30
Results
of Operations
Year
ended December 31, 2008, compared with year ended
December 31, 2007
Earnings. The following table presents key
earnings data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
|
Ended December 31,
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Superior Bancorp and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(158,179
|
)
|
|
$
|
1,904
|
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
Net (loss) income per common share (diluted)
|
|
|
(15.80
|
)
|
|
|
0.19
|
|
|
|
(16.31
|
)
|
|
|
0.82
|
|
Net interest margin
|
|
|
3.29
|
%
|
|
|
3.20
|
%
|
|
|
3.27
|
%
|
|
|
3.37
|
%
|
Net interest spread
|
|
|
3.12
|
|
|
|
2.88
|
|
|
|
3.06
|
|
|
|
3.04
|
|
Return on average assets
|
|
|
NCM
|
|
|
|
0.26
|
|
|
|
(5.42
|
)
|
|
|
0.29
|
|
Return on average stockholders equity
|
|
|
NCM
|
|
|
|
2.16
|
|
|
|
(46.58
|
)
|
|
|
2.47
|
|
Return on average tangible equity
|
|
|
NCM
|
|
|
|
4.66
|
|
|
|
(99.05
|
)
|
|
|
4.91
|
|
Common book value per share
|
|
$
|
17.83
|
|
|
$
|
34.91
|
|
|
$
|
17.83
|
|
|
$
|
34.91
|
|
Tangible book value per share
|
|
|
15.74
|
|
|
|
16.21
|
|
|
|
15.74
|
|
|
|
16.21
|
|
NCM-Not considered meaningful.
We reported a net loss for 2008 primarily as a result of the
$160 million goodwill impairment charge and
$6.3 million non-cash after- tax other-than-temporary
impairment charge on Fannie Mae and Freddie Mac preferred stock
and certain mortgage-backed securities. Our earnings were also
negatively impacted by a significantly higher provision for loan
losses and lower net interest margin, offset somewhat by an
increase in other noninterest income such as service charges on
customer deposits and mortgage banking income.
31
Net Interest Income. The largest component of
our net income is net interest income, which is the difference
between the income earned on interest-earning assets and
interest paid on deposits and borrowings (See Market
Risk section for a discussion regarding our interest rate
risk). Net interest income is determined by the rates earned on
our interest-earning assets, rates paid on our interest-bearing
liabilities, the relative amounts of interest-earning assets and
interest-bearing liabilities, the degree of mismatch and the
maturity and repricing characteristics of our interest-earning
assets and interest-bearing liabilities. Net interest income
divided by average interest-earning assets represents our net
interest margin. The following table summarizes the changes in
the components of net interest income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in
|
|
|
|
Fourth Quarter
|
|
|
Year Ended December 31,
|
|
|
|
2008 vs. 2007
|
|
|
2008 vs. 2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
217,863
|
|
|
$
|
(4,215
|
)
|
|
|
(1.49
|
)%
|
|
$
|
333,746
|
|
|
|
(3,281
|
)
|
|
|
(1.41
|
)%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(38,187
|
)
|
|
|
(361
|
)
|
|
|
0.20
|
|
|
|
(23,110
|
)
|
|
|
(864
|
)
|
|
|
0.11
|
|
Tax-exempt
|
|
|
5,776
|
|
|
|
108
|
|
|
|
0.17
|
|
|
|
18,595
|
|
|
|
1,242
|
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
(32,411
|
)
|
|
|
(253
|
)
|
|
|
0.23
|
|
|
|
(4,515
|
)
|
|
|
378
|
|
|
|
0.17
|
|
Federal funds sold
|
|
|
(4,208
|
)
|
|
|
(89
|
)
|
|
|
(3.79
|
)
|
|
|
(3,929
|
)
|
|
|
(349
|
)
|
|
|
(2.83
|
)
|
Other investments
|
|
|
10,414
|
|
|
|
(101
|
)
|
|
|
(1.58
|
)
|
|
|
5,025
|
|
|
|
(366
|
)
|
|
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -earning assets
|
|
$
|
191,658
|
|
|
|
(4,658
|
)
|
|
|
(1.21
|
)
|
|
$
|
330,327
|
|
|
|
(3,618
|
)
|
|
|
(1.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
(34,149
|
)
|
|
|
(3,098
|
)
|
|
|
(1.84
|
)
|
|
$
|
69,675
|
|
|
|
(6,086
|
)
|
|
|
(1.35
|
)
|
Savings deposits
|
|
|
119,548
|
|
|
|
799
|
|
|
|
0.39
|
|
|
|
70,993
|
|
|
|
1,913
|
|
|
|
0.64
|
|
Time deposits
|
|
|
(5,328
|
)
|
|
|
(4,276
|
)
|
|
|
(1.30
|
)
|
|
|
78,530
|
|
|
|
(7,089
|
)
|
|
|
(0.87
|
)
|
Other borrowings
|
|
|
126,849
|
|
|
|
(330
|
)
|
|
|
(1.88
|
)
|
|
|
106,796
|
|
|
|
(867
|
)
|
|
|
(1.80
|
)
|
Subordinated debentures
|
|
|
7,120
|
|
|
|
141
|
|
|
|
0.02
|
|
|
|
7,179
|
|
|
|
(35
|
)
|
|
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
214,040
|
|
|
|
(6,764
|
)
|
|
|
(1.45
|
)
|
|
$
|
333,173
|
|
|
|
(12,164
|
)
|
|
|
(1.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
2,106
|
|
|
|
0.24
|
%
|
|
|
|
|
|
|
8,546
|
|
|
|
(0.02
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
0.09
|
%
|
|
|
|
|
|
|
|
|
|
|
(0.10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
8,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
The following table depicts, on a taxable equivalent basis,
certain information for the fourth quarters of 2008 and 2007
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 December 31,
|
|
|
|
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)
|
|
$
|
2,263,676
|
|
|
$
|
36,445
|
|
|
|
6.40
|
%
|
|
$
|
2,045,813
|
|
|
$
|
40,660
|
|
|
|
7.89
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
293,409
|
|
|
|
4,008
|
|
|
|
5.43
|
|
|
|
331,596
|
|
|
|
4,369
|
|
|
|
5.23
|
|
Tax-exempt(2)
|
|
|
39,223
|
|
|
|
645
|
|
|
|
6.54
|
|
|
|
33,447
|
|
|
|
537
|
|
|
|
6.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
332,632
|
|
|
|
4,653
|
|
|
|
5.56
|
|
|
|
365,043
|
|
|
|
4,906
|
|
|
|
5.33
|
|
Federal funds sold
|
|
|
4,292
|
|
|
|
8
|
|
|
|
0.74
|
|
|
|
8,500
|
|
|
|
97
|
|
|
|
4.53
|
|
Other investments
|
|
|
59,214
|
|
|
|
539
|
|
|
|
3.62
|
|
|
|
48,800
|
|
|
|
640
|
|
|
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,659,814
|
|
|
|
41,645
|
|
|
|
6.23
|
|
|
|
2,468,156
|
|
|
|
46,303
|
|
|
|
7.44
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
61,967
|
|
|
|
|
|
|
|
|
|
|
|
48,618
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
104,341
|
|
|
|
|
|
|
|
|
|
|
|
99,190
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
298,477
|
|
|
|
|
|
|
|
|
|
|
|
290,894
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(27,845
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,096,754
|
|
|
|
|
|
|
|
|
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
601,222
|
|
|
$
|
2,559
|
|
|
|
1.69
|
%
|
|
$
|
635,371
|
|
|
$
|
5,657
|
|
|
|
3.53
|
%
|
Savings deposits
|
|
|
179,494
|
|
|
|
1,113
|
|
|
|
2.47
|
|
|
|
59,946
|
|
|
|
314
|
|
|
|
2.08
|
|
Time deposits
|
|
|
1,273,648
|
|
|
|
11,761
|
|
|
|
3.67
|
|
|
|
1,278,976
|
|
|
|
16,037
|
|
|
|
4.97
|
|
Other borrowings
|
|
|
397,657
|
|
|
|
3,006
|
|
|
|
3.01
|
|
|
|
270,808
|
|
|
|
3,336
|
|
|
|
4.89
|
|
Subordinated debentures
|
|
|
60,919
|
|
|
|
1,207
|
|
|
|
7.88
|
|
|
|
53,799
|
|
|
|
1,066
|
|
|
|
7.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,512,940
|
|
|
|
19,646
|
|
|
|
3.11
|
|
|
|
2,298,900
|
|
|
|
26,410
|
|
|
|
4.56
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
218,685
|
|
|
|
|
|
|
|
|
|
|
|
206,977
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
15,222
|
|
|
|
|
|
|
|
|
|
|
|
29,834
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
349,907
|
|
|
|
|
|
|
|
|
|
|
|
349,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,096,754
|
|
|
|
|
|
|
|
|
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
21,999
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
19,893
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.29
|
%
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(2)
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
21,780
|
|
|
|
|
|
|
|
|
|
|
$
|
19,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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%. |
33
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 fourth quarters of
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
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
|
|
$
|
(4,215
|
)
|
|
$
|
(8,221
|
)
|
|
$
|
4,006
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(361
|
)
|
|
|
160
|
|
|
|
(521
|
)
|
Tax-exempt
|
|
|
108
|
|
|
|
14
|
|
|
|
94
|
|
Interest on federal funds
|
|
|
(89
|
)
|
|
|
(56
|
)
|
|
|
(33
|
)
|
Interest on other investments
|
|
|
(101
|
)
|
|
|
(219
|
)
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(4,658
|
)
|
|
|
(8,322
|
)
|
|
|
3,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
(3,098
|
)
|
|
|
(2,808
|
)
|
|
|
(290
|
)
|
Interest on savings deposits
|
|
|
799
|
|
|
|
69
|
|
|
|
730
|
|
Interest on time deposits
|
|
|
(4,276
|
)
|
|
|
(4,209
|
)
|
|
|
(67
|
)
|
Interest on other borrowings
|
|
|
(330
|
)
|
|
|
(1,554
|
)
|
|
|
1,224
|
|
Interest on subordinated debentures
|
|
|
141
|
|
|
|
3
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(6,764
|
)
|
|
|
(8,499
|
)
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
2,106
|
|
|
$
|
177
|
|
|
$
|
1,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
34
The following tables depict, on a taxable equivalent basis,
certain information for each of the three years in the period
ended December 31, 2008 related to our average balance
sheet and our average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or
expense by the average balance of the corresponding assets or
liabilities. Average balances have been calculated on a daily
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Average
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Average
|
|
|
Earned/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income(1)
|
|
$
|
2,172,775
|
|
|
$
|
147,162
|
|
|
|
6.77
|
%
|
|
$
|
1,839,029
|
|
|
$
|
150,443
|
|
|
|
8.18
|
%
|
|
$
|
1,176,844
|
|
|
$
|
92,659
|
|
|
|
7.87
|
%
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
305,783
|
|
|
|
16,310
|
|
|
|
5.33
|
|
|
|
328,893
|
|
|
|
17,174
|
|
|
|
5.22
|
|
|
|
264,031
|
|
|
|
12,994
|
|
|
|
4.92
|
|
Tax-exempt(2)
|
|
|
40,263
|
|
|
|
2,601
|
|
|
|
6.46
|
|
|
|
21,668
|
|
|
|
1,359
|
|
|
|
6.27
|
|
|
|
10,093
|
|
|
|
589
|
|
|
|
5.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
346,046
|
|
|
|
18,911
|
|
|
|
5.46
|
|
|
|
350,561
|
|
|
|
18,533
|
|
|
|
5.29
|
|
|
|
274,124
|
|
|
|
13,583
|
|
|
|
4.96
|
|
Federal funds sold
|
|
|
5,047
|
|
|
|
122
|
|
|
|
2.42
|
|
|
|
8,975
|
|
|
|
471
|
|
|
|
5.25
|
|
|
|
11,102
|
|
|
|
570
|
|
|
|
5.13
|
|
Other investments
|
|
|
52,637
|
|
|
|
2,578
|
|
|
|
4.90
|
|
|
|
47,612
|
|
|
|
2,944
|
|
|
|
6.18
|
|
|
|
37,227
|
|
|
|
2,165
|
|
|
|
5.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,576,505
|
|
|
|
168,773
|
|
|
|
6.55
|
|
|
|
2,246,177
|
|
|
|
172,391
|
|
|
|
7.67
|
|
|
|
1,499,297
|
|
|
|
108,977
|
|
|
|
7.27
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
61,208
|
|
|
|
|
|
|
|
|
|
|
|
45,142
|
|
|
|
|
|
|
|
|
|
|
|
32,730
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
103,614
|
|
|
|
|
|
|
|
|
|
|
|
95,289
|
|
|
|
|
|
|
|
|
|
|
|
64,378
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
294,245
|
|
|
|
|
|
|
|
|
|
|
|
254,785
|
|
|
|
|
|
|
|
|
|
|
|
100,514
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(25,527
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,431
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,010,045
|
|
|
|
|
|
|
|
|
|
|
$
|
2,620,962
|
|
|
|
|
|
|
|
|
|
|
$
|
1,683,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
637,800
|
|
|
$
|
14,705
|
|
|
|
2.31
|
%
|
|
$
|
568,125
|
|
|
$
|
20,791
|
|
|
|
3.66
|
%
|
|
$
|
359,262
|
|
|
$
|
11,857
|
|
|
|
3.30
|
%
|
Savings deposits
|
|
|
121,645
|
|
|
|
2,731
|
|
|
|
2.25
|
|
|
|
50,652
|
|
|
|
819
|
|
|
|
1.61
|
|
|
|
27,968
|
|
|
|
177
|
|
|
|
0.63
|
|
Time deposits
|
|
|
1,250,472
|
|
|
|
50,969
|
|
|
|
4.08
|
|
|
|
1,171,942
|
|
|
|
58,057
|
|
|
|
4.95
|
|
|
|
764,787
|
|
|
|
34,477
|
|
|
|
4.51
|
|
Other borrowings
|
|
|
356,239
|
|
|
|
12,104
|
|
|
|
3.40
|
|
|
|
249,443
|
|
|
|
12,971
|
|
|
|
5.20
|
|
|
|
228,631
|
|
|
|
11,603
|
|
|
|
5.07
|
|
Subordinated debentures
|
|
|
55,736
|
|
|
|
4,094
|
|
|
|
7.35
|
|
|
|
48,557
|
|
|
|
4,129
|
|
|
|
8.50
|
|
|
|
33,642
|
|
|
|
3,269
|
|
|
|
9.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,421,892
|
|
|
|
84,603
|
|
|
|
3.49
|
|
|
|
2,088,719
|
|
|
|
96,767
|
|
|
|
4.63
|
|
|
|
1,414,290
|
|
|
|
61,383
|
|
|
|
4.34
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
218,486
|
|
|
|
|
|
|
|
|
|
|
|
191,066
|
|
|
|
|
|
|
|
|
|
|
|
111,757
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
19,438
|
|
|
|
|
|
|
|
|
|
|
|
32,905
|
|
|
|
|
|
|
|
|
|
|
|
16,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,659,816
|
|
|
|
|
|
|
|
|
|
|
|
2,312,690
|
|
|
|
|
|
|
|
|
|
|
|
1,542,498
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
350,229
|
|
|
|
|
|
|
|
|
|
|
|
308,272
|
|
|
|
|
|
|
|
|
|
|
|
140,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,010,045
|
|
|
|
|
|
|
|
|
|
|
$
|
2,620,962
|
|
|
|
|
|
|
|
|
|
|
$
|
1,683,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
84,170
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
75,624
|
|
|
|
3.04
|
%
|
|
|
|
|
|
|
47,594
|
|
|
|
2.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
|
|
|
3.37
|
%
|
|
|
|
|
|
|
|
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(2)
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
83,285
|
|
|
|
|
|
|
|
|
|
|
$
|
75,162
|
|
|
|
|
|
|
|
|
|
|
$
|
47,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 percent. |
35
The following table sets forth, on a taxable equivalent basis,
the effect which 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 years ended
December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,(1)
|
|
|
|
2008 vs. 2007
|
|
|
2007 vs. 2006
|
|
|
|
Increase
|
|
|
Changes Due to
|
|
|
Increase
|
|
|
Changes Due to
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Income from earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
(3,281
|
)
|
|
$
|
(28,269
|
)
|
|
$
|
24,988
|
|
|
$
|
57,784
|
|
|
$
|
3,780
|
|
|
$
|
54,004
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(864
|
)
|
|
|
359
|
|
|
|
(1,223
|
)
|
|
|
4,180
|
|
|
|
831
|
|
|
|
3,349
|
|
Tax-exempt
|
|
|
1,242
|
|
|
|
42
|
|
|
|
1,200
|
|
|
|
770
|
|
|
|
46
|
|
|
|
724
|
|
Interest on federal funds
|
|
|
(349
|
)
|
|
|
(193
|
)
|
|
|
(156
|
)
|
|
|
(99
|
)
|
|
|
13
|
|
|
|
(112
|
)
|
Interest on other investments
|
|
|
(366
|
)
|
|
|
(655
|
)
|
|
|
289
|
|
|
|
779
|
|
|
|
141
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(3,618
|
)
|
|
|
(28,716
|
)
|
|
|
25,098
|
|
|
|
63,414
|
|
|
|
4,811
|
|
|
|
58,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
(6,086
|
)
|
|
|
(8,405
|
)
|
|
|
2,319
|
|
|
|
8,934
|
|
|
|
1,412
|
|
|
|
7,522
|
|
Interest on savings deposits
|
|
|
1,913
|
|
|
|
423
|
|
|
|
1,490
|
|
|
|
641
|
|
|
|
421
|
|
|
|
220
|
|
Interest on time deposits
|
|
|
(7,089
|
)
|
|
|
(10,777
|
)
|
|
|
3,688
|
|
|
|
23,581
|
|
|
|
3,651
|
|
|
|
19,930
|
|
Interest on other borrowings
|
|
|
(867
|
)
|
|
|
(5,367
|
)
|
|
|
4,500
|
|
|
|
1,368
|
|
|
|
301
|
|
|
|
1,067
|
|
Interest on subordinated debentures
|
|
|
(35
|
)
|
|
|
(601
|
)
|
|
|
566
|
|
|
|
860
|
|
|
|
(450
|
)
|
|
|
1,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(12,164
|
)
|
|
|
(24,727
|
)
|
|
|
12,563
|
|
|
|
35,384
|
|
|
|
5,335
|
|
|
|
30,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
8,546
|
|
|
$
|
(3,989
|
)
|
|
$
|
12,535
|
|
|
$
|
28,030
|
|
|
$
|
(524
|
)
|
|
$
|
28,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The changes in net interest income due to both rate and volume
have been allocated to rate and volume changes in proportion to
the relationship of the absolute dollar amounts of the changes
in each. |
Provision for Loan Losses and 2008 Loan
Charge-offs. The provision for loan losses was
$13.1 million for the year ended December 31, 2008, an
increase of $8.6 million, or 188.7%, from $4.5 million
the year ended December 31, 2007. In 2008, we had net
charged-off loans totaling $7.1 million, compared to net
charged-off loans of $4.3 million in the year ended
December 31, 2007. The annualized ratio of net charged-off
loans to average loans was 0.33% for the year ended
December 31, 2008, compared to 0.24% for year ended
December 31, 2007. The allowance for loan losses totaled
$28.9 million, or 1.25% of loans, net of unearned income,
at December 31, 2008, compared to $22.9 million, or
1.13% of loans, net of unearned income, at December 31,
2007.
36
As 2008 progressed, we increased our provision for loan losses
and our allowance for loan losses as it became clear that the
economy was showing signs of deterioration. The following table
shows the quarterly provision for loan losses, gross and net
charge-offs, and the level of allowance for loan losses that
resulted from our ongoing assessment of the loan portfolio
during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarters Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning allowance of loan losses
|
|
$
|
22,868
|
|
|
$
|
23,273
|
|
|
$
|
27,242
|
|
|
$
|
27,670
|
|
Provision for loan losses
|
|
|
1,872
|
|
|
|
5,967
|
|
|
|
2,305
|
|
|
|
2,969
|
|
Total charge-offs
|
|
|
1,745
|
|
|
|
2,482
|
|
|
|
2,247
|
|
|
|
1,971
|
|
Total recoveries
|
|
|
(278
|
)
|
|
|
(485
|
)
|
|
|
(370
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
1,467
|
|
|
|
1,997
|
|
|
|
1,877
|
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance of loan losses
|
|
$
|
23,273
|
|
|
$
|
27,243
|
|
|
$
|
27,670
|
|
|
$
|
28,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income
|
|
$
|
2,066,192
|
|
|
$
|
2,148,750
|
|
|
$
|
2,219,041
|
|
|
$
|
2,314,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio: Allowance for loan losses to total loans, net of unearned
income
|
|
|
1.13
|
%
|
|
|
1.27
|
%
|
|
|
1.25
|
%
|
|
|
1.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Financial Condition Allowance for Loan
Losses for additional discussion
Noninterest income. Noninterest income
decreased $1.4 million and $2.6 million, or 24.7% and
13.4%, to $4.4 million and $16.8 million for the
fourth quarter and year ended December 31, 2008,
respectively, from $5.8 million and $19.4 million for
the fourth quarter and year ended December 31, 2007,
respectively. The components of noninterest income for the
fourth quarters and years ended December 31, 2008 and 2007
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
2,574
|
|
|
$
|
2,183
|
|
|
|
17.91
|
%
|
Mortgage banking income
|
|
|
855
|
|
|
|
808
|
|
|
|
5.82
|
|
Investment securities (losses) gains(1)
|
|
|
(1,381
|
)
|
|
|
66
|
|
|
|
NA
|
|
Change in fair value of derivatives
|
|
|
467
|
|
|
|
1,141
|
|
|
|
(59.07
|
)
|
Increase in cash surrender value of life insurance
|
|
|
585
|
|
|
|
514
|
|
|
|
13.81
|
|
Other noninterest income
|
|
|
1,274
|
|
|
|
1,096
|
|
|
|
16.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,374
|
|
|
$
|
5,808
|
|
|
|
(24.69
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
9,295
|
|
|
$
|
7,957
|
|
|
|
16.82
|
%
|
Mortgage banking income
|
|
|
3,972
|
|
|
|
3,860
|
|
|
|
2.90
|
|
Investment securities (losses) gains(1)
|
|
|
(8,453
|
)
|
|
|
308
|
|
|
|
NA
|
|
Change in fair value of derivatives
|
|
|
1,240
|
|
|
|
1,310
|
|
|
|
5.34
|
|
Increase in cash surrender value of life insurance
|
|
|
2,274
|
|
|
|
1,895
|
|
|
|
20.00
|
|
Gain on extinguishment of liabilities
|
|
|
2,918
|
|
|
|
|
|
|
|
NA
|
|
Other noninterest income
|
|
|
5,521
|
|
|
|
4,027
|
|
|
|
37.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,767
|
|
|
$
|
19,357
|
|
|
|
(13.38
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a non-cash
other-than-temporary
impairment charge. See Financial Condition
Investment Securities |
37
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 2008 is the result of an increase
in the volume of originations. 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.
During the second quarter of 2008, we recognized two separate
gains from the extinguishment of approximately $5.8 million
in liabilities. The first gain related to a 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 payment of
$3.0 million 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) and resulted in a pre-tax gain of
$2.3 million.
Noninterest expenses. Noninterest expenses
increased $4.1 million, exclusive of the $160 million
goodwill impairment charge, or 19.6%, to $24.9 million for
the fourth quarter of 2008 from $20.8 million for the
fourth quarter of 2007. This increase is primarily due to our
opening of new branch locations, which contributed to increases
in personnel, occupancy cost, and equipment expense. An
additional large increase was recorded in insurance expense
($0.4 million, or 64%) as the full impact of FDIC premium
expense was realized due to the exhaustion of previous premium
rebates. The FDIC has proposed an emergency special assessment
of up to 20 basis points on all insured depository
institutions as of June 30, 2009, and may impose additional
emergency special assessments of up to 10 basis points at
the end of any calendar quarter. A significant increase in
Deposit Insurance Fund insurance premiums would likely have an
adverse effect on our operating expenses and results of
operations. Management cannot predict what insurance assessment
rates will be in the future. Noninterest expenses included the
following for the fourth quarters of 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
13,094
|
|
|
$
|
11,357
|
|
|
|
15.29
|
%
|
Occupancy, furniture and equipment expense
|
|
|
4,583
|
|
|
|
3,742
|
|
|
|
22.47
|
|
Amortization of core deposit intangibles
|
|
|
896
|
|
|
|
588
|
|
|
|
52.38
|
|
Merger-related costs
|
|
|
|
|
|
|
108
|
|
|
|
NA
|
|
Professional fees
|
|
|
745
|
|
|
|
720
|
|
|
|
3.36
|
|
Goodwill impairment charge
|
|
|
160,306
|
|
|
|
|
|
|
|
NA
|
|
Insurance expense
|
|
|
1,048
|
|
|
|
638
|
|
|
|
64.26
|
|
Postage, stationery and supplies
|
|
|
559
|
|
|
|
570
|
|
|
|
(1.97
|
)
|
Communications expense
|
|
|
549
|
|
|
|
538
|
|
|
|
2.05
|
|
Advertising expense
|
|
|
666
|
|
|
|
638
|
|
|
|
4.42
|
|
Other operating expense
|
|
|
2,787
|
|
|
|
1,951
|
|
|
|
42.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
185,233
|
|
|
$
|
20,850
|
|
|
|
331.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses increased $16.1 million, exclusive of
the $160 million goodwill impairment charge, or 20.6%, to
$94.3 million for the year ended December 31, 2008
from $78.2 million for the year ended December 31,
2007. This increase is primarily due to the opening of new
branch locations, which contributed to increases in
38
personnel, occupancy cost, and equipment. Noninterest expenses
included the following for the years ended December 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
49,672
|
|
|
$
|
42,316
|
|
|
|
17.38
|
%
|
Occupancy, furniture and equipment expense
|
|
|
17,197
|
|
|
|
13,391
|
|
|
|
28.42
|
|
Amortization of core deposit Intangibles
|
|
|
3,585
|
|
|
|
1,691
|
|
|
|
112.00
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
1,469
|
|
|
|
NA
|
|
Merger-related costs
|
|
|
118
|
|
|
|
639
|
|
|
|
(81.53
|
)
|
Loss on termination of ESOP
|
|
|
|
|
|
|
158
|
|
|
|
NA
|
|
Professional fees
|
|
|
2,637
|
|
|
|
2,269
|
|
|
|
16.21
|
|
Goodwill impairment charge
|
|
|
160,306
|
|
|
|
|
|
|
|
NA
|
|
Insurance expense
|
|
|
3,486
|
|
|
|
2,189
|
|
|
|
59.28
|
|
Postage, stationery and supplies
|
|
|
2,114
|
|
|
|
2,252
|
|
|
|
(6.15
|
)
|
Communications expense
|
|
|
2,203
|
|
|
|
2,007
|
|
|
|
9.75
|
|
Advertising expense
|
|
|
2,977
|
|
|
|
2,397
|
|
|
|
24.18
|
|
Other operating expense
|
|
|
10,383
|
|
|
|
7,445
|
|
|
|
39.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
254,678
|
|
|
$
|
78,223
|
|
|
|
103.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense. We recognized income tax
(benefit) expense of $(3.9) million and $(4.6) million
for the fourth quarter of 2008 and year ended December 31,
2008, respectively, compared to $1.1 million and
$4.1 million for the fourth quarter of 2007 and year ended
December 31, 2007, respectively. The difference between the
effective tax rates in 2008 and 2007 and the blended federal
statutory rate of 34% and state tax rates between 5% and 6% is
primarily due to the goodwill impairment charge (2008), certain
tax-exempt income from investments and insurance policies.
We adopted the provisions of FIN 48 as of January 1,
2007 which resulted in a charge of approximately $555,000 to the
January 1, 2007 retained earnings balance. As of the
adoption date, we had unrecognized tax benefits of $459,000, all
of which, if recognized, would affect our effective tax rate.
Also, as of the adoption date, we had accrued interest expense
related to the unrecognized tax benefits of approximately
$146,000. 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. A
reconciliation of the beginning and ending amount of
unrecognized tax benefit is as follows:
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
459,000
|
|
Additions based upon tax positions related to the current year
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
(123,000
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 (see below settled
in first quarter of 2009)
|
|
$
|
336,000
|
|
|
|
|
|
|
We are subject to U.S. federal income tax as well as to
Alabama and Florida income taxes. We have 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 2004 except that we had certain notices of proposed
adjustments relating to state taxes due for the years 2002,
2003, 2005, 2006 and 2007 relating to income apportionment of a
subsidiary. During the first quarter of 2009, management settled
these matters for $800,000 which had been estimated and accrued
through December 31, 2008; therefore there will be no
effect on our reported
39
earnings for 2008 or subsequent periods.. The reduction in the
unrecognized tax benefit above was the result of the expiration
of a three-year statue of limitations on the 2004 taxable year.
Our net deferred tax assets increased $11.4 million to
$32.3 million as of December 31, 2008 from
$20.9 million at December 31, 2007 which is primarily
due to an increase in our gross deferred tax assets related to
the
other-than-temporary
impairment and other unrealized losses on our investment
securities portfolio and our provision for loan losses (see
Note 14 to the consolidated financial statements).
Our determination of the realization of deferred tax assets (net
of valuation allowance) is based upon managements judgment
of various future events and uncertainties, including future
reversals of existing taxable temporary differences, the timing
and amount of future income earned by our subsidiaries and the
implementation of various tax planning strategies to maximize
realization of the deferred tax assets. A portion of the amount
of the deferred tax asset that can be realized in any year is
subject to certain statutory federal income tax limitations. We
believe that our subsidiaries will be able to generate
sufficient operating earnings to realize the deferred tax
benefits. We evaluate quarterly the realizability of the
deferred tax assets and, if necessary, adjust any valuation
allowance accordingly.
Year
Ended December 31, 2007, Compared with Year Ended
December 31, 2006
Earnings. Net income decreased $155,000, or
7.6%, to $1.90 million for the three months ended
December 31, 2007 (fourth quarter of 2007), from
$2.06 million for the three months ended December 31,
2006 (fourth quarter of 2006). Net income increased
$2.62 million, or 52.5%, to $7.62 million for the year
ended December 31, 2007, from $5.0 million for the
year ended December 31, 2006. The following table presents
key earnings data for the -periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
|
Ended December 31,
|
|
|
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Superior Bancorp and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,904
|
|
|
$
|
2,059
|
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
Net income per common share (diluted)
|
|
|
0.19
|
|
|
|
0.24
|
|
|
|
0.82
|
|
|
|
0.83
|
|
Net interest margin
|
|
|
3.20
|
%
|
|
|
3.34
|
%
|
|
|
3.37
|
%
|
|
|
3.17
|
%
|
Net interest spread
|
|
|
2.88
|
|
|
|
3.01
|
|
|
|
3.04
|
|
|
|
2.93
|
|
Return on average assets
|
|
|
0.26
|
|
|
|
0.37
|
|
|
|
0.29
|
|
|
|
0.30
|
|
Return on average stockholders equity
|
|
|
2.16
|
|
|
|
3.71
|
|
|
|
2.47
|
|
|
|
3.55
|
|
Return on average tangible equity
|
|
|
4.66
|
|
|
|
6.52
|
|
|
|
4.91
|
|
|
|
4.89
|
|
Book value per share
|
|
$
|
34.91
|
|
|
$
|
31.87
|
|
|
$
|
34.91
|
|
|
$
|
31.87
|
|
Tangible book value per share
|
|
|
16.21
|
|
|
|
16.92
|
|
|
|
16.21
|
|
|
|
16.92
|
|
Net income decreased during the fourth quarter of 2007 compared
to 2006. This decrease is primarily attributable to an increase
in the provision for loan losses. The increase in our net income
during the year ended December 31, 2007 compared to the
year ended December 31, 2006 is primarily the result of an
increase in net interest income and noninterest income offset by
an increase in noninterest expenses. The increase in each of
these components is primarily attributable to our de novo branch
strategy and our acquisitions of Peoples in the third
quarter of 2007, and Kensington and Community in the third and
fourth quarters, respectively, of 2006.
40
Net Interest Income. The following table
summarizes the changes in the components of net interest income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in
|
|
|
|
Fourth Quarter
|
|
|
Year Ended December 31,
|
|
|
|
2007 vs. 2006
|
|
|
2007 vs. 2006
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
545,413
|
|
|
$
|
9,978
|
|
|
|
(0.22
|
)%
|
|
$
|
662,185
|
|
|
$
|
57,784
|
|
|
|
0.31
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(5,051
|
)
|
|
|
131
|
|
|
|
0.24
|
|
|
|
64,862
|
|
|
|
4,180
|
|
|
|
0.30
|
|
Tax-exempt
|
|
|
21,494
|
|
|
|
361
|
|
|
|
0.54
|
|
|
|
11,575
|
|
|
|
770
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
16,443
|
|
|
|
492
|
|
|
|
0.31
|
|
|
|
76,437
|
|
|
|
4,950
|
|
|
|
0.33
|
|
Federal funds sold
|
|
|
(18,110
|
)
|
|
|
(244
|
)
|
|
|
(0.53
|
)
|
|
|
(2,128
|
)
|
|
|
(99
|
)
|
|
|
0.12
|
|
Other investments
|
|
|
1,761
|
|
|
|
(106
|
)
|
|
|
(1.08
|
)
|
|
|
10,385
|
|
|
|
779
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -earning assets
|
|
$
|
545,507
|
|
|
|
10,120
|
|
|
|
(0.03
|
)
|
|
$
|
746,879
|
|
|
|
63,414
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
192,738
|
|
|
|
1,769
|
|
|
|
0.05
|
|
|
$
|
208,863
|
|
|
|
8,934
|
|
|
|
0.36
|
|
Savings deposits
|
|
|
11,752
|
|
|
|
187
|
|
|
|
1.04
|
|
|
|
22,684
|
|
|
|
641
|
|
|
|
0.98
|
|
Time deposits
|
|
|
280,020
|
|
|
|
4,374
|
|
|
|
0.34
|
|
|
|
407,155
|
|
|
|
23,581
|
|
|
|
0.44
|
|
Other borrowings
|
|
|
16,770
|
|
|
|
(55
|
)
|
|
|
(0.41
|
)
|
|
|
20,812
|
|
|
|
1,368
|
|
|
|
0.13
|
|
Subordinated debentures
|
|
|
18,347
|
|
|
|
135
|
|
|
|
(2.55
|
)
|
|
|
14,915
|
|
|
|
860
|
|
|
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
519,627
|
|
|
|
6,410
|
|
|
|
0.10
|
|
|
$
|
674,429
|
|
|
|
35,384
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
3,710
|
|
|
|
(0.13
|
)%
|
|
|
|
|
|
|
28,030
|
|
|
|
0.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
(0.14
|
)%
|
|
|
|
|
|
|
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
3,587
|
|
|
|
|
|
|
|
|
|
|
$
|
27,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
The following table depicts, on a taxable equivalent basis,
certain information for the fourth quarters of 2007 and 2006
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 December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
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)
|
|
$
|
2,045,813
|
|
|
$
|
40,660
|
|
|
|
7.89
|
%
|
|
$
|
1,500,400
|
|
|
$
|
30,682
|
|
|
|
8.11
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
331,596
|
|
|
|
4,369
|
|
|
|
5.23
|
|
|
|
336,647
|
|
|
|
4,238
|
|
|
|
4.99
|
|
Tax-exempt(2)
|
|
|
33,447
|
|
|
|
537
|
|
|
|
6.37
|
|
|
|
11,953
|
|
|
|
176
|
|
|
|
5.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
365,043
|
|
|
|
4,906
|
|
|
|
5.33
|
|
|
|
348,600
|
|
|
|
4,414
|
|
|
|
5.02
|
|
Federal funds sold
|
|
|
8,500
|
|
|
|
97
|
|
|
|
4.53
|
|
|
|
26,610
|
|
|
|
341
|
|
|
|
5.06
|
|
Other investments
|
|
|
48,800
|
|
|
|
640
|
|
|
|
5.20
|
|
|
|
47,039
|
|
|
|
746
|
|
|
|
6.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,468,156
|
|
|
|
46,303
|
|
|
|
7.44
|
|
|
|
1,922,649
|
|
|
|
36,183
|
|
|
|
7.47
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
48,618
|
|
|
|
|
|
|
|
|
|
|
|
32,628
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
99,190
|
|
|
|
|
|
|
|
|
|
|
|
81,068
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
290,894
|
|
|
|
|
|
|
|
|
|
|
|
164,232
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(22,095
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
$
|
2,183,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
635,371
|
|
|
$
|
5,657
|
|
|
|
3.53
|
%
|
|
$
|
442,633
|
|
|
$
|
3,888
|
|
|
|
3.48
|
%
|
Savings deposits
|
|
|
59,946
|
|
|
|
314
|
|
|
|
2.08
|
|
|
|
48,194
|
|
|
|
127
|
|
|
|
1.04
|
|
Time deposits
|
|
|
1,278,976
|
|
|
|
16,037
|
|
|
|
4.97
|
|
|
|
998,956
|
|
|
|
11,663
|
|
|
|
4.63
|
|
Other borrowings
|
|
|
270,808
|
|
|
|
3,336
|
|
|
|
4.89
|
|
|
|
254,038
|
|
|
|
3,391
|
|
|
|
5.30
|
|
Subordinated debentures
|
|
|
53,799
|
|
|
|
1,066
|
|
|
|
7.86
|
|
|
|
35,452
|
|
|
|
931
|
|
|
|
10.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,298,900
|
|
|
|
26,410
|
|
|
|
4.56
|
|
|
|
1,779,273
|
|
|
|
20,000
|
|
|
|
4.46
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
206,977
|
|
|
|
|
|
|
|
|
|
|
|
159,239
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
29,834
|
|
|
|
|
|
|
|
|
|
|
|
24,759
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
349,052
|
|
|
|
|
|
|
|
|
|
|
|
220,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
$
|
2,183,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
19,893
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
16,183
|
|
|
|
3.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(2)
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
19,710
|
|
|
|
|
|
|
|
|
|
|
$
|
16,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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%. |
42
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 fourth quarter and
year 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2007 vs. 2006(1)
|
|
|
|
Increase
|
|
|
Changes Due To
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
(Dollars in thousands)
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
9,978
|
|
|
$
|
(856
|
)
|
|
$
|
10,834
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
131
|
|
|
|
197
|
|
|
|
(66
|
)
|
Tax-exempt
|
|
|
361
|
|
|
|
18
|
|
|
|
344
|
|
Interest on federal funds
|
|
|
(244
|
)
|
|
|
(33
|
)
|
|
|
(211
|
)
|
Interest on other investments
|
|
|
(106
|
)
|
|
|
(133
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
10,120
|
|
|
|
(807
|
)
|
|
|
10,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
1,769
|
|
|
|
57
|
|
|
|
1,712
|
|
Interest on savings deposits
|
|
|
187
|
|
|
|
150
|
|
|
|
37
|
|
Interest on time deposits
|
|
|
4,374
|
|
|
|
908
|
|
|
|
3,466
|
|
Interest on other borrowings
|
|
|
(55
|
)
|
|
|
(271
|
)
|
|
|
216
|
|
Interest on subordinated debentures
|
|
|
135
|
|
|
|
(266
|
)
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
6,410
|
|
|
|
578
|
|
|
|
5,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
3,710
|
|
|
$
|
(1,385
|
)
|
|
$
|
5,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2007 vs. 2006(1)
|
|
|
|
Increase
|
|
|
Changes Due To
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
(Dollars in thousands)
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
57,784
|
|
|
$
|
3,780
|
|
|
$
|
54,004
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,180
|
|
|
|
831
|
|
|
|
3,349
|
|
Tax-exempt
|
|
|
770
|
|
|
|
46
|
|
|
|
724
|
|
Interest on federal funds
|
|
|
(99
|
)
|
|
|
13
|
|
|
|
(112
|
)
|
Interest on other investments
|
|
|
779
|
|
|
|
141
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
63,414
|
|
|
|
4,811
|
|
|
|
58,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
8,934
|
|
|
|
1,412
|
|
|
|
7,522
|
|
Interest on savings deposits
|
|
|
641
|
|
|
|
421
|
|
|
|
220
|
|
Interest on time deposits
|
|
|
23,581
|
|
|
|
3,651
|
|
|
|
19,930
|
|
Interest on other borrowings
|
|
|
1,368
|
|
|
|
301
|
|
|
|
1,067
|
|
Interest on subordinated debentures
|
|
|
860
|
|
|
|
(450
|
)
|
|
|
1,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
35,384
|
|
|
|
5,335
|
|
|
|
30,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
28,030
|
|
|
$
|
(524
|
)
|
|
$
|
28,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
43
Provision for Loan Losses. The provision for
loan losses was $1.7 million for the fourth quarter of
2007, an increase of $1.0 million, or 154.9%, from $650,000
in the fourth quarter of 2006. The provision for loan losses was
$4.5 million for the year ended December 31, 2007, an
increase of $2.0 million, or 81.6%, from $2.5 million
the year ended December 31, 2006. During the fourth quarter
and year ended December 31, 2007, we had net charged-off
loans totaling $1.7 million and $4.3 million,
respectively, compared to net charged-off loans of $662,000 and
$2.3 million in the fourth quarter and year ended
December 31, 2006, respectively. The annualized ratio of
net charged-off loans to average loans was 0.33% and 0.24% for
the fourth quarter of 2007 and year ended December 31,
2007, compared to 0.18% and 0.20% for the fourth quarter of 2006
and year ended December 31, 2006. The allowance for loan
losses totaled $22.9 million, or 1.13% of loans, net of
unearned income, at December 31, 2007, compared to
$18.9 million, or 1.15% of loans, net of unearned income,
at December 31, 2006. See Financial
Condition Allowance for Loan Losses for
additional discussion.
Noninterest income. Noninterest income
increased $2.2 million and $7.5 million, or 61.1% and
63.9%, to $5.8 million and $19.4 million for the
fourth quarter and year ended December 31, 2007,
respectively, from $3.6 million and $11.9 million for
the fourth quarter and year ended December 31, 2006,
respectively. The components of noninterest income for the
fourth quarters and years ended December 31, 2007 and 2006
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
2,183
|
|
|
$
|
1,530
|
|
|
|
42.68
|
%
|
Mortgage banking income
|
|
|
808
|
|
|
|
839
|
|
|
|
(3.69
|
)
|
Investment securities gains
|
|
|
66
|
|
|
|
|
|
|
|
NA
|
|
Change in fair value of derivatives
|
|
|
1,141
|
|
|
|
331
|
|
|
|
244.71
|
|
Increase in cash surrender value of life insurance
|
|
|
514
|
|
|
|
357
|
|
|
|
43.98
|
|
Other noninterest income
|
|
|
1,096
|
|
|
|
549
|
|
|
|
99.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,808
|
|
|
$
|
3,606
|
|
|
|
61.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
7,957
|
|
|
$
|
4,915
|
|
|
|
61.89
|
%
|
Mortgage banking income
|
|
|
3,860
|
|
|
|
2,997
|
|
|
|
28.80
|
|
Investment securities gains
|
|
|
308
|
|
|
|
|
|
|
|
NA
|
|
Change in fair value of derivatives
|
|
|
1,310
|
|
|
|
374
|
|
|
|
250.27
|
|
Increase in cash surrender value of life insurance
|
|
|
1,895
|
|
|
|
1,580
|
|
|
|
19.94
|
|
Other noninterest income
|
|
|
4,027
|
|
|
|
1,945
|
|
|
|
107.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,357
|
|
|
$
|
11,811
|
|
|
|
63.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increases in service charges on deposits and fees are
primarily attributable to an increased customer base resulting
from our acquisitions. The increase in mortgage banking income
is the result of an increase in the volume of originations. The
increase in other noninterest income is primarily due to
increases in credit life insurance commissions, brokerage
commissions and ATM network fees. Our credit life insurance
commissions have increased due to the acquisition of a consumer
finance company subsidiary as part of the Community purchase.
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.
44
Noninterest expenses. Noninterest expenses
increased $4.7 million, or 29.4%, to $20.8 million for
the fourth quarter of 2007 from $16.1 million for the
fourth quarter of 2006. This increase is primarily due to our
acquisitions and the opening of new branch locations.
Noninterest expenses included the following for the fourth
quarters of 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
11,357
|
|
|
$
|
8,738
|
|
|
|
29.97
|
%
|
Occupancy, furniture and equipment expense
|
|
|
3,742
|
|
|
|
2,430
|
|
|
|
53.99
|
|
Management separation costs
|
|
|
|
|
|
|
265
|
|
|
|
NA
|
|
Amortization of core deposit intangibles
|
|
|
588
|
|
|
|
209
|
|
|
|
181.34
|
|
Merger-related costs
|
|
|
108
|
|
|
|
285
|
|
|
|
(62.11
|
)
|
Professional fees
|
|
|
720
|
|
|
|
738
|
|
|
|
(2.32
|
)
|
Insurance expense
|
|
|
638
|
|
|
|
588
|
|
|
|
8.56
|
|
Postage, stationery and supplies
|
|
|
570
|
|
|
|
438
|
|
|
|
30.11
|
|
Communications expense
|
|
|
538
|
|
|
|
401
|
|
|
|
34.08
|
|
Advertising expense
|
|
|
638
|
|
|
|
432
|
|
|
|
47.49
|
|
Other operating expense
|
|
|
1,951
|
|
|
|
1,593
|
|
|
|
22.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,850
|
|
|
$
|
16,117
|
|
|
|
29.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses increased $28.4 million, or 57.1%, to
$78.2 million for the year ended December 31, 2007
from $49.8 million for the year ended December 31,
2006. This increase is primarily due to our acquisitions and the
opening of new branch locations. Noninterest expenses included
the following for the years ended December 31, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
42,316
|
|
|
$
|
26,805
|
|
|
|
57.87
|
%
|
Occupancy, furniture and equipment expense
|
|
|
13,391
|
|
|
|
7,754
|
|
|
|
72.70
|
|
Management separation costs
|
|
|
|
|
|
|
265
|
|
|
|
NA
|
|
Amortization of core deposit Intangibles
|
|
|
1,691
|
|
|
|
442
|
|
|
|
282.58
|
|
Loss on extinguishment of debt
|
|
|
1,469
|
|
|
|
|
|
|
|
NA
|
|
Merger-related costs
|
|
|
639
|
|
|
|
635
|
|
|
|
.63
|
|
Loss on termination of ESOP
|
|
|
158
|
|
|
|
|
|
|
|
NA
|
|
Subsidiary startup costs
|
|
|
|
|
|
|
135
|
|
|
|
NA
|
|
Professional fees
|
|
|
2,269
|
|
|
|
2,598
|
|
|
|
(12.65
|
)
|
Insurance expense
|
|
|
2,189
|
|
|
|
1,899
|
|
|
|
15.29
|
|
Postage, stationery and supplies
|
|
|
2,252
|
|
|
|
1,250
|
|
|
|
80.20
|
|
Communications expense
|
|
|
2,007
|
|
|
|
988
|
|
|
|
103.04
|
|
Advertising expense
|
|
|
2,397
|
|
|
|
1,352
|
|
|
|
77.34
|
|
Other operating expense
|
|
|
7,445
|
|
|
|
5,662
|
|
|
|
31.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,223
|
|
|
$
|
49,785
|
|
|
|
57.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense. We recognized income tax
expense of $1.1 million and $4.1 million for the
fourth quarter of 2007 and year ended December 31, 2007,
respectively, compared to $903,000 and $1.9 million for the
fourth quarter of 2006 and year ended December 31, 2006,
respectively. Our effective tax rate increased in 2007
45
compared to 2006 due to higher levels of income, recognition of
taxable gains on the exchange of bank-owned life insurance and
the recapture of tax credits related to the sale of condominium
units. The difference between the effective tax rates in 2007
and 2006 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. We
adopted the provisions of FIN 48 as of January 1,
2007, the effect of which is described in Note 14 to the
Consolidated Financial Statements.
Results
of Segment Operations
We have 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 panhandle
region of Florida. Please see Note 26 Segment
Reporting in the accompanying notes to consolidated financial
statements included elsewhere in this report for additional
disclosure regarding our segment reporting. Operating profit
(loss) by segment is presented below for the periods ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Alabama region
|
|
$
|
(58,159
|
)
|
|
$
|
15,096
|
|
|
$
|
15,621
|
|
Florida region
|
|
|
(81,600
|
)
|
|
|
23,448
|
|
|
|
18,165
|
|
Administrative and other
|
|
|
(27,979
|
)
|
|
|
(26,789
|
)
|
|
|
(26,866
|
)
|
Income tax (benefit) expense
|
|
|
(4,588
|
)
|
|
|
4,134
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama Region. Operating loss for 2008
totaled $(58.2) million, which includes a $64 million
non-cash goodwill impairment charge compared to
$15.1 million operating profit for 2007. See
Note 1 Summary of Significant Accounting
Policies Intangible Assets to our consolidated
financial statements for additional information on the goodwill
impairment charge. Operating profit for 2007 of
$15.1 million declined slightly from $15.6 million in
2006. The decrease in 2007 was primarily the result of an
increase in noninterest expenses offset by increases in the net
interest income and noninterest income as discussed below.
Net interest income for 2008 decreased $3.7 million, or
10.1%, compared to 2007. The decrease was primarily the result
of a decrease in the average yield on interest-earning assets
partly offset by an increase in the average volume of earning
assets. The increase of $9.5 million in 2007 compared to
2006 was primarily the result of growth in the average volume of
earning assets as a result of our acquisitions. See the analysis
of net interest income included in the section captioned
Net Interest Income elsewhere in this discussion.
The provision for loan losses for 2008 totaled $4.4 million
compared to $3.8 million in 2007 and $2.2 million in
2006. See the analysis of the provision for loan losses included
in the section captioned Allowance for Loan Losses
elsewhere in this discussion.
Noninterest income for 2008 increased $1.0 million, or
8.1%, compared to 2007. The increase was due to increases in
service charges on deposit accounts. Noninterest income for 2007
increased $2.4 million, or 57.1%, compared to 2006. The
increase was primarily due to increases in service charges on
deposits as a result of our acquisition of Community and new
branch openings.
See the analysis of noninterest income in the section captioned
Noninterest Income included elsewhere in this
discussion.
Noninterest expense for 2008 increased to $94.5 million,
which includes a $64 million non-cash goodwill impairment
charge, compared to $24.9 million in 2007. Other increases
were primarily related to increases in salaries and benefits and
occupancy expenses. These increases are primarily related to our
new branch openings. See additional analysis of noninterest
expense included in the section captioned Noninterest
Expense elsewhere in this discussion.
Noninterest expense for 2007 increased $10.9 million, or
77.2%, compared to 2006. The increase was primarily related to
increases in salaries and benefits and occupancy expenses. These
increases are primarily the
46
result of our new branch openings and the acquisition of
Community . See additional analysis of noninterest expense
included in the section captioned Noninterest
Expense included elsewhere in this discussion.
Florida Region Operating loss for 2008 totaled
$(81.6) million, which includes a $96 million non-cash
goodwill impairment charge, compared to $23.5 million
operating profit for 2007. See Note 1
Summary of Significant Accounting Policies
Intangible Assets to our consolidated financial statements
for additional information on the goodwill impairment charge.
Operating profit for 2007 increased $5.3 million, or 29.1%
to $23.5 million from $18.2 million in 2006. The
increase in 2007 was primarily the result of an increase in the
net interest income and noninterest income offset by increases
in noninterest expenses as discussed below.
Net interest income for 2008 remained level at $37 million
compared to 2007. The increase in the average volume of earning
assets was offset by a decrease in the average yield on
interest-earning assets. The increase of $12.7 million, or
50.0%, in 2007 compared to 2006 was primarily the result of
growth in the average volume of earning assets. The growth in
our average earning assets in for these periods is primarily the
result of our acquisitions of Peoples and Kensington along with
new branch openings. See the analysis of net interest income
included in the section captioned Net Interest
Income included elsewhere in this discussion.
The provision for loan losses for 2008 totaled $3.5 million
compared to $1.6 million in 2007 and $1.2 million in
2006. See the analysis of the provision for loan losses included
in the section captioned Allowance for Loan Losses
elsewhere in this discussion.
Noninterest income for 2008 increased to $1.9 million, or
12.2%, compared to 2007. The increase was due to increases in
service charges on deposit accounts. Noninterest income for 2007
increased to $1.7 million, or 57.8%, compared to 2006. The
increase was primarily due to increases in service charges on
deposits as a result of our acquisition of Peoples and
Kensington and new branch openings.
See the analysis of noninterest income in the section captioned
Noninterest Income elsewhere in this discussion.
Noninterest expense for 2008 increased to $118.2 million,
which includes a $96 million non-cash goodwill impairment
charge, compared to $14.7 million in 2007. Other increases
were primarily related to increases in salaries and benefits and
occupancy expenses. These increases are primarily related to our
new branch openings. See additional analysis of noninterest
expense included in the section captioned Noninterest
Expense elsewhere in this discussion.
Non-interest expense for 2007 increased $7.5 million, or
105.5%, compared to 2006. The increase was primarily related to
increases in salaries and benefits and occupancy expenses. These
increases are primarily the result of our new branch openings
and the acquisition of Community. See additional analysis of
noninterest expense included in the section captioned
Noninterest Expense elsewhere in this discussion.
Market
Risk
Market risk is the exposure to unanticipated changes in net
interest earnings or changes in the fair value of financial
instruments due to fluctuations in interest rates, exchange
rates and equity prices. Our primary market risk is interest
rate risk.
We evaluate interest rate risk and then develop guidelines
regarding asset generation and repricing, funding sources and
pricing, and off-balance sheet commitments in order to moderate
interest rate risk. We use computer simulations that reflect
various interest rate scenarios and the related impact on net
interest income over specified periods of time. We refer to this
process as asset/liability management, or ALM.
The primary objective of ALM is to manage interest rate risk and
achieve reasonable stability in net interest income throughout
interest rate cycles. This is achieved by maintaining the proper
balance of interest rate sensitive earning assets and
liabilities. In general, managements strategy is to match
asset and liability balances within maturity categories to limit
our exposure to earnings volatility and changes in the value of
assets and liabilities as
47
interest rates fluctuate over time. Adjustments to maturity
categories can be accomplished either by lengthening or
shortening the duration of either an individual asset or
liability category, or externally through the use of interest
rate contracts, such as interest rate swaps, caps, and floors.
See the discussion below for a more detailed discussion of our
various derivative positions.
Our asset and liability management strategy is formulated and
monitored by our Asset/Liability Management Committee
(ALCO), which is composed of our head of
asset/liability management and other senior officers, in
accordance with policies approved by the Board of Directors. The
ALCO meets monthly to review, among other things, the
sensitivity of our assets and liabilities to interest rate
changes, the book and market values of assets and liabilities,
unrealized gains and losses, recent purchase and sale activity,
maturities of investments and borrowings, and projected future
transactions. The ALCO also establishes and approves pricing and
funding decisions with respect to overall asset and liability
composition. It reports regularly to our Board Loan and
Investment Committee and the full Board of Directors.
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.
As of December 31, 2008, the Bank had approximately
$297 million more in interest-bearing liabilities than
interest-earning assets that could reprice to current market
rates during the next 12 months. Shortcomings are inherent
in any gap analysis, because the rates on certain assets and
liabilities may not move proportionately as market interest
rates change. For example, when national money market rates
change, interest rates on our NOW, savings, and money market
deposit accounts may not change as much as rates on commercial
loans. The Bank had approximately $819 million of such
administratively priced deposits on December 31, 2008.
The Banks net interest income simulation model projects
that net interest income will increase on an annual basis by
1.7%, or approximately $1.2 million, assuming an
instantaneous and parallel increase in interest rates of
200 basis points. The net interest income produced by these
scenarios is within our asset and liability management policy.
EVE is a concept related to 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 sensitivity to changes in interest rates. The greater
the EVE, the greater our earnings capacity. The Banks EVE
model projects that EVE will increase 3.3% and 5.5% assuming an
instantaneous and parallel increase in interest rates of 100 and
200 basis points, respectively. Assuming an instantaneous
and parallel decrease of 100 basis points, EVE is projected
to decrease 3.2% (although such a decline is unlikely given the
present low level of interest rates). The EVE shifts produced by
these scenarios are within the limits of our asset and liability
management policy. The following table sets forth the
Banks EVE limits as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
Change (in Basis Points) in Interest Rates
|
|
EVE
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
+ 200 BP
|
|
$
|
534,869
|
|
|
$
|
27,676
|
|
|
|
5.5
|
%
|
|
|
|
|
+ 100 BP
|
|
|
523,846
|
|
|
|
16,653
|
|
|
|
3.3
|
|
|
|
|
|
0 BP
|
|
|
507,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
− 100 BP
|
|
|
490,942
|
|
|
|
(16,251
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
Both the net interest income and EVE simulations include
assumptions regarding 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.
Derivative
Positions.
Overview. Our Board of Directors has
authorized ALCO to utilize financial futures, forward sales,
options, interest rate swaps, caps and floors, and other
instruments to the extent necessary, in accordance with the OTS
48
regulations and our internal policy. We expect to use interest
rate swaps, caps and floors as macro hedges against inherent
rate sensitivity in our securities portfolio, our loan portfolio
and our liabilities.
Positions for hedging purposes are primarily a function of three
main areas of risk exposure: (1) mismatches between assets
and liabilities; (2) prepayment and other option-type risks
embedded in our assets, liabilities and off-balance sheet
instruments; and (3) the mismatched commitments for
mortgages and funding sources. We will engage in only the
following types of hedges: (1) those which synthetically
alter the maturities or repricing characteristics of assets or
liabilities to reduce imbalances; (2) those which enable us
to transfer the interest rate risk exposure involved in our
daily business activities; and (3) those which serve to
alter the market risk inherent in our investment portfolio or
liabilities and thus help us to match the effective maturities
of the assets and liabilities.
The following is a discussion of our primary derivative
positions.
Interest Rate Swaps. During 2008, eight swaps
(CD swaps) with a notional amount of
$37 million were called at par with no effect on earnings.
These hedges had been entered during previous years to hedge the
interest rate risk inherent in certain of our brokered
certificates of deposits (brokered CDs). Six of the
eight brokered CDs were also called by us. The remaining two
brokered CDs will likely be called during 2009. The CD swaps
were used to convert the fixed rate paid on the brokered CDs to
a variable rate based upon three-month LIBOR.
Fair Value Hedges. As of December 31,
2008 and 2007, we had $5.3 million and $3.2 million,
respectively in notional amount of CD swaps designated and
qualified as fair value hedges. As fair value hedges, the net
cash settlements from the designated swaps are reported as part
of net interest income. In addition, we recognized in current
earnings the change in fair value of both the interest rate swap
and related hedged brokered CDs, with the ineffective portion of
the hedge relationship reported in noninterest income. The fair
value of the CD swaps is reported in other assets or other
liabilities and the change in fair value of the related hedged
brokered CD is reported as an adjustment to the carrying value
of the brokered CDs. As of December 31, 2008 and 2007, the
amount of CD swaps designated had a recorded fair value of
$799,000 and $55,000, respectively, and a weighted average life
of 6.8 and 6.6 years, respectively. The weighted average
fixed rate (receiving rate) was 4.95% and the weighted average
variable rate (paying rate) was 2.07% (LIBOR based).
Cash Flow Hedges. During the fourth quarter of
2008, we entered into interest rate swap agreements with a
notional amount of $22 million to hedge the variability in
cash flows on $22 million of junior subordinated debentures
owed to an unconsolidated subsidiary trust. Under the terms of
the interest rate swaps, which mature September 15, 2012,
we will receive a floating rate based on
3-month
LIBOR plus 1.33% (3.33% as of December 31, 2008) and
pay a weighted average fixed rate of 4.42%. Under the cash flow
hedging model, the effective portion of the gain or loss related
to these derivative instruments, if any, is recognized as a
component of other comprehensive income. As of December 31,
2008 these interest rate swap agreements have a negative
carrying value of $954,000 which is included in other
liabilities on the Consolidated Statement of Financial
Condition, with a corresponding after-tax charge to
comprehensive income of $601,000 for the effective portion of
the hedge.
Interest Rate Floors. During the fourth
quarter of 2006, we entered into certain interest rate floor
contracts that were not qualified for hedge accounting treatment
and were used as economic hedges. An interest rate floor is a
contract in which the counterparty agrees to pay the difference
between a current market rate of interest and an agreed rate
multiplied by the amount of the notional amount. We entered into
$50 million interest rate floor contracts for a
3-year
period with a 4.25% floor on the
3-month
LIBOR rate. We paid a $248,000 premium. These economic hedges
were carried at fair value in other assets or other liabilities
and changes in the fair value of these derivatives and any
payments received were recognized in noninterest income. The
floors had a positive fair value of $590,000 as of
December 31, 2007. In March 2008, we terminated our
interest rate floor contracts for $1,267,000 which resulted in a
realized pre-tax gain of $677,000 recognized in the first
quarter of 2008.
Commitments to Originate Mortgage Loans. In
the ordinary course of business, we enter into certain
commitments with customers in connection with residential
mortgage loan applications. Such commitments are considered
derivatives under the provisions of SFAS No. 133, as
amended by SFAS No. 149, Amendment to Statement 133
on Derivatives Instruments and Hedging Activities, and are
therefore required to be recorded at fair value. The aggregate
amount of these mortgage loan origination commitments was
$93 million and $21 million at December 31, 2008
and 2007, respectively. The net unrealized (losses) gains on the
origination commitments were
49
$(117,000) and $122,000 at December 31, 2008 and 2007,
respectively. The fair values are calculated based on changes in
market interest rates after the commitment date.
Liquidity,
Contractual Obligations and Off Balance Sheet
Arrangements
Overview. The goal of liquidity management is
to provide adequate funds to meet changes in loan demand or any
potential unexpected deposit withdrawals. Additionally,
management strives to maximize our earnings by investing our
excess funds in securities and other assets with maturities
matching our liabilities. Historically, we have maintained a
high
loan-to-deposit
ratio. To meet our short-term liquidity needs, we maintain core
deposits and have borrowing capacity through the FHLB, Federal
Reserve Bank, repurchase agreements and federal funds lines.
Long-term liquidity needs are also met through these sources
along with the repayment of loans, sales of loans and the
maturity or sale of investment securities. See Maturity
Distribution of Investment Securities and Selected
Loan Maturity and Interest Rate Sensitivity below.
Short-term liquid assets. Our short-term
liquid assets (cash and due from banks, interest-bearing
deposits in other banks and federal funds sold) increased
$26.1 million, or 41.2%, to $89.4 million at
December 31, 2008 from $63.4 million at
December 31, 2007. At December 31, 2008 and 2007, our
short-term liquid assets comprised 2.9% and 2.2% of total
assets, respectively. We continually monitor our liquidity
position and will increase or decrease our short-term liquid
assets as necessary.
Maturity Distribution of Investment
Securities. The following table shows the
scheduled contractual maturities and average yields of
investment securities held at December 31, 2008. Within our
investment securities portfolio expected maturities will differ
from contractual maturities because borrowers have the right to
call or prepay obligations without call or prepayment penalties
in certain instances. During 2008, we received proceed from
calls totaling approximately $72 million and principal pay
downs on mortgage-backed securities of approximately
$38 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
|
|
|
|
|
|
|
After One But
|
|
|
|
|
|
|
|
|
|
|
|
|
Within One
|
|
|
Within Five
|
|
|
After Five But Within Ten
|
|
|
After
|
|
|
|
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Ten Years
|
|
|
Total
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
|
|
$
|
|
|
|
|
|
|
|
$
|
356
|
|
|
|
4.82
|
%
|
|
$
|
3,487
|
|
|
|
5.83
|
%
|
|
$
|
|
|
|
|
|
|
|
$
|
3,843
|
|
|
|
5.74
|
%
|
State and political subdivision
|
|
|
253
|
|
|
|
3.20
|
|
|
|
3,173
|
|
|
|
4.05
|
|
|
|
5,814
|
|
|
|
4.08
|
|
|
|
31,382
|
|
|
|
4.33
|
|
|
|
40,622
|
|
|
|
4.26
|
|
Mortgage-backed securities
|
|
|
455
|
|
|
|
5.91
|
|
|
|
23,792
|
|
|
|
4.65
|
|
|
|
14,245
|
|
|
|
5.34
|
|
|
|
241,632
|
|
|
|
5.20
|
|
|
|
280,124
|
|
|
|
5.17
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
5,746
|
|
|
|
5.54
|
|
|
|
|
|
|
|
|
|
|
|
16,807
|
|
|
|
6.27
|
|
|
|
22,553
|
|
|
|
6.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
708
|
|
|
|
4.94
|
%
|
|
$
|
33,067
|
|
|
|
4.75
|
%
|
|
$
|
23,546
|
|
|
|
5.10
|
%
|
|
$
|
289,821
|
|
|
|
5.19
|
%
|
|
$
|
347,142
|
|
|
|
5.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Selected Loan Maturity and Interest Rate
Sensitivity. The repayment of loans as they
mature is a source of liquidity for us. The following table sets
forth our loans by category maturing within specified intervals
at December 31, 2008. The information presented is based on
the contractual maturities of the individual loans, including
loans which may be subject to renewal at their contractual
maturity. Renewal of such loans is subject to review and credit
approval, as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly
the maturity and repricing of the loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Structure for Loans
|
|
|
|
|
|
|
Over One Year
|
|
|
|
|
|
|
|
|
Maturing Over One Year
|
|
|
|
One Year
|
|
|
through Five
|
|
|
Over Five
|
|
|
|
|
|
Fixed
|
|
|
Floating or
|
|
|
|
or Less
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
Interest Rate
|
|
|
Adjustable Rate
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
142,138
|
|
|
$
|
61,413
|
|
|
$
|
3,821
|
|
|
$
|
207,372
|
|
|
$
|
26,518
|
|
|
$
|
38,716
|
|
Real estate construction and land development
|
|
|
441,400
|
|
|
|
161,280
|
|
|
|
34,907
|
|
|
|
637,587
|
|
|
|
89,523
|
|
|
|
106,664
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
160,349
|
|
|
|
118,726
|
|
|
|
376,141
|
|
|
|
655,216
|
|
|
|
161,874
|
|
|
|
332,993
|
|
Commercial
|
|
|
194,589
|
|
|
|
286,894
|
|
|
|
210,664
|
|
|
|
692,147
|
|
|
|
219,511
|
|
|
|
278,047
|
|
Other
|
|
|
23,904
|
|
|
|
24,847
|
|
|
|
16,993
|
|
|
|
65,744
|
|
|
|
20,223
|
|
|
|
21,617
|
|
Consumer
|
|
|
13,830
|
|
|
|
43,010
|
|
|
|
1,037
|
|
|
|
57,877
|
|
|
|
43,162
|
|
|
|
885
|
|
Other
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
977,182
|
|
|
$
|
696,170
|
|
|
$
|
643,563
|
|
|
$
|
2,316,915
|
|
|
$
|
560,811
|
|
|
$
|
778,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent to total loans
|
|
|
42.2
|
%
|
|
|
30.0
|
%
|
|
|
27.8
|
%
|
|
|
100.0
|
%
|
|
|
24.2
|
%
|
|
|
33.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of Time Deposits of $100,000 or
More. The maturity distribution of our time
deposits over $100,000 at December 31, 2008 is shown in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
Under
|
|
|
3-6
|
|
|
6-12
|
|
|
Over
|
|
|
|
|
3 Months
|
|
|
Months
|
|
|
Months
|
|
|
12 Months
|
|
|
Total
|
|
(Dollars in thousands)
|
|
|
$
|
199,223
|
|
|
$
|
152,223
|
|
|
$
|
204,002
|
|
|
$
|
106,727
|
|
|
$
|
662,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 30.1% of our time deposits over $100,000 had
scheduled maturities within three months of December 31,
2008. (These amounts include brokered CDs and State of Alabama
Time Demand Open Account). We believe customers who hold a large
denomination certificate of deposit tend to be extremely
sensitive to interest rate levels, making these deposits a less
reliable source of funding for liquidity planning purposes than
core deposits.
Cash Flow Analysis. As shown in the
Consolidated Statements of Cash Flows, operating activities
provided $26 million, $3.7 million and
$6.4 million in funds during the years 2008, 2007 and 2006,
respectively. The significant increase in operating funds during
2008 is primarily due to a net increase in the proceeds from the
sale of mortgage loans held for sale over a net use of funds
from the origination of mortgage loans held for sale during
2007. The volume of mortgage loans originated for sale is
expected to increase significantly during 2009 due to increased
demand for refinancing. The net effect on operating funds will
vary depending on the volume of originations and the timing of
receipt of the sale proceeds, which is usually 30 to
45 days.
Investing activities in 2008, 2007 and 2006 were a net user of
funds, primarily due to loan fundings and capital expenditures.
During 2007, we received a higher level of funds from principal
payments and calls in our investment portfolio. During 2006, a
significant amount of securities that were acquired as part of
our business combinations were sold and reinvested in loans and
additional investment securities, continuing our strategy of
realigning our balance sheet which we began in 2005.
51
Financing activities were a net provider of funds in 2008, 2007
and 2006, as we increased our level of deposits. During 2008, we
also had significant increases in our borrowings from the FHLB
and received $69 million from the issuance of preferred
stock under the TARP Capital Purchase Program. During 2007, the
increase in deposit funding was offset by a decrease in
borrowings and the purchase of treasury stock. During 2006, the
increase in deposits was offset by the restructuring of FHLB
advances and maturity of repurchase agreements acquired in our
business combinations.
Contractual Cash Obligations. We have entered
into certain contractual obligations and commercial commitments
in the normal course of business that involve elements of credit
risk, interest rate risk and liquidity risk.
The following tables summarize these relationships by
contractual cash obligations and commercial commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
After Five
|
|
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(Dollars in thousands)
|
|
|
Contractual Cash Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from FHLB(1)
|
|
$
|
361,324
|
|
|
$
|
142,984
|
|
|
$
|
85,000
|
|
|
$
|
101,340
|
|
|
$
|
32,000
|
|
Operating leases(2)
|
|
|
21,025
|
|
|
|
3,080
|
|
|
|
4,690
|
|
|
|
2,632
|
|
|
|
10,623
|
|
Capitalized leases(2)
|
|
|
4,826
|
|
|
|
301
|
|
|
|
544
|
|
|
|
521
|
|
|
|
3,460
|
|
Note payable(3)
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements(4)
|
|
|
3,563
|
|
|
|
3,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures(5)
|
|
|
62,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,579
|
|
Cumulative preferred stock dividends through first call date(6)
|
|
|
17,250
|
|
|
|
3,258
|
|
|
|
10,350
|
|
|
|
3,642
|
|
|
|
|
|
Limited partnership investments(7)
|
|
|
2,241
|
|
|
|
2,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation agreements(8)
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,312
|
|
Other employment related contract obligations incurred in
business combinations(9)
|
|
|
1,943
|
|
|
|
1,113
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
Benefit Restoration Plan(10)
|
|
|
491
|
|
|
|
56
|
|
|
|
108
|
|
|
|
103
|
|
|
|
224
|
|
Income tax obligations under FIN 48(11)
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
485,354
|
|
|
$
|
164,396
|
|
|
$
|
101,522
|
|
|
$
|
108,238
|
|
|
$
|
111,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 8 to the Consolidated Financial Statements. |
|
(2) |
|
See Note 6 to the Consolidated Financial Statements. |
|
(3) |
|
See Note 10 to the Consolidated Financial Statements. |
|
(4) |
|
See Note 9 to the Consolidated Financial Statements. |
|
(5) |
|
See Note 11 to the Consolidated Financial Statements. |
|
(6) |
|
See Note 27 to the Consolidated Financial Statements. |
|
(7) |
|
See Note 1 to the Consolidated Financial Statements. |
|
(8) |
|
See Note 13 to the Consolidated Financial Statements. |
|
(9) |
|
See Note 2 to the Consolidated Financial Statements. |
|
(10) |
|
See Note 20 to the Consolidated Financial Statements. |
|
(11) |
|
See Note 14 to the Consolidated Financial Statements. |
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
After Five
|
|
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit(1)
|
|
$
|
355,243
|
|
|
$
|
195,373
|
|
|
$
|
105,622
|
|
|
$
|
14,184
|
|
|
$
|
40,064
|
|
Standby letters of credit(1)
|
|
|
35,636
|
|
|
|
27,765
|
|
|
|
7,737
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
390,879
|
|
|
$
|
223,138
|
|
|
$
|
113,359
|
|
|
$
|
14,318
|
|
|
$
|
40,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 17 to the Consolidated Financial Statements. |
In addition, the FHLB has issued for the Banks benefit a
$20 million irrevocable letter of credit in favor of the
Chief Financial Officer of the State of Florida to secure
certain deposits of the State of Florida. The letter of credit
expires January 5, 2010 upon 60 days prior
notice of non-renewal; otherwise, it automatically extends for a
successive one-year term.
We are constructing or have plans to construct various new
branch locations. In that regard, we have remaining commitments
as of, or subsequent to, December 31, 2008 for the
construction of these branch locations totaling approximately
$552,000.
Financial
Condition
Our total assets were $3.053 billion at December 31,
2008, an increase of $167 million, or 5.8%, from
$2.885 billion as of December 31, 2007. This growth is
primarily attributable to an increase in our loan portfolio, as
discussed below. Our average total assets for 2008 were
$3.010 billion, which was supported by average total
liabilities of $2.660 billion and average total
stockholders equity of $350 million.
Recent
Acquisitions
Peoples Acquisition. We completed the
acquisition of 100% of the outstanding stock of Peoples of
Sarasota, Florida on July 27, 2007 in exchange for
1,658,781 shares of our common stock valued at
approximately $74.0 million. The shares were valued by
using the average of the closing prices of our 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 $76.4 million. As a
result of the acquisition, we now operate three banking
locations in Sarasota and Manatee Counties, Florida. This area
is a significant addition to our Florida market, which was
expanded in 2006 by the Kensington acquisition discussed below.
The Peoples transaction resulted in $47.3 million of
goodwill allocated to the Florida reporting unit and
$9.8 million of core deposit intangibles. The goodwill
acquired is not tax-deductible. The amount allocated to the core
deposit intangible is being amortized over an estimated useful
life of ten years based on the undiscounted cash flow.
53
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
3,854
|
|
Federal funds sold
|
|
|
4,200
|
|
Investment securities
|
|
|
47,684
|
|
Loans, net
|
|
|
254,047
|
|
Premises and equipment, net
|
|
|
2,318
|
|
Goodwill
|
|
|
47,313
|
|
Core deposit intangibles
|
|
|
9,810
|
|
Other assets
|
|
|
10,478
|
|
Deposits
|
|
|
(245,459
|
)
|
Federal funds purchased and repurchase agreements
|
|
|
(6,905
|
)
|
Advances from FHLB
|
|
|
(37,983
|
)
|
Junior subordinated debentures
|
|
|
(3,962
|
)
|
Other liabilities
|
|
|
(8,966
|
)
|
|
|
|
|
|
Total consideration paid for Peoples
|
|
$
|
76,429
|
|
|
|
|
|
|
Community Acquisition. We completed the
acquisition of 100% of the outstanding stock of Community
Bancshares, Inc. (Community) of Blountsville,
Alabama on November 7, 2006 in exchange for
2,018,045 shares of our common stock valued at
approximately $91.8 million. The shares were valued by
using the average of the closing prices of our 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 and cash payments due for the
cancellation of stock options totaled $97.2 million. As a
result of the acquisition, we added 18 banking locations and 15
consumer finance company locations in the State of Alabama.
The Community transaction resulted in $60.2 million of
goodwill allocated to the Alabama reporting unit and
$10.1 million of core deposit intangibles. The goodwill
acquired is not tax deductible. The amount allocated to the core
deposit intangible is being amortized over an estimated useful
life of ten years based on the undiscounted cash flow.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
23,167
|
|
Federal funds sold
|
|
|
35,273
|
|
Investment securities
|
|
|
117,424
|
|
Loans, net
|
|
|
337,148
|
|
Premises and equipment, net
|
|
|
22,529
|
|
Goodwill
|
|
|
60,148
|
|
Core deposit intangibles
|
|
|
10,142
|
|
Other assets
|
|
|
21,185
|
|
Deposits
|
|
|
(431,334
|
)
|
FHLB advances
|
|
|
(68,801
|
)
|
Junior subordinated debentures
|
|
|
(12,047
|
)
|
Other liabilities
|
|
|
(17,634
|
)
|
|
|
|
|
|
Total consideration paid for Community
|
|
$
|
97,200
|
|
|
|
|
|
|
Kensington Acquisition. We completed the
acquisition of 100% of the outstanding stock of Kensington on
August 31, 2006 in exchange for 1,556,680 shares of
our common stock valued at approximately $71.2 million. The
shares were valued by using the average of the closing prices of
our stock for several days prior to and after the terms
54
of the acquisition were agreed to and announced. The total
purchase price, which includes certain direct acquisition costs,
was $71.4 million As a result of the acquisition, we now
operate 12 banking locations in the Tampa Bay area of Florida.
This area will be our largest market and has a higher projected
population growth than any of our current banking markets.
The Kensington transaction resulted in $44.5 million of
goodwill allocated to the Florida reporting unit and
$3.5 million of core deposit intangibles. The goodwill
acquired is not tax deductible. The amount allocated to the core
deposit intangible is being amortized over an estimated useful
life of ten years based on the undiscounted cash flow.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
4,454
|
|
Federal funds sold
|
|
|
964
|
|
Investment securities
|
|
|
180,151
|
|
Loans, net
|
|
|
136,826
|
|
Premises and equipment, net
|
|
|
5,397
|
|
Goodwill
|
|
|
44,470
|
|
Core deposit intangibles
|
|
|
3,544
|
|
Other assets
|
|
|
5,128
|
|
Deposits
|
|
|
(276,186
|
)
|
Repurchase agreements
|
|
|
(30,050
|
)
|
Other liabilities
|
|
|
(3,326
|
)
|
|
|
|
|
|
Total consideration paid for Kensington
|
|
$
|
71,372
|
|
|
|
|
|
|
Loans,
net of unearned income.
Composition of Loan Portfolios, Yield Changes and
Diversification Our loans, net of unearned
income, totaled $2.315 billion at December 31, 2008,
an increase of 14.7%, or $298 million, from
$2.017 billion at December 31, 2007. Mortgage loans
held for sale totaled $22.0 million at December 31,
2008, a decrease of $11.3 million from $33.4 million
at December 31, 2007. Average loans, including mortgage
loans held for sale, totaled $2.173 billion for 2008,
compared to $1.839 billion for 2007. Loans, net of unearned
income, comprised 84.4% of interest-earning assets at
December 31, 2008, compared to 82.2% at December 31,
2007. Mortgage loans held for sale comprised 0.8% of
interest-earning assets at December 31, 2008, compared to
1.4% at December 31, 2007. The average yield of the loan
portfolio was 6.77%, 8.18% and 7.87% for the years ended
December 31, 2008, 2007 and 2006, respectively. The
decrease in average yield is primarily the result of a generally
lower level of market rates that prevailed throughout 2008.
Our focus in business development has been toward increasing
commercial and industrial lending and have continued to seek
attractive commercial development loans, which we believe
continue to be profitable if properly underwritten.
55
The following table details the distribution of our loan
portfolio by category for the periods presented:
Distribution
of Loans by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
207,372
|
|
|
$
|
183,013
|
|
|
$
|
172,872
|
|
|
$
|
135,454
|
|
|
$
|
134,688
|
|
Real estate construction and land development(1)
|
|
|
637,587
|
|
|
|
665,303
|
|
|
|
547,772
|
|
|
|
326,418
|
|
|
|
249,715
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family(2)
|
|
|
655,216
|
|
|
|
540,277
|
|
|
|
456,341
|
|
|
|
243,183
|
|
|
|
250,758
|
|
Commercial
|
|
|
692,147
|
|
|
|
533,611
|
|
|
|
362,542
|
|
|
|
210,611
|
|
|
|
242,884
|
|
Other
|
|
|
65,744
|
|
|
|
41,535
|
|
|
|
46,895
|
|
|
|
27,503
|
|
|
|
25,764
|
|
Consumer
|
|
|
57,877
|
|
|
|
53,377
|
|
|
|
54,462
|
|
|
|
21,122
|
|
|
|
32,009
|
|
Other
|
|
|
972
|
|
|
|
1,235
|
|
|
|
438
|
|
|
|
498
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,316,915
|
|
|
|
2,018,351
|
|
|
|
1,641,322
|
|
|
|
964,789
|
|
|
|
936,385
|
|
Unearned income
|
|
|
(1,994
|
)
|
|
|
(1,340
|
)
|
|
|
(1,794
|
)
|
|
|
(1,536
|
)
|
|
|
(1,517
|
)
|
Allowance for loan losses
|
|
|
(28,850
|
)
|
|
|
(22,868
|
)
|
|
|
(18,892
|
)
|
|
|
(12,011
|
)
|
|
|
(12,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
2,286,071
|
|
|
$
|
1,994,143
|
|
|
$
|
1,620,636
|
|
|
$
|
951,242
|
|
|
$
|
922,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A further analysis of the components of our real estate
construction and land development loans as of December 31,
2008 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
Geographic Location
|
|
Development
|
|
|
Development
|
|
|
Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
$
|
173,579
|
|
|
$
|
76,315
|
|
|
$
|
17,830
|
|
|
$
|
267,724
|
|
Florida
|
|
|
141,003
|
|
|
|
201,688
|
|
|
|
13,573
|
|
|
|
356,264
|
|
Other
|
|
|
122
|
|
|
|
13,477
|
|
|
|
|
|
|
|
13,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
314,704
|
|
|
$
|
291,480
|
|
|
$
|
31,403
|
|
|
$
|
637,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
$
|
192,133
|
|
|
$
|
60,407
|
|
|
$
|
16,003
|
|
|
$
|
268,543
|
|
Florida
|
|
|
195,460
|
|
|
|
162,286
|
|
|
|
18,564
|
|
|
|
376,310
|
|
Other
|
|
|
7,929
|
|
|
|
12,521
|
|
|
|
|
|
|
|
20,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
395,522
|
|
|
$
|
235,214
|
|
|
$
|
34,567
|
|
|
$
|
665,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
During the second quarter of 2008 we purchased a pool of
seasoned residential mortgage loans totaling approximately
$52 million. |
Additional information and analysis regarding our loan portfolio
is included in the Business Section, Item 1, Part 1,
under the heading Loan Portfolio.
The following table shows the amount of total loans, net of
unearned income, by segment and the percent change for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Total loans, net of unearned income
|
|
$
|
2,314,921
|
|
|
$
|
2,017,011
|
|
|
|
14.77
|
%
|
Alabama Region
|
|
|
980,418
|
|
|
|
908,292
|
|
|
|
7.94
|
|
Florida Region
|
|
|
1,060,994
|
|
|
|
932,478
|
|
|
|
13.78
|
|
Other see note 2 above
|
|
|
273,509
|
|
|
|
176,241
|
|
|
|
55.19
|
|
56
Allowance
for Loan Losses
Overview. It is the responsibility of
management to assess and maintain the allowance for loan losses
at a level it believes is appropriate to absorb the estimated
credit losses within our loan portfolio through the provision
for loan losses. The determination of our allowance for loan
losses is based on managements analysis of the credit
quality of the loan portfolio including its judgment
regarding certain internal and external factors that affect loan
collectibility. This process is performed on a quarterly basis
under the oversight of the board of directors. The estimation of
the allowance for loan losses is based on two basic
components those estimations calculated in
accordance with the requirements of SFAS 5 and those
specific impairments under SFAS 114 (see discussions
below). The calculation of the allowance for loan losses is
inherently subjective and actual losses could be greater or less
than the estimates.
SFAS 5. Under SFAS 5 estimated
losses on all loans that have not been identified with specific
impairment, under SFAS 114, are calculated based on the
historical loss ratios applied to our standard loan categories
using a four-year rolling average, adjusted for certain
qualitative factors, as shown below. In addition to these
standard loan categories, management may identify other areas of
risk based on its analysis of such qualitative factors and
estimate additional losses as it deems necessary. The
qualitative factors that management uses in its estimate include
but are not limited to the following:
|
|
|
|
|
trends in volume.
|
|
|
effects of changes in credit concentrations.
|
|
|
levels of and trends in delinquencies, classified loans, and
non-performing assets.
|
|
|
levels of and trends in charge-offs and recoveries.
|
|
|
changes in lending policies and underwriting guidelines.
|
|
|
national and local economic trends and condition.
|
|
|
mergers and acquisitions.
|
SFAS 114. Pursuant to
SFAS No. 114, impaired loans are loans which are
specifically reviewed and 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. Our Credit Administration department
maintains supporting documentation regarding collateral
valuations
and/or
discounted cash flow analyses.
Allocation of the Allowance for loan
losses. The allowance for loan losses calculation
is segregated into various segments that include specific
allocations for loans, portfolio segments and general
allocations for portfolio risk.
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. Credit Administration
relies upon the independent work of Loan review in risk rating
in developing its recommendations to the Audit Committee of the
Board of Directors for the allocation of the allowance for loan
losses, and performs this function independent of the lending
area of the Bank.
We historically have allocated our allowance for loan losses to
specific loan categories. Although the allowance for loan losses
is allocated, it is available to absorb losses in the entire
loan portfolio. This allocation is made for estimation purposes
only and is not necessarily indicative of the allocation between
categories in which future losses may occur, nor is it limited
to the categories to which it is allocated.
57
Allocation
of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
2,136
|
|
|
|
8.9
|
%
|
|
$
|
2,697
|
|
|
|
9.1
|
%
|
|
$
|
3,719
|
|
|
|
10.5
|
%
|
|
$
|
3,805
|
|
|
|
14.0
|
%
|
|
$
|
3,736
|
|
|
|
14.1
|
%
|
Real estate construction and land development
|
|
|
12,168
|
|
|
|
27.5
|
|
|
|
9,396
|
|
|
|
33.0
|
|
|
|
3,425
|
|
|
|
33.4
|
|
|
|
1,275
|
|
|
|
33.8
|
|
|
|
1,009
|
|
|
|
26.6
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
7,159
|
|
|
|
28.3
|
|
|
|
2,360
|
|
|
|
26.8
|
|
|
|
2,910
|
|
|
|
27.8
|
|
|
|
1,395
|
|
|
|
25.2
|
|
|
|
1,582
|
|
|
|
26.8
|
|
Commercial
|
|
|
5,155
|
|
|
|
29.9
|
|
|
|
6,781
|
|
|
|
26.4
|
|
|
|
6,206
|
|
|
|
22.0
|
|
|
|
4,194
|
|
|
|
21.8
|
|
|
|
4,594
|
|
|
|
25.9
|
|
Other
|
|
|
532
|
|
|
|
2.9
|
|
|
|
155
|
|
|
|
2.1
|
|
|
|
530
|
|
|
|
2.9
|
|
|
|
215
|
|
|
|
2.9
|
|
|
|
257
|
|
|
|
2.7
|
|
Consumer
|
|
|
1,700
|
|
|
|
2.5
|
|
|
|
1,479
|
|
|
|
2.6
|
|
|
|
2,102
|
|
|
|
3.4
|
|
|
|
1,127
|
|
|
|
2.3
|
|
|
|
1,365
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,850
|
|
|
|
100.0
|
%
|
|
$
|
22,868
|
|
|
|
100.0
|
%
|
|
$
|
18,892
|
|
|
|
100.0
|
%
|
|
$
|
12,011
|
|
|
|
100.0
|
%
|
|
$
|
12,543
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance as a percentage of loans, net of unearned income,
at December 31, 2008 was 1.25%, compared to 1.13% as of
December 31, 2007. Net charge-offs increased
$2.8 million, from $4.3 million in 2007 to
$7.1 million in 2008. Net charge-offs of commercial loans
decreased $906,000, from $764,000 in 2007 to ($142,000) (a net
recovery) in 2008. Net charge-offs of real estate loans
increased $3.1 million, from $1.8 million in 2007 to
$4.9 million in 2008. Net charge-offs of consumer loans
increased $574,000, to $2.31 million in 2008 from
$1.75 million in 2007. Net charge-offs as a percentage of
the allowance for loan losses were 24.71% in 2007, up from
18.72% in 2007.
Real estate construction and development loans are loans where
real estate developers acquired raw land with the intent of
developing the land into either residential or commercial
property. These loans are highly dependent upon development of
the property as the primary source of repayment with the
collateral disposal
and/or
guarantor strength as the secondary source, thus the borrowers
are dependent upon the completion of the project, the sale of
the property, or their own personal cash flow to service the
debt. Both the Tampa and Sarasota-Bradenton markets in the
Florida Region have been affected by the current downturn. The
Florida Region condominium portfolio, particularly vacation/
resort style projects located on the Florida coast, has been
most affected by the downturn. Inventory levels for unsold units
have been consistently high with an increasing number of
condominiums that came on-line in the first half of 2008.
During 2008, management increased its allowance for loan losses
related to construction and land development real estate loans
as a result of the increasing levels of risk associated with the
general economic conditions related to construction and land
development real estate portfolio throughout our franchise.
Within this construction and land development portfolio,
approximately $315 million, or 49%, was related to
residential development and construction. Of the residential
purpose loans, 45% were located in the Florida Region at
December 31, 2008 with the remainder in the Alabama Region.
The largest category in the residential development and
construction portfolio is related to development of
single-family lots and single-family lots held by experienced,
licensed builders for the future construction of single-family
homes. This category represents approximately $111 million,
or 35%, of this portfolio. Construction loans related to
income-producing properties accounted for $175 million, or
60% of the total commercial construction and development loans.
Geographically, approximately 69% of this category was located
in the Florida Region, with the remaining loans located
primarily in the Alabama Region.
Our allocation of the allowance for loan losses related to
single family mortgage loans increased $4.8 million to
$7.2 million at December 31, 2008 from
$2.4 million at December 31, 2007. This allocation is
reflective of the increased risk exposure due to the current
downturn in the national economy and the effect on the housing
sector which has increased our foreclosure activity within this
portfolio. During 2008, we foreclosed on approximately
$5.0 million in single family homes, up $3.7 million
from 2007; $924 thousand or 18% of the total foreclosures
58
were located in Florida Region; the remaining $4.1 million,
or 82% were located in the Alabama Region. With the increase in
foreclosures our total net charge-offs for this category
increased $1.4 million to $2.4 million; approximately
$1.1 million, or 47%, of the total charge-offs were located
in the Florida Region and the remainder in the Alabama Region.
Another factor resulting in an increase in allocation was the
level of single family nonperforming loans. At December 31,
2008, single family mortgages accounted for $22.7 million,
or 35%, of the total non-performing loans; up $14.7 million
from $8.1 million as of December 31, 2007. Of this
amount approximately 50% were located in the Florida Region and
the remainder in the Alabama Region. The overall increases in
loss experience, nonperforming loans and deflationary pressure
on home values influenced managements risk assessment and
decision to increase the allocation of the allowance for loan
losses for single family mortgages during 2008.
Our consumer loan charge-offs were higher during 2008 than in
previous periods, primarily due to the increased losses in our
consumer finance companies, which accounted for approximately
$1.7 million, or 74.6%, of the total net consumer loan
charge-offs. Going forward, we expect these losses to continue
to be a substantial portion of the overall consumer loan losses;
however, we believe the increased risk associated with these
loans is offset by their higher yield.
The allowance for loan losses as a percentage of nonperforming
loans decreased to 44.1% at December 31, 2008 from 90.3% at
December 31, 2007. Approximately $4.8 million of the
allowance for loan losses has been allocated to nonperforming
loans as of December 31, 2008. As of December 31,
2008, nonperforming loans totaled $65.4 million, of which
$63.9 million, or 97.8%, were loans secured by real estate
compared to $24.2 million, or 95.4%, as of
December 31, 2007. (See Nonperforming Assets).
Despite the overall decline in the allowance for loan losses as
a percentage of nonperforming loans, management believes the
overall allowance for loan losses to be adequate.
59
Summary of Loan Loss Experience. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance for loan losses at beginning of year
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
$
|
25,174
|
|
Allowance of acquired banks
|
|
|
|
|
|
|
3,717
|
|
|
|
6,697
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
504
|
|
|
|
1,162
|
|
|
|
1,450
|
|
|
|
2,097
|
|
|
|
7,690
|
|
Real estate construction and land development
|
|
|
2,095
|
|
|
|
301
|
|
|
|
378
|
|
|
|
358
|
|
|
|
765
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
2,460
|
|
|
|
1,149
|
|
|
|
625
|
|
|
|
795
|
|
|
|
1,012
|
|
Commercial
|
|
|
411
|
|
|
|
724
|
|
|
|
416
|
|
|
|
1,432
|
|
|
|
5,820
|
|
Other
|
|
|
241
|
|
|
|
206
|
|
|
|
15
|
|
|
|
85
|
|
|
|
86
|
|
Consumer
|
|
|
2,490
|
|
|
|
2,117
|
|
|
|
860
|
|
|
|
630
|
|
|
|
1,881
|
|
Other
|
|
|
243
|
|
|
|
63
|
|
|
|
2
|
|
|
|
345
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
8,444
|
|
|
|
5,722
|
|
|
|
3,746
|
|
|
|
5,742
|
|
|
|
17,341
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
646
|
|
|
|
398
|
|
|
|
465
|
|
|
|
413
|
|
|
|
1,468
|
|
Real estate construction and land development
|
|
|
44
|
|
|
|
286
|
|
|
|
126
|
|
|
|
37
|
|
|
|
4
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
89
|
|
|
|
174
|
|
|
|
102
|
|
|
|
335
|
|
|
|
470
|
|
Commercial
|
|
|
128
|
|
|
|
70
|
|
|
|
363
|
|
|
|
526
|
|
|
|
737
|
|
Other
|
|
|
71
|
|
|
|
82
|
|
|
|
73
|
|
|
|
118
|
|
|
|
97
|
|
Consumer
|
|
|
181
|
|
|
|
382
|
|
|
|
301
|
|
|
|
280
|
|
|
|
549
|
|
Other
|
|
|
155
|
|
|
|
48
|
|
|
|
|
|
|
|
1
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,314
|
|
|
|
1,440
|
|
|
|
1,430
|
|
|
|
1,710
|
|
|
|
3,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
7,130
|
|
|
|
4,282
|
|
|
|
2,316
|
|
|
|
4,032
|
|
|
|
13,606
|
|
Provision for loan losses
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of year
|
|
$
|
28,850
|
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of unearned income
|
|
$
|
2,314,921
|
|
|
$
|
2,017,011
|
|
|
$
|
1,639,528
|
|
|
$
|
963,253
|
|
|
$
|
934,868
|
|
Average loans, net of unearned income
|
|
|
2,147,524
|
|
|
|
1,814,032
|
|
|
|
1,176,844
|
|
|
|
947,212
|
|
|
|
894,406
|
|
Ratio of ending allowance to ending loans
|
|
|
1.25
|
%
|
|
|
1.13
|
%
|
|
|
1.15
|
%
|
|
|
1.25
|
%
|
|
|
1.34
|
%
|
Ratio of net charge-offs to average loans
|
|
|
0.33
|
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
0.43
|
|
|
|
1.52
|
|
Net charge-offs as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
54.38
|
|
|
|
94.30
|
|
|
|
92.64
|
|
|
|
115.20
|
|
|
|
1,395.49
|
|
Allowance for loan losses
|
|
|
24.71
|
|
|
|
18.72
|
|
|
|
12.26
|
|
|
|
33.57
|
|
|
|
108.47
|
|
Allowance for loan losses as a percentage of nonperforming loans
|
|
|
44.12
|
|
|
|
90.31
|
|
|
|
219.88
|
|
|
|
252.76
|
|
|
|
169.36
|
|
Nonperforming Assets. Nonperforming assets
increased $55.9 million, to $85.6 million as of
December 31, 2008 from $29.7 million as of
December 31, 2007. As a percentage of net loans plus
nonperforming assets,
60
nonperforming assets increased to 3.67% at December 31,
2008 from 1.47% at December 31, 2007. The overall increase
in nonperforming assets was primarily related to construction
and land development, commercial real estate and residential
mortgage loan portfolios. Within each category, credits
and/or
properties, greater than $1.0 million, accounted for a
significant portion of the overall increase in nonperforming
assets during 2008. The increase in the construction category
includes five Florida construction credits, totaling
$12.9 million, and two Alabama residential construction
properties, totaling $6.3 million, accounting for 22% of
the overall increase in nonperforming assets. The commercial
real estate increase includes three Florida commercial real
estate properties totaling $7.0 million or 8% of the total
increase. The overall increase in the residential mortgage
category is primarily driven by single family residences with
limited loss exposure. Approximately 70% of the total increase
in nonperforming assets was related to loans with balances under
$1.0 million with an average exposure of $146,000.
Management continues to actively work to mitigate the risks of
loss across all categories of the loan portfolio. We see a
continued weakness in the Sarasota, Florida market and some
improvement in the Northwest Florida market. At year-end 2008,
of our total nonperforming credits, only 12 are in excess of
$1.0 million in principal balance, which gives evidence of
the granularity of this portfolio and explains our approach of
liquidating it on a parcel-by parcel basis rather than in large
tract sales. The largest single nonperforming credit in our
portfolio is $4.9 million in the Sarasota market. The
following table shows our nonperforming assets for the dates
shown:
Nonperforming
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Nonaccrual
|
|
$
|
54,712
|
|
|
$
|
22,533
|
|
|
$
|
7,773
|
|
|
$
|
4,550
|
|
|
$
|
6,344
|
|
Accruing loans 90 days or more delinquent
|
|
|
8,033
|
|
|
|
2,117
|
|
|
|
514
|
|
|
|
49
|
|
|
|
431
|
|
Restructured
|
|
|
2,643
|
|
|
|
671
|
|
|
|
305
|
|
|
|
153
|
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
65,388
|
|
|
|
25,321
|
|
|
|
8,592
|
|
|
|
4,752
|
|
|
|
7,406
|
|
Other real estate owned
|
|
|
19,971
|
|
|
|
4,277
|
|
|
|
1,684
|
|
|
|
1,842
|
|
|
|
4,906
|
|
Repossessed assets
|
|
|
332
|
|
|
|
138
|
|
|
|
137
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
85,691
|
|
|
$
|
29,736
|
|
|
$
|
10,413
|
|
|
$
|
6,594
|
|
|
$
|
12,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans
|
|
|
2.82
|
%
|
|
|
1.26
|
%
|
|
|
.52
|
%
|
|
|
.49
|
%
|
|
|
.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming
assets
|
|
|
3.67
|
%
|
|
|
1.47
|
%
|
|
|
.63
|
%
|
|
|
.68
|
%
|
|
|
1.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets
|
|
|
2.81
|
%
|
|
|
1.03
|
%
|
|
|
.43
|
%
|
|
|
.47
|
%
|
|
|
.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category
for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
2,809
|
|
|
$
|
1,058
|
|
|
$
|
704
|
|
|
$
|
988
|
|
|
$
|
2,445
|
|
Real estate construction and land development
|
|
|
20,976
|
|
|
|
10,569
|
|
|
|
2,067
|
|
|
|
469
|
|
|
|
187
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
22,730
|
|
|
|
8,069
|
|
|
|
2,805
|
|
|
|
2,448
|
|
|
|
2,060
|
|
Commercial
|
|
|
14,686
|
|
|
|
4,045
|
|
|
|
1,765
|
|
|
|
675
|
|
|
|
2,273
|
|
Other
|
|
|
2,981
|
|
|
|
805
|
|
|
|
688
|
|
|
|
11
|
|
|
|
183
|
|
Consumer
|
|
|
723
|
|
|
|
775
|
|
|
|
559
|
|
|
|
161
|
|
|
|
250
|
|
Other
|
|
|
483
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
65,388
|
|
|
$
|
25,321
|
|
|
$
|
8,592
|
|
|
$
|
4,752
|
|
|
$
|
7,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A delinquent loan is ordinarily placed on nonaccrual status no
later than when it becomes 90 days 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 non-
61
accrual status, all unpaid interest which has been accrued on
the loan during the current period 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 be an actual
write-down or charge-off of the principal balance of the loan to
the allowance for loan losses.
The following is a summary of other real estate owned and
repossessed assets by category for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate construction and land development
|
|
$
|
13,915
|
|
|
$
|
1,253
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
4,505
|
|
|
|
2,874
|
|
Commercial
|
|
|
896
|
|
|
|
90
|
|
Other
|
|
|
987
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned and repossessed assets
|
|
$
|
20,303
|
|
|
$
|
4,415
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans. At December 31, 2008, our
recorded investment in impaired loans under SFAS 114
totaled $52.9 million, an increase of $30.5 million
from $22.3 million at December 31, 2007. Approximately
$16.1 million is located in the Alabama Region and
$36.8 million is located in the Florida Region.
Approximately $5.1 million of the allowance for loan losses
is specifically allocated to these loans, providing 9.6%
coverage. Additionally, $52.3 million, or 99.0%, of the
$52.9 million in impaired loans is secured by real estate.
The following is a summary of impaired loans and the
specifically allocated allowance for loan losses by category as
of December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Outstanding
|
|
|
Specific
|
|
|
Outstanding
|
|
|
Specific
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
515
|
|
|
$
|
42
|
|
|
$
|
877
|
|
|
$
|
56
|
|
Real estate construction and land development
|
|
|
18,155
|
|
|
|
1,570
|
|
|
|
11,105
|
|
|
|
881
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
18,063
|
|
|
|
2,251
|
|
|
|
4,553
|
|
|
|
19
|
|
Commercial
|
|
|
15,615
|
|
|
|
1,173
|
|
|
|
4,972
|
|
|
|
464
|
|
Other
|
|
|
532
|
|
|
|
70
|
|
|
|
787
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,880
|
|
|
$
|
5,106
|
|
|
$
|
22,294
|
|
|
$
|
1,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to
nonperforming loans, management has identified
$20.5 million in potential problem loans as of
December 31, 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 disclosure of such loans as nonperforming in
future periods. The majority of these loans are located along
the west coast of Florida which has been considerably affected
by the recent downturn in the real estate markets. Management is
actively working a plan of action to ensure that any loss
exposure is mitigated and will continue to monitor their
respective cash flow positions.
Changes in Lending Policies and Procedures, Including
Underwriting Standards. Since 2005, we have
undergone significant changes in our underwriting standards with
the establishment of a centralized underwriting group that
underwrites and approves small business and consumer loans using
FICO scoring models. In addition, with our recent mergers the
threshold for large credit requests with Total Credit Exposures
(TCEs) increased to a minimum of $2.0 million for review
and approval by Regional Loan Committee on a weekly basis; in
addition, credits with TCE exceeding $10 million are
reviewed and approved by the Executive Loan Committee and the
Board Loan and Investment Committee as needed. Credit
Administration is responsible for identifying and reporting all
loans that are underwritten outside of these two processes to
executive management and Loan Review.
62
In recent months, in conjunction with changes in the economic
and credit cycles, we have adjusted our underwriting standards.
In particular, we have been more selective in the number and
type of loans that are made. We are requiring more
relationship-driven deals, where we are the primary, and in many
cases, the only banking relationship for these prospective
customers. All of these changes are intended to further
strengthen our positions and mitigate the associated risks in
the current economic environment.
Investment
Portfolio.
The investment securities portfolio comprised 12.7% of our total
interest-earning assets as of December 31, 2008. Total
securities averaged $346.0 million in 2008, compared to
$350.6 million in 2007 and $274.1 million in 2006. The
investment securities portfolio produced average taxable
equivalent yields of 5.46%, 5.29%, and 4.96% for the years ended
December 31, 2008, 2007, and 2006, respectively. At
December 31, 2008, our investment securities portfolio had
an amortized cost of $356.4 million and an estimated fair
value of $347.1 million and weighted average yield of
5.14%. The acquisition of Peoples increased our tax-exempt
investments in state and political subdivisions in 2007. Our
average tax-equivalent yield on these securities was 6.46%
during 2008.
The following table sets forth the amortized costs of the
securities we held at the dates indicated.
Investment
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Available for Sale
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. agency securities
|
|
$
|
3,713
|
|
|
$
|
93,207
|
|
|
$
|
113,259
|
|
State, county and municipal securities
|
|
|
41,379
|
|
|
|
40,738
|
|
|
|
12,977
|
|
Mortgage-backed securities
|
|
|
280,447
|
|
|
|
191,202
|
|
|
|
185,814
|
|
Corporate debt
|
|
|
30,334
|
|
|
|
32,404
|
|
|
|
38,883
|
|
Other securities
|
|
|
563
|
|
|
|
4,480
|
|
|
|
6,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
356,436
|
|
|
$
|
362,031
|
|
|
$
|
357,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary Impairment
(OTTI). 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 OTTI (see below for
further discussion). The following table presents the age of
gross unrealized losses and fair value by investment category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
U.S. agency securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
249
|
|
|
$
|
2
|
|
|
$
|
249
|
|
|
$
|
2
|
|
State, county and municipal securities
|
|
|
|
|
|
|
|
|
|
|
20,937
|
|
|
|
1,202
|
|
|
|
20,937
|
|
|
|
1,202
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
46,100
|
|
|
|
4,249
|
|
|
|
46,100
|
|
|
|
4,249
|
|
Corporate debt and other securities
|
|
|
|
|
|
|
|
|
|
|
22,553
|
|
|
|
8,344
|
|
|
|
22,553
|
|
|
|
8,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
89,839
|
|
|
$
|
13,797
|
|
|
$
|
89,839
|
|
|
$
|
13,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
U.S. agency securities
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
36,633
|
|
|
$
|
75
|
|
|
$
|
37,133
|
|
|
$
|
75
|
|
State, county and municipal securities
|
|
|
15,170
|
|
|
|
331
|
|
|
|
3,659
|
|
|
|
64
|
|
|
|
18,829
|
|
|
|
395
|
|
Mortgage-backed securities
|
|
|
10,310
|
|
|
|
69
|
|
|
|
59,162
|
|
|
|
819
|
|
|
|
69,472
|
|
|
|
888
|
|
Corporate debt and other securities
|
|
|
19,224
|
|
|
|
1,056
|
|
|
|
12,874
|
|
|
|
847
|
|
|
|
32,098
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,204
|
|
|
$
|
1,456
|
|
|
$
|
112,328
|
|
|
$
|
1,805
|
|
|
$
|
157,532
|
|
|
$
|
3,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the total count by category of
investment securities with gross unrealized losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Total Number of Securities
|
|
|
|
Less Than
|
|
|
More Than
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
U.S. agency securities
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
State, county and municipal securities
|
|
|
|
|
|
|
59
|
|
|
|
59
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
Corporate debt and other securities
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
110
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides further detail of the total
investment securities portfolio at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Gain (Loss)
|
|
|
|
(In thousands)
|
|
|
U.S. agency and agency MBS AAA rated
|
|
$
|
257,946
|
|
|
$
|
261,790
|
|
|
$
|
3,844
|
|
State, county and municipal securities
|
|
|
41,379
|
|
|
|
40,622
|
|
|
|
(757
|
)
|
Non-agency MBS AAA rated
|
|
|
24,179
|
|
|
|
20,142
|
|
|
|
(4,037
|
)
|
Non-agency MBS A and B2 rated
|
|
|
2,035
|
|
|
|
2,035
|
|
|
|
|
|
Bank and pooled trust preferred securities
|
|
|
24,390
|
|
|
|
16,643
|
|
|
|
(7,747
|
)
|
Corporate securities
|
|
|
5,944
|
|
|
|
5,746
|
|
|
|
(198
|
)
|
Fannie Mae and Freddie Mac preferred stock
|
|
|
563
|
|
|
|
164
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
356,436
|
|
|
$
|
347,142
|
|
|
$
|
(9,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses associated with the U.S. agency and
agency MBS securities are caused by changes in interest rates.
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 December 31, 2008. We believe 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 December 31, 2008. We believe all contractual
cash flows on these securities will be received. During the
third and fourth quarters of 2008, we recognized a
$1.9 million, ($1.2 million, net of tax), non-cash
OTTI charge on three non-agency MBS securities which experienced
significant rating downgrades.
The bank and insurance 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
64
some market participants. Additionally, there has been little
secondary market trading for these types of securities. At
December 31, 2008, we believe that the credit quality of
these securities remains adequate to absorb further economic
declines. 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 December 31, 2008, all of the
securities are current as to principal and interest payments,
and we currently expect 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 December 31, 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
$8.1 million, ($5.1 million, net of tax), non-cash
OTTI charge on these investments during the third quarter of
2008.
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
December 31, 2008, management currently has the intent and
ability to retain investment securities with unrealized losses
until the decline in value has been recovered.
Tax lien certificates. During 2008, we
purchased $35.4 million in tax lien certificates from
various municipalities primarily in Alabama, Indiana,
Mississippi, Florida, Illinois, New Jersey and South Carolina.
In addition to these states, we had liens in Colorado and
Nebraska. Tax lien certificates are carried at cost plus accrued
interest, which approximates fair value. Tax lien certificates
and resulting deeds are classified as nonaccrual when a tax lien
certificate is 24 to 48 months delinquent from the
acquisition date, depending on the municipality. At that time,
interest ceases to be accrued. At December 31, 2008,
approximately $13.6 million in liens had a maturity date of
less than one year. As of December 31, 2008, there were no
delinquent or nonperforming liens. During 2008, approximately
$1.3 million in liens that had matured or had near term
maturities were sold to a third party. The outstanding tax lien
balances for the years ended December 31, 2008 and 2007
were $23.8 million and $15.6 million, respectively.
Property and Equipment. Property and equipment
totaled $104.1 million at December 31, 2008, a
decrease of (0.68%), or ($0.7) million, from
$104.8 million at December 31, 2007. During 2008 we
had purchases of property and equipment of approximately
$12.1 million and dispositions of approximately
$7.6 million. Our purchases were primarily related to new
branch expansion and dispositions were related to real property
sales including the sale lease-back transactions described
below. Depreciation expense for the years ended
December 31, 2008, 2007 and 2006 was $6.6 million,
$4.6 million and $3.3 million, respectively. We also
transferred property that had been held for sale totaling
approximately $1.5 million into the property and equipment
classification.
On January 30, 2008, the Bank entered into agreements with
a limited liability company, of which one of our directors is a
member, pursuant to which the limited liability company
purchased on January 31, 2008 office buildings located in
Albertville and Athens, Alabama for a total of
$4.3 million. The limited liability company then leased the
building back to the Bank. The initial term of each lease is
13 years and each 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 in the
first year is $13,240 for the Albertville office and $14,208 for
the Athens office. These amounts increase annually until the
monthly lease payments reach $17,393 for the Albertville office
and $18,666 for the Athens office in year 13. Annual rent
escalations associated with these leases are being accounted for
on a straight line basis over the lease terms. Rent for the
renewal terms is to be determined based on appraisals of the
properties. A gain of $73,000 was realized on these transactions
which will be recognized as a reduction of rental expense over
the remaining term of the leases. These transactions were
entered into in the ordinary course of business and are being
accounted for as operating leases.
As a result of our acquisitions, recent branch expansion and
related sale-leaseback transactions our operating lease
commitments have increased significantly. This has significantly
increased our rental expense during 2008 to
65
$3.7 million, a $1.2 million increase from
$2.5 million in 2007, which increased $1.2 million
from $1.3 million in 2006. Please refer to our
Liquidity discussion for the amount of future
operating lease commitments.
Deposits. Noninterest-bearing deposits totaled
$212.7 million at December 31, 2008, an increase of
2.5%, or $5.1 million, from $207.6 million at
December 31, 2007. Noninterest-bearing deposits were 9.1%
of total deposits at December 31, 2008 compared to 9.4% at
December 31, 2007.
Interest-bearing deposits totaled $2.131 billion at
December 31, 2008, an increase of 6.9%, or
$138 million, from $1.993 billion at December 31,
2007. Interest-bearing deposits averaged $2.010 billion for
the year ended December 31, 2008 compared to
$1.791 billion for the year ended December 31, 2007.
The average rate paid on all interest-bearing deposits during
2008 was 3.40%, compared to 4.45% for 2007.
The following table sets forth the composition of our total
deposit accounts at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest-bearing demand
|
|
$
|
212,732
|
|
|
$
|
207,602
|
|
|
|
2.47
|
%
|
Alabama segment
|
|
|
127,115
|
|
|
|
128,009
|
|
|
|
(0.70
|
)
|
Florida segment
|
|
|
78,639
|
|
|
|
73,061
|
|
|
|
7.63
|
|
Other
|
|
|
6,978
|
|
|
|
6,532
|
|
|
|
6.83
|
|
Interest-bearing demand
|
|
|
632,430
|
|
|
|
657,809
|
|
|
|
(3.86
|
)
|
Alabama segment
|
|
|
298,405
|
|
|
|
295,794
|
|
|
|
0.88
|
|
Florida segment
|
|
|
178,850
|
|
|
|
253,017
|
|
|
|
(29.31
|
)
|
Other
|
|
|
155,175
|
|
|
|
108,998
|
|
|
|
42.36
|
|
Savings
|
|
|
185,522
|
|
|
|
59,507
|
|
|
|
211.77
|
|
Alabama segment
|
|
|
106,946
|
|
|
|
33,919
|
|
|
|
215.30
|
|
Florida segment
|
|
|
76,449
|
|
|
|
25,056
|
|
|
|
205.11
|
|
Other
|
|
|
2,127
|
|
|
|
532
|
|
|
|
299.81
|
|
Time deposits
|
|
|
1,312,304
|
|
|
|
1,275,693
|
|
|
|
2.87
|
|
Alabama segment
|
|
|
608,056
|
|
|
|
694,380
|
|
|
|
(12.43
|
)
|
Florida segment
|
|
|
490,266
|
|
|
|
462,071
|
|
|
|
6.10
|
|
Other
|
|
|
213,982
|
|
|
|
119,242
|
|
|
|
79.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,342,988
|
|
|
$
|
2,200,611
|
|
|
|
6.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment
|
|
$
|
1,140,522
|
|
|
$
|
1,152,102
|
|
|
|
(1.01
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida segment
|
|
$
|
842,204
|
|
|
$
|
813,205
|
|
|
|
1.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
378,262
|
|
|
$
|
235,304
|
|
|
|
60.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, we had deposits from related
parties of approximately $22.1 million and
$35.8 million, respectively. We believe that all of the
deposit transactions were made on terms and conditions in the
ordinary course of business.
66
The following table sets forth our average deposits by category
for the periods indicated:
Average
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amount
|
|
|
Average
|
|
|
Amount
|
|
|
Average
|
|
|
Amount
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
218,486
|
|
|
|
|
%
|
|
$
|
191,066
|
|
|
|
|
%
|
|
$
|
111,757
|
|
|
|
|
%
|
Interest-bearing demand deposits
|
|
|
637,800
|
|
|
|
2.31
|
|
|
|
568,125
|
|
|
|
3.66
|
|
|
|
359,262
|
|
|
|
3.30
|
|
Savings deposits
|
|
|
121,645
|
|
|
|
2.25
|
|
|
|
50,652
|
|
|
|
1.61
|
|
|
|
27,968
|
|
|
|
.63
|
|
Time deposits-customer
|
|
|
1,096,841
|
|
|
|
4.07
|
|
|
|
1,023,573
|
|
|
|
4.90
|
|
|
|
575,065
|
|
|
|
4.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average customer deposits
|
|
|
2,074,772
|
|
|
|
3.00
|
|
|
|
1,833,416
|
|
|
|
3.92
|
|
|
|
1,074,052
|
|
|
|
3.48
|
|
Time deposits-brokered
|
|
|
153,631
|
|
|
|
4.08
|
|
|
|
148,369
|
|
|
|
5.31
|
|
|
|
189,722
|
|
|
|
4.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits
|
|
$
|
2,228,403
|
|
|
|
3.07
|
%
|
|
$
|
1,981,785
|
|
|
|
4.02
|
%
|
|
$
|
1,263,774
|
|
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits, particularly core deposits, have historically been our
primary source of funding and have enabled us to meet
successfully both our short-term and long-term liquidity needs.
Our core deposits, which exclude our time deposits greater than
$100,000, represent 71.7% of our total deposits at
December 31, 2008 compared to 71.8% at December 31,
2007. We anticipate that such deposits will continue to be our
primary source of funding in the future. Our loan-to-deposit
ratio was 98.8% at December 31, 2008, compared to 91.7% at
December 31, 2007.
Borrowed Funds. During 2008, average borrowed
funds increased $106.8 million, or 42.8%, to
$356.2 million, from $249.4 million during 2007, which
in turn increased $20.8 million, or 9.1%, from
$228.6 million during 2006. The average rate paid on
borrowed funds during 2008, 2007 and 2006 was 3.40%, 5.20%, and
5.07%, respectively. Because of a relatively high
loan-to-deposit ratio, the existence and stability of these
funding sources are important to our maintenance of short-term
and long-term liquidity.
Borrowed funds as of December 31, 2008 consist primarily of
advances from the FHLB. The following is a summary, by year of
contractual maturity, of advances from the FHLB as of
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
(Dollars in thousands)
|
|
|
2008
|
|
|
|
%
|
|
$
|
|
|
|
|
4.62
|
%
|
|
$
|
74,488
|
|
2009
|
|
|
1.03
|
|
|
|
142,984
|
|
|
|
4.33
|
|
|
|
30,032
|
|
2010
|
|
|
6.41
|
|
|
|
5,000
|
|
|
|
4.83
|
|
|
|
25,000
|
|
2011
|
|
|
2.69
|
|
|
|
75,000
|
|
|
|
4.80
|
|
|
|
4,968
|
|
2012
|
|
|
4.44
|
|
|
|
5,000
|
|
|
|
4.49
|
|
|
|
30,000
|
|
2013
|
|
|
3.46
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
4.58
|
|
|
|
66,340
|
|
|
|
5.39
|
|
|
|
26,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2.67
|
%
|
|
$
|
361,324
|
|
|
|
4.63
|
%
|
|
$
|
222,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above schedule is by contractual maturity. Call dates for
the above are as follows: 2009, $104 million; and 2010,
$111 million
The advances are secured by a blanket lien on certain
residential and commercial real estate loans and agency
mortgage-backed securities, all with a carrying value of
approximately $946 million at December 31, 2008. We
67
have available approximately $199.0 in unused advances under the
blanket lien subject to the availability of qualifying
collateral.
In February 2008, FHLB advances totaling $100.0 million
were refinanced to lower the current interest rate in response
to current market conditions. This refinancing was accounted for
as debt modification, therefore no gain or loss was recognized
on the transaction.
The FHLB has issued for the benefit of the Bank a
$20.0 million irrevocable letter of credit in favor of the
Chief Financial Officer of the State of Florida to secure
certain deposits of the State of Florida. The letter of credit
expires January 5, 2010 upon sixty days prior notice
of non-renewal; otherwise, it shall automatically extend for a
successive one-year term.
We have available approximately $35 million in unused
federal funds lines of credit with regional banks, subject to
certain restrictions and collateral requirements.
Subordinated
Debentures
Issuance of Subordinated Debt and Related
Warrant. 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 $10 million in
aggregate principal amount of 9.5% Subordinated Notes due
September 15, 2018 (the Notes), 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 Notes on any interest payment
date at a price equal to 100% of the principal amount of the
redeemed Notes plus accrued but unpaid interest.
The fair value of the Warrant totaling $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 Superior Bancorp and Superior Bank.
Junior subordinated debentures. On
July 19, 2007, we issued approximately $22 million in
aggregate principal amount of Trust Preferred Securities
and a like amount of related subordinated debentures through our
wholly-owned, unconsolidated subsidiary trust, Superior Capital
Trust I. The Trust Preferred Securities and
subordinated debentures bear interest at a floating rate of
three-month LIBOR plus 1.33% that is payable quarterly. The
Trust Preferred Securities, which may be redeemed on or
after September 15, 2012, will mature on September 15,
2037.
On July 25, 2007, we completed a redemption of
approximately $16 million in aggregate outstanding
principal amount of Trust Preferred Securities and related
six-month LIBOR plus 3.75% junior subordinated debentures due
July 25, 2031, both of which were issued by our
wholly-owned, unconsolidated subsidiary trust, TBC Capital
Statutory Trust III. We called the securities for
redemption effective July 25, 2007 at a redemption price
equal to 106.15% of par. We incurred a loss of approximately
$1.5 million ($925,000, net of tax, or $.02 per share),
during the third quarter of 2007 relating to the redemption of
the outstanding Trust Preferred Securities.
The remaining proceeds from the issuance of the new trust
preferred securities were used in the stock repurchase program
and for other corporate purposes.
68
We have three additional sponsored trusts, TBC Capital II,
Community Capital I and Peoples Trust I, of which 100% of
the common equity is owned by us. The trusts were formed for the
purpose of issuing obligated mandatory redeemable trust
preferred securities to third-party investors and investing the
proceeds from the sale of such trust preferred securities solely
in junior subordinated debt securities of ours (the debentures).
The debentures held by each trust are the sole assets of that
trust. Distributions on the trust preferred securities issued by
each trust are payable semi-annually at a rate per annum equal
to the interest rate being earned by the trust on the debentures
held by that trust. The trust preferred securities are subject
to mandatory redemption, in whole or in part, upon repayment of
the debentures. We have entered into agreements which, taken
collectively, fully and unconditionally guarantee the trust
preferred securities subject to the terms of each of the
guarantees. The debentures held by the TBC Capital II, Community
Capital I and Peoples Trust I trusts are first redeemable,
in whole or in part, by us on September 7, 2010,
March 8, 2010 and December 15, 2010, respectively.
Consolidated debt obligations related to these subsidiary trusts
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
10.6% junior subordinated debentures owed to TBC Capital
Statutory Trust II due September 7, 2030
|
|
$
|
15,464
|
|
|
$
|
15,464
|
|
10.875% junior subordinated debentures owed to Community Capital
Trust I due March 8, 2030
|
|
|
10,310
|
|
|
|
10,310
|
|
3-month
LIBOR plus 1.33% junior subordinated debentures owed to Superior
Capital Trust I due September 15, 2037(1)
|
|
|
22,681
|
|
|
|
22,681
|
|
6.41% junior subordinated debentures owed to Peoples Community
Capital Trust I due December 15, 2035(2)
|
|
|
4,124
|
|
|
|
4,124
|
|
Purchase accounting adjustment
|
|
|
819
|
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated debentures owed to unconsolidated
subsidiary trusts
|
|
$
|
53,398
|
|
|
$
|
53,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Current interest rate is equal to 3.33% at December 31,
2008. The Corporation has entered into interest rate swap
agreements for an average effective fixed rate of 4.42%. |
|
(2) |
|
Converts to quarterly floating rate of LIBOR plus 1.45% in
December 2010. |
Stockholders
Equity
Overview. Our stockholders equity
totaled $251.2 million at December 31, 2008 compared
to $350.1 million at December 31, 2007. See the
Statement of Changes in Stockholders Equity in the
Consolidated Financial Statements included elsewhere in this
report. During the fourth quarter of 2008 we received
$69 million in proceeds from the issuance of
69,000 shares of cumulative perpetual preferred stock, as
discussed below, and as of December 31, 2008 we had
10,403,087 shares of common stock issued and
10,074,999 shares outstanding. The proceeds from the
preferred stock were offset by a $163 million net loss and
other components of our comprehensive loss discussed below.
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. This action brought our authorized common shares and
common shares outstanding more nearly in line with peer
community banks. All disclosures in this annual 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.
69
Other Comprehensive (Loss) Income. Our
stockholders equity was significantly affected by various
components of our comprehensive loss during 2008. The components
of other comprehensive (loss) income for the years ended
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
Income Tax
|
|
|
Net of
|
|
|
|
Amount
|
|
|
Expense
|
|
|
Income Tax
|
|
|
|
(In thousands)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities
|
|
$
|
(16,885
|
)
|
|
$
|
6,203
|
|
|
$
|
(10,682
|
)
|
Less reclassification adjustment for losses realized in net loss
|
|
|
8,453
|
|
|
|
(3,128
|
)
|
|
|
5,325
|
|
Unrealized loss on derivatives
|
|
|
(955
|
)
|
|
|
354
|
|
|
|
(601
|
)
|
Defined benefit pension plan net loss arising during
the period
|
|
|
(3,398
|
)
|
|
|
1,260
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
(12,785
|
)
|
|
$
|
4,689
|
|
|
$
|
(8,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities
|
|
$
|
2,344
|
|
|
$
|
(918
|
)
|
|
$
|
1,426
|
|
Less reclassification adjustment for gains realized in net income
|
|
|
(308
|
)
|
|
|
120
|
|
|
|
(188
|
)
|
Defined benefit pension plan net gain arising during
the period
|
|
|
615
|
|
|
|
(227
|
)
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
2,651
|
|
|
$
|
(1,025
|
)
|
|
$
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please refer to the Financial Condition
Investment Securities section for additional discussion
regarding the realized/unrealized gains and losses on the
investment securities portfolio. Additional discussion is
included the Market Risk Derivative
Positions on the unrealized loss on derivatives. Certain
information regarding our pension liability is disclosed in
Note 20 to the consolidated financial statements which
includes asset values, projected benefit obligations, investment
policies and asset allocations.
Issuance of Preferred Stock and Related
Warrant. On December 5, 2008, as part of the
Troubled Asset Relief Program (TARP) Capital
Purchase Program, we issued and sold, and the United States
Department of the Treasury (the Treasury) purchased,
(i) 69,000 shares (the Preferred Shares)
of our Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, having a liquidation preference of $1,000 per
share, and (ii) a ten-year warrant (the
Warrant) to purchase up to 1,923,792 shares of
our voting common stock, par value $0.001 per share
(Common Stock), at an exercise price of $5.38 per
share, for an aggregate purchase price of $69 million in
cash. The issuance and sale of these securities was a private
placement exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.
Cumulative dividends on the Preferred Shares will accrue on the
liquidation preference at a rate of 5% per annum for the first
five years, and at a rate of 9% per annum thereafter, but will
be paid only if, as and when declared by our Board of Directors.
The Preferred Shares have no maturity date and rank senior to
the Common Stock (and pari passu with our other
authorized series of preferred stock, of which no shares are
currently outstanding) with respect to the payment of dividends
and distributions and amounts payable upon liquidation,
dissolution and winding up of our company. Subject to the
approval of the Office of Thrift Supervision, the Preferred
Shares are redeemable at our option at 100% of our liquidation
preference, provided that the Preferred Shares may be redeemed
prior to the first dividend payment date falling after the third
anniversary of the Closing Date (December 5,
2011) only if (i) we have raised aggregate gross
proceeds in one or more Qualified Equity Offerings (as defined
in the letter agreement, dated December 5, 2008 between us
and the Treasury (including the Securities Purchase
Agreement Standard Terms incorporated by reference
therein) (the Purchase Agreement) and set forth
below) in excess of $17.3 million and (ii) the
aggregate redemption price does not exceed the aggregate net
proceeds from such Qualified Equity Offerings. Notwithstanding
the foregoing provisions of the TARP agreements, the ARRA
eliminated most of the restrictions on redemption of the
Preferred Shares. Subject to consultation with the Office of
Thrift Supervision, we may redeem the Preferred Shares without
regard to any waiting period or whether we have participated in
a Qualified Equity Offering.
70
The Treasury may not transfer a portion or portions of the
Warrant with respect to,
and/or
exercise the Warrant for more than one-half of, the
1,923,792 shares of Common Stock issuable upon exercise of
the Warrant, in the aggregate, until the earlier of (i) the
date on which we have received aggregate gross proceeds of not
less than $69 million from one or more Qualified Equity
Offerings (as defined in the Purchase Agreement and set forth
below) and (ii) December 31, 2009. In the event we
complete one or more Qualified Equity Offerings (as defined in
the Purchase Agreement and set forth below) on or prior to
December 31, 2009 that result in us receiving aggregate
gross proceeds of not less than $69 million, the number of
the shares of Common Stock underlying the portion of the Warrant
then held by the Treasury will be reduced by one-half of the
shares of Common Stock originally covered by the Warrant. For
the purposes of the foregoing, Qualified Equity
Offering is defined as the sale and issuance for cash by
us to persons other than us or any of our subsidiaries after the
Closing Date of shares of perpetual Preferred Stock, Common
Stock or any combination of such stock, that, in each case,
qualify as and may be included in our Tier I capital at the
time of issuance under the applicable risk-based capital
guidelines of our federal banking agency (other than any such
sales and issuances made pursuant to agreements or arrangements
entered into, or pursuant to financing plans which were publicly
announced, on or prior to October 13, 2008).
The fair value of the Warrant of $6.1 million was
determined using the Black-Scholes option-pricing model. The
value of the Warrant is being amortized against retained
earnings as part of the preferred stock dividend until
December 5, 2013. The amortization of the warrant increases
the effective yield on the preferred stock to 7.11%.
Stock Repurchase Plan. We announced in June
2007 that our Board of Directors had approved the repurchase of
up to 250,000 shares of our outstanding common stock.
During the quarter ended September 30, 2007, we purchased
250,000 shares of then outstanding stock at an average
price of $36.88 per share, which have been recorded, at cost, as
treasury stock in the consolidated statement of financial
condition. The shares were purchased in the open market through
negotiated or block transactions and were not repurchased from
our management team or other insiders.
We announced in October 2007, that our Board of Directors
approved the purchase of an additional 250,000 shares of
our outstanding common stock beginning on or after
November 2, 2007. During the quarter ended
December 31, 2007, we purchased 45,500 shares of then
outstanding stock at an average price of $26.44, which have been
recorded, at cost, as treasury stock in the consolidated
statement of financial condition. The shares were purchased in
the open market through negotiated or block transactions. We did
not repurchase any shares from our management team or other
insiders. This stock repurchase program does not obligate us to
acquire any specific number of shares and may be suspended or
discontinued at any time.
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 the growth, development and our financial success by
personally benefiting through the ownership of the our common
stock, or other rights which recognize such growth, development
and financial success. Our 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 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.
71
A summary of stock option activity as of December 31, 2008
and changes during the year then ended is set forth below:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
For the Year Ended December 31, 2008
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Under option, beginning of period
|
|
|
802,048
|
|
|
$
|
33.08
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
114,875
|
|
|
|
9.45
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(68,001
|
)
|
|
|
(32.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
848,922
|
|
|
$
|
29.94
|
|
|
|
6.19
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
634,028
|
|
|
$
|
31.72
|
|
|
|
3.94
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
3.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2008, 2007 and 2006, the
Corporation recognized approximately $623,000, $473,000 and
$165,000 in compensation expense related to options granted.
Additional disclosure regarding our stock incentive plan is
included in Note 12 to the consolidated financial
statements.
In January 2008, members of our 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 and
the remaining 50% vests on January 22, 2010. During the
twelve-month period ended December 31, 2008, we recognized
approximately $286,000 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.
Superior Bancorp ESOP. Effective
August 31, 2007, we terminated the Superior Bancorp
Employee Stock Ownership Plan (the ESOP). The ESOP
was leveraged, and the ESOP owed us $1.2 million at the
termination date. This debt was satisfied by the transfer from
the ESOP to us of 31,867 unallocated shares of Corporation
common stock valued at a price of $36.56 per share, the closing
price that day. We transferred these shares during the third
quarter of 2007 to treasury stock at current market value from
the unallocated ESOP shares account. The remaining 4,295
unallocated shares were committed to be allocated to the
participants accounts, and, as a result, we recognized
additional compensation expense during the third quarter of 2007
of approximately $158,000.
Community Bancshares ESOP. As a result of our
merger with Community, we became a sponsor of an internally
leveraged ESOP maintained by Community. This ESOP has an
outstanding loan payable to us that bears interest at a floating
rate equal to the prime rate of interest. As of
December 31, 2008, the interest rate on the note was 4.00%.
Principal and interest payments on the ESOP loan are due monthly
through August, 2011, based on the current amortization
schedule, with the remaining principal and interest, if any, due
upon that date. The ESOP loan may be prepaid in whole or in part
without penalty under the loan agreement, subject to applicable
ERISA and tax restrictions. We make contributions to the
Community ESOP that enables the ESOP to make payments due under
the ESOP loan. Under Statement of Position
No. 93-6
(SOP 93-6),
Employers Accounting for Employee Stock Ownership
Plans, employers that sponsor an ESOP with an employer
loan should not report the ESOPs note payable or the
employers note receivable in the employers statement
of condition, nor should interest cost or
72
interest income be recognized on the employer loan. We have
followed
SOP 93-6
accordingly. The principal balance of our loan to the Community
ESOP at December 31, 2008 was $708,000.
An employee becomes a participant in the Community ESOP after
completing 12 months of service during which the employee
is credited with 1,000 hours or more of service.
Contributions to the plan are made at the discretion of the
board but may not be less than the amount required to service
the ESOP debt. Under the terms of the ESOP, after a person
ceases to be an employee, that person is no longer eligible to
participate in the ESOP. In that case, the person may demand to
receive all stock credited to his benefit under the ESOP as of
the end of the year immediately preceding that persons
termination of employment.
Dividends paid on released ESOP shares are credited to the
accounts of the participants to whom the shares are allocated.
Dividends on unreleased shares may be used to repay the debt
associated with the ESOP or treated as other income of the ESOP
and allocated to the participants. Compensation cost recognized
during the periods ended December 31, 2008 and 2007 was
$36,000 and $125,000, respectively. The ESOP shares as of
December 31, 2008 and 2007 are as follows:
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|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Allocated shares
|
|
|
86,443
|
|
|
|
83,460
|
|
Estimated shares committed to be released
|
|
|
3,908
|
|
|
|
2,983
|
|
Unreleased shares
|
|
|
9,774
|
|
|
|
13,682
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
100,125
|
|
|
|
100,125
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
43,000
|
|
|
$
|
294,000
|
|
|
|
|
|
|
|
|
|
|
Regulatory Capital. During the fourth quarter
of 2005, we became a unitary thrift holding company and, as
such, we are subject to regulation, examination and supervision
by the OTS.
Simultaneously, the Banks charter was changed to a federal
savings bank charter, and the Bank is also subject to various
regulatory requirements administered by the OTS. Prior to
November 1, 2005, the Bank was regulated by the Alabama
Banking Department and the Federal Reserve. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on our financial
position and results of operations. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of tangible and core
capital (as defined in the regulations) to adjusted total assets
(as defined), and of total capital (as defined) and Tier 1
capital to risk weighted assets (as defined). Management
believes that the Bank meets all applicable capital adequacy
requirements as of December 31, 2008 and 2007.
73
The table below represents the Banks actual regulatory and
minimum regulatory capital requirements at December 31,
2008 (dollars in thousands):
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets)
|
|
$
|
271,146
|
|
|
|
9.00
|
%
|
|
$
|
120,510
|
|
|
|
4.00
|
%
|
|
$
|
150,638
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
304,892
|
|
|
|
12.15
|
|
|
|
200,761
|
|
|
|
8.00
|
|
|
|
250,951
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
271,146
|
|
|
|
10.80
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
150,571
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
271,146
|
|
|
|
9.00
|
|
|
|
45,191
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Impact of
Inflation
Unlike most industrial companies, our assets and liabilities are
primarily monetary in nature. Therefore, interest rates have a
more significant effect on our performance than do the effects
of changes in the general rate of inflation and changes in
prices. In addition, interest rates do not necessarily move in
the same direction or in the same magnitude as the prices of
goods and services. We seek to manage the relationships between
interest sensitive assets and liabilities in order to protect
against wide interest rate fluctuations, including those
resulting from inflation.
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 Annual Report on
Form 10-K,
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). Such forward looking statements should, therefore, be
considered in light of various important factors set forth from
time to time in our reports and registration statements filed
with the SEC. 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,
74
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; and (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 the new Presidential administration, including,
but not limited to, economic stimulus initiatives and so-called
bailout initiatives.
If one or more of the factors affecting our forward-looking
information and statements proves incorrect, then our actual
results, performance or achievements could differ materially
from those expressed in, or implied by, forward-looking
information and statements contained in this annual 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 information and
statements, whether written or oral, to reflect change. All
forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risks.
|
Please refer to Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations Market Risk Interest Rate
Sensitivity, which is incorporated herein by reference.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
Consolidated financial statements of Superior Bancorp meeting
the requirements of
Regulation S-X
are filed on the succeeding pages of this Item 8 of this
Annual Report on
Form 10-K.
75
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
ended December 31, 2008, 2007 and 2006
CONTENTS
76
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Superior Bancorp
We have audited the accompanying consolidated statements of
financial condition of Superior Bancorp (a Delaware corporation)
and subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of operations, changes in
stockholders equity and cash flows for the years then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Superior Bancorp and subsidiaries as of
December 31, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Superior Bancorps internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 16,
2009, expressed an unqualified opinion.
Raleigh, North Carolina
March 16, 2009
77
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Superior Bancorp
We have audited the accompanying consolidated statements of
operations, changes in stockholders equity, and cash flows
for the year ended December 31, 2006, of Superior Bancorp
(formerly, The Banc Corporation) and subsidiaries. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
results of operations of Superior Bancorp and subsidiaries and
their cash flows for the year ended December 31, 2006, in
conformity with U.S. generally accepted accounting
principles.
/s/ Carr,
Riggs & Ingram, LLC
Dothan, Alabama
March 16, 2007
78
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In Thousands)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
74,237
|
|
|
$
|
52,983
|
|
Interest-bearing deposits in other banks
|
|
|
10,042
|
|
|
|
6,916
|
|
Federal funds sold
|
|
|
5,169
|
|
|
|
3,452
|
|
Investment securities available for sale
|
|
|
347,142
|
|
|
|
361,171
|
|
Tax lien certificates
|
|
|
23,786
|
|
|
|
15,615
|
|
Mortgage loans held for sale
|
|
|
22,040
|
|
|
|
33,408
|
|
Loans
|
|
|
2,316,915
|
|
|
|
2,018,351
|
|
Unearned income
|
|
|
(1,994
|
)
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
|
2,314,921
|
|
|
|
2,017,011
|
|
Allowance for loan losses
|
|
|
(28,850
|
)
|
|
|
(22,868
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
2,286,071
|
|
|
|
1,994,143
|
|
Premises and equipment, net
|
|
|
104,085
|
|
|
|
104,799
|
|
Accrued interest receivable
|
|
|
14,794
|
|
|
|
16,512
|
|
Stock in FHLB and Federal Reserve Bank
|
|
|
21,410
|
|
|
|
14,945
|
|
Cash surrender value of life insurance
|
|
|
48,291
|
|
|
|
45,277
|
|
Goodwill and intangible assets
|
|
|
21,052
|
|
|
|
187,520
|
|
Other real estate
|
|
|
19,971
|
|
|
|
4,277
|
|
Other assets
|
|
|
54,611
|
|
|
|
44,407
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,052,701
|
|
|
$
|
2,885,425
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
212,732
|
|
|
$
|
207,602
|
|
Interest-bearing demand
|
|
|
632,430
|
|
|
|
657,809
|
|
Savings
|
|
|
185,522
|
|
|
|
59,507
|
|
Time deposits $100,000 and over
|
|
|
662,175
|
|
|
|
620,718
|
|
Other time deposits
|
|
|
650,129
|
|
|
|
654,975
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,342,988
|
|
|
|
2,200,611
|
|
Advances from FHLB
|
|
|
361,324
|
|
|
|
222,828
|
|
Federal funds borrowed and security repurchase agreements
|
|
|
3,563
|
|
|
|
17,075
|
|
Notes payable
|
|
|
7,000
|
|
|
|
9,500
|
|
Subordinated debentures, net
|
|
|
60,884
|
|
|
|
53,744
|
|
Accrued expenses and other liabilities
|
|
|
25,703
|
|
|
|
31,625
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,801,462
|
|
|
|
2,535,383
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 6 and 17)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.001 per share; shares authorized
5,000,000:
|
|
|
|
|
|
|
|
|
Series A, fixed rate cumulative perpetual preferred stock,
69,000 and -0- shares issued and outstanding at
December 31, 2008, and 2007 respectively
|
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share; shares authorized
15,000,000; shares issued 10,403,087 in 2008 and 10,380,658 in
2007; outstanding 10,074,999 in 2008 and 10,027,079 in 2007
|
|
|
10
|
|
|
|
10
|
|
Surplus preferred
|
|
|
62,978
|
|
|
|
|
|
warrants
|
|
|
8,646
|
|
|
|
|
|
common
|
|
|
329,461
|
|
|
|
329,232
|
|
Accumulated (deficit) retained earnings
|
|
|
(129,904
|
)
|
|
|
33,557
|
|
Accumulated other comprehensive (loss) gain
|
|
|
(7,925
|
)
|
|
|
174
|
|
Treasury stock, at cost 321,485 and
347,536 shares, respectively
|
|
|
(11,373
|
)
|
|
|
(12,309
|
)
|
Unearned ESOP stock
|
|
|
(443
|
)
|
|
|
(622
|
)
|
Unearned restricted stock
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
251,239
|
|
|
|
350,042
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,052,701
|
|
|
$
|
2,885,425
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
79
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
147,162
|
|
|
$
|
150,443
|
|
|
$
|
92,659
|
|
Interest on taxable securities
|
|
|
16,310
|
|
|
|
17,174
|
|
|
|
12,994
|
|
Interest on tax-exempt securities
|
|
|
1,716
|
|
|
|
897
|
|
|
|
389
|
|
Interest on federal funds sold
|
|
|
122
|
|
|
|
471
|
|
|
|
570
|
|
Interest and dividends on other investments
|
|
|
2,578
|
|
|
|
2,944
|
|
|
|
2,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
167,888
|
|
|
|
171,929
|
|
|
|
108,777
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
68,405
|
|
|
|
79,667
|
|
|
|
46,511
|
|
Interest on other borrowed funds
|
|
|
12,104
|
|
|
|
12,971
|
|
|
|
11,603
|
|
Interest on subordinated debentures
|
|
|
4,094
|
|
|
|
4,129
|
|
|
|
3,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
84,603
|
|
|
|
96,767
|
|
|
|
61,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
83,285
|
|
|
|
75,162
|
|
|
|
47,394
|
|
Provision for loan losses
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
70,173
|
|
|
|
70,621
|
|
|
|
44,894
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposits
|
|
|
9,295
|
|
|
|
7,957
|
|
|
|
4,915
|
|
Mortgage banking income
|
|
|
3,972
|
|
|
|
3,860
|
|
|
|
2,997
|
|
Investment securities (loss) gain
|
|
|
(8,453
|
)
|
|
|
308
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
1,240
|
|
|
|
1,310
|
|
|
|
374
|
|
Increase in cash surrender value of life insurance
|
|
|
2,274
|
|
|
|
1,895
|
|
|
|
1,580
|
|
Gain on extinguishment of liabilities
|
|
|
2,918
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
5,521
|
|
|
|
4,027
|
|
|
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
16,767
|
|
|
|
19,357
|
|
|
|
11,811
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
49,672
|
|
|
|
42,316
|
|
|
|
26,805
|
|
Occupancy, furniture and equipment
|
|
|
17,197
|
|
|
|
13,391
|
|
|
|
7,754
|
|
Management separation costs
|
|
|
|
|
|
|
|
|
|
|
265
|
|
Amortization of core deposit intangibles
|
|
|
3,585
|
|
|
|
1,691
|
|
|
|
442
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
1,469
|
|
|
|
|
|
Merger-related costs
|
|
|
118
|
|
|
|
639
|
|
|
|
635
|
|
Loss on termination of ESOP
|
|
|
|
|
|
|
158
|
|
|
|
|
|
Subsidiary startup costs
|
|
|
|
|
|
|
|
|
|
|
135
|
|
Goodwill impairment charge
|
|
|
160,306
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
23,800
|
|
|
|
18,559
|
|
|
|
13,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
254,678
|
|
|
|
78,223
|
|
|
|
49,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(167,738
|
)
|
|
|
11,755
|
|
|
|
6,920
|
|
Income tax (benefit) expense
|
|
|
(4,588
|
)
|
|
|
4,134
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(163,150
|
)
|
|
|
7,621
|
|
|
|
4,997
|
|
Preferred stock dividends
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders
|
|
$
|
(163,461
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
10,021
|
|
|
|
9,244
|
|
|
|
5,852
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
10,021
|
|
|
|
9,333
|
|
|
|
6,008
|
|
Basic net (loss) income per common share
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
|
$
|
0.85
|
|
Diluted net (loss) income per common share
|
|
|
(16.31
|
)
|
|
|
0.82
|
|
|
|
0.83
|
|
See accompanying notes
80
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
Other
|
|
|
|
Unearned
|
|
Unearned
|
|
Total
|
|
|
Preferred
|
|
Common
|
|
Surplus
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
ESOP
|
|
Restricted
|
|
Stockholders
|
|
|
Stock
|
|
Stock
|
|
Preferred
|
|
Warrants
|
|
Common
|
|
Earnings
|
|
(Loss) Gain
|
|
Stock
|
|
Stock
|
|
Stock
|
|
Equity
|
|
|
(In Thousands, Except Share Data)
|
|
|
Balance at January 1, 2006
|
$
|
|
|
$
|
5
|
|
$
|
|
|
$
|
|
|
$
|
87,994
|
|
$
|
21,494
|
|
$
|
(2,544
|
)
|
$
|
(341
|
)
|
$
|
(1,543
|
)
|
$
|
|
|
$
|
105,065
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,997
|
|
Other comprehensive income, net of tax expense of $556,
unrealized gain on securities available for sale, arising during
the period, net of reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
831
|
|
Change in accumulated gain on cash flow hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
Defined benefit pension plan net gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,089
|
|
Issuance of 1,218 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
52
|
|
Issuance of 1,556,680 shares for Kensington purchase
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
70,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,971
|
|
Issuance of 14,044 shares related to board compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569
|
|
Issuance of 2,018,045 shares for Community
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
93,051
|
|
|
|
|
|
|
|
|
(407
|
)
|
|
(759
|
)
|
|
|
|
|
91,887
|
|
Stock options exercised 38,955 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
992
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
Release of 6,675 shares by ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
253,842
|
|
|
26,491
|
|
|
(1,452
|
)
|
|
(716
|
)
|
|
(2,086
|
)
|
|
|
|
|
276,087
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,621
|
|
Other comprehensive income, net of tax expense of $798,
unrealized gain on securities available for sale, arising during
the period, net of reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
Defined benefit pension plan net gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,247
|
|
Repurchase of 295,500 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,428
|
)
|
|
|
|
|
|
|
|
(10,428
|
)
|
Issuance of 1,658,781 shares for Peoples purchase
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
73,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,804
|
|
Issuance of 6,941 shares related to board compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
Stock options exercised 21,250 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
Release of 12,284 shares by ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
497
|
|
Termination of ESOP 31,867 shares transferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,165
|
)
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
329,232
|
|
$
|
33,557
|
|
|
174
|
|
|
(12,309
|
)
|
|
(622
|
)
|
|
|
|
|
350,042
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163,150
|
)
|
Other comprehensive loss, net of tax benefit of $3,075
unrealized loss on securities available for sale, arising during
the period, net of reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,357
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,357
|
)
|
Change in accumulated loss on cash flow hedging instrument, net
of tax expense of $354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
|
(601
|
)
|
Defined benefit pension plan net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171,249
|
)
|
Issuance of warrant to purchase 1,000,000 shares of common
stock related to subordinated notes
|
|
|
|
|
|
|
|
|
|
|
2,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,553
|
|
Issuance of 69,000 shares of cumulative preferred stock
|
|
|
|
|
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,000
|
|
Issuance of warrant to purchase 1,923,392 shares of common
stock related to preferred stock
|
|
|
|
|
|
|
|
(6,093
|
)
|
|
6,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative preferred stock dividend of $240: Net of amortization
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240
|
)
|
Transfer of treasury stock to restricted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(447
|
)
|
|
|
|
|
|
|
|
944
|
|
|
|
|
|
(497
|
)
|
|
|
|
Amortization of unearned restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
286
|
|
|
278
|
|
Issuance of 26,795 shares related to board compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
Fractional shares and issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
Release of 3,881 shares by ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
$
|
|
|
$
|
10
|
|
$
|
62,978
|
|
$
|
8,646
|
|
$
|
329,461
|
|
$
|
(129,904
|
)
|
$
|
(7,925
|
)
|
$
|
(11,373
|
)
|
$
|
(443
|
)
|
$
|
(211
|
)
|
$
|
251,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
81
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
160,306
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,576
|
|
|
|
4,630
|
|
|
|
3,245
|
|
Amortization of core deposit and other intangibles
|
|
|
4,001
|
|
|
|
1,868
|
|
|
|
|
|
Net (discount) premium amortization on securities
|
|
|
(63
|
)
|
|
|
(116
|
)
|
|
|
298
|
|
Loss (gain) on sale of investment securities
|
|
|
8,453
|
|
|
|
(308
|
)
|
|
|
|
|
(Gain) on sale of interest rate floors
|
|
|
(678
|
)
|
|
|
|
|
|
|
|
|
Loss on foreclosed assets
|
|
|
528
|
|
|
|
170
|
|
|
|
181
|
|
Provision for loan losses
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
2,500
|
|
Increase (decrease) in accrued interest receivable
|
|
|
1,718
|
|
|
|
(386
|
)
|
|
|
(750
|
)
|
Deferred income tax (benefit) expense
|
|
|
(4,736
|
)
|
|
|
4,021
|
|
|
|
1,923
|
|
Gain on sale of assets
|
|
|
(11
|
)
|
|
|
(139
|
)
|
|
|
(254
|
)
|
(Gain) loss on extinguishment of liabilities
|
|
|
(2,918
|
)
|
|
|
1,469
|
|
|
|
|
|
Net gain on mortgage loans held for sale
|
|
|
(1,930
|
)
|
|
|
(1,543
|
)
|
|
|
(1,203
|
)
|
Origination of mortgage loans held for sale
|
|
|
(396,330
|
)
|
|
|
(335,424
|
)
|
|
|
(266,848
|
)
|
Proceeds from sale of mortgage loans held for sale
|
|
|
409,628
|
|
|
|
327,992
|
|
|
|
266,058
|
|
Other operating activities, net
|
|
|
(8,538
|
)
|
|
|
(10,653
|
)
|
|
|
(3,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
25,968
|
|
|
|
3,743
|
|
|
|
6,366
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in interest bearing deposits in other banks
|
|
|
(3,126
|
)
|
|
|
4,078
|
|
|
|
1,222
|
|
(Increase) decrease in federal funds sold
|
|
|
(1,717
|
)
|
|
|
25,933
|
|
|
|
11,052
|
|
Proceeds from sales of investment securities available for sale
|
|
|
44,620
|
|
|
|
18,378
|
|
|
|
215,717
|
|
Proceeds from maturities of investment securities available for
sale
|
|
|
112,106
|
|
|
|
82,873
|
|
|
|
39,233
|
|
Purchase of investment securities available for sale
|
|
|
(159,430
|
)
|
|
|
(59,910
|
)
|
|
|
(72,319
|
)
|
Net increase in loans
|
|
|
(328,452
|
)
|
|
|
(132,769
|
)
|
|
|
(200,837
|
)
|
Net cash received in business combinations
|
|
|
|
|
|
|
1,231
|
|
|
|
18,642
|
|
Redemptions of tax lien certificates
|
|
|
27,242
|
|
|
|
20,499
|
|
|
|
5,721
|
|
Purchase of tax lien certificates
|
|
|
(35,413
|
)
|
|
|
(19,801
|
)
|
|
|
(21,745
|
)
|
Purchase of premises and equipment
|
|
|
(12,045
|
)
|
|
|
(23,833
|
)
|
|
|
(13,813
|
)
|
Proceeds from sale of premises and equipment
|
|
|
7,643
|
|
|
|
5,630
|
|
|
|
1,835
|
|
Proceeds from sale of foreclosed assets
|
|
|
6,996
|
|
|
|
7,327
|
|
|
|
1,722
|
|
Increase in stock of FHLB
|
|
|
(6,465
|
)
|
|
|
(2,563
|
)
|
|
|
(1,416
|
)
|
Other investing activities, net
|
|
|
177
|
|
|
|
4,005
|
|
|
|
3,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(347,864
|
)
|
|
|
(68,922
|
)
|
|
|
(11,483
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in demand and savings deposits
|
|
|
105,222
|
|
|
|
(7,824
|
)
|
|
|
59,375
|
|
Net increase in time deposits
|
|
|
36,611
|
|
|
|
92,150
|
|
|
|
60,766
|
|
Increase (decrease) in FHLB advances
|
|
|
138,496
|
|
|
|
(2,995
|
)
|
|
|
(62,051
|
)
|
Proceeds from note payable
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
2,000
|
|
Principal payment on note payable
|
|
|
(12,500
|
)
|
|
|
(6,045
|
)
|
|
|
(210
|
)
|
Net decrease in other borrowed funds
|
|
|
(13,679
|
)
|
|
|
(13,304
|
)
|
|
|
(41,060
|
)
|
Proceeds from issuance of subordinated debentures
|
|
|
10,000
|
|
|
|
22,680
|
|
|
|
|
|
Principal payment on junior subordinated debentures
|
|
|
|
|
|
|
(16,495
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(10,428
|
)
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
640
|
|
|
|
992
|
|
Proceeds from issuance of preferred stock
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
343,150
|
|
|
|
68,379
|
|
|
|
19,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and due from banks
|
|
|
21,254
|
|
|
|
3,200
|
|
|
|
14,695
|
|
Cash and due from banks at beginning of year
|
|
|
52,983
|
|
|
|
49,783
|
|
|
|
35,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of year
|
|
$
|
74,237
|
|
|
$
|
52,983
|
|
|
$
|
49,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
86,229
|
|
|
$
|
97,848
|
|
|
$
|
56,831
|
|
Income taxes
|
|
|
(1,432
|
)
|
|
|
(564
|
)
|
|
|
(1,706
|
)
|
Transfer of foreclosed assets
|
|
|
28,419
|
|
|
|
9,239
|
|
|
|
935
|
|
Assets acquired in business combinations
|
|
|
|
|
|
|
376,061
|
|
|
|
1,006,674
|
|
Liabilities assumed in business combinations
|
|
|
|
|
|
|
303,487
|
|
|
|
838,102
|
|
Issuance of common stock in acquisitions
|
|
|
|
|
|
|
73,804
|
|
|
|
162,858
|
|
See accompanying notes
82
SUPERIOR
BANCORP AND SUBSIDIARIES
December 31,
2008, 2007 and 2006
|
|
1.
|
Summary
of Significant Accounting Policies
|
Superior Bancorp (Corporation), through its
subsidiaries, provides a full range of banking and bank-related
services to individual and corporate customers in Alabama and
Florida. The accounting and reporting policies of the
Corporation conform with U.S. generally accepted accounting
principles and to general practice within the banking industry.
The following summarizes the most significant of these policies.
Basis of
Presentation and Variable Interest Entities
The accompanying consolidated financial statements and notes to
consolidated financial statements include the accounts of the
Corporation and its consolidated wholly-owned subsidiaries. The
Corporation also has investments in certain unconsolidated
variable interest entities (VIE) as described below. All
significant intercompany balances and transactions have been
eliminated. Certain amounts in the prior years financial
statements have been reclassified to conform to the 2008
presentation. These reclassifications are immaterial and had no
effect on net income (loss), total assets or stockholders
equity.
The Corporation considers a voting rights entity to be a
subsidiary and consolidates it if the Corporation has a
controlling financial interest in the entity. VIEs are
consolidated if the Corporation is exposed to the majority of
the VIEs expected losses
and/or
residual returns (i.e., the Corporation is considered to be the
primary beneficiary).
The Corporation holds variable interests in four special purpose
trusts which were formed for the issuance of trust preferred
securities to outside investors (See Note 11). The
Corporation does not absorb a majority of the expected losses or
residual returns of the trusts; therefore, the Corporation is
not considered the primary beneficiary and does not consolidate
the trusts. At December 31, 2008 and 2007, the Corporation
had recorded common equity investments in other assets on its
Consolidated Statement of Financial Condition of $1,579,000 that
were associated with these trusts.
The Corporation also has limited partnership investments in
affordable housing projects for which it provides funding as a
limited partner and anticipates receiving future income tax
credits related to its investments in the projects. At
December 31, 2008, the Corporation had recorded investments
in other assets on its Consolidated Statement of Financial
Condition of approximately $2,241,000 which represents
approximately 50% of the total limited partnership investment to
be made in the affordable housing projects. The Corporation is
committed to funding the remaining investment once the projects
are certified for occupancy and placed into service sometime
during the early part of 2009. The Corporation has determined
that these structures meet the definition of VIEs but that
consolidation of these direct limited partnership investments in
affordable housing projects is not required, as the Corporation
is not the primary beneficiary. At December 31, 2008, the
Corporations maximum exposure to loss associated with
these limited partnerships was limited to the Companys
recorded investment plus $645,000 in direct construction loans.
In future periods, when these projects are placed into service,
the Corporation intends to account for these investments and the
related tax credits using the effective-yield method. Under the
effective-yield method, the Corporation will recognize the tax
credits as they are allocated and will amortize the initial
costs of the investment to provide a constant effective yield
over the period that tax credits are allocated.
Restatement
to Reflect
1-for-4
Reverse Stock Split
All disclosures regarding common stock and related earnings per
share have been retroactively restated for all periods presented
prior to 2008 to reflect a
1-for-4
reverse stock split effective April 28, 2008 (see
Note 27).
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and
83
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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1.
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Summary
of Significant Accounting
Policies (Continued)
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disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and
Cash Equivalents
For the purpose of presentation in the statements of cash flows,
cash and cash equivalents are defined as those amounts included
in the statements of financial condition caption Cash and
Due from Banks. These amounts include cash on-hand,
non-interest-bearing deposits with other financial institutions
and deposits in-transit.
The Corporations banking subsidiary is required to
maintain minimum average reserve balances by the Federal Reserve
Bank, which are based on a percentage of deposits. At
December 31, 2008 and 2007, the Corporations reserve
requirements were $2,941,000 and $6,759,000, with which it was
in full compliance.
Investment
Securities
Investment securities are classified as either held to maturity,
available for sale or trading at the time of purchase. The
Corporation defines held to maturity securities as debt
securities which management has the positive intent and ability
to hold to maturity.
Held to maturity securities are reported at cost, adjusted for
amortization of premiums and accretion of discounts that are
recognized in interest income using the effective yield method.
Securities available for sale are reported at fair value and
consist of bonds, notes, debentures, and certain equity
securities not classified as trading securities nor as
securities to be held to maturity. Unrealized holding gains and
losses, net of deferred taxes, on securities available for sale
are excluded from earnings and reported in accumulated other
comprehensive income (loss) within stockholders equity.
Gains and losses on the sale of securities available for sale
are determined using the specific-identification method.
Tax lien
certificates
Tax lien certificates represent a priority lien against real
property for which assessed real estate taxes are delinquent.
Tax lien certificates are carried at cost plus accrued interest
which approximates fair value. Tax lien certificates and
resulting deeds are classified as non-accrual when a tax lien
certificate is 24 to 48 months delinquent, depending on the
municipality, from the acquisition date, at which time interest
ceases to be accrued.
Loans and
Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. The
Corporation defers certain nonrefundable loan origination and
commitment fees and the direct costs of originating or acquiring
loans. The net deferred amount is amortized over the estimated
lives of the related loans as an adjustment to yield. Interest
income with respect to loans is accrued on the principal amount
outstanding, except for loans classified as nonaccrual.
Accrual of interest is discontinued on loans which are more than
ninety days past due unless the loan is well secured and in the
process of collection. Well secured indicates that
the debt must be secured by collateral having sufficient
realizable value to discharge the debt, including accrued
interest, in full. In the process of collection
indicates that collection of the debt is proceeding in due
course either through legal action or other collection effort
that is reasonably expected to result in repayment of the debt
in full within a reasonable period of time, usually within one
hundred eighty days of the date the loan became past due. Any
unpaid interest previously accrued on
84
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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1.
|
Summary
of Significant Accounting
Policies (Continued)
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these loans is reversed from income. Interest payments received
on these loans are applied as a reduction of the loan principal
balance.
It is the responsibility of management to assess and maintain
the allowance for loan losses at a level it believes is
appropriate to absorb the estimated credit losses within our
loan portfolio through the provision for loan losses. The
determination of the allowance for loan losses is based on
managements analysis of the credit quality of the loan
portfolio including its judgment regarding certain
internal and external factors that affect loan collectibility.
This process is performed on a quarterly basis under the
oversight of the board of directors. The estimation of the
allowance for loan losses is based on two basic
components those estimations calculated in
accordance with the requirements of Statement of Financial
Accounting Standards (SFAS) 5 and those specific
impairments under SFAS 114 (see discussions below). The
calculation of the allowance for loan losses is inherently
subjective and actual losses could be greater or less than the
estimates.
The allowance for loan loss is considered to be a significant
estimate and is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for
loan losses when management believes the collectibility of
principal is unlikely. The allowance is the amount that
management believes will be adequate to absorb inherent losses
on existing loans.
Under SFAS 5 estimated losses on all loans that have not
been identified with specific impairment, under SFAS 114,
are calculated based on the historical loss ratios applied to
standard loan categories using a four-year rolling average,
adjusted for certain qualitative factors, as shown below. In
addition to these standard loan categories, management may
identify other areas of risk based on its analysis of such
qualitative factors and estimate additional losses as it deems
necessary. The qualitative factors that management uses in its
estimate include but are not limited to the following:
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trends in volume.
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effects of changes in credit concentrations.
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levels of and trends in delinquencies, classified loans, and
non-performing assets.
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levels of and trends in charge-offs and recoveries.
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changes in lending policies and underwriting guidelines.
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national and local economic trends and condition.
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mergers and acquisitions.
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Pursuant to SFAS No. 114, impaired loans are loans
which are specifically reviewed and 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 the ultimate
collectibility of all amounts due is expected. The Credit
Administration department maintains supporting documentation
regarding collateral valuations
and/or
discounted cash flow analyses. Payments received on impaired
loans for which the ultimate collectibility of principal is
uncertain are generally applied first as principal reductions.
Impaired loans and other nonaccrual loans are returned to
accrual status if the loan is brought contractually current as
to both principal and interest and repayment ability is
demonstrated, or if the loan is in the process of collection and
no loss is anticipated.
The Corporation manages and controls 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, sets
limits on credit concentration and enforces regulatory
requirements.
85
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Loan portfolio concentration risk is reduced through
concentration limits for borrowers and varying collateral types.
Concentration risk is measured and reported to senior management
and the board of directors on a regular basis.
The assignment of loan risk ratings is the primary
responsibility of the lending officer and is 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. The Corporation has 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.
Acquired
Loans
The Corporation generally acquires loans through business
combinations rather than individually or in groups or
portfolios. An acquired loan which has experienced deterioration
of credit quality between origination and the acquisition, and
for which it is probable that the Corporation will be unable to
collect all amounts due according to the loans contractual
terms, is accounted for under the provisions of Statement of
Position
03-3,
Accounting for Certain Loans or Debt Securities Acquired in a
Transfer
(SOP 03-3).
For such loans, the Corporation estimates the amount and timing
of undiscounted expected principal, interest, and other cash
flows (including expected prepayments, if any) as of the
acquisition date. The excess of the loans contractually
required cash flows over the Corporation expected cash flows is
referred to as a nonaccretable difference and is not recorded by
the Corporation. The loan is initially recorded at fair value,
which represents the present value of the expected cash flows.
The difference between the undiscounted expected cash flows and
the fair value at which the loan is recorded is referred to as
accretable yield and is accreted into interest income over the
remaining expected life of the loan.
On a quarterly basis, the Corporation updates its estimate of
cash flows expected to be collected. If the estimated cash flows
have decreased, the Corporation will recognize a loss by
reducing the accretable yield. If the estimated cash flows have
increased, the Corporation will increase the accretable yield
which is accreted on a prospective basis over the loans
remaining life.
Mortgage
Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or
market, determined on a net aggregate basis. The carrying value
of these loans is adjusted for any origination fees and cost
incurred to originate these loans. Differences between the
carrying amount of mortgage loans held for sale and the amounts
received upon sale are credited or charged to income at the time
the proceeds of the sale are collected. The fair values are
based on quoted market prices of similar loans, adjusted for
differences in loan characteristics.
Premises
and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed over the
estimated service lives of the assets using straight-line and
accelerated methods, generally using 5 to 40 years for
premises and 5 to 10 years for furniture and equipment.
Expenditures for maintenance and repairs are charged to
operations as incurred; expenditures for renewals and
betterments are capitalized and written off by depreciation
charges. Property retired or sold is removed from the asset and
related accumulated depreciation accounts and any gain or loss
resulting there from is reflected in the statement of operations.
86
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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1.
|
Summary
of Significant Accounting
Policies (Continued)
|
The Corporation reviews any long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Intangible
Assets
Intangible assets include primarily goodwill, which is the
excess of cost over the fair value of net assets of acquired
businesses, (See Note 2 Business Combinations)
and core deposit intangible assets, which are amounts recorded
related to the value of acquired non-maturity deposits. Core
deposit intangibles are amortized over their expected useful
lives.
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142) requires goodwill and intangible
assets with indefinite useful lives to no longer be amortized
but instead tested for impairment at least annually, or more
often if events or circumstances indicate that there may be
impairment. Adverse changes in the economic environment,
declining operations, or other factors could result in a decline
in the implied fair value of goodwill. If the implied fair value
is less than the carrying amount, a loss is recognized in
noninterest expense to reduce the carrying amount to implied
fair value of goodwill. A goodwill impairment test includes two
steps. Step One, used to identify potential impairment, compares
the estimated fair value of a reporting unit with its carrying
amount, including goodwill. If the estimated fair value of a
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired. If the carrying
amount of a reporting unit exceeds its estimated fair value, the
second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. Step Two of the
goodwill impairment test compares the implied estimated fair
value of reporting unit goodwill with the carrying amount of
that goodwill. If the carrying amount of goodwill for that
reporting unit exceeds the implied fair value of that
units goodwill, an impairment loss is recognized in an
amount equal to that excess.
Management tested goodwill for impairment during the fourth
quarter of 2008 and recorded a $160,306,000 impairment charge
($63,815,000 Alabama Region and $96,491,000 Florida Region), for
that quarter representing all of the goodwill intangible asset.
The primary cause of the goodwill impairment within these
reporting units was the significant decline in the estimated
fair value of the units as a result of increases in
nonperforming loans, overall decline in our market
capitalization and compression of the net interest margin, all
resulting from the economic crisis and its effect on financial
institutions which occurred during the fourth quarter.
For purposes of testing goodwill for impairment, management uses
both the income and market approaches to value its reporting
units. The income approach quantifies the present value of
future economic benefits by the capitalizing of
benefits method or the discounted cash flow
(DCF) method. In estimating the fair value of our
reporting units under the income approach model, management used
the DCF method which relies on a forecast of growth and earnings
over a period of time and includes a measure of cash flow based
on projected earnings and projected dividends, or dividend
paying capacity, in addition to an estimate of a residual value.
The projected future cash flows are discounted using a discount
rate determined under a
build-up
approach using the risk-free rate of return, adjusted equity
beta, equity risk premium, and a company-specific risk factor.
The company-specific risk factor is used to address the
uncertainty of growth estimates and earnings projections of
management.
The Corporation uses the guideline company
transaction method to apply the market approach.
Management selected a group of comparable transactions that it
believes would likely reference comparable transactions pricing
when making a decision to purchase the applicable reporting
unit. An estimate of value can be determined by comparing the
financial condition of the subject reporting unit against the
financial characteristics and pricing information of the
comparable companies.
Management uses the results of these methods to estimate fair
value. The table below shows the assumptions used in estimating
the fair value of each reporting unit at December 31, 2008.
The table includes the discount rate used in the income approach
model and the market multipliers used in the market approach.
87
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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1.
|
Summary
of Significant Accounting
Policies (Continued)
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Alabama
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Florida
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Region
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Region
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Discount rate used in income approach
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14.0
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%
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14.5
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%
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Transaction method multiplier Price to tangible
book(1)
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2.00
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x
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1.35
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x
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Premium to deposit valuation(2)
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5.0
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%
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4.0
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%
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Implied premium to trading prices(3)
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30.0
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%
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30.0
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%
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(1) |
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This multiplier is applied to tangible book value. |
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(2) |
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This multiplier is applied to tangible book value
plus deposits. |
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(3) |
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Average based on bank and thrift transactions in
Southeast Region announced since January 1, 2003 |
The Corporation has determined that its reporting units for
purposes of the testing described above are the operating
branches which are included as part of its reportable segments:
the Alabama Region and the Florida Region. Goodwill is allocated
to each reporting unit based on the location of the acquisitions
as follows:
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December 31,
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2008
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2007
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(In Thousands)
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Alabama Region
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$
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$
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65,899
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Florida Region
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96,568
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Total
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$
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$
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162,467
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At December 31, 2008 and 2007, the Corporations core
deposit intangible, which is being amortized over ten years from
the date of acquisition, was as follows:
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2008
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2007
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(In Thousands)
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Core deposit intangible
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$
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26,355
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$
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26,355
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Accumulated amortization
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(6,823
|
)
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(3,238
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)
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Net core deposit intangible
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$
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19,532
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$
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23,117
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Amortization expense was $3,585,000, $1,691,000, and $442,000
for the years ended December 31, 2008, 2007, and 2006,
respectively. Aggregate amortization expense for the years
ending December 31, 2009 through December 31, 2013, is
estimated to be as follows:
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Year
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Annual Expense
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(In Thousands)
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2009
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$
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3,942
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2010
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3,479
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2011
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3,049
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2012
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2,492
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2013
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2,235
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Total
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$
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15,197
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Other
Real Estate
Other real estate, acquired through partial or total
satisfaction of loans, is carried at the lower of cost or fair
value, less estimated selling expenses, in other assets. At the
date of acquisition, any difference between the fair
88
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
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1.
|
Summary
of Significant Accounting
Policies (Continued)
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value and book value of the asset is charged to the allowance
for loan losses. Subsequent gains or losses on the sale or
losses from the valuation of and the cost of maintaining and
operating other real estate are included in other income or
expense. Other real estate totaled $19,971,000 and $4,277,000 at
December 31, 2008 and 2007, respectively and is included in
other assets on the accompanying consolidated statement of
financial condition.
Security
Repurchase Agreements
Securities sold under agreements to repurchase are generally
accounted for as collateralized financing transactions and are
recorded at the amounts at which the securities were sold plus
accrued interest. Securities, generally U.S. government and
Federal agency securities, pledged as collateral under these
financing arrangements cannot be sold or repledged by the
secured party.
Income
Taxes
The consolidated financial statements are prepared on the
accrual basis. The Corporation accounts for income taxes using
the liability method pursuant to SFAS No. 109,
Accounting for Income Taxes. Under this method, deferred
tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to reverse.
In July 2006, the Financial Accounting Standards Board
(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 (SFAS)
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 (see
Note 14).
Off-Balance
Sheet Financial Instruments
In the ordinary course of business the Corporation has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, commitments under credit card
arrangements and commercial letters of credit and standby
letters of credit. Such financial instruments are recorded in
the financial statements when they become payable to the extent
that they do not qualify as derivatives.
Per Share
Amounts
Earnings per common share computations are based on the weighted
average number of common shares outstanding during the periods
presented.
Diluted earnings per common share computations are based on the
weighted average number of common shares outstanding during the
period, plus the dilutive effect of stock options, warrants,
convertible preferred stock and restricted stock awards.
Stock-Based
Compensation
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which
is a revision of SFAS 123, Accounting for Stock-Based
Compensation, and supersedes Opinion 25. The new standard,
which became effective for the Corporation in the first quarter
of 2006, requires companies to recognize an expense
89
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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1.
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Summary
of Significant Accounting
Policies (Continued)
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in the statement of operations for the grant-date fair value of
stock options and other equity-based compensation issued to
employees, but expresses no preference for a type of valuation
method. This expense is recognized over the period during which
an employee is required to provide service in exchange for the
award. SFAS 123R carries forward prior guidance on
accounting for awards to non-employees. If an equity award is
modified after the grant date, incremental compensation cost
will be recognized in an amount equal to the excess of the fair
value of the modified award over the fair value of the original
award immediately prior to the modification. The Corporation
recognizes compensation expense for any stock award granted
after December 31, 2005. Since all of the
Corporations stock option awards granted prior to
December 31, 2005 vested prior to December 31, 2005,
no future compensation expense will be recognized on these
awards (see Note 12).
Pension
Plan
Liabilities and contributions to the plan are calculated using
the actuarial unit credit method of funding.
Derivative
Financial Instruments and Hedging Activities
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), requires
companies to recognize all of their derivative instruments as
either assets or liabilities in the consolidated statement of
financial position at fair value.
Derivative financial instruments that qualify under
SFAS 133 in a hedging relationship are designated, based on
the exposure being hedged, as either fair value or cash flow
hedges. Fair value hedge relationships mitigate exposure to the
change in fair value of an asset, liability or firm commitment.
Under the fair value hedging model, gains or losses attributable
to the change in fair value of the derivative instrument, as
well as the gains and losses attributable to the change in fair
value of the hedged item, are recognized in earnings in the
period in which the change in fair value occurs.
Cash flow hedge relationships mitigate exposure to the
variability of future cash flows or other forecasted
transactions. Under the cash flow hedging model, the effective
portion of the gain or loss related to the derivative
instrument, if any, is recognized as a component of other
comprehensive income. For derivative financial instruments not
designated as a fair value or cash flow hedges, gains and losses
related to the change in fair value are recognized in earnings
during the period of change in fair value.
The Corporation formally documents all relationships between
hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivative
instruments that are designated as fair-value or cash-flow
hedges to specific assets and liabilities on the balance sheet
or to specific firm commitments or forecasted transactions.
The Corporation also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivative
instruments that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of
hedged items. When it is determined that a derivative instrument
is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Corporation discontinues hedge
accounting prospectively, as discussed below.
The Corporation discontinues hedge accounting prospectively
when: (1) it is determined that the derivative instrument
is no longer effective in offsetting changes in the fair value
or cash flows of a hedged item (including firm commitments or
forecasted transactions); (2) the derivative instrument
expires or is sold, terminated or exercised; (3) the
derivative instrument is de-designated as a hedge instrument,
because it is unlikely that a forecasted transaction will occur;
(4) a hedged firm commitment no longer meets the definition
of a firm commitment; or (5) management determines that
designation of the derivative instrument as a hedge instrument
is no longer appropriate.
90
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
When hedge accounting is discontinued because it is determined
that the derivative instrument no longer qualifies as an
effective fair-value hedge, the derivative instrument will
continue to be carried on the balance sheet at its fair value
and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued
because the hedged item no longer meets the definition of a firm
commitment, the derivative instrument will continue to be
carried on the balance sheet at its fair value and any asset or
liability that was recorded pursuant to recognition of the firm
commitment will be removed from the balance sheet and recognized
as a gain or loss in the then-current-period earnings. When
hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur, the derivative instrument
will continue to be carried on the balance sheet at its fair
value, and gains and losses that were accumulated in other
comprehensive income will be recognized immediately in earnings.
When the derivative instrument is de-designated, terminated or
sold, any gain or loss will remain in accumulated other
comprehensive income and will be reclassified into earnings over
the same period during which the underlying hedged item affects
earnings. In all other situations in which hedge accounting is
discontinued, the derivative instrument will be carried at its
fair value on the balance sheet, with changes in its fair value
recognized in the then-current-period earnings.
Recent
Accounting Pronouncements
FASB
Interpretation No. 48
In July 2006, the Financial Accounting Standards Board
(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 SFAS 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 derecognition, classification, interest and
penalties, accounting for interim periods, disclosure and
transition of uncertain tax positions. The interpretation was
effective for the Corporation beginning January 1, 2007.
See Note 14 for the related impact of the adoption of
FIN 48.
FSP
No. 48-1
Definition of Settlement in FASB Interpretation
No. 48.
FSP 48-1
provides guidance on how to determine whether a tax position is
effectively settled for the purpose of recognizing previously
unrecognized tax benefits.
FSP 48-1
was effective retroactively to January 1, 2007 and did not
significantly impact the Corporations financial statements.
Emerging
Issues Task Force Issue
No. 06-05
In September 2006, the FASB ratified a consensus reached by the
Emerging Issues Task Force (EITF) on Issue
No. 06-05,
Accounting for Purchases of Life Insurance
Determining the Amount That Could Be Realized in Accordance with
FASB Technical
Bulletin No. 85-4.
Technical
Bulletin No. 85-4,
Accounting for Purchases of Life Insurance,
requires that the amount that could be realized under a life
insurance contract as of the date of the statement of financial
position should be reported as an asset. The EITF concluded that
a policyholder should consider any additional amounts (i.e.,
amounts other than cash surrender value) included in the
contractual terms of the policy in determining the amount that
could be realized under the insurance contract. When it is
probable that contractual restrictions would limit the amount
that could be realized, these contractual limitations should be
considered when determining the realizable amounts. Amounts that
are recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could
be realized. Amounts that are recoverable beyond one year from
the surrender of the policy should be discounted to present
value. A policyholder should determine the amount that could be
realized under the insurance contract assuming the surrender of
an
91
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
individual-life by individual-life policy (or certificate by
certificate in a group policy). Any amount that would ultimately
be realized by the policyholder upon the assumed surrender of
the final policy (or final certificate in a group policy) should
be included in the amount that could be realized under the
insurance contract. A policyholder should not discount the cash
surrender value component of the amount that could be realized
when contractual restrictions on the ability to surrender a
policy exist. However, if the contractual limitations prescribe
that the cash surrender value component of the amount that could
be realized is a fixed amount, then the amount that could be
realized should be discounted. EITF Issue
No. 06-
05 was effective for fiscal years beginning after
December 15, 2006. The application of EITF Issue
No. 06-05
did not have a material impact on the Corporations
financial condition or results of operations.
Staff
Accounting Bulletin No. 108
In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) No. 108, Quantifying Financial Misstatements,
which expresses the Staffs views regarding the process
of quantifying financial statement misstatements. Registrants
are required to quantify the impact of correcting all
misstatements, including both the carryover and reversing
effects of prior year misstatements, on the current year
financial statements. The techniques most commonly used in
practice to accumulate and quantify misstatements are generally
referred to as the rollover (current year income
statement perspective) and iron curtain (year-end
balance perspective) approaches. The financial statements would
require adjustment when either approach results in quantifying a
misstatement that is material, after considering all relevant
quantitative and qualitative factors. This guidance did not have
a material effect on the Corporations financial condition,
results of operations or cash flows.
Statement
of Financial Accounting Standards (SFAS)
No. 158
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
(SFAS 158). SFAS 158 requires
employers to fully recognize the obligations associated with
single-employer defined benefit pension, retiree healthcare and
other postretirement plans in their financial statements.
SFAS 158 requires an employer to (a) recognize in its
statement of financial position an asset for a plans over
funded status or a liability for a plans under funded
status, (b) measure a plans assets and its
obligations that determine its funded status at the end of the
employers fiscal year and (c) recognize changes in
the funded status of a defined postretirement plan in the year
in which the changes occur. Those changes will be reported in
the comprehensive income of a business entity. The requirement
to recognize the funded status of a benefit plan and the
disclosure requirements were effective as of the end of the
fiscal year ending after December 15, 2006, for publicly
traded companies. The requirement to measure plan assets and
benefit obligations as of the date of the employers fiscal
year-end statement of financial position is effective for fiscal
years ending after December 15, 2006. SFAS 158 did not
have a material impact on the Corporations statement of
financial position at December 31, 2006 or on the
Corporations comprehensive income for the period ended
December 31, 2006.
Emerging
Issues Task Force Issue (EITF)
No. 06-04
In July 2006, the EITF issued a draft abstract for EITF Issue
No. 06-04,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangement. This draft abstract from the EITF reached a
consensus that for an endorsement split-dollar life insurance
arrangement within the scope of this Issue, an employer should
recognize a liability for future benefits in accordance with
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions. The EITF
concluded that a liability for the benefit obligation under
SFAS No. 106 has not been settled through the purchase
of an endorsement type life insurance policy. In September 2006,
FASB agreed to ratify the consensus reached in EITF Issue
No. 06-04.
This new accounting standard was effective for fiscal years
beginning after December 15, 2007. At December 31,
2008
92
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
and 2007, the Corporation had no endorsement split-dollar life
insurance arrangements outstanding on any of its bank-owned life
insurance.
Statement
of Financial Accounting Standards No. 160
SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB Statement
No. 51 (SFAS 160). SFAS 160
amends Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements, to establish
accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 clarifies that a non-controlling
interest in a subsidiary, which is sometimes referred to as
minority interest, is an ownership interest in the consolidated
entity that should be reported as a component of equity in the
consolidated financial statements. Among other requirements,
SFAS 160 requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent
and the non-controlling interest. It also requires disclosure,
on the face of the consolidated income statement, of the amounts
of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS 160 is effective for the
Corporation on January 1, 2009 and is not expected to have
a any impact on the Corporations financial statements.
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 19.
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 year ended December 31, 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 acquisition
was allocated to the individual assets acquired and
93
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
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 is 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.
Peoples
Acquisition
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 is being amortized over an estimated useful life of
ten years based on the undiscounted cash flow.
94
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
3,854
|
|
Federal funds sold
|
|
|
4,200
|
|
Investment securities
|
|
|
47,684
|
|
Loans, net
|
|
|
254,047
|
|
Premises and equipment, net
|
|
|
2,318
|
|
Goodwill
|
|
|
47,313
|
|
Core deposit intangibles
|
|
|
9,810
|
|
Other assets
|
|
|
10,478
|
|
Deposits
|
|
|
(245,459
|
)
|
Federal funds purchased and repurchase agreements
|
|
|
(6,905
|
)
|
Advances from FHLB
|
|
|
(37,983
|
)
|
Junior subordinated debentures
|
|
|
(3,962
|
)
|
Other liabilities
|
|
|
(8,966
|
)
|
|
|
|
|
|
Total consideration paid for Peoples
|
|
$
|
76,429
|
|
|
|
|
|
|
Community
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Community Bancshares, Inc.
(Community) of Blountsville, Alabama on
November 7, 2006 in exchange for 2,018,045 shares of
the Corporations common stock valued at approximately
$91,848,000. 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 and cash payments due for the
cancellation of stock options totaled $97,200,000. As a result
of the acquisition, the Corporation added 18 banking locations
and 15 consumer finance company locations in the State of
Alabama.
The Community transaction resulted in $60,148,000 of goodwill
allocated to the Alabama reporting unit and $10,142,000 of core
deposit intangibles. The goodwill acquired is not tax
deductible. The amount allocated to the core deposit intangible
is being amortized over an estimated useful life of ten years
based on the undiscounted cash flow.
During the third quarter of 2006, management completed its plan
to terminate Communitys data processing operations and
convert Communitys accounts to the Corporations
system. This conversion was completed in the fourth quarter of
2006. Certain costs associated with this conversion, totaling
approximately $1,200,000, which included primarily contract
cancellations and employment-related costs, were estimated and
accrued as of the acquisition date. In addition, certain
employment-related contract obligations totaling approximately
$3,500,000 were also accrued as of the acquisition date.
95
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
23,167
|
|
Federal funds sold
|
|
|
35,273
|
|
Investment securities
|
|
|
117,424
|
|
Loans, net
|
|
|
337,148
|
|
Premises and equipment, net
|
|
|
22,529
|
|
Goodwill
|
|
|
60,148
|
|
Core deposit intangibles
|
|
|
10,142
|
|
Other assets
|
|
|
21,185
|
|
Deposits
|
|
|
(431,334
|
)
|
FHLB advances
|
|
|
(68,801
|
)
|
Junior subordinated debentures
|
|
|
(12,047
|
)
|
Other liabilities
|
|
|
(17,634
|
)
|
|
|
|
|
|
Total consideration paid for Community
|
|
$
|
97,200
|
|
|
|
|
|
|
Kensington
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Kensington Bankshares, Inc.
(Kensington), of Tampa, Florida on August 31,
2006 in exchange for 1,556,680 shares of the
Corporations common stock valued at approximately
$71,200,000. 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 $71,372,000. As a result of the
acquisition, the Corporation now operates 12 banking locations
in the Tampa Bay area of Florida, which is one of the
Corporations largest markets and has a higher projected
population growth than any of its other banking markets.
The Kensington transaction resulted in $44,470,000 of goodwill
allocated to the Florida reporting unit and $3,544,000 of core
deposit intangibles. The goodwill acquired is not tax
deductible. The amount allocated to the core deposit intangible
is being amortized over an estimated useful life of ten years
based on the undiscounted cash flow. Termination of
Kensingtons data processing operations and conversion of
Kensingtons accounts to the Corporations system were
completed in the first quarter of 2007. Certain costs associated
with this conversion, totaling approximately $1,400,000, which
includes primarily contract cancellations and employment-related
costs, were estimated and accrued as of the acquisition date.
96
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
4,454
|
|
Federal funds sold
|
|
|
964
|
|
Investment securities
|
|
|
180,151
|
|
Loans, net
|
|
|
136,826
|
|
Premises and equipment, net
|
|
|
5,397
|
|
Goodwill
|
|
|
44,470
|
|
Core deposit intangibles
|
|
|
3,544
|
|
Other assets
|
|
|
5,128
|
|
Deposits
|
|
|
(276,186
|
)
|
Repurchase agreements
|
|
|
(30,050
|
)
|
Other liabilities
|
|
|
(3,326
|
)
|
|
|
|
|
|
Total consideration paid for Kensington
|
|
$
|
71,372
|
|
|
|
|
|
|
Pro Forma
Results of Operations
The results of operations of the Peoples, Kensington and
Community acquisitions subsequent to the acquisition dates are
included in the Corporations consolidated statements of
operations. The following pro forma information for the periods
ended December 31, 2007 and 2006 reflects the
Corporations estimated consolidated results of operations
as if the acquisition of Peoples, Kensington and Community
occurred at January 1, 2006, unadjusted for potential cost
savings.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net interest income and noninterest income
|
|
$
|
101,620
|
|
|
$
|
104,149
|
|
Net income
|
|
|
7,413
|
|
|
|
9,215
|
|
Earnings per common share basic
|
|
$
|
0.72
|
|
|
$
|
0.92
|
|
Earnings per common share diluted
|
|
$
|
0.72
|
|
|
$
|
0.88
|
|
97
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
The amounts at which investment securities are carried and their
approximate fair values at December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
3,713
|
|
|
$
|
132
|
|
|
$
|
2
|
|
|
$
|
3,843
|
|
State, county and municipal securities
|
|
|
41,379
|
|
|
|
445
|
|
|
|
1,202
|
|
|
|
40,622
|
|
Mortgage-backed securities
|
|
|
280,447
|
|
|
|
3,926
|
|
|
|
4,249
|
|
|
|
280,124
|
|
Corporate debt and trust preferred securities
|
|
|
30,334
|
|
|
|
|
|
|
|
7,945
|
|
|
|
22,389
|
|
Other securities
|
|
|
563
|
|
|
|
|
|
|
|
399
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
356,436
|
|
|
$
|
4,503
|
|
|
$
|
13,797
|
|
|
$
|
347,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts at which investment securities are carried and their
approximate fair values at December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
93,207
|
|
|
$
|
1,086
|
|
|
$
|
75
|
|
|
$
|
94,218
|
|
State, county and municipal securities
|
|
|
40,738
|
|
|
|
222
|
|
|
|
395
|
|
|
|
40,565
|
|
Mortgage-backed securities
|
|
|
191,202
|
|
|
|
1,082
|
|
|
|
888
|
|
|
|
191,396
|
|
Corporate debt and trust preferred securities
|
|
|
32,404
|
|
|
|
11
|
|
|
|
1,030
|
|
|
|
31,385
|
|
Other securities
|
|
|
4,480
|
|
|
|
|
|
|
|
873
|
|
|
|
3,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
362,031
|
|
|
$
|
2,401
|
|
|
$
|
3,261
|
|
|
$
|
361,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with an amortized cost of $268,245,000 and
$239,875,000 at December 31, 2008 and 2007, respectively,
were pledged to secure United States government deposits and
other public funds and for other purposes as required or
permitted by law.
The amortized cost and estimated fair values of investment
securities at December 31, 2008, by contractual maturity,
are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
Securities Available
|
|
|
|
For Sale
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
Due in one year or less
|
|
$
|
250
|
|
|
$
|
253
|
|
Due after one year through five years
|
|
|
9,406
|
|
|
|
9,275
|
|
Due after five years through ten years
|
|
|
8,971
|
|
|
|
9,300
|
|
Due after ten years
|
|
|
57,362
|
|
|
|
48,190
|
|
Mortgage-backed securities
|
|
|
280,447
|
|
|
|
280,124
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
356,436
|
|
|
$
|
347,142
|
|
|
|
|
|
|
|
|
|
|
98
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
Gross realized gains on sales of investment securities available
for sale in 2008, 2007 and 2006 were $1,509,000, $308,000, and
$-0-, respectively, and gross realized losses (includes
other-than-temporary impairment (OTTI) discussed
below) for the same periods were $9,962,000, $-0-, and $-0-,
respectively.
In January 2008, the Corporation securitized approximately
$18,000,000 of residential mortgage loans retaining
100 percent of the beneficial interest and retained
interest. The beneficial interest includes federal agency
securities issued by the Federal Home Loan Mortgage Corporation
(FHLMC) and the retained interest includes a
servicing asset, which was not significant. No gain or loss was
recognized on the securitization; however, the Corporation
entered a commitment to sell the securities for a gain of
approximately $347,000 which closed in February 2008. The
Company retained servicing responsibilities and will receive
servicing fees amounting to approximately 25 basis points
of the outstanding balance of these loans. The FHLMC has no
recourse to the Corporation for failure of debtors to pay when
due.
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 OTTI. The
following table presents the age of gross unrealized losses and
fair value by investment category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In Thousands)
|
|
|
U.S. agency securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
249
|
|
|
$
|
2
|
|
|
$
|
249
|
|
|
$
|
2
|
|
State, county and municipal securities
|
|
|
|
|
|
|
|
|
|
|
20,937
|
|
|
|
1,202
|
|
|
|
20,937
|
|
|
|
1,202
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
46,100
|
|
|
|
4,249
|
|
|
|
46,100
|
|
|
|
4,249
|
|
Corporate debt and other securities
|
|
|
|
|
|
|
|
|
|
|
22,553
|
|
|
|
8,344
|
|
|
|
22,553
|
|
|
|
8,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
89,839
|
|
|
$
|
13,797
|
|
|
$
|
89,839
|
|
|
$
|
13,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In Thousands)
|
|
|
U.S. agency securities
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
36,633
|
|
|
$
|
75
|
|
|
$
|
37,133
|
|
|
$
|
75
|
|
State, county and municipal securities
|
|
|
15,170
|
|
|
|
331
|
|
|
|
3,659
|
|
|
|
64
|
|
|
|
18,829
|
|
|
|
395
|
|
Mortgage-backed securities
|
|
|
10,310
|
|
|
|
69
|
|
|
|
59,162
|
|
|
|
819
|
|
|
|
69,472
|
|
|
|
888
|
|
Corporate debt and other securities
|
|
|
19,224
|
|
|
|
1,056
|
|
|
|
12,874
|
|
|
|
847
|
|
|
|
32,098
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,204
|
|
|
$
|
1,456
|
|
|
$
|
112,328
|
|
|
$
|
1,805
|
|
|
$
|
157,532
|
|
|
$
|
3,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
The following is a summary of the total count by category of
investment securities with gross unrealized losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Total Number of Securities
|
|
|
|
Less Than
|
|
|
More Than
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
U.S. agency securities
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
State, county and municipal securities
|
|
|
|
|
|
|
59
|
|
|
|
59
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
Corporate debt and other securities
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
110
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides further detail of the total
investment securities portfolio at December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Cost
|
|
|
Value
|
|
|
Gain (Loss)
|
|
|
|
(In Thousands)
|
|
|
U.S. agency and agency MBS AAA rated
|
|
$
|
257,946
|
|
|
$
|
261,790
|
|
|
$
|
3,844
|
|
Municipal securities
|
|
|
41,379
|
|
|
|
40,622
|
|
|
|
(757
|
)
|
Non-agency MBS AAA rated
|
|
|
24,179
|
|
|
|
20,142
|
|
|
|
(4,037
|
)
|
Non-agency MBS A and B2 rated
|
|
|
2,035
|
|
|
|
2,035
|
|
|
|
|
|
Bank and pooled trust preferred securities
|
|
|
24,390
|
|
|
|
16,643
|
|
|
|
(7,747
|
)
|
Corporate securities
|
|
|
5,944
|
|
|
|
5,746
|
|
|
|
(198
|
)
|
Fannie Mae and Freddie Mac preferred stock
|
|
|
563
|
|
|
|
164
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
356,436
|
|
|
$
|
347,142
|
|
|
$
|
(9,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses associated with the U.S. agency and
agency MBS securities are caused by changes in interest rates.
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 December 31, 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 December 31, 2008. The Corporation currently
believes all contractual cash flows on these securities will be
received. During the third and fourth quarters of 2008, the
Corporation recognized a $1,894,000, ($1,193,000, net of tax),
non-cash OTTI charge on three non-agency MBS securities which
experienced significant rating downgrades.
The bank and insurance 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 December 31, 2008, the
Corporation believes that the credit quality of these securities
remains adequate to absorb further economic declines. 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 December 31, 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.
100
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
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 December 31, 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 $8,048,000, ($5,070,000,
net of tax), non-cash OTTI charge on these investments during
the third quarter of 2008.
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
December 31, 2008, management currently has the intent and
ability to retain investment securities with unrealized losses
until the decline in value has been recovered.
At December 31, 2008 and 2007, the composition of the loan
portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In Thousands)
|
|
|
Commercial and industrial
|
|
$
|
207,372
|
|
|
$
|
183,013
|
|
Real estate construction and land development
|
|
|
637,587
|
|
|
|
665,303
|
|
Real estate mortgages:
|
|
|
|
|
|
|
|
|
Single family
|
|
|
655,216
|
|
|
|
540,277
|
|
Commercial
|
|
|
692,147
|
|
|
|
533,611
|
|
Other
|
|
|
65,744
|
|
|
|
41,535
|
|
Consumer
|
|
|
57,877
|
|
|
|
53,377
|
|
All other loans
|
|
|
972
|
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,316,915
|
|
|
$
|
2,018,351
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, the Corporations
recorded investment in loans considered to be impaired under
SFAS No. 114 was $52,880,000 and $22,294,000,
respectively. At December 31, 2008 and 2007, there was
approximately $5,106,000 and $1,514,000, respectively in the
allowance for loan losses specifically allocated to impaired
loans. The average recorded investment in impaired loans during
2008, 2007 and 2006 was approximately $37,385,000, $11,767,000,
and $3,975,000, respectively. Interest income recognized on
loans considered impaired totaled approximately $1,714,299,
$873,000, and $176,000 for the years ended December 31,
2008, 2007 and 2006, respectively.
At December 31, 2008, nonaccrual loans totaled $54,712,000,
compared to $22,533,000 at December 31, 2007. Loans past
due 90 days or more and still accruing totaled $8,033,000
at December 31, 2008 compared to $2,117,000 at
December 31, 2007.
During 2007 and 2006, the Corporation acquired certain impaired
loans through business combinations (see Note 2) which
are subject to the income recognition provisions of
SOP 03-3
(see Note 1). The carrying value of
101
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
these loans totaled $528,000 and $2,378,000 at December 31,
2008 and 2007, respectively. The carrying value of these loans
at acquisition and a summary of the change in accretable yield
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In Thousands)
|
|
|
Contractually required principal and interest at acquisition
|
|
|
|
|
|
$
|
5,677
|
|
Nonaccretable difference (expected losses and forgone interest)
|
|
|
|
|
|
|
(1,443
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows expected to be collected at acquisition
|
|
|
|
|
|
|
4,234
|
|
Accretable yield
|
|
|
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
Basis in acquired loans at date of acquisition
|
|
|
|
|
|
$
|
4,025
|
|
|
|
|
|
|
|
|
|
|
Accretable yield, beginning of year
|
|
$
|
305
|
|
|
$
|
174
|
|
Additions
|
|
|
|
|
|
|
209
|
|
Accretion
|
|
|
(135
|
)
|
|
|
(216
|
)
|
Transfer for nonaccretable yield to accretable yield
|
|
|
|
|
|
|
138
|
|
Disposals
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretable yield, end of the year
|
|
$
|
153
|
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Allowance
for Loan Losses
|
A summary of the allowance for loan losses for the years ended
December 31, 2008, 2007 and 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Balance at beginning of year
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
Allowance of acquired banks
|
|
|
|
|
|
|
3,717
|
|
|
|
6,697
|
|
Provision for loan losses
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
2,500
|
|
Loan charge-offs
|
|
|
(8,444
|
)
|
|
|
(5,722
|
)
|
|
|
(3,746
|
)
|
Recoveries
|
|
|
1,314
|
|
|
|
1,440
|
|
|
|
1,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
28,850
|
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Premises
and Equipment
|
Components of premises and equipment at December 31, 2008
and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In Thousands)
|
|
|
Land
|
|
$
|
21,575
|
|
|
$
|
19,834
|
|
Premises
|
|
|
83,986
|
|
|
|
76,733
|
|
Furniture and equipment
|
|
|
27,646
|
|
|
|
22,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,207
|
|
|
|
119,523
|
|
Less accumulated depreciation and amortization
|
|
|
(31,253
|
)
|
|
|
(24,842
|
)
|
|
|
|
|
|
|
|
|
|
Net book value of premises and equipment in service
|
|
|
101,954
|
|
|
|
94,681
|
|
Construction in process (also includes land for branch expansion)
|
|
|
2,132
|
|
|
|
10,118
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
104,085
|
|
|
$
|
104,799
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2008,
2007 and 2006 was $6,576,000, $4,630,000 and $3,245,000,
respectively.
During 2000, Community entered into sale/leaseback arrangements
on its Hamilton, Alabama bank location. Due to the structure of
this transaction, the lease qualified and has been accounted for
under capitalized lease rules.
102
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Premises
and Equipment (Continued)
|
The following is an analysis of the leased property located in
Hamilton, Alabama on which the Company maintains a capital lease
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Buildings
|
|
$
|
2,450
|
|
|
$
|
2,450
|
|
Accumulated depreciation
|
|
|
(180
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,270
|
|
|
$
|
2,352
|
|
|
|
|
|
|
|
|
|
|
The following is a schedule by year of future minimum lease
payments under the capital lease and all other operating leases,
together with the present value of the net minimum lease
payments as of December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
Years ending December 31,
|
|
Property
|
|
|
Equipment
|
|
|
Total
|
|
|
Capitalized
|
|
|
|
(In Thousands)
|
|
|
2009
|
|
$
|
2,829
|
|
|
$
|
251
|
|
|
$
|
3,080
|
|
|
$
|
301
|
|
2010
|
|
|
2,432
|
|
|
|
151
|
|
|
|
2,583
|
|
|
|
275
|
|
2011
|
|
|
2,064
|
|
|
|
43
|
|
|
|
2,107
|
|
|
|
269
|
|
2012
|
|
|
1,425
|
|
|
|
2
|
|
|
|
1,427
|
|
|
|
263
|
|
2013
|
|
|
1,205
|
|
|
|
|
|
|
|
1,205
|
|
|
|
258
|
|
2014 and thereafter
|
|
|
10,623
|
|
|
|
|
|
|
|
10,623
|
|
|
|
3,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
20,578
|
|
|
$
|
447
|
|
|
$
|
21,025
|
|
|
|
4,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense relating to operating leases amounted to
approximately $3,721,000, $2,460,000 and $1,258,000 for the
years ended December 31, 2008, 2007 and 2006, respectively.
On May 31, 2002, the purchaser of Communitys Marshall
County branch offices acquired the land, building and land
improvements located in Albertville, Alabama under a sales-type
lease. The lease agreement called for 60 payments of $14,000 per
month beginning June 1, 2002. The lease ended on
May 31, 2007 and was subject to options which gave the
right for the seller to require the purchaser to purchase the
property and gave the right to the purchaser to require the
seller to sell the property. The purchase option was exercised
on May 31, 2007 and proceeds totaling $2,621,544 were
received by Superior Bank.
Property
Classified as Held-for-Sale
During the second quarter of 2008, management committed to a
plan to sell real estate which consists of the former corporate
headquarters and administrative office facilities of Community
in Blountsville, Alabama. Management committed to the sale of
the Community property in Blountsville because the size and
location of the facility does not meet the Corporations
current needs or future expansion plans. Management expects to
sell the property within the next 12 months to an unrelated
party. The propertys current carrying value, included in
other assets, is $1,965,000, which approximates its market value.
This asset is included as part of the administrative reporting
unit.
Sale-Leaseback
Transactions
On July 24, 2007, the Corporations banking subsidiary
sold a branch office building in Huntsville, Alabama to a
limited liability company, of which one of the
Corporations directors is a member, for $3,000,000. The
limited liability company then leased the building back to the
banking subsidiary. The initial term of the lease is
14 years
103
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Premises
and Equipment (Continued)
|
and may be renewed, at the banking subsidiarys option, for
three additional terms of five years each. The amount of the
monthly lease payments to be made by the banking subsidiary is
$19,500 for the first year of the lease and increases annually
until it reaches $26,881 per month in year 14. Annual rent
escalations associated with this lease are being accounted for
on a straight-line basis over 14 years. Rent for the
renewal terms is to be determined based on appraisals of the
property. No gain or loss was recognized on this transaction,
which was entered into in the ordinary course of business and is
being accounted for as an operating lease.
On September 7, 2007, the Corporations banking
subsidiary sold an additional branch office building in
Huntsville, Alabama to an unrelated party for $2,445,000. The
purchaser then leased the building back to the banking
subsidiary. The initial term of the lease is 15 years and
may be renewed, at the banking subsidiarys option, for
three additional terms of five years each. The amount of the
monthly lease payments to be made by the banking subsidiary is
$11,225 for the initial term. Rent for the renewal terms is to
be determined based on future appraisals of the property. No
gain or loss was recognized on this transaction, which was
entered into in the ordinary course of business and is being
accounted for as an operating lease.
On January 30, 2008, the Corporations banking
subsidiary entered into agreements with a limited liability
company, of which one of the Corporations directors is a
member, pursuant to which the limited liability company
purchased on January 31, 2008 office buildings located in
Albertville and Athens, Alabama for a total of $4,250,000. The
limited liability company then leased the building back to the
banking subsidiary. The initial term of each lease is
13 years and each lease may be renewed, at the banking
subsidiarys option, for two additional terms of five years
each. The amount of the monthly lease payments to be made by the
banking subsidiary in the first year is $13,240 for the
Albertville office and $14,208 for the Athens office. These
amounts increase annually until the monthly lease payments reach
$17,393 for the Albertville office and $18,666 for the Athens
office in year 13. Annual rent escalations associated with these
leases are being accounted for on a straight line basis over the
lease terms. Rent for the renewal terms is to be determined
based on appraisals of the properties. A gain of $73,000 was
realized on these transactions which will be recognized as a
reduction of rental expense over the remaining term of the
leases. These transactions were entered into in the ordinary
course of business and are being accounted for as operating
leases.
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 10 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 10.
The following schedule details interest expense on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Interest-bearing demand
|
|
$
|
14,705
|
|
|
$
|
20,791
|
|
|
$
|
11,857
|
|
Savings
|
|
|
2,731
|
|
|
|
819
|
|
|
|
177
|
|
Time deposits $100,000 and over
|
|
|
19,356
|
|
|
|
21,122
|
|
|
|
11,170
|
|
Other time deposits
|
|
|
31,613
|
|
|
|
36,935
|
|
|
|
23,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,405
|
|
|
$
|
79,667
|
|
|
$
|
46,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Deposits (Continued)
|
At December 31, 2008, the scheduled maturities of time
deposits are as follows (in thousands):
|
|
|
|
|
2009
|
|
$
|
1,083,176
|
|
2010
|
|
|
144,196
|
|
2011
|
|
|
18,047
|
|
2012
|
|
|
16,533
|
|
2013 and thereafter
|
|
|
50,352
|
|
|
|
|
|
|
|
|
$
|
1,312,304
|
|
|
|
|
|
|
|
|
8.
|
Advances
from Federal Home Loan Bank
|
The following is a summary, by year of maturity, of advances
from the FHLB As of December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
2008
|
|
|
|
%
|
|
$
|
|
|
|
|
4.62
|
%
|
|
$
|
74,488
|
|
2009
|
|
|
1.03
|
|
|
|
142,984
|
|
|
|
4.33
|
|
|
|
30,032
|
|
2010
|
|
|
6.41
|
|
|
|
5,000
|
|
|
|
4.83
|
|
|
|
25,000
|
|
2011
|
|
|
2.69
|
|
|
|
75,000
|
|
|
|
4.80
|
|
|
|
4,968
|
|
2012
|
|
|
4.44
|
|
|
|
5,000
|
|
|
|
4.49
|
|
|
|
30,000
|
|
2013
|
|
|
3.46
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
4.58
|
|
|
|
66,340
|
|
|
|
5.39
|
|
|
|
26,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2.67
|
%
|
|
$
|
361,324
|
|
|
|
4.63
|
%
|
|
$
|
222,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above schedule is by contractual maturity. Call dates for
the above are as follows: 2009, $104,000,000; and 2010,
$111,340,000.
The advances are secured by a blanket lien on certain
residential and commercial real estate loans and agency
mortgage-backed securities, all with a carrying value of
approximately $946,000,000 at December 31, 2008. The
Corporation has available approximately $199,000,000 in unused
advances under the blanket lien subject to the availability of
qualifying collateral.
In February 2008, FHLB advances totaling $100,000,000 were
refinanced to lower the current interest rate in response to
current market conditions. This refinancing was accounted for as
debt modification therefore no gain or loss was recognized on
the transaction. The following table summarizes the current
terms of the refinanced advances by contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Current
|
|
|
Average Rate
|
|
|
|
|
|
|
Weighted
|
|
|
Before
|
|
|
|
|
Matures
|
|
Average Rate
|
|
|
Refinancing
|
|
|
Balance
|
|
|
2011
|
|
|
2.77
|
%
|
|
|
4.60
|
%
|
|
$
|
25,000
|
|
2013
|
|
|
3.46
|
|
|
|
4.21
|
|
|
|
35,000
|
|
2015
|
|
|
4.05
|
|
|
|
4.57
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.52
|
%
|
|
|
4.45
|
%
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call dates for the refinanced advances are as follows: 2009,
$25,000,000; and 2010, $75,000,000.
105
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Advances
from Federal Home Loan
Bank (Continued)
|
The FHLB has issued for the benefit of the Corporations
banking subsidiary a $20,000,000 irrevocable letter of credit in
favor of the Chief Financial Officer of the State of Florida to
secure certain deposits of the State of Florida. The letter of
credit expires January 5, 2009 upon sixty days prior
notice of non-renewal; otherwise, it shall automatically extend
for a successive one-year term. The term was automatically
extended to January 5, 2010.
|
|
9.
|
Federal
Funds Borrowed and Security Repurchase Agreements
|
Detail of Federal funds borrowed and security repurchase
agreements follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at December 31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
$
|
|
|
|
$
|
10,000
|
|
Security repurchase agreements
|
|
|
3,563
|
|
|
|
7,075
|
|
Maximum outstanding at any month end:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
3,135
|
|
|
|
10,000
|
|
Security repurchase agreements
|
|
|
7,817
|
|
|
|
28,545
|
|
Daily average amount outstanding:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
1,145
|
|
|
|
1,263
|
|
Security repurchase agreements
|
|
|
6,367
|
|
|
|
15,798
|
|
Weighted daily average interest rate:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
2.93
|
%
|
|
|
5.43
|
%
|
Security repurchase agreements
|
|
|
2.14
|
|
|
|
5.28
|
|
Weighted daily interest rate for amounts outstanding at December
31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
|
%
|
|
|
3.65
|
%
|
Security repurchase agreements
|
|
|
0.29
|
|
|
|
4.22
|
|
The carrying value of securities sold under repurchase
agreements is $10,015,000 and $20,500,000 As of
December 31, 2008 and 2007, respectively.
The following is a summary of notes payable As of
December 31, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Balance at December 31:
|
|
Principal
|
|
|
Rate
|
|
|
Principal
|
|
|
Rate
|
|
|
Note payable to bank, borrowed under $10,000,000 line of credit,
due September 3, 2009; interest is based on the
lenders base rate, secured by 100% of the outstanding
Superior Bank stock(1)
|
|
$
|
7,000
|
|
|
|
4.50
|
%
|
|
$
|
|
|
|
|
|
%
|
Note payable to bank, borrowed under $10,000,000 line of credit,
due January 26, 2008; interest is based on the
30-day LIBOR
plus 1.25%, secured by 51% of the outstanding Superior Bank
stock(2)
|
|
|
|
|
|
|
|
|
|
|
9,500
|
|
|
|
6.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
7,000
|
|
|
|
4.50
|
%
|
|
$
|
9,500
|
|
|
|
6.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Borrowings under this line are subject to certain customary
affirmative and negative covenants on capital levels,
indebtedness, mergers and other related matters. As of
December 31, 2008, the Corporation was in compliance with
all covenants. |
|
(2) |
|
Extended for successive
90-day
periods and paid-off September 4, 2008. |
106
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Subordinated
Debentures
|
Subordinated
Debt and Related Warrant
On September 17, 2008, the Corporations banking
subsidiary (Bank) 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
$10,000,000 in aggregate principal amount of
9.5% Subordinated Notes due September 15, 2018 (the
Notes), and the Bank 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 the
Corporations common stock for the 10 trading days
immediately preceding September 17, 2008. Interest on the
Notes 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
Notes. 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 Notes on any interest
payment date at a price equal to 100% of the principal amount of
the redeemed Notes 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
(SEC) 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 $10,000,000 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 the Bank.
Junior
Subordinated Debentures
On July 19, 2007, the Corporation issued approximately
$22,000,000 in aggregate principal amount of
Trust Preferred Securities and a like amount of related
subordinated debentures through the Corporations
wholly-owned, unconsolidated subsidiary trust, Superior Capital
Trust I. The Trust Preferred Securities and
subordinated debentures bear interest at a floating rate of
three-month LIBOR plus 1.33% that is payable quarterly. The
Trust Preferred Securities, which may be redeemed on or
after September 15, 2012, will mature on September 15,
2037.
On July 25, 2007, the Corporation completed its redemption
of approximately $16,000,000 in aggregate outstanding principal
amount of Trust Preferred Securities and related six-month
LIBOR plus 3.75% junior subordinated debentures due
July 25, 2031, both of which were issued by the
Corporations wholly-owned, unconsolidated subsidiary
trust, TBC Capital Statutory Trust III. The Corporation
called the securities for redemption effective July 25,
2007 at a redemption price equal to 106.15% of par. The
Corporation incurred a loss of approximately $1,469,000
($925,000 net of tax, or $.02 per share), during the third
quarter of 2007 relating to the redemption of the outstanding
Trust Preferred Securities.
The remaining proceeds from the issuance of the new trust
preferred securities were used in the stock repurchase program
and for other corporate purposes.
The Corporation has three additional sponsored trusts, TBC
Capital Statutory Trust II (TBC Capital II),
Community (AL) Capital Trust I (Community Capital
I) and Peoples Community Statutory Trust I
(Peoples Trust I), of which 100% of the common
equity is owned by the Corporation. All trusts were formed for
the purpose of issuing Corporation-obligated mandatory
redeemable trust preferred securities to third-party investors
and investing the proceeds from the sale of such trust preferred
securities solely in junior subordinated debt securities of the
Corporation (the debentures). The debentures held by each trust
are the sole assets of that trust. Distributions on the trust
preferred securities issued by each trust are payable quarterly
and semi-annually, at a rate per annum equal
107
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Subordinated
Debentures (Continued)
|
to the interest rate being earned by the trust on the debentures
held by that trust. The trust preferred securities are subject
to mandatory redemption, in whole or in part, upon repayment of
the debentures. The Corporation has entered into agreements
which, taken collectively, fully and unconditionally guarantee
the trust preferred securities subject to the terms of each of
the guarantees. The debentures held by the TBC Capital II,
Community Capital I and Peoples Trust I trusts are first
redeemable, in whole or in part, by the Corporation on
September 7, 2010, March 8, 2010 and December 15,
2010, respectively.
Consolidated debt obligations related to these subsidiary trusts
are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
10.6% junior subordinated debentures owed to TBC Capital
Statutory Trust II due September 7, 2030
|
|
$
|
15,464
|
|
|
$
|
15,464
|
|
10.875% junior subordinated debentures owed to Community Capital
Trust I due March 8, 2030
|
|
|
10,310
|
|
|
|
10,310
|
|
3-month
LIBOR plus 1.33% junior subordinated debentures owed to Superior
Capital Trust I due September 15, 2037(1)
|
|
|
22,681
|
|
|
|
22,681
|
|
6.41% junior subordinated debentures owed to Peoples Community
Capital Trust I due December 15, 2035(2)
|
|
|
4,124
|
|
|
|
4,124
|
|
Purchase accounting adjustment
|
|
|
819
|
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated debentures owed to unconsolidated
subsidiary trusts
|
|
$
|
53,398
|
|
|
$
|
53,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate is equal to 3.33% at December 31, 2008. The
Corporation has entered into interest rate swap agreements to an
average effective fixed rate of 4.42%. (see Note 15) |
|
(2) |
|
Converts to quarterly floating rate of LIBOR plus 1.45% in
December 2010. |
|
|
12.
|
Stock
Incentive Plans
|
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which
is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123), and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB Opinion
25). The new standard, which became effective for the
Corporation in the first quarter of 2006, requires companies to
recognize an expense in the statement of operations for the
grant-date fair value of stock options and other equity-based
compensation issued to employees, but expresses no preference
for a type of valuation method. This expense is recognized over
the period during which an employee is required to provide
service in exchange for the award. SFAS 123R carries
forward prior guidance on accounting for awards to
non-employees. If an equity award is modified after the grant
date, incremental compensation cost will be recognized in an
amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately
prior to the modification. The Corporation recognizes
compensation expense for all stock awards granted after
December 31, 2005. Since all of the Corporations
stock option awards granted prior to December 31, 2005 have
vested in full, no future compensation expense will be
recognized on these awards.
The Corporation adopted the provisions of SFAS 123R using
the modified-prospective transition method. Under that
transition method, compensation cost recognized in 2008, 2007
and 2006 includes $910,000, $473,000 and $165,000, respectively,
in compensation cost for all share-based payments granted
subsequent to December 31, 2005, based on the grant-date
fair value estimated in accordance with the provisions of
SFAS 123R. Results for prior periods have not been restated.
108
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
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
the Corporations 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 tables below.
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. 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 years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
3.65
|
%
|
|
|
4.49
|
%
|
|
|
4.54
|
%
|
Volatility factor
|
|
|
35.19
|
%
|
|
|
29.11
|
%
|
|
|
30.16
|
%
|
Expected term (in years)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
5.00
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
109
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
A summary of stock option activity As of December 31, 2008,
2007 and 2006, and changes during the years then ended is set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
For the Year Ended December 31, 2008
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Under option, beginning of period
|
|
|
802,048
|
|
|
$
|
33.08
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
114,875
|
|
|
|
9.45
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(68,001
|
)
|
|
|
(32.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
848,922
|
|
|
$
|
29.94
|
|
|
|
6.19
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
634,028
|
|
|
$
|
31.72
|
|
|
|
3.94
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
3.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
For the Year Ended December 31, 2007
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Under option, beginning of period
|
|
|
760,649
|
|
|
$
|
32.28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
69,149
|
|
|
|
40.20
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21,250
|
)
|
|
|
25.48
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6,500
|
)
|
|
|
41.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
802,048
|
|
|
$
|
33.08
|
|
|
|
6.70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
691,649
|
|
|
$
|
31.76
|
|
|
|
5.44
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
13.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
For the Year Ended December 31, 2006
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Under option, beginning of period
|
|
|
757,987
|
|
|
$
|
31.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
46,625
|
|
|
|
43.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(38,955
|
)
|
|
|
25.48
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,008
|
)
|
|
|
28.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
760,649
|
|
|
$
|
32.28
|
|
|
|
7.39
|
|
|
$
|
9,940,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
715,274
|
|
|
$
|
31.60
|
|
|
|
6.82
|
|
|
$
|
9,847,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
15.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
The total intrinsic value of options exercised during the years
ended December 31, 2008, 2007 and 2006 was $-0-, $287,000
and $814,000, respectively. As of December 31, 2008, there
was $732,000 of total unrecognized compensation expense related
to the unvested awards. This expense will be recognized over
approximately the next
30-months
unless the shares vest earlier based on achievement of benchmark
trading price levels. During the year ended December 31,
2008, 2007 and 2006, the Corporation recognized approximately
$623,000, $473,000 and $165,000 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
twelve month period ended December 31, 2008, the
Corporation recognized approximately $286,000 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.
Employee
Stock Ownership Plans
Superior
Bancorp ESOP
Effective August 31, 2007, the Corporation terminated the
Superior Bancorp Employee Stock Ownership Plan (the
ESOP). The ESOP was leveraged, and a promissory note
existed between the ESOP and the Corporation that had a
remaining balance of $1,165,000 at the termination date. The
promissory note was satisfied by the transfer from the ESOP to
the Corporation of 31,867 unallocated shares of Corporation
common stock valued at a price of $36.56 per share, the closing
price that day. The Corporation transferred these shares during
the third quarter of 2007 to treasury stock at current market
value from the unallocated ESOP shares account. The remaining
4,295 unallocated shares were committed to be allocated to the
participants accounts, and, as a result, the Corporation
recognized additional compensation expense during the third
quarter of 2007 of approximately $158,000.
On January 29, 2003, the ESOP trustees finalized a
$2,100,000 promissory note, which has been fully repaid as
discussed above, to reimburse the Corporation for the funds used
to leverage the ESOP. The unreleased shares and a guarantee of
the Corporation secured the promissory note, which had been
classified as notes payable on the Corporations statement
of financial condition. As the debt was repaid, shares were
released from collateral based on the proportion of debt
service. Principal payments on the debt were $17,500 per month
for 120 months. The interest rate adjusted to the Wall
Street Journal prime rate. Interest expense incurred on the
debt in 2007 and 2006 totaled $82,000 and $122,000,
respectively. Total contributions to the plan during 2007 and
2006 totaled $1,326,000, and $322,000, respectively. Released
shares were allocated to eligible employees at the end of the
plan year based on the employees eligible compensation to
total compensation. The Corporation recognized compensation
expense during the period as the shares were earned and
committed to be released. As shares were committed to be
released and compensation expense was recognized, the shares
became outstanding for basic and diluted earnings per share
computations. The amount of compensation expense reported by the
Corporation is equal to the average fair value of the shares
earned and committed to be released during the period.
Compensation expense that the Corporation recognized during the
period ended December 31, 2007 and 2006 was $371,000 and
$304,000, respectively.
111
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
Community
Bancshares ESOP
As a result of its merger with Community, the Corporation became
a sponsor of an internally leveraged ESOP maintained by
Community. This ESOP has an outstanding loan to the Corporation
that bears interest at a floating rate equal to the prime rate
of interest. As of December 31, 2008, the interest rate on
the note was 4.00%. Principal and interest payments on the ESOP
loan are due monthly through August, 2011, based on the current
amortization schedule, with the remaining principal and
interest, if any, due upon that date. The ESOP loan may be
prepaid in whole or in part without penalty under the loan
agreement, subject to applicable ERISA and tax restrictions. The
Corporation makes contributions to the ESOP that enables the
ESOP to make payments due under the ESOP loan. Under Statement
of Position
No. 93-6
(SOP 93-6),
Employers Accounting for Employee Stock Ownership
Plans, employers that sponsor an ESOP with an employer
loan should not report the ESOPs note payable or the
employers note receivable in the employers statement
of condition, nor should interest cost or interest income be
recognized on the employer loan. The Corporation has followed
SOP 93-6
accordingly. The principal balance of the Companys loan to
the ESOP at December 31, 2008 was $708,000.
An employee becomes a participant in the ESOP after completing
12 months of service during which the employee is credited
with 1,000 hours or more of service. Contributions to the
plan are made at the discretion of the board but may not be less
than the amount required to service the ESOP debt. Under the
terms of the ESOP, after a person ceases to be an employee of
the Corporation, that person is no longer eligible to
participate in the ESOP. In that case, the person may demand to
receive all stock credited to his benefit under the ESOP as of
the end of the year immediately preceding that persons
termination of employment with the Corporation.
Dividends paid on released ESOP shares are credited to the
accounts of the participants to whom the shares are allocated.
Dividends on unreleased shares may be used to repay the debt
associated with the ESOP or treated as other income of the ESOP
and allocated to the participants. Compensation cost recognized
during the period ended December 31, 2008 and 2007 was
$36,000 and $125,000, respectively. The ESOP shares as of
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Allocated shares
|
|
|
86,443
|
|
|
|
83,460
|
|
Estimated shares committed to be released
|
|
|
3,908
|
|
|
|
2,983
|
|
Unreleased shares
|
|
|
9,774
|
|
|
|
13,682
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
100,125
|
|
|
|
100,125
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
43,000
|
|
|
$
|
294,000
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Profit-Sharing
Plan and Other Agreements
|
The Corporation sponsors a profit-sharing plan that permits
participants to make contributions by salary reduction pursuant
to Section 401(k) of the Internal Revenue Code. This plan
covers substantially all employees who meet certain age and
length of service requirements. The Corporation matches
contributions at its discretion. The Corporations
contributions to the plan were $1,062,000, $886,000 and $549,000
in 2008, 2007 and 2006, respectively.
The Corporation has various nonqualified retirement agreements
with certain current and former directors and former executive
officers. Generally, the agreements provide a fixed retirement
benefit that will be paid in installments ranging from 10 to
20 years. As of December 31, 2008 and 2007,
substantially all of the benefits due under these plans were
vested. The Corporations nonqualified retirement
agreements had an aggregate unfunded projected benefit of
approximately $5,316,000 (see settlement discussion below) as of
December 31, 2008 and $14,179,000 at December 31,
2007. The accrued liability, included in other liabilities,
associated with these benefits
112
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Profit-Sharing
Plan and Other Agreements (Continued)
|
totaled $2,312,000 and $6,331,000 at December 31, 2008 and
2007, respectively, which represents the present value of the
future benefits. Compensation expense related to these plans
totaled $175,000, $334,000 and $216,000 for 2008, 2007 and 2006,
respectfully.
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) and resulted in a pre-tax gain of $2,344,000.
The components of the consolidated income tax (benefit) expense
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
73
|
|
|
$
|
88
|
|
|
$
|
|
|
State
|
|
|
75
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense
|
|
|
148
|
|
|
|
113
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,243
|
)
|
|
|
3,529
|
|
|
|
1,555
|
|
State
|
|
|
(493
|
)
|
|
|
492
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) expense
|
|
|
(4,736
|
)
|
|
|
4,021
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
$
|
(4,588
|
)
|
|
$
|
4,134
|
|
|
$
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Corporations deferred income
tax assets and liabilities As of December 31, 2008 and 2007
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Rehabilitation tax credit
|
|
$
|
5,981
|
|
|
$
|
5,981
|
|
Allowance for loan losses
|
|
|
10,601
|
|
|
|
8,367
|
|
Deferred compensation
|
|
|
1,423
|
|
|
|
3,910
|
|
Net operating loss carryforwards
|
|
|
12,562
|
|
|
|
12,226
|
|
Alternative minimum tax credit carryover
|
|
|
1,243
|
|
|
|
1,122
|
|
Purchase accounting basis differences
|
|
|
1,234
|
|
|
|
2,770
|
|
Other-than-temporary impairment loss on securities
|
|
|
3,761
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
3,439
|
|
|
|
365
|
|
Other
|
|
|
3,989
|
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
44,233
|
|
|
|
36,935
|
|
Less: valuation allowance on net operating loss carryforwards
|
|
|
(1,207
|
)
|
|
|
(1,207
|
)
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Difference in book and tax basis of premises and equipment
|
|
|
4,389
|
|
|
|
4,127
|
|
Excess purchase price and intangibles
|
|
|
5,848
|
|
|
|
9,901
|
|
Other
|
|
|
466
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
10,703
|
|
|
|
14,866
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
32,323
|
|
|
$
|
20,862
|
|
|
|
|
|
|
|
|
|
|
113
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
Management assesses the need for a valuation allowance against
the Corporations deferred tax assets in accordance with
SFAS No. 109, Accounting for Income Taxes. The
Corporations determination of the realization of deferred
tax assets (net of valuation allowances) is based upon
managements judgment of various future events and
uncertainties, including future reversals of existing taxable
temporary differences, the timing and amount of future income
earned by the Corporations subsidiaries and the
implementation of various tax planning strategies to maximize
realization of the deferred tax assets. A portion of the amount
of the deferred tax asset that can be realized in any year is
subject to certain statutory federal income tax limitations. The
Corporation believes that its subsidiaries will be able to
generate sufficient operating earnings to realize the deferred
tax benefits except as discussed in the following paragraph. The
Corporation evaluates quarterly the realizability of the
deferred tax assets and, if necessary, adjusts any valuation
allowance accordingly.
In 2006, due to limitations on the use of state net operating
losses acquired in the merger with Community, a valuation
allowance of $1,207,000 was established against such deferred
income tax assets in purchase accounting. Any subsequently
recognized income tax benefits relating to this valuation
allowance will be reflected as a reduction of goodwill related
to the acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected tax (benefit) expense at statutory rate of income
(loss) before taxes
|
|
$
|
(57,031
|
)
|
|
$
|
3,996
|
|
|
$
|
2,353
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax (benefit) expense, net of federal tax
|
|
|
(276
|
)
|
|
|
341
|
|
|
|
243
|
|
Effect of interest income exempt from Federal income taxes
|
|
|
(665
|
)
|
|
|
(468
|
)
|
|
|
(251
|
)
|
Increase in cash surrender value of life insurance
|
|
|
(654
|
)
|
|
|
(644
|
)
|
|
|
(537
|
)
|
Effect of nondeductible goodwill impairment charge
|
|
|
53,656
|
|
|
|
|
|
|
|
|
|
Taxable exchange of cash surrender value of life insurance
|
|
|
|
|
|
|
256
|
|
|
|
|
|
Other items net
|
|
|
382
|
|
|
|
653
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(4,588
|
)
|
|
$
|
4,134
|
|
|
$
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
The effective tax rate differs from the expected tax using the
statutory rate. Reconciliation between the expected tax and the
actual income tax (benefit) expense follows (in thousands):
The Corporations unused net operating loss carryforwards
and expiration dates are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Year of expiration:
|
|
Federal
|
|
|
Alabama
|
|
|
2010
|
|
$
|
|
|
|
$
|
1,795
|
|
2011
|
|
|
|
|
|
|
13,147
|
|
2012
|
|
|
|
|
|
|
14,768
|
|
2013
|
|
|
|
|
|
|
22,110
|
|
2014
|
|
|
|
|
|
|
6,750
|
|
2015
|
|
|
|
|
|
|
3,453
|
|
2016
|
|
|
|
|
|
|
3,137
|
|
2017 through 2022
|
|
|
|
|
|
|
978
|
|
2023
|
|
|
5,303
|
|
|
|
53
|
|
2024
|
|
|
13,043
|
|
|
|
|
|
2025
|
|
|
5,812
|
|
|
|
|
|
2026
|
|
|
5,721
|
|
|
|
|
|
2027
|
|
|
143
|
|
|
|
|
|
2028
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,031
|
|
|
$
|
66,191
|
|
|
|
|
|
|
|
|
|
|
The Corporation has available at December 31, 2008 unused
rehabilitation tax credits that can be carried forward and
utilized against future Federal income tax liability. Unused
credits and expiration dates are as follows (in thousands):
|
|
|
|
|
Year of expiration:
|
|
|
|
|
2018
|
|
$
|
1,734
|
|
2019
|
|
|
738
|
|
2020
|
|
|
1,261
|
|
2021
|
|
|
522
|
|
2022
|
|
|
366
|
|
2023
|
|
|
960
|
|
2024
|
|
|
400
|
|
|
|
|
|
|
|
|
$
|
5,981
|
|
|
|
|
|
|
This credit was established as a result of the restoration and
enhancement of the John A. Hand Building, which is designated as
an historical structure and serves as the corporate headquarters
for the Corporation. This credit is equal to 20% of certain
qualified expenditures incurred by the Corporation prior to
December 31, 2005. The Corporation is required to reduce
its tax basis in the John A. Hand Building by the amount of the
credit.
Applicable income tax (benefit) expense of $(3,128,000),
$114,000, and $-0- on investment securities (losses) gains for
the years ended December 31, 2008, 2007, and 2006,
respectively, is included in income taxes.
The Corporation recognized a ($98,000) tax benefit in 2007
related to the exercise of nonqualified stock options. This
benefit was recognized as a credit to stockholders equity
as additional surplus.
115
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
The Corporation adopted FIN 48 on January 1, 2007. As
a result of the adoption, the Corporation recognized a charge of
approximately $555,000 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
$146,000. 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. A
reconciliation of the beginning and ending amount of
unrecognized tax benefit is as follows:
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
459,000
|
|
Additions based upon tax positions related to the current year
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
(123,000
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
336,000
|
|
|
|
|
|
|
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,
2003, 2005, 2006 and 2007, which include proposed adjustments
relating to income apportionment of a subsidiary. All state
income tax matters have been concluded for years through 2004
except that the Corporation had certain notices of proposed
adjustments relating to state taxes due for the years 2002,
2003, 2005, 2006 and 2007 relating to income apportionment of a
subsidiary. During the first quarter of 2009, management settled
these matters for $800,000 which had been estimated and accrued
through December 31, 2008; therefore there will be no
effect on our reported earnings for 2008 or subsequent periods..
The reduction in the unrecognized tax benefit above was the
result of a three-year statue of limitations on the 2004 taxable
year.
The Corporation maintains positions in derivative financial
instruments to manage interest rate risk and facilitate
asset/liability management strategies. The fair value of
derivatives are recorded in other assets or other liabilities.
Interest
Rate Swaps
During 2008, eight swaps (CD swaps) with a notional
amount of $37,000,000 were called at par with no effect to
earnings. These hedges had been entered during previous years to
hedge the interest rate risk inherent in certain of its brokered
certificates of deposits (brokered CDs). Six of the
eight brokered CDs were also called at the Corporations
option. The remaining two brokered CDs will likely be called
during 2009. The CD swaps were used to convert the fixed rate
paid on the brokered CDs to a variable rate based upon
three-month LIBOR.
Fair
Value Hedges
As of December 31, 2008 and 2007, the Corporation had
$5,334,000 and $3,150,000, respectively in notional amount of CD
swaps designated and qualified as fair value hedges. As fair
value hedges, the net cash settlements from the designated swaps
are reported as part of net interest income. In addition, the
Corporation will recognize in current earnings the change in
fair value of both the interest rate swap and related hedged
brokered CDs, with the ineffective portion of the hedge
relationship reported in noninterest income. The fair value of
the CD swaps is
116
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Derivatives (Continued)
|
reported on the Consolidated Statements of Financial Condition
in other assets or other liabilities and the change in fair
value of the related hedged brokered CD is reported as an
adjustment to the carrying value of the brokered CDs. As of
December 31, 2008 and 2007, the amount of CD swaps
designated had a recorded fair value of $799,000 and $55,000,
respectively, and a weighted average life of 6.8 and
6.6 years, respectively. The weighted average fixed rate
(receiving rate) was 4.95% and the weighted average variable
rate (paying rate) was 2.07% (LIBOR based).
Cash Flow
Hedges
The Corporation has entered into an interest rate swap
agreements with a notional amount of $22,000,000 to hedge the
variability in cash flows on $22,000,000 of junior subordinated
debentures (See Note 11). Under the terms of the interest
rate swaps, which mature September 15, 2012, the
Corporation receives a floating rate based on
3-month
LIBOR plus 1.33% (3.33% as of December 31, 2008) and
pays a weighted average fixed rate of 4.42%. Under the cash flow
hedging model, the effective portion of the gain or loss related
to these derivative instruments, if any, is recognized as a
component of other comprehensive income. As of December 31,
2008 these interest rate swap agreements have a negative
carrying value of $954,000 which is included in other
liabilities on the Consolidated Statement of Financial
Condition, with a corresponding after-tax charge of $601,000 for
the effective portion of the hedge.
Interest
Rate Floors
During the fourth quarter of 2006, the Corporation entered into
certain interest rate floor contracts that were not qualified
for hedge accounting treatment and were used as an economic
hedge. An interest rate floor is a contract in which the
counterparty agrees to pay the difference between a current
market rate of interest and an agreed rate multiplied by the
amount of the notional amount. The Corporation entered into
$50,000,000 interest rate floor contracts for a
3-year
period with a 4.25% floor on the
3-month
LIBOR rate. The Corporation paid a $248,000 premium. These
economic hedges were carried at fair value in other assets or
other liabilities and changes in the fair value of these
derivatives and any payments received were recognized in
noninterest income. The floors had a positive fair value of
$590,000 as of December 31, 2007. In March 2008, the
Corporation terminated its interest rate floor contracts for
$1,267,000 which resulted in a realized pre-tax gain of $677,000
that was recognized in the first quarter of 2008.
Commitments
to Originate Mortgage Loans
During the ordinary course of business, the Corporation enters
into certain commitments with customers in connection with
residential mortgage loan applications. Such commitments are
considered derivatives under the provisions of
SFAS No. 133, as amended by SFAS No. 149,
Amendment to Statement 133 on Derivatives Instruments and
Hedging Activities, and are therefore required to be
recorded at fair value. The aggregate amount of these mortgage
loan origination commitments was $92,721,000 and $20,908,000 at
December 31, 2008 and 2007, respectively. The net
unrealized (loss) gain of the origination commitments were
$(117,000) and $122,000 at December 31, 2008 and 2007,
respectively. The fair values are calculated based on changes in
market interest rates after the commitment date.
|
|
16.
|
Related
Party Transactions
|
The Corporation has entered into transactions with its
directors, executive officers, significant stockholders and
their affiliates (related parties). Such transactions were made
in the ordinary course of business on substantially the same
terms and conditions, including interest rates and collateral,
as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such
related parties at
117
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Related
Party Transactions (Continued)
|
December 31, 2008 and 2007 were $48,414,000 and
$24,381,000, respectively. Activity during the year ended
December 31, 2008 is summarized as follows (in thousands):
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
Other
|
|
Balance
|
2007
|
|
Loans Originated
|
|
Advances
|
|
Repayments
|
|
Changes
|
|
December 31, 2008
|
|
$
|
24,381
|
|
|
$
|
24,583
|
|
|
$
|
7,297
|
|
|
$
|
22,464
|
|
|
$
|
14,617
|
|
|
$
|
48,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, the deposits of such related
parties in the subsidiary bank amounted to approximately
$22,053,228 and $35,825,000, respectively.
An insurance agency owned by one of the Corporations
directors received commissions of approximately $197,184,
$185,328, and $166,876 from the sale of insurance to the
Corporation during 2008, 2007 and 2006, respectively. Also,
several sale-leaseback transactions were completed with one of
the directors of the Corporation during 2007 and 2008. The total
amount of rent paid by Superior Bank during 2008 and 2007
pursuant to these leases was $300,680 and $97,500, respectively.
These transactions are discussed further in Note 6.
The Corporation believes that all of the foregoing transactions
were made on terms and conditions reflective of arms
length transactions.
|
|
17.
|
Commitments
and Contingencies
|
The consolidated financial statements do not reflect the
Corporations various commitments and contingent
liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are
commitments to extend credit and standby letters of credit. The
following is a summary of the Corporations maximum
exposure to credit loss for loan commitments and standby letters
of credit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
Commitments to extend credit
|
|
$
|
355,243
|
|
|
$
|
355,579
|
|
Standby letters of credit
|
|
|
35,636
|
|
|
|
29,107
|
|
Commitments to extend credit and standby letters of credit all
include exposure to some credit loss in the event of
nonperformance by the customer. The Corporations credit
policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that
are recorded in the consolidated statement of financial
condition. Because these instruments have fixed maturity dates,
and because many of them expire without being drawn upon, they
do not generally present any significant liquidity risk to the
Corporation.
During 2008, 2007 and 2006, the Corporation settled various
litigation matters, none of which were significant. The
Corporation is also a defendant or co-defendant in various
lawsuits incidental to the banking business. Management, after
consultation with legal counsel, believes that liabilities, if
any, arising from such litigation and claims will not result in
a material adverse effect on the consolidated financial
statements of the Corporation.
The Corporation is constructing or has plans to construct
various new branch locations. In that regard, the Corporation
has remaining commitments as of, or subsequent to,
December 31, 2008 for the construction of these branch
locations totaling approximately $552,000.
118
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Regulatory
Restrictions
|
A source of funds available to the Corporation is the payment of
dividends by its subsidiary. Regulations limit the amount of
dividends that may be paid without prior approval of the
subsidiarys regulatory agency. Approximately $6,000,000 is
available to be paid as dividends by the subsidiary at
December 31, 2008.
During the fourth quarter of 2005 the Corporation became a
unitary thrift holding company and, as such, is subject to
regulation, examination and supervision by the OTS.
Simultaneously, the Corporations subsidiary banks
charter was changed to a federal savings bank charter and is
also subject to various regulatory requirements administered by
the OTS. Prior to November 1, 2005 the Corporations
banking subsidiary was regulated by the Alabama Banking
Department and the Federal Reserve. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Corporations and its subsidiaries financial condition and
results of operations. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the
subsidiary bank must meet specific capital guidelines that
involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The subsidiary banks capital amounts
and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other
factors
Quantitative measures established by regulation to ensure
capital adequacy require the Corporations subsidiary bank
to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital (as defined in the
regulations) to adjusted total assets (as defined), and of total
capital (as defined) and Tier 1 capital to risk weighted
assets (as defined). Management believes, as of
December 31, 2008 and 2007, that the Corporations
subsidiary bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 2008 and 2007, the most recent
notification from the subsidiarys primary regulators
categorized the subsidiary as well capitalized under
the regulatory framework for prompt corrective action. The table
below represents the Corporations bank subsidiarys
regulatory and minimum regulatory capital requirements at
December 31, 2008 and 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized
|
|
|
|
|
|
|
Adequacy
|
|
|
Under Prompt
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Corrective Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital
(to Adjusted Total Assets)
|
|
$
|
271,146
|
|
|
|
9.00
|
%
|
|
$
|
120,510
|
|
|
|
4.00
|
%
|
|
$
|
150,638
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
304,892
|
|
|
|
12.15
|
|
|
|
200,761
|
|
|
|
8.00
|
|
|
|
250,951
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
271,146
|
|
|
|
10.80
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
150,571
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
271,146
|
|
|
|
9.00
|
|
|
|
45,191
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets)
|
|
$
|
204,145
|
|
|
|
7.64
|
%
|
|
$
|
106,872
|
|
|
|
4.00
|
%
|
|
$
|
133,591
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
225,602
|
|
|
|
10.42
|
|
|
|
172,683
|
|
|
|
8.00
|
|
|
|
215,854
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
204,145
|
|
|
|
9.43
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
129,513
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
204,145
|
|
|
|
7.64
|
|
|
|
40,077
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
119
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial Instruments
|
In September 2006, the FASB issued SFAS 157 (see
Note 1) 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 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.
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
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Available for sale securities
|
|
$
|
347,142
|
|
|
$
|
164
|
|
|
$
|
328,481
|
|
|
$
|
18,497
|
|
Derivative assets
|
|
|
1,427
|
|
|
|
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets
|
|
$
|
348,569
|
|
|
$
|
164
|
|
|
$
|
329,908
|
|
|
$
|
18,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,534
|
|
|
$
|
|
|
|
$
|
1,534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured liabilities
|
|
$
|
1,534
|
|
|
$
|
|
|
|
$
|
1,534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
120
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
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.
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 third-party leading 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 table below includes a
roll-forward of the Consolidated Statement of Financial
Condition amounts for the year ended December 31, 2008, for
changes in fair value of 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
|
|
|
|
Sale Securities
|
|
|
|
(In thousands)
|
|
|
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
|
|
|
(7,459
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
18,497
|
|
|
|
|
|
|
Net realized losses included in net loss for the year-to-date
relating to Level 3 assets held at December 31, 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
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Mortgage loans held for sale
|
|
$
|
22,040
|
|
|
$
|
|
|
|
$
|
22,040
|
|
|
$
|
|
|
Impaired loans, net of specific allowance
|
|
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets
|
|
$
|
69,814
|
|
|
$
|
|
|
|
$
|
22,040
|
|
|
$
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
121
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
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 approved and hired by the Corporation. The
value of business equipment is based on an appraisal 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.
SFAS 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of the fair value of
financial assets and financial liabilities, including those
financial assets and financial liabilities that are not measured
and reported at fair value on a recurring basis or non-recurring
basis. The methodologies for estimating the fair value of
financial assets and financial liabilities that are measured at
fair value on a recurring or non-recurring basis are discussed
above. The estimated fair value approximates carrying value for
cash and short-term instruments, accrued interest and the cash
surrender value of life insurance policies. The methodologies
for other financial assets and financial liabilities are
discussed below:
Tax lien certificates. The carrying amount of
tax lien certificates approximates their fair value.
Net loans. Fair values for variable-rate loans
that reprice frequently and have no significant change in credit
risk are based on carrying values. Fair values for all other
loans are estimated using discounted cash flow analyses using
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable.
Deposits The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The carrying
amounts of variable-rate, fixed-term money market accounts and
certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on advances from the FHLB
of Atlanta to a schedule of aggregated expected monthly
maturities on time deposits.
Advances from FHLB. Rates currently available
to the Corporation for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
Federal funds borrowed and security repurchase
agreements. The carrying amount of federal funds
borrowed and security repurchase agreements approximate their
fair values.
Notes payable. The carrying amount of notes
payable approximates their fair values.
Subordinated debentures. Rates currently
available to the Corporation for preferred offerings with
similar terms and maturities are used to estimate fair value.
Limitations. Fair value estimates are made at
a specific point of time and are based on relevant market
information, which is continuously changing. Because no quoted
market prices exist for a significant portion of the
Corporations financial instruments, fair values for such
instruments are based on managements assumptions with
respect to future economic conditions, estimated discount rates,
estimates of the amount and timing of future cash flows,
expected loss experience, and other factors. These estimates are
subjective in nature involving uncertainties and matters of
significant judgment; therefore, they cannot be determined with
precision. Changes in the assumptions could significantly affect
the estimates.
122
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
The estimated fair values of the Corporations financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
74,237
|
|
|
$
|
74,237
|
|
|
$
|
52,983
|
|
|
$
|
52,983
|
|
Interest-bearing deposits in other banks
|
|
|
10,042
|
|
|
|
10,042
|
|
|
|
6,916
|
|
|
|
6,916
|
|
Federal funds sold
|
|
|
5,169
|
|
|
|
5,169
|
|
|
|
3,452
|
|
|
|
3,452
|
|
Securities available for sale
|
|
|
347,142
|
|
|
|
347,142
|
|
|
|
361,171
|
|
|
|
361,171
|
|
Tax lien certificates
|
|
|
23,786
|
|
|
|
23,786
|
|
|
|
15,615
|
|
|
|
15,615
|
|
Mortgage loans held for sale
|
|
|
22,040
|
|
|
|
22,040
|
|
|
|
33,408
|
|
|
|
33,408
|
|
Net loans
|
|
|
2,314,921
|
|
|
|
2,374,637
|
|
|
|
2,017,011
|
|
|
|
2,010,120
|
|
Stock in FHLB
|
|
|
21,410
|
|
|
|
21,410
|
|
|
|
14,945
|
|
|
|
14,945
|
|
Accrued interest receivable
|
|
|
14,794
|
|
|
|
14,794
|
|
|
|
16,512
|
|
|
|
16,512
|
|
Derivative assets
|
|
|
1,427
|
|
|
|
1,427
|
|
|
|
657
|
|
|
|
657
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,342,988
|
|
|
|
2,363,270
|
|
|
|
2,200,611
|
|
|
|
2,204,371
|
|
Advances from FHLB
|
|
|
361,324
|
|
|
|
382,547
|
|
|
|
222,828
|
|
|
|
229,042
|
|
Federal funds borrowed and security repurchase agreements
|
|
|
3,563
|
|
|
|
3,563
|
|
|
|
17,075
|
|
|
|
17,075
|
|
Note payable
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
9,500
|
|
|
|
9,500
|
|
Subordinated debentures
|
|
|
60,884
|
|
|
|
46,839
|
|
|
|
53,744
|
|
|
|
53,526
|
|
Derivative liabilities
|
|
|
1,534
|
|
|
|
1,534
|
|
|
|
|
|
|
|
|
|
As a result of its merger with Community, the Corporation became
the sponsor of a defined benefit pension plan (the Pension
Plan) and a nonqualified supplemental executive retirement
plan (the Benefit Restoration Plan). Both plans were
frozen by Community effective December 31, 2003. As long as
the plans remain frozen, no employees become eligible to
participate in the plans and no participants accrue any
additional benefits. Benefits accrued as of the date of the
freeze will be paid to participants in accordance with the terms
of the plans.
Benefits under the Pension Plan depend upon a participants
years of credited service and his or her average monthly
earnings for the highest five consecutive years out of the
participants final 10 years of employment. The number
of years of credited service and average monthly earnings for
each participant were fixed as of December 31, 2003. Normal
retirement age under the Pension Plan is age 65. A
participant with 10 years of service is eligible to receive
early retirement benefits beginning at age 55. The
Corporation is required to make contributions to the Pension
Plan in amounts sufficient to satisfy the funding requirements
of the Employee Retirement Income Security Act, as amended. The
Corporation was not required to make a contribution during the
year ended December 31, 2008 and does not anticipate that a
contribution will be required during the year ending
December 31, 2009.
The Benefit Restoration Plan was designed to provide certain key
executives of Community with benefits which would have been paid
to them under the Pension Plan except for certain limitations
imposed by the Internal Revenue Code of 1986, as amended. A
participants benefit under the Benefit Restoration Plan is
equal to the difference between his benefit under the Pension
Plan calculated without regard to such limitations less the
benefit payable to him from the Pension Plan. Benefit
Restoration Plan benefits are unfunded.
123
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
The following tables set forth the funding status and the amount
recognized for both the Pension Plan and the Benefit Restoration
Plan in the Corporations consolidated statements of
financial condition and consolidated statements of operations.
Pension
Plan:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31, 2007 and 2006
respectively
|
|
$
|
10,070
|
|
|
$
|
10,301
|
|
Interest cost
|
|
|
602
|
|
|
|
590
|
|
Benefits paid (including expenses)
|
|
|
(602
|
)
|
|
|
(556
|
)
|
Actuarial (gain)/loss
|
|
|
564
|
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
10,634
|
|
|
$
|
10,070
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of December 31, 2007 and 2006
respectively
|
|
$
|
10,537
|
|
|
$
|
10,096
|
|
Actual return on plan assets
|
|
|
(2,026
|
)
|
|
|
997
|
|
Benefits paid (including expenses)
|
|
|
(602
|
)
|
|
|
(556
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
7,909
|
|
|
$
|
10,537
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
SFAS 158)
|
|
$
|
(2,725
|
)
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Statement of Financial Condition
consist of:
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
|
|
|
$
|
467
|
|
Liabilities
|
|
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
SFAS 158)
|
|
$
|
(2,725
|
)
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and
included in accumulated other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Transition (obligation) cost
|
|
$
|
|
|
|
$
|
|
|
Prior service (cost) credit
|
|
|
|
|
|
|
|
|
Net (loss) gain
|
|
|
(2,327
|
)
|
|
|
979
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income (AOCI)
|
|
|
(2,327
|
)
|
|
|
979
|
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
(398
|
)
|
|
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition
|
|
$
|
(2,725
|
)
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
Additional year-end information for pension plans with
accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
10,634
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
10,634
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
7,909
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
5.76
|
%
|
|
|
6.11
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
124
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Expected Cash Flows
|
|
|
|
|
|
|
|
|
Expected return of assets to employer in next year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expected employer contribution for next fiscal year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expected benefit payments
|
|
|
|
|
|
|
|
|
Year ending December 31, 2009
|
|
$
|
613
|
|
|
$
|
|
|
Year ending December 31, 2010
|
|
|
627
|
|
|
|
|
|
Year ending December 31, 2011
|
|
|
613
|
|
|
|
|
|
Year ending December 31, 2012
|
|
|
614
|
|
|
|
|
|
Year ending December 31, 2013
|
|
|
601
|
|
|
|
|
|
Next five years
|
|
|
3,286
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
602
|
|
|
$
|
590
|
|
Expected return on plan assets
|
|
|
(716
|
)
|
|
|
(687
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(114
|
)
|
|
$
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.11
|
%
|
|
|
5.84
|
%
|
Expected long-term return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Rate of compensation increase
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
The long-term expected rate of return for determining net
periodic Pension Plan cost for the periods ending
December 31, 2008 and 2007 (7.00%) was chosen by the
Corporation from a best estimate range based upon the
anticipated long-term returns and long-term volatility for asset
categories based on the target asset allocation of the Pension
Plan.
The overall investment objective of the Pension Plan is to meet
the long-term benefit obligations accrued under the Pension Plan
through investment in a diversified mix of equity and fixed
income securities. The investment policy as established by the
Benefits Committee, to be followed by the Trustee, is to invest
assets based on the target allocations shown in the table below.
The assets are reallocated periodically to meet the target
allocations. The investment policy is reviewed periodically,
under the advisement of a certified investment advisor, to
determine if the policy should be modified.
Within the equity asset allocation, domestic large cap equities
comprise the majority of this category with a target of 36%;
international and small to mid cap equities comprise the
remaining with target goals of 18% and 8%, respectively. The
equity securities allocation does not include any of the
Corporations securities in 2008 or 2007. This portfolio is
measured against an index such as the S&P 500 Index or
Russell 1000 Index.
For the fixed income allocation, a prudent total return
consisting of both capital appreciation and interest income is
the expectation. The assets invested in this portfolio should
not be those which are necessary for immediate operation.
Liquidity will be managed through the use of readily marketable
securities and adherence to certain fixed income specifications
outlined in the investment policy. This portfolio will be
measured against the Barclays Intermediate Government Index, the
U.S. Treasury Linked Index, the U.S. Broad Market
Index, or other general domestic bond market index.
125
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
The Corporations Pension Plan weighted average asset
allocations at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
Assets at
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Long-term
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
target
|
|
|
Range
|
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
6.0
|
%
|
|
|
3.3
|
%
|
|
|
3.0
|
%
|
|
|
0-10
|
%
|
Equity securities
|
|
|
50.5
|
|
|
|
48.2
|
|
|
|
62.0
|
|
|
|
40-65
|
|
Debt securities
|
|
|
43.5
|
|
|
|
48.5
|
|
|
|
35.0
|
|
|
|
30-55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
Restoration Plan:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31, 2007 and 2006,
respectively
|
|
$
|
2,829
|
|
|
$
|
2,771
|
|
Interest cost
|
|
|
90
|
|
|
|
158
|
|
Benefits paid (including expenses)
|
|
|
(57
|
)
|
|
|
(60
|
)
|
Forfeiture of benefits
|
|
|
(2,224
|
)
|
|
|
|
|
Actuarial (gain)/loss
|
|
|
(28
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
610
|
|
|
$
|
2,829
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of December 31, 2007 and 2006
respectively
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
57
|
|
|
|
60
|
|
Benefits paid (including expenses)
|
|
|
(57
|
)
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
SFAS 158)
|
|
$
|
(610
|
)
|
|
$
|
(2,829
|
)
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Statement of Financial Condition
consist of:
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
(56
|
)
|
|
|
(265
|
)
|
Noncurrent liabilities
|
|
|
(554
|
)
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial position (after
SFAS 158)
|
|
$
|
(610
|
)
|
|
$
|
(2,829
|
)
|
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and
included in accumulated other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Transition (obligation) cost
|
|
$
|
|
|
|
$
|
|
|
Prior service (cost) credit
|
|
|
|
|
|
|
|
|
Net (loss) gain
|
|
|
(4
|
)
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income (AOCI)
|
|
|
(4
|
)
|
|
|
88
|
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
(606
|
)
|
|
|
(2,917
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition
|
|
$
|
(610
|
)
|
|
$
|
(2,829
|
)
|
|
|
|
|
|
|
|
|
|
126
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Additional year-end information for pension plans with
accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
610
|
|
|
$
|
2,829
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
610
|
|
|
$
|
2,829
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
5.76
|
%
|
|
|
6.11
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
90
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
90
|
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.11
|
%
|
|
|
5.84
|
%
|
Expected long-term return on plan assets
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected Cash Flows
|
|
|
|
|
|
|
|
|
Expected return of assets to employer in next year
|
|
$
|
|
|
|
$
|
|
|
Expected employer contribution for next fiscal year
|
|
|
56
|
|
|
|
265
|
|
Expected benefit payments
|
|
|
|
|
|
|
|
|
Year ending December 31, 2009
|
|
$
|
56
|
|
|
|
|
|
Year ending December 31, 2010
|
|
|
55
|
|
|
|
|
|
Year ending December 31, 2011
|
|
|
54
|
|
|
|
|
|
Year ending December 31, 2012
|
|
|
52
|
|
|
|
|
|
Year ending December 31, 2013
|
|
|
51
|
|
|
|
|
|
Next five years
|
|
|
224
|
|
|
|
|
|
|
|
21.
|
Other
Noninterest Expense
|
Other noninterest expense consisted of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Professional fees
|
|
$
|
2,637
|
|
|
$
|
2,269
|
|
|
$
|
2,593
|
|
Directors fees
|
|
|
438
|
|
|
|
397
|
|
|
|
345
|
|
Insurance and assessments
|
|
|
3,486
|
|
|
|
2,189
|
|
|
|
1,898
|
|
Postage, stationery and supplies
|
|
|
2,114
|
|
|
|
2,252
|
|
|
|
1,251
|
|
Communications
|
|
|
2,203
|
|
|
|
2,007
|
|
|
|
988
|
|
Advertising
|
|
|
2,977
|
|
|
|
2,397
|
|
|
|
1,348
|
|
Foreclosure losses
|
|
|
540
|
|
|
|
227
|
|
|
|
210
|
|
Other operating expense
|
|
|
9,405
|
|
|
|
6,821
|
|
|
|
5,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,800
|
|
|
$
|
18,559
|
|
|
$
|
13,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
Concentrations
of Credit Risk
|
All of the Corporations loans, commitments and standby
letters of credit have been granted to customers in the
Corporations market areas. The concentrations of credit by
type of loan or commitment are set forth in Notes 4 and 17,
respectively.
The Corporation maintains cash balances and federal funds sold
at several financial institutions. At various times throughout
the year, cash balances held at these institutions will exceed
federally insured limits. Superior Banks management
monitors these institutions on a quarterly basis in order to
determine that the institutions meet
well-capitalized guidelines as established by the
FDIC.
|
|
23.
|
Net
(Loss) Income Per Common Share
|
The following table sets forth the computation of basic net
(loss) income per common share and diluted net (loss) income per
common share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
Less preferred dividends
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net (loss) income applicable to common
stockholders
|
|
$
|
(163,461
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding
|
|
|
10,021
|
|
|
|
9,243
|
|
|
|
5,852
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
90
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding, assuming dilution
|
|
|
10,021
|
|
|
|
9,333
|
|
|
|
6,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share is calculated by
dividing net income (loss), less dividend requirements on
outstanding preferred stock, by the weighted-average number of
common shares outstanding for the period.
Diluted net (loss) income per common share takes into
consideration the pro forma dilution assuming certain unvested
restricted stock and unexercised stock option awards were
converted or exercised into common shares. Options on
65,226 shares of common stock were not included in
computing diluted net (loss) per share for the year ended
December 31, 2008, as they are considered anti-dilutive.
128
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The condensed financial information (unaudited) for Superior
Bancorp (Parent Company only) is presented as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Statements of financial condition
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,414
|
|
|
$
|
662
|
|
Investment in subsidiaries
|
|
|
294,377
|
|
|
|
392,865
|
|
Intangibles, net
|
|
|
|
|
|
|
214
|
|
Premises and equipment net
|
|
|
787
|
|
|
|
4,252
|
|
Other assets
|
|
|
18,115
|
|
|
|
20,851
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
314,693
|
|
|
$
|
418,844
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
3,057
|
|
|
$
|
5,558
|
|
Note payable
|
|
|
7,000
|
|
|
|
9,500
|
|
Subordinated debentures
|
|
|
53,397
|
|
|
|
53,744
|
|
Stockholders equity
|
|
|
251,239
|
|
|
|
350,042
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
314,693
|
|
|
$
|
418,844
|
|
|
|
|
|
|
|
|
|
|
129
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
24.
|
Parent
Company (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
4,000
|
|
|
$
|
7,000
|
|
|
$
|
1,750
|
|
Interest
|
|
|
156
|
|
|
|
156
|
|
|
|
116
|
|
Other income
|
|
|
3,160
|
|
|
|
404
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,316
|
|
|
|
7,560
|
|
|
|
2,281
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors fees
|
|
|
293
|
|
|
|
269
|
|
|
|
276
|
|
Salaries and benefits
|
|
|
1,147
|
|
|
|
1,384
|
|
|
|
708
|
|
Occupancy expense
|
|
|
265
|
|
|
|
362
|
|
|
|
512
|
|
Interest expense
|
|
|
4,231
|
|
|
|
4,569
|
|
|
|
3,566
|
|
Other
|
|
|
766
|
|
|
|
2,373
|
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,702
|
|
|
|
8,957
|
|
|
|
5,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in undistributed
earnings of subsidiaries
|
|
|
614
|
|
|
|
(1,397
|
)
|
|
|
(3,667
|
)
|
Income tax benefit
|
|
|
1,948
|
|
|
|
3,513
|
|
|
|
1,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in undistributed (loss) earnings of
subsidiaries
|
|
|
2,562
|
|
|
|
2,116
|
|
|
|
(2,258
|
)
|
Equity in undistributed (loss) earnings of subsidiaries
|
|
|
(165,712
|
)
|
|
|
5,505
|
|
|
|
7,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
24.
|
Parent
Company (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation expense
|
|
|
60
|
|
|
|
184
|
|
|
|
245
|
|
Equity in undistributed loss (earnings) of subsidiaries
|
|
|
165,712
|
|
|
|
(5,505
|
)
|
|
|
(7,255
|
)
|
Other (decrease) increase
|
|
|
(2,079
|
)
|
|
|
(1,120
|
)
|
|
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
543
|
|
|
|
1,180
|
|
|
|
(621
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
(66,550
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of premises and equipment
|
|
|
316
|
|
|
|
339
|
|
|
|
947
|
|
Purchases of premises and equipment
|
|
|
(57
|
)
|
|
|
|
|
|
|
(5
|
)
|
Net cash paid in business combinations
|
|
|
|
|
|
|
(2,527
|
)
|
|
|
(3,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(66,291
|
)
|
|
|
(2,188
|
)
|
|
|
(2,913
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
640
|
|
|
|
992
|
|
Proceeds from issuance of preferred stock
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
Proceeds from note payable
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
2,000
|
|
Principal payment on note payable
|
|
|
(12,500
|
)
|
|
|
(6,045
|
)
|
|
|
(210
|
)
|
Proceeds from issuance of junior subordinated debentures
|
|
|
|
|
|
|
22,680
|
|
|
|
|
|
Principal payment on junior subordinated debentures
|
|
|
|
|
|
|
(16,495
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(10,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
66,500
|
|
|
|
352
|
|
|
|
2,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
752
|
|
|
|
(656
|
)
|
|
|
(752
|
)
|
Cash at beginning of year
|
|
|
662
|
|
|
|
1,318
|
|
|
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
1,414
|
|
|
$
|
662
|
|
|
$
|
1,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
24.
|
Parent
Company (Continued)
|
|
|
25.
|
Selected
Quarterly Results of Operations (Unaudited)
|
A summary of the unaudited results of operations for each
quarter of 2008 and 2007 follows (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
42,552
|
|
|
$
|
42,032
|
|
|
$
|
41,880
|
|
|
$
|
41,424
|
|
Total interest expense
|
|
|
24,060
|
|
|
|
20,644
|
|
|
|
20,254
|
|
|
|
19,645
|
|
Net interest income
|
|
|
18,492
|
|
|
|
21,388
|
|
|
|
21,626
|
|
|
|
21,779
|
|
Provision for loan losses
|
|
|
1,872
|
|
|
|
5,967
|
|
|
|
2,305
|
|
|
|
2,968
|
|
Securities gain (loss)
|
|
|
402
|
|
|
|
1,068
|
|
|
|
(8,541
|
)
|
|
|
(1,382
|
)
|
Changes in fair value of derivatives
|
|
|
1,050
|
|
|
|
(418
|
)
|
|
|
141
|
|
|
|
467
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,306
|
|
Income (loss) before income taxes
|
|
|
957
|
|
|
|
1,151
|
|
|
|
(7,800
|
)
|
|
|
(162,046
|
)
|
Net income (loss)
|
|
|
695
|
|
|
|
841
|
|
|
|
(6,508
|
)
|
|
|
(158,178
|
)
|
Basic net income (loss) per common share
|
|
|
0.07
|
|
|
|
0.08
|
|
|
|
(0.65
|
)
|
|
|
(15.80
|
)
|
Diluted net income (loss) per common share
|
|
|
0.07
|
|
|
|
0.08
|
|
|
|
(0.65
|
)
|
|
|
(15.80
|
)
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
39,744
|
|
|
$
|
40,067
|
|
|
$
|
45,999
|
|
|
$
|
46,120
|
|
Total interest expense
|
|
|
21,710
|
|
|
|
22,554
|
|
|
|
26,093
|
|
|
|
26,410
|
|
Net interest income
|
|
|
18,034
|
|
|
|
17,513
|
|
|
|
19,906
|
|
|
|
19,710
|
|
Provision for loan losses
|
|
|
705
|
|
|
|
1,000
|
|
|
|
1,179
|
|
|
|
1,657
|
|
Securities gains
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Changes in fair value of derivatives
|
|
|
(152
|
)
|
|
|
118
|
|
|
|
202
|
|
|
|
1,141
|
|
Income before income taxes
|
|
|
3,389
|
|
|
|
2,993
|
|
|
|
2,361
|
|
|
|
3,011
|
|
Net income
|
|
|
2,298
|
|
|
|
1,969
|
|
|
|
1,450
|
|
|
|
1,904
|
|
Basic net income per common share
|
|
|
0.27
|
|
|
|
0.23
|
|
|
|
0.15
|
|
|
|
0.19
|
|
Diluted net income per common share
|
|
|
0.26
|
|
|
|
0.23
|
|
|
|
0.15
|
|
|
|
0.19
|
|
Due to the effect of quarterly weighted average share
calculations, the sum of the quarterly net income (loss) per
share amounts may not total to the
year-to-date
net (loss) income per share amounts.
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 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. All of the corporate administrative costs and other
banking activities have been removed from the Alabama Region.
Administrative and other banking activities included the results
of the Corporations investment portfolio, home mortgage
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
132
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Segment
Reporting (Continued)
|
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. 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
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
33,114
|
|
|
$
|
38,151
|
|
|
$
|
71,265
|
|
|
$
|
12,020
|
|
|
$
|
83,285
|
|
Provision for loan losses
|
|
|
4,393
|
|
|
|
3,464
|
|
|
|
7,857
|
|
|
|
5,255
|
|
|
|
13,112
|
|
Noninterest income
|
|
|
7,589
|
|
|
|
1,934
|
|
|
|
9,523
|
|
|
|
7,244
|
|
|
|
16,767
|
|
Noninterest expense
|
|
|
30,654
|
|
|
|
21,730
|
|
|
|
52,384
|
|
|
|
41,988
|
|
|
|
94,372
|
|
Goodwill impairment charge(1)
|
|
|
63,815
|
|
|
|
96,491
|
|
|
|
160,306
|
|
|
|
|
|
|
|
160,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
$
|
(58,159
|
)
|
|
$
|
(81,600
|
)
|
|
$
|
(139,759
|
)
|
|
$
|
(27,979
|
)
|
|
|
(167,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(163,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,062,230
|
|
|
$
|
1,109,011
|
|
|
$
|
2,171,241
|
|
|
$
|
881,460
|
|
|
$
|
3,052,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See Note 1 Intangible
Assets for additional information.
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
36,844
|
|
|
$
|
38,059
|
|
|
$
|
74,903
|
|
|
$
|
259
|
|
|
$
|
75,162
|
|
Provision for loan losses
|
|
|
3,845
|
|
|
|
1,632
|
|
|
|
5,477
|
|
|
|
(936
|
)
|
|
|
4,541
|
|
Noninterest income
|
|
|
7,021
|
|
|
|
1,723
|
|
|
|
8,744
|
|
|
|
10,613
|
|
|
|
19,357
|
|
Noninterest expense
|
|
|
24,924
|
|
|
|
14,702
|
|
|
|
39,626
|
|
|
|
38,597
|
|
|
|
78,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
$
|
15,096
|
|
|
$
|
23,448
|
|
|
$
|
38,544
|
|
|
$
|
(26,789
|
)
|
|
|
11,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,029,652
|
|
|
$
|
1,124,816
|
|
|
$
|
2,154,468
|
|
|
$
|
730,957
|
|
|
$
|
2,885,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
27,369
|
|
|
$
|
25,379
|
|
|
$
|
52,748
|
|
|
$
|
(5,354
|
)
|
|
$
|
47,394
|
|
Provision for loan losses
|
|
|
2,152
|
|
|
|
1,150
|
|
|
|
3,302
|
|
|
|
(802
|
)
|
|
|
2,500
|
|
Noninterest income
|
|
|
4,468
|
|
|
|
1,092
|
|
|
|
5,560
|
|
|
|
6,251
|
|
|
|
11,811
|
|
Noninterest expense
|
|
|
14,064
|
|
|
|
7,156
|
|
|
|
21,220
|
|
|
|
28,565
|
|
|
|
49,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
$
|
15,621
|
|
|
$
|
18,165
|
|
|
$
|
33,786
|
|
|
$
|
(26,866
|
)
|
|
|
6,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
985,423
|
|
|
$
|
862,462
|
|
|
$
|
1,847,885
|
|
|
$
|
593,105
|
|
|
$
|
2,440,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Segment
Reporting (Continued)
|
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 annual 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.
Stock
Repurchase Plan
The Corporation announced in June 2007 that the Board of
Directors had approved the repurchase of up to
250,000 shares of the Corporations outstanding common
stock. During the quarter ended September 30, 2007, the
Corporation purchased 250,000 shares of then outstanding
stock at an average price of $36.88 per share, which have been
recorded, at cost, as treasury stock in the consolidated
statement of financial condition. The shares were purchased in
the open market through negotiated or block transactions and
were not repurchased from the Corporations management team or
other insiders.
The Corporation announced in October 2007 that the Board of
Directors approved the purchase of an additional
250,000 shares of its outstanding common stock beginning on
or after November 2, 2007. During the quarter ended
December 31, 2007, the Corporation purchased
45,500 shares of then outstanding stock at an average price
of $26.44, which have been recorded, at cost, as treasury stock
in the consolidated statement of financial condition. The shares
were purchased in the open market through negotiated or block
transactions. The Corporation did not repurchase any shares from
its management team or other insiders. This stock repurchase
program does not obligate the Corporation to acquire any
specific number of shares and may be suspended or discontinued
at any time.
Issuance
of Preferred Stock and Related Warrant
On December 5, 2008, as part of the Troubled Asset Relief
Program (TARP) Capital Purchase Program, the
Corporation issued and sold, and the United States Department of
the Treasury (the Treasury) purchased,
(i) 69,000 shares (the Preferred Shares)
of the Corporations Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, having a liquidation preference
of $1,000 per share, and (ii) a ten-year warrant (the
Warrant) to purchase up to 1,923,792 shares of
the Corporations voting common stock, par value $0.001 per
share (Common Stock), at an exercise price of $5.38
per share, for an aggregate purchase price of $69,000,000 in
cash. The issuance and sale of these securities was a private
placement exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.
Cumulative dividends on the Preferred Shares will accrue on the
liquidation preference at a rate of 5% per annum for the first
five years, and at a rate of 9% per annum thereafter, but will
be paid only if, as and when declared by the Corporations
Board of Directors. The Preferred Shares have no maturity date
and rank senior to the Common Stock (and pari passu with
the Corporations other authorized series of preferred
stock, of which no shares are currently outstanding) with
respect to the payment of dividends and distributions and
amounts payable upon any liquidation, dissolution and winding up
of the Corporation. Subject to the approval of the Office of
Thrift Supervision, the Preferred Shares are redeemable at the
option of the Corporation at 100% of their liquidation
preference, provided that the Preferred Shares may be redeemed
prior to the first dividend payment date falling after the third
anniversary of the Closing Date (December 5,
2011) only if (i) the Corporation has raised aggregate
gross proceeds in one or more Qualified Equity Offerings (as
defined in the letter agreement, dated December 5, 2008
between the Corporation and the Treasury (including the
Securities Purchase Agreement Standard Terms
134
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
27.
|
Stockholders
Equity (Continued)
|
incorporated by reference therein) (the Purchase
Agreement) and set forth below) in excess of $17,250,000
and (ii) the aggregate redemption price does not exceed the
aggregate net proceeds from such Qualified Equity Offerings.
Notwithstanding the foregoing provisions of the TARP agreements,
the ARRA eliminated most of the restrictions on redemption of
the Preferred Shares. Subject to consultation with the Office of
Thrift Supervision, the Corporation may redeem the Preferred
Shares without regard to any waiting period or whether the
Corporation has participated in a Qualified Equity Offering.
The Treasury may not transfer a portion or portions of the
Warrant with respect to,
and/or
exercise the Warrant for more than one-half of, the
1,923,792 shares of Common Stock issuable upon exercise of
the Warrant, in the aggregate, until the earlier of (i) the
date on which the Corporation has received aggregate gross
proceeds of not less than $69,000,000 from one or more Qualified
Equity Offerings (as defined in the Purchase Agreement and set
forth below) and (ii) December 31, 2009. In the event
the Corporation completes one or more Qualified Equity Offerings
(as defined in the Purchase Agreement and set forth below) on or
prior to December 31, 2009 that result in the Corporation
receiving aggregate gross proceeds of not less than $69,000,000,
the number of the shares of Common Stock underlying the portion
of the Warrant then held by the Treasury will be reduced by
one-half of the shares of Common Stock originally covered by the
Warrant. For the purposes of the foregoing, Qualified
Equity Offering is defined as the sale and issuance for
cash by the Corporation to persons other than the Corporation or
any Corporation subsidiary after the Closing Date of shares of
perpetual Preferred Stock, Common Stock or any combination of
such stock, that, in each case, qualify as and may be included
in Tier I capital of the Corporation at the time of
issuance under the applicable risk-based capital guidelines of
the Corporations federal banking agency (other than any
such sales and issuances made pursuant to agreements or
arrangements entered into, or pursuant to financing plans which
were publicly announced, on or prior to October 13, 2008).
The fair value of the Warrant of $6,093,000 was determined using
the Black-Scholes option-pricing model. The value of the Warrant
is being amortized against retained earnings as part of the
preferred stock dividend until December 5, 2013, which is
the anticipated redemption date. The amortization of the warrant
increases the effective yield on the preferred stock to 7.11%.
135
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
28.
|
Other
Comprehensive Income
|
The components of other comprehensive (loss) income for the
years ended December 31, 2008, 2007, and 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
Income Tax
|
|
|
Net of
|
|
|
|
Amount
|
|
|
Expense
|
|
|
Income Tax
|
|
|
|
(In thousands)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities
|
|
$
|
(16,885
|
)
|
|
$
|
6,203
|
|
|
$
|
(10,682
|
)
|
Less reclassification adjustment for losses realized in net loss
|
|
|
8,453
|
|
|
|
(3,128
|
)
|
|
|
5,325
|
|
Unrealized loss on derivatives
|
|
|
(955
|
)
|
|
|
354
|
|
|
|
(601
|
)
|
Defined benefit pension plan net loss arising during
the period
|
|
|
(3,398
|
)
|
|
|
1,257
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
(12,785
|
)
|
|
$
|
4,686
|
|
|
$
|
(8,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities
|
|
$
|
2,344
|
|
|
$
|
(918
|
)
|
|
$
|
1,426
|
|
Less reclassification adjustment for gains realized in net income
|
|
|
(308
|
)
|
|
|
120
|
|
|
|
(188
|
)
|
Defined benefit pension plan net gain arising during
the period
|
|
|
615
|
|
|
|
(227
|
)
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
2,651
|
|
|
$
|
(1,025
|
)
|
|
$
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities
|
|
|
1,387
|
|
|
|
556
|
|
|
|
831
|
|
Less reclassification adjustment for losses realized in net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
$
|
(39
|
)
|
|
$
|
(16
|
)
|
|
$
|
(23
|
)
|
Defined benefit pension plan net gain arising during
the period
|
|
|
451
|
|
|
|
167
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
1,799
|
|
|
$
|
707
|
|
|
$
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
28.
|
Other
Comprehensive Income (Continued)
|
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
And Procedures
|
Officer
Certifications
Appearing immediately following the Signatures section of this
report are Certifications of our Chief Executive Officer
(CEO) and our Chief Financial Officer, who is our
principal financial officer (PFO). The
Certifications are required to be made by
Rule 13a-14
of 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 should be read in conjunction with the Certifications
for a more complete understanding of the Certifications.
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures to ensure that
material information required to be disclosed in our Exchange
Act reports is made known to the officers who certify our
financial reports and to other members of our senior management
and our Board of Directors.
Based on their evaluation as of December 31, 2008, our CEO
and our PFO have concluded that our disclosure controls and
procedures (as defined in
Rule 13a-l5(e)
under the Securities Exchange Act of 1934) are effective to
ensure that the information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and
that such information is accumulated and communicated to our
management as appropriate to allow timely decisions regarding
required disclosures.
All internal controls systems, no matter how well designed, have
inherent limitations and may not prevent or detect misstatements
in our financial statements, including the possibility of
circumvention or overriding of controls. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Under the supervision
and with the participation of our management, including our CEO
and our PFO, our management conducted an evaluation of the
effectiveness of internal control over financial reporting based
on the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission, as of December 31, 2008. Based on
this evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2008. Grant Thornton LLP, the
independent registered public accounting firm that audited our
financial statements included in this Annual Report on
Form 10-K,
has issued an audit report on the effectiveness of Superior
Bancorps internal control over financial reporting as of
December 31, 2008. The report is included in this item
under the heading Report of Independent Registered Public
Accounting Firm.
137
Report of
Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Superior Bancorp
We have audited Superior Bancorps (a Delaware corporation)
internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Superior Bancorps management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on Superior Bancorps internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Superior Bancorp maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of Superior
Bancorp and subsidiaries as of December 31, 2008 and 2007,
and the related consolidated statements of operations, changes
in stockholders equity and cash flows for the years then
ended, and our report dated March 16, 2009, expressed an
unqualified opinion.
Raleigh, North Carolina
March 16, 2009
138
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Items 10,
11, 12, 13 and 14.
|
Directors,
Executive Officers and Corporate Governance; Executive
Compensation; Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters; Certain
Relationships and Related Transactions, and Director
Independence; and Principal Accountant Fees and
Services.
|
The information set forth under the captions Security
Ownership of Certain Beneficial Owners and Management,
Nominees for Director, Executive
Officers, Certain Information Concerning the Board
of Directors and Its Committees, Stockholder
Communications with the Board, Director
Compensation, Code of Ethics,
Section 16(a) Beneficial Ownership Reporting
Compliance, Executive Compensation and Other
Information, Ratification of Selection of
Independent Public Accounting Firm included in our
definitive proxy statement to be filed no later than
April 30, 2009, in connection with our 2009 Annual Meeting
of Stockholders is incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) Financial Statements and Financial Schedules.
|
|
|
|
(l)
|
The consolidated financial statements of Superior Bancorp and
its subsidiaries filed as a part of this Annual Report on
Form 10-K
are listed in Item 8 of this Annual Report on
Form 10-K,
which is hereby incorporated by reference herein.
|
|
|
|
|
(2)
|
All schedules to the consolidated financial statements of
Superior Bancorp and its subsidiaries have been omitted because
they are not required under the related instructions or are
inapplicable, or because the required information has been
provided in the consolidated financial statements or the notes
thereto.
|
(b) Exhibits.
The exhibits required by
Regulation S-K
are set forth in the following list and are filed either by
incorporation by reference from previous filings with the
Securities and Exchange Commission or by attachment to this
Annual Report on
Form 10-K
as indicated below. Prior to May 2006, Superior Bancorp was
named The Banc Corporation. Many of the following
exhibits accordingly reference The Banc Corporation.
|
|
|
(3)-l
|
|
Restated Certificate of Incorporation of Superior Bancorp, filed
as Exhibit 3 to Superior Bancorps Current Report on Form
8-K dated April 28, 2008, is hereby incorporated herein by
reference.
|
(3)-2
|
|
Bylaws of Superior Bancorp, filed as Exhibit 3 to Superior
Bancorps Current Report on Form 8-K dated November 20,
2007, is hereby incorporated herein by reference.
|
(3)-3
|
|
Certificate of Designations of Superior Bancorp Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, filed as Exhibit
3 to Superior Bancorps Current Report on Form 8-K dated
November 26, 2008, is hereby incorporated herein by reference.
|
139
|
|
|
(4)-1
|
|
Amended and Restated Declaration of Trust, dated as of September
7, 2000, by and among State Street Bank and Trust Company of
Connecticut, National Association, as Institutional Trustee, The
Banc Corporation, as Sponsor, David R. Carter and James A.
Taylor, Jr., as Administrators, filed as
Exhibit(4)-l
to The Banc Corporations Annual Report on Form 10-K for
the year ended December 3l, 2000, is hereby incorporated
herein by reference.
|
(4)-2
|
|
Guarantee Agreement, dated as of September 7, 2000, by and
between The Banc Corporation and State Street Bank and Trust
Company of Connecticut, National Association, filed as
Exhibit(4)-2 to The Banc Corporations Annual Report on
Form 10-K for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
(4)-3
|
|
Indenture, dated as of September 7, 2000, by and among The Banc
Corporation as issuer and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee, filed as
Exhibit(4)-3 to The Banc Corporations Annual Report on
Form 10-K for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
(4)-4
|
|
Placement Agreement, dated as of August 31, 2000, by and among
The Banc Corporation, TBC Capital Statutory Trust II, Keefe
Bruyette & Woods, Inc., and First Tennessee Capital
Markets, filed as Exhibit(4)-4 to The Banc Corporations
Annual Report on Form 10-K for the year ended December 31, 2000,
is hereby incorporated herein by reference.
|
(4)-5
|
|
Amended and Restated Declaration of Trust, dated as of July 16,
2001, by and among The Banc Corporation, The Bank of New York,
David R. Carter, and James A. Taylor, Jr. filed as Exhibit(4)-5
to The Banc Corporations Registration Statement on Form
S-4 (Registration No. 333-69734) is hereby incorporated herein
by reference.
|
(4)-6
|
|
Guarantee Agreement, dated as of July 16, 2001, by The Banc
Corporation and The Bank of New York filed as Exhibit(4)-6 to
The Banc Corporations Registration Statement on Form S-4
(Registration No. 333-69734) is hereby incorporated herein by
reference.
|
(4)-7
|
|
Indenture, dated as of July 16, 2001, by The Banc Corporation
and The Bank of New York filed as Exhibit #(4)-7 to The Banc
Corporations Registration Statement on Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
(4)-8
|
|
Placement Agreement, dated as of June 28, 2001, among TBC
Capital Statutory Trust III, and The Banc Corporation and
Sandler ONeill & Partners, L.P. filed as Exhibit
#(4)-8 to The Banc Corporations Registration Statement on
Form S-4 (Registration No. 333-69734) is hereby incorporated
herein by reference.
|
(4)-9
|
|
Indenture, dated March 23, 2000, by and between Community
Bancshares, Inc. and The Bank of New York filed as Exhibit 4.4
to Community Bancshares Form 10-Q for the quarter ended
March 31, 2000, is hereby incorporated herein by reference.
|
(4)-10
|
|
Amended and Restated Declaration of Trust, dated March 23, 2000,
by and among The Bank of New York (Delaware), The Bank of New
York, Community Bancshares, Inc. and Community (AL) Capital
Trust I filed as Exhibit 10.1 to Community Bancshares Form
10-Q for the quarter ended March 31, 2000, is hereby
incorporated herein by reference.
|
(4)-11
|
|
Guarantee Agreement, dated March 23, 2000, by and between
Community Bancshares, Inc. and The Bank of New York filed as
Exhibit 10.2 to Community Bancshares Form 10-Q for the
quarter ended March 31, 2000, is hereby incorporated herein by
reference.
|
(4)-12
|
|
Stock Purchase Agreement, dated January 24, 2005, between The
Banc Corporation and the investors named therein, filed as
Exhibit 4-1 to The Banc Corporations Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated herein
by reference.
|
(4)-13
|
|
Registration Rights Agreement, dated January 24, 2005, between
The Banc Corporation and the investors named therein, filed as
Exhibit 4-2 to The Banc Corporations Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated herein
by reference.
|
(4)-14
|
|
Indenture, dated as of December 15, 2005, by and between Peoples
Community Bancshares, Inc. and Wilmington Trust Company, filed
as Exhibit 4.14 to Superior Bancorps Annual Report on Form
10-K for the fiscal year ended December 31, 2007, is hereby
incorporated herein by reference.
|
140
|
|
|
(4)-15
|
|
Placement Agreement, dated as of December 7, 2005, by and among
Peoples Community Bancshares, Inc., Peoples Community Statutory
Trust I, FTN Financial Capital Markets and Keefe, Bruyette
& Woods, Inc, filed as Exhibit 4.15 to Superior
Bancorps Annual Report on Form 10-K for the fiscal year
ended December 31, 2007, is hereby incorporated herein by
reference .
|
(4)-16
|
|
Guarantee Agreement, dated as of December 15, 2005, by and
between Peoples Community Bancshares, Inc. and Wilmington Trust
Company, filed as Exhibit 4.16 to Superior Bancorps Annual
Report on Form 10-K for the fiscal year ended December 31, 2007,
is hereby incorporated herein by reference.
|
(4)-17
|
|
Amended and Restated Declaration of Trust, dated as of December
15, 2005, by and among Wilmington Trust Company, Peoples
Community Bancshares, Inc., Neil D. McCurry, Jr. and Dorothy S.
Barth, filed as Exhibit 4.17 to Superior Bancorps Annual
Report on Form 10-K for the fiscal year ended December 31, 2007,
is hereby incorporated herein by reference.
|
(4)-18
|
|
Declaration of Trust, dated July 10, 2007, by and among Superior
Bancorp, Wilmington Trust Company, Mark A. Tarnakow, William H.
Caughran and Rick D. Gardner filed as Exhibit 4.01 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, is hereby incorporated herein by
reference.
|
(4)-19
|
|
Indenture, dated as of July 19, 2007, between Superior Bancorp
and Wilmington Trust Company filed as Exhibit 4.02 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, is hereby incorporated herein by
reference.
|
(4)-20
|
|
Guarantee Agreement, dated as of July 19, 2007, between Superior
Bancorp and Wilmington Trust Company filed as Exhibit 4.03 to
Superior Bancorps Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007, is hereby incorporated herein
by reference.
|
(4)-21
|
|
Placement Agreement, dated July 18, 2007, by and among Superior
Bancorp, FTN Capital Markets and Keefe, Bruyette & Woods,
Inc. filed as Exhibit 4.04 to Superior Bancorps Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007, is hereby incorporated
herein by reference.
|
(4)-22
|
|
Summary Description of Non-Employee Directors Stock Plan., filed
as Exhibit 4 to Superior Bancorps Registration Statement
on Form S-8, dated May 30, 2006 (Registration No. 333-134561),
is hereby incorporated herein by reference.
|
(10)-1*
|
|
Third Amended and Restated 1998 Stock Incentive Plan of The Banc
Corporation, filed as
Exhibit (10)-1
to The Banc Corporations Annual Report on Form 10-K for
the fiscal year ended December 31, 2005, is hereby incorporated
herein by reference.
|
(10)-2*
|
|
Commerce Bank of Alabama Incentive Stock Compensation Plan,
filed as Exhibit(4)-3 to The Banc Corporations
Registration Statement on Form S-8, dated February 22, 1999
(Registration No. 333-72747), is hereby incorporated herein by
reference.
|
(10)-3*
|
|
Employment Agreement, dated January 24, 2005, by and between The
Banc Corporation, The Bank and C. Stanley Bailey, filed as
Exhibit 10-5 to The Banc Corporations Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated herein
by reference.
|
(10)-4*
|
|
Employment Agreement, dated January 24, 2005, by and between The
Banc Corporation, The Bank and C. Marvin Scott, filed as Exhibit
10-6 to The Banc Corporations Current Report on Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
(10)-5*
|
|
Employment Agreement, dated January 24, 2005, by and between The
Banc Corporation, The Bank and Rick D. Gardner, filed as Exhibit
10-7 to The Banc Corporations Current Report on Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
(10)-6*
|
|
Agreement between Superior Bank and William H. Caughran, dated
August 31, 2006, filed as Exhibit 10.4 to Amendment No. 1 to
Superior Bancorps Registration Statement on Form S-4
(Registration No. 333-136419) is hereby incorporated herein by
reference.
|
(10)-7*
|
|
Management Incentive Compensation Plan, filed as Exhibit 10.1 to
The Banc Corporations Current Report on Form 8-K, dated
April 26, 2005, is hereby incorporated herein by reference.
|
(10)-8*
|
|
Change in Control Agreement, dated March 10, 2008, by and among
Superior Bancorp, Superior Bank and William H. Caughran, filed
as Exhibit 10.22 to Superior Bancorps Annual Report on
Form 10-K for the fiscal year ended December 31, 2007, is hereby
incorporated herein by reference.
|
141
|
|
|
(10)-9
|
|
Loan Agreement, dated as of September 4, 2008, between Superior
Bancorp and Colonial Bank, filed as Exhibit 10.1 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-10
|
|
Revolving Credit Note, dated September 4, 2008, between Superior
Bancorp and Colonial Bank,, filed as Exhibit 10.2 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-11
|
|
Stock Pledge Agreement, dated as of September 4, 2008, given by
Superior Bancorp, filed as Exhibit 10.3 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-12
|
|
Agreement to Purchase Subordinated Notes, dated as of September
17, 2008, by and among Superior Bank, Superior Bancorp and
Durden Enterprises, LLC, filed as Exhibit 10.4 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-13
|
|
Letter to Durden Enterprises, LLC, dated as of September 17,
2008, filed as Exhibit 10.5 to Superior Bancorps Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008, is
hereby incorporated herein by reference.
|
(10)-14
|
|
9.5% Subordinated Note Due September 15, 2018 given by
Superior Bank, filed as Exhibit 10.6 to Superior Bancorps
Quarterly Report on Form 10-Q for the quarter ended September
30, 2008, is hereby incorporated herein by reference.
|
(10)-15
|
|
Warrant to Purchase Common Stock of Superior Bancorp dated as of
September 17, 2008, filed as Exhibit 10.7 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-16*
|
|
Agreement, dated as of September 8, 2008, between Superior
Bancorp and James A. White, filed as Exhibit 10.8 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-17*
|
|
Change in Control Agreement, dated as of September 8, 2008, by
and among Superior Bancorp, Superior Bank and James A. White,
filed as Exhibit 10.8 to Superior Bancorps Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008, is
hereby incorporated herein by reference.
|
(10)-18
|
|
Warrant, dated December 5, 2008, to purchase up to
1,923,792 shares of common stock of Superior Bancorp, filed
as Exhibit 3 to Superior Bancorps Current Report on Form
8-K dated December 5, 2008, is hereby incorporated herein by
reference.
|
(10)-19
|
|
Letter Agreement, dated December 5, 2008, including Securities
Purchase Agreement Standard Terms incorporated
by reference therein, between the Company and the United States
Department of the Treasury, filed as Exhibit 10.1 to Superior
Bancorps Current Report on Form 8-K dated December 5,
2008, is hereby incorporated herein by reference.
|
(10)-20
|
|
Form of Waiver, executed as of December 5, 2008, by each of the
Senior Executive Officers of Superior Bancorp, filed as Exhibit
10.2 to Superior Bancorps Current Report on Form 8-K dated
December 5, 2008, is hereby incorporated herein by reference.
|
(10)-21
|
|
Form of Letter Agreement, executed as of December 5, 2008, by
each of the Senior Executive Officers of Superior Bancorp, filed
as Exhibit 10.3 to Superior Bancorps Current Report on
Form 8-K dated December 5, 2008, is hereby incorporated herein
by reference.
|
(10)-22*
|
|
Superior Bancorp 2008 Incentive Compensation Plan, filed as
Exhibit 10.1 to Superior Bancorps Quarterly Report on Form
10-Q for the quarter ended June 30, 2008, is hereby incorporated
herein by reference.
|
(10)-23*
|
|
Amended and Restated Employment Agreement, dated December 29,
2008, between Superior Bancorp and C. Stanley Bailey.
|
(10)-24*
|
|
Amended and Restated Employment Agreement, dated December 29,
2008, between Superior Bancorp and C. Marvin Scott.
|
(10)-25*
|
|
Amended and Restated Employment Agreement, dated December 29,
2008, between Superior Bancorp and Rick D. Gardner.
|
(10)-26*
|
|
Amendment to Third Amended and Restated 1998 Stock Incentive
Plan of The Banc Corporation
|
(10)-27*
|
|
Agreement, dated as of January 1, 2006, between The Banc
Corporation and James Mailon Kent, Jr.
|
142
|
|
|
(10)-28*
|
|
Amendment to Agreement, dated as of November 3, 2008, between
Superior Bancorp and James Mailon Kent, Jr.
|
(21)
|
|
Subsidiaries of Superior Bancorp.
|
(23)-1
|
|
Consent of Grant Thornton, LLP.
|
(23)-2
|
|
Consent of Carr, Riggs & Ingram, LLC.
|
(31)
|
|
Certifications of Chief Executive Officer and Principal
Financial Officer pursuant to Rule 13a-14(a).
|
(32)
|
|
Certifications of Chief Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350.
|
|
|
|
* |
|
Compensatory plan or arrangement |
|
(c) |
|
Financial Statement Schedules. |
The Financial Statement Schedules required to be filed with this
Annual Report on
Form 10-K
are listed under Financial Statement Schedules in
Part IV, Item 15(a)(2) of this Annual Report on
Form 10-K,
and are incorporated herein by reference.
143
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
C. Stanley Bailey
Chief Executive Officer
March 16, 2009
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints C. Stanley Bailey and
James A. White, and each of them, the true and lawful agents and
his attorneys-in-fact with full power and authority in either of
said agents and attorneys-in-fact, acting singly, to sign for
the undersigned as Director or an officer of the Corporation, or
as both, the Corporations 2008 Annual Report on
Form 10-K
to be filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Exchange Act of 1934,
and to sign any amendment or amendments to such Annual Report,
including an Annual Report pursuant to
11-K to be
filed as an amendment to the
Form 10-K;
hereby ratifying and confirming all acts taken by such agents
and attorneys-in-fact as herein authorized.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ C.
Stanley
Bailey C.
Stanley Bailey
|
|
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer) and Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ James
A.
White James
A. White
|
|
Chief Financial Officer (Principal Financial Officer)
|
|
March 16, 2009
|
|
|
|
|
|
/s/ James
C.
Gossett James
C. Gossett
|
|
Chief Accounting Officer (Principal Accounting Officer)
|
|
March 16, 2009
|
|
|
|
|
|
/s/ Roger
Barker Roger
Barker
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ Rick
D.
Gardner Rick
D. Gardner
|
|
Director and Chief Operating Officer
|
|
March 16, 2009
|
|
|
|
|
|
/s/ Thomas
E. Jernigan,
Jr. Thomas
E. Jernigan, Jr.
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ James
Mailon Kent,
Jr. James
Mailon Kent, Jr.
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ Mark
A.
Lee Mark
A. Lee
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ James
M.
Link James
M. Link
|
|
Director
|
|
March 16, 2009
|
144
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Peter
L.
Lowe Peter
L. Lowe
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ John
C.
Metz John
C. Metz
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ D.
Dewey
Mitchell D.
Dewey Mitchell
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ Barry
Morton Barry
Morton
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ Robert
R. Parrish,
Jr. Robert
R. Parrish, Jr.
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ Charles
W.
Roberts, III Charles
W. Roberts, III
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ C.
Marvin
Scott C.
Marvin Scott
|
|
Director and President
|
|
March 16, 2009
|
|
|
|
|
|
/s/ James
C. White,
Sr. James
C. White, Sr.
|
|
Director
|
|
March 16, 2009
|
145